[Congressional Record (Bound Edition), Volume 149 (2003), Part 12]
[House]
[Pages 16513-16594]
[From the U.S. Government Publishing Office, www.gpo.gov]




        MEDICARE PRESCRIPTION DRUG AND MODERNIZATION ACT OF 2003

  The SPEAKER pro tempore. The gentleman from Michigan (Mr. Dingell) is 
recognized.
  Mr. DINGELL. Mr. Speaker, I yield the balance of my time to the 
distinguished gentleman from Arkansas (Mr. Berry).
  The SPEAKER pro tempore. The gentleman from Arkansas is recognized 
for 2 minutes.
  Mr. BERRY. Mr. Speaker, we are here this evening on a very serious 
matter. It can literally mean life or death for many of our elderly 
citizens. Our great Nation was founded, and has so far been successful, 
based on the self-evident truth in the Declaration of Independence that 
all men are created equal. They are endowed by their Creator with 
certain inalienable rights, and that among these are life, liberty, and 
the pursuit of happiness.
  Mr. Speaker, these founding truths were followed by a firm commitment 
from our Founding Fathers, the last sentence in the Declaration of 
Independence. It says: In support of this declaration, with a firm 
reliance on the protection of Divine Providence, we mutually pledge to 
each other our lives, our fortunes, and our sacred honor.
  Mr. Speaker, I think that those men would be heartbroken to see what 
happens here this evening. As I said earlier, the Republicans are in 
charge. We recognize that. You can do what you want to do. You do, and 
I give you credit, for publicly acknowledging that you want to destroy 
Medicare. You do, and I give you credit, for some of your leaders 
publicly acknowledging that you would put us into bankruptcy just so we 
can make the government smaller, so we can do away with certain social 
programs that you do not like. And I give you credit for that. In fact, 
I think some of you, and I have seen it, have publicly proclaimed you 
are proud of it.
  My dilemma is, why would you want to do what you are trying to do 
tonight to the greatest generation, the men and women that went through 
the Depression, fought World War II, and then built this great Nation 
into what it is today and turned it over to my generation?
  I had a cute little remark in there, but I am not going to use it 
because I think this is far too serious, this business we take up this 
evening. A government should not make poor people poorer, rich people 
richer. It should not create a situation where no one has to be 
responsible, and it should not make it possible for a person or group 
of persons to be able to take advantage of others because of an act of 
that government.
  If you do what you are talking about doing, you will make that exact 
thing possible. You will make it possible for insurance companies and 
pharmaceutical companies to rob the senior citizens of this country.
  The SPEAKER pro tempore. The gentlewoman from Connecticut (Mrs. 
Johnson) is recognized.
  Mrs. JOHNSON of Connecticut. Mr. Speaker, I yield the balance of my 
time to the gentleman from Texas (Mr. DeLay), the majority leader.
  Mr. DeLAY. Mr. Speaker, I want to commend all those that have worked 
so hard on probably the most important issue that most of us will vote 
on in our career. There is very few times that you are going to have a 
vote like this.

                              {time}  0030

  Mr. Speaker, the gentleman from California (Mr. Thomas), the 
gentlewoman from Connecticut (Mrs. Johnson), the gentleman from 
Louisiana (Mr. Tauzin), the members of the Committee on Ways and Means, 
members of the Committee on Energy and Commerce, Members know this is 
incredibly important. The future of our seniors, the future of our 
children are at stake.
  Yogi Berra said when you reach a fork in the road, take it. That is 
sort of

[[Page 16514]]

where we are tonight, at that fork in the road. Many of us want to take 
it because we know, we have witnessed Medicare being a system at the 
present time that is a disaster waiting to happen.
  We are spending $267-plus billion a year on Medicare. Payroll taxes 
only pay 57 percent of that, general revenue and other taxes pay 30 
percent, and premiums pay 10 percent. In less than 20 years, the 
payroll taxes will only cover 30 percent, the rest will come from our 
children and their incomes. That is on top of the fact that there is 
over $13 trillion in unfunded liability. In just 5 years, we will be 
spending over $400 billion per year on Medicare. Now some on my side of 
the aisle think $400 billion is a lot of money over 10 years, and 
giving this benefit is really expensive.
  But at the same time what are we getting for this system that has 
been designed to bankrupt this country? What we are getting is doctors 
refusing to take seniors as patients. We have hospitals closing. We 
have costs escalating through the roof. Medicare is driving other 
health care costs through the roof. Seniors are having to make spending 
decisions based upon the cost of their health care or their drugs. This 
is the system they want to preserve. This is the system that they want 
to see continue. But many of us, both Democrats and Republicans, think 
that this is a time that we have an incredible opportunity.
  I came here to make a difference; and, frankly, since this Republican 
House has been in the majority we have made an incredible difference. 
Some Members wanted to preserve the old welfare system. We reformed 
welfare. Some of our Members have commented over the last few days that 
entitlements are forever. No, they are not. Welfare was an entitlement, 
and we changed it. We stood up and led and took the responsibility to 
do so. Tax relief, tax reform, paying down the debt, not one time in 40 
years did the other side of the aisle balance the budget, we did. They 
spent 40 years driving up the debt on our children, we paid over $550 
billion on that debt.
  So what are we faced with on this road that forks? What is the 
solution? The Democrats have offered their solution, and I say to 
Members, we get a glimpse of the future. I hope Members watched the 
debate on their substitute because that is a glimpse of the future if 
this bill does not pass.
  Let me tell Members what people have said about their substitute. 
According to Tom Saving, who is a current Medicare trustee, the 
Democrat plan would lead to Medicare consuming not only all of the 
Medicare payroll taxes, but also more than 54 percent of all Federal 
income taxes by the year 2040 and over 90 percent of all Federal income 
taxes by the year 2075. They want to continue the plan. The Democrat 
plan would add between $18 trillion and $30 trillion in unfunded 
liabilities to the Federal Government's balance sheet. They want to 
preserve Medicare, and that is what it would be.
  Now what is the Senate's solution? More of the same. The Senate is 
writing a bill over there that Senator Kennedy is very proud of. Well, 
the Senate has got to do what it has got to do.
  What is our solution? It has been talked about over and over again, 
but what we are desperately trying to do is bend that growth curve and 
get a handle on this and still bring good quality health care to our 
senior citizens by bringing market forces into play, by addressing the 
third party payment problem through copayments, deductibles and so 
forth, but give seniors the right to choose the type of health care 
that they think is best suited for their needs, not what some 
government program tells them is going to suit their needs.
  We want to start us down that fork to make Medicare a viable, 
reliable program for generations to come. I just ask my colleagues and 
Democrats to vote no. What is the alternative if this bill does not 
pass tonight? What is the alternative? I do not know the answer to that 
question. I have asked that question for the 6 months that we have been 
working on this piece of legislation. I do not know what the 
alternative is, but I do know we have an opportunity.
  Mr. Speaker, sometimes things are not the way you want them to be. 
Sometimes a bill does not have quite as many reforms as Members want. 
This bill does not have as many reforms as I would like to see, but it 
is starting us on a different path, a path of fiscal responsibility, a 
path that provides quality health care to our seniors, provides them 
choice.
  A study was just done. They claim that all these private plans will 
not work. Our own plan, FEHBP, has been growing at a slower rate than 
the Medicare plan. That ought to tell Members something, when there is 
competitiveness in the process, costs are held down and quality is 
increased.
  Let me tell Members, this is the beginning of something that we can 
be proud of. It may not be the end. We may have to change it down the 
line, but we need the opportunity to move this forward so we can 
provide a future for our children that brings sanity to this process. 
That is why we came here, to bring sanity to this process. I urge all 
Members on both sides of the aisle to join us because Medicare is too 
important for partisan politics.
  Mr. Speaker, the American people have asked us for this. They sent us 
here to do this, and they deserve this approach. It is the right thing 
to do. It is the right time to do it, and if we fail to act now, we may 
never have another chance to make it right. The American people have 
given us this opportunity to lead; and in leadership, responsibility 
has to be there. We are ready to stand up and lead, and it is our job 
to seize that opportunity today. I just ask Members, I implore Members 
to vote yes for Medicare, vote yes for our seniors, vote yes for this 
bill.
  Mr. STARK. Mr. Speaker, I yield the balance of my time to the 
gentlewoman from California (Ms. Pelosi), the minority leader.
  Ms. PELOSI. Mr. Speaker, the distinguished majority leader who just 
spoke said something that I agree with. He said that this issue that we 
are voting on tonight is probably one of the most important issues we 
will vote on in our career. Mr. Leader, I quite agree.
  Mr. Speaker, that is why it is hard to understand why we are taking 
up this debate in the dark of night when the Senate has taken up the 
bill for 2 weeks with the consideration of 30 amendments, to have a 
free and open exchange of ideas about this most important issue in our 
careers. And when the bill was sent to the floor in this House of 
Representatives for this most important issue, no amendments were 
allowed. Why were they not allowed, because of the fear that they might 
have passed and improved this Republican bill on the floor which 
dishonors the seniors that it pretends to support and dishonors the 
people who sent us to this House of Representatives by not allowing 
their amendments to be heard on this floor.
  My leadership role afforded me the opportunity to speak at some 
length earlier about my concerns about the Republican bill and my 
preference for the Democratic bill. I had only intended to take one 
moment to close, but after hearing my colleagues talk about fiscal 
responsibility, I cannot resist the opportunity to state the facts 
because it is one of the mysteries of this floor, that Members can come 
to the floor and misrepresent the facts, and that is in order, but to 
call them on it is out of order. But I am going to take that risk.
  The fact is that under the Clinton administration and the legislation 
passed in this House with 100 percent of the Democratic votes and not 
one Republican vote, coming out of the Clinton years we were on a path 
of $5.6 trillion in surplus, in surplus. In the 2\1/2\ years in the 
Bush administration, we are now on a path going to $3 trillion in 
deficit, a swing of over $8 trillion onto the national debt, and they 
call that fiscally sound, as they give away huge tax cuts to the 
200,000 wealthiest families in America, and many of us in this room are 
part of that and would benefit, but not in the enlightened self-
interest of this country. But for that same money, every senior citizen 
in America could have a real, guaranteed, defined prescription drug 
benefit.

[[Page 16515]]

  Mr. Speaker, I want to make two more points. We have had some debate; 
unfortunately, none of our amendments were we allowed to bring to the 
floor. It is late, and we usually do these things in the dark of night 
so the American people cannot see and cannot have the bright light of 
day on the debate on this floor to see what is happening to them and to 
their futures.

                              {time}  0045

  But I want to make just two points about the bills. The Democratic 
bill is a defined guaranteed benefit under Medicare. The Republican 
bill is not. I heard the distinguished chairman of the Committee on the 
Budget speak about the cost of the Democratic bill. The Democratic bill 
cost would be in half if the Republicans would allow the Secretary of 
HHS to negotiate for best prices. That provision is in the Democratic 
bill. It makes sense, right? Forty million seniors, lots of purchasing 
power, lots of leverage. It makes sense. Not to the Republicans. Their 
bill has a prohibition on the Secretary negotiating for best prices. A 
prohibition.
  I think there are many questions about the Republican bill. It is 
very complex. But as seniors look at it and they ask those questions, I 
think there is one question that every American should have: Why do the 
Republicans have a prohibition on the Secretary negotiating for the 
best possible price, reducing the cost of prescription drugs to seniors 
and to the American taxpayer? Why? I will tell you why. Because tonight 
we have a debate between the special interests and the public interest. 
The Democrats have come to this floor as servants of the people. The 
Republicans have come to this floor as handmaidens of the prescription 
drug industry.
  I urge my colleagues to support this amendment and oppose the 
Republican bill.
  Mr. TAUZIN. Mr. Speaker, in order to close this historic debate, I 
yield the balance of my time to the gentleman from Illinois (Mr. 
Hastert), the distinguished Speaker of our whole House.
  Mr. HASTERT. Mr. Speaker, the hour is late. We have had a lot of 
rhetoric. We have had a lot of flailing of arms and pointing fingers 
across the aisle. It is time for us to come to a reasoned decision. It 
is time for us to look at all the debate that we have had, to look at 
the facts. I guess I could be suckered into a debate about fiscal 
responsibility over the past years, votes we have had and votes we did 
not have. But the fact is we have a very important bill on the floor of 
this House tonight, a bill that probably will reach into every American 
household and give people decisions and benefits on how they are going 
to take care of their mothers and their fathers and the elderly people 
that they hold dear.
  I want to salute those folks who worked hard on both sides of the 
aisle to carry on this debate. I thank the gentleman from California 
(Mr. Thomas) and the gentleman from Louisiana (Mr. Tauzin). I am 
grateful for their hard work. I have worked on health care issues in 
this Congress for more than a decade. When you compare me to the great 
gentleman from Michigan, that is probably not very much time. But Bob 
Michel put me on Mrs. Clinton's health care task force back in 1993 and 
Newt Gingrich asked me to deal with the issue of health insurance 
portability in 1995 and we did that. In every Congress that I have 
presided as Speaker, this House has passed a prescription drug benefit 
as part of an effort to modernize Medicare. Today, we have a chance to 
take a most dramatic step in health care reform, the most dramatic step 
we have taken in 25 years.
  Some of my friends on the other side of the aisle say that we do not 
spend enough. That is not surprising, because they think that $1 
trillion over $400 billion is better over a 10-year period of time. 
Some of my friends on this side of the aisle believe we spend too much. 
That is not surprising, either, given their philosophical beliefs. But 
this bill spends what we can afford to spend. We cannot afford to 
ignore this issue this year. We on both sides of the aisle have held 
out a promise to America's seniors that we will give them an 
opportunity to have a prescription drug benefit and a new modern 
Medicare. Ladies and gentlemen, we hold out this promise. Tonight is 
the night that we have an opportunity to fulfill that promise.
  In a sense, this is the best of times and the worst of times when it 
comes to health care in this country. We have the finest doctors. We 
have the best hospitals. We have people who are uninsured. But we also 
have the cutting-edge issues and lifesaving prescription drugs. We also 
have skyrocketing costs. And we have too many people who are uninsured. 
And we have drugs that for some folks are just too expensive. Last 
week, we passed legislation to deal with the uninsured when we passed 
association health plans. Today we deal with the cost issues of health 
care. Earlier today we passed a health savings account bill which puts 
the consumer in the driver's seat in driving down costs. And now, in 
this bill, we make Medicare work better for senior citizens. A Medicare 
program that does not include a prescription drug benefit is not 
serving America's seniors well.
  When Medicare was first conceived in the 1960s, it was at its heart a 
program with the costs of going to hospitals and going to doctors. Back 
then, prescription drugs were not used to the extent they are today. 
You got an aspirin once in a while, but they just did not play the role 
they play today. Today because of advancements made over the last 30 
years and the R&D we have done in this country, we have drugs that help 
us stay out of the hospital, we have drugs to help with cholesterol, we 
have drugs that help us with diabetes, with arthritis, with high blood 
pressure, on and on and on. And there are lifesaving drugs.
  Seniors should have better access at a better price to these drugs 
through the Medicare system. This bill makes that happen. It will cut 
drug costs by an average of 37 percent for the average senior. It also 
includes catastrophic coverage so that no senior with high drug costs 
will be forced into bankruptcy. This is a compassionate program for 
senior citizens.
  This bill also includes conservative reforms to make sure that 
Medicare stays solvent. We cannot allow the Medicare system to continue 
to grow so large that it actually bankrupts this country. We must 
introduce market-based reforms that lead to greater choices for seniors 
and greater competition among providers. I agree with the proposition 
that an 80-year-old grandmother should not be forced into a PPO simply 
because she gets a prescription drug benefit. But I also agree that a 
50-year-old father who has health care choices throughout his whole 
working career will feel comfortable shopping around for the best 
health care plan for his individual needs when he qualifies for 
Medicare. Competition, choice, the marketplace, these are the concepts 
which will save Medicare for the coming decades.
  Mr. Speaker, I urge my colleagues on both sides of the aisle to 
support this bill. This is a defining moment for this Congress. It is 
too late for obstruction. It is too late for nit-picking. It is too 
late for all the lame excuses that we often hear. Senior citizens will 
long remember if you voted for them today, but they will never forget 
if you voted against them.
  Ladies and gentlemen, not many times in this great hall do we have a 
piece of legislation when all the forces come together and we have an 
opportunity to make real change. We have that opportunity tonight. I 
ask you to vote to provide senior citizens with a better Medicare 
system and a real prescription drug benefit.
  The SPEAKER pro tempore (Mr. Hastings of Washington). All time for 
debate has expired.
  Pursuant to House Resolution 299, the previous question is ordered on 
the bill and on the amendment in the nature of a substitute offered by 
the gentleman from New York (Mr. Rangel).
  The question is on the amendment in the nature of a substitute 
offered by the gentleman from New York (Mr. Rangel).
  The question was taken; and the Speaker pro tempore announced that 
the noes appeared to have it.


                             Recorded Vote

  Mr. RANGEL. Mr. Speaker, I demand a recorded vote.

[[Page 16516]]

  A recorded vote was ordered.
  The vote was taken by electronic device, and there were--ayes 175, 
noes 255, answered ``present'' 1, not voting 4, as follows:

                             [Roll No. 330]

                               AYES--175

     Abercrombie
     Ackerman
     Alexander
     Allen
     Andrews
     Baca
     Baldwin
     Ballance
     Becerra
     Bell
     Berkley
     Berman
     Berry
     Bishop (GA)
     Bishop (NY)
     Boswell
     Boucher
     Brady (PA)
     Brown (OH)
     Brown, Corrine
     Capps
     Capuano
     Cardin
     Cardoza
     Carson (IN)
     Carson (OK)
     Clay
     Clyburn
     Conyers
     Cooper
     Cramer
     Crowley
     Cummings
     Davis (AL)
     Davis (CA)
     Davis (IL)
     Davis (TN)
     DeGette
     Delahunt
     DeLauro
     Deutsch
     Dicks
     Dingell
     Doggett
     Doyle
     Emanuel
     Engel
     Eshoo
     Etheridge
     Evans
     Farr
     Fattah
     Filner
     Ford
     Frank (MA)
     Frost
     Gephardt
     Gonzalez
     Gordon
     Green (TX)
     Grijalva
     Gutierrez
     Harman
     Hastings (FL)
     Hinchey
     Hinojosa
     Hoeffel
     Holden
     Holt
     Honda
     Hoyer
     Inslee
     Israel
     Jackson (IL)
     Jackson-Lee (TX)
     Jefferson
     Johnson, E. B.
     Jones (OH)
     Kanjorski
     Kaptur
     Kennedy (RI)
     Kildee
     Kilpatrick
     Kleczka
     Kucinich
     Lampson
     Langevin
     Lantos
     Larson (CT)
     Lee
     Levin
     Lewis (GA)
     Lofgren
     Lowey
     Lucas (KY)
     Lynch
     Majette
     Maloney
     Markey
     Matsui
     McCarthy (MO)
     McCarthy (NY)
     McCollum
     McDermott
     McGovern
     McNulty
     Meehan
     Meek (FL)
     Meeks (NY)
     Menendez
     Michaud
     Millender-McDonald
     Miller (NC)
     Miller, George
     Mollohan
     Moran (VA)
     Murtha
     Nadler
     Napolitano
     Neal (MA)
     Oberstar
     Obey
     Olver
     Ortiz
     Owens
     Pallone
     Pascrell
     Pastor
     Payne
     Pelosi
     Pomeroy
     Price (NC)
     Rahall
     Rangel
     Reyes
     Rodriguez
     Ross
     Rothman
     Roybal-Allard
     Ruppersberger
     Rush
     Ryan (OH)
     Sanchez, Linda T.
     Sanders
     Sandlin
     Schakowsky
     Schiff
     Scott (GA)
     Scott (VA)
     Serrano
     Sherman
     Skelton
     Slaughter
     Solis
     Spratt
     Stark
     Strickland
     Stupak
     Thompson (MS)
     Tierney
     Towns
     Turner (TX)
     Udall (NM)
     Van Hollen
     Velazquez
     Visclosky
     Waters
     Watson
     Watt
     Waxman
     Weiner
     Wexler
     Woolsey
     Wu
     Wynn

                               NOES--255

     Aderholt
     Akin
     Bachus
     Baker
     Ballenger
     Barrett (SC)
     Bartlett (MD)
     Barton (TX)
     Bass
     Beauprez
     Bereuter
     Biggert
     Bilirakis
     Bishop (UT)
     Blackburn
     Blumenauer
     Blunt
     Boehlert
     Boehner
     Bonilla
     Bonner
     Bono
     Boozman
     Boyd
     Bradley (NH)
     Brady (TX)
     Brown (SC)
     Brown-Waite, Ginny
     Burgess
     Burns
     Burr
     Burton (IN)
     Buyer
     Calvert
     Camp
     Cannon
     Cantor
     Capito
     Carter
     Case
     Castle
     Chabot
     Chocola
     Coble
     Cole
     Collins
     Costello
     Cox
     Crane
     Crenshaw
     Cubin
     Culberson
     Cunningham
     Davis (FL)
     Davis, Jo Ann
     Davis, Tom
     Deal (GA)
     DeFazio
     DeLay
     DeMint
     Diaz-Balart, L.
     Diaz-Balart, M.
     Dooley (CA)
     Doolittle
     Dreier
     Duncan
     Dunn
     Edwards
     Ehlers
     Emerson
     English
     Everett
     Feeney
     Ferguson
     Flake
     Fletcher
     Foley
     Forbes
     Fossella
     Franks (AZ)
     Frelinghuysen
     Gallegly
     Garrett (NJ)
     Gerlach
     Gibbons
     Gilchrest
     Gillmor
     Gingrey
     Goode
     Goodlatte
     Goss
     Granger
     Graves
     Green (WI)
     Greenwood
     Gutknecht
     Hall
     Harris
     Hart
     Hastert
     Hastings (WA)
     Hayes
     Hayworth
     Hefley
     Hensarling
     Herger
     Hill
     Hobson
     Hoekstra
     Hooley (OR)
     Hostettler
     Houghton
     Hulshof
     Hunter
     Hyde
     Isakson
     Issa
     Istook
     Janklow
     Jenkins
     John
     Johnson (CT)
     Johnson (IL)
     Johnson, Sam
     Jones (NC)
     Keller
     Kelly
     Kennedy (MN)
     Kind
     King (IA)
     King (NY)
     Kingston
     Kirk
     Kline
     Knollenberg
     Kolbe
     LaHood
     Larsen (WA)
     Latham
     Leach
     Lewis (CA)
     Lewis (KY)
     Linder
     Lipinski
     LoBiondo
     Lucas (OK)
     Manzullo
     Marshall
     Matheson
     McCotter
     McCrery
     McHugh
     McIntyre
     McKeon
     Mica
     Miller (FL)
     Miller (MI)
     Miller, Gary
     Moore
     Moran (KS)
     Murphy
     Musgrave
     Myrick
     Nethercutt
     Neugebauer
     Ney
     Northup
     Norwood
     Nunes
     Nussle
     Osborne
     Ose
     Otter
     Oxley
     Paul
     Pearce
     Pence
     Peterson (MN)
     Peterson (PA)
     Petri
     Pickering
     Pitts
     Platts
     Pombo
     Porter
     Portman
     Pryce (OH)
     Putnam
     Quinn
     Radanovich
     Ramstad
     Regula
     Rehberg
     Renzi
     Reynolds
     Rogers (AL)
     Rogers (KY)
     Rogers (MI)
     Rohrabacher
     Ros-Lehtinen
     Royce
     Ryan (WI)
     Ryun (KS)
     Sabo
     Sanchez, Loretta
     Saxton
     Schrock
     Sensenbrenner
     Sessions
     Shadegg
     Shaw
     Shays
     Sherwood
     Shimkus
     Shuster
     Simmons
     Simpson
     Smith (MI)
     Smith (NJ)
     Smith (TX)
     Snyder
     Souder
     Stearns
     Stenholm
     Sullivan
     Sweeney
     Tancredo
     Tanner
     Tauscher
     Tauzin
     Taylor (MS)
     Taylor (NC)
     Terry
     Thomas
     Thompson (CA)
     Thornberry
     Tiahrt
     Tiberi
     Toomey
     Turner (OH)
     Udall (CO)
     Upton
     Vitter
     Walden (OR)
     Walsh
     Wamp
     Weldon (FL)
     Weldon (PA)
     Weller
     Whitfield
     Wicker
     Wilson (NM)
     Wilson (SC)
     Wolf
     Young (AK)

                        ANSWERED ``PRESENT''--1

       
     Baird
       

                             NOT VOTING--4

     LaTourette
     McInnis
     Smith (WA)
     Young (FL)


                Announcement by the Speaker Pro Tempore

  The SPEAKER pro tempore (Mr. Hastings of Washington) (during the 
vote). Members are advised there are 2 minutes remaining in this vote.

                              {time}  0112

  Messrs. BACHUS, COSTELLO, and LIPINSKI changed their vote from 
``aye'' to ``no.''
  So the amendment in the nature of a substitute was rejected.
  The result of the vote was announced as above recorded.
  The SPEAKER pro tempore. The question is on the engrossment and third 
reading of the bill.
  The bill was ordered to be engrossed and read a third time, and was 
read the third time.


        Motion to Recommit Offered by Mr. Thompson of California

  Mr. THOMPSON of California. Mr. Speaker, I offer a motion to 
recommit.
  The SPEAKER pro tempore. Is the gentleman opposed to the bill?
  Mr. THOMPSON of California. Yes, I am, Mr. Speaker, in its present 
form.
  The SPEAKER pro tempore. The Clerk will report the motion to 
recommit.
  The Clerk read as follows:

                  Motion to Recommit With Instructions

       Mr. Thompson of California moves to recommit the bill H.R. 
     1 jointly to the Committee on Ways and Means and the 
     Committee on Energy and Commerce with instructions to report 
     the same back to the House promptly with the following 
     amendments:

       Strike all after the enacting clause and insert the 
     following:

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

       (a) Short Title.--This Act may be cited as the 
     ``Prescription Drug and Medicare Improvement Act of 2003''.
       (b) Amendments to Social Security Act.--Except as otherwise 
     specifically provided, whenever in this Act an amendment is 
     expressed in terms of an amendment to or repeal of a section 
     or other provision, the reference shall be considered to be 
     made to that section or other provision of the Social 
     Security Act.
       (c) BIPA; Secretary.--In this Act:
       (1) BIPA.--The term ``BIPA'' means the Medicare, Medicaid, 
     and SCHIP Benefits Improvement and Protection Act of 2000, as 
     enacted into law by section 1(a)(6) of Public Law 106-554.
       (2) Secretary.--The term ``Secretary'' means the Secretary 
     of Health and Human Services.
       (d) Table of Contents.--The table of contents of this Act 
     is as follows:

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

              TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

   Subtitle A--Medicare Voluntary Prescription Drug Delivery Program

Sec. 101. Medicare voluntary prescription drug delivery program.

         ``Part D--Voluntary Prescription Drug Delivery Program

``Sec. 1860D. Definitions; treatment of references to provisions in 
              MedicareAdvantage program.

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

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

[[Page 16517]]

             ``Subpart 2--Prescription Drug Delivery System

``Sec. 1860D-10. Establishment of service areas.
``Sec. 1860D-11. Publication of risk adjusters.
``Sec. 1860D-12. Submission of bids for proposed Medicare Prescription 
              Drug plans.
``Sec. 1860D-13. Approval of proposed Medicare Prescription Drug plans.
``Sec. 1860D-14. Computation of monthly standard prescription drug 
              coverage premiums.
``Sec. 1860D-15. Computation of monthly national average premium.
``Sec. 1860D-16. Payments to eligible entities.
``Sec. 1860D-17. Computation of monthly beneficiary obligation.
``Sec. 1860D-18. Collection of monthly beneficiary obligation.
``Sec. 1860D-19. Premium and cost-sharing subsidies for low-income 
              individuals.
``Sec. 1860D-20. Reinsurance payments for expenses incurred in 
              providing prescription drug coverage above the annual 
              out-of-pocket threshold.
``Sec. 1860D-21. Direct subsidy for sponsor of a qualified retiree 
              prescription drug plan for plan enrollees eligible for, 
              but not enrolled in, this part.

                 ``Subpart 3--Miscellaneous Provisions

``Sec. 1860D-25. Prescription Drug Account in the Federal Supplementary 
              Medical Insurance Trust Fund.
``Sec. 1860D-26. Other related provisions.
Sec. 102. Study and report on permitting part B only individuals to 
              enroll in medicare voluntary prescription drug delivery 
              program.
Sec. 103. Rules relating to medigap policies that provide prescription 
              drug coverage.
Sec. 104. Medicaid and other amendments related to low-income 
              beneficiaries.
Sec. 105. Expansion of membership and duties of Medicare Payment 
              Advisory Commission (MedPAC).
Sec. 106. Study regarding variations in spending and drug utilization.

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

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

            Subtitle C--Standards for Electronic Prescribing

Sec. 121. Standards for electronic prescribing.

                      TITLE II--MEDICAREADVANTAGE

               Subtitle A--MedicareAdvantage Competition

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

              Subtitle B--Preferred Provider Organizations

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

                 Subtitle C--Other Managed Care Reforms

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

                 TITLE III--CENTER FOR MEDICARE CHOICES

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

            TITLE IV--MEDICARE FEE-FOR-SERVICE IMPROVEMENTS

               Subtitle A--Provisions Relating to Part A

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

               Subtitle B--Provisions Relating to Part B

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

[[Page 16518]]

            Subtitle C--Provisions Relating to Parts A and B

Sec. 451. Increase for home health services furnished in a rural area.
Sec. 452. Limitation on reduction in area wage adjustment factors under 
              the prospective payment system for home health services.
    Sec. 453. Clarifications to certain exceptions to medicare limits 
    on physician referrals.
Sec. 454. Demonstration program for substitute adult day services.
Sec. 455. Medicare secondary payor (MSP) provisions.

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

                     Subtitle A--Regulatory Reform

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

                   Subtitle B--Appeals Process Reform

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

                     Subtitle C--Contracting Reform

Sec. 521. Increased flexibility in medicare administration.

            Subtitle D--Education and Outreach Improvements

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

          Subtitle E--Review, Recovery, and Enforcement Reform

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

                       TITLE VI--OTHER PROVISIONS

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

            TITLE VII--ACCESS TO AFFORDABLE PHARMACEUTICALS

Sec. 701. Short title.
Sec. 702. 30-month stay-of-effectiveness period.
Sec. 703. Forfeiture of 180-day exclusivity period.
Sec. 704. Bioavailability and bioequivalence.
Sec. 705. Remedies for infringement.
Sec. 706. Conforming amendments.

             TITLE VIII--IMPORTATION OF PRESCRIPTION DRUGS

Sec. 801. Importation of prescription drugs.

              TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

   Subtitle A--Medicare Voluntary Prescription Drug Delivery Program

     SEC. 101. MEDICARE VOLUNTARY PRESCRIPTION DRUG DELIVERY 
                   PROGRAM.

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

         ``Part D--Voluntary Prescription Drug Delivery Program


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

       ``Sec. 1860D. (a) Definitions.--In this part:
       ``(1) Administrator.--The term `Administrator' means the 
     Administrator of the Center for Medicare Choices as 
     established under section 1808.
       ``(2) Covered drug.--
       ``(A) In general.--Except as provided in subparagraphs (B), 
     (C), and (D), the term `covered drug' means--
       ``(i) a drug that may be dispensed only upon a prescription 
     and that is described in clause (i) or (ii) of subparagraph 
     (A) of section 1927(k)(2); or
       ``(ii) a biological product described in clauses (i) 
     through (iii) of subparagraph (B) of such section; or
       ``(iii) insulin described in subparagraph (C) of such 
     section;

     and such term includes a vaccine licensed under section 351 
     of the Public Health Service Act and any use of a covered 
     drug for a medically accepted indication (as defined in 
     section 1927(k)(6)).
       ``(B) Exclusions.--
       ``(i) In general.--The term `covered drug' does not include 
     drugs or classes of drugs, or their medical uses, which may 
     be excluded from coverage or otherwise restricted under 
     section 1927(d)(2), other than subparagraph (E) thereof 
     (relating to smoking cessation agents), or under section 
     1927(d)(3).
       ``(ii) Avoidance of duplicate coverage.--A drug prescribed 
     for an individual that would otherwise be a covered drug 
     under this part shall not be so considered if payment for 
     such drug is available under part A or B, but shall be so 
     considered if such payment is not available under part A or B 
     or because benefits under such parts have been exhausted.
       ``(C) Application of formulary restrictions.--A drug 
     prescribed for an individual that would otherwise be a 
     covered drug under this part shall not be so considered under 
     a plan if the plan excludes the drug under a formulary and 
     such exclusion is not successfully resolved under subsection 
     (d) or (e)(2) of section 1860D-5.
       ``(D) Application of general exclusion provisions.--A 
     Medicare Prescription Drug plan or a MedicareAdvantage plan 
     may exclude from qualified prescription drug coverage any 
     covered drug--
       ``(i) for which payment would not be made if section 
     1862(a) applied to part D; or
       ``(ii) which are not prescribed in accordance with the plan 
     or this part.

     Such exclusions are determinations subject to reconsideration 
     and appeal pursuant to section 1860D-5(e).
       ``(3) Eligible beneficiary.--The term `eligible 
     beneficiary' means an individual who is entitled to, or 
     enrolled for, benefits under part A and enrolled under part 
     B.
       ``(4) Eligible entity.--The term `eligible entity' means 
     any risk-bearing entity that the Administrator determines to 
     be appropriate to provide eligible beneficiaries with the 
     benefits under a Medicare Prescription Drug plan, including--
       ``(A) a pharmaceutical benefit management company;
       ``(B) a wholesale or retail pharmacist delivery system;
       ``(C) an insurer (including an insurer that offers medicare 
     supplemental policies under section 1882);
       ``(D) any other risk-bearing entity; or
       ``(E) any combination of the entities described in 
     subparagraphs (A) through (D).
       ``(5) Initial coverage limit.--The term `initial coverage 
     limit' means the limit as established under section 1860D-
     6(c)(3), or, in the case of coverage that is not standard 
     prescription drug coverage, the comparable limit (if any) 
     established under the coverage.
       ``(6) Medicareadvantage organization; medicareadvantage 
     plan.--The terms `MedicareAdvantage organization' and 
     `MedicareAdvantage plan' have the meanings given such terms 
     in subsections (a)(1) and (b)(1), respectively, of section 
     1859 (relating to definitions relating to MedicareAdvantage 
     organizations).
       ``(7) Medicare prescription drug plan.--The term `Medicare 
     Prescription Drug plan' means prescription drug coverage that 
     is offered under a policy, contract, or plan--
       ``(A) that has been approved under section 1860D-13; and
       ``(B) by an eligible entity pursuant to, and in accordance 
     with, a contract between the Administrator and the entity 
     under section 1860D-7(b).
       ``(8) Prescription drug account.--The term `Prescription 
     Drug Account' means the Prescription Drug Account (as 
     established under section 1860D-25) in the Federal 
     Supplementary Medical Insurance Trust Fund under section 
     1841.

[[Page 16519]]

       ``(9) Qualified prescription drug coverage.--The term 
     `qualified prescription drug coverage' means the coverage 
     described in section 1860D-6(a)(1).
       ``(10) Standard prescription drug coverage.--The term 
     `standard prescription drug coverage' means the coverage 
     described in section 1860D-6(c).
       ``(b) Application of MedicareAdvantage Provisions Under 
     This Part.--For purposes of applying provisions of part C 
     under this part with respect to a Medicare Prescription Drug 
     plan and an eligible entity, unless otherwise provided in 
     this part such provisions shall be applied as if--
       ``(1) any reference to a MedicareAdvantage plan included a 
     reference to a Medicare Prescription Drug plan;
       ``(2) any reference to a provider-sponsored organization 
     included a reference to an eligible entity;
       ``(3) any reference to a contract under section 1857 
     included a reference to a contract under section 1860D-7(b); 
     and
       ``(4) any reference to part C included a reference to this 
     part.

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


    ``establishment of voluntary prescription drug delivery program

       ``Sec. 1860D-1. (a) Provision of Benefit.--
       ``(1) In general.--The Administrator shall provide for and 
     administer a voluntary prescription drug delivery program 
     under which each eligible beneficiary enrolled under this 
     part shall be provided with access to qualified prescription 
     drug coverage as follows:
       ``(A) Medicareadvantage enrollees receive coverage through 
     medicareadvantage plan.--
       ``(i) In general.--Except as provided in clause (ii), an 
     eligible beneficiary who is enrolled under this part and 
     enrolled in a MedicareAdvantage plan offered by a 
     MedicareAdvantage organization shall receive coverage of 
     benefits under this part through such plan.
       ``(ii) Exception for enrollees in medicareadvantage msa 
     plans.--An eligible beneficiary who is enrolled under this 
     part and enrolled in an MSA plan under part C shall receive 
     coverage of benefits under this part through enrollment in a 
     Medicare Prescription Drug plan that is offered in the 
     geographic area in which the beneficiary resides. For 
     purposes of this part, the term `MSA plan' has the meaning 
     given such term in section 1859(b)(3).
       ``(iii) Exception for enrollees in medicareadvantage 
     private fee-for-service plans.--An eligible beneficiary who 
     is enrolled under this part and enrolled in a private fee-
     for-service plan under part C shall--

       ``(i) receive benefits under this part through such plan if 
     the plan provides qualified prescription drug coverage; and
       ``(ii) if the plan does not provide qualified prescription 
     drug coverage, receive coverage of benefits under this part 
     through enrollment in a Medicare Prescription Drug plan that 
     is offered in the geographic area in which the beneficiary 
     resides. For purposes of this part, the term `private fee-
     for-service plan' has the meaning given such term in section 
     1859(b)(2).

       ``(B) Fee-for-service enrollees receive coverage through a 
     medicare prescription drug plan.--An eligible beneficiary who 
     is enrolled under this part but is not enrolled in a 
     MedicareAdvantage plan (except for an MSA plan or a private 
     fee-for-service plan that does not provide qualified 
     prescription drug coverage) shall receive coverage of 
     benefits under this part through enrollment in a Medicare 
     Prescription Drug plan that is offered in the geographic area 
     in which the beneficiary resides.
       ``(2) Voluntary nature of program.--Nothing in this part 
     shall be construed as requiring an eligible beneficiary to 
     enroll in the program under this part.
       ``(3) Scope of benefits.--Pursuant to section 1860D-
     6(b)(3)(C), the program established under this part shall 
     provide for coverage of all therapeutic categories and 
     classes of covered drugs (although not necessarily for all 
     drugs within such categories and classes).
       ``(4) Program to begin in 2006.--The Administrator shall 
     establish the program under this part in a manner so that 
     benefits are first provided beginning on January 1, 2006.
       ``(b) Access to Alternative Prescription Drug Coverage.--In 
     the case of an eligible beneficiary who has creditable 
     prescription drug coverage (as defined in section 1860D-
     2(b)(1)(F)), such beneficiary--
       ``(1) may continue to receive such coverage and not enroll 
     under this part; and
       ``(2) pursuant to section 1860D-2(b)(1)(C), is permitted to 
     subsequently enroll under this part without any penalty and 
     obtain access to qualified prescription drug coverage in the 
     manner described in subsection (a) if the beneficiary 
     involuntarily loses such coverage.
       ``(c) Financing.--The costs of providing benefits under 
     this part shall be payable from the Prescription Drug 
     Account.


                       ``enrollment under program

       ``Sec. 1860D-2. (a) Establishment of Enrollment Process.--
       ``(1) Process similar to part b enrollment.--The 
     Administrator shall establish a process through which an 
     eligible beneficiary (including an eligible beneficiary 
     enrolled in a MedicareAdvantage plan offered by a 
     MedicareAdvantage organization) may make an election to 
     enroll under this part. Such process shall be similar to the 
     process for enrollment in part B under section 1837, 
     including the deeming provisions of such section.
       ``(2) Condition of enrollment.--An eligible beneficiary 
     must be enrolled under this part in order to be eligible to 
     receive access to qualified prescription drug coverage.
       ``(b) Special Enrollment Procedures.--
       ``(1) Late enrollment penalty.--
       ``(A) Increase in monthly beneficiary obligation.--Subject 
     to the succeeding provisions of this paragraph, in the case 
     of an eligible beneficiary whose coverage period under this 
     part began pursuant to an enrollment after the beneficiary's 
     initial enrollment period under part B (determined pursuant 
     to section 1837(d)) and not pursuant to the open enrollment 
     period described in paragraph (2), the Administrator shall 
     establish procedures for increasing the amount of the monthly 
     beneficiary obligation under section 1860D-17 applicable to 
     such beneficiary by an amount that the Administrator 
     determines is actuarially sound for each full 12-month period 
     (in the same continuous period of eligibility) in which the 
     eligible beneficiary could have been enrolled under this part 
     but was not so enrolled.
       ``(B) Periods taken into account.--For purposes of 
     calculating any 12-month period under subparagraph (A), there 
     shall be taken into account--
       ``(i) the months which elapsed between the close of the 
     eligible beneficiary's initial enrollment period and the 
     close of the enrollment period in which the beneficiary 
     enrolled; and
       ``(ii) in the case of an eligible beneficiary who reenrolls 
     under this part, the months which elapsed between the date of 
     termination of a previous coverage period and the close of 
     the enrollment period in which the beneficiary reenrolled.
       ``(C) Periods not taken into account.--
       ``(i) In general.--For purposes of calculating any 12-month 
     period under subparagraph (A), subject to clause (ii), there 
     shall not be taken into account months for which the eligible 
     beneficiary can demonstrate that the beneficiary had 
     creditable prescription drug coverage (as defined in 
     subparagraph (F)).
       ``(ii) Beneficiary must involuntarily lose coverage.--
     Clause (i) shall only apply with respect to coverage--

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

       ``(D) Periods treated separately.--Any increase in an 
     eligible beneficiary's monthly beneficiary obligation under 
     subparagraph (A) with respect to a particular continuous 
     period of eligibility shall not be applicable with respect to 
     any other continuous period of eligibility which the 
     beneficiary may have.
       ``(E) Continuous period of eligibility.--
       ``(i) In general.--Subject to clause (ii), for purposes of 
     this paragraph, an eligible beneficiary's `continuous period 
     of eligibility' is the period that begins with the first day 
     on which the beneficiary is eligible to enroll under section 
     1836 and ends with the beneficiary's death.
       ``(ii) Separate period.--Any period during all of which an 
     eligible beneficiary satisfied paragraph (1) of section 1836 
     and which terminated in or before the month preceding the 
     month in which the beneficiary attained age 65 shall be a 
     separate `continuous period of eligibility' with respect to 
     the beneficiary (and each such period which terminates shall 
     be deemed not to have existed for purposes of subsequently 
     applying this paragraph).
       ``(F) Creditable prescription drug coverage defined.--
     Subject to subparagraph (G), for purposes of this part, the 
     term `creditable prescription drug coverage' means any of the 
     following:
       ``(i) Drug-only coverage under Medicaid.--Coverage of 
     covered outpatient drugs (as defined in section 1927) under 
     title XIX through a waiver under 1115 where covered 
     outpatient drugs are the sole medical assistance benefit.
       ``(ii) Prescription drug coverage under a group health 
     plan.--Any outpatient prescription drug coverage under a 
     group health plan, including a health benefits plan under 
     chapter 89 of title 5, United States Code (commonly known as 
     the Federal employees health benefits program), and a 
     qualified retiree prescription drug plan (as defined in 
     section 1860D-20(e)(4)).
       ``(iii) State pharmaceutical assistance program.--Coverage 
     of prescription drugs under a State pharmaceutical assistance 
     program.
       ``(iv) Veterans' coverage of prescription drugs.--Coverage 
     of prescription drugs for veterans, and survivors and 
     dependents of

[[Page 16520]]

     veterans, under chapter 17 of title 38, United States Code.
       ``(v) Prescription drug coverage under medigap policies.--
     Coverage under a medicare supplemental policy under section 
     1882 that provides benefits for prescription drugs (whether 
     or not such coverage conforms to the standards for packages 
     of benefits under section 1882(p)(1)).
       ``(G) Requirement for creditable coverage.--Coverage 
     described in clauses (i) through (v) of subparagraph (F) 
     shall not be considered to be creditable coverage under this 
     part unless the coverage provides coverage of the cost of 
     prescription drugs the actuarial value of which (as defined 
     by the Administrator) to the beneficiary equals or exceeds 
     the actuarial value of standard prescription drug coverage 
     (as determined under section 1860D-6(f)).
       ``(H) Disclosure.--
       ``(i) In general.--Each entity that offers coverage of the 
     type described in clause (ii) (iii), (iv), or (v) of 
     subparagraph (F) shall provide for disclosure, consistent 
     with standards established by the Administrator, of whether 
     the coverage provides coverage of the cost of prescription 
     drugs the actuarial value of which (as defined by the 
     Administrator) to the beneficiary equals or exceeds the 
     actuarial value of standard prescription drug coverage (as 
     determined under section 1860D-6(f)).
       ``(ii) Waiver of limitations.--An individual may apply to 
     the Administrator to waive the application of subparagraph 
     (G) if the individual establishes that the individual was not 
     adequately informed that the coverage the beneficiary was 
     enrolled in did not provide the level of benefits required in 
     order for the coverage to be considered creditable coverage 
     under subparagraph (F).
       ``(2) Initial election periods.--
       ``(A) Open enrollment period for current beneficiaries in 
     which late enrollment procedures do not apply.--In the case 
     of an individual who is an eligible beneficiary as of 
     November 1, 2005, there shall be an open enrollment period of 
     6 months beginning on that date under which such beneficiary 
     may enroll under this part without the application of the 
     late enrollment procedures established under paragraph 
     (1)(A).
       ``(B) Individual covered in future.--In the case of an 
     individual who becomes an eligible beneficiary after such 
     date, there shall be an initial election period which is the 
     same as the initial enrollment period under section 1837(d).
       ``(3) Special enrollment period for beneficiaries who 
     involuntarily lose creditable prescription drug coverage.--
       ``(A) Establishment.--The Administrator shall establish a 
     special open enrollment period (as described in subparagraph 
     (B)) for an eligible beneficiary that loses creditable 
     prescription drug coverage.
       ``(B) Special open enrollment period.--The special open 
     enrollment period described in this subparagraph is the 63-
     day period that begins on--
       ``(i) in the case of a beneficiary with coverage described 
     in clause (ii) of paragraph (1)(F), the later of the date on 
     which the plan terminates, ceases to provide, or 
     substantially reduces (as defined by the Administrator) the 
     value of the prescription drug coverage under such plan or 
     the date the beneficiary is provided with notice of such 
     termination or reduction;
       ``(ii) in the case of a beneficiary with coverage described 
     in clause (i), (iii), or (iv) of paragraph (1)(F), the later 
     of the date on which the beneficiary is involuntarily 
     disenrolled or becomes ineligible for such coverage or the 
     date the beneficiary is provided with notice of such loss of 
     eligibility; or
       ``(iii) in the case of a beneficiary with coverage 
     described in clause (v) of paragraph (1)(F), the latter of 
     the date on which the issuer of the policy terminates 
     coverage under the policy or the date the beneficiary is 
     provided with notice of such termination.
       ``(c) Period of Coverage.--
       ``(1) In general.--Except as provided in paragraph (2) and 
     subject to paragraph (3), an eligible beneficiary's coverage 
     under the program under this part shall be effective for the 
     period provided in section 1838, as if that section applied 
     to the program under this part.
       ``(2) Open and special enrollment.--
       ``(A) Open enrollment.--An eligible beneficiary who enrolls 
     under the program under this part pursuant to subsection 
     (b)(2) shall be entitled to the benefits under this part 
     beginning on January 1, 2006.
       ``(B) Special enrollment.--Subject to paragraph (3), an 
     eligible beneficiary who enrolls under the program under this 
     part pursuant to subsection (b)(3) shall be entitled to the 
     benefits under this part beginning on the first day of the 
     month following the month in which such enrollment occurs.
       ``(3) Limitation.--Coverage under this part shall not begin 
     prior to January 1, 2006.
       ``(d) Termination.--
       ``(1) In general.--The causes of termination specified in 
     section 1838 shall apply to this part in the same manner as 
     such causes apply to part B.
       ``(2) Coverage terminated by termination of coverage under 
     part a or b.--
       ``(A) In general.--In addition to the causes of termination 
     specified in paragraph (1), the Administrator shall terminate 
     an individual's coverage under this part if the individual is 
     no longer enrolled in both parts A and B.
       ``(B) Effective date.--The termination described in 
     subparagraph (A) shall be effective on the effective date of 
     termination of coverage under part A or (if earlier) under 
     part B.
       ``(3) Procedures regarding termination of a beneficiary 
     under a plan.--The Administrator shall establish procedures 
     for determining the status of an eligible beneficiary's 
     enrollment under this part if the beneficiary's enrollment in 
     a Medicare Prescription Drug plan offered by an eligible 
     entity under this part is terminated by the entity for cause 
     (pursuant to procedures established by the Administrator 
     under section 1860D-3(a)(1)).


            ``election of a medicare prescription drug plan

       ``Sec. 1860D-3. (a) In General.--
       ``(1) Process.--
       ``(A) Election.--
       ``(i) In general.--The Administrator shall establish a 
     process through which an eligible beneficiary who is enrolled 
     under this part but not enrolled in a MedicareAdvantage plan 
     (except for an MSA plan or a private fee-for-service plan 
     that does not provide qualified prescription drug coverage) 
     offered by a MedicareAdvantage organization--

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

       ``(ii) Clarification regarding enrollment.--The process 
     established under clause (i) shall include, in the case of an 
     eligible beneficiary who is enrolled under this part but who 
     has failed to make an election of a Medicare Prescription 
     Drug plan in an area, for the enrollment in any Medicare 
     Prescription Drug plan that has been designated by the 
     Administrator in the area. The Administrator shall establish 
     a process for designating a plan or plans in order to carry 
     out the preceding sentence.
       ``(B) Requirements for process.--In establishing the 
     process under subparagraph (A), the Administrator shall--
       ``(i) use rules similar to the rules for enrollment, 
     disenrollment, and termination of enrollment with a 
     MedicareAdvantage plan under section 1851, including--

       ``(I) the establishment of special election periods under 
     subsection (e)(4) of such section; and
       ``(II) the application of the guaranteed issue and renewal 
     provisions of section 1851(g) (other than clause (i) and the 
     second sentence of clause (ii) of paragraph (3)(C), relating 
     to default enrollment); and

       ``(ii) coordinate enrollments, disenrollments, and 
     terminations of enrollment under part C with enrollments, 
     disenrollments, and terminations of enrollment under this 
     part.
       ``(2) First enrollment period for plan enrollment.--The 
     process developed under paragraph (1) shall ensure that 
     eligible beneficiaries who enroll under this part during the 
     open enrollment period under section 1860D-2(b)(2) are 
     permitted to elect an eligible entity prior to January 1, 
     2006, in order to ensure that coverage under this part is 
     effective as of such date.
       ``(b) Enrollment in a MedicareAdvantage Plan.--
       ``(1) In general.--An eligible beneficiary who is enrolled 
     under this part and enrolled in a MedicareAdvantage plan 
     (except for an MSA plan or a private fee-for-service plan 
     that does not provide qualified prescription drug coverage) 
     offered by a MedicareAdvantage organization shall receive 
     access to such coverage under this part through such plan.
       ``(2) Rules.--Enrollment in a MedicareAdvantage plan is 
     subject to the rules for enrollment in such plan under 
     section 1851.
       ``(c) Information to entities to facilitate enrollment.--
     Notwithstanding any other provision of law, the Administrator 
     may provide to each eligible entity with a contract under 
     this part such information about eligible beneficiaries as 
     the Administrator determines to be necessary to facilitate 
     efficient enrollment by such beneficiaries with such 
     entities. The Administrator may provide such information only 
     so long as and to the extent necessary to carry out such 
     objective.


                ``providing information to beneficiaries

       ``Sec. 1860D-4. (a) Activities.--
       ``(1) In general.--The Administrator shall conduct 
     activities that are designed to broadly disseminate 
     information to eligible beneficiaries (and prospective 
     eligible beneficiaries) regarding the coverage provided under 
     this part.
       ``(2) Special rule for first enrollment under the 
     program.--The activities described in paragraph (1) shall 
     ensure that eligible beneficiaries are provided with such 
     information at least 30 days prior to the first enrollment 
     period described in section 1860D-3(a)(2).
       ``(b) Requirements.--
       ``(1) In general.--The activities described in subsection 
     (a) shall--

[[Page 16521]]

       ``(A) be similar to the activities performed by the 
     Administrator under section 1851(d);
       ``(B) be coordinated with the activities performed by--
       ``(i) the Administrator under such section; and
       ``(ii) the Secretary under section 1804; and
       ``(C) provide for the dissemination of information 
     comparing the plans offered by eligible entities under this 
     part that are available to eligible beneficiaries residing in 
     an area.
       ``(2) Comparative information.--The comparative information 
     described in paragraph (1)(C) shall include a comparison of 
     the following:
       ``(A) Benefits.--The benefits provided under the plan and 
     the formularies and grievance and appeals processes under the 
     plan.
       ``(B) Monthly beneficiary obligation.--The monthly 
     beneficiary obligation under the plan.
       ``(C) Quality and performance.--The quality and performance 
     of the eligible entity offering the plan.
       ``(D) Beneficiary cost-sharing.--The cost-sharing required 
     of eligible beneficiaries under the plan.
       ``(E) Consumer satisfaction surveys.--The results of 
     consumer satisfaction surveys regarding the plan and the 
     eligible entity offering such plan (conducted pursuant to 
     section 1860D-5(h).
       ``(F) Additional information.--Such additional information 
     as the Administrator may prescribe.


                       ``beneficiary protections

       ``Sec. 1860D-5. (a) Dissemination of Information.--
       ``(1) General information.--An eligible entity offering a 
     Medicare Prescription Drug plan shall disclose, in a clear, 
     accurate, and standardized form to each enrollee at the time 
     of enrollment, and at least annually thereafter, the 
     information described in section 1852(c)(1) relating to such 
     plan. Such information includes the following:
       ``(A) Access to covered drugs, including access through 
     pharmacy networks.
       ``(B) How any formulary used by the entity functions.
       ``(C) Copayments, coinsurance, and deductible requirements.
       ``(D) Grievance and appeals processes.

     The information described in the preceding sentence shall 
     also be made available on request to prospective enrollees 
     during open enrollment periods.
       ``(2) Disclosure upon request of general coverage, 
     utilization, and grievance information.--Upon request of an 
     individual eligible to enroll in a Medicare Prescription Drug 
     plan, the eligible entity offering such plan shall provide 
     information similar (as determined by the Administrator) to 
     the information described in subparagraphs (A), (B), and (C) 
     of section 1852(c)(2) to such individual.
       ``(3) Response to beneficiary questions.--An eligible 
     entity offering a Medicare Prescription Drug plan shall have 
     a mechanism for providing on a timely basis specific 
     information to enrollees upon request, including information 
     on the coverage of specific drugs and changes in its 
     formulary.
       ``(4) Claims information.--An eligible entity offering a 
     Medicare Prescription Drug plan must furnish to enrolled 
     individuals in a form easily understandable to such 
     individuals--
       ``(A) an explanation of benefits (in accordance with 
     section 1806(a) or in a comparable manner); and
       ``(B) when prescription drug benefits are provided under 
     this part, a notice of the benefits in relation to the 
     initial coverage limit and annual out-of-pocket limit for the 
     current year (except that such notice need not be provided 
     more often than monthly).
       ``(5) Approval of marketing material and application 
     forms.--The provisions of section 1851(h) shall apply to 
     marketing material and application forms under this part in 
     the same manner as such provisions apply to marketing 
     material and application forms under part C.
       ``(b) Access to Covered Drugs.--
       ``(1) Access to negotiated prices for prescription drugs.--
     An eligible entity offering a Medicare Prescription Drug plan 
     shall have in place procedures to ensure that beneficiaries 
     are not charged more than the negotiated price of a covered 
     drug. Such procedures shall include the issuance of a card 
     (or other technology) that may be used by an enrolled 
     beneficiary for the purchase of prescription drugs for which 
     coverage is not otherwise provided under the Medicare 
     Prescription Drug plan.
       ``(2) Assuring pharmacy access.--
       ``(A) In general.--An eligible entity offering a Medicare 
     Prescription Drug plan shall secure the participation in its 
     network of a sufficient number of pharmacies that dispense 
     (other than by mail order) drugs directly to patients to 
     ensure convenient access (as determined by the Administrator 
     and including adequate emergency access) for enrolled 
     beneficiaries, in accordance with standards established by 
     the Administrator under section 1860D-7(g) that ensure such 
     convenient access. Such standards shall take into account 
     reasonable distances to pharmacy services in both urban and 
     rural areas.
       ``(B) Use of point-of-service system.--An eligible entity 
     offering a Medicare Prescription Drug plan shall establish an 
     optional point-of-service method of operation under which--
       ``(i) the plan provides access to any or all pharmacies 
     that are not participating pharmacies in its network; and
       ``(ii) the plan may charge beneficiaries through 
     adjustments in copayments any additional costs associated 
     with the point-of-service option.

     The additional copayments so charged shall not count toward 
     the application of section 1860D-6(c).
       ``(3) Requirements on development and application of 
     formularies.--If an eligible entity offering a Medicare 
     Prescription Drug plan uses a formulary, the following 
     requirements must be met:
       ``(A) Pharmacy and therapeutic (p&t) committee.--
       ``(i) In general.--The eligible entity must establish a 
     pharmacy and therapeutic committee that develops and reviews 
     the formulary.
       ``(ii) Composition.--A pharmacy and therapeutic committee 
     shall include at least 1 academic expert, at least 1 
     practicing physician, and at least 1 practicing pharmacist, 
     all of whom have expertise in the care of elderly or disabled 
     persons, and a majority of the members of such committee 
     shall consist of individuals who are a practicing physician 
     or a practicing pharmacist (or both).
       ``(B) Formulary development.--In developing and reviewing 
     the formulary, the committee shall base clinical decisions on 
     the strength of scientific evidence and standards of 
     practice, including assessing peer-reviewed medical 
     literature, such as randomized clinical trials, 
     pharmacoeconomic studies, outcomes research data, and on such 
     other information as the committee determines to be 
     appropriate.
       ``(C) Inclusion of drugs in all therapeutic categories and 
     classes.--
       ``(i) In general.--The formulary must include drugs within 
     each therapeutic category and class of covered drugs (as 
     defined by the Administrator), although not necessarily for 
     all drugs within such categories and classes.
       ``(ii) Requirement.--In defining therapeutic categories and 
     classes of covered drugs pursuant to clause (i), the 
     Administrator shall use--

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

       ``(D) Provider education.--The committee shall establish 
     policies and procedures to educate and inform health care 
     providers concerning the formulary.
       ``(E) Notice before removing drugs from formulary.--Any 
     removal of a drug from a formulary shall take effect only 
     after appropriate notice is made available to beneficiaries, 
     physicians, and pharmacists.
       ``(F) Appeals and exceptions to application.--The eligible 
     entity must have, as part of the appeals process under 
     subsection (e), a process for timely appeals for denials of 
     coverage based on such application of the formulary.
       ``(c) Cost and Utilization Management; Quality Assurance; 
     Medication Therapy Management Program.--
       ``(1) In general.--An eligible entity shall have in place 
     the following with respect to covered drugs:
       ``(A) A cost-effective drug utilization management program, 
     including incentives to reduce costs when appropriate.
       ``(B) Quality assurance measures to reduce medical errors 
     and adverse drug interactions and to improve medication use, 
     which--
       ``(i) shall include a medication therapy management program 
     described in paragraph (2); and
       ``(ii) may include beneficiary education programs, 
     counseling, medication refill reminders, and special 
     packaging.
       ``(C) A program to control fraud, abuse, and waste.

     Nothing in this section shall be construed as impairing an 
     eligible entity from applying cost management tools 
     (including differential payments) under all methods of 
     operation.
       ``(2) Medication therapy management program.--
       ``(A) In general.--A medication therapy management program 
     described in this paragraph is a program of drug therapy 
     management and medication administration that is designed to 
     assure, with respect to beneficiaries with chronic diseases 
     (such as diabetes, asthma, hypertension, hyperlipidemia, and 
     congestive heart failure) or multiple prescriptions, that 
     covered drugs under the Medicare Prescription Drug plan are 
     appropriately used to optimize therapeutic outcomes through 
     improved medication use and to achieve therapeutic goals and 
     reduce the risk of adverse events, including adverse drug 
     interactions.
       ``(B) Elements.--Such program may include--
       ``(i) enhanced beneficiary understanding of such 
     appropriate use through beneficiary education, counseling, 
     and other appropriate means;
       ``(ii) increased beneficiary adherence with prescription 
     medication regimens through

[[Page 16522]]

     medication refill reminders, special packaging, and other 
     appropriate means; and
       ``(iii) detection of patterns of overuse and underuse of 
     prescription drugs.
       ``(C) Development of program in cooperation with licensed 
     pharmacists.--The program shall be developed in cooperation 
     with licensed and practicing pharmacists and physicians.
       ``(D) Considerations in pharmacy fees.--The eligible entity 
     offering a Medicare Prescription Drug plan shall take into 
     account, in establishing fees for pharmacists and others 
     providing services under the medication therapy management 
     program, the resources and time used in implementing the 
     program.
       ``(3) Public disclosure of pharmaceutical prices for 
     equivalent drugs.--The eligible entity offering a Medicare 
     Prescription Drug plan shall provide that each pharmacy or 
     other dispenser that arranges for the dispensing of a covered 
     drug shall inform the beneficiary at the time of purchase of 
     the drug of any differential between the price of the 
     prescribed drug to the enrollee and the price of the lowest 
     cost generic drug covered under the plan that is 
     therapeutically equivalent and bioequivalent.
       ``(d) Grievance Mechanism, Coverage Determinations, and 
     Reconsiderations.--
       ``(1) In general.--An eligible entity shall provide 
     meaningful procedures for hearing and resolving grievances 
     between the eligible entity (including any entity or 
     individual through which the eligible entity provides covered 
     benefits) and enrollees with Medicare Prescription Drug plans 
     of the eligible entity under this part in accordance with 
     section 1852(f).
       ``(2) Application of coverage determination and 
     reconsideration provisions.--The requirements of paragraphs 
     (1) through (3) of section 1852(g) shall apply to an eligible 
     entity with respect to covered benefits under the Medicare 
     Prescription Drug plan it offers under this part in the same 
     manner as such requirements apply to a MedicareAdvantage 
     organization with respect to benefits it offers under a 
     MedicareAdvantage plan under part C.
       ``(3) Request for review of tiered formulary 
     determinations.--In the case of a Medicare Prescription Drug 
     plan offered by an eligible entity that provides for tiered 
     cost-sharing for drugs included within a formulary and 
     provides lower cost-sharing for preferred drugs included 
     within the formulary, an individual who is enrolled in the 
     plan may request coverage of a nonpreferred drug under the 
     terms applicable for preferred drugs if the prescribing 
     physician determines that the preferred drug for treatment of 
     the same condition is not as effective for the individual or 
     has adverse effects for the individual.
       ``(e) Appeals.--
       ``(1) In general.--Subject to paragraph (2), the 
     requirements of paragraphs (4) and (5) of section 1852(g) 
     shall apply to an eligible entity with respect to drugs not 
     included on any formulary in a manner that is similar (as 
     determined by the Administrator) to the manner that such 
     requirements apply to a MedicareAdvantage organization with 
     respect to benefits it offers under a MedicareAdvantage plan 
     under part C.
       ``(2) Formulary determinations.--An individual who is 
     enrolled in a Medicare Prescription Drug plan offered by an 
     eligible entity may appeal to obtain coverage for a covered 
     drug that is not on a formulary of the entity under the terms 
     applicable for a formulary drug if the prescribing physician 
     determines that the formulary drug for treatment of the same 
     condition is not as effective for the individual or has 
     adverse effects for the individual.
       ``(f) Privacy, Confidentiality, and Accuracy of Enrollee 
     Records.--Insofar as an eligible entity maintains 
     individually identifiable medical records or other health 
     information regarding eligible beneficiaries enrolled in the 
     Medicare Prescription Drug plan offered by the entity, the 
     entity shall have in place procedures to--
       ``(1) safeguard the privacy of any individually 
     identifiable beneficiary information in a manner consistent 
     with the Federal regulations (concerning the privacy of 
     individually identifiable health information) promulgated 
     under section 264(c) of the Health Insurance Portability and 
     Accountability Act of 1996;
       ``(2) maintain such records and information in a manner 
     that is accurate and timely;
       ``(3) ensure timely access by such beneficiaries to such 
     records and information; and
       ``(4) otherwise comply with applicable laws relating to 
     patient privacy and confidentiality.
       ``(g) Uniform Monthly Plan Premium.--An eligible entity 
     shall ensure that the monthly plan premium for a Medicare 
     Prescription Drug plan charged under this part is the same 
     for all eligible beneficiaries enrolled in the plan.
       ``(h) Consumer Satisfaction Surveys.--An eligible entity 
     shall conduct consumer satisfaction surveys with respect to 
     the plan and the entity. The Administrator shall establish 
     uniform requirements for such surveys.


                      ``prescription drug benefits

       ``Sec. 1860D-6. (a) Requirements.--
       ``(1) In general.--For purposes of this part and part C, 
     the term `qualified prescription drug coverage' means either 
     of the following:
       ``(A) Standard prescription drug coverage with access to 
     negotiated prices.--Standard prescription drug coverage (as 
     defined in subsection (c)) and access to negotiated prices 
     under subsection (e).
       ``(B) Actuarially equivalent prescription drug coverage 
     with access to negotiated prices.--Coverage of covered drugs 
     which meets the alternative coverage requirements of 
     subsection (d) and access to negotiated prices under 
     subsection (e), but only if it is approved by the 
     Administrator as provided under subsection (d).
       ``(2) Permitting additional prescription drug coverage.--
       ``(A) In general.--Subject to subparagraph (B) and section 
     1860D-13(c)(2), nothing in this part shall be construed as 
     preventing qualified prescription drug coverage from 
     including coverage of covered drugs that exceeds the coverage 
     required under paragraph (1).
       ``(B) Requirement.--An eligible entity may not offer a 
     Medicare Prescription Drug plan that provides additional 
     benefits pursuant to subparagraph (A) in an area unless the 
     eligible entity offering such plan also offers a Medicare 
     Prescription Drug plan in the area that only provides the 
     coverage of prescription drugs that is required under 
     paragraph (1).
       ``(3) Cost control mechanisms.--In providing qualified 
     prescription drug coverage, the entity offering the Medicare 
     Prescription Drug plan or the MedicareAdvantage plan may use 
     a variety of cost control mechanisms, including the use of 
     formularies, tiered copayments, selective contracting with 
     providers of prescription drugs, and mail order pharmacies.
       ``(b) Application of Secondary Payor Provisions.--The 
     provisions of section 1852(a)(4) shall apply under this part 
     in the same manner as they apply under part C.
       ``(c) Standard Prescription Drug Coverage.--For purposes of 
     this part and part C, the term `standard prescription drug 
     coverage' means coverage of covered drugs that meets the 
     following requirements:
       ``(1) Deductible.--
       ``(A) In general.--The coverage has an annual deductible--
       ``(i) for 2006, that is equal to $275; or
       ``(ii) for a subsequent year, that is equal to the amount 
     specified under this paragraph for the previous year 
     increased by the percentage specified in paragraph (5) for 
     the year involved.
       ``(B) Rounding.--Any amount determined under subparagraph 
     (A)(ii) that is not a multiple of $1 shall be rounded to the 
     nearest multiple of $1.
       ``(2) Limits on cost-sharing.--The coverage has cost-
     sharing (for costs above the annual deductible specified in 
     paragraph (1) and up to the initial coverage limit under 
     paragraph (3)) that is equal to 50 percent or that is 
     actuarially consistent (using processes established under 
     subsection (f)) with an average expected payment of 50 
     percent of such costs.
       ``(3) Initial coverage limit.--
       ``(A) In general.--Subject to paragraph (4), the coverage 
     has an initial coverage limit on the maximum costs that may 
     be recognized for payment purposes (including the annual 
     deductible)--
       ``(i) for 2006, that is equal to $4,500; or
       ``(ii) for a subsequent year, that is equal to the amount 
     specified in this paragraph for the previous year, increased 
     by the annual percentage increase described in paragraph (5) 
     for the year involved.
       ``(B) Rounding.--Any amount determined under subparagraph 
     (A)(ii) that is not a multiple of $1 shall be rounded to the 
     nearest multiple of $1.
       ``(4) Limitation on out-of-pocket expenditures by 
     beneficiary.--
       ``(A) In general.--The coverage provides benefits with 
     cost-sharing that is equal to 20 percent after the individual 
     has incurred costs (as described in subparagraph (C)) for 
     covered drugs in a year equal to the annual out-of-pocket 
     limit specified in subparagraph (B).
       ``(B) Annual out-of-pocket limit.--
       ``(i) In general.--For purposes of this part, the `annual 
     out-of-pocket limit' specified in this subparagraph--

       ``(I) for 2006, is equal to $3,700; or
       ``(II) for a subsequent year, is equal to the amount 
     specified in this subparagraph for the previous year, 
     increased by the annual percentage increase described in 
     paragraph (5) for the year involved.

       ``(ii) Rounding.--Any amount determined under clause 
     (i)(II) that is not a multiple of $1 shall be rounded to the 
     nearest multiple of $1.
       ``(C) Application.--In applying subparagraph (A)--
       ``(i) incurred costs shall only include costs incurred, 
     with respect to covered drugs, for the annual deductible 
     (described in paragraph (1)), cost-sharing (described in 
     paragraph (2)), and amounts for which benefits are not 
     provided because of the application of the initial coverage 
     limit described in paragraph (3) (including costs incurred 
     for covered drugs described in section 1860D(a)(2)(C)); and
       ``(ii) such costs shall be treated as incurred without 
     regard to whether the individual or another person, including 
     a State program or other third-party coverage, has paid for 
     such

[[Page 16523]]

     costs, except that only the applicable percent (specified in 
     subparagraph (D)) of the amount of portion of such costs that 
     are paid or reimbursed through insurance, a group health 
     plan, or other third-party payment arrangement for such costs 
     shall not be counted.
       ``(D) Applicable percent defined.--
       ``(i) In general.--For purposes of subparagraph (C)(ii), 
     but subject to clause (ii), the applicable percent specified 
     in this subparagraph is--

       ``(I) for years before 2010, 20 percent;
       ``(II) for 2011, 2012, 2013, 2014, and 2015, 40 percent; 
     and
       ``(III) for any year thereafter, 100 percent.

       ``(ii) Secretarial limitation on total expenditures.--The 
     Secretary, in consultation with the Office of Management and 
     Budget, shall estimate at the time of enactment of this part, 
     the aggregate budget outlays that will result during the 10-
     fiscal-year period beginning with fiscal year 2004 from the 
     enactment of the Prescription Drug and Medicare Improvement 
     Act of 2003. If such estimate exceeds $393,000,000,000, the 
     Secretary shall provide for such proportional reductions in 
     the percentages specified in clause (i) as the Secretary 
     determines to be necessary to assure that such aggregate 
     budget outlays during such period do not exceed such amount.
       ``(E) Information regarding third-party reimbursement.--In 
     order to ensure compliance with the requirements of 
     subparagraph (C)(ii), the Administrator is authorized to 
     establish procedures, in coordination with the Secretary of 
     Treasury and the Secretary of Labor, for determining whether 
     costs for individuals are being reimbursed through insurance 
     or otherwise, a group health plan, or other third-party 
     payment arrangement, and for alerting the entities in which 
     such individuals are enrolled about such reimbursement 
     arrangements. An entity with a contract under this part may 
     also periodically ask individuals enrolled in a plan offered 
     by the entity whether the individuals have or expect to 
     receive such third-party reimbursement. A material 
     misrepresentation of the information described in the 
     preceding sentence by an individual (as defined in standards 
     set by the Administrator and determined through a process 
     established by the Administrator) shall constitute grounds 
     for termination of enrollment under section 1860D-2(d).
       ``(5) Annual percentage increase.--For purposes of this 
     part, the annual percentage increase specified in this 
     paragraph for a year is equal to the annual percentage 
     increase in average per capita aggregate expenditures for 
     covered drugs in the United States for beneficiaries under 
     this title, as determined by the Administrator for the 12-
     month period ending in July of the previous year.
       ``(d) Alternative Coverage Requirements.--A Medicare 
     Prescription Drug plan or MedicareAdvantage plan may provide 
     a different prescription drug benefit design from the 
     standard prescription drug coverage described in subsection 
     (c) so long as the Administrator determines (based on an 
     actuarial analysis by the Administrator) that the following 
     requirements are met and the plan applies for, and receives, 
     the approval of the Administrator for such benefit design:
       ``(1) Assuring at least actuarially equivalent prescription 
     drug coverage.--
       ``(A) Assuring equivalent value of total coverage.--The 
     actuarial value of the total coverage (as determined under 
     subsection (f)) is at least equal to the actuarial value (as 
     so determined) of standard prescription drug coverage.
       ``(B) Assuring equivalent unsubsidized value of coverage.--
     The unsubsidized value of the coverage is at least equal to 
     the unsubsidized value of standard prescription drug 
     coverage. For purposes of this subparagraph, the unsubsidized 
     value of coverage is the amount by which the actuarial value 
     of the coverage (as determined under subsection (f)) exceeds 
     the actuarial value of the amounts associated with the 
     application of section 1860D-17(c) and reinsurance payments 
     under section 1860D-20 with respect to such coverage.
       ``(C) Assuring standard payment for costs at initial 
     coverage limit.--The coverage is designed, based upon an 
     actuarially representative pattern of utilization (as 
     determined under subsection (f)), to provide for the payment, 
     with respect to costs incurred that are equal to the initial 
     coverage limit under subsection (c)(3), of an amount equal to 
     at least the product of--
       ``(i) such initial coverage limit minus the deductible 
     under subsection (c)(1); and
       ``(ii) the percentage specified in subsection (c)(2).

     Benefits other than qualified prescription drug coverage 
     shall not be taken into account for purposes of this 
     paragraph.
       ``(2) Deductible and limitation on out-of-pocket 
     expenditures by beneficiaries may not vary.--The coverage may 
     not vary the deductible under subsection (c)(1) for the year 
     or the limitation on out-of-pocket expenditures by 
     beneficiaries described in subsection (c)(4) for the year.
       ``(e) Access to Negotiated Prices.--
       ``(1) Access.--
       ``(A) In general.--Under qualified prescription drug 
     coverage offered by an eligible entity or a MedicareAdvantage 
     organization, the entity or organization shall provide 
     beneficiaries with access to negotiated prices used for 
     payment for covered drugs, regardless of the fact that no 
     benefits may be payable under the coverage with respect to 
     such drugs because of the application of the deductible, any 
     cost-sharing, or an initial coverage limit (described in 
     subsection (c)(3)). For purposes of this part, the term 
     `negotiated prices' includes all discounts, direct or 
     indirect subsidies, rebates, or other price concessions or 
     direct or indirect remunerations and shall reflect prices 
     that are no higher than the prices negotiated by the 
     Secretary under subparagraph (B).
       ``(B) Secretarial negotiated price.--Notwithstanding any 
     other provision of this part, the Secretary shall, consistent 
     with the requirements of this part and the goals of providing 
     quality care and containing costs under this part, negotiate 
     contracts with manufacturers of covered outpatient 
     prescription drugs that provide for the maximum prices that 
     may be charged to individuals enrolled under this part by 
     participating pharmacies for dispensing such drugs to such 
     individuals.
       ``(C) Medicaid related provisions.--Insofar as a State 
     elects to provide medical assistance under title XIX for a 
     drug based on the prices negotiated under a Medicare 
     Prescription Drug plan under this part, the requirements of 
     section 1927 shall not apply to such drugs. The prices 
     negotiated under a Medicare Prescription Drug plan with 
     respect to covered drugs, under a MedicareAdvantage plan with 
     respect to such drugs, or under a qualified retiree 
     prescription drug plan (as defined in section 1860D-20(e)(4)) 
     with respect to such drugs, on behalf of eligible 
     beneficiaries, shall (notwithstanding any other provision of 
     law) not be taken into account for the purposes of 
     establishing the best price under section 1927(c)(1)(C).
       ``(2) Cards or other technology.--
       ``(A) In general.--In providing the access under paragraph 
     (1), the eligible entity or MedicareAdvantage organization 
     shall issue a card or use other technology pursuant to 
     section 1860D-5(b)(1).
       ``(B) National standards.--
       ``(i) Development.--The Administrator shall provide for the 
     development of national standards relating to a standardized 
     format for the card or other technology required under 
     subparagraph (A). Such standards shall be compatible with 
     parts C and D of title XI and may be based on standards 
     developed by an appropriate standard setting organization.
       ``(ii) Consultation.--In developing the standards under 
     clause (i), the Administrator shall consult with the National 
     Council for Prescription Drug Programs and other standard-
     setting organizations determined appropriate by the 
     Administrator.
       ``(iii) Implementation.--The Administrator shall implement 
     the standards developed under clause (i) by January 1, 2008.
       ``(3) Disclosure.--The eligible entity offering a Medicare 
     Prescription Drug plan and the MedicareAdvantage organization 
     offering a MedicareAdvantage plan shall disclose to the 
     Administrator (in a manner specified by the Administrator) 
     the extent to which discounts, direct or indirect subsidies, 
     rebates, or other price concessions or direct or indirect 
     remunerations made available to the entity or organization by 
     a manufacturer are passed through to enrollees through 
     pharmacies and other dispensers or otherwise. The provisions 
     of section 1927(b)(3)(D) shall apply to information disclosed 
     to the Administrator under this paragraph in the same manner 
     as such provisions apply to information disclosed under such 
     section.
       ``(4) Audits and reports.--To protect against fraud and 
     abuse and to ensure proper disclosures and accounting under 
     this part, in addition to any protections against fraud and 
     abuse provided under section 1860D-7(f)(1), the Administrator 
     may periodically audit the financial statements and records 
     of an eligible entity offering a Medicare Prescription Drug 
     plan and a MedicareAdvantage organization offering a 
     MedicareAdvantage plan.
       ``(f) Actuarial Valuation; Determination of Annual 
     Percentage Increases.--
       ``(1) Processes.--For purposes of this section, the 
     Administrator shall establish processes and methods--
       ``(A) for determining the actuarial valuation of 
     prescription drug coverage, including--
       ``(i) an actuarial valuation of standard prescription drug 
     coverage and of the reinsurance payments under section 1860D-
     20;
       ``(ii) the use of generally accepted actuarial principles 
     and methodologies; and
       ``(iii) applying the same methodology for determinations of 
     alternative coverage under subsection (d) as is used with 
     respect to determinations of standard prescription drug 
     coverage under subsection (c); and
       ``(B) for determining annual percentage increases described 
     in subsection (c)(5).

     Such processes shall take into account any effect that 
     providing actuarially equivalent prescription drug coverage 
     rather than standard prescription drug coverage has on drug 
     utilization.

[[Page 16524]]

       ``(2) Use of outside actuaries.--Under the processes under 
     paragraph (1)(A), eligible entities and MedicareAdvantage 
     organizations may use actuarial opinions certified by 
     independent, qualified actuaries to establish actuarial 
     values, but the Administrator shall determine whether such 
     actuarial values meet the requirements under subsection 
     (c)(1).


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

       ``Sec. 1860D-7. (a) General Requirements.--An eligible 
     entity offering a Medicare Prescription Drug plan shall meet 
     the following requirements:
       ``(1) Licensure.--Subject to subsection (c), the entity is 
     organized and licensed under State law as a risk-bearing 
     entity eligible to offer health insurance or health benefits 
     coverage in each State in which it offers a Medicare 
     Prescription Drug plan.
       ``(2) Assumption of financial risk.--
       ``(A) In general.--Subject to subparagraph (B) and 
     subsections (d)(2) and (e) of section 1860D-13, to the extent 
     that the entity is at risk pursuant to such section 1860D-16, 
     the entity assumes financial risk on a prospective basis for 
     the benefits that it offers under a Medicare Prescription 
     Drug plan and that is not covered under section 1860D-20.
       ``(B) Reinsurance permitted.--To the extent that the entity 
     is at risk pursuant to section 1860D-16, the entity may 
     obtain insurance or make other arrangements for the cost of 
     coverage provided to any enrolled member under this part.
       ``(3) Solvency for unlicensed entities.--In the case of an 
     eligible entity that is not described in paragraph (1) and 
     for which a waiver has been approved under subsection (c), 
     such entity shall meet solvency standards established by the 
     Administrator under subsection (d).
       ``(b) Contract Requirements.--The Administrator shall not 
     permit an eligible beneficiary to elect a Medicare 
     Prescription Drug plan offered by an eligible entity under 
     this part, and the entity shall not be eligible for payments 
     under section 1860D-16 or 1860D-20, unless the Administrator 
     has entered into a contract under this subsection with the 
     entity with respect to the offering of such plan. Such a 
     contract with an entity may cover more than 1 Medicare 
     Prescription Drug plan. Such contract shall provide that the 
     entity agrees to comply with the applicable requirements and 
     standards of this part and the terms and conditions of 
     payment as provided for in this part.
       ``(c) Waiver of Certain Requirements in Order To Ensure 
     Beneficiary Choice.--
       ``(1) In general.--In the case of an eligible entity that 
     seeks to offer a Medicare Prescription Drug plan in a State, 
     the Administrator shall waive the requirement of subsection 
     (a)(1) that the entity be licensed in that State if the 
     Administrator determines, based on the application and other 
     evidence presented to the Administrator, that any of the 
     grounds for approval of the application described in 
     paragraph (2) have been met.
       ``(2) Grounds for approval.--The grounds for approval under 
     this paragraph are the grounds for approval described in 
     subparagraphs (B), (C), and (D) of section 1855(a)(2), and 
     also include the application by a State of any grounds other 
     than those required under Federal law.
       ``(3) Application of waiver procedures.--With respect to an 
     application for a waiver (or a waiver granted) under this 
     subsection, the provisions of subparagraphs (E), (F), and (G) 
     of section 1855(a)(2) shall apply.
       ``(4) References to certain provisions.--For purposes of 
     this subsection, in applying the provisions of section 
     1855(a)(2) under this subsection to Medicare Prescription 
     Drug plans and eligible entities--
       ``(A) any reference to a waiver application under section 
     1855 shall be treated as a reference to a waiver application 
     under paragraph (1); and
       ``(B) any reference to solvency standards were treated as a 
     reference to solvency standards established under subsection 
     (d).
       ``(d) Solvency Standards for Non-Licensed Entities.--
       ``(1) Establishment and publication.--The Administrator, in 
     consultation with the National Association of Insurance 
     Commissioners, shall establish and publish, by not later than 
     January 1, 2005, financial solvency and capital adequacy 
     standards for entities described in paragraph (2).
       ``(2) Compliance with standards.--An eligible entity that 
     is not licensed by a State under subsection (a)(1) and for 
     which a waiver application has been approved under subsection 
     (c) shall meet solvency and capital adequacy standards 
     established under paragraph (1). The Administrator shall 
     establish certification procedures for such eligible entities 
     with respect to such solvency standards in the manner 
     described in section 1855(c)(2).
       ``(e) Licensure Does Not Substitute for or Constitute 
     Certification.--The fact that an entity is licensed in 
     accordance with subsection (a)(1) or has a waiver application 
     approved under subsection (c) does not deem the eligible 
     entity to meet other requirements imposed under this part for 
     an eligible entity.
       ``(f) Incorporation of Certain MedicareAdvantage Contract 
     Requirements.--The following provisions of section 1857 shall 
     apply, subject to subsection (c)(4), to contracts under this 
     section in the same manner as they apply to contracts under 
     section 1857(a):
       ``(1) Protections against fraud and beneficiary 
     protections.--Section 1857(d).
       ``(2) Intermediate sanctions.--Section 1857(g), except that 
     in applying such section--
       ``(A) the reference in section 1857(g)(1)(B) to section 
     1854 is deemed a reference to this part; and
       ``(B) the reference in section 1857(g)(1)(F) to section 
     1852(k)(2)(A)(ii) shall not be applied.
       ``(3) Procedures for termination.--Section 1857(h).
       ``(g) Other Standards.--The Administrator shall establish 
     by regulation other standards (not described in subsection 
     (d)) for eligible entities and Medicare Prescription Drug 
     plans consistent with, and to carry out, this part. The 
     Administrator shall publish such regulations by January 1, 
     2005.
       ``(h) Periodic Review and Revision of Standards.--
       ``(1) In general.--Subject to paragraph (2), the 
     Administrator shall periodically review the standards 
     established under this section and, based on such review, may 
     revise such standards if the Administrator determines such 
     revision to be appropriate.
       ``(2) Prohibition of midyear implementation of significant 
     new regulatory requirements.--The Administrator may not 
     implement, other than at the beginning of a calendar year, 
     regulations under this section that impose new, significant 
     regulatory requirements on an eligible entity or a Medicare 
     Prescription Drug plan.
       ``(i) Relation to State Laws.--
       ``(1) In general.--The standards established under this 
     part shall supersede any State law or regulation (including 
     standards described in paragraph (2)) with respect to 
     Medicare Prescription Drug plans which are offered by 
     eligible entities under this part--
       ``(A) to the extent such law or regulation is inconsistent 
     with such standards; and
       ``(B) in the same manner as such laws and regulations are 
     superseded under section 1856(b)(3).
       ``(2) Standards specifically superseded.--State standards 
     relating to the following are superseded under this section:
       ``(A) Benefit requirements, including requirements relating 
     to cost-sharing and the structure of formularies.
       ``(B) Premiums.
       ``(C) Requirements relating to inclusion or treatment of 
     providers.
       ``(D) Coverage determinations (including related appeals 
     and grievance processes).
       ``(E) Requirements relating to marketing materials and 
     summaries and schedules of benefits regarding a Medicare 
     Prescription Drug plan.
       ``(3) Prohibition of state imposition of premium taxes.--No 
     State may impose a premium tax or similar tax with respect 
     to--
       ``(A) monthly beneficiary obligations paid to the 
     Administrator for Medicare Prescription Drug plans under this 
     part; or
       ``(B) any payments made by the Administrator under this 
     part to an eligible entity offering such a plan.

             ``Subpart 2--Prescription Drug Delivery System


                    ``establishment of service areas

       ``Sec. 1860D-10. (a) Establishment.--
       ``(1) Initial establishment.--Not later than April 15, 
     2005, the Administrator shall establish and publish the 
     service areas in which Medicare Prescription Drug plans may 
     offer benefits under this part.
       ``(2) Periodic review and revision of service areas.--The 
     Administrator shall periodically review the service areas 
     applicable under this section and, based on such review, may 
     revise such service areas if the Administrator determines 
     such revision to be appropriate.
       ``(b) Requirements for Establishment of Service Areas.--
       ``(1) In general.--The Administrator shall establish the 
     service areas under subsection (a) in a manner that--
       ``(A) maximizes the availability of Medicare Prescription 
     Drug plans to eligible beneficiaries; and
       ``(B) minimizes the ability of eligible entities offering 
     such plans to favorably select eligible beneficiaries.
       ``(2) Additional requirements.--The Administrator shall 
     establish the service areas under subsection (a) consistent 
     with the following requirements:
       ``(A) There shall be at least 10 service areas.
       ``(B) Each service area must include at least 1 State.
       ``(C) The Administrator may not divide States so that 
     portions of the State are in different service areas.
       ``(D) To the extent possible, the Administrator shall 
     include multistate metropolitan statistical areas in a single 
     service area. The Administrator may divide metropolitan 
     statistical areas where it is necessary to establish service 
     areas of such size and geography as to maximize the 
     participation of Medicare Prescription Drug plans.

[[Page 16525]]

       ``(3) May conform to medicareadvantage preferred provider 
     regions.--The Administrator may conform the service areas 
     established under this section to the preferred provider 
     regions established under section 1858(a)(3).


                    ``publication of risk adjusters

       ``Sec. 1860D-11. (a) Publication.--Not later than April 15 
     of each year (beginning in 2005), the Administrator shall 
     publish the risk adjusters established under subsection (b) 
     to be used in computing--
       ``(1) the amount of payment to Medicare Prescription Drug 
     plans in the subsequent year under section 1860D-16(a), 
     insofar as it is attributable to standard prescription drug 
     coverage (or actuarially equivalent prescription drug 
     coverage); and
       ``(2) the amount of payment to MedicareAdvantage plans in 
     the subsequent year under section 1858A(c), insofar as it is 
     attributable to standard prescription drug coverage (or 
     actuarially equivalent prescription drug coverage).
       ``(b) Establishment of Risk Adjusters.--
       ``(1) In general.--Subject to paragraph (2), the 
     Administrator shall establish an appropriate methodology for 
     adjusting the amount of payment to plans referred to in 
     subsection (a) to take into account variation in costs based 
     on the differences in actuarial risk of different enrollees 
     being served. Any such risk adjustment shall be designed in a 
     manner as to not result in a change in the aggregate payments 
     described in paragraphs (1) and (2) of subsection (a).
       ``(2) Considerations.--In establishing the methodology 
     under paragraph (1), the Administrator may take into account 
     the similar methodologies used under section 1853(a)(3) to 
     adjust payments to MedicareAdvantage organizations.
       ``(3) Data collection.--In order to carry out this 
     subsection, the Administrator shall require--
       ``(A) eligible entities to submit data regarding drug 
     claims that can be linked at the beneficiary level to part A 
     and part B data and such other information as the 
     Administrator determines necessary; and
       ``(B) MedicareAdvantage organizations (except MSA plans or 
     a private fee-for-service plan that does not provide 
     qualified prescription drug coverage) to submit data 
     regarding drug claims that can be linked to other data that 
     such organizations are required to submit to the 
     Administrator and such other information as the Administrator 
     determines necessary.


   ``submission of bids for proposed medicare prescription drug plans

       ``Sec. 1860D-12. (a) Submission.--
       ``(1) In general.--Each eligible entity that intends to 
     offer a Medicare Prescription Drug plan in an area in a year 
     (beginning with 2006) shall submit to the Administrator, at 
     such time in the previous year and in such manner as the 
     Administrator may specify, such information as the 
     Administrator may require, including the information 
     described in subsection (b).
       ``(2) Annual submission.--An eligible entity shall submit 
     the information required under paragraph (1) with respect to 
     a Medicare Prescription Drug plan that the entity intends to 
     offer on an annual basis.
       ``(b) Information Described.--The information described in 
     this subsection includes information on each of the 
     following:
       ``(1) The benefits under the plan (as required under 
     section 1860D-6).
       ``(2) The actuarial value of the qualified prescription 
     drug coverage.
       ``(3) The amount of the monthly plan premium under the 
     plan, including an actuarial certification of--
       ``(A) the actuarial basis for such monthly plan premium;
       ``(B) the portion of such monthly plan premium attributable 
     to standard prescription drug coverage or actuarially 
     equivalent prescription drug coverage and, if applicable, to 
     benefits that are in addition to such coverage; and
       ``(C) the reduction in such monthly plan premium resulting 
     from the payments provided under section 1860D-20.
       ``(4) The service area for the plan.
       ``(5) Whether the entity plans to use any funds in the plan 
     stabilization reserve fund in the Prescription Drug Account 
     that are available to the entity to stabilize or reduce the 
     monthly plan premium submitted under paragraph (3), and if 
     so, the amount in such reserve fund that is to be used.
       ``(6) Such other information as the Administrator may 
     require to carry out this part.
       ``(c) Options Regarding Service Areas.--
       ``(1) In general.--The service area of a Medicare 
     Prescription Drug plan shall be either--
       ``(A) the entire area of 1 of the service areas established 
     by the Administrator under section 1860D-10; or
       ``(B) the entire area covered by the medicare program.
       ``(2) Rule of construction.--Nothing in this part shall be 
     construed as prohibiting an eligible entity from submitting 
     separate bids in multiple service areas as long as each bid 
     is for a single service area.


        ``approval of proposed medicare prescription drug plans

       ``Sec. 1860D-13. (a) Approval.--
       ``(1) In general.--The Administrator shall review the 
     information filed under section 1860D-12 and shall approve or 
     disapprove the Medicare Prescription Drug plan.
       ``(2) Requirements for approval.--The Administrator may not 
     approve a Medicare Prescription Drug plan unless the 
     following requirements are met:
       ``(A) Compliance with requirements.--The plan and the 
     entity offering the plan comply with the requirements under 
     this part.
       ``(B) Application of fehbp standard.--(i) The portion of 
     the monthly plan premium submitted under section 1860D-12(b) 
     that is attributable to standard prescription drug coverage 
     reasonably and equitably reflects the actuarial value of the 
     standard prescription drug coverage less the actuarial value 
     of the reinsurance payments under section 1860D-20 and the 
     amount of any funds in the plan stabilization reserve fund in 
     the Prescription Drug Account used to stabilize or reduce the 
     monthly plan premium.
       ``(ii) If the plan provides additional prescription drug 
     coverage pursuant to section 1860D-6(a)(2), the monthly plan 
     premium reasonably and equitably reflects the actuarial value 
     of the coverage provided less the actuarial value of the 
     reinsurance payments under section 1860D-20 and the amount of 
     any funds in the plan stabilization reserve fund in the 
     Prescription Drug Account used to stabilize or reduce the 
     monthly plan premium.
       ``(b) Negotiation.--In exercising the authority under 
     subsection (a), the Administrator shall have the authority 
     to--
       ``(1) negotiate the terms and conditions of the proposed 
     monthly plan premiums submitted and other terms and 
     conditions of a proposed plan; and
       ``(2) disapprove, or limit enrollment in, a proposed plan 
     based on--
       ``(A) the costs to beneficiaries under the plan;
       ``(B) the quality of the coverage and benefits under the 
     plan;
       ``(C) the adequacy of the network under the plan; or
       ``(D) other factors determined appropriate by the 
     Administrator.
       ``(c) Special Rules for Approval.--The Administrator may 
     approve a Medicare Prescription Drug plan submitted under 
     section 1860D-12 only if the benefits under such plan--
       ``(1) include the required benefits under section 1860D-
     6(a)(1); and
       ``(2) are not designed in such a manner that the 
     Administrator finds is likely to result in favorable 
     selection of eligible beneficiaries.
       ``(d) Access to Competitive Coverage.--
       ``(1) Number of contracts.--The Administrator, consistent 
     with the requirements of this part and the goal of containing 
     costs under this title, shall, with respect to a year, 
     approve at least 2 contracts to offer a Medicare Prescription 
     Drug plan in each service area (established under section 
     1860D-10) for the year.
       ``(2) Authority to reduce risk to ensure access.--
       ``(A) In general.--Subject to subparagraph (B), if the 
     Administrator determines, with respect to an area, that the 
     access required under paragraph (1) is not going to be 
     provided in the area during the subsequent year, the 
     Administrator shall--
       ``(i) adjust the percents specified in paragraphs (2) and 
     (4) of section 1860D-16(b) in an area in a year; or
       ``(ii) increase the percent specified in section 1860D-
     20(c)(1) in an area in a year.

     The administrator shall exercise the authority under the 
     preceding sentence only so long as (and to the extent) 
     necessary to assure the access guaranteed under paragraph 
     (1).
       ``(B) Requirements for use of authority.--In exercising 
     authority under subparagraph (A), the Administrator--
       ``(i) shall not provide for the full underwriting of 
     financial risk for any eligible entity;
       ``(ii) shall not provide for any underwriting of financial 
     risk for a public eligible entity with respect to the 
     offering of a nationwide Medicare Prescription Drug plan; and
       ``(iii) shall seek to maximize the assumption of financial 
     risk by eligible entities to ensure fair competition among 
     Medicare Prescription Drug plans.
       ``(C) Requirement to accept 2 full-risk qualified bids 
     before exercising authority.--The Administrator may not 
     exercise the authority under subparagraph (A) with respect to 
     an area and year if 2 or more qualified bids are submitted by 
     eligible entities to offer a Medicare Prescription Drug plan 
     in the area for the year under paragraph (1) before the 
     application of subparagraph (A).
       ``(D) Reports.--The Administrator, in each annual report to 
     Congress under section 1808(c)(1)(D), shall include 
     information on the exercise of authority under subparagraph 
     (A). The Administrator also shall include such 
     recommendations as may be appropriate to limit the exercise 
     of such authority.
       ``(e) Guaranteed Access.--
       ``(1) Access.--In order to assure access to qualified 
     prescription drug coverage in an area, the Administrator 
     shall take the following steps:
       ``(A) Determination.--Not later than September 1 of each 
     year (beginning in 2005) and

[[Page 16526]]

     for each area (established under section 1860D-10), the 
     Administrator shall make a determination as to whether the 
     access required under subsection (d)(1) is going to be 
     provided in the area during the subsequent year. Such 
     determination shall be made after the Administrator has 
     exercised the authority under subsection (d)(2).
       ``(B) Contract with an entity to provide coverage in an 
     area.--Subject to paragraph (3), if the Administrator makes a 
     determination under subparagraph (A) that the access required 
     under subsection (d)(1) is not going to be provided in an 
     area during the subsequent year, the Administrator shall 
     enter into a contract with an entity to provide eligible 
     beneficiaries enrolled under this part (and not, except for 
     an MSA plan or a private fee-for-service plan that does not 
     provide qualified prescription drug coverage enrolled in a 
     MedicareAdvantage plan) and residing in the area with 
     standard prescription drug coverage (including access to 
     negotiated prices for such beneficiaries pursuant to section 
     1860D-6(e)) during the subsequent year. An entity may be 
     awarded a contract for more than 1 of the areas for which the 
     Administrator is required to enter into a contract under this 
     paragraph but the Administrator may enter into only 1 such 
     contract in each such area. An entity with a contract under 
     this part shall meet the requirements described in section 
     1860D-5 and such other requirements determined appropriate by 
     the Administrator.
       ``(C) Requirement to accept 2 reduced-risk qualified bids 
     before entering into contract.--The Administrator may not 
     enter into a contract under subparagraph (B) with respect to 
     an area and year if 2 or more qualified bids are submitted by 
     eligible entities to offer a Medicare Prescription Drug plan 
     in the area for the year after the Administrator has 
     exercised the authority under subsection (d)(2) in the area 
     for the year.
       ``(D) Entity required to meet beneficiary protection and 
     other requirements.--An entity with a contract under 
     subparagraph (B) shall meet the requirements described in 
     section 1860D-5 and such other requirements determined 
     appropriate by the Administrator.
       ``(E) Competitive procedures.--Competitive procedures (as 
     defined in section 4(5) of the Office of Federal Procurement 
     Policy Act (41 U.S.C. 403(5))) shall be used to enter into a 
     contract under subparagraph (B).
       ``(2) Monthly beneficiary obligation for enrollment.--
       ``(A) In general.--In the case of an eligible beneficiary 
     receiving access to qualified prescription drug coverage 
     through enrollment with an entity with a contract under 
     paragraph (1)(B), the monthly beneficiary obligation of such 
     beneficiary for such enrollment shall be an amount equal to 
     the applicable percent (as determined under section 1860D-
     17(c)) of the monthly national average premium (as computed 
     under section 1860D-15) for the area for the year, as 
     adjusted using the geographic adjuster under subparagraph 
     (B).
       ``(B) Establishment of geographic adjuster.--The 
     Administrator shall establish an appropriate methodology for 
     adjusting the monthly beneficiary obligation (as computed 
     under subparagraph (A)) for the year in an area to take into 
     account differences in drug prices among areas. In 
     establishing such methodology, the Administrator may take 
     into account differences in drug utilization between eligible 
     beneficiaries in an area and eligible beneficiaries in other 
     areas and the results of the ongoing study required under 
     section 106 of the Prescription Drug and Medicare Improvement 
     Act of 2003. Any such adjustment shall be applied in a manner 
     so as to not result in a change in the aggregate payments 
     made under this part that would have been made if the 
     Administrator had not applied such adjustment.
       ``(3) Payments under the contract.--
       ``(A) In general.--A contract entered into under paragraph 
     (1)(B) shall provide for--
       ``(i) payment for the negotiated costs of covered drugs 
     provided to eligible beneficiaries enrolled with the entity; 
     and
       ``(ii) payment of prescription management fees that are 
     tied to performance requirements established by the 
     Administrator for the management, administration, and 
     delivery of the benefits under the contract.
       ``(B) Performance requirements.--The performance 
     requirements established by the Administrator pursuant to 
     subparagraph (A)(ii) shall include the following:
       ``(i) The entity contains costs to the Prescription Drug 
     Account and to eligible beneficiaries enrolled under this 
     part and with the entity.
       ``(ii) The entity provides such beneficiaries with quality 
     clinical care.
       ``(iii) The entity provides such beneficiaries with quality 
     services.
       ``(C) Entity only at risk to the extent of the fees tied to 
     performance requirements.--An entity with a contract under 
     paragraph (1)(B) shall only be at risk for the provision of 
     benefits under the contract to the extent that the management 
     fees paid to the entity are tied to performance requirements 
     under subparagraph (A)(ii).
       ``(4) Eligible entity that submitted a bid for the area not 
     eligible to be awarded the contract.--An eligible entity that 
     submitted a bid to offer a Medicare Prescription Drug plan 
     for an area for a year under section 1860D-12, including a 
     bid submitted after the Administrator has exercised the 
     authority under subsection (d)(2), may not be awarded a 
     contract under paragraph (1)(B) for that area and year. The 
     previous sentence shall apply to an entity that was awarded a 
     contract under paragraph (1)(B) for the area in the previous 
     year and submitted such a bid under section 1860D-12 for the 
     year.
       ``(5) Contract to be available in designated area for 2 
     years.--Notwithstanding paragraph (1), if the Administrator 
     enters into a contract with an entity with respect to an area 
     designated under subparagraph (B) of such paragraph for a 
     year, the following rules shall apply:
       ``(A) The contract shall be for a 2-year period.
       ``(B) The Secretary is not required to make the 
     determination under paragraph (1)(A) with respect to the 
     second year of the contract for the area.
       ``(C) During the second year of the contract, an eligible 
     beneficiary residing in the area may continue to receive 
     standard prescription drug coverage (including access to 
     negotiated prices for such beneficiaries pursuant to section 
     1860D-6(e)) under such contract or through any Medicare 
     Prescription Drug plan that is available in the area.
       ``(6) Entity not permitted to market or brand the 
     contract.--An entity with a contract under paragraph (1)(B) 
     may not engage in any marketing or branding of such contract.
       ``(7) Rules for areas where only 1 competitively bid plan 
     was approved.--In the case of an area where (before the 
     application of this subsection) only 1 Medicare Prescription 
     Drug plan was approved for a year--
       ``(A) the plan may (at the option of the plan) be offered 
     in the area for the year (under rules applicable to such 
     plans under this part and not under this subsection);
       ``(B) eligible beneficiaries described in paragraph (1)(B) 
     may receive access to qualified prescription drug coverage 
     through enrollment in the plan or with an entity with a 
     contract under paragraph (1)(B); and
       ``(C) for purposes of applying section 1860D-
     3(a)(1)(A)(ii), such plan shall be the plan designated in the 
     area under such section.
       ``(f) Two-Year Contracts.--Except for a contract entered 
     into under subsection (e)(1)(B), a contract approved under 
     this part (including a contract under) shall be for a 2-year 
     period.


 ``computation of monthly standard prescription drug coverage premiums

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


           ``computation of monthly national average premium

       ``Sec. 1860D-15. (a) Computation.--
       ``(1) In general.--For each year (beginning with 2006) the 
     Administrator shall compute a monthly national average 
     premium equal to the average of the monthly standard 
     prescription drug coverage premium for each Medicare 
     Prescription Drug plan and each MedicareAdvantage plan (as 
     computed under section 1860D-14). Such premium may be 
     adjusted pursuant to any methodology determined under 
     subsection (b), as determined appropriate by the 
     Administrator.
       ``(2) Weighted average.--The monthly national average 
     premium computed under paragraph (1) shall be a weighted 
     average, with the weight for each plan being equal to the 
     average number of beneficiaries enrolled under such plan in 
     the previous year.
       ``(b) Geographic Adjustment.--The Administrator shall 
     establish an appropriate methodology for adjusting the 
     monthly national average premium (as computed under 
     subsection (a)) for the year in an area to

[[Page 16527]]

     take into account differences in prices for covered drugs 
     among different areas. In establishing such methodology, the 
     Administrator may take into account differences in drug 
     utilization between eligible beneficiaries in that area and 
     other eligible beneficiaries and the results of the ongoing 
     study required under section 106 of the Prescription Drug and 
     Medicare Improvement Act of 2003. Any such adjustment shall 
     be applied in a manner as to not result in a change in 
     aggregate payments made under this part than would have been 
     made if the Administrator had not applied such adjustment.
       ``(c) Special Rule for 2006.--For purposes of applying this 
     section for 2006, the Administrator shall establish 
     procedures for determining the weighted average under 
     subsection (a)(2) for 2005.


                    ``payments to eligible entities

       ``Sec. 1860D-16. (a) Payment of Monthly Plan Premiums.--For 
     each year (beginning with 2006), the Administrator shall pay 
     to each entity offering a Medicare Prescription Drug plan in 
     which an eligible beneficiary is enrolled an amount equal to 
     the full amount of the monthly plan premium approved for the 
     plan under section 1860D-13 on behalf of each eligible 
     beneficiary enrolled in such plan for the year, as adjusted 
     using the risk adjusters that apply to the standard 
     prescription drug coverage published under section 1860D-11.
       ``(b) Portion of Total Payments of Monthly Plan Premiums 
     Subject to Risk.--
       ``(1) Notification of spending under the plan.--
       ``(A) In general.--For each year (beginning in 2007), the 
     eligible entity offering a Medicare Prescription Drug plan 
     shall notify the Administrator of the following:
       ``(i) Total actual costs.--The total amount of costs that 
     the entity incurred in providing standard prescription drug 
     coverage (or prescription drug coverage that is actuarially 
     equivalent pursuant to section 1860D-6(a)(1)(B)) for all 
     enrollees under the plan in the previous year.
       ``(ii) Actual costs for specific drugs.--With respect to 
     the total amount under clause (i) for the year, a breakdown 
     of--

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

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

       ``(I) the applicable percent (as defined in subparagraph 
     (D)) of such allowable costs which are more than such first 
     threshold upper limit of the risk corridor and not more than 
     the second threshold upper limit of the risk corridor for the 
     plan for the year (as specified under paragraph (4)(A)(iv)); 
     and
       ``(II) 90 percent of such allowable costs which are more 
     than such second threshold upper limit of the risk corridor.

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

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

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

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

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

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

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

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

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

       ``(I) for 2006 and 2007, and 2.5 percent;
       ``(II) for 2008 through 2011, 5 percent; and
       ``(III) for 2012 and subsequent years, a percentage 
     established by the Administrator, but in no case less than 5 
     percent.

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

[[Page 16528]]

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

       ``(iii) Reduction of risk percentage to ensure 2 plans in 
     an area.--Pursuant to paragraph (2) of section 1860D-13(d), 
     the Administrator may reduce the applicable first or second 
     threshold risk percentage in an area in a year in order to 
     ensure the access to plans required under paragraph (1) of 
     such section.
       ``(D) Target amount not to include administrative expenses 
     negotiated between the administrator and the entity offering 
     the plan.--For each year (beginning in 2006), the 
     Administrator and the entity offering a Medicare Prescription 
     Drug plan shall negotiate, as part of the negotiation process 
     described in section 1860D-13(b) during the previous year, 
     the percentage of the payments to the entity under subsection 
     (a) with respect to the plan that are attributable and 
     reasonably incurred for administrative expenses for providing 
     standard prescription drug coverage or actuarially equivalent 
     prescription drug coverage in the year.
       ``(5) Plans at risk for entire amount of additional 
     prescription drug coverage.--An eligible entity that offers a 
     Medicare Prescription Drug plan that provides additional 
     prescription drug coverage pursuant to section 1860D-6(a)(2) 
     shall be at full financial risk for the provision of such 
     additional coverage.
       ``(6) No effect on eligible beneficiaries.--No change in 
     payments made by reason of this subsection shall affect the 
     beneficiary obligation under section 1860D-17 for the year in 
     which such change in payments is made.
       ``(7) Disclosure of information.--
       ``(A) In general.--Each contract under this part shall 
     provide that--
       ``(i) the entity offering a Medicare Prescription Drug plan 
     shall provide the Administrator with such information as the 
     Administrator determines is necessary to carry out this 
     section; and
       ``(ii) the Administrator shall have the right to inspect 
     and audit any books and records of the eligible entity that 
     pertain to the information regarding costs provided to the 
     Administrator under paragraph (1).
       ``(B) Restriction on use of information.--Information 
     disclosed or obtained pursuant to the provisions of this 
     section may be used by officers and employees of the 
     Department of Health and Human Services only for the purposes 
     of, and to the extent necessary in, carrying out this 
     section.
       ``(c) Stabilization Reserve Fund.--
       ``(1) Establishment.--
       ``(A) In general.--There is established, within the 
     Prescription Drug Account, a stabilization reserve fund in 
     which the Administrator shall deposit amounts on behalf of 
     eligible entities in accordance with paragraph (2) and such 
     amounts shall be made available by the Secretary for the use 
     of eligible entities in contract year 2008 and subsequent 
     contract years in accordance with paragraph (3).
       ``(B) Reversion of unused amounts.--Any amount in the 
     stabilization reserve fund established under subparagraph (A) 
     that is not expended by an eligible entity in accordance with 
     paragraph (3) or that was deposited for the use of an 
     eligible entity that no longer has a contract under this part 
     shall revert for the use of the Prescription Drug Account.
       ``(2) Deposit of amounts for 5 years.--
       ``(A) In general.--If the target amount for a Medicare 
     Prescription Drug plan for 2006, 2007, 2008, 2009, or 2010 
     (as determined under subsection (b)(4)(B)) exceeds the 
     applicable costs for the plan for the year by more than 3 
     percent, then--
       ``(i) the entity offering the plan shall make a payment to 
     the Administrator of an amount (or the Administrator shall 
     otherwise recover from the plan an amount) equal to the 
     portion of such excess that is in excess of 3 percent of the 
     target amount; and
       ``(ii) the Administrator shall deposit an amount equal to 
     the amount collected or otherwise recovered under clause (i) 
     in the stabilization reserve fund on behalf of the eligible 
     entity offering such plan.
       ``(B) Applicable costs.--For purposes of subparagraph (A), 
     the term `applicable costs' means, with respect to a Medicare 
     Prescription Drug plan and year, an amount equal the sum of--
       ``(i) the allowable costs for the plan and year (as 
     determined under subsection (b)(3)(A); and
       ``(ii) the total amount by which monthly payments to the 
     plan were reduced (or otherwise recovered from the plan) for 
     the year under subsection (b)(2)(C).
       ``(3) Use of reserve fund to stabilize or reduce monthly 
     plan premiums.--
       ``(A) In general.--For any contract year beginning after 
     2007, an eligible entity offering a Medicare Prescription 
     Drug plan may use funds in the stabilization reserve fund in 
     the Prescription Drug Account that were deposited in such 
     fund on behalf of the entity to stabilize or reduce monthly 
     plan premiums submitted under section 1860D-12(b)(3).
       ``(B) Procedures.--The Administrator shall establish 
     procedures for--
       ``(i) reducing monthly plan premiums submitted under 
     section 1860D-12(b)(3) pursuant to subparagraph (A); and
       ``(ii) making payments from the plan stabilization reserve 
     fund in the Prescription Drug Account to eligible entities 
     that inform the Secretary under section 1860D-12(b)(5) of the 
     entity's intent to use funds in such reserve fund to reduce 
     such premiums.
       ``(d) Portion of Payments of Monthly Plan Premiums 
     Attributable to Administrative Expenses Tied to Performance 
     Requirements.--
       ``(1) In general.--The Administrator shall establish 
     procedures to adjust the portion of the payments made to an 
     entity under subsection (a) that are attributable to 
     administrative expenses (as determined pursuant to subsection 
     (b)(4)(D)) to ensure that the entity meets the performance 
     requirements described in clauses (ii) and (iii) of section 
     1860D-13(e)(4)(B).
       ``(2) No effect on eligible beneficiaries.--No change in 
     payments made by reason of this subsection shall affect the 
     beneficiary obligation under section 1860D-17 for the year in 
     which such change in payments is made.
       ``(e) Payment Terms.--
       ``(1) Administrator payments.--Payments to an entity 
     offering a Medicare Prescription Drug plan under this section 
     shall be made in a manner determined by the Administrator and 
     based upon the manner in which payments are made under 
     section 1853(a) (relating to payments to MedicareAdvantage 
     organizations).
       ``(2) Plan payments.--The Administrator shall establish a 
     process for collecting (or other otherwise recovering) 
     amounts that an entity offering a Medicare Prescription Drug 
     plan is required to make to the Administrator under this 
     section.
       ``(f) Payments to MedicareAdvantage Plans.--For provisions 
     related to payments to MedicareAdvantage organizations 
     offering MedicareAdvantage plans for qualified prescription 
     drug coverage made available under the plan, see section 
     1858A(c).
       ``(g) Secondary Payer Provisions.--The provisions of 
     section 1862(b) shall apply to the benefits provided under 
     this part.


            ``computation of monthly beneficiary obligation

       ``Sec. 1860D-17. (a) Beneficiaries Enrolled in a Medicare 
     Prescription Drug Plan.--In the case of an eligible 
     beneficiary enrolled under this part and in a Medicare 
     Prescription Drug plan, the monthly beneficiary obligation 
     for enrollment in such plan in a year shall be determined as 
     follows:
       ``(1) Monthly plan premium equals monthly national average 
     premium.--If the amount of the monthly plan premium approved 
     by the Administrator under section 1860D-13 for a Medicare 
     Prescription Drug plan for the year is equal to the monthly 
     national average premium (as computed under section 1860D-15) 
     for the area for the year, the monthly beneficiary obligation 
     of the eligible beneficiary in that year shall be an amount 
     equal to the applicable percent (as determined in subsection 
     (c)) of the amount of such monthly national average premium.
       ``(2) Monthly plan premium less than monthly national 
     average premium.--If the amount of the monthly plan premium 
     approved by the Administrator under section 1860D-13 for the 
     Medicare Prescription Drug plan for the year is less than the 
     monthly national average premium (as computed under section 
     1860D-15) for the area for the year, the monthly beneficiary 
     obligation of the eligible beneficiary in that year shall be 
     an amount equal to--
       ``(A) the applicable percent of the amount of such monthly 
     national average premium; minus
       ``(B) the amount by which such monthly national average 
     premium exceeds the amount of the monthly plan premium 
     approved by the Administrator for the plan.
       ``(3) Monthly plan premium exceeds monthly national average 
     premium.--If the amount of the monthly plan premium approved 
     by the Administrator under section 1860D-13 for a Medicare 
     Prescription Drug plan for the year exceeds the monthly 
     national average premium (as computed under section 1860D-15) 
     for the area for the year, the monthly beneficiary obligation 
     of the eligible beneficiary in that year shall be an amount 
     equal to the sum of--
       ``(A) the applicable percent of the amount of such monthly 
     national average premium; plus
       ``(B) the amount by which the monthly plan premium approved 
     by the Administrator for the plan exceeds the amount of such 
     monthly national average premium.
       ``(b) Beneficiaries Enrolled in a MedicareAdvantage Plan.--
     In the case of an eligible beneficiary that is enrolled in a 
     MedicareAdvantage plan (except for an MSA plan or a private 
     fee-for-service plan that does not provide qualified 
     prescription drug coverage), the Medicare monthly beneficiary 
     obligation for qualified prescription drug coverage shall be 
     determined pursuant to section 1858A(d).
       ``(c) Applicable Percent.--For purposes of this section, 
     except as provided in section 1860D-19 (relating to premium 
     subsidies for low-income individuals), the applicable percent 
     for any year is the percentage equal to a fraction--

[[Page 16529]]

       ``(1) the numerator of which is 27.5 percent; and
       ``(2) the denominator of which is 100 percent minus a 
     percentage equal to--
       ``(A) the total reinsurance payments which the 
     Administrator estimates will be made under section 1860D-20 
     to qualifying entities described in subsection (e)(3) of such 
     section during the year; divided by
       ``(B) the sum of--
       ``(i) the amount estimated under subparagraph (A) for the 
     year; and
       ``(ii) the total payments which the Administrator estimates 
     will be made under sections 1860D-16 and 1858A(c) during the 
     year that relate to standard prescription drug coverage (or 
     actuarially equivalent prescription drug coverage).


             ``collection of monthly beneficiary obligation

       ``Sec. 1860D-18. (a) Collection of Amount in Same Manner as 
     Part B Premium.--
       ``(1) In general.--Subject to paragraph (2), the amount of 
     the monthly beneficiary obligation (determined under section 
     1860D-17) applicable to an eligible beneficiary under this 
     part (after application of any increase under section 1860D-
     2(b)(1)(A)) shall be collected and credited to the 
     Prescription Drug Account in the same manner as the monthly 
     premium determined under section 1839 is collected and 
     credited to the Federal Supplementary Medical Insurance Trust 
     Fund under section 1840.
       ``(2) Procedures for sponsor to pay obligation on behalf of 
     retiree.--The Administrator shall establish procedures under 
     which an eligible beneficiary enrolled in a Medicare 
     Prescription Drug plan may elect to have the sponsor (as 
     defined in paragraph (5) of section 1860D-20(e)) of 
     employment-based retiree health coverage (as defined in 
     paragraph (4)(B) of such section) in which the beneficiary is 
     enrolled pay the amount of the monthly beneficiary obligation 
     applicable to the beneficiary under this part directly to the 
     Administrator.
       ``(b) Information Necessary for Collection.--In order to 
     carry out subsection (a), the Administrator shall transmit to 
     the Commissioner of Social Security--
       ``(1) by the beginning of each year, the name, social 
     security account number, monthly beneficiary obligation owed 
     by each individual enrolled in a Medicare Prescription Drug 
     plan for each month during the year, and other information 
     determined appropriate by the Administrator; and
       ``(2) periodically throughout the year, information to 
     update the information previously transmitted under this 
     paragraph for the year.
       ``(c) Collection for Beneficiaries Enrolled in a 
     MedicareAdvantage Plan.--For provisions related to the 
     collection of the monthly beneficiary obligation for 
     qualified prescription drug coverage under a 
     MedicareAdvantage plan, see section 1858A(e).


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

       ``Sec. 1860D-19. (a) Amount of Subsidies.--
       ``(1) Full premium subsidy and reduction of cost-sharing 
     for qualified medicare beneficiaries.--In the case of a 
     qualified medicare beneficiary (as defined in paragraph 
     (4)(A))--
       ``(A) section 1860D-17 shall be applied--
       ``(i) in subsection (c), by substituting `0 percent' for 
     the applicable percent that would otherwise apply under such 
     subsection; and
       ``(ii) in subsection (a)(3)(B), by substituting `the amount 
     of the monthly plan premium for the Medicare Prescription 
     Drug plan with the lowest monthly plan premium in the area 
     that the beneficiary resides' for `the amount of such monthly 
     national average premium', but only if there is no Medicare 
     Prescription Drug plan offered in the area in which the 
     individual resides that has a monthly plan premium for the 
     year that is equal to or less than the monthly national 
     average premium (as computed under section 1860D-15) for the 
     area for the year;
       ``(B) the annual deductible applicable under section 1860D-
     6(c)(1) in a year shall be reduced to $0;
       ``(C) section 1860D-6(c)(2) shall be applied by 
     substituting `2.5 percent' for `50 percent' each place it 
     appears;
       ``(D) such individual shall be responsible for cost-sharing 
     for the cost of any covered drug provided in the year (after 
     the individual has reached the initial coverage limit 
     described in section 1860D-6(c)(3) and before the individual 
     has reached the annual out-of-pocket limit under section 
     1860D-6(c)(4)(A)), that is equal to 5.0 percent; and
       ``(E) section 1860D-6(c)(4)(A) shall be applied by 
     substituting `2.5 percent' for `10 percent'.

     In no case may the application of subparagraph (A) result in 
     a monthly beneficiary obligation that is below 0.
       ``(2) Full premium subsidy and reduction of cost-sharing 
     for specified low income medicare beneficiaries and 
     qualifying individuals.--In the case of a specified low 
     income medicare beneficiary (as defined in paragraph (4)(B)) 
     or a qualifying individual (as defined in paragraph (4)(C))--
       ``(A) section 1860D-17 shall be applied--
       ``(i) in subsection (c), by substituting `0 percent' for 
     the applicable percent that would otherwise apply under such 
     subsection; and
       ``(ii) in subsection (a)(3)(B), by substituting `the amount 
     of the monthly plan premium for the Medicare Prescription 
     Drug plan with the lowest monthly plan premium in the area 
     that the beneficiary resides' for `the amount of such monthly 
     national average premium', but only if there is no Medicare 
     Prescription Drug plan offered in the area in which the 
     individual resides that has a monthly plan premium for the 
     year that is equal to or less than the monthly national 
     average premium (as computed under section 1860D-15) for the 
     area for the year;
       ``(B) the annual deductible applicable under section 1860D-
     6(c)(1) in a year shall be reduced to $0;
       ``(C) section 1860D-6(c)(2) shall be applied by 
     substituting `5.0 percent' for `50 percent' each place it 
     appears;
       ``(D) such individual shall be responsible for cost-sharing 
     for the cost of any covered drug provided in the year (after 
     the individual has reached the initial coverage limit 
     described in section 1860D-6(c)(3) and before the individual 
     has reached the annual out-of-pocket limit under section 
     1860D-6(c)(4)(A)), that is equal to 10.0 percent; and
       ``(E) section 1860D-6(c)(4)(A) shall be applied by 
     substituting `2.5 percent' for `10 percent'.
     In no case may the application of subparagraph (A) result in 
     a monthly beneficiary obligation that is below 0.
       ``(3) Sliding scale premium subsidy and reduction of cost-
     sharing for subsidy-eligible individuals.--
       ``(A) In general.--In the case of a subsidy-eligible 
     individual (as defined in paragraph (4)(D))--
       ``(i) section 1860D-17 shall be applied--

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

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

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

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

     In no case may the application of clause (i) result in a 
     monthly beneficiary obligation that is below 0.
       ``(B) Subsidy percent defined.--For purposes of 
     subparagraph (A)(i), the term `subsidy percent' means, with 
     respect to a State, a percent determined on a linear sliding 
     scale ranging from--
       ``(i) 0 percent with respect to a subsidy-eligible 
     individual residing in the State whose income does not exceed 
     135 percent of the poverty line; to
       ``(ii) the highest percentage that would otherwise apply 
     under section 1860D-17 in the service area in which the 
     subsidy-eligible individual resides, in the case of a 
     subsidy-eligible individual residing in the State whose 
     income equals 160 percent of the poverty line.
       ``(4) Definitions.--In this part:
       ``(A) Qualified medicare beneficiary.--Subject to 
     subparagraph (H), the term `qualified medicare beneficiary' 
     means an individual who--
       ``(i) is enrolled under this part, including an individual 
     who is enrolled under a MedicareAdvantage plan; and
       ``(ii) is described in section 1905(p)(1).
       ``(B) Specified low income medicare beneficiary.--Subject 
     to subparagraph (H), the term `specified low income medicare 
     beneficiary' means an individual who--
       ``(i) is enrolled under this part, including an individual 
     who is enrolled under a MedicareAdvantage plan; and
       ``(ii) is described in section 1902(a)(10)(E)(iii).
       ``(C) Qualifying individual.--Subject to subparagraph (H), 
     the term `qualifying individual' means an individual who--
       ``(i) is enrolled under this part, including an individual 
     who is enrolled under a MedicareAdvantage plan; and

[[Page 16530]]

       ``(ii) is described in section 1902(a)(10)(E)(iv) (without 
     regard to any termination of the application of such section 
     under title XIX).
       ``(D) Subsidy-eligible individual.--Subject to subparagraph 
     (H), the term `subsidy-eligible individual' means an 
     individual--
       ``(i) who is enrolled under this part, including an 
     individual who is enrolled under a MedicareAdvantage plan; 
     and
       ``(ii) whose income is less than 160 percent of the poverty 
     line; and
       ``(iii) who is not--

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

       ``(E) Poverty line.--The term `poverty line' has the 
     meaning given such term in section 673(2) of the Community 
     Services Block Grant Act (42 U.S.C. 9902(2)), including any 
     revision required by such section.
       ``(F) Eligibility determinations.--Beginning on November 1, 
     2005, the determination of whether an individual residing in 
     a State is an individual described in subparagraph (A), (B), 
     (C), or (D) and, for purposes of paragraph (3), the amount of 
     an individual's income, shall be determined under the State 
     medicaid plan for the State under section 1935(a). In the 
     case of a State that does not operate such a medicaid plan 
     (either under title XIX or under a statewide waiver granted 
     under section 1115), such determination shall be made under 
     arrangements made by the Administrator.
       ``(G) Nonapplication to territorial residents.--In the case 
     of an individual who is not a resident of the 50 States or 
     the District of Columbia--
       ``(i) the subsidies provided under this section shall not 
     apply; and
       ``(ii) such individuals may be provided with medical 
     assistance for covered outpatient drugs (as such term is 
     defined for purposes of section 1927) in accordance with 
     section 1935 under the State medicaid program under title 
     XIX.
       ``(b) Rules in Applying Cost-Sharing Subsidies.--Nothing in 
     this section shall be construed as preventing an eligible 
     entity offering a Medicare Prescription Drug plan or a 
     MedicareAdvantage organization offering a MedicareAdvantage 
     plan from waiving or reducing the amount of the deductible or 
     other cost-sharing otherwise applicable pursuant to section 
     1860D-6(a)(2).
       ``(c) Administration of Subsidy Program.--The Administrator 
     shall establish a process whereby, in the case of an 
     individual eligible for a cost-sharing subsidy under 
     subsection (a) who is enrolled in a Medicare Prescription 
     Drug plan or a MedicareAdvantage plan--
       ``(1) the Administrator provides for a notification of the 
     eligible entity or MedicareAdvantage organization involved 
     that the individual is eligible for a cost-sharing subsidy 
     and the amount of the subsidy under such subsection;
       ``(2) the entity or organization involved reduces the cost-
     sharing otherwise imposed by the amount of the applicable 
     subsidy and submits to the Administrator information on the 
     amount of such reduction; and
       ``(3) the Administrator periodically and on a timely basis 
     reimburses the entity or organization for the amount of such 
     reductions.

     The reimbursement under paragraph (3) may be computed on a 
     capitated basis, taking into account the actuarial value of 
     the subsidies and with appropriate adjustments to reflect 
     differences in the risks actually involved.
       ``(d) Relation to Medicaid Program.--For provisions 
     providing for eligibility determinations and additional 
     Federal payments for expenditures related to providing 
     prescription drug coverage for territorial residents under 
     the medicaid program, see section 1935.


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

       ``Sec. 1860D-20. (a) Reinsurance Payments.--
       ``(1) In general.--Subject to section 1860D-21(b), the 
     Administrator shall provide in accordance with this section 
     for payment to a qualifying entity of the reinsurance payment 
     amount (as specified in subsection (c)(1)) for costs incurred 
     by the entity in providing prescription drug coverage for a 
     qualifying covered individual after the individual has 
     reached the annual out-of-pocket threshold specified in 
     section 1860D-6(c)(4)(B) for the year.
       ``(2) Budget authority.--This section constitutes budget 
     authority in advance of appropriations Acts and represents 
     the obligation of the Administrator to provide for the 
     payment of amounts provided under this section.
       ``(b) Notification of Spending Under the Plan for Costs 
     Incurred in Providing Prescription Drug Coverage Above the 
     Annual Out-of-Pocket Threshold.--
       ``(1) In general.--Each qualifying entity shall notify the 
     Administrator of the following with respect to a qualifying 
     covered individual for a coverage year:
       ``(A) Total actual costs.--The total amount (if any) of 
     costs that the qualifying entity incurred in providing 
     prescription drug coverage for the individual in the year 
     after the individual had reached the annual out-of-pocket 
     threshold specified in section 1860D-6(c)(4)(B) for the year.
       ``(B) Actual costs for specific drugs.--With respect to the 
     total amount under subparagraph (A) for the year, a breakdown 
     of--
       ``(i) each covered drug that constitutes a portion of such 
     amount;
       ``(ii) the negotiated price for the qualifying entity for 
     each such drug;
       ``(iii) the number of prescriptions; and
       ``(iv) the average beneficiary coinsurance rate for each 
     covered drug that constitutes a portion of such amount.
       ``(2) Certain expenses not included.--The amounts under 
     subparagraphs (A) and (B)(ii) of paragraph (1) may not 
     include--
       ``(A) administrative expenses incurred in providing the 
     coverage described in paragraph (1)(A); or
       ``(B) amounts expended on providing additional prescription 
     drug coverage pursuant to section 1860D-6(a)(2).
       ``(3) Restriction on use of information.--The restriction 
     specified in section 1860D-16(b)(7)(B) shall apply to 
     information disclosed or obtained pursuant to the provisions 
     of this section.
       ``(c) Reinsurance Payment Amount.--
       ``(1) In general.--The reinsurance payment amount under 
     this subsection for a qualifying covered individual for a 
     coverage year is an amount equal to 80 percent of the 
     allowable costs (as specified in paragraph (2)) incurred by 
     the qualifying entity with respect to the individual and 
     year.
       ``(2) Allowable costs.--
       ``(A) In general.--In the case of a qualifying entity that 
     has incurred costs described in subsection (b)(1)(A) with 
     respect to a qualifying covered individual for a coverage 
     year, the Administrator shall establish the allowable costs 
     for the individual and year. Such allowable costs shall be 
     equal to the amount described in such subsection for the 
     individual and year, adjusted under subparagraph (B).
       ``(B) Repricing of costs if actual costs exceed average 
     costs.--The Administrator shall reduce the amount described 
     in subsection (b)(1)(A) with respect to a qualifying covered 
     individual for a coverage year to the extent such amount is 
     based on costs of specific covered drugs furnished under the 
     plan in the year (as specified under subsection (b)(1)(B)) 
     that are greater than the average cost for the covered drug 
     for the year (as determined under section 1860D-16(b)(3)(A)).
       ``(d) Payment Methods.--
       ``(1) In general.--Payments under this section shall be 
     based on such a method as the Administrator determines. The 
     Administrator may establish a payment method by which 
     interim payments of amounts under this section are made 
     during a year based on the Administrator's best estimate 
     of amounts that will be payable after obtaining all of the 
     information.
       ``(2) Source of payments.--Payments under this section 
     shall be made from the Prescription Drug Account.
       ``(e) Definitions.--In this section:
       ``(1) Coverage year.--The term `coverage year' means a 
     calendar year in which covered drugs are dispensed if a claim 
     for payment is made under the plan for such drugs, regardless 
     of when the claim is paid.
       ``(2) Qualifying covered individual.--The term `qualifying 
     covered individual' means an individual who--
       ``(A) is enrolled in this part and in a Medicare 
     Prescription Drug plan;
       ``(B) is enrolled in this part and in a MedicareAdvantage 
     plan (except for an MSA plan or a private fee-for-service 
     plan that does not provide qualified prescription drug 
     coverage); or
       ``(C) is eligible for, but not enrolled in, the program 
     under this part, and is covered under a qualified retiree 
     prescription drug plan.
       ``(3) Qualifying entity.--The term `qualifying entity' 
     means any of the following that has entered into an agreement 
     with the Administrator to provide the Administrator with such 
     information as may be required to carry out this section:
       ``(A) An eligible entity offering a Medicare Prescription 
     Drug plan under this part.
       ``(B) A MedicareAdvantage organization offering a 
     MedicareAdvantage plan under part C (except for an MSA plan 
     or a private fee-for-service plan that does not provide 
     qualified prescription drug coverage).
       ``(C) The sponsor of a qualified retiree prescription drug 
     plan.
       ``(4) Qualified retiree prescription drug plan.--
       ``(A) In general.--The term `qualified retiree prescription 
     drug plan' means employment-based retiree health coverage if, 
     with respect to a qualifying covered individual who is 
     covered under the plan, the following requirements are met:
       ``(i) Assurance.--The sponsor of the plan shall annually 
     attest, and provide such assurances as the Administrator may 
     require, that the coverage meets or exceeds the requirements 
     for qualified prescription drug coverage.
       ``(ii) Disclosure of information.--The sponsor complies 
     with the requirements described in clauses (i) and (ii) of 
     section 1860D-16(b)(7)(A).

[[Page 16531]]

       ``(B) Employment-based retiree health coverage.--The term 
     `employment-based retiree health coverage' means health 
     insurance or other coverage, whether provided by voluntary 
     insurance coverage or pursuant to statutory or contractual 
     obligation, of health care costs for retired individuals (or 
     for such individuals and their spouses and dependents) based 
     on their status as former employees or labor union members.
       ``(5) Sponsor.--The term `sponsor' means a plan sponsor, as 
     defined in section 3(16)(B) of the Employee Retirement Income 
     Security Act of 1974.


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

       ``Sec. 1860D-21. (a) Direct Subsidy.--
       ``(1) In general.--The Administrator shall provide for the 
     payment to a sponsor of a qualified retiree prescription drug 
     plan (as defined in section 1860D-20(e)(4)) for each 
     qualifying covered individual (described in subparagraph (C) 
     of section 1860D-20(e)(2)) enrolled in the plan for each 
     month for which such individual is so enrolled.
       ``(2) Amount of payment.--
       ``(A) In general.--The amount of the payment under 
     paragraph (1) shall be an amount equal to the direct subsidy 
     percent determined for the year of the monthly national 
     average premium for the area for the year (determined under 
     section 1860D-15), as adjusted using the risk adjusters that 
     apply to the standard prescription drug coverage published 
     under section 1860D-11.
       ``(B) Direct subsidy percent.--For purposes of subparagraph 
     (A), the term `direct subsidy percent' means the percentage 
     equal to--
       ``(i) 100 percent; minus
       ``(ii) the applicable percent for the year (as determined 
     under section 1860D-17(c).
       ``(b) Payment Methods.--
       ``(1) In general.--Payments under this section shall be 
     based on such a method as the Administrator determines. The 
     Administrator may establish a payment method by which interim 
     payments of amounts under this section are made during a year 
     based on the Administrator's best estimate of amounts that 
     will be payable after obtaining all of the information.
       ``(2) Source of payments.--Payments under this section 
     shall be made from the Prescription Drug Account.

                 ``Subpart 3--Miscellaneous Provisions


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

       ``Sec. 1860D-25. (a) Establishment.--
       ``(1) In general.--There is created within the Federal 
     Supplementary Medical Insurance Trust Fund established by 
     section 1841 an account to be known as the `Prescription Drug 
     Account' (in this section referred to as the `Account').
       ``(2) Funds.--The Account shall consist of such gifts and 
     bequests as may be made as provided in section 201(i)(1), and 
     such amounts as may be deposited in, or appropriated to, the 
     Account as provided in this part.
       ``(3) Separate from rest of trust fund.--Funds provided 
     under this part to the Account shall be kept separate from 
     all other funds within the Federal Supplementary Medical 
     Insurance Trust Fund.
       ``(b) Payments From Account.--
       ``(1) In general.--The Managing Trustee shall pay from time 
     to time from the Account such amounts as the Secretary 
     certifies are necessary to make payments to operate the 
     program under this part, including--
       ``(A) payments to eligible entities under section 1860D-16;
       ``(B) payments under 1860D-19 for low-income subsidy 
     payments for cost-sharing;
       ``(C) reinsurance payments under section 1860D-20;
       ``(D) payments to sponsors of qualified retiree 
     prescription drug plans under section 1860D-21;
       ``(E) payments to MedicareAdvantage organizations for the 
     provision of qualified prescription drug coverage under 
     section 1858A(c); and
       ``(F) payments with respect to administrative expenses 
     under this part in accordance with section 201(g).
       ``(2) Treatment in relation to part b premium.--Amounts 
     payable from the Account shall not be taken into account in 
     computing actuarial rates or premium amounts under section 
     1839.
       ``(c) Appropriations To Cover Benefits and Administrative 
     Costs.--There are appropriated to the Account in a fiscal 
     year, out of any moneys in the Treasury not otherwise 
     appropriated, an amount equal to the payments and transfers 
     made from the Account in the year.


                       ``other related provisions

       ``Sec. 1860D-26. (a) Restriction on Enrollment in a 
     Medicare Prescription Drug Plan Offered by a Sponsor of 
     Employment-Based Retiree Health Coverage.--
       ``(1) In general.--In the case of a Medicare Prescription 
     Drug plan offered by an eligible entity that is a sponsor (as 
     defined in paragraph (5) of section 1860D-20(e)) of 
     employment-based retiree health coverage (as defined in 
     paragraph (4)(B) of such section), notwithstanding any other 
     provision of this part and in accordance with regulations of 
     the Administrator, the entity offering the plan may restrict 
     the enrollment of eligible beneficiaries enrolled under this 
     part to eligible beneficiaries who are enrolled in such 
     coverage.
       ``(2) Limitation.--The sponsor of the employment-based 
     retiree health coverage described in paragraph (1) may not 
     offer enrollment in the Medicare Prescription Drug plan 
     described in such paragraph based on the health status of 
     eligible beneficiaries enrolled for such coverage.
       ``(b) Coordination With State Pharmaceutical Assistance 
     Programs.--
       ``(1) In general.--An eligible entity offering a Medicare 
     Prescription Drug plan, or a MedicareAdvantage organization 
     offering a MedicareAdvantage plan (other than an MSA plan or 
     a private fee-for-service plan that does not provide 
     qualified prescription drug coverage), may enter into an 
     agreement with a State pharmaceutical assistance program 
     described in paragraph (2) to coordinate the coverage 
     provided under the plan with the assistance provided under 
     the State pharmaceutical assistance program.
       ``(2) State pharmaceutical assistance program described.--
     For purposes of paragraph (1), a State pharmaceutical 
     assistance program described in this paragraph is a program 
     that has been established pursuant to a waiver under section 
     1115 or otherwise.
       ``(c) Regulations To Carry Out This Part.--
       ``(1) Authority for interim final regulations.--The 
     Secretary may promulgate initial regulations implementing 
     this part in interim final form without prior opportunity for 
     public comment.
       ``(2) Final regulations.--A final regulation reflecting 
     public comments must be published within 1 year of the 
     interim final regulation promulgated under paragraph (1).''.
       (b) Conforming Amendments to Federal Supplementary Medical 
     Insurance Trust Fund.--Section 1841 (42 U.S.C. 1395t) is 
     amended--
       (1) in the last sentence of subsection (a)--
       (A) by striking ``and'' before ``such amounts''; and
       (B) by inserting before the period the following: ``, and 
     such amounts as may be deposited in, or appropriated to, the 
     Prescription Drug Account established by section 1860D-25'';
       (2) in subsection (g), by inserting after ``by this part,'' 
     the following: ``the payments provided for under part D (in 
     which case the payments shall be made from the Prescription 
     Drug Account in the Trust Fund),'';
       (3) in subsection (h), by inserting after ``1840(d)'' the 
     following: ``and sections 1860D-18 and 1858A(e) (in which 
     case the payments shall be made from the Prescription Drug 
     Account in the Trust Fund)''; and
       (4) in subsection (i), by inserting after ``section 
     1840(b)(1)'' the following: ``, sections 1860D-18 and 
     1858A(e) (in which case the payments shall be made from the 
     Prescription Drug Account in the Trust Fund),''.
       (c) Conforming References to Previous Part D.--Any 
     reference in law (in effect before the date of enactment of 
     this Act) to part D of title XVIII of the Social Security Act 
     is deemed a reference to part F of such title (as in effect 
     after such date).
       (d) Submission of Legislative Proposal.--Not later than 6 
     months after the date of the enactment of this Act, the 
     Secretary shall submit to the appropriate committees of 
     Congress a legislative proposal providing for such technical 
     and conforming amendments in the law as are required by the 
     provisions of this Act.

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

       (a) Study.--The Administrator of the Center for Medicare 
     Choices (as established under section 1808 of the Social 
     Security Act, as added by section 301(a)) shall conduct a 
     study on the need for rules relating to permitting 
     individuals who are enrolled under part B of title XVIII of 
     the Social Security Act but are not entitled to benefits 
     under part A of such title to buy into the medicare voluntary 
     prescription drug delivery program under part D of such title 
     (as so added).
       (b) Report.--Not later than January 1, 2005, the 
     Administrator of the Center for Medicare Choices shall submit 
     a report to Congress on the study conducted under subsection 
     (a), together with any recommendations for legislation that 
     the Administrator determines to be appropriate as a result of 
     such study.

     SEC. 103. RULES RELATING TO MEDIGAP POLICIES THAT PROVIDE 
                   PRESCRIPTION DRUG COVERAGE.

       (a) Rules Relating to Medigap Policies That Provide 
     Prescription Drug Coverage.--Section 1882 (42 U.S.C. 1395ss) 
     is amended by adding at the end the following new subsection:
       ``(v) Rules Relating to Medigap Policies That Provide 
     Prescription Drug Coverage.--
       ``(1) Prohibition on sale, issuance, and renewal of 
     policies that provide prescription drug coverage to part d 
     enrollees.--
       ``(A) In general.--Notwithstanding any other provision of 
     law, on or after January 1, 2006, no medicare supplemental 
     policy that

[[Page 16532]]

     provides coverage of expenses for prescription drugs may be 
     sold, issued, or renewed under this section to an individual 
     who is enrolled under part D.
       ``(B) Penalties.--The penalties described in subsection 
     (d)(3)(A)(ii) shall apply with respect to a violation of 
     subparagraph (A).
       ``(2) Issuance of substitute policies if the policyholder 
     obtains prescription drug coverage under part d.--
       ``(A) In general.--The issuer of a medicare supplemental 
     policy--
       ``(i) may not deny or condition the issuance or 
     effectiveness of a medicare supplemental policy that has a 
     benefit package classified as `A', `B', `C', `D', `E', `F' 
     (including the benefit package classified as `F' with a high 
     deductible feature, as described in subsection (p)(11)), or 
     `G' (under the standards established under subsection (p)(2)) 
     and that is offered and is available for issuance to new 
     enrollees by such issuer;
       ``(ii) may not discriminate in the pricing of such policy, 
     because of health status, claims experience, receipt of 
     health care, or medical condition; and
       ``(iii) may not impose an exclusion of benefits based on a 
     pre-existing condition under such policy,

     in the case of an individual described in subparagraph (B) 
     who seeks to enroll under the policy during the open 
     enrollment period established under section 1860D-2(b)(2) and 
     who submits evidence that they meet the requirements under 
     subparagraph (B) along with the application for such medicare 
     supplemental policy.
       ``(B) Individual described.--An individual described in 
     this subparagraph is an individual who--
       ``(i) enrolls in the medicare prescription drug delivery 
     program under part D; and
       ``(ii) at the time of such enrollment was enrolled and 
     terminates enrollment in a medicare supplemental policy which 
     has a benefit package classified as `H', `I', or `J' 
     (including the benefit package classified as `J' with a high 
     deductible feature, as described in section 1882(p)(11)) 
     under the standards referred to in subparagraph (A)(i) or 
     terminates enrollment in a policy to which such standards do 
     not apply but which provides benefits for prescription drugs.
       ``(C) Enforcement.--The provisions of subparagraph (A) 
     shall be enforced as though they were included in subsection 
     (s).
       ``(3) Notice required to be provided to current 
     policyholders with prescription drug coverage.--No medicare 
     supplemental policy of an issuer shall be deemed to meet the 
     standards in subsection (c) unless the issuer provides 
     written notice during the 60-day period immediately preceding 
     the period established for the open enrollment period 
     established under section 1860D-2(b)(2), to each individual 
     who is a policyholder or certificate holder of a medicare 
     supplemental policy issued by that issuer that provides some 
     coverage of expenses for prescription drugs (at the most 
     recent available address of that individual) of--
       ``(A) the ability to enroll in a new medicare supplemental 
     policy pursuant to paragraph (2); and
       ``(B) the fact that, so long as such individual retains 
     coverage under such policy, the individual shall be 
     ineligible for coverage of prescription drugs under part 
     D.''.
       (b) Rule of Construction.--
       (1) In general.--Nothing in this Act shall be construed to 
     require an issuer of a medicare supplemental policy under 
     section 1882 of the Social Security Act (42 U.S.C. 1395rr) to 
     participate as an eligible entity under part D of such Act, 
     as added by section 101, as a condition for issuing such 
     policy.
       (2) Prohibition on state requirement.--A State may not 
     require an issuer of a medicare supplemental policy under 
     section 1882 of the Social Security Act (42 U.S.C. 1395rr) to 
     participate as an eligible entity under part D of such Act, 
     as added by section 101, as a condition for issuing such 
     policy.

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

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


  ``special provisions relating to medicare prescription drug benefit

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

[[Page 16533]]

     in a year (beginning with 2006) the amount computed under 
     this subsection is equal to the product of the following:
       ``(A) Standard prescription drug coverage under medicare.--
     With respect to individuals who are residents of the State, 
     who are entitled to, or enrolled for, benefits under part A 
     of title XVIII, or are enrolled under part B of title XVIII 
     and are receiving medical assistance under subparagraph 
     (A)(i), (A)(ii), or (C) of section 1902(a)(10) (or as the 
     result of the application of section 1902(f)) that includes 
     covered outpatient drugs (as defined for purposes of section 
     1927) under the State plan under this title (including such a 
     plan operated under a waiver under section 1115)--
       ``(i) the total amounts attributable to such individuals in 
     the quarter under section 1860D-19 (relating to premium and 
     cost-sharing subsidies for low-income medicare 
     beneficiaries); and
       ``(ii) the actuarial value of standard prescription drug 
     coverage (as determined under section 1860D-6(f)) provided to 
     such individuals in the quarter.
       ``(B) State matching rate.--A proportion computed by 
     subtracting from 100 percent the Federal medical assistance 
     percentage (as defined in section 1905(b)) applicable to the 
     State and the quarter.
       ``(C) Phase-out proportion.--Subject to subparagraph (D), 
     the phase-out proportion for a quarter in--
       ``(i) 2006 is 100 percent;
       ``(ii) 2007 is 95 percent;
       ``(iii) 2008 or 2009, is 90 percent;
       ``(iv) 2010 is 85 percent; or
       ``(v) 2011, 2012, or 2013 is 80 percent.
       ``(d) Medicaid as Secondary Payor.--In the case of an 
     individual who is entitled to a Medicare Prescription Drug 
     plan under part D or drug coverage under a MedicareAdvantage 
     plan, and medical assistance including covered outpatient 
     drugs under this title, medical assistance shall continue to 
     be provided under this title for covered outpatient drugs to 
     the extent payment is not made under the Medicare 
     Prescription Drug plan or a MedicareAdvantage plan.
       ``(e) Treatment of Territories.--
       ``(1) In general.--In the case of a State, other than the 
     50 States and the District of Columbia--
       ``(A) the previous provisions of this section shall not 
     apply to residents of such State; and
       ``(B) if the State establishes a plan described in 
     paragraph (2), the amount otherwise determined under section 
     1108(f) (as increased under section 1108(g)) for the State 
     shall be further increased by the amount specified in 
     paragraph (3).
       ``(2) Plan.--The plan described in this paragraph is a plan 
     that--
       ``(A) provides medical assistance with respect to the 
     provision of covered drugs (as defined in section 
     1860D(a)(2)) to individuals described in subparagraph (A), 
     (B), (C), or (D) of section 1860D-19(a)(3); and
       ``(B) ensures that additional amounts received by the State 
     that are attributable to the operation of this subsection are 
     used only for such assistance.
       ``(3) Increased amount.--
       ``(A) In general.--The amount specified in this paragraph 
     for a State for a fiscal year is equal to the product of--
       ``(i) the aggregate amount specified in subparagraph (B); 
     and
       ``(ii) the amount specified in section 1108(g)(1) for that 
     State, divided by the sum of the amounts specified in such 
     section for all such States.
       ``(B) Aggregate amount.--The aggregate amount specified in 
     this subparagraph for--
       ``(i) the last 3 quarters of fiscal year 2006, is equal to 
     $22,500,000;
       ``(ii) fiscal year 2007, is equal to $30,000,000; and
       ``(iii) any subsequent fiscal year, is equal to the 
     aggregate amount specified in this subparagraph for the 
     previous fiscal year increased by the annual percentage 
     increase specified in section 1860D-6(c)(5) for the calendar 
     year beginning in such fiscal year.
       ``(4) Nonapplication.--Section 1927(d)(2)(E) shall not 
     apply to a State described in paragraph (1) for purposes of 
     providing medical assistance described in paragraph (2)(A).
       ``(5) Report.--The Secretary shall submit to Congress a 
     report on the application of this subsection and may include 
     in the report such recommendations as the Secretary deems 
     appropriate.
       ``(f) Definition.--For purposes of this section, the term 
     `subsidy-eligible individual' has the meaning given that term 
     in subparagraph (D) of section 1860D-19(a)(4).''.
       (C) Conforming amendments.--
       (1) Section 1903(a)(1) (42 U.S.C. 1396a(a)(1)) is amended 
     by inserting before the semicolon the following: ``, reduced 
     by the amount computed under section 1935(c)(1) for the State 
     and the quarter''.
       (2) Section 1108(f) (42 U.S.C. 1308(f)) is amended by 
     inserting ``and section 1935(e)(1)(B)'' after ``Subject to 
     subsection (g)''.
       (4) Amendment to best price.--Section 1927(c)(1)(C)(i) (42 
     U.S.C. 1396r-8(c)(1)(C)(i)), as amended by section 111(b), is 
     amended--
       (A) by striking ``and'' at the end of subclause (IV);
       (B) by striking the period at the end of subclause (V) and 
     inserting ``; and''; and
       (C) by adding at the end the following new subclause:

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

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

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

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

     SEC. 105. EXPANSION OF MEMBERSHIP AND DUTIES OF MEDICARE 
                   PAYMENT ADVISORY COMMISSION (MEDPAC).

       (a) Expansion of Membership.--
       (1) In general.--Section 1805(c) (42 U.S.C. 1395b-6(c)) is 
     amended--
       (A) in paragraph (1), by striking ``17'' and inserting 
     ``19''; and
       (B) in paragraph (2)(B), by inserting ``experts in the area 
     of pharmacology and prescription drug benefit programs,'' 
     after ``other health professionals,''.
       (2) Initial terms of additional members.--
       (A) In general.--For purposes of staggering the initial 
     terms of members of the Medicare Payment Advisory Commission 
     under section 1805(c)(3) of the Social Security Act (42 
     U.S.C. 1395b-6(c)(3)), the initial terms of the 2 additional 
     members of the Commission provided for by the amendment under 
     paragraph (1)(A) are as follows:
       (i) One member shall be appointed for 1 year.
       (ii) One member shall be appointed for 2 years.
       (B) Commencement of terms.--Such terms shall begin on 
     January 1, 2005.
       (b) Expansion of Duties.--Section 1805(b)(2) (42 U.S.C. 
     1395b-6(b)(2)) is amended by adding at the end the following 
     new subparagraph:

[[Page 16534]]

       ``(D) Voluntary prescription drug delivery program.--
     Specifically, the Commission shall review, with respect to 
     the voluntary prescription drug delivery program under part 
     D, competition among eligible entities offering Medicare 
     Prescription Drug plans and beneficiary access to such plans 
     and covered drugs, particularly in rural areas.''.

     SEC. 106. STUDY REGARDING VARIATIONS IN SPENDING AND DRUG 
                   UTILIZATION.

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

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

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

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


     ``medicare prescription drug discount card endorsement program

       ``Sec. 1807. (a) Establishment.--There is established a 
     medicare prescription drug discount card endorsement program 
     under which the Secretary shall--
       ``(1) endorse prescription drug discount card programs 
     offered by prescription drug card sponsors that meet the 
     requirements of this section; and
       ``(2) make available to eligible beneficiaries information 
     regarding such endorsed programs.
       ``(b) Eligibility, Election of Program, and Enrollment 
     Fees.--
       ``(1) Eligibility and election of program.--
       ``(A) In general.--Subject to subparagraph (B), the 
     Secretary shall establish procedures--
       ``(i) for identifying eligible beneficiaries; and
       ``(ii) under which such beneficiaries may make an election 
     to enroll in any prescription drug discount card program 
     endorsed under this section and disenroll from such a 
     program.
       ``(B) Limitation.--An eligible beneficiary may not be 
     enrolled in more than 1 prescription drug discount card 
     program at any time.
       ``(2) Enrollment fees.--
       ``(A) In general.--A prescription drug card sponsor may 
     charge an annual enrollment fee to each eligible beneficiary 
     enrolled in a prescription drug discount card program offered 
     by such sponsor.
       ``(B) Amount.--No enrollment fee charged under subparagraph 
     (A) may exceed $25.
       ``(C) Uniform enrollment fee.--A prescription drug card 
     sponsor shall ensure that the enrollment fee for a 
     prescription drug discount card program endorsed under this 
     section is the same for all eligible medicare beneficiaries 
     enrolled in the program.
       ``(D) Collection.--Any enrollment fee shall be collected by 
     the prescription drug card sponsor.
       ``(c) Providing Information to Eligible Beneficiaries.--
       ``(1) Promotion of informed choice.--
       ``(A) By the secretary.--In order to promote informed 
     choice among endorsed prescription drug discount card 
     programs, the Secretary shall provide for the dissemination 
     of information which compares the costs and benefits of such 
     programs. Such dissemination shall be coordinated with the 
     dissemination of educational information on other medicare 
     options.
       ``(B) By prescription drug card sponsors.--Each 
     prescription drug card sponsor shall make available to each 
     eligible beneficiary (through the Internet and otherwise) 
     information--
       ``(i) that the Secretary identifies as being necessary to 
     promote informed choice among endorsed prescription drug 
     discount card programs by eligible beneficiaries, including 
     information on enrollment fees, negotiated prices for 
     prescription drugs charged to beneficiaries, and services 
     relating to prescription drugs offered under the program;
       ``(ii) on how any formulary used by such sponsor functions.
       ``(2) Use of medicare toll-free number.--The Secretary 
     shall provide through the 1-800-MEDICARE toll free telephone 
     number for the receipt and response to inquiries and 
     complaints concerning the medicare prescription drug discount 
     card endorsement program established under this section and 
     prescription drug discount card programs endorsed under such 
     program.
       ``(d) Beneficiary Protections.--
       ``(1) In general.--Each prescription drug discount card 
     program endorsed under this section shall meet such 
     requirements as the Secretary identifies to protect and 
     promote the interest of eligible beneficiaries, including 
     requirements that--
       ``(A) relate to appeals by eligible beneficiaries and 
     marketing practices; and
       ``(B) ensure that beneficiaries are not charged more than 
     the lower of the negotiated retail price or the usual and 
     customary price.
       ``(2) Ensuring pharmacy access.--Each prescription drug 
     card sponsor offering a prescription drug discount card 
     program endorsed under this section shall secure the 
     participation in its network of a sufficient number of 
     pharmacies that dispense (other than by mail order) drugs 
     directly to patients to ensure convenient access (as 
     determined by the Secretary and including adequate emergency 
     access) for enrolled beneficiaries. Such standards shall take 
     into account reasonable distances to pharmacy services in 
     both urban and rural areas.
       ``(3) Quality assurance.--Each prescription drug card 
     sponsor offering a prescription drug discount card program 
     endorsed under this section shall have in place adequate 
     procedures for assuring that quality service is provided to 
     eligible beneficiaries enrolled in a prescription drug 
     discount card program offered by such sponsor.
       ``(4) Confidentiality of enrollee records.--Insofar as a 
     prescription drug card sponsor maintains individually 
     identifiable medical records or other health information 
     regarding eligible beneficiaries enrolled in a prescription 
     drug discount card program endorsed under this section, the 
     prescription drug card sponsor shall have in place procedures 
     to safeguard the privacy of any individually identifiable 
     beneficiary information in a manner that the Secretary 
     determines is consistent with the Federal regulations 
     (concerning the privacy of individually identifiable health 
     information) promulgated under section 264(c) of the Health 
     Insurance Portability and Accountability Act of 1996.
       ``(5) No other fees.--A prescription drug card sponsor may 
     not charge any fee to an eligible beneficiary under a 
     prescription drug discount card program endorsed under this 
     section other than an enrollment fee charged under subsection 
     (b)(2)(A).
       ``(6) Prices.--
       ``(A) Avoidance of high priced drugs.--A prescription drug 
     card sponsor may not recommend switching an eligible 
     beneficiary to a drug with a higher negotiated price absent a 
     recommendation by a licensed health professional that there 
     is a clinical indication with respect to the patient for such 
     a switch.
       ``(B) Price stability.--Negotiated prices charged for 
     prescription drugs covered under a prescription drug discount 
     card program endorsed under this section may not change more 
     frequently than once every 60 days.
       ``(e) Prescription Drug Benefits.--
       ``(1) In general.--Each prescription drug card sponsor may 
     only provide benefits that relate to prescription drugs (as 
     defined in subsection (i)(2)) under a prescription drug 
     discount card program endorsed under this section.
       ``(2) Savings to eligible beneficiaries.--
       ``(A) In general.--Subject to subparagraph (D), each 
     prescription drug card sponsor shall provide eligible 
     beneficiaries who enroll in a prescription drug discount card 
     program offered by such sponsor that is endorsed under this 
     section with access to negotiated prices used by the sponsor 
     with respect to prescription drugs dispensed to eligible 
     beneficiaries.
       ``(B) Inapplicability of medicaid best price rules.--The 
     requirements of section 1927 relating to manufacturer best 
     price shall not apply to the negotiated prices for 
     prescription drugs made available under a prescription drug 
     discount card program endorsed under this section.
       ``(C) Guaranteed access to negotiated prices.--The 
     Secretary, in consultation with the Inspector General of the 
     Department of Health and Human Services, shall establish 
     procedures to ensure that eligible beneficiaries have access 
     to the negotiated prices for prescription drugs provided 
     under subparagraph (A).
       ``(D) Application of formulary restrictions.--A drug 
     prescribed for an eligible beneficiary that would otherwise 
     be a covered drug under this section shall not be so 
     considered under a prescription drug discount card program if 
     the program excludes the drug under a formulary.
       ``(3) Beneficiary services.--Each prescription drug 
     discount card program endorsed under this section shall 
     provide pharmaceutical support services, such as education, 
     counseling, and services to prevent adverse drug 
     interactions.
       ``(4) Discount cards.--Each prescription drug card sponsor 
     shall issue a card to eligible beneficiaries enrolled in a 
     prescription drug discount card program offered by such 
     sponsor that the beneficiary may use to obtain benefits under 
     the program.
       ``(f) Submission of Applications for Endorsement and 
     Approval.--
       ``(1) Submission of applications for endorsement.--Each 
     prescription drug card sponsor that seeks endorsement of a 
     prescription drug discount card program under this section 
     shall submit to the Secretary, at

[[Page 16535]]

     such time and in such manner as the Secretary may specify, 
     such information as the Secretary may require.
       ``(2) Approval.--The Secretary shall review the information 
     submitted under paragraph (1) and shall determine whether to 
     endorse the prescription drug discount card program to which 
     such information relates. The Secretary may not approve a 
     program unless the program and prescription drug card sponsor 
     offering the program comply with the requirements under this 
     section.
       ``(g) Requirements on Development and Application of 
     Formularies.--If a prescription drug card sponsor offering a 
     prescription drug discount card program uses a formulary, the 
     following requirements must be met:
       ``(1) Pharmacy and therapeutic (p&t) committee.--
       ``(A) In general.--The eligible entity must establish a 
     pharmacy and therapeutic committee that develops and reviews 
     the formulary.
       ``(B) Composition.--A pharmacy and therapeutic committee 
     shall include at least 1 academic expert, at least 1 
     practicing physician, and at least 1 practicing pharmacist, 
     all of whom have expertise in the care of elderly or disabled 
     persons, and a majority of the members of such committee 
     shall consist of individuals who are a practicing physician 
     or a practicing pharmacist (or both).
       ``(2) Formulary development.--In developing and reviewing 
     the formulary, the committee shall base clinical decisions on 
     the strength of scientific evidence and standards of 
     practice, including assessing peer-reviewed medical 
     literature, such as randomized clinical trials, 
     pharmacoeconomic studies, outcomes research data, and such 
     other information as the committee determines to be 
     appropriate.
       ``(3) Inclusion of drugs in all therapeutic categories and 
     classes.--
       ``(A) In general.--The formulary must include drugs within 
     each therapeutic category and class of covered outpatient 
     drugs (as defined by the Secretary), although not necessarily 
     for all drugs within such categories and classes.
       ``(B) Requirement.--In defining therapeutic categories and 
     classes of covered outpatient drugs pursuant to subparagraph 
     (A), the Secretary shall use the compendia referred to 
     section 1927(g)(1)(B)(i) or other recognized sources for 
     categorizing drug therapeutic categories and classes.
       ``(4) Provider education.--The committee shall establish 
     policies and procedures to educate and inform health care 
     providers concerning the formulary.
       ``(5) Notice before removing drugs from formulary.--Any 
     removal of a drug from a formulary shall take effect only 
     after appropriate notice is made available to beneficiaries 
     and pharmacies.
       ``(h) Fraud and Abuse Prevention.--
       ``(1) In general.--The Secretary shall provide appropriate 
     oversight to ensure compliance of endorsed programs with the 
     requirements of this section, including verification of the 
     negotiated prices and services provided.
       ``(2) Disqualification for abusive practices.--The 
     Secretary may implement intermediate sanctions and may revoke 
     the endorsement of a program that the Secretary determines no 
     longer meets the requirements of this section or that has 
     engaged in false or misleading marketing practices.
       ``(3) Authority with respect to civil money penalties.--The 
     Secretary may impose a civil money penalty in an amount not 
     to exceed $10,000 for any violation of this section. The 
     provisions of section 1128A (other than subsections (a) and 
     (b)) shall apply to a civil money penalty under the previous 
     sentence in the same manner as such provisions apply to a 
     penalty or proceeding under section 1128A(a).
       ``(4) Reporting to secretary.--Each prescription drug card 
     sponsor offering a prescription drug discount card program 
     endorsed under this section shall report information relating 
     to program performance, use of prescription drugs by eligible 
     beneficiaries enrolled in the program, financial information 
     of the sponsor, and such other information as the Secretary 
     may specify. The Secretary may not disclose any proprietary 
     data reported under this paragraph.
       ``(5) Drug utilization review.--The Secretary may use 
     claims data from parts A and B for purposes of conducting a 
     drug utilization review program.
       ``(i) Definitions.--In this section:
       ``(1) Eligible beneficiary.--
       ``(A) In general.--The term `eligible beneficiary' means an 
     individual who--
       ``(i) is entitled to, or enrolled for, benefits under part 
     A and enrolled under part B; and
       ``(ii) is not a dual eligible individual (as defined in 
     subparagraph (B)).
       ``(B) Dual eligible individual.--
       ``(i) In general.--The term `dual eligible individual' 
     means an individual who is--

       ``(I) enrolled under title XIX or under a waiver under 
     section 1115 of the requirements of such title for medical 
     assistance that includes but is limited solely to covered 
     outpatient drugs (as such term is defined for purposes of 
     section 1927); and
       ``(II) entitled to benefits under part A and enrolled under 
     part B.

       ``(ii) Inclusion of medically needy.--Such term includes an 
     individual described in section 1902(a)(10)(C).
       ``(2) Prescription drug.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     the term `prescription drug' means--
       ``(i) a drug that may be dispensed only upon a prescription 
     and that is described in clause (i) or (ii) of subparagraph 
     (A) of section 1927(k)(2); or
       ``(ii) a biological product or insulin described in 
     subparagraph (B) or (C) of such section,

     and such term includes a vaccine licensed under section 351 
     of the Public Health Service Act and any use of a covered 
     outpatient drug for a medically accepted indication (as 
     defined in section 1927(k)(6)).
       ``(B) Exclusions.--The term `prescription drug' does not 
     include drugs or classes of drugs, or their medical uses, 
     which may be excluded from coverage or otherwise restricted 
     under section 1927(d)(2), other than subparagraph (E) thereof 
     (relating to smoking cessation agents), or under section 
     1927(d)(3).
       ``(3) Negotiated price.--The term `negotiated price' 
     includes all discounts, direct or indirect subsidies, 
     rebates, price concessions, and direct or indirect 
     remunerations.
       ``(4) Prescription drug card sponsor.--The term 
     `prescription drug card sponsor' means any entity with 
     demonstrated experience and expertise in operating a 
     prescription drug discount card program, an insurance program 
     that provides coverage for prescription drugs, or a similar 
     program that the Secretary determines to be appropriate to 
     provide eligible beneficiaries with the benefits under a 
     prescription drug discount card program endorsed by the 
     Secretary under this section, including--
       ``(A) a pharmaceutical benefit management company;
       ``(B) a wholesale or retail pharmacist delivery system;
       ``(C) an insurer (including an insurer that offers medicare 
     supplemental policies under section 1882);
       ``(D) any other entity; or
       ``(E) any combination of the entities described in 
     subparagraphs (A) through (D).


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

       ``Sec. 1807A. (a) Establishment.--
       ``(1) In general.--There is established a program under 
     which the Secretary shall award contracts to prescription 
     drug card sponsors offering a prescription drug discount card 
     that has been endorsed by the Secretary under section 1807 
     under which such sponsors shall offer a prescription drug 
     assistance card program to eligible low-income beneficiaries 
     in accordance with the requirements of this section.
       ``(2) Application of discount card provisions.--Except as 
     otherwise provided in this section, the provisions of section 
     1807 shall apply to the program established under this 
     section.
       ``(b) Eligibility, Election of Program, and Enrollment 
     Fees.--
       ``(1) Eligibility and election of program.--
       ``(A) In general.--Subject to the succeeding provisions of 
     this paragraph, the enrollment procedures established under 
     section 1807(b)(1)(A)(ii) shall apply for purposes of this 
     section.
       ``(B) Enrollment of any eligible low-income beneficiary.--
     Each prescription drug card sponsor offering a prescription 
     drug assistance card program under this section shall permit 
     any eligible low-income beneficiary to enroll in such program 
     if it serves the geographic area in which the beneficiary 
     resides.
       ``(C) Simultaneous enrollment in prescription drug discount 
     card program.--An eligible low-income beneficiary who enrolls 
     in a prescription drug assistance card program offered by a 
     prescription drug card sponsor under this section shall be 
     simultaneously enrolled in a prescription drug discount card 
     program offered by such sponsor.
       ``(2) Waiver of enrollment fees.--
       ``(A) In general.--A prescription drug card sponsor may not 
     charge an enrollment fee to any eligible low-income 
     beneficiary enrolled in a prescription drug discount card 
     program offered by such sponsor.
       ``(B) Payment by secretary.--Under a contract awarded under 
     subsection (f)(2), the Secretary shall pay to each 
     prescription drug card sponsor an amount equal to any 
     enrollment fee charged under section 1807(b)(2)(A) on behalf 
     of each eligible low-income beneficiary enrolled in a 
     prescription drug discount card program under paragraph 
     (1)(C) offered by such sponsor.
       ``(c) Additional Beneficiary Protections.--
       ``(1) Providing information to eligible low-income 
     beneficiaries.--In addition to the information provided to 
     eligible beneficiaries under section 1807(c), the 
     prescription drug card sponsor shall--
       ``(A) periodically notify each eligible low-income 
     beneficiary enrolled in a prescription drug assistance card 
     program offered by such sponsor of the amount of coverage for 
     prescription drugs remaining under subsection (d)(2)(A); and

[[Page 16536]]

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

[[Page 16537]]

     card sponsors that may be awarded contracts under paragraph 
     (2).
       ``(4) Contract provisions.--
       ``(A) Duration.--A contract awarded under paragraph (2) 
     shall be for the lifetime of the program under this section.
       ``(B) Withdrawal.--A prescription drug card sponsor that 
     desires to terminate the contract awarded under paragraph (2) 
     may terminate such contract without penalty if such sponsor 
     gives notice--
       ``(i) to the Secretary 90 days prior to the termination of 
     such contract; and
       ``(ii) to each eligible low-income beneficiary that is 
     enrolled in a prescription drug assistance card program 
     offered by such sponsor 60 days prior to such termination.
       ``(C) Service area.--The service area under the contract 
     shall be the same as the area served by the prescription drug 
     card sponsor under section 1807.
       ``(5) Simultaneous approval of discount card and assistance 
     programs.--A prescription drug card sponsor may submit an 
     application for endorsement under section 1807 as part of the 
     bid submitted under paragraph (1) and the Secretary may 
     approve such application at the same time as the Secretary 
     awards a contract under this section.
       ``(g) Payments to Prescription Drug Card Sponsors.--
       ``(1) In general.--The Secretary shall pay to each 
     prescription drug card sponsor offering a prescription drug 
     assistance card program in which an eligible low-income 
     beneficiary is enrolled an amount equal to the amount agreed 
     to by the Secretary and the sponsor in the contract awarded 
     under subsection (f)(2).
       ``(2) Payment from part b trust fund.--The costs of 
     providing benefits under this section shall be payable from 
     the Federal Supplementary Medical Insurance Trust Fund 
     established under section 1841.
       ``(h) Eligibility Determinations Made by States; 
     Presumptive Eligibility.--States shall perform the functions 
     described in section 1935(a)(1).
       ``(i) Appropriations.--There are appropriated from the 
     Federal Supplementary Medical Insurance Trust Fund 
     established under section 1841 such sums as may be necessary 
     to carry out the program under this section.
       ``(j) Definitions.--In this section:
       ``(1) Eligible beneficiary; negotiated price; prescription 
     drug.--The terms `eligible beneficiary', `negotiated price', 
     and `prescription drug' have the meanings given those terms 
     in section 1807(i).
       ``(2) Eligible low-income beneficiary.--The term `eligible 
     low-income beneficiary' means an individual who--
       ``(A) is an eligible beneficiary (as defined in section 
     1807(i));
       ``(B) is not a dual eligible beneficiary as defined under 
     section 1807(i)(1)(B); and
       ``(C) is described in clause (iii) or (iv) of section 
     1902(a)(10)(E) or in section 1905(p)(1).
       ``(3) Prescription drug card sponsor.--The term 
     `prescription drug card sponsor' has the meaning given that 
     term in section 1807(i), except that such sponsor shall also 
     be an entity that the Secretary determines is--
       ``(A) is appropriate to provide eligible low-income 
     beneficiaries with the benefits under a prescription drug 
     assistance card program under this section; and
       ``(B) is able to manage the monetary assistance made 
     available under subsection (d)(2);
       ``(C) agrees to submit to audits by the Secretary; and
       ``(D) provides such other assurances as the Secretary may 
     require.
       ``(4) State.--The term `State' has the meaning given such 
     term for purposes of title XIX.''.
       (b) Exclusion of Prices From Determination of Best Price.--
     Section 1927(c)(1)(C)(i) (42 U.S.C. 1396r-8(c)(1)(C)(i)) is 
     amended--
       (1) by striking ``and'' at the end of subclause (III);
       (2) by striking the period at the end of subclause (IV) and 
     inserting ``; and''; and
       (3) by adding at the end the following new subclause:

       ``(V) any negotiated prices charged under the medicare 
     prescription drug discount card endorsement program under 
     section 1807 or under the transitional prescription drug 
     assistance card program for eligible low-income beneficiaries 
     under section 1807A.''.

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

            Subtitle C--Standards for Electronic Prescribing

      SEC. 121. STANDARDS FOR ELECTRONIC PRESCRIBING.

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

                    ``Part D--Electronic Prescribing


                 ``standards for electronic prescribing

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

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

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

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

       ``(C) Undue burden.--The standards shall be designed so 
     that, to the extent practicable, the standards do not impose 
     an undue administrative burden on the practice of medicine, 
     pharmacy, or other health professions.
       ``(D) Compatibility with administrative simplification and 
     privacy laws.--The standards shall be--
       ``(i) consistent with the Federal regulations (concerning 
     the privacy of individually identifiable health information) 
     promulgated

[[Page 16538]]

     under section 264(c) of the Health Insurance Portability and 
     Accountability Act of 1996; and
       ``(ii) compatible with the standards adopted under part C.
       ``(4) Transfer of information.--The Secretary shall develop 
     and adopt standards for transferring among prescribing and 
     insurance entities and other necessary entities appropriate 
     standard data elements needed for the electronic exchange of 
     medication history, eligibility, benefit, and other 
     prescription drug information and other health information 
     determined appropriate in compliance with the standards 
     adopted or modified under this part.
       ``(b) Timetable for Adoption of Standards.--
       ``(1) In general.--The Secretary shall adopt the standards 
     under this part by January 1, 2006.
       ``(2) Additions and modifications to standards.--The 
     Secretary shall, in consultation with appropriate 
     representatives of interested parties, review the standards 
     developed or adopted under this part and adopt modifications 
     to the standards (including additions to the standards), as 
     determined appropriate. Any addition or modification to such 
     standards shall be completed in a manner which minimizes the 
     disruption and cost of compliance.
       ``(c) Compliance With Standards.--
       ``(1) Requirement for all individuals and entities that 
     transmit or receive prescriptions electronically.--
       ``(A) In general.--Individuals or entities that transmit or 
     receive electronic medication history, eligibility, benefit 
     and prescription information, shall comply with the standards 
     adopted or modified under this part.
       ``(B) Relation to state laws.--The standards adopted or 
     modified under this part shall supersede any State law or 
     regulations pertaining to the electronic transmission of 
     medication history, eligibility, benefit and prescription 
     information.
       ``(2) Timetable for compliance.--
       ``(A) Initial compliance.--
       ``(i) In general.--Not later than 24 months after the date 
     on which an initial standard is adopted under this part, each 
     individual or entity to whom the standard applies shall 
     comply with the standard.
       ``(ii) Special rule for small health plans.--In the case of 
     a small health plan, as defined by the Secretary for purposes 
     of section 1175(b)(1)(B), clause (i) shall be applied by 
     substituting `36 months' for `24 months'.
       ``(d) Consultation With Attorney General.--The Secretary 
     shall consult with the Attorney General before developing, 
     adopting, or modifying a standard under this part to ensure 
     that the standard accommodates secure electronic transmission 
     of prescriptions for controlled substances in a manner that 
     minimizes the possibility of violations under the 
     Comprehensive Drug Abuse Prevention and Control Act of 1970 
     and related Federal laws.


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

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

                      TITLE II--MEDICAREADVANTAGE

               Subtitle A--MedicareAdvantage Competition

     SEC. 201. ELIGIBILITY, ELECTION, AND ENROLLMENT.

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


                ``eligibility, election, and enrollment

       ``Sec. 1851. (a) Choice of Medicare Benefits Through 
     MedicareAdvantage Plans.--
       ``(1) In general.--Subject to the provisions of this 
     section, each MedicareAdvantage eligible individual (as 
     defined in paragraph (3)) is entitled to elect to receive 
     benefits under this title--
       ``(A) through--
       ``(i) the original Medicare fee-for-service program under 
     parts A and B; and
       ``(ii) the voluntary prescription drug delivery program 
     under part D; or
       ``(B) through enrollment in a MedicareAdvantage plan under 
     this part.
       ``(2) Types of medicareadvantage plans that may be 
     available.--A MedicareAdvantage plan may be any of the 
     following types of plans of health insurance:
       ``(A) Coordinated care plans.--Coordinated care plans which 
     provide health care services, including health maintenance 
     organization plans (with or without point of service options) 
     and plans offered by provider-sponsored organizations (as 
     defined in section 1855(d)).
       ``(B) Combination of msa plan and contributions to 
     medicareadvantage msa.--An MSA plan, as defined in section 
     1859(b)(3), and a contribution into a MedicareAdvantage 
     medical savings account (MSA).
       ``(C) Private fee-for-service plans.--A MedicareAdvantage 
     private fee-for-service plan, as defined in section 
     1859(b)(2).
       ``(3) Medicareadvantage eligible individual.--
       ``(A) In general.--Subject to subparagraph (B), in this 
     title, the term `MedicareAdvantage eligible individual' means 
     an individual who is entitled to (or enrolled for) benefits 
     under part A, enrolled under part B, and enrolled under part 
     D.
       ``(B) Special rule for end-stage renal disease.--Such term 
     shall not include an individual medically determined to have 
     end-stage renal disease, except that--
       ``(i) an individual who develops end-stage renal disease 
     while enrolled in a Medicare+Choice or a MedicareAdvantage 
     plan may continue to be enrolled in that plan; and
       ``(ii) in the case of such an individual who is enrolled in 
     a Medicare+Choice plan or a MedicareAdvantage plan under 
     clause (i) (or subsequently under this clause), if the 
     enrollment is discontinued under circumstances described in 
     section 1851(e)(4)(A), then the individual will be treated as 
     a `MedicareAdvantage eligible individual' for purposes of 
     electing to continue enrollment in another MedicareAdvantage 
     plan.
       ``(b) Special Rules.--
       ``(1) Residence requirement.--
       ``(A) In general.--Except as the Secretary may otherwise 
     provide and except as provided in subparagraph (C), an 
     individual is eligible to elect a MedicareAdvantage plan 
     offered by a MedicareAdvantage organization only if the plan 
     serves the geographic area in which the individual resides.
       ``(B) Continuation of enrollment permitted.--Pursuant to 
     rules specified by the Secretary, the Secretary shall provide 
     that a plan may offer to all individuals residing in a 
     geographic area the option to continue enrollment in the 
     plan, notwithstanding that the individual no longer resides 
     in the service area of the plan, so long as the plan provides 
     that individuals exercising this option have, as part of the 
     basic benefits described in section 1852(a)(1)(A), reasonable 
     access within that geographic area to the full range of basic 
     benefits, subject to reasonable cost-sharing liability in 
     obtaining such benefits.
       ``(C) Continuation of enrollment permitted where service 
     changed.--Notwithstanding subparagraph (A) and in addition to 
     subparagraph (B), if a MedicareAdvantage organization 
     eliminates from its service area a MedicareAdvantage payment 
     area that was previously within its service area, the 
     organization may elect to offer individuals residing in all 
     or portions of the affected area who would otherwise be 
     ineligible to continue enrollment the option to continue 
     enrollment in a MedicareAdvantage plan it offers so long as--
       ``(i) the enrollee agrees to receive the full range of 
     basic benefits (excluding emergency and urgently needed care) 
     exclusively at facilities designated by the organization 
     within the plan service area; and
       ``(ii) there is no other MedicareAdvantage plan offered in 
     the area in which the enrollee resides at the time of the 
     organization's election.
       ``(2) Special rule for certain individuals covered under 
     fehbp or eligible for veterans or military health benefits.--
       ``(A) FEHBP.--An individual who is enrolled in a health 
     benefit plan under chapter 89 of title 5, United States Code, 
     is not eligible to enroll in an MSA plan until such time as 
     the Director of the Office of Management and Budget certifies 
     to the Secretary that the Office of Personnel Management has 
     adopted policies which will ensure that the enrollment of 
     such individuals in such plans will not result in increased 
     expenditures for the Federal Government for health benefit 
     plans under such chapter.
       ``(B) VA and dod.--The Secretary may apply rules similar to 
     the rules described in subparagraph (A) in the case of 
     individuals who are eligible for health care benefits under 
     chapter 55 of title 10, United States Code, or under chapter 
     17 of title 38 of such Code.
       ``(3) Limitation on eligibility of qualified medicare 
     beneficiaries and other medicaid beneficiaries to enroll in 
     an msa plan.--An individual who is a qualified medicare 
     beneficiary (as defined in section 1905(p)(1)), a qualified 
     disabled and working individual (described in section 
     1905(s)), an individual described in section 
     1902(a)(10)(E)(iii), or otherwise entitled to medicare cost-
     sharing under a State plan under title XIX is not eligible to 
     enroll in an MSA plan.
       ``(4) Coverage under msa plans on a demonstration basis.--
       ``(A) In general.--An individual is not eligible to enroll 
     in an MSA plan under this part--
       ``(i) on or after January 1, 2004, unless the enrollment is 
     the continuation of such an enrollment in effect as of such 
     date; or
       ``(ii) as of any date if the number of such individuals so 
     enrolled as of such date has reached 390,000.

     Under rules established by the Secretary, an individual is 
     not eligible to enroll (or continue enrollment) in an MSA 
     plan for a year unless the individual provides assurances

[[Page 16539]]

     satisfactory to the Secretary that the individual will reside 
     in the United States for at least 183 days during the year.
       ``(B) Evaluation.--The Secretary shall regularly evaluate 
     the impact of permitting enrollment in MSA plans under this 
     part on selection (including adverse selection), use of 
     preventive care, access to care, and the financial status of 
     the Trust Funds under this title.
       ``(C) Reports.--The Secretary shall submit to Congress 
     periodic reports on the numbers of individuals enrolled in 
     such plans and on the evaluation being conducted under 
     subparagraph (B).
       ``(c) Process for Exercising Choice.--
       ``(1) In general.--The Secretary shall establish a process 
     through which elections described in subsection (a) are made 
     and changed, including the form and manner in which such 
     elections are made and changed. Such elections shall be made 
     or changed only during coverage election periods specified 
     under subsection (e) and shall become effective as provided 
     in subsection (f).
       ``(2) Coordination through medicareadvantage 
     organizations.--
       ``(A) Enrollment.--Such process shall permit an individual 
     who wishes to elect a MedicareAdvantage plan offered by a 
     MedicareAdvantage organization to make such election through 
     the filing of an appropriate election form with the 
     organization.
       ``(B) Disenrollment.--Such process shall permit an 
     individual, who has elected a MedicareAdvantage plan offered 
     by a MedicareAdvantage organization and who wishes to 
     terminate such election, to terminate such election through 
     the filing of an appropriate election form with the 
     organization.
       ``(3) Default.--
       ``(A) Initial election.--
       ``(i) In general.--Subject to clause (ii), an individual 
     who fails to make an election during an initial election 
     period under subsection (e)(1) is deemed to have chosen the 
     original medicare fee-for-service program option.
       ``(ii) Seamless continuation of coverage.--The Secretary 
     may establish procedures under which an individual who is 
     enrolled in a Medicare+Choice plan or another health plan 
     (other than a MedicareAdvantage plan) offered by a 
     MedicareAdvantage organization at the time of the initial 
     election period and who fails to elect to receive coverage 
     other than through the organization is deemed to have elected 
     the MedicareAdvantage plan offered by the organization (or, 
     if the organization offers more than 1 such plan, such plan 
     or plans as the Secretary identifies under such procedures).
       ``(B) Continuing periods.--An individual who has made (or 
     is deemed to have made) an election under this section is 
     considered to have continued to make such election until such 
     time as--
       ``(i) the individual changes the election under this 
     section; or
       ``(ii) the MedicareAdvantage plan with respect to which 
     such election is in effect is discontinued or, subject to 
     subsection (b)(1)(B), no longer serves the area in which the 
     individual resides.
       ``(d) Providing Information To Promote Informed Choice.--
       ``(1) In general.--The Secretary shall provide for 
     activities under this subsection to broadly disseminate 
     information to medicare beneficiaries (and prospective 
     medicare beneficiaries) on the coverage options provided 
     under this section in order to promote an active, informed 
     selection among such options.
       ``(2) Provision of notice.--
       ``(A) Open season notification.--At least 15 days before 
     the beginning of each annual, coordinated election period (as 
     defined in subsection (e)(3)(B)), the Secretary shall mail to 
     each MedicareAdvantage eligible individual residing in an 
     area the following:
       ``(i) General information.--The general information 
     described in paragraph (3).
       ``(ii) List of plans and comparison of plan options.--A 
     list identifying the MedicareAdvantage plans that are (or 
     will be) available to residents of the area and information 
     described in paragraph (4) concerning such plans. Such 
     information shall be presented in a comparative form.
       ``(iii) Additional information.--Any other information that 
     the Secretary determines will assist the individual in making 
     the election under this section.
     The mailing of such information shall be coordinated, to the 
     extent practicable, with the mailing of any annual notice 
     under section 1804.
       ``(B) Notification to newly eligible medicareadvantage 
     eligible individuals.--To the extent practicable, the 
     Secretary shall, not later than 30 days before the beginning 
     of the initial MedicareAdvantage enrollment period for an 
     individual described in subsection (e)(1), mail to the 
     individual the information described in subparagraph (A).
       ``(C) Form.--The information disseminated under this 
     paragraph shall be written and formatted using language that 
     is easily understandable by medicare beneficiaries.
       ``(D) Periodic updating.--The information described in 
     subparagraph (A) shall be updated on at least an annual basis 
     to reflect changes in the availability of MedicareAdvantage 
     plans, the benefits under such plans, and the 
     MedicareAdvantage monthly basic beneficiary premium, 
     MedicareAdvantage monthly beneficiary premium for enhanced 
     medical benefits, and MedicareAdvantage monthly beneficiary 
     obligation for qualified prescription drug coverage for such 
     plans.
       ``(3) General information.--General information under this 
     paragraph, with respect to coverage under this part during a 
     year, shall include the following:
       ``(A) Benefits under the original medicare fee-for-service 
     program option.--A general description of the benefits 
     covered under parts A and B of the original medicare fee-for-
     service program, including--
       ``(i) covered items and services;
       ``(ii) beneficiary cost-sharing, such as deductibles, 
     coinsurance, and copayment amounts; and
       ``(iii) any beneficiary liability for balance billing.
       ``(B) Catastrophic coverage and combined deductible.--A 
     description of the catastrophic coverage and unified 
     deductible applicable under the plan.
       ``(C) Outpatient prescription drug coverage benefits.--The 
     information required under section 1860D-4 with respect to 
     coverage for prescription drugs under the plan.
       ``(D) Election procedures.--Information and instructions on 
     how to exercise election options under this section.
       ``(E) Rights.--A general description of procedural rights 
     (including grievance and appeals procedures) of beneficiaries 
     under the original medicare fee-for-service program 
     (including such rights under part D) and the 
     MedicareAdvantage program and the right to be protected 
     against discrimination based on health status-related factors 
     under section 1852(b).
       ``(F) Information on medigap and medicare select.--A 
     general description of the benefits, enrollment rights, and 
     other requirements applicable to medicare supplemental 
     policies under section 1882 and provisions relating to 
     medicare select policies described in section 1882(t).
       ``(G) Potential for contract termination.--The fact that a 
     MedicareAdvantage organization may terminate its contract, 
     refuse to renew its contract, or reduce the service area 
     included in its contract, under this part, and the effect of 
     such a termination, nonrenewal, or service area reduction may 
     have on individuals enrolled with the MedicareAdvantage plan 
     under this part.
       ``(4) Information comparing plan options.--Information 
     under this paragraph, with respect to a MedicareAdvantage 
     plan for a year, shall include the following:
       ``(A) Benefits.--The benefits covered under the plan, 
     including the following:
       ``(i) Covered items and services beyond those provided 
     under the original medicare fee-for-service program option.
       ``(ii) Beneficiary cost-sharing for any items and services 
     described in clause (i) and paragraph (3)(A)(i), including 
     information on the unified deductible under section 
     1852(a)(1)(C).
       ``(iii) The maximum limitations on out-of-pocket expenses 
     under section 1852(a)(1)(C).
       ``(iv) In the case of an MSA plan, differences in cost-
     sharing, premiums, and balance billing under such a plan 
     compared to under other MedicareAdvantage plans.
       ``(v) In the case of a MedicareAdvantage private fee-for-
     service plan, differences in cost-sharing, premiums, and 
     balance billing under such a plan compared to under other 
     MedicareAdvantage plans.
       ``(vi) The extent to which an enrollee may obtain benefits 
     through out-of-network health care providers.
       ``(vii) The extent to which an enrollee may select among 
     in-network providers and the types of providers participating 
     in the plan's network.
       ``(viii) The organization's coverage of emergency and 
     urgently needed care.
       ``(ix) The comparative information described in section 
     1860D-4(b)(2) relating to prescription drug coverage under 
     the plan.
       ``(B) Premiums.--
       ``(i) In general.--The MedicareAdvantage monthly basic 
     beneficiary premium and MedicareAdvantage monthly beneficiary 
     premium for enhanced medical benefits, if any, for the plan 
     or, in the case of an MSA plan, the MedicareAdvantage monthly 
     MSA premium.
       ``(ii) Reductions.--The reduction in part B premiums, if 
     any.
       ``(iii) Nature of the premium for enhanced medical 
     benefits.--Whether the MedicareAdvantage monthly premium for 
     enhanced benefits is optional or mandatory.
       ``(C) Service area.--The service area of the plan.
       ``(D) Quality and performance.--Plan quality and 
     performance indicators for the benefits under the plan (and 
     how such indicators compare to quality and performance 
     indicators under the original medicare fee-for-service 
     program under parts A and B and under the voluntary 
     prescription drug delivery program under part D in the area 
     involved), including--
       ``(i) disenrollment rates for medicare enrollees electing 
     to receive benefits through the plan for the previous 2 years 
     (excluding disenrollment due to death or moving outside the 
     plan's service area);

[[Page 16540]]

       ``(ii) information on medicare enrollee satisfaction;
       ``(iii) information on health outcomes; and
       ``(iv) the recent record regarding compliance of the plan 
     with requirements of this part (as determined by the 
     Secretary).
       ``(5) Maintaining a toll-free number and internet site.--
     The Secretary shall maintain a toll-free number for inquiries 
     regarding MedicareAdvantage options and the operation of this 
     part in all areas in which MedicareAdvantage plans are 
     offered and an Internet site through which individuals may 
     electronically obtain information on such options and 
     MedicareAdvantage plans.
       ``(6) Use of non-federal entities.--The Secretary may enter 
     into contracts with non-Federal entities to carry out 
     activities under this subsection.
       ``(7) Provision of information.--A MedicareAdvantage 
     organization shall provide the Secretary with such 
     information on the organization and each MedicareAdvantage 
     plan it offers as may be required for the preparation of the 
     information referred to in paragraph (2)(A).
       ``(e) Coverage Election Periods.--
       ``(1) Initial choice upon eligibility to make election if 
     medicareadvantage plans available to individual.--If, at the 
     time an individual first becomes eligible to elect to receive 
     benefits under part B or D (whichever is later), there is 1 
     or more MedicareAdvantage plans offered in the area in which 
     the individual resides, the individual shall make the 
     election under this section during a period specified by the 
     Secretary such that if the individual elects a 
     MedicareAdvantage plan during the period, coverage under the 
     plan becomes effective as of the first date on which the 
     individual may receive such coverage.
       ``(2) Open enrollment and disenrollment opportunities.--
     Subject to paragraph (5), the following rules shall apply:
       ``(A) Continuous open enrollment and disenrollment through 
     2005.--At any time during the period beginning January 1, 
     1998, and ending on December 31, 2005, a Medicare+Choice 
     eligible individual may change the election under subsection 
     (a)(1).
       ``(B) Continuous open enrollment and disenrollment for 
     first 6 months during 2006.--
       ``(i) In general.--Subject to clause (ii) and subparagraph 
     (D), at any time during the first 6 months of 2006, or, if 
     the individual first becomes a MedicareAdvantage eligible 
     individual during 2006, during the first 6 months during 2006 
     in which the individual is a MedicareAdvantage eligible 
     individual, a MedicareAdvantage eligible individual may 
     change the election under subsection (a)(1).
       ``(ii) Limitation of 1 change.--An individual may exercise 
     the right under clause (i) only once. The limitation under 
     this clause shall not apply to changes in elections effected 
     during an annual, coordinated election period under paragraph 
     (3) or during a special enrollment period under the first 
     sentence of paragraph (4).
       ``(C) Continuous open enrollment and disenrollment for 
     first 3 months in subsequent years.--
       ``(i) In general.--Subject to clause (ii) and subparagraph 
     (D), at any time during the first 3 months of 2007 and each 
     subsequent year, or, if the individual first becomes a 
     MedicareAdvantage eligible individual during 2007 or any 
     subsequent year, during the first 3 months of such year in 
     which the individual is a MedicareAdvantage eligible 
     individual, a MedicareAdvantage eligible individual may 
     change the election under subsection (a)(1).
       ``(ii) Limitation of 1 change during open enrollment period 
     each year.--An individual may exercise the right under clause 
     (i) only once during the applicable 3-month period described 
     in such clause in each year. The limitation under this clause 
     shall not apply to changes in elections effected during an 
     annual, coordinated election period under paragraph (3) or 
     during a special enrollment period under paragraph (4).
       ``(D) Continuous open enrollment for institutionalized 
     individuals.--At any time during 2006 or any subsequent year, 
     in the case of a MedicareAdvantage eligible individual who is 
     institutionalized (as defined by the Secretary), the 
     individual may elect under subsection (a)(1)--
       ``(i) to enroll in a MedicareAdvantage plan; or
       ``(ii) to change the MedicareAdvantage plan in which the 
     individual is enrolled.
       ``(3) Annual, coordinated election period.--
       ``(A) In general.--Subject to paragraph (5), each 
     individual who is eligible to make an election under this 
     section may change such election during an annual, 
     coordinated election period.
       ``(B) Annual, coordinated election period.--For purposes of 
     this section, the term `annual, coordinated election period' 
     means, with respect to a year before 2003 and after 2006, the 
     month of November before such year and with respect to 2003, 
     2004, 2005, and 2006, the period beginning on November 15 and 
     ending on December 31 of the year before such year.
       ``(C) Medicareadvantage health information fairs.--During 
     the fall season of each year (beginning with 2006), in 
     conjunction with the annual coordinated election period 
     defined in subparagraph (B), the Secretary shall provide for 
     a nationally coordinated educational and publicity campaign 
     to inform MedicareAdvantage eligible individuals about 
     MedicareAdvantage plans and the election process provided 
     under this section.
       ``(D) Special information campaign in 2005.--During the 
     period beginning on November 15, 2005, and ending on December 
     31, 2005, the Secretary shall provide for an educational and 
     publicity campaign to inform MedicareAdvantage eligible 
     individuals about the availability of MedicareAdvantage 
     plans, and eligible organizations with risk-sharing contracts 
     under section 1876, offered in different areas and the 
     election process provided under this section.
       ``(4) Special election periods.--Effective on and after 
     January 1, 2006, an individual may discontinue an election of 
     a MedicareAdvantage plan offered by a MedicareAdvantage 
     organization other than during an annual, coordinated 
     election period and make a new election under this section 
     if--
       ``(A)(i) the certification of the organization or plan 
     under this part has been terminated, or the organization or 
     plan has notified the individual of an impending termination 
     of such certification; or
       ``(ii) the organization has terminated or otherwise 
     discontinued providing the plan in the area in which the 
     individual resides, or has notified the individual of an 
     impending termination or discontinuation of such plan;
       ``(B) the individual is no longer eligible to elect the 
     plan because of a change in the individual's place of 
     residence or other change in circumstances (specified by the 
     Secretary, but not including termination of the individual's 
     enrollment on the basis described in clause (i) or (ii) of 
     subsection (g)(3)(B));
       ``(C) the individual demonstrates (in accordance with 
     guidelines established by the Secretary) that--
       ``(i) the organization offering the plan substantially 
     violated a material provision of the organization's contract 
     under this part in relation to the individual (including the 
     failure to provide an enrollee on a timely basis medically 
     necessary care for which benefits are available under the 
     plan or the failure to provide such covered care in 
     accordance with applicable quality standards); or
       ``(ii) the organization (or an agent or other entity acting 
     on the organization's behalf) materially misrepresented the 
     plan's provisions in marketing the plan to the individual; or
       ``(D) the individual meets such other exceptional 
     conditions as the Secretary may provide.

     Effective on and after January 1, 2006, an individual who, 
     upon first becoming eligible for benefits under part A at age 
     65, enrolls in a MedicareAdvantage plan under this part, the 
     individual may discontinue the election of such plan, and 
     elect coverage under the original fee-for-service plan, at 
     any time during the 12-month period beginning on the 
     effective date of such enrollment.
       ``(5) Special rules for msa plans.--Notwithstanding the 
     preceding provisions of this subsection, an individual--
       ``(A) may elect an MSA plan only during--
       ``(i) an initial open enrollment period described in 
     paragraph (1);
       ``(ii) an annual, coordinated election period described in 
     paragraph (3)(B); or
       ``(iii) the month of November 1998;
       ``(B) subject to subparagraph (C), may not discontinue an 
     election of an MSA plan except during the periods described 
     in clause (ii) or (iii) of subparagraph (A) and under the 
     first sentence of paragraph (4); and
       ``(C) who elects an MSA plan during an annual, coordinated 
     election period, and who never previously had elected such a 
     plan, may revoke such election, in a manner determined by the 
     Secretary, by not later than December 15 following the date 
     of the election.
       ``(6) Open enrollment periods.--Subject to paragraph (5), a 
     MedicareAdvantage organization--
       ``(A) shall accept elections or changes to elections during 
     the initial enrollment periods described in paragraph (1), 
     during the period beginning on November 15, 2005, and ending 
     on December 31, 2005, and during the annual, coordinated 
     election period under paragraph (3) for each subsequent year, 
     and during special election periods described in the first 
     sentence of paragraph (4); and
       ``(B) may accept other changes to elections at such other 
     times as the organization provides.
       ``(f) Effectiveness of Elections and Changes of 
     Elections.--
       ``(1) During initial coverage election period.--An election 
     of coverage made during the initial coverage election period 
     under subsection (e)(1)(A) shall take effect upon the date 
     the individual becomes entitled to (or enrolled for) benefits 
     under part A, enrolled under part B, and enrolled under part 
     D, except as the Secretary may provide (consistent with 
     sections 1838 and 1860D-2)) in order to prevent retroactive 
     coverage.
       ``(2) During continuous open enrollment periods.--An 
     election or change of coverage made under subsection (e)(2) 
     shall take effect with the first day of the first calendar 
     month following the date on which the election or change is 
     made.

[[Page 16541]]

       ``(3) Annual, coordinated election period.--An election or 
     change of coverage made during an annual, coordinated 
     election period (as defined in subsection (e)(3)(B)) in a 
     year shall take effect as of the first day of the following 
     year.
       ``(4) Other periods.--An election or change of coverage 
     made during any other period under subsection (e)(4) shall 
     take effect in such manner as the Secretary provides in a 
     manner consistent (to the extent practicable) with protecting 
     continuity of health benefit coverage.
       ``(g) Guaranteed Issue and Renewal.--
       ``(1) In general.--Except as provided in this subsection, a 
     MedicareAdvantage organization shall provide that at any time 
     during which elections are accepted under this section with 
     respect to a MedicareAdvantage plan offered by the 
     organization, the organization will accept without 
     restrictions individuals who are eligible to make such 
     election.
       ``(2) Priority.--If the Secretary determines that a 
     MedicareAdvantage organization, in relation to a 
     MedicareAdvantage plan it offers, has a capacity limit and 
     the number of MedicareAdvantage eligible individuals who 
     elect the plan under this section exceeds the capacity limit, 
     the organization may limit the election of individuals of the 
     plan under this section but only if priority in election is 
     provided--
       ``(A) first to such individuals as have elected the plan at 
     the time of the determination; and
       ``(B) then to other such individuals in such a manner that 
     does not discriminate, on a basis described in section 
     1852(b), among the individuals (who seek to elect the plan).

     The preceding sentence shall not apply if it would result in 
     the enrollment of enrollees substantially nonrepresentative, 
     as determined in accordance with regulations of the 
     Secretary, of the medicare population in the service area of 
     the plan.
       ``(3) Limitation on termination of election.--
       ``(A) In general.--Subject to subparagraph (B), a 
     MedicareAdvantage organization may not for any reason 
     terminate the election of any individual under this section 
     for a MedicareAdvantage plan it offers.
       ``(B) Basis for termination of election.--A 
     MedicareAdvantage organization may terminate an individual's 
     election under this section with respect to a 
     MedicareAdvantage plan it offers if--
       ``(i) any MedicareAdvantage monthly basic beneficiary 
     premium, MedicareAdvantage monthly beneficiary obligation for 
     qualified prescription drug coverage, or MedicareAdvantage 
     monthly beneficiary premium for required or optional enhanced 
     medical benefits required with respect to such plan are not 
     paid on a timely basis (consistent with standards under 
     section 1856 that provide for a grace period for late payment 
     of such premiums);
       ``(ii) the individual has engaged in disruptive behavior 
     (as specified in such standards); or
       ``(iii) the plan is terminated with respect to all 
     individuals under this part in the area in which the 
     individual resides.
       ``(C) Consequence of termination.--
       ``(i) Terminations for cause.--Any individual whose 
     election is terminated under clause (i) or (ii) of 
     subparagraph (B) is deemed to have elected to receive 
     benefits under the original medicare fee-for-service program 
     option.
       ``(ii) Termination based on plan termination or service 
     area reduction.--Any individual whose election is terminated 
     under subparagraph (B)(iii) shall have a special election 
     period under subsection (e)(4)(A) in which to change coverage 
     to coverage under another MedicareAdvantage plan. Such an 
     individual who fails to make an election during such period 
     is deemed to have chosen to change coverage to the original 
     medicare fee-for-service program option.
       ``(D) Organization obligation with respect to election 
     forms.--Pursuant to a contract under section 1857858., each 
     MedicareAdvantage organization receiving an election form 
     under subsection (c)(2) shall transmit to the Secretary (at 
     such time and in such manner as the Secretary may specify) a 
     copy of such form or such other information respecting the 
     election as the Secretary may specify.
       ``(h) Approval of Marketing Material and Application 
     Forms.--
       ``(1) Submission.--No marketing material or application 
     form may be distributed by a MedicareAdvantage organization 
     to (or for the use of) MedicareAdvantage eligible individuals 
     unless--
       ``(A) at least 45 days (or 10 days in the case described in 
     paragraph (5)) before the date of distribution the 
     organization has submitted the material or form to the 
     Secretary for review; and
       ``(B) the Secretary has not disapproved the distribution of 
     such material or form.
       ``(2) Review.--The standards established under section 1856 
     shall include guidelines for the review of any material or 
     form submitted and under such guidelines the Secretary shall 
     disapprove (or later require the correction of) such material 
     or form if the material or form is materially inaccurate or 
     misleading or otherwise makes a material misrepresentation.
       ``(3) Deemed approval (1-stop shopping).--In the case of 
     material or form that is submitted under paragraph (1)(A) to 
     the Secretary or a regional office of the Department of 
     Health and Human Services and the Secretary or the office has 
     not disapproved the distribution of marketing material or 
     form under paragraph (1)(B) with respect to a 
     MedicareAdvantage plan in an area, the Secretary is deemed 
     not to have disapproved such distribution in all other areas 
     covered by the plan and organization except with regard to 
     that portion of such material or form that is specific only 
     to an area involved.
       ``(4) Prohibition of certain marketing practices.--Each 
     MedicareAdvantage organization shall conform to fair 
     marketing standards, in relation to MedicareAdvantage plans 
     offered under this part, included in the standards 
     established under section 1856. Such standards--
       ``(A) shall not permit a MedicareAdvantage organization to 
     provide for cash or other monetary rebates as an inducement 
     for enrollment or otherwise (other than as an additional 
     benefit described in section 1854(g)(1)(C)(i)); and
       ``(B) may include a prohibition against a MedicareAdvantage 
     organization (or agent of such an organization) completing 
     any portion of any election form used to carry out elections 
     under this section on behalf of any individual.
       ``(5) Special treatment of marketing material following 
     model marketing language.--In the case of marketing material 
     of an organization that uses, without modification, proposed 
     model language specified by the Secretary, the period 
     specified in paragraph (1)(A) shall be reduced from 45 days 
     to 10 days.
       ``(i) Effect of Election of MedicareAdvantage Plan 
     Option.--
       ``(1) Payments to organizations.--Subject to sections 
     1852(a)(5), 1853(h), 1853(i), 1886(d)(11), and 1886(h)(3)(D), 
     payments under a contract with a MedicareAdvantage 
     organization under section 1853(a) with respect to an 
     individual electing a MedicareAdvantage plan offered by the 
     organization shall be instead of the amounts which (in the 
     absence of the contract) would otherwise be payable under 
     parts A, B, and D for items and services furnished to the 
     individual.
       ``(2) Only organization entitled to payment.--Subject to 
     sections 1853(f), 1853(h), 1853(i), 1857(f)(2), 1886(d)(11), 
     and 1886(h)(3)(D), only the MedicareAdvantage organization 
     shall be entitled to receive payments from the Secretary 
     under this title for services furnished to the individual.''.

     SEC. 202. BENEFITS AND BENEFICIARY PROTECTIONS.

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


                 ``benefits and beneficiary protections

       ``Sec. 1852. (a) Basic Benefits.--
       ``(1) In general.--Except as provided in section 1859(b)(3) 
     for MSA plans, each MedicareAdvantage plan shall provide to 
     members enrolled under this part, through providers and other 
     persons that meet the applicable requirements of this title 
     and part A of title XI--
       ``(A) those items and services (other than hospice care) 
     for which benefits are available under parts A and B to 
     individuals residing in the area served by the plan;
       ``(B) except as provided in paragraph (2)(D), qualified 
     prescription drug coverage under part D to individuals 
     residing in the area served by the plan;
       ``(C) a maximum limitation on out-of-pocket expenses and a 
     unified deductible; and
       ``(D) additional benefits required under section 
     1854(d)(1).
       ``(2) Satisfaction of requirement.--
       ``(A) In general.--A MedicareAdvantage plan (other than an 
     MSA plan) offered by a MedicareAdvantage organization 
     satisfies paragraph (1)(A), with respect to benefits for 
     items and services furnished other than through a provider or 
     other person that has a contract with the organization 
     offering the plan, if the plan provides payment in an amount 
     so that--
       ``(i) the sum of such payment amount and any cost-sharing 
     provided for under the plan; is equal to at least
       ``(ii) the total dollar amount of payment for such items 
     and services as would otherwise be authorized under parts A 
     and B (including any balance billing permitted under such 
     parts).
       ``(B) Reference to related provisions.--For provisions 
     relating to--
       ``(i) limitations on balance billing against 
     MedicareAdvantage organizations for noncontract providers, 
     see sections 1852(k) and 1866(a)(1)(O); and
       ``(ii) limiting actuarial value of enrollee liability for 
     covered benefits, see section 1854(f).
       ``(C) Election of uniform coverage policy.--In the case of 
     a MedicareAdvantage organization that offers a 
     MedicareAdvantage plan in an area in which more than 1 local 
     coverage policy is applied with respect to different parts of 
     the area, the organization may elect to have the local 
     coverage policy for the part of the area that is most 
     beneficial to MedicareAdvantage enrollees (as identified by 
     the Secretary) apply with respect to all MedicareAdvantage 
     enrollees enrolled in the plan.

[[Page 16542]]

       ``(D) Special rule for private fee-for-service plans.--
       ``(i) In general.--A private fee-for-service plan may elect 
     not to provide qualified prescription drug coverage under 
     part D to individuals residing in the area served by the 
     plan.
       ``(ii) Availability of drug coverage for enrollees.--If a 
     beneficiary enrolls in a plan making the election described 
     in clause (i), the beneficiary may enroll for drug coverage 
     under part D with an eligible entity under such part.
       ``(3) Enhanced medical benefits.--
       ``(A) Benefits included subject to secretary's approval.--
     Each MedicareAdvantage organization may provide to 
     individuals enrolled under this part, other than under an MSA 
     plan (without affording those individuals an option to 
     decline the coverage), enhanced medical benefits that the 
     Secretary may approve. The Secretary shall approve any such 
     enhanced medical benefits unless the Secretary determines 
     that including such enhanced medical benefits would 
     substantially discourage enrollment by MedicareAdvantage 
     eligible individuals with the organization.
       ``(B) At enrollees' option.--A MedicareAdvantage 
     organization may not provide, under an MSA plan, enhanced 
     medical benefits that cover the deductible described in 
     section 1859(b)(2)(B). In applying the previous sentence, 
     health benefits described in section 1882(u)(2)(B) shall not 
     be treated as covering such deductible.
       ``(C) Application to medicareadvantage private fee-for-
     service plans.--Nothing in this paragraph shall be construed 
     as preventing a MedicareAdvantage private fee-for-service 
     plan from offering enhanced medical benefits that include 
     payment for some or all of the balance billing amounts 
     permitted consistent with section 1852(k) and coverage of 
     additional services that the plan finds to be medically 
     necessary.
       ``(D) Rule for approval of medical and prescription drug 
     benefits.--Notwithstanding the preceding provisions of this 
     paragraph, the Secretary may not approve any enhanced medical 
     benefit that provides for the coverage of any prescription 
     drug (other than that relating to prescription drugs covered 
     under the original medicare fee-for-service program option).
       ``(4) Organization as secondary payer.--Notwithstanding any 
     other provision of law, a MedicareAdvantage organization may 
     (in the case of the provision of items and services to an 
     individual under a MedicareAdvantage plan under circumstances 
     in which payment under this title is made secondary pursuant 
     to section 1862(b)(2)) charge or authorize the provider of 
     such services to charge, in accordance with the charges 
     allowed under a law, plan, or policy described in such 
     section--
       ``(A) the insurance carrier, employer, or other entity 
     which under such law, plan, or policy is to pay for the 
     provision of such services; or
       ``(B) such individual to the extent that the individual has 
     been paid under such law, plan, or policy for such services.
       ``(5) National coverage determinations and legislative 
     changes in benefits.--If there is a national coverage 
     determination or legislative change in benefits required to 
     be provided under this part made in the period beginning on 
     the date of an announcement under section 1853(b) and ending 
     on the date of the next announcement under such section and 
     the Secretary projects that the determination will result in 
     a significant change in the costs to a MedicareAdvantage 
     organization of providing the benefits that are the subject 
     of such national coverage determination and that such change 
     in costs was not incorporated in the determination of the 
     benchmark amount announced under section 1853(b)(1)(A) at the 
     beginning of such period, then, unless otherwise required by 
     law--
       ``(A) such determination or legislative change in benefits 
     shall not apply to contracts under this part until the first 
     contract year that begins after the end of such period; and
       ``(B) if such coverage determination or legislative change 
     provides for coverage of additional benefits or coverage 
     under additional circumstances, section 1851(i)(1) shall not 
     apply to payment for such additional benefits or benefits 
     provided under such additional circumstances until the first 
     contract year that begins after the end of such period.

     The projection under the previous sentence shall be based on 
     an analysis by the Secretary of the actuarial costs 
     associated with the coverage determination or legislative 
     change in benefits.
       ``(6) Authority to prohibit risk selection.--The Secretary 
     shall have the authority to disapprove any MedicareAdvantage 
     plan that the Secretary determines is designed to attract a 
     population that is healthier than the average population 
     residing in the service area of the plan.
       ``(7) Unified deductible defined.--In this part, the term 
     `unified deductible' means an annual deductible amount that 
     is applied in lieu of the inpatient hospital deductible under 
     section 1813(b)(1) and the deductible under section 1833(b). 
     Nothing in this part shall be construed as preventing a 
     MedicareAdvantage organization from requiring coinsurance or 
     a copayment for inpatient hospital services after the unified 
     deductible is satisfied, subject to the limitation on 
     enrollee liability under section 1854(f).
       ``(b) Antidiscrimination.--
       ``(1) Beneficiaries.--
       ``(A) In general.--A MedicareAdvantage organization may not 
     deny, limit, or condition the coverage or provision of 
     benefits under this part, for individuals permitted to be 
     enrolled with the organization under this part, based on any 
     health status-related factor described in section 2702(a)(1) 
     of the Public Health Service Act.
       ``(B) Construction.--Except as provided under section 
     1851(a)(3)(B), subparagraph (A) shall not be construed as 
     requiring a MedicareAdvantage organization to enroll 
     individuals who are determined to have end-stage renal 
     disease.
       ``(2) Providers.--A MedicareAdvantage organization shall 
     not discriminate with respect to participation, 
     reimbursement, or indemnification as to any provider who is 
     acting within the scope of the provider's license or 
     certification under applicable State law, solely on the basis 
     of such license or certification. This paragraph shall not be 
     construed to prohibit a plan from including providers only to 
     the extent necessary to meet the needs of the plan's 
     enrollees or from establishing any measure designed to 
     maintain quality and control costs consistent with the 
     responsibilities of the plan.
       ``(c) Disclosure Requirements.--
       ``(1) Detailed description of plan provisions.--A 
     MedicareAdvantage organization shall disclose, in clear, 
     accurate, and standardized form to each enrollee with a 
     MedicareAdvantage plan offered by the organization under this 
     part at the time of enrollment and at least annually 
     thereafter, the following information regarding such plan:
       ``(A) Service area.--The plan's service area.
       ``(B) Benefits.--Benefits offered under the plan, including 
     information described section 1852(a)(1) (relating to 
     benefits under the original medicare fee-for-service program 
     option, the maximum limitation in out-of-pocket expenses and 
     the unified deductible, and qualified prescription drug 
     coverage under part D, respectively) and exclusions from 
     coverage and, if it is an MSA plan, a comparison of benefits 
     under such a plan with benefits under other MedicareAdvantage 
     plans.
       ``(C) Access.--The number, mix, and distribution of plan 
     providers, out-of-network coverage (if any) provided by the 
     plan, and any point-of-service option (including the 
     MedicareAdvantage monthly beneficiary premium for enhanced 
     medical benefits for such option).
       ``(D) Out-of-area coverage.--Out-of-area coverage provided 
     by the plan.
       ``(E) Emergency coverage.--Coverage of emergency services, 
     including--
       ``(i) the appropriate use of emergency services, including 
     use of the 911 telephone system or its local equivalent in 
     emergency situations and an explanation of what constitutes 
     an emergency situation;
       ``(ii) the process and procedures of the plan for obtaining 
     emergency services; and
       ``(iii) the locations of--

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

       ``(F) Enhanced medical benefits.--Enhanced medical benefits 
     available from the organization offering the plan, 
     including--
       ``(i) whether the enhanced medical benefits are optional;
       ``(ii) the enhanced medical benefits covered; and
       ``(iii) the MedicareAdvantage monthly beneficiary premium 
     for enhanced medical benefits.
       ``(G) Prior authorization rules.--Rules regarding prior 
     authorization or other review requirements that could result 
     in nonpayment.
       ``(H) Plan grievance and appeals procedures.--All plan 
     appeal or grievance rights and procedures.
       ``(I) Quality assurance program.--A description of the 
     organization's quality assurance program under subsection 
     (e).
       ``(2) Disclosure upon request.--Upon request of a 
     MedicareAdvantage eligible individual, a MedicareAdvantage 
     organization must provide the following information to such 
     individual:
       ``(A) The general coverage information and general 
     comparative plan information made available under clauses (i) 
     and (ii) of section 1851(d)(2)(A).
       ``(B) Information on procedures used by the organization to 
     control utilization of services and expenditures.
       ``(C) Information on the number of grievances, 
     reconsiderations, and appeals and on the disposition in the 
     aggregate of such matters.
       ``(D) An overall summary description as to the method of 
     compensation of participating physicians.
       ``(E) The information described in subparagraphs (A) 
     through (C) in relation to the qualified prescription drug 
     coverage provided by the organization.
       ``(d) Access to Services.--

[[Page 16543]]

       ``(1) In general.--A MedicareAdvantage organization 
     offering a MedicareAdvantage plan may select the providers 
     from whom the benefits under the plan are provided so long 
     as--
       ``(A) the organization makes such benefits available and 
     accessible to each individual electing the plan within the 
     plan service area with reasonable promptness and in a manner 
     which assures continuity in the provision of benefits;
       ``(B) when medically necessary the organization makes such 
     benefits available and accessible 24 hours a day and 7 days a 
     week;
       ``(C) the plan provides for reimbursement with respect to 
     services which are covered under subparagraphs (A) and (B) 
     and which are provided to such an individual other than 
     through the organization, if--
       ``(i) the services were not emergency services (as defined 
     in paragraph (3)), but--

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

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

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

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

     Such program shall include a separate focus (with respect to 
     all the elements described in this subparagraph) on racial 
     and ethnic minorities.
       ``(C) Definition of nonnetwork msa plan.--In this 
     subsection, the term `nonnetwork MSA plan' means an MSA plan 
     offered by a MedicareAdvantage organization that does not 
     provide benefits required to be provided by this part, in 
     whole or in part, through a defined set of providers under 
     contract, or under another arrangement, with the 
     organization.
       ``(3) External review.--
       ``(A) In general.--Each MedicareAdvantage organization 
     shall, for each MedicareAdvantage plan it operates, have an 
     agreement with an independent quality review and improvement 
     organization approved by the Secretary to perform functions 
     of the type described in paragraphs (4)(B) and (14) of 
     section 1154(a) with respect to services furnished by 
     MedicareAdvantage plans for which payment is made under this 
     title. The previous sentence shall not apply to a 
     MedicareAdvantage private fee-for-service plan or a 
     nonnetwork MSA plan that does not employ utilization review.
       ``(B) Nonduplication of accreditation.--Except in the case 
     of the review of quality complaints, and consistent with 
     subparagraph (C), the Secretary shall ensure that the 
     external review activities conducted under subparagraph (A) 
     are not duplicative of review activities conducted as part of 
     the accreditation process.
       ``(C) Waiver authority.--The Secretary may waive the 
     requirement described in subparagraph (A) in the case of an 
     organization if the Secretary determines that the 
     organization has consistently maintained an excellent record 
     of quality assurance and compliance with other requirements 
     under this part.
       ``(4) Treatment of accreditation.--
       ``(A) In general.--The Secretary shall provide that a 
     MedicareAdvantage organization is deemed to meet all the 
     requirements described in any specific clause of subparagraph 
     (B) if the organization is accredited (and periodically 
     reaccredited) by a private accrediting organization under a 
     process that the Secretary has determined assures that the 
     accrediting organization applies and enforces standards that 
     meet or exceed the standards established under section 1856 
     to carry out the requirements in such clause.

[[Page 16544]]

       ``(B) Requirements described.--The provisions described in 
     this subparagraph are the following:
       ``(i) Paragraphs (1) and (2) of this subsection (relating 
     to quality assurance programs).
       ``(ii) Subsection (b) (relating to antidiscrimination).
       ``(iii) Subsection (d) (relating to access to services).
       ``(iv) Subsection (h) (relating to confidentiality and 
     accuracy of enrollee records).
       ``(v) Subsection (i) (relating to information on advance 
     directives).
       ``(vi) Subsection (j) (relating to provider participation 
     rules).
       ``(C) Timely action on applications.--The Secretary shall 
     determine, within 210 days after the date the Secretary 
     receives an application by a private accrediting organization 
     and using the criteria specified in section 1865(b)(2), 
     whether the process of the private accrediting organization 
     meets the requirements with respect to any specific clause in 
     subparagraph (B) with respect to which the application is 
     made. The Secretary may not deny such an application on the 
     basis that it seeks to meet the requirements with respect to 
     only one, or more than one, such specific clause.
       ``(D) Construction.--Nothing in this paragraph shall be 
     construed as limiting the authority of the Secretary under 
     section 1857, including the authority to terminate contracts 
     with MedicareAdvantage organizations under subsection (c)(2) 
     of such section.
       ``(5) Report to congress.--
       ``(A) In general.--The Secretary shall submit to Congress a 
     biennial report regarding how quality assurance programs 
     conducted under this subsection focus on racial and ethnic 
     minorities.
       ``(B) Contents of report.--Each such report shall include 
     the following:
       ``(i) A description of the means by which such programs 
     focus on such racial and ethnic minorities.
       ``(ii) An evaluation of the impact of such programs on 
     eliminating health disparities and on improving health 
     outcomes, continuity and coordination of care, management of 
     chronic conditions, and consumer satisfaction.
       ``(iii) Recommendations on ways to reduce clinical outcome 
     disparities among racial and ethnic minorities.
       ``(f) Grievance Mechanism.--Each MedicareAdvantage 
     organization must provide meaningful procedures for hearing 
     and resolving grievances between the organization (including 
     any entity or individual through which the organization 
     provides health care services) and enrollees with 
     MedicareAdvantage plans of the organization under this part.
       ``(g) Coverage Determinations, Reconsiderations, and 
     Appeals.--
       ``(1) Determinations by organization.--
       ``(A) In general.--A MedicareAdvantage organization shall 
     have a procedure for making determinations regarding whether 
     an individual enrolled with the plan of the organization 
     under this part is entitled to receive a health service under 
     this section and the amount (if any) that the individual is 
     required to pay with respect to such service. Subject to 
     paragraph (3), such procedures shall provide for such 
     determination to be made on a timely basis.
       ``(B) Explanation of determination.--Such a determination 
     that denies coverage, in whole or in part, shall be in 
     writing and shall include a statement in understandable 
     language of the reasons for the denial and a description of 
     the reconsideration and appeals processes.
       ``(2) Reconsiderations.--
       ``(A) In general.--The organization shall provide for 
     reconsideration of a determination described in paragraph 
     (1)(B) upon request by the enrollee involved. The 
     reconsideration shall be within a time period specified by 
     the Secretary, but shall be made, subject to paragraph (3), 
     not later than 60 days after the date of the receipt of the 
     request for reconsideration.
       ``(B) Physician decision on certain reconsiderations.--A 
     reconsideration relating to a determination to deny coverage 
     based on a lack of medical necessity shall be made only by a 
     physician with appropriate expertise in the field of medicine 
     which necessitates treatment who is other than a physician 
     involved in the initial determination.
       ``(3) Expedited determinations and reconsiderations.--
       ``(A) Receipt of requests.--
       ``(i) Enrollee requests.--An enrollee in a 
     MedicareAdvantage plan may request, either in writing or 
     orally, an expedited determination under paragraph (1) or an 
     expedited reconsideration under paragraph (2) by the 
     MedicareAdvantage organization.
       ``(ii) Physician requests.--A physician, regardless whether 
     the physician is affiliated with the organization or not, may 
     request, either in writing or orally, such an expedited 
     determination or reconsideration.
       ``(B) Organization procedures.--
       ``(i) In general.--The MedicareAdvantage organization shall 
     maintain procedures for expediting organization 
     determinations and reconsiderations when, upon request of an 
     enrollee, the organization determines that the application of 
     the normal timeframe for making a determination (or a 
     reconsideration involving a determination) could seriously 
     jeopardize the life or health of the enrollee or the 
     enrollee's ability to regain maximum function.
       ``(ii) Expedition required for physician requests.--In the 
     case of a request for an expedited determination or 
     reconsideration made under subparagraph (A)(ii), the 
     organization shall expedite the determination or 
     reconsideration if the request indicates that the application 
     of the normal timeframe for making a determination (or a 
     reconsideration involving a determination) could seriously 
     jeopardize the life or health of the enrollee or the 
     enrollee's ability to regain maximum function.
       ``(iii) Timely response.--In cases described in clauses (i) 
     and (ii), the organization shall notify the enrollee (and the 
     physician involved, as appropriate) of the determination or 
     reconsideration under time limitations established by the 
     Secretary, but not later than 72 hours of the time of receipt 
     of the request for the determination or reconsideration (or 
     receipt of the information necessary to make the 
     determination or reconsideration), or such longer period as 
     the Secretary may permit in specified cases.
       ``(4) Independent review of certain coverage denials.--The 
     Secretary shall contract with an independent, outside entity 
     to review and resolve in a timely manner reconsiderations 
     that affirm denial of coverage, in whole or in part. The 
     provisions of section 1869(c)(5) shall apply to independent 
     outside entities under contract with the Secretary under this 
     paragraph.
       ``(5) Appeals.--An enrollee with a MedicareAdvantage plan 
     of a MedicareAdvantage organization under this part who is 
     dissatisfied by reason of the enrollee's failure to receive 
     any health service to which the enrollee believes the 
     enrollee is entitled and at no greater charge than the 
     enrollee believes the enrollee is required to pay is 
     entitled, if the amount in controversy is $100 or more, to a 
     hearing before the Secretary to the same extent as is 
     provided in section 205(b), and in any such hearing the 
     Secretary shall make the organization a party. If the amount 
     in controversy is $1,000 or more, the individual or 
     organization shall, upon notifying the other party, be 
     entitled to judicial review of the Secretary's final decision 
     as provided in section 205(g), and both the individual and 
     the organization shall be entitled to be parties to that 
     judicial review. In applying subsections (b) and (g) of 
     section 205 as provided in this paragraph, and in applying 
     section 205(l) thereto, any reference therein to the 
     Commissioner of Social Security or the Social Security 
     Administration shall be considered a reference to the 
     Secretary or the Department of Health and Human Services, 
     respectively.
       ``(h) Confidentiality and Accuracy of Enrollee Records.--
     Insofar as a MedicareAdvantage organization maintains medical 
     records or other health information regarding enrollees under 
     this part, the MedicareAdvantage organization shall establish 
     procedures--
       ``(1) to safeguard the privacy of any individually 
     identifiable enrollee information;
       ``(2) to maintain such records and information in a manner 
     that is accurate and timely; and
       ``(3) to assure timely access of enrollees to such records 
     and information.
       ``(i) Information on Advance Directives.--Each 
     MedicareAdvantage organization shall meet the requirement of 
     section 1866(f) (relating to maintaining written policies and 
     procedures respecting advance directives).
       ``(j) Rules Regarding Provider Participation.--
       ``(1) Procedures.--Insofar as a MedicareAdvantage 
     organization offers benefits under a MedicareAdvantage plan 
     through agreements with physicians, the organization shall 
     establish reasonable procedures relating to the participation 
     (under an agreement between a physician and the organization) 
     of physicians under such a plan. Such procedures shall 
     include--
       ``(A) providing notice of the rules regarding 
     participation;
       ``(B) providing written notice of participation decisions 
     that are adverse to physicians; and
       ``(C) providing a process within the organization for 
     appealing such adverse decisions, including the presentation 
     of information and views of the physician regarding such 
     decision.
       ``(2) Consultation in medical policies.--A 
     MedicareAdvantage organization shall consult with physicians 
     who have entered into participation agreements with the 
     organization regarding the organization's medical policy, 
     quality, and medical management procedures.
       ``(3) Prohibiting interference with provider advice to 
     enrollees.--
       ``(A) In general.--Subject to subparagraphs (B) and (C), a 
     MedicareAdvantage organization (in relation to an individual 
     enrolled under a MedicareAdvantage plan offered by the 
     organization under this part) shall not prohibit or otherwise 
     restrict a covered health care professional (as defined in 
     subparagraph (D)) from advising such an individual who is a 
     patient of the professional about the health status of the 
     individual or medical care or treatment for the

[[Page 16545]]

     individual's condition or disease, regardless of whether 
     benefits for such care or treatment are provided under the 
     plan, if the professional is acting within the lawful scope 
     of practice.
       ``(B) Conscience protection.--Subparagraph (A) shall not be 
     construed as requiring a MedicareAdvantage plan to provide, 
     reimburse for, or provide coverage of a counseling or 
     referral service if the MedicareAdvantage organization 
     offering the plan--
       ``(i) objects to the provision of such service on moral or 
     religious grounds; and
       ``(ii) in the manner and through the written 
     instrumentalities such MedicareAdvantage organization deems 
     appropriate, makes available information on its policies 
     regarding such service to prospective enrollees before or 
     during enrollment and to enrollees within 90 days after the 
     date that the organization or plan adopts a change in policy 
     regarding such a counseling or referral service.
       ``(C) Construction.--Nothing in subparagraph (B) shall be 
     construed to affect disclosure requirements under State law 
     or under the Employee Retirement Income Security Act of 1974.
       ``(D) Health care professional defined.--For purposes of 
     this paragraph, the term `health care professional' means a 
     physician (as defined in section 1861(r)) or other health 
     care professional if coverage for the professional's services 
     is provided under the MedicareAdvantage plan for the services 
     of the professional. Such term includes a podiatrist, 
     optometrist, chiropractor, psychologist, dentist, licensed 
     pharmacist, physician assistant, physical or occupational 
     therapist and therapy assistant, speech-language pathologist, 
     audiologist, registered or licensed practical nurse 
     (including nurse practitioner, clinical nurse specialist, 
     certified registered nurse anesthetist, and certified nurse-
     midwife), licensed certified social worker, registered 
     respiratory therapist, and certified respiratory therapy 
     technician.
       ``(4) Limitations on physician incentive plans.--
       ``(A) In general.--No MedicareAdvantage organization may 
     operate any physician incentive plan (as defined in 
     subparagraph (B)) unless the following requirements are met:
       ``(i) No specific payment is made directly or indirectly 
     under the plan to a physician or physician group as an 
     inducement to reduce or limit medically necessary services 
     provided with respect to a specific individual enrolled with 
     the organization.
       ``(ii) If the plan places a physician or physician group at 
     substantial financial risk (as determined by the Secretary) 
     for services not provided by the physician or physician 
     group, the organization--

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

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

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

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

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

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

       ``(l) Return to Home Skilled Nursing Facilities for Covered 
     Post-Hospital Extended Care Services.--
       ``(1) Ensuring return to home snf.--

       ``(A) In general.--In providing coverage of post-hospital 
     extended care services, a MedicareAdvantage plan shall 
     provide for such coverage through a home skilled nursing 
     facility if the following conditions are met:

       ``(i) Enrollee election.--The enrollee elects to receive 
     such coverage through such facility.

[[Page 16546]]

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

     SEC. 203. PAYMENTS TO MEDICAREADVANTAGE ORGANIZATIONS.

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


             ``payments to medicareadvantage organizations

       ``Sec. 1853. (a) Payments to Organizations.--
       ``(1) Monthly payments.--
       ``(A) In general.--Under a contract under section 1857 and 
     subject to subsections (f), (h), and (j) and section 
     1859(e)(4), the Secretary shall make, to each 
     MedicareAdvantage organization, with respect to coverage of 
     an individual for a month under this part in a 
     MedicareAdvantage payment area, separate monthly payments 
     with respect to--
       ``(i) benefits under the original medicare fee-for-service 
     program under parts A and B in accordance with subsection 
     (d); and
       ``(ii) benefits under the voluntary prescription drug 
     program under part D in accordance with section 1858A and the 
     other provisions of this part.
       ``(B) Special rule for end-stage renal disease.--The 
     Secretary shall establish separate rates of payment to a 
     MedicareAdvantage organization with respect to classes of 
     individuals determined to have end-stage renal disease and 
     enrolled in a MedicareAdvantage plan of the organization. 
     Such rates of payment shall be actuarially equivalent to 
     rates paid to other enrollees in the MedicareAdvantage 
     payment area (or such other area as specified by the 
     Secretary). In accordance with regulations, the Secretary 
     shall provide for the application of the seventh sentence of 
     section 1881(b)(7) to payments under this section covering 
     the provision of renal dialysis treatment in the same manner 
     as such sentence applies to composite rate payments described 
     in such sentence. In establishing such rates, the Secretary 
     shall provide for appropriate adjustments to increase each 
     rate to reflect the demonstration rate (including the risk 
     adjustment methodology associated with such rate) of the 
     social health maintenance organization end-stage renal 
     disease capitation demonstrations (established by section 
     2355 of the Deficit Reduction Act of 1984, as amended by 
     section 13567(b) of the Omnibus Budget Reconciliation Act of 
     1993), and shall compute such rates by taking into account 
     such factors as renal treatment modality, age, and the 
     underlying cause of the end-stage renal disease.
       ``(2) Adjustment to reflect number of enrollees.--
       ``(A) In general.--The amount of payment under this 
     subsection may be retroactively adjusted to take into account 
     any difference between the actual number of individuals 
     enrolled with an organization under this part and the number 
     of such individuals estimated to be so enrolled in 
     determining the amount of the advance payment.
       ``(B) Special rule for certain enrollees.--
       ``(i) In general.--Subject to clause (ii), the Secretary 
     may make retroactive adjustments under subparagraph (A) to 
     take into account individuals enrolled during the period 
     beginning on the date on which the individual enrolls with a 
     MedicareAdvantage organization under a plan operated, 
     sponsored, or contributed to by the individual's employer or 
     former employer (or the employer or former employer of the 
     individual's spouse) and ending on the date on which the 
     individual is enrolled in the organization under this part, 
     except that for purposes of making such retroactive 
     adjustments under this subparagraph, such period may not 
     exceed 90 days.
       ``(ii) Exception.--No adjustment may be made under clause 
     (i) with respect to any individual who does not certify that 
     the organization provided the individual with the disclosure 
     statement described in section 1852(c) at the time the 
     individual enrolled with the organization.
       ``(C) Equalization of federal contribution.--In applying 
     subparagraph (A), the Secretary shall ensure that the payment 
     to the MedicareAdvantage organization for each individual 
     enrolled with the organization shall equal the 
     MedicareAdvantage benchmark amount for the payment area in 
     which that individual resides (as determined under paragraph 
     (4)), as adjusted--
       ``(i) by multiplying the benchmark amount for that payment 
     area by the ratio of--

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

       ``(ii) using such risk adjustment factor as specified by 
     the Secretary under subsection (b)(1)(B).
       ``(3) Comprehensive risk adjustment methodology.--
       ``(A) Application of methodology.--The Secretary shall 
     apply the comprehensive risk adjustment methodology described 
     in subparagraph (B) to 100 percent of the amount of payments 
     to plans under subsection (d)(4)(B).
       ``(B) Comprehensive risk adjustment methodology 
     described.--The comprehensive risk adjustment methodology 
     described in this subparagraph is the risk adjustment 
     methodology that would apply with respect to 
     MedicareAdvantage plans offered by MedicareAdvantage 
     organizations in 2005, except that if such methodology does 
     not apply to groups of beneficiaries who are aged or disabled 
     and groups of beneficiaries who have end-stage renal disease, 
     the Secretary shall revise such methodology to apply to such 
     groups.
       ``(C) Uniform application to all types of plans.--Subject 
     to section 1859(e)(4), the comprehensive risk adjustment 
     methodology established under this paragraph shall be applied 
     uniformly without regard to the type of plan.
       ``(D) Data collection.--In order to carry out this 
     paragraph, the Secretary shall require MedicareAdvantage 
     organizations to submit such data and other information as 
     the Secretary deems necessary.
       ``(E) Improvement of payment accuracy.--Notwithstanding any 
     other provision of this paragraph, the Secretary may revise 
     the comprehensive risk adjustment methodology described in 
     subparagraph (B) from time to time to improve payment 
     accuracy.
       ``(4) Annual calculation of benchmark amounts.--For each 
     year, the Secretary shall calculate a benchmark amount for 
     each MedicareAdvantage payment area for each month for such 
     year with respect to coverage of the benefits available 
     under the original medicare fee-for-service program option 
     equal to the greater of the following amounts (adjusted as 
     appropriate for the application of the risk adjustment 
     methodology under paragraph (3)):
       ``(A) Minimum amount.--\1/12\ of the annual Medicare+Choice 
     capitation rate determined under subsection (c)(1)(B) for the 
     payment area for the year.
       ``(B) Local fee-for-service rate.--The local fee-for-
     service rate for such area for the year (as calculated under 
     paragraph (5)).
       ``(5) Annual calculation of local fee-for-service rates.--
       ``(A) In general.--Subject to subparagraph (B), the term 
     `local fee-for-service rate' means the amount of payment for 
     a month in a MedicareAdvantage payment area for benefits 
     under this title and associated claims processing costs for 
     an individual who has elected to receive benefits under the 
     original medicare fee-for-service program option and not 
     enrolled in a MedicareAdvantage plan under this part. The 
     Secretary shall annually calculate such

[[Page 16547]]

     amount in a manner similar to the manner in which the 
     Secretary calculated the adjusted average per capita cost 
     under section 1876.
       ``(B) Removal of medical education costs from calculation 
     of local fee-for-service rate.--
       ``(i) In general.--In calculating the local fee-for-service 
     rate under subparagraph (A) for a year, the amount of payment 
     described in such subparagraph shall be adjusted to exclude 
     from such payment the payment adjustments described in clause 
     (ii).
       ``(ii) Payment adjustments described.--

       ``(I) In general.--Subject to subclause (II), the payment 
     adjustments described in this subparagraph are payment 
     adjustments which the Secretary estimates are payable during 
     the year--

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

       ``(II) Treatment of payments covered under state hospital 
     reimbursement system.--To the extent that the Secretary 
     estimates that the amount of the local fee-for-service rates 
     reflects payments to hospitals reimbursed under section 
     1814(b)(3), the Secretary shall estimate a payment adjustment 
     that is comparable to the payment adjustment that would have 
     been made under clause (i) if the hospitals had not been 
     reimbursed under such section.

       ``(b) Annual Announcement of Payment Factors.--
       ``(1) Annual announcement.--Beginning in 2005, at the same 
     time as the Secretary publishes the risk adjusters under 
     section 1860D-11, the Secretary shall annually announce (in a 
     manner intended to provide notice to interested parties) the 
     following payment factors:
       ``(A) The benchmark amount for each MedicareAdvantage 
     payment area (as calculated under subsection (a)(4)) for the 
     year.
       ``(B) The factors to be used for adjusting payments under 
     the comprehensive risk adjustment methodology described in 
     subsection (a)(3)(B) with respect to each MedicareAdvantage 
     payment area for the year.
       ``(2) Advance notice of methodological changes.--At least 
     45 days before making the announcement under paragraph (1) 
     for a year, the Secretary shall--
       ``(A) provide for notice to MedicareAdvantage organizations 
     of proposed changes to be made in the methodology from the 
     methodology and assumptions used in the previous 
     announcement; and
       ``(B) provide such organizations with an opportunity to 
     comment on such proposed changes.
       ``(3) Explanation of assumptions.--In each announcement 
     made under paragraph (1), the Secretary shall include an 
     explanation of the assumptions and changes in methodology 
     used in the announcement in sufficient detail so that 
     MedicareAdvantage organizations can compute each payment 
     factor described in paragraph (1).
       ``(c) Calculation of Annual Medicare+Choice Capitation 
     Rates.--
       ``(1) In general.--For purposes of making payments under 
     this part for years before 2006 and for purposes of 
     calculating the annual Medicare+Choice capitation rates under 
     paragraph (7) beginning with such year, subject to paragraph 
     (6)(C), each annual Medicare+Choice capitation rate, for a 
     Medicare+Choice payment area before 2006 or a 
     MedicareAdvantage payment area beginning with such year for a 
     contract year consisting of a calendar year, is equal to the 
     largest of the amounts specified in the following 
     subparagraph (A), (B), or (C):
       ``(A) Blended capitation rate.--The sum of--
       ``(i) the area-specific percentage (as specified under 
     paragraph (2) for the year) of the annual area-specific 
     Medicare+Choice capitation rate for the MedicareAdvantage 
     payment area, as determined under paragraph (3) for the year; 
     and
       ``(ii) the national percentage (as specified under 
     paragraph (2) for the year) of the input-price-adjusted 
     annual national Medicare+Choice capitation rate, as 
     determined under paragraph (4) for the year,

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

       ``(I) 1998 is 20 percent;
       ``(II) 1999 is 40 percent;
       ``(III) 2000 is 60 percent;
       ``(IV) 2001 is 80 percent; and
       ``(V) a succeeding year is 100 percent.

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

       ``(I) for the indirect costs of medical education under 
     section 1886(d)(5)(B); and
       ``(II) for direct graduate medical education costs under 
     section 1886(h).

       ``(ii) Treatment of payments covered under state hospital 
     reimbursement system.--To the extent that the Secretary 
     estimates that an annual per capita rate of payment for 1997 
     described in clause (i) reflects payments to hospitals 
     reimbursed under section 1814(b)(3), the Secretary shall 
     estimate a payment adjustment that is comparable to the 
     payment adjustment that would have been made under clause (i) 
     if the hospitals had not been reimbursed under such section.
       ``(D) Treatment of areas with highly variable payment 
     rates.--In the case of a Medicare+Choice payment area for 
     which the annual per capita rate of payment determined under 
     section 1876(a)(1)(C) for 1997 varies by more than 20 percent 
     from such rate for 1996, for purposes of this subsection the 
     Secretary may substitute for such rate for 1997 a rate that 
     is more representative of the costs of the enrollees in the 
     area.
       ``(4) Input-price-adjusted annual national medicare+choice 
     capitation rate.--
       ``(A) In general.--For purposes of paragraph (1)(A), the 
     input-price-adjusted annual national Medicare+Choice 
     capitation rate for a Medicare+Choice payment area for a year

[[Page 16548]]

     is equal to the sum, for all the types of medicare services 
     (as classified by the Secretary), of the product (for each 
     such type of service) of--
       ``(i) the national standardized annual Medicare+Choice 
     capitation rate (determined under subparagraph (B)) for the 
     year;
       ``(ii) the proportion of such rate for the year which is 
     attributable to such type of services; and
       ``(iii) an index that reflects (for that year and that type 
     of services) the relative input price of such services in the 
     area compared to the national average input price of such 
     services.

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

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

       ``(ii) the sum of the products described in clause (i)(II) 
     for all areas for that year.
       ``(5) Payment adjustment budget neutrality factor.--For 
     purposes of paragraph (1)(A), for each year, the Secretary 
     shall determine a budget neutrality adjustment factor so that 
     the aggregate of the payments under this part (other than 
     those attributable to subsections (a)(3)(C)(iii) and (i)) 
     shall equal the aggregate payments that would have been made 
     under this part if payment were based entirely on area-
     specific capitation rates.
       ``(6) National per capita medicare+choice growth percentage 
     defined.--
       ``(A) In general.--In this part, the `national per capita 
     Medicare+Choice growth percentage' for a year is the 
     percentage determined by the Secretary, by March 1st before 
     the beginning of the year involved, to reflect the 
     Secretary's estimate of the projected per capita rate of 
     growth in expenditures under this title for an individual 
     entitled to (or enrolled for) benefits under part A and 
     enrolled under part B, reduced by the number of percentage 
     points specified in subparagraph (B) for the year. Separate 
     determinations may be made for aged enrollees, disabled 
     enrollees, and enrollees with end-stage renal disease.
       ``(B) Adjustment.--The number of percentage points 
     specified in this subparagraph is--
       ``(i) for 1998, 0.8 percentage points;
       ``(ii) for 1999, 0.5 percentage points;
       ``(iii) for 2000, 0.5 percentage points;
       ``(iv) for 2001, 0.5 percentage points;
       ``(v) for 2002, 0.3 percentage points; and
       ``(vi) for a year after 2002, 0 percentage points.
       ``(C) Adjustment for over or under projection of national 
     per capita medicare+choice growth percentage.--Beginning with 
     rates calculated for 1999, before computing rates for a year 
     as described in paragraph (1), the Secretary shall adjust all 
     area-specific and national Medicare+Choice capitation rates 
     (and beginning in 2000, the minimum amount) for the previous 
     year for the differences between the projections of the 
     national per capita Medicare+Choice growth percentage for 
     that year and previous years and the current estimate of such 
     percentage for such years.
       ``(7) Transition to medicareadvantage competition.--
       ``(A) In general.--For each year (beginning with 2006) 
     payments to MedicareAdvantage plans shall not be computed 
     under this subsection, but instead shall be based on the 
     payment amount determined under subsection (d).
       ``(B) Continued calculation of capitation rates.--For each 
     year (beginning with 2006) the Secretary shall calculate and 
     publish the annual Medicare+Choice capitation rates under 
     this subsection and shall use the annual Medicare+Choice 
     capitation rate determined under subsection (c)(1) for 
     purposes of determining the benchmark amount under subsection 
     (a)(4).
       ``(d) Secretary's Determination of Payment Amount.--
       ``(1) Review of plan bids.--The Secretary shall review each 
     plan bid submitted under section 1854(a) for the coverage of 
     benefits under the original medicare fee-for-service program 
     option to ensure that such bids are consistent with the 
     requirements under this part an are based on the assumptions 
     described in section 1854(a)(2)(A)(iii).
       ``(2) Determination of weighted service area benchmark 
     amounts.--The Secretary shall calculate a weighted service 
     area benchmark amount for the benefits under the original 
     medicare fee-for-service program option for each plan equal 
     to the weighted average of the benchmark amounts for benefits 
     under such original medicare fee-for-service program option 
     for the payment areas included in the service area of the 
     plan using the assumptions described in section 
     1854(a)(2)(A)(iii).
       ``(3) Comparison to benchmark.--The Secretary shall 
     determine the difference between each plan bid (as adjusted 
     under paragraph (1)) and the weighted service area benchmark 
     amount (as determined under paragraph (2)) for purposes of 
     determining--
       ``(A) the payment amount under paragraph (4); and
       ``(B) the additional benefits required and 
     MedicareAdvantage monthly basic beneficiary premiums.
       ``(4) Determination of payment amount for original medicare 
     fee-for-service benefits.--
       ``(A) In general.--Subject to subparagraph (B), the 
     Secretary shall determine the payment amount for 
     MedicareAdvantage plans for the benefits under the original 
     medicare fee-for-service program option as follows:
       ``(i) Bids that equal or exceed the benchmark.--In the case 
     of a plan bid that equals or exceeds the weighted service 
     area benchmark amount, the amount of each monthly payment to 
     a MedicareAdvantage organization with respect to each 
     individual enrolled in a plan shall be the weighted service 
     area benchmark amount.
       ``(ii) Bids below the benchmark.--In the case of a plan bid 
     that is less than the weighted service area benchmark amount, 
     the amount of each monthly payment to a MedicareAdvantage 
     organization with respect to each individual enrolled in a 
     plan shall be the weighted service area benchmark amount 
     reduced by the amount of any premium reduction elected by the 
     plan under section 1854(d)(1)(A)(i).
       ``(B) Application of comprehensive risk adjustment 
     methodology.--The Secretary shall adjust the amounts 
     determined under subparagraph (A) using the comprehensive 
     risk adjustment methodology applicable under subsection 
     (a)(3).
       ``(6) Adjustment for national coverage determinations and 
     legislative changes in benefits.--If the Secretary makes a 
     determination with respect to coverage under this title or 
     there is a change in benefits required to be provided under 
     this part that the Secretary projects will result in a 
     significant increase in the costs to MedicareAdvantage 
     organizations of providing benefits under contracts under 
     this part (for periods after any period described in section 
     1852(a)(5)), the Secretary shall appropriately adjust the 
     benchmark amounts or payment amounts (as determined by the 
     Secretary). Such projection and adjustment shall be based on 
     an analysis by the Secretary of the actuarial costs 
     associated with the new benefits.
       ``(7) Benefits under the original medicare fee-for-service 
     program option defined.--For purposes of this part, the term 
     `benefits under the original medicare fee-for-service program 
     option' means those items and services (other than hospice 
     care) for which benefits are available under parts A and B to 
     individuals entitled to, or enrolled for, benefits under part 
     A and enrolled under part B, with cost-sharing for those 
     services as required under parts A and B or an actuarially 
     equivalent level of cost-sharing as determined in this part.
       ``(e) MedicareAdvantage Payment Area Defined.--
       ``(1) In general.--In this part, except as provided in 
     paragraph (3), the term `MedicareAdvantage payment area' 
     means a county, or equivalent area specified by the 
     Secretary.
       ``(2) Rule for esrd beneficiaries.--In the case of 
     individuals who are determined to have end stage renal 
     disease, the MedicareAdvantage payment area shall be a State 
     or such other payment area as the Secretary specifies.
       ``(3) Geographic adjustment.--
       ``(A) In general.--Upon written request of the chief 
     executive officer of a State for a contract year (beginning 
     after 2005) made by not later than February 1 of the previous 
     year, the Secretary shall make a geographic adjustment to a 
     MedicareAdvantage payment area in the State otherwise 
     determined under paragraph (1)--
       ``(i) to a single statewide MedicareAdvantage payment area;
       ``(ii) to the metropolitan based system described in 
     subparagraph (C); or
       ``(iii) to consolidating into a single MedicareAdvantage 
     payment area noncontiguous counties (or equivalent areas 
     described in paragraph (1)) within a State.

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

[[Page 16549]]

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

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

     SEC. 204. SUBMISSION OF BIDS; PREMIUMS.

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


                     ``submission of bids; premiums

       ``Sec. 1854. (a) Submission of Bids by MedicareAdvantage 
     Organizations.--
       ``(1) In general.--Not later than the second Monday in 
     September and except as provided in paragraph (3), each 
     MedicareAdvantage organization shall submit to the Secretary, 
     in such form and manner as the Secretary may specify, for 
     each MedicareAdvantage plan that the organization intends to 
     offer in a service area in the following year--
       ``(A) notice of such intent and information on the service 
     area of the plan;
       ``(B) the plan type for each plan;
       ``(C) if the MedicareAdvantage plan is a coordinated care 
     plan (as described in section 1851(a)(2)(A)) or a private 
     fee-for-service plan (as described in section 1851(a)(2)(C)), 
     the information described in paragraph (2) with respect to 
     each payment area;
       ``(D) the enrollment capacity (if any) in relation to the 
     plan and each payment area;
       ``(E) the expected mix, by health status, of enrolled 
     individuals; and
       ``(F) such other information as the Secretary may specify.
       ``(2) Information required for coordinated care plans and 
     private fee-for-service plans.--For a MedicareAdvantage plan 
     that is a coordinated care plan (as described in section 
     1851(a)(2)(A)) or a private fee-for-service plan (as 
     described in section 1851(a)(2)(C)), the information 
     described in this paragraph is as follows:
       ``(A) Information required with respect to benefits under 
     the original medicare fee-for-service program option.--
     Information relating to the coverage of benefits under the 
     original medicare fee-for-service program option as follows:
       ``(i) The plan bid, which shall consist of a dollar amount 
     that represents the total amount that the plan is willing to 
     accept (not taking into account the application of the 
     comprehensive risk adjustment methodology under section 
     1853(a)(3)) for providing coverage of the benefits under the 
     original medicare fee-for-service program option to an 
     individual enrolled in the plan that resides in the service 
     area of the plan for a month.
       ``(ii) For the enhanced medical benefits package offered--

       ``(I) the adjusted community rate (as defined in subsection 
     (g)(3)) of the package;
       ``(II) the portion of the actuarial value of such benefits 
     package (if any) that will be applied toward satisfying the 
     requirement for additional benefits under subsection (g);
       ``(III) the MedicareAdvantage monthly beneficiary premium 
     for enhanced medical benefits (as defined in subsection 
     (b)(2)(C));
       ``(IV) a description of any cost-sharing;
       ``(V) a description of whether the amount of the unified 
     deductible has been lowered or the maximum limitations on 
     out-of-pocket expenses have been decreased (relative to the 
     levels used in calculating the plan bid);
       ``(VI) such other information as the Secretary considers 
     necessary.

       ``(iii) The assumptions that the MedicareAdvantage 
     organization used in preparing the plan bid with respect to 
     numbers, in each payment area, of enrolled individuals and 
     the mix, by health status, of such individuals.
       ``(B) Information required with respect to part d.--The 
     information required to be

[[Page 16550]]

     submitted by an eligible entity under section 1860D-12, 
     including the monthly premiums for standard coverage and any 
     other qualified prescription drug coverage available to 
     individuals enrolled under part D.
       ``(C) Determining plan costs included in plan bid.--For 
     purposes of submitting its plan bid under subparagraph (A)(i) 
     a MedicareAdvantage plan offered by a MedicareAdvantage 
     organization satisfies subparagraphs (A) and (C) of section 
     1852(a)(1) if the actuarial value of the deductibles, 
     coinsurance, and copayments applicable on average to 
     individuals enrolled in such plan under this part with 
     respect to benefits under the original medicare fee-for-
     service program option on which that bid is based (ignoring 
     any reduction in cost-sharing offered by such plan as 
     enhanced medical benefits under paragraph (2)(A)(ii) or 
     required under clause (ii) or (iii) of subsection (g)(1)(C)) 
     equals the amount specified in subsection (f)(1)(B).
       ``(3) Requirements for msa plans.--For an MSA plan 
     described in section 1851(a)(2)(B), the information described 
     in this paragraph is the information that such a plan would 
     have been required to submit under this part if the 
     Prescription Drug and Medicare Improvements Act of 2003 had 
     not been enacted.
       ``(4) Review.--
       ``(A) In general.--Subject to subparagraph (B), the 
     Secretary shall review the adjusted community rates (as 
     defined in section 1854(g)(3)), the amounts of the 
     MedicareAdvantage monthly basic premium and the 
     MedicareAdvantage monthly beneficiary premium for enhanced 
     medical benefits filed under this subsection and shall 
     approve or disapprove such rates and amounts so submitted. 
     The Secretary shall review the actuarial assumptions and data 
     used by the MedicareAdvantage organization with respect to 
     such rates and amounts so submitted to determine the 
     appropriateness of such assumptions and data.
       ``(B) MSA exception.--The Secretary shall not review, 
     approve, or disapprove the amounts submitted under paragraph 
     (3).
       ``(C) Clarification of authority regarding disapproval of 
     unreasonable beneficiary cost-sharing.--Under the authority 
     under subparagraph (A), the Secretary may disapprove the bid 
     if the Secretary determines that the deductibles, 
     coinsurance, or copayments applicable under the plan 
     discourage access to covered services or are likely to result 
     in favorable selection of MedicareAdvantage eligible 
     individuals.
       ``(5) Application of fehbp standard; prohibition on price 
     gouging.--Each bid amount submitted under paragraph (1) for a 
     MedicareAdvantage plan must reasonably and equitably reflect 
     the cost of benefits provided under that plan.
       ``(b) Monthly Premiums Charged.--
       ``(1) In general.--
       ``(A) Coordinated care and private fee-for-service plans.--
     The monthly amount of the premium charged to an individual 
     enrolled in a MedicareAdvantage plan (other than an MSA plan) 
     offered by a MedicareAdvantage organization shall be equal to 
     the sum of the following:
       ``(i) The MedicareAdvantage monthly basic beneficiary 
     premium (if any).
       ``(ii) The MedicareAdvantage monthly beneficiary premium 
     for enhanced medical benefits (if any).
       ``(iii) The MedicareAdvantage monthly obligation for 
     qualified prescription drug coverage (if any).
       ``(B) MSA plans.--The rules under this section that would 
     have applied with respect to an MSA plan if the Prescription 
     Drug and Medicare Improvements Act of 2003 had not been 
     enacted shall continue to apply to MSA plans after the date 
     of enactment of such Act.
       ``(2) Premium terminology.--For purposes of this part:
       ``(A) Medicareadvantage monthly basic beneficiary 
     premium.--The term `MedicareAdvantage monthly basic 
     beneficiary premium' means, with respect to a 
     MedicareAdvantage plan, the amount required to be charged 
     under subsection (d)(2) for the plan.
       ``(B) Medicareadvantage monthly beneficiary obligation for 
     qualified prescription drug coverage.--The term 
     `MedicareAdvantage monthly beneficiary obligation for 
     qualified prescription drug coverage' means, with respect to 
     a MedicareAdvantage plan, the amount determined under section 
     1858A(d).
       ``(C) Medicareadvantage monthly beneficiary premium for 
     enhanced medical benefits.--The term `MedicareAdvantage 
     monthly beneficiary premium for enhanced medical benefits' 
     means, with respect to a MedicareAdvantage plan, the amount 
     required to be charged under subsection (f)(2) for the plan, 
     or, in the case of an MSA plan, the amount filed under 
     subsection (a)(3).
       ``(D) Medicareadvantage monthly msa premium.--The term 
     `MedicareAdvantage monthly MSA premium' means, with respect 
     to a MedicareAdvantage plan, the amount of such premium filed 
     under subsection (a)(3) for the plan.
       ``(c) Uniform Premium.--The MedicareAdvantage monthly basic 
     beneficiary premium, the MedicareAdvantage monthly 
     beneficiary obligation for qualified prescription drug 
     coverage, the MedicareAdvantage monthly beneficiary premium 
     for enhanced medical benefits, and the MedicareAdvantage 
     monthly MSA premium charged under subsection (b) of a 
     MedicareAdvantage organization under this part may not vary 
     among individuals enrolled in the plan.
       ``(d) Determination of Premium Reductions, Reduced Cost-
     Sharing, Additional Benefits, and Beneficiary Premiums.--
       ``(1) Bids below the benchmark.--If the Secretary 
     determines under section 1853(d)(3) that the weighted service 
     area benchmark amount exceeds the plan bid, the Secretary 
     shall require the plan to provide additional benefits in 
     accordance with subsection (g).
       ``(2) Bids above the benchmark.--If the Secretary 
     determines under section 1853(d)(3) that the plan bid exceeds 
     the weighted service area benchmark amount (determined under 
     section 1853(d)(2)), the amount of such excess shall be the 
     MedicareAdvantage monthly basic beneficiary premium (as 
     defined in section 1854(b)(2)(A)).
       ``(e) Terms and Conditions of Imposing Premiums.--Each 
     MedicareAdvantage organization shall permit the payment of 
     any MedicareAdvantage monthly basic premium, the 
     MedicareAdvantage monthly beneficiary obligation for 
     qualified prescription drug coverage, and the 
     MedicareAdvantage monthly beneficiary premium for enhanced 
     medical benefits on a monthly basis, may terminate election 
     of individuals for a MedicareAdvantage plan for failure to 
     make premium payments only in accordance with section 
     1851(g)(3)(B)(i), and may not provide for cash or other 
     monetary rebates as an inducement for enrollment or otherwise 
     (other than as an additional benefit described in subsection 
     (g)(1)(C)(i)).
       ``(f) Limitation on Enrollee Liability.--
       ``(1) For benefits under the original medicare fee-for-
     service program option.--The sum of--
       ``(A) the MedicareAdvantage monthly basic beneficiary 
     premium (multiplied by 12) and the actuarial value of the 
     deductibles, coinsurance, and copayments (determined on the 
     same basis as used in determining the plan's bid under 
     paragraph (2)(C)) applicable on average to individuals 
     enrolled under this part with a MedicareAdvantage plan 
     described in subparagraph (A) or (C) of section 1851(a)(2) of 
     an organization with respect to required benefits described 
     in section 1852(a)(1)(A); must equal
       ``(B) the actuarial value of the deductibles, coinsurance, 
     and copayments that would be applicable on average to 
     individuals who have elected to receive benefits under the 
     original medicare fee-for-service program option if such 
     individuals were not members of a MedicareAdvantage 
     organization for the year (adjusted as determined appropriate 
     by the Secretary to account for geographic differences and 
     for plan cost and utilization differences).
       ``(2) For enhanced medical benefits.--If the 
     MedicareAdvantage organization provides to its members 
     enrolled under this part in a MedicareAdvantage plan 
     described in subparagraph (A) or (C) of section 1851(a)(2) 
     with respect to enhanced medical benefits relating to 
     benefits under the original medicare fee-for-service program 
     option, the sum of the MedicareAdvantage monthly beneficiary 
     premium for enhanced medical benefits (multiplied by 12) 
     charged and the actuarial value of its deductibles, 
     coinsurance, and copayments charged with respect to such 
     benefits for a year must equal the adjusted community rate 
     (as defined in subsection (g)(3)) for such benefits for the 
     year minus the actuarial value of any additional benefits 
     pursuant to clause (ii), (iii), or (iv) of subsection 
     (g)(2)(C) that the plan specified under subsection 
     (a)(2)(i)(II).
       ``(3) Determination on other basis.--If the Secretary 
     determines that adequate data are not available to determine 
     the actuarial value under paragraph (1)(A) or (2), the 
     Secretary may determine such amount with respect to all 
     individuals in the same geographic area, the State, or in the 
     United States, eligible to enroll in the MedicareAdvantage 
     plan involved under this part or on the basis of other 
     appropriate data.
       ``(4) Special rule for private fee-for-service plans.--With 
     respect to a MedicareAdvantage private fee-for-service plan 
     (other than a plan that is an MSA plan), in no event may--
       ``(A) the actuarial value of the deductibles, coinsurance, 
     and copayments applicable on average to individuals enrolled 
     under this part with such a plan of an organization with 
     respect to required benefits described in subparagraphs (A), 
     (C), and (D) of section 1852(a)(1); exceed
       ``(B) the actuarial value of the deductibles, coinsurance, 
     and copayments that would be applicable on average to 
     individuals entitled to (or enrolled for) benefits under part 
     A and enrolled under part B if they were not members of a 
     MedicareAdvantage organization for the year.
       ``(g) Requirement for Additional Benefits.--
       ``(1) Requirement.--
       ``(A) In general.--Each MedicareAdvantage organization (in 
     relation to a MedicareAdvantage plan, other than an MSA plan, 
     it offers) shall provide that if there is an excess amount 
     (as defined in subparagraph (B)) for the plan for a contract 
     year,

[[Page 16551]]

     subject to the succeeding provisions of this subsection, the 
     organization shall provide to individuals such additional 
     benefits described in subparagraph (C) as the organization 
     may specify in a value which the Secretary determines is at 
     least equal to the adjusted excess amount (as defined in 
     subparagraph (D)).
       ``(B) Excess amount.--For purposes of this paragraph, the 
     term `excess amount' means, for an organization for a plan, 
     is 100 percent of the amount (if any) by which the weighted 
     service area benchmark amount (determined under section 
     1853(d)(2)) exceeds the plan bid (as adjusted under section 
     1853(d)(1)).
       ``(C) Additional benefits described.--The additional 
     benefits described in this subparagraph are as follows:
       ``(i) Subject to subparagraph (F), a monthly part B premium 
     reduction for individuals enrolled in the plan.
       ``(ii) Lowering the amount of the unified deductible and 
     decreasing the maximum limitations on out-of-pocket expenses 
     for individuals enrolled in the plan.
       ``(iii) A reduction in the actuarial value of plan cost-
     sharing for plan enrollees.
       ``(iv) Subject to subparagraph (E), such additional 
     benefits as the organization may specify.
       ``(v) Contributing to the stabilization fund under 
     paragraph (2).
       ``(vi) Any combination of the reductions and benefits 
     described in clauses (i) through (v).
       ``(D) Adjusted excess amount.--For purposes of this 
     paragraph, the term `adjusted excess amount' means, for an 
     organization for a plan, is the excess amount reduced to 
     reflect any amount withheld and reserved for the organization 
     for the year under paragraph (2).
       ``(E) Rule for approval of medical and prescription drug 
     benefits.--An organization may not specify any additional 
     benefit that provides for the coverage of any prescription 
     drug (other than that relating to prescription drugs covered 
     under the original medicare fee-for-service program option).
       ``(F) Premium reductions.--
       ``(i) In general.--Subject to clause (ii), as part of 
     providing any additional benefits required under subparagraph 
     (A), a MedicareAdvantage organization may elect a reduction 
     in its payments under section 1853(a)(1)(A)(i) with respect 
     to a MedicareAdvantage plan and the Secretary shall apply 
     such reduction to reduce the premium under section 1839 of 
     each enrollee in such plan as provided in section 1840(i).
       ``(ii) Amount of reduction.--The amount of the reduction 
     under clause (i) with respect to any enrollee in a 
     MedicareAdvantage plan--

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

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

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

     SEC. 205. SPECIAL RULES FOR PRESCRIPTION DRUG BENEFITS.

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


             ``special rules for prescription drug benefits

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

[[Page 16552]]

     under part D. The Secretary shall waive such requirements to 
     the extent the Secretary determines that such requirements 
     duplicate requirements otherwise applicable to the 
     organization or the plan under this part.
       ``(c) Payments for Prescription Drugs.--
       ``(1) Payment of full amount of premium to organizations 
     for qualified prescription drug coverage.--
       ``(A) In general.--For each year (beginning with 2006), the 
     Secretary shall pay to each MedicareAdvantage organization 
     offering a MedicareAdvantage plan that provides qualified 
     prescription drug coverage, an amount equal to the full 
     amount of the monthly premium submitted under section 
     1854(a)(2)(B) for the year, as adjusted using the risk 
     adjusters that apply to the standard prescription drug 
     coverage published under section 1860D-11.
       ``(B) Application of part d risk corridor, stabilization 
     reserve fund, and administrative expenses provisions.--The 
     provisions of subsections (b), (c), and (d) of section 1860D-
     16 shall apply to a MedicareAdvantage organization offering a 
     MedicareAdvantage plan that provides qualified prescription 
     drug coverage and payments made to such organization under 
     subparagraph (A) in the same manner as such provisions apply 
     to an eligible entity offering a Medicare Prescription Drug 
     plan and payments made to such entity under subsection (a) of 
     section 1860D-16.
       ``(2) Payment from prescription drug account.--Payment made 
     to MedicareAdvantage organizations under this subsection 
     shall be made from the Prescription Drug Account in the 
     Federal Supplementary Medical Insurance Trust Fund under 
     section 1841.
       ``(d) Computation of MedicareAdvantage Monthly Beneficiary 
     Obligation for Qualified Prescription Drug Coverage.--In the 
     case of a MedicareAdvantage eligible individual receiving 
     qualified prescription drug coverage under a 
     MedicareAdvantage plan during a year after 2005, the 
     MedicareAdvantage monthly beneficiary obligation for 
     qualified prescription drug coverage of such individual in 
     the year shall be determined in the same manner as the 
     monthly beneficiary obligation is determined under section 
     1860D-17 for eligible beneficiaries enrolled in a Medicare 
     Prescription Drug plan, except that, for purposes of this 
     subparagraph, any reference to the monthly plan premium 
     approved by the Secretary under section 1860D-13 shall be 
     treated as a reference to the monthly premium for 
     qualified prescription drug coverage submitted by the 
     MedicareAdvantage organization offering the plan under 
     section 1854(a)(2)(A) and approved by the Secretary.
       ``(e) Collection of MedicareAdvantage Monthly Beneficiary 
     Obligation for Qualified Prescription Drug Coverage.--The 
     provisions of section 1860D-18, including subsection (b) of 
     such section, shall apply to the amount of the 
     MedicareAdvantage monthly beneficiary obligation for 
     qualified prescription drug coverage (as determined under 
     subsection (d)) required to be paid by a MedicareAdvantage 
     eligible individual enrolled in a MedicareAdvantage plan in 
     the same manner as such provisions apply to the amount of the 
     monthly beneficiary obligation required to be paid by an 
     eligible beneficiary enrolled in a Medicare Prescription Drug 
     plan under part D.
       ``(f) Availability of Premium Subsidy and Cost-Sharing 
     Reductions for Low-Income Enrollees and Reinsurance 
     Payments.--For provisions--
       ``(1) providing premium subsidies and cost-sharing 
     reductions for low-income individuals receiving qualified 
     prescription drug coverage through a MedicareAdvantage plan, 
     see section 1860D-19; and
       ``(2) providing a MedicareAdvantage organization with 
     reinsurance payments for certain expenses incurred in 
     providing qualified prescription drug coverage through a 
     MedicareAdvantage plan, see section 1860D-20.''.
       (b) Treatment of Reduction for Purposes of Determining 
     Government Contribution Under Part B.--Section 1844(c) (42 
     U.S.C. 1395w) is amended by striking ``section 
     1854(f)(1)(E)'' and inserting ``section 1854(d)(1)(A)(i)''.

     SEC. 206. FACILITATING EMPLOYER PARTICIPATION.

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

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

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

     SEC. 208. CONFORMING AMENDMENTS.

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

[[Page 16553]]

       (C) Section 1844(c) (42 U.S.C. 1395w(c)) is amended by 
     striking ``section 1854(f)(1)(E)'' and inserting ``section 
     1854(g)(1)(C)(i)''.
       (D) Section 1876(k)(3)(A) (42 U.S.C. 1395mm(k)(3)(A)) is 
     amended by inserting ``(as in effect immediately before the 
     enactment of the Prescription Drug and Medicare Improvements 
     Act of 2003)'' after section 1853(a).
       (F) Section 1876(k)(4) (42 U.S.C. 1395mm(k)(4)(A)) is 
     amended--
       (i) in subparagraph (A), by striking ``section 
     1853(a)(3)(B)'' and inserting ``section 1853(a)(3)(D)''; and
       (ii) in subparagraph (B), by striking ``section 1854(g)'' 
     and inserting ``section 1854(h)''.
       (G) Section 1876(k)(4)(C) (42 U.S.C. 1395mm(k)(4)(C)) in 
     amended by inserting ``(as in effect immediately before the 
     enactment of the Prescription Drug and Medicare Improvements 
     Act of 2003)'' after ``section 1851(e)(6)''.
       (H) Section 1894(d) (42 U.S.C. 1395eee(d)) is amended by 
     adding at the end the following new paragraph:
       ``(3) Application of provisions.--For purposes of 
     paragraphs (1) and (2), the references to section 1853 and 
     subsection (a)(2) of such section in such paragraphs shall be 
     deemed to be references to those provisions as in effect 
     immediately before the enactment of the Prescription Drug and 
     Medicare Improvements Act of 2003.''.
       (2) Conforming medicare terminology.--Title XVIII (42 
     U.S.C. 1395 et seq.), except for part C of such title (42 
     U.S.C. 1395w-21 et seq.), and title XIX (42 U.S.C. 1396 et 
     seq.) are each amended by striking ``Medicare+Choice'' and 
     inserting ``MedicareAdvantage'' each place it appears.

     SEC. 209. EFFECTIVE DATE.

       (a) In General.--Except as provided in section 208(d)(3) 
     and subsection (b), the amendments made by this title shall 
     apply with respect to plan years beginning on and after 
     January 1, 2006.
       (b) MedicareAdvantage MSA Plans.--Notwithstanding any 
     provision of this title, the Secretary shall apply the 
     payment and other rules that apply with respect to an MSA 
     plan described in section 1851(a)(2)(B) of the Social 
     Security Act (42 U.S.C. 1395w-21(a)(2)(B)) as if this title 
     had not been enacted.

              Subtitle B--Preferred Provider Organizations

     SEC. 211. ESTABLISHMENT OF MEDICAREADVANTAGE PREFERRED 
                   PROVIDER PROGRAM OPTION.

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


                   ``preferred provider organizations

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

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

       ``(ii) Special rule for end-stage renal disease.--The 
     Secretary shall establish separate rates of payment 
     applicable with respect to classes of individuals determined 
     to have end-stage renal disease and enrolled in a preferred 
     provider organization plan under this clause that are similar 
     to the separate rates of payment described in section 
     1853(a)(1)(B).
       ``(B) Adjustment to reflect number of enrollees.--The 
     Secretary may retroactively adjust the amount of payment 
     under this paragraph in a manner that is similar to the 
     manner in which payment amounts may be retroactively adjusted 
     under section 1853(a)(2).
       ``(C) Comprehensive risk adjustment methodology.--The 
     Secretary shall apply the comprehensive risk adjustment 
     methodology described in section 1853(a)(3)(B) to 100 percent 
     of the amount of payments to plans under paragraph 
     (4)(D)(ii).
       ``(D) Adjustment for spending variations within a region.--
     The Secretary shall establish a methodology for adjusting the 
     amount of payments to plans under paragraph (4)(D)(ii) that 
     achieves the same objective as the adjustment described in 
     paragraph 1853(a)(2)(C).
       ``(2) Annual calculation of benchmark amounts for preferred 
     provider regions.--For each year (beginning in 2006), the 
     Secretary shall calculate a benchmark amount for each 
     preferred provider region for each month for such year with 
     respect to coverage of the benefits available under the 
     original medicare fee-for-service program option equal to the 
     average of each benchmark amount calculated under section 
     1853(a)(4) for each MedicareAdvantage payment area for the 
     year within such region, weighted by the number of 
     MedicareAdvantage eligible individuals residing in each such 
     payment area for the year.
       ``(3) Annual announcement of payment factors.--
       ``(A) Annual announcement.--Beginning in 2005, at the same 
     time as the Secretary publishes the risk adjusters under 
     section 1860D-11, the Secretary shall annually announce (in a 
     manner intended to provide notice to interested parties) the 
     following payment factors:
       ``(i) The benchmark amount for each preferred provider 
     region (as calculated under paragraph (2)(A)) for the year.
       ``(ii) The factors to be used for adjusting payments 
     described under--

       ``(I) the comprehensive risk adjustment methodology 
     described in paragraph (1)(C)

[[Page 16554]]

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

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

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

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

[[Page 16555]]

     the plan for the year, then the Secretary shall increase the 
     total of the monthly payments made to the preferred provider 
     organization offering the plan for the year under subsection 
     (c)(1)(A) by an amount equal to the sum of--

       ``(I) 50 percent of the amount of such total costs which 
     are more than such first threshold upper limit of the risk 
     corridor and not more than the second threshold upper limit 
     of the risk corridor for the plan for the year (as specified 
     under paragraph (3)(A)(iv)); and
       ``(II) 90 percent of the amount of such total costs which 
     are more than such second threshold upper limit of the risk 
     corridor.

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

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

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

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

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

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

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

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

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

                 Subtitle C--Other Managed Care Reforms

     SEC. 221. EXTENSION OF REASONABLE COST CONTRACTS.

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

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

       (a) Treatment as Coordinated Care Plan.--Section 
     1851(a)(2)(A) (42 U.S.C. 1395w-21(a)(2)(A)) is amended by 
     adding at the end the following new sentence: ``Specialized 
     Medicare+Choice plans for special needs beneficiaries (as 
     defined in section 1859(b)(4)) may be any type of coordinated 
     care plan.''.
       (b) Specialized Medicare+Choice Plan for Special Needs 
     Beneficiaries Defined.--Section 1859(b) (42 U.S.C. 1395w-
     28(b)) is amended by adding at the end the following new 
     paragraph:
       ``(4) Specialized medicare+choice plans for special needs 
     beneficiaries.--

[[Page 16556]]

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

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

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

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

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

[[Page 16557]]

     the Social Security Act, the Medicare+Choice program under 
     part C of such title, and any other programs under such title 
     XVIII.
       (c) Authorization of Appropriations.--There are authorized 
     to be appropriated $1,000,000 for purposes of conducting the 
     evaluation and preparing the report required by this section.

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

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

                 TITLE III--CENTER FOR MEDICARE CHOICES

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

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


           ``establishment of the center for medicare choices

       ``Sec. 1808. (a) Establishment.--By not later than March 1, 
     2004, the Secretary shall establish within the Department of 
     Health and Human Services the Center for Medicare Choices, 
     which shall be separate from the Centers for Medicare & 
     Medicaid Services.
       ``(b) Administrator and Deputy Administrator.--
       ``(1) Administrator.--
       ``(A) In general.--The Center for Medicare Choices shall be 
     headed by an Administrator (in this section referred to as 
     the `Administrator') who shall be appointed by the President, 
     by and with the advice and consent of the Senate. The 
     Administrator shall report directly to the Secretary.
       ``(B) Compensation.--The Administrator shall be paid at the 
     rate of basic pay payable for level III of the Executive 
     Schedule under section 5314 of title 5, United States Code.
       ``(C) Term of office.--The Administrator shall be appointed 
     for a term of 5 years. In any case in which a successor does 
     not take office at the end of an Administrator's term of 
     office, that Administrator may continue in office until the 
     entry upon office of such a successor. An Administrator 
     appointed to a term of office after the commencement of such 
     term may serve under such appointment only for the remainder 
     of such term.
       ``(D) General authority.--The Administrator shall be 
     responsible for the exercise of all powers and the discharge 
     of all duties of the Center for Medicare Choices, and shall 
     have authority and control over all personnel and activities 
     thereof.
       ``(E) Rulemaking authority.--The Administrator may 
     prescribe such rules and regulations as the Administrator 
     determines necessary or appropriate to carry out the 
     functions of the Center for Medicare Choices. The regulations 
     prescribed by the Administrator shall be subject to the 
     rulemaking procedures established under section 553 of title 
     5, United States Code.
       ``(F) Authority to establish organizational units.--The 
     Administrator may establish, alter, consolidate, or 
     discontinue such organizational units or components within 
     the Center for Medicare Choices as the Administrator 
     considers necessary or appropriate, except that this 
     subparagraph shall not apply with respect to any unit, 
     component, or provision provided for by this section.
       ``(G) Authority to delegate.--The Administrator may assign 
     duties, and delegate, or authorize successive redelegations 
     of, authority to act and to render decisions, to such 
     officers and employees of the Center for Medicare Choices as 
     the Administrator may find necessary. Within the limitations 
     of such delegations, redelegations, or assignments, all 
     official acts and decisions of such officers and employees 
     shall have the same force and effect as though performed or 
     rendered by the Administrator.
       ``(2) Deputy administrator.--
       ``(A) In general.--There shall be a Deputy Administrator of 
     the Center for Medicare Choices who shall be appointed by the 
     Administrator.
       ``(B) Compensation.--The Deputy Administrator shall be paid 
     at the rate of basic pay payable for level IV of the 
     Executive Schedule under section 5315 of title 5, United 
     States Code.
       ``(C) Term of office.--The Deputy Administrator shall be 
     appointed for a term of 5 years. In any case in which a 
     successor does not take office at the end of a Deputy 
     Administrator's term of office, such Deputy Administrator may 
     continue in office until the entry upon office of such a 
     successor. A Deputy Administrator appointed to a term of 
     office after the commencement of such term may serve under 
     such appointment only for the remainder of such term.
       ``(D) Duties.--The Deputy Administrator shall perform such 
     duties and exercise such powers as the Administrator shall 
     from time to time assign or delegate. The Deputy 
     Administrator shall be the Acting Administrator of the Center 
     for Medicare Choices during the absence or disability of the 
     Administrator and, unless the President designates another 
     officer of the Government as Acting Administrator, in the 
     event of a vacancy in the office of the Administrator.
       ``(3) Secretarial coordination of program administration.--
     The Secretary shall ensure appropriate coordination between 
     the Administrator and the Administrator of the Centers for 
     Medicare & Medicaid Services in carrying out the programs 
     under this title.
       ``(c) Duties; Administrative Provisions.--
       ``(1) Duties.--
       ``(A) General duties.--The Administrator shall carry out 
     parts C and D, including--
       ``(i) negotiating, entering into, and enforcing, contracts 
     with plans for the offering of MedicareAdvantage plans under 
     part C, including the offering of qualified prescription drug 
     coverage under such plans; and
       ``(ii) negotiating, entering into, and enforcing, contracts 
     with eligible entities for the offering of Medicare 
     Prescription Drug plans under part D.
       ``(B) Other duties.--The Administrator shall carry out any 
     duty provided for under part C or D, including duties 
     relating to--
       ``(i) reasonable cost contracts with eligible organizations 
     under section 1876(h); and
       ``(ii) demonstration projects carried out in part or in 
     whole under such parts, including the demonstration project 
     carried out through a MedicareAdvantage (formerly 
     Medicare+Choice) project that demonstrates the application of 
     capitation payment rates for frail elderly medicare 
     beneficiaries through the use of an interdisciplinary team 
     and through the provision of primary care services to such 
     beneficiaries by means of such a team at the nursing facility 
     involved.
       ``(C) Noninterference.--In order to promote competition 
     under parts C and D, the Administrator, in carrying out the 
     duties required under this section, may not, to the extent 
     possible, interfere in any way with negotiations between 
     eligible entities, MedicareAdvantage organizations, 
     hospitals, physicians, other entities or individuals 
     furnishing items and services under this title (including 
     contractors for such items and services), and drug 
     manufacturers, wholesalers, or other suppliers of covered 
     drugs.
       ``(D) Annual reports.--Not later than March 31 of each 
     year, the Administrator shall submit to Congress and the 
     President a report on the administration of the voluntary 
     prescription drug delivery program under this part during the 
     previous fiscal year.
       ``(2) Management staff.--
       ``(A) In general.--The Administrator, with the approval of 
     the Secretary, may employ such management staff as determined 
     appropriate. Any such manager shall be required to have 
     demonstrated, by their education and experience (either in 
     the public or private sector), superior expertise in the 
     following areas:
       ``(i) The review, negotiation, and administration of health 
     care contracts.
       ``(ii) The design of health care benefit plans.
       ``(iii) Actuarial sciences.
       ``(iv) Compliance with health plan contracts.
       ``(v) Consumer education and decision making.
       ``(B) Compensation.--
       ``(i) In general.--Subject to clause (ii), the 
     Administrator shall establish the rate of pay for an 
     individual employed under subparagraph (A).
       ``(ii) Maximum rate.--In no case may the rate of 
     compensation determined under clause (i) exceed the highest 
     rate of basic pay for the Senior Executive Service under 
     section 5382(b) of title 5, United States Code.
       ``(3) Redelegation of certain functions of the centers for 
     medicare & medicaid services.--
       ``(A) In general.--The Secretary, the Administrator of the 
     Center for Medicare Choices, and the Administrator of the 
     Centers for Medicare & Medicaid Services shall establish an 
     appropriate transition of responsibility in order to 
     redelegate the administration of part C from the Secretary 
     and the Administrator of the Centers for Medicare & Medicaid 
     Services to the Administrator of the Center for Medicare 
     Choices as is appropriate to carry out the purposes of this 
     section.
       ``(B) Transfer of data and information.--The Secretary 
     shall ensure that the Administrator of the Centers for 
     Medicare & Medicaid Services transfers to the Administrator 
     such information and data in the possession of the 
     Administrator of the Centers for Medicare & Medicaid Services 
     as the Administrator requires to carry out the duties 
     described in paragraph (1).

[[Page 16558]]

       ``(C) Construction.--Insofar as a responsibility of the 
     Secretary or the Administrator of the Centers for Medicare & 
     Medicaid Services is redelegated to the Administrator under 
     this section, any reference to the Secretary or the 
     Administrator of the Centers for Medicare & Medicaid Services 
     in this title or title XI with respect to such responsibility 
     is deemed to be a reference to the Administrator.
       ``(d) Office of Beneficiary Assistance.--
       ``(1) Establishment.--The Secretary shall establish within 
     the Center for Medicare Choices an Office of Beneficiary 
     Assistance to carry out functions relating to medicare 
     beneficiaries under this title, including making 
     determinations of eligibility of individuals for benefits 
     under this title, providing for enrollment of medicare 
     beneficiaries under this title, and the functions described 
     in paragraph (2). The Office shall be a separate operating 
     division within the Center for Medicare Choices.
       ``(2) Dissemination of information on benefits and appeals 
     rights.--
       ``(A) Dissemination of benefits information.--The Office of 
     Beneficiary Assistance shall disseminate to medicare 
     beneficiaries, by mail, by posting on the Internet site of 
     the Center for Medicare Choices, and through the toll-free 
     telephone number provided for under section 1804(b), 
     information with respect to the following:
       ``(i) Benefits, and limitations on payment (including cost-
     sharing, stop-loss provisions, and formulary restrictions) 
     under parts C and D.
       ``(ii) Benefits, and limitations on payment under parts A, 
     and B, including information on medicare supplemental 
     policies under section 1882.
       ``(iii) Other areas determined to be appropriate by the 
     Administrator.

     Such information shall be presented in a manner so that 
     medicare beneficiaries may compare benefits under parts A, B, 
     and D, and medicare supplemental policies with benefits under 
     MedicareAdvantage plans under part C.
       ``(B) Dissemination of appeals rights information.--The 
     Office of Beneficiary Assistance shall disseminate to 
     medicare beneficiaries in the manner provided under 
     subparagraph (A) a description of procedural rights 
     (including grievance and appeals procedures) of beneficiaries 
     under the original medicare fee-for-service program under 
     parts A and B, the MedicareAdvantage program under part C, 
     and the voluntary prescription drug delivery program under 
     part D.
       ``(3) Medicare ombudsman.--
       ``(A) In general.--Within the Office of Beneficiary 
     Assistance, there shall be a Medicare Ombudsman, appointed by 
     the Secretary from among individuals with expertise and 
     experience in the fields of health care and advocacy, to 
     carry out the duties described in subparagraph (B).
       ``(B) Duties.--The Medicare Ombudsman shall--
       ``(i) receive complaints, grievances, and requests for 
     information submitted by a medicare beneficiary, with respect 
     to any aspect of the medicare program;
       ``(ii) provide assistance with respect to complaints, 
     grievances, and requests referred to in clause (i), 
     including--

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

       ``(iii) submit annual reports to Congress, the Secretary, 
     and the Medicare Competitive Policy Advisory Board describing 
     the activities of the Office, and including such 
     recommendations for improvement in the administration of this 
     title as the Ombudsman determines appropriate.
       ``(C) Coordination with state ombudsman programs and 
     consumer organizations.--The Medicare Ombudsman shall, to the 
     extent appropriate, coordinate with State medical Ombudsman 
     programs, and with State- and community-based consumer 
     organizations, to--
       ``(i) provide information about the medicare program; and
       ``(ii) conduct outreach to educate medicare beneficiaries 
     with respect to manners in which problems under the medicare 
     program may be resolved or avoided.
       ``(e) Medicare Competitive Policy Advisory Board.--
       ``(1) Establishment.--There is established within the 
     Center for Medicare Choices the Medicare Competitive Policy 
     Advisory Board (in this section referred to as the `Board'). 
     The Board shall advise, consult with, and make 
     recommendations to the Administrator with respect to the 
     administration of parts C and D, including the review of 
     payment policies under such parts.
       ``(2) Reports.--
       ``(A) In general.--With respect to matters of the 
     administration of parts C and D, the Board shall submit to 
     Congress and to the Administrator such reports as the Board 
     determines appropriate. Each such report may contain such 
     recommendations as the Board determines appropriate for 
     legislative or administrative changes to improve the 
     administration of such parts, including the stability and 
     solvency of the programs under such parts and the topics 
     described in subparagraph (B). Each such report shall be 
     published in the Federal Register.
       ``(B) Topics described.--Reports required under 
     subparagraph (A) may include the following topics:
       ``(i) Fostering competition.--Recommendations or proposals 
     to increase competition under parts C and D for services 
     furnished to medicare beneficiaries.
       ``(ii) Education and enrollment.--Recommendations for the 
     improvement of efforts to provide medicare beneficiaries 
     information and education on the program under this title, 
     and specifically parts C and D, and the program for 
     enrollment under the title.
       ``(iii) Quality.--Recommendations on ways to improve the 
     quality of benefits provided under plans under parts C and D.
       ``(iv) Disease management programs.--Recommendations on the 
     incorporation of disease management programs under parts C 
     and D.
       ``(v) Rural access.--Recommendations to improve competition 
     and access to plans under parts C and D in rural areas.
       ``(C) Maintaining independence of board.--The Board shall 
     directly submit to Congress reports required under 
     subparagraph (A). No officer or agency of the United States 
     may require the Board to submit to any officer or agency of 
     the United States for approval, comments, or review, prior to 
     the submission to Congress of such reports.
       ``(3) Duty of administrator.--With respect to any report 
     submitted by the Board under paragraph (2)(A), not later than 
     90 days after the report is submitted, the Administrator 
     shall submit to Congress and the President an analysis of 
     recommendations made by the Board in such report. Each such 
     analysis shall be published in the Federal Register.
       ``(4) Membership.--
       ``(A) Appointment.--Subject to the succeeding provisions of 
     this paragraph, the Board shall consist of 7 members to be 
     appointed as follows:
       ``(i) Three members shall be appointed by the President.
       ``(ii) Two members shall be appointed by the Speaker of the 
     House of Representatives, with the advice of the chairman and 
     the ranking minority member of the Committees on Ways and 
     Means and on Energy and Commerce of the House of 
     Representatives.
       ``(iii) Two members shall be appointed by the President pro 
     tempore of the Senate with the advice of the chairman and the 
     ranking minority member of the Committee on Finance of the 
     Senate.
       ``(B) Qualifications.--The members shall be chosen on the 
     basis of their integrity, impartiality, and good judgment, 
     and shall be individuals who are, by reason of their 
     education and experience in health care benefits management, 
     exceptionally qualified to perform the duties of members of 
     the Board.
       ``(C) Prohibition on inclusion of federal employees.--No 
     officer or employee of the United States may serve as a 
     member of the Board.
       ``(5) Compensation.--Members of the Board shall receive, 
     for each day (including travel time) they are engaged in the 
     performance of the functions of the Board, compensation at 
     rates not to exceed the daily equivalent to the annual rate 
     in effect for level IV of the Executive Schedule under 
     section 5315 of title 5, United States Code.
       ``(6) Terms of office.--
       ``(A) In general.--The term of office of members of the 
     Board shall be 3 years.
       ``(B) Terms of initial appointees.--As designated by the 
     President at the time of appointment, of the members first 
     appointed--
       ``(i) one shall be appointed for a term of 1 year;
       ``(ii) three shall be appointed for terms of 2 years; and
       ``(iii) three shall be appointed for terms of 3 years.
       ``(C) Reappointments.--Any person appointed as a member of 
     the Board may not serve for more than 8 years.
       ``(D) Vacancy.--Any member appointed to fill a vacancy 
     occurring before the expiration of the term for which the 
     member's predecessor was appointed shall be appointed only 
     for the remainder of that term. A member may serve after the 
     expiration of that member's term until a successor has 
     taken office. A vacancy in the Board shall be filled in 
     the manner in which the original appointment was made.
       ``(7) Chair.--The Chair of the Board shall be elected by 
     the members. The term of office of the Chair shall be 3 
     years.
       ``(8) Meetings.--The Board shall meet at the call of the 
     Chair, but in no event less than 3 times during each fiscal 
     year.
       ``(9) Director and staff.--
       ``(A) Appointment of director.--The Board shall have a 
     Director who shall be appointed by the Chair.
       ``(B) In general.--With the approval of the Board, the 
     Director may appoint such additional personnel as the 
     Director considers appropriate.
       ``(C) Assistance from the administrator.--The Administrator 
     shall make available to the Board such information and

[[Page 16559]]

     other assistance as it may require to carry out its 
     functions.
       ``(10) Contract authority.--The Board may contract with and 
     compensate government and private agencies or persons to 
     carry out its duties under this subsection, without regard to 
     section 3709 of the Revised Statutes (41 U.S.C. 5).
       ``(f) Funding.--There is authorized to be appropriated, in 
     appropriate part from the Federal Hospital Insurance Trust 
     Fund and from the Federal Supplementary Medical Insurance 
     Trust Fund (including the Prescription Drug Account), such 
     sums as are necessary to carry out this section.''.
       (b) Use of Central, Toll-Free Number (1-800-MEDICARE).--
     Section 1804(b) (42 U.S.C. 1395b-2(b)) is amended by adding 
     at the end the following: ``By not later than 1 year after 
     the date of the enactment of the Prescription Drug and 
     Medicare Improvement Act of 2003, the Secretary shall 
     provide, through the toll-free number 1-800-MEDICARE, for a 
     means by which individuals seeking information about, or 
     assistance with, such programs who phone such toll-free 
     number are transferred (without charge) to appropriate 
     entities for the provision of such information or assistance. 
     Such toll-free number shall be the toll-free number listed 
     for general information and assistance in the annual notice 
     under subsection (a) instead of the listing of numbers of 
     individual contractors.''.

     SEC. 302. MISCELLANEOUS ADMINISTRATIVE PROVISIONS.

       (a) Administrator as Member and Co-Secretary of the Board 
     of Trustees of the Medicare Trust Funds.--The fifth sentence 
     of sections 1817(b) and 1841(b) (42 U.S.C. 1395i(b), 
     1395t(b)) are each amended by striking ``shall serve as the 
     Secretary'' and inserting ``and the Administrator of the 
     Center for Medicare Choices shall serve as the Co-
     Secretaries''.
       (b) Increase in Grade to Executive Level III for the 
     Administrator of the Centers for Medicare & Medicaid 
     Services.--
       (1) In general.--Section 5314 of title 5, United States 
     Code, is amended by adding at the end the following:
       ``Administrator of the Centers for Medicare & Medicaid 
     Services.''.
       (2) Conforming amendment.--Section 5315 of such title is 
     amended by striking ``Administrator of the Health Care 
     Financing Administration.''.
       (3) Effective date.--The amendments made by this subsection 
     take effect on March 1, 2004.

            TITLE IV--MEDICARE FEE-FOR-SERVICE IMPROVEMENTS

               Subtitle A--Provisions Relating to Part A

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

       (a) In General.--Section 1886(d)(3)(A)(iv) (42 U.S.C. 
     1395ww(d)(3)(A)(iv)) is amended--
       (1) by striking ``(iv) For discharges'' and inserting 
     ``(iv)(I) Subject to the succeeding provisions of this 
     clause, for discharges''; and
       (2) by adding at the end the following new subclauses:
       ``(II) For discharges occurring during fiscal year 2004, 
     the operating standardized amount for hospitals located other 
     than in a large urban area shall be increased by \1/2\ of the 
     difference between the operating standardized amount 
     determined under subclause (I) for hospitals located in large 
     urban areas for such fiscal year and such amount determined 
     (without regard to this subclause) for other hospitals for 
     such fiscal year.
       ``(III) For discharges occurring in a fiscal year beginning 
     with fiscal year 2005, the Secretary shall compute an 
     operating standardized amount for hospitals located in any 
     area within the United States and within each region equal to 
     the operating standardized amount computed for the previous 
     fiscal year under this subparagraph for hospitals located in 
     a large urban area (or, beginning with fiscal year 2006, 
     applicable for all hospitals in the previous fiscal year) 
     increased by the applicable percentage increase under 
     subsection (b)(3)(B)(i) for the fiscal year involved.''.
       (b) Conforming Amendments.--
       (1) Computing drg-specific rates.--Section 1886(d)(3)(D) 
     (42 U.S.C. 1395ww(d)(3)(D)) is amended--
       (A) in the heading, by striking ``in different areas'';
       (B) in the matter preceding clause (i), by striking ``each 
     of which is'';
       (C) in clause (i)--
       (i) in the matter preceding subclause (I), by inserting 
     ``for fiscal years before fiscal year 2005,'' before ``for 
     hospitals''; and
       (ii) in subclause (II), by striking ``and'' after the 
     semicolon at the end;
       (D) in clause (ii)--
       (i) in the matter preceding subclause (I), by inserting 
     ``for fiscal years before fiscal year 2005,'' before ``for 
     hospitals''; and
       (ii) in subclause (II), by striking the period at the end 
     and inserting ``; and''; and
       (E) by adding at the end the following new clause:
       ``(iii) for a fiscal year beginning after fiscal year 2004, 
     for hospitals located in all areas, to the product of--
       ``(I) the applicable operating standardized amount 
     (computed under subparagraph (A)), reduced under subparagraph 
     (B), and adjusted or reduced under subparagraph (C) for the 
     fiscal year; and
       ``(II) the weighting factor (determined under paragraph 
     (4)(B)) for that diagnosis-related group.''.
       (2) Technical conforming sunset.--Section 1886(d)(3) (42 
     U.S.C. 1395ww(d)(3)) is amended--
       (A) in the matter preceding subparagraph (A), by inserting 
     ``, for fiscal years before fiscal year 1997,'' before ``a 
     regional adjusted DRG prospective payment rate''; and
       (B) in subparagraph (D), in the matter preceding clause 
     (i), by inserting ``, for fiscal years before fiscal year 
     1997,'' before ``a regional DRG prospective payment rate for 
     each region,''.

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

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

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

       Section 1886(d) (42 U.S.C. 1395ww(d)) is amended by adding 
     at the end the following new paragraph:
       ``(12) Payment adjustment for low-volume hospitals.--
       ``(A) Payment adjustment.--
       ``(i) In general.--Notwithstanding any other provision of 
     this section, for each cost reporting period (beginning with 
     the cost reporting period that begins in fiscal year 2004), 
     the Secretary shall provide for an additional payment amount 
     to each low-volume hospital (as defined in clause (iii)) for 
     discharges occurring during that cost reporting period which 
     is equal to the applicable percentage increase (determined 
     under clause (ii)) in the amount paid to such hospital under 
     this section for such discharges.
       ``(ii) Applicable percentage increase.--The Secretary shall 
     determine a percentage increase applicable under this 
     paragraph that ensures that--

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

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

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

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

[[Page 16560]]



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

       (a) Equalizing DSH Payment Amounts.--
       (1) In general.--Section 1886(d)(5)(F)(vii) (42 U.S.C. 
     1395ww(d)(5)(F)(vii)) is amended by inserting ``, and, after 
     October 1, 2003, for any other hospital described in clause 
     (iv),'' after ``clause (iv)(I)'' in the matter preceding 
     subclause (I).
       (2) Conforming amendments.--Section 1886(d)(5)(F) (42 
     U.S.C. 1395ww(d)(5)(F)) is amended--
       (A) in clause (iv)--
       (i) in subclause (II)--

       (I) by inserting ``and before October 1, 2003,'' after 
     ``April 1, 2001,''; and
       (II) by inserting ``or, for discharges occurring on or 
     after October 1, 2003, is equal to the percent determined in 
     accordance with the applicable formula described in clause 
     (vii)'' after ``clause (xiii)'';

       (ii) in subclause (III)--

       (I) by inserting ``and before October 1, 2003,'' after 
     ``April 1, 2001,''; and
       (II) by inserting ``or, for discharges occurring on or 
     after October 1, 2003, is equal to the percent determined in 
     accordance with the applicable formula described in clause 
     (vii)'' after ``clause (xii)'';

       (iii) in subclause (IV)--

       (I) by inserting ``and before October 1, 2003,'' after 
     ``April 1, 2001,''; and
       (II) by inserting ``or, for discharges occurring on or 
     after October 1, 2003, is equal to the percent determined in 
     accordance with the applicable formula described in clause 
     (vii)'' after ``clause (x) or (xi)'';

       (iv) in subclause (V)--

       (I) by inserting ``and before October 1, 2003,'' after 
     ``April 1, 2001,''; and
       (II) by inserting ``or, for discharges occurring on or 
     after October 1, 2003, is equal to the percent determined in 
     accordance with the applicable formula described in clause 
     (vii)'' after ``clause (xi)''; and

       (v) in subclause (VI)--

       (I) by inserting ``and before October 1, 2003,'' after 
     ``April 1, 2001,''; and
       (II) by inserting ``or, for discharges occurring on or 
     after October 1, 2003, is equal to the percent determined in 
     accordance with the applicable formula described in clause 
     (vii)'' after ``clause (x)'';

       (B) in clause (viii), by striking ``The formula'' and 
     inserting ``For discharges occurring before October 1, 2003, 
     the formula''; and
       (C) in each of clauses (x), (xi), (xii), and (xiii), by 
     striking ``For purposes'' and inserting ``With respect to 
     discharges occurring before October 1, 2004, for purposes''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to discharges occurring on or after October 1, 
     2003.

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

       (a) Permitting CAHs To Allocate Swing Beds and Acute Care 
     Inpatient Beds Subject to a Total Limit of 25 Beds.--
       (1) In general.--Section 1820(c)(2)(B)(iii) (42 U.S.C. 
     1395i-4(c)(2)(B)(iii)) is amended to read as follows:
       ``(iii) provides not more than a total of 25 extended care 
     service beds (pursuant to an agreement under subsection (f)) 
     and acute care inpatient beds (meeting such standards as the 
     Secretary may establish) for providing inpatient care for a 
     period that does not exceed, as determined on an annual, 
     average basis, 96 hours per patient;''.
       (2) Conforming amendment.--Section 1820(f) (42 U.S.C. 
     1395i-4(f)) is amended by striking ``and the number of beds 
     used at any time for acute care inpatient services does not 
     exceed 15 beds''.
       (3) Effective date.--The amendments made by this subsection 
     shall with respect to designations made on or after October 
     1, 2003.
       (b) Elimination of the Isolation Test for Cost-Based CAH 
     Ambulance Services.--
       (1) Elimination.--
       (A) In general.--Section 1834(l)(8) (42 U.S.C. 
     1395m(l)(8)), as added by section 205(a) of BIPA (114 Stat. 
     2763A-482), is amended by striking the comma at the end of 
     subparagraph (B) and all that follows and inserting a period.
       (B) Effective date.--The amendment made by subparagraph (A) 
     shall apply to services furnished on or after January 1, 
     2004.
       (2) Technical correction.--Section 1834(l) (42 U.S.C. 
     1395m(l)) is amended by redesignating paragraph (8), as added 
     by section 221(a) of BIPA (114 Stat. 2763A-486), as paragraph 
     (9).
       (c) Coverage of Costs for Certain Emergency Room On-Call 
     Providers.--
       (1) In general.--Section 1834(g)(5) (42 U.S.C. 1395m(g)(5)) 
     is amended--
       (A) in the heading--
       (i) by inserting ``certain'' before ``emergency''; and
       (ii) by striking ``physicians'' and inserting 
     ``providers'';
       (B) by striking ``emergency room physicians who are on-call 
     (as defined by the Secretary)'' and inserting ``physicians, 
     physician assistants, nurse practitioners, and clinical nurse 
     specialists who are on-call (as defined by the Secretary) to 
     provide emergency services''; and
       (C) by striking ``physicians' services'' and inserting 
     ``services covered under this title''.
       (2) Effective date.--The amendments made by paragraph (1) 
     shall apply to costs incurred for services provided on or 
     after January 1, 2004.
       (d) Authorization of Periodic Interim Payment (PIP).--
       (1) In general.--Section 1815(e)(2) (42 U.S.C. 1395g(e)(2)) 
     is amended--
       (A) in subparagraph (C), by striking ``and'' after the 
     semicolon at the end;
       (B) in subparagraph (D), by adding ``and'' after the 
     semicolon at the end; and
       (C) by inserting after subparagraph (D) the following new 
     subparagraph:
       ``(E) inpatient critical access hospital services;''.
       (2) Effective date.--The amendments made by paragraph (1) 
     shall apply to payments for inpatient critical access 
     facility services furnished on or after January 1, 2004.
       (e) Exclusion of New CAHs From PPS Hospital Wage Index 
     Calculation.--Section 1886(d)(3)(E)(i) (42 U.S.C. 
     1395ww(d)(3)(E)(i)), as amended by section 402, is amended by 
     inserting after the first sentence the following new 
     sentence: ``In calculating the hospital wage levels under the 
     preceding sentence applicable with respect to cost reporting 
     periods beginning on or after January 1, 2003, the Secretary 
     shall exclude the wage levels of any facility that became a 
     critical access hospital prior to the cost reporting period 
     for which such hospital wage levels are calculated.''.
       (f) Provisions Related to Certain Rural Grants.--
       (1) Small rural hospital improvement program.--Section 
     1820(g) (42 U.S.C. 1395i-4(g)) is amended--
       (A) by redesignating paragraph (3)(F) as paragraph (5) and 
     redesignating and indenting appropriately; and
       (B) by inserting after paragraph (3) the following new 
     paragraph:
       ``(4) Small rural hospital improvement program.--
       ``(A) Grants to hospitals.--The Secretary may award grants 
     to hospitals that have submitted applications in accordance 
     with subparagraph (B) to assist eligible small rural 
     hospitals (as defined in paragraph (3)(B)) in meeting the 
     costs of reducing medical errors, increasing patient safety, 
     protecting patient privacy, and improving hospital quality 
     and performance.
       ``(B) Application.--A hospital seeking a grant under this 
     paragraph shall submit an application to the Secretary on or 
     before such date and in such form and manner as the Secretary 
     specifies.
       ``(C) Amount of grant.--A grant to a hospital under this 
     paragraph may not exceed $50,000.
       ``(D) Use of funds.--A hospital receiving a grant under 
     this paragraph may use the funds for the purchase of computer 
     software and hardware, the education and training of hospital 
     staff, and obtaining technical assistance.''.
       (2) Authorization for appropriations.--Section 1820(j) (42 
     U.S.C. 1395i-4(j)) is amended to read as follows:
       ``(j) Authorization of Appropriations.--
       ``(1) HI trust fund.--There are authorized to be 
     appropriated from the Federal Hospital Insurance Trust Fund 
     for making grants to all States under--
       ``(A) subsection (g), $25,000,000 in each of the fiscal 
     years 1998 through 2002; and
       ``(B) paragraphs (1) and (2) of subsection (g), $40,000,000 
     in each of the fiscal years 2004 through 2008.
       ``(2) General revenues.--There are authorized to be 
     appropriated from amounts in the Treasury not otherwise 
     appropriated for making grants to all States under subsection 
     (g)(4), $25,000,000 in each of the fiscal years 2004 through 
     2008.''.
       (3) Requirement that states awarded grants consult with the 
     state hospital association and rural hospitals on the most 
     appropriate ways to use such grants.--
       (A) In general.--Section 1820(g) (42 U.S.C. 1395i-4(g)), as 
     amended by paragraph (1), is amended by adding at the end the 
     following new paragraph:
       ``(6) Required consultation for states awarded grants.--A 
     State awarded a grant under paragraph (1) or (2) shall 
     consult with the hospital association of such State and rural 
     hospitals located in such State on the most appropriate ways 
     to use the funds under such grant.''.
       (B) Effective date and application.--The amendment made by 
     subparagraph (A) shall take effect on the date of enactment 
     of this Act and shall apply to grants awarded on or after 
     such date and to grants awarded prior to such date to the 
     extent that funds under such grants have not been obligated 
     as of such date.

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

       (a) In General.--Section 1861(dd)(5) (42 U.S.C. 
     1395x(dd)(5)) is amended by adding at the end the following:
       ``(D) In extraordinary, exigent, or other non-routine 
     circumstances, such as unanticipated periods of high patient 
     loads, staffing shortages due to illness or other events, or 
     temporary travel of a patient outside a hospice program's 
     service area, a hospice program may enter into arrangements 
     with another hospice program for the provision by that other 
     program of services described in paragraph (2)(A)(ii)(I). The 
     provisions of

[[Page 16561]]

     paragraph (2)(A)(ii)(II) shall apply with respect to the 
     services provided under such arrangements.
       ``(E) A hospice program may provide services described in 
     paragraph (1)(A) other than directly by the program if the 
     services are highly specialized services of a registered 
     professional nurse and are provided non-routinely and so 
     infrequently so that the provision of such services directly 
     would be impracticable and prohibitively expensive.''.
       (b) Conforming Payment Provision.--Section 1814(i) (42 
     U.S.C. 1395f(i)) is amended by adding at the end the 
     following new paragraph:
       ``(4) In the case of hospice care provided by a hospice 
     program under arrangements under section 1861(dd)(5)(D) made 
     by another hospice program, the hospice program that made the 
     arrangements shall bill and be paid for the hospice care.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to hospice care provided on or after October 1, 
     2003.

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

       (a) In general.--Section 1812(d)(2)(A) (42 U.S.C. 
     1395d(d)(2)(A) in the matter following clause (i)(II), is 
     amended--
       (1) by inserting ``or services described in section 
     1861(s)(2)(K)'' after ``except that clause (i) shall not 
     apply to physicians' services''; and
       (2) by inserting ``, or by a physician assistant, nurse 
     practitioner, or clinical nurse specialist whom is not an 
     employee of the hospice program, and who the individual 
     identifies as the health care provider having the most 
     significant role in the determination and delivery of medical 
     care to the individual at the time the individual makes an 
     election to receive hospice care,'' after the ``(if not an 
     employee of the hospice program)''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall apply to hospice care furnished on or after October 1, 
     2003.

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

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

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

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

     SEC. 410. AUTHORITY REGARDING GERIATRIC FELLOWSHIPS.

       The Secretary shall have the authority to clarify that 
     geriatric training programs are eligible for 2 years of 
     fellowship support for purposes of making payments for direct 
     graduate medical education under subsection (h) of section 
     1886 of the Social Security Act (42 U.S.C. 1395ww) and 
     indirect medical education under subsection (d)(5)(B) of such 
     section on or after October 1, 2003.

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

       (a) Clarification of Requirements for Counting Residents 
     Training in Nonprovider Setting.--
       (1) D-GME.--Section 1886(h)(4)(E) (42 U.S.C. 
     1395ww(h)(4)(E)) is amended by adding at the end the 
     following new sentence: For purposes of the preceding 
     sentence time shall only be counted from the effective date 
     of a written agreement between the hospital and the entity 
     owning or operating a nonprovider setting. The effective date 
     of such written agreement shall be determined in accordance 
     with generally accepted accounting principles. All, or 
     substantially all, of the costs for the training program in 
     that setting shall be defined as the residents' stipends and 
     benefits and other costs, if any, as determined by the 
     parties.''.
       (2) IME.--Section 1886(d)(5)(B)(iv) (42 U.S.C. 
     1395ww(d)(5)(B)(iv)) is amended by adding at the end the 
     following new sentence: For purposes of the preceding 
     sentence time shall only be counted from the effective date 
     of a written agreement between the hospital and the entity 
     owning or operating a nonprovider setting. The effective date 
     of such written agreement shall be determined in accordance 
     with generally accepted accounting principles. All, or 
     substantially all, of the costs for the training program in 
     that setting shall be defined as the residents' stipends and 
     benefits and other costs, if any, as determined by the 
     parties.''.
       (b) Limiting One-Year Lag in the Indirect Medical Education 
     (IME) Ratio and Three-Year Rolling Average in Resident Count 
     for IME and for Direct Graduate Medical Education (D-GME) To 
     Medical Residency Programs.--
       (1) IME ratio and ime rolling average.--Section 
     1886(d)(5)(B)(vi) of the Social Security Act (42 U.S.C. 
     1395ww(d)(5)(B)(vi)) is amended by adding at the end the 
     following new sentence: ``For cost reporting periods 
     beginning during fiscal years beginning on or after October 
     1, 2003, subclauses (I) and (II) shall be applied only with 
     respect to a hospital's approved medical residency training 
     programs in the fields of allopathic and osteopathic 
     medicine.''.
       (2) D-GME rolling average.--Section 1886(h)(4)(G) of the 
     Social Security Act (42 U.S.C. 1395ww(h)(4)(G)) is amended by 
     adding at the end the following new clause:
       ``(iv) Application for fiscal year 2004 and subsequent 
     years.--For cost reporting periods beginning during fiscal 
     years beginning on or after October 1, 2003, clauses (i) 
     through (iii) shall be applied only with respect to a 
     hospital's approved medical residency training program in the 
     fields of allopathic and osteopathic medicine.''.

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

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

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

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

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

[[Page 16562]]

     study conducted under subsection (a) together with such 
     recommendations for legislative and administrative action as 
     the Comptroller General determines appropriate.

               Subtitle B--Provisions Relating to Part B

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

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

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

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

     SEC. 422. MEDICARE INCENTIVE PAYMENT PROGRAM IMPROVEMENTS.

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

     SEC. 423. INCREASE IN RENAL DIALYSIS COMPOSITE RATE.

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

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

       (a) Small Rural Hospitals.--Section 1833(t)(7)(D)(i) (42 
     U.S.C. 1395l(t)(7)(D)(i)) is amended by striking ``2004'' and 
     inserting ``2006''.
       (b) Sole community hospitals.--Section 1833(t)(7)(D) (42 
     U.S.C. 1395l(t)(7)(D)) is amended by adding at the end the 
     following:
       ``(iii) Temporary treatment for sole community hospitals 
     .--In the case of a sole community hospital (as defined in 
     section 1886(d)(5)(D)(iii)) located in a rural area, for 
     covered OPD services furnished in 2004, 2005, or 2006, for 
     which the PPS amount is less than the pre-BBA amount, the 
     amount of payment under this subsection shall be increased by 
     the amount of such difference.''.

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

       (a) Increase.--
       (1) In general.--In the case of an applicable covered OPD 
     service (as defined in paragraph (2)) that is furnished by a 
     hospital described in clause (i) or (iii) of paragraph (7)(D) 
     of section 1833(t) of the Social Security Act (42 U.S.C. 
     1395l(t)), as amended by section 424, on or after January 1, 
     2004, and before January 1, 2008, the Secretary shall 
     increase the medicare OPD fee schedule amount (as determined 
     under paragraph (4)(A) of such section) that is applicable 
     for such service in that year (determined without regard to 
     any increase under this section in a previous year) by 5 
     percent.
       (2) Applicable covered opd services defined.--For purposes 
     of this section, the term ``applicable covered OPD service'' 
     means a covered clinic or emergency room visit that is 
     classified within the groups of covered OPD services (as 
     defined in paragraph (1)(B) of section 1833(t) of the Social 
     Security Act (42 U.S.C. 1395l(t))) established under 
     paragraph (2)(B) of such section.
       (b) No Effect on Copayment Amount.--The Secretary shall 
     compute the copayment amount for applicable covered OPD 
     services under section 1833(t)(8)(A) of the Social Security 
     Act (42 U.S.C. 1395l(t)(8)(A)) as if this section had not 
     been enacted.
       (c) No Effect on Increase Under Hold Harmless or Outlier 
     Provisions.--The Secretary shall apply the temporary hold 
     harmless provision under clause (i) and (iii) of paragraph 
     (7)(D) of section 1833(t) of the Social Security Act (42 
     U.S.C. 1395l(t)) and the outlier provision under paragraph 
     (5) of such section as if this section had not been enacted.
       (d) Waiving Budget Neutrality and No Revision or 
     Adjustments.--The Secretary shall not make any revision or 
     adjustment under subparagraph (A), (B), or (C) of section 
     1833(t)(9) of the Social Security Act (42 U.S.C. 1395l(t)(9)) 
     because of the application of subsection (a)(1).
       (e) No Effect on Payments After Increase Period Ends.--The 
     Secretary shall not take into account any payment increase 
     provided under subsection (a)(1) in determining payments for 
     covered OPD services (as defined in paragraph (1)(B) of 
     section 1833(t) of the Social Security Act (42 U.S.C. 
     1395l(t))) under such section that are furnished after 
     January 1, 2008.
       (f) Technical Amendment.--Section 1833(t)(2)(B) (42 U.S.C. 
     1395l(t)(2)(B)) is amended by inserting ``(and periodically 
     revise such groups pursuant to paragraph (9)(A))'' after 
     ``establish groups''.

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

       Section 1834(l) (42 U.S.C. 1395m(l)), as amended by section 
     405(b)(2), is amended by adding at the end the following new 
     paragraph:
       ``(10) Temporary increase for ground ambulance services 
     furnished in a rural area.--
       ``(A) In general.--Notwithstanding any other provision of 
     this subsection, in the case of ground ambulance services 
     furnished on or after January 1, 2004, and before January 1, 
     2008, for which the transportation originates in a rural area 
     described in paragraph (9) or in a rural census tract 
     described in such paragraph, the fee schedule established 
     under this section, with respect to both the payment rate for 
     service and the payment rate for mileage, shall provide that 
     such rates otherwise established, after application of any 
     increase under such paragraph, shall be increased by 5 
     percent.
       ``(B) Application of increased payments after 2007.--The 
     increased payments under subparagraph (A) shall not be taken 
     into account in calculating payments for services furnished 
     on or after the period specified in such subparagraph.''.

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

       (a) Coverage.--Section 1834(l) (42 U.S.C. 1395m(l)), as 
     amended by section 426, is amended by adding at the end the 
     following new paragraph:
       ``(11) Ensuring appropriate coverage of air ambulance 
     services.--
       ``(A) In general.--The regulations described in section 
     1861(s)(7) shall ensure that air ambulance services (as 
     defined in subparagraph (C)) are reimbursed under this 
     subsection at the air ambulance rate if the air ambulance 
     service--
       ``(i) is medically necessary based on the health condition 
     of the individual being transported at or immediately prior 
     to the time of the transport; and
       ``(ii) complies with equipment and crew requirements 
     established by the Secretary.
       ``(B) Medically necessary.--An air ambulance service shall 
     be considered to be medically necessary for purposes of 
     subparagraph (A)(i) if such service is requested--
       ``(i) by a physician or a hospital in accordance with the 
     physician's or hospital's responsibilities under section 1867 
     (commonly known as the Emergency Medical Treatment and Active 
     Labor Act);
       ``(ii) as a result of a protocol established by a State or 
     regional emergency medical service (EMS) agency;
       ``(iii) by a physician, nurse practitioner, physician 
     assistant, registered nurse, or

[[Page 16563]]

     emergency medical responder who reasonably determines or 
     certifies that the patient's condition is such that the time 
     needed to transport the individual by land or the lack of an 
     appropriate ground ambulance, significantly increases the 
     medical risks for the individual; or
       ``(iv) by a Federal or State agency to relocate patients 
     following a natural disaster, an act of war, or a terrorist 
     attack.
       ``(C) Air ambulance services defined.--For purposes of this 
     paragraph, the term `air ambulance service' means fixed wing 
     and rotary wing air ambulance services.''.
       (b) Conforming Amendment.--Section 1861(s)(7) (42 U.S.C. 
     1395x(s)(7)) is amended by inserting ``, subject to section 
     1834(l)(11),'' after ``but''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to services furnished on or after January 1, 
     2004.

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

       Notwithstanding subsections (a), (b), and (h) of section 
     1833 of the Social Security Act (42 U.S.C. 1395l) and section 
     1834(d)(1) of such Act (42 U.S.C. 1395m(d)(1)), in the case 
     of a clinical diagnostic laboratory test covered under part B 
     of title XVIII of such Act that is furnished in 2004 or 2005 
     by a sole community hospital (as defined in section 
     1886(d)(5)(D)(iii) of such Act (42 U.S.C. 
     1395ww(d)(5)(D)(iii))) as part of services furnished to 
     patients of the hospital, the following rules shall apply:
       (1) Payment based on reasonable costs.--The amount of 
     payment for such test shall be 100 percent of the reasonable 
     costs of the hospital in furnishing such test.
       (2) No beneficiary cost-sharing.--Notwithstanding section 
     432, no coinsurance, deductible, copayment, or other cost-
     sharing otherwise applicable under such part B shall apply 
     with respect to such test.

     SEC. 429. IMPROVEMENT IN RURAL HEALTH CLINIC REIMBURSEMENT.

       Section 1833(f) (42 U.S.C. 1395l(f)) is amended--
       (1) in paragraph (1), by striking ``, and'' at the end and 
     inserting a semicolon;
       (2) in paragraph (2)--
       (A) by striking ``in a subsequent year'' and inserting ``in 
     1989 through 2003''; and
       (B) by striking the period at the end and inserting a 
     semicolon; and
       (3) by adding at the end the following new paragraphs:
       ``(3) in 2004, at $80 per visit; and
       ``(4) in a subsequent year, at the limit established under 
     this subsection for the previous year increased by the 
     percentage increase in the MEI (as so defined) applicable to 
     primary care services (as so defined) furnished as of the 
     first day of that year.''.

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

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

       ``(I) rural health clinic services (as defined in paragraph 
     (1) of section 1861(aa)); and
       ``(II) Federally qualified health center services (as 
     defined in paragraph (3) of such section);

     that would be described in clause (ii) if such services were 
     furnished by a physician or practitioner not affiliated with 
     a rural health clinic or a Federally qualified health 
     center.''.
       (b) Certain Services Furnished by an Entity Jointly Owned 
     by Hospitals and Critical Access Hospitals.--For purposes of 
     applying section 411.15(p)-(3)(iii) of title 42 of the Code 
     of Federal Regulations, the Secretary shall treat an entity 
     that is 100 percent owned as a joint venture by 2 Medicare-
     participating hospitals or critical access hospitals as a 
     Medicare-participating hospital or a critical access 
     hospital.
       (c) Technical Amendments.--Sections 1842(b)(6)(E) and 
     1866(a)(1)(H)(ii) (42 U.S.C. 1395u(b)(6)(E); 
     1395cc(a)(1)(H)(ii)) are each amended by striking ``section 
     1888(e)(2)(A)(ii)'' and inserting ``clauses (ii), (iii), and 
     (iv) of section 1888(e)(2)(A)''.
       (d) Effective Date.--The amendments made by this section 
     and the provision of subsection (b) shall apply to services 
     furnished on or after January 1, 2004.

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

       (a) Freeze for DME.--Section 1834(a)(14) (42 U.S.C. 
     1395m(a)(14)) is amended--
       (1) in subparagraph (E), by striking ``and'' at the end;
       (2) in subparagraph (F)--
       (A) by striking ``a subsequent year'' and inserting 
     ``2003''; and
       (B) by striking ``the previous year.'' and inserting 
     ``2002;''; and
       (3) by adding at the end the following new subparagraphs:
       ``(G) for each of the years 2004 through 2010--
       ``(i) in the case of class III medical devices described in 
     section 513(a)(1)(C) of the Federal Food, Drug, and Cosmetic 
     Act (21 U.S.C. 360(c)(1)(C)), the percentage increase 
     described in subparagraph (B) for the year involved; and
       ``(ii) in the case of covered items not described in clause 
     (i), 0 percentage points; and
       ``(H) for a subsequent year, the percentage increase 
     described in subparagraph (B) for the year involved.''.
       (b) Freeze for Off-the-Shelf Orthotics.--Section 
     1834(h)(4)(A) of the Social Security Act (42 U.S.C. 
     1395m(h)(4)(A)) is amended--
       (1) in clause (vii), by striking ``and'' at the end;
       (2) in clause (viii), by striking ``a subsequent year'' and 
     inserting ``2003''; and
       (3) by adding at the end the following new clauses:
       ``(ix) for each of the years 2004 through 2010--

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

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

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

       (a) Coinsurance.--
       (1) In general.--Section 1833(a) (42 U.S.C. 1395l(a)) is 
     amended--
       (A) in paragraph (1)(D)(i), by striking ``(or 100 percent, 
     in the case of such tests for which payment is made on an 
     assignment-related basis)''; and
       (B) in paragraph (2)(D)(i), by striking ``(or 100 percent, 
     in the case of such tests for which payment is made on an 
     assignment-related basis or to a provider having an agreement 
     under section 1866)''.
       (2) Conforming amendment.--The third sentence of section 
     1866(a)(2)(A) of the Social Security Act (42 U.S.C. 
     1395cc(a)(2)(A) is amended by striking ``and with respect to 
     clinical diagnostic laboratory tests for which payment is 
     made under part B''.
       (b) Deductible.--Section 1833(b) of the Social Security Act 
     (42 U.S.C. 1395l(b)) is amended--

[[Page 16564]]

       (1) by striking paragraph (3); and
       (2) by redesignating paragraphs (4), (5), and (6) as 
     paragraphs (3), (4), and (5), respectively.
       (c) Effective Date.--The amendments made by this section 
     shall apply to tests furnished on or after January 1, 2004.

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

       (a) Medicare Market Based Payment Amount.--Section 1842(o) 
     (42 U.S.C. 1395u(o)) is amended--
       (1) in paragraph (1), by striking ``equal to 95 percent of 
     the average wholesale price.'' and inserting ``equal to--
       ``(A) in the case of a drug or biological furnished prior 
     to January 1, 2004, 95 percent of the average wholesale 
     price; and
       ``(B) in the case of a drug or biological furnished on or 
     after January 1, 2004, the payment amount specified in--
       ``(i) in the case of such a drug or biological that is 
     first available for payment under this part on or before 
     April 1, 2003, paragraph (4); and
       ``(ii) in the case of such a drug or biological that is 
     first available for payment under this part after such date, 
     paragraph (5).''; and
       (2) by adding at the end the following new paragraphs:
       ``(4)(A) Subject to subparagraph (C), the payment amount 
     specified in this paragraph for a year for a drug or 
     biological is an amount equal to the lesser of--
       ``(i) the average wholesale price for the drug or 
     biological; or
       ``(ii) the amount determined under subparagraph (B)
       ``(B)(i) Subject to clause (ii), the amount determined 
     under this subparagraph is an amount equal to--
       ``(I) in the case of a drug or biological furnished in 
     2004, 85 percent of the average wholesale price for the drug 
     or biological (determined as of April 1, 2003); and
       ``(II) in the case of a drug or biological furnished in 
     2005 or a subsequent year, the amount determined under this 
     subparagraph for the previous year increased by the 
     percentage increase in the consumer price index for medical 
     care for the 12-month period ending with June of the previous 
     year.
       ``(ii) In the case of a vaccine described in subparagraph 
     (A) or (B) of section 1861(s)(10), the amount determined 
     under this subparagraph is an amount equal to the average 
     wholesale price for the drug or biological.
       ``(C)(i) The Secretary shall establish a process under 
     which the Secretary determines, for such drugs or biologicals 
     as the Secretary determines appropriate, whether the widely 
     available market price to physicians or suppliers for the 
     drug or biological furnished in a year is different from the 
     payment amount established under subparagraph (B) for the 
     year. Such determination shall be based on the information 
     described in clause (ii) as the Secretary determines 
     appropriate.
       ``(ii) The information described in this clause is the 
     following information:
       ``(I) Any report on drug or biological market prices by the 
     Inspector General of the Department of Health and Human 
     Services or the Comptroller General of the United States that 
     is made available after December 31, 1999.
       ``(II) A review of drug or biological market prices by the 
     Secretary, which may include information on such market 
     prices from insurers, private health plans, manufacturers, 
     wholesalers, distributors, physician supply houses, specialty 
     pharmacies, group purchasing arrangements, physicians, 
     suppliers, or any other source the Secretary determines 
     appropriate.
       ``(III) Data and information submitted by the manufacturer 
     of the drug or biological or by another entity.
       ``(IV) Other data and information as determined appropriate 
     by the Secretary.
       ``(iii) If the Secretary makes a determination under clause 
     (i) with respect to the widely available market price for a 
     drug or biological for a year, the following provisions shall 
     apply:
       ``(I) Subject to clause (iv), the amount determined under 
     this subparagraph shall be substituted for the amount 
     determined under subparagraph (B) for purposes of applying 
     subparagraph (A)(ii)(I) for the year and all subsequent 
     years.
       ``(II) The Secretary may make subsequent determinations 
     under clause (i) with respect to the widely available market 
     price for the drug or biological.
       ``(III) If the Secretary does not make a subsequent 
     determination under clause (i) with respect to the widely 
     available market price for the drug or biological for a year, 
     the amount determined under this subparagraph shall be an 
     amount equal to the amount determined under this subparagraph 
     for the previous year increased by the percentage increase 
     described in subparagraph (B)(i)(II) for the year involved.
       ``(iv) If the first determination made under clause (i) 
     with respect to the widely available market price for a drug 
     or biological would result in a payment amount in a year that 
     is more than 15 percent less than the amount determined under 
     subparagraph (B) for the drug or biological for the previous 
     year (or, for 2004, the payment amount determined under 
     paragraph (1)(A), determined as of April 1, 2003), the 
     Secretary shall provide for a transition to the amount 
     determined under clause (i) so that the payment amount is 
     reduced in annual increments equal to 15 percent of the 
     payment amount in such previous year until the payment amount 
     is equal to the amount determined under clause (i), as 
     increased each year by the percentage increase described in 
     subparagraph (B)(i)(II) for the year. The preceding sentence 
     shall not apply to a drug or biological where a generic 
     version of the drug or biological first enters the market on 
     or after January 1, 2004 (even if the generic version of the 
     drug or biological is not marketed under the chemical name of 
     such drug or biological).
       ``(5) In the case of a drug or biological that is first 
     available for payment under this part after April 1, 2003, 
     the following rules shall apply:
       ``(A) As a condition of obtaining a code to report such new 
     drug or biological and to receive payment under this part, a 
     manufacturer shall provide the Secretary (in a time, manner, 
     and form approved by the Secretary) with data and information 
     on prices at which the manufacturer estimates physicians and 
     suppliers will be able to routinely obtain the drug or 
     biological in the market during the first year that the drug 
     or biological is available for payment under this part and 
     such additional information that the manufacturer determines 
     appropriate.
       ``(B) During the year that the drug or biological is first 
     available for payment under this part, the manufacturer of 
     the drug or biological shall provide the Secretary (in a 
     time, manner, and form approved by the Secretary) with 
     updated information on the actual market prices paid by such 
     physicians or suppliers for the drug or biological in the 
     year.
       ``(C) The amount specified in this paragraph for a drug or 
     biological for the year described in subparagraph (B) is 
     equal to an amount determined by the Secretary based on the 
     information provided under subparagraph (A) and other 
     information that the Secretary determines appropriate.
       ``(D) The amount specified in this paragraph for a drug or 
     biological for the year after the year described in 
     subparagraph (B) is equal to an amount determined by the 
     Secretary based on the information provided under 
     subparagraph (B) and other information that the Secretary 
     determines appropriate.
       ``(E) The amount specified in this paragraph for a drug or 
     biological for the year beginning after the year described in 
     subparagraph (D) and each subsequent year is equal to the 
     lesser of--
       ``(i) the average wholesale price for the drug or 
     biological; or
       ``(ii) the amount determined--
       ``(I) by the Secretary under paragraph (4)(C)(i) with 
     respect to the widely available market price for the drug or 
     biological for the year, if such paragraph was applied by 
     substituting `the payment determined under paragraph 
     (5)(E)(ii)(II) for the year' for `established under 
     subparagraph (B) for the year'; and
       ``(II) if no determination described in subclause (I) is 
     made for the drug or biological for the year, under this 
     subparagraph with respect to the drug or biological for the 
     previous year increased by the percentage increase described 
     in paragraph (4)(B)(i)(II) for the year involved.''.
       (b) Adjustments to Payment Amounts for Administration of 
     Drugs and Biologicals.--
       (1) Adjustment in physician practice expense relative value 
     units.--Section 1848(c)(2) (42 U.S.C. 1395w-4(c)(2)) is 
     amended--
       (A) in subparagraph (B)--
       (i) in clause (ii)(II), by striking ``The adjustments'' and 
     inserting ``Subject to clause (iv), the adjustments''; and
       (ii) by adding at the end the following new clause:
       ``(iv) Exemption from budget neutrality in 2004.--Any 
     additional expenditures under this part that are attributable 
     to subparagraph (H) shall not be taken into account in 
     applying clause (ii)(II) for 2004.''; and
       (B) by adding at the end the following new subparagraph:
       ``(H) Adjustments in practice expense relative value units 
     for drug administration services for 2004.--In establishing 
     the physician fee schedule under subsection (b) with respect 
     to payments for services furnished in 2004, the Secretary 
     shall, in determining practice expense relative value units 
     under this subsection, utilize a survey submitted to the 
     Secretary as of January 1, 2003, by a physician specialty 
     organization pursuant to section 212 of the Medicare, 
     Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 if 
     the survey--
       ``(i) covers practice expenses for oncology administration 
     services; and
       ``(ii) meets criteria established by the Secretary for 
     acceptance of such surveys.''.
       (2) Payment for multiple chemotherapy agents furnished on a 
     single day through the push technique.--
       (A) Review of policy.--The Secretary shall review the 
     policy, as in effect on the date of enactment of this Act, 
     with respect to payment under section 1848 of the Social 
     Security Act (42 U.S.C. 1395w-4) for the administration of 
     more than 1 anticancer

[[Page 16565]]

     chemotherapeutic agent to an individual on a single day 
     through the push technique.
       (B) Modification of policy.--After conducting the review 
     under subparagraph (A), the Secretary shall modify such 
     payment policy if the Secretary determines such modification 
     to be appropriate.
       (C) Exemption from budget neutrality under physician fee 
     schedule.--If the Secretary modifies such payment policy 
     pursuant to subparagraph (B), any increased expenditures 
     under title XVIII of the Social Security Act resulting from 
     such modification shall be treated as additional expenditures 
     attributable to subparagraph (H) of section 1848(c)(2) of the 
     Social Security Act (42 U.S.C. 1395w-4(c)(2)), as added by 
     paragraph (1)(B), for purposes of applying the exemption to 
     budget neutrality under subparagraph (B)(iv) of such section, 
     as added by paragraph (1)(A).
       (3) Treatment of other services currently in the 
     nonphysician work pool.--The Secretary shall make adjustments 
     to the nonphysician work pool methodology (as such term is 
     used in the final rule promulgated by the Secretary in the 
     Federal Register on December 31, 2002 (67 Fed. Reg. 251)), 
     for the determination of practice expense relative value 
     units under the physician fee schedule under section 
     1848(c)(2)(C)(ii) of the Social Security Act (42 U.S.C. 
     1395w-4(c)(2)(C)(ii)), so that the practice expense relative 
     value units for services determined under such methodology 
     are not disproportionately reduced relative to the practice 
     expense relative value units of services not determined under 
     such methodology, as a result of the amendments to such Act 
     made by paragraph (1).
       (4) Administration of blood clotting factors.--Section 
     1842(o) (42 U.S.C. 1395u(o)), as amended by subsection 
     (a)(2), is amended by adding at the end the following new 
     paragraph:
       ``(6)(A) Subject to subparagraph (B), in the case of 
     clotting factors furnished on or after January 1, 2004, the 
     Secretary shall, after reviewing the January 2003 report to 
     Congress by the Comptroller General of the United States 
     entitled `Payment for Blood Clotting Factor Exceeds Providers 
     Acquisition Cost' (GAO-03-184), provide for a separate 
     payment for the administration of such blood clotting factors 
     in an amount that the Secretary determines to be appropriate.
       ``(B) In determining the separate payment amount under 
     subparagraph (A) for blood clotting factors furnished in 
     2004, the Secretary shall ensure that the total amount of 
     payments under this part (as estimated by the Secretary) for 
     such factors under paragraphs (4) and (5) and such separate 
     payments for such factors does not exceed the total amount of 
     payments that would have been made for such factors under 
     this part (as estimated by the Secretary) if the amendments 
     made by section 433 of the Prescription Drug and Medicare 
     Improvement Act of 2003 had not been enacted.
       ``(C) The separate payment amount under this subparagraph 
     for blood clotting factors furnished in 2005 or a subsequent 
     year shall be equal to the separate payment amount determined 
     under this paragraph for the previous year increased by the 
     percentage increase described in paragraph (4)(B)(i)(II) for 
     the year involved.''.
       (5) Increase in composite rate for end stage renal disease 
     facilities.--Section 1881(b) (42 U.S.C. 1395rr(b)) is 
     amended--
       (A) in paragraph (7), by adding at the end the following 
     new sentence: ``In the case of dialysis services furnished in 
     2004 or a subsequent year, the composite rate for such 
     services shall be determined under paragraph (12).''; and
       (B) by adding at the end the following new paragraph:
       ``(12)(A) In the case of dialysis services furnished during 
     2004, the composite rate for such services shall be the 
     composite rate that would otherwise apply under paragraph (7) 
     for the year increased by an amount to ensure (as estimated 
     by the Secretary) that--
       ``(i) the sum of the total amount of--
       ``(I) the composite rate payments for such services for the 
     year, as increased under this paragraph; and
       ``(II) the payments for drugs and biologicals (other than 
     erythropoetin) furnished in connection with the furnishing of 
     renal dialysis services and separately billed by renal 
     dialysis facilities under paragraphs (4) and (5) of section 
     1842(o) for the year; is equal to
       ``(ii) the sum of the total amount of the composite rate 
     payments under paragraph (7) for the year and the payments 
     for the separately billed drugs and biologicals described in 
     clause (i)(II) that would have been made if the amendments 
     made by section 433 of the Prescription Drug and Medicare 
     Improvement Act of 2003 had not been enacted.
       ``(B) Subject to subparagraph (E), in the case of dialysis 
     services furnished in 2005, the composite rate for such 
     services shall be an amount equal to the composite rate 
     established under subparagraph (A), increased by 0.05 percent 
     and further increased pursuant to section 423 of the 
     Prescription Drug and Medicare Improvement Act of 2003.
       ``(C) Subject to subparagraph (E), in the case of dialysis 
     services furnished in 2006, the composite rate for such 
     services shall be an amount equal to the composite rate 
     established under subparagraph (B), increased by 0.05 
     percent.
       ``(D) Subject to subparagraph (E), in the case of dialysis 
     services furnished in 2007 or a subsequent year, the 
     composite rate for such services shall be an amount equal to 
     the composite rate established under this paragraph for the 
     previous year (determined as if such section 423 had not been 
     enacted), increased by 0.05 percent.
       ``(E) If the Secretary implements a reduction in the 
     payment amount under paragraph (4)(C) or (5) for a drug or 
     biological described in subparagraph (A)(i)(II) for a year 
     after 2004, the Secretary shall, as estimated by the 
     Secretary--
       ``(i) increase the composite rate for dialysis services 
     furnished in such year in the same manner that the composite 
     rate for such services for 2004 was increased under 
     subparagraph (A); and
       ``(ii) increase the percentage increase under subparagraph 
     (C) or (D) (as applicable) for years after the year described 
     in clause (i) to ensure that such increased percentage would 
     result in expenditures equal to the sum of the total 
     composite rate payments for such services for such years and 
     the total payments for drugs and biologicals described in 
     subparagraph (A)(i)(II) is equal to the sum of the total 
     amount of the composite rate payments under this paragraph 
     for such years and the payments for the drugs and biologicals 
     described in subparagraph (A)(i)(II) that would have been 
     made if the reduction in payment amount described in 
     subparagraph had not been made.
       ``(F) There shall be no administrative or judicial review 
     under section 1869, section 1878, or otherwise, of 
     determinations of payment amounts, methods, or adjustments 
     under this paragraph.''.
       (6) Home infusion drugs.--Section 1842(o) (42 U.S.C. 
     1395u(o)), as amended by subsection (a)(2) and paragraph (4), 
     is amended by adding at the end the following new paragraph:
       ``(7)(A) Subject to subparagraph (B), in the case of 
     infusion drugs and biologicals furnished through an item of 
     durable medical equipment covered under section 1861(n) on or 
     after January 1, 2004, the Secretary may make separate 
     payments for furnishing such drugs and biologicals in an 
     amount determined by the Secretary if the Secretary 
     determines such separate payment to be appropriate.
       ``(B) In determining the amount of any separate payment 
     under subparagraph (A) for a year, the Secretary shall ensure 
     that the total amount of payments under this part for such 
     infusion drugs and biologicals for the year and such separate 
     payments for the year does not exceed the total amount of 
     payments that would have been made under this part for the 
     year for such infusion drugs and biologicals if section 433 
     of the Prescription Drug and Medicare Improvement Act of 2003 
     had not been enacted.''.
       (7) Inhalation drugs.--Section 1842(o) (42 U.S.C. 
     1395u(o)), as amended by subsection (a)(2) and paragraphs (4) 
     and (6), is amended by adding at the end the following new 
     paragraph:
       ``(8)(A) Subject to subparagraph (B), in the case of 
     inhalation drugs and biologicals furnished through durable 
     medical equipment covered under section 1861(n) on or after 
     January 1, 2004, the Secretary may increase payments for such 
     equipment under section 1834(a) and may make separate 
     payments for furnishing such drugs and biologicals if the 
     Secretary determines such increased or separate payments are 
     necessary to appropriately furnish such equipment and drugs 
     and biologicals to beneficiaries.
       ``(B) The total amount of any increased payments and 
     separate payments under subparagraph (A) for a year may not 
     exceed an amount equal to 10 percent of the amount (as 
     estimated by the Secretary) by which--
       ``(i) the total amount of payments that would have been 
     made for such drugs and biologicals for the year if section 
     433 of the Prescription Drug and Medicare Improvement Act of 
     2003 had not been enacted; exceeds
       ``(ii) the total amount of payments for such drugs and 
     biologicals under paragraphs (4) and (5).''.
       (8) Pharmacy dispensing fee for certain drugs and 
     biologicals.--Section 1842(o)(2) (42 U.S.C. 1395u(o)(2)) is 
     amended to read as follows:
       ``(2) If payment for a drug or biological is made to a 
     licensed pharmacy approved to dispense drugs or biologicals 
     under this part, the Secretary--
       ``(A) in the case of an immunosuppressive drug described in 
     subparagraph (J) of section 1861(s)(2) and an oral drug 
     described in subparagraph (Q) or (T) of such section, shall 
     pay a dispensing fee determined appropriate by the Secretary 
     (less the applicable deductible and coinsurance amounts) to 
     the pharmacy; and
       ``(B) in the case of a drug or biological not described in 
     subparagraph (A), may pay a dispensing fee determined 
     appropriate by the Secretary (less the applicable deductible 
     and coinsurance amounts) to the pharmacy.''.
       (9) Payment for Chemotherapy Drugs Purchased but not 
     Administered by Physicians.--Section 1842(o) (42 U.S.C. 
     1395u(o)), as amended by subsection (a)(2) and paragraphs 
     (4), (6) and (7), is amended by adding at the end the 
     following new paragraph:

[[Page 16566]]

       ``(9)(A) Subject to subparagraph (B), the Secretary may 
     increase (in an amount determined appropriate) the amount of 
     payments to physicians for anticancer chemotherapeutic drugs 
     or biologicals that would otherwise be made under this part 
     in order to compensate such physicians for anticancer 
     chemotherapeutic drugs or biologicals that are purchased by 
     physicians with a reasonable intent to administer to an 
     individual enrolled under this part but which cannot be 
     administered to such individual despite the reasonable 
     efforts of the physician.
       ``(B) The total amount of increased payments made under 
     subparagraph (A) in a year (as estimated by the Secretary) 
     may not exceed an amount equal to 1 percent of the total 
     amount of payments made under paragraphs (4) and (5) for such 
     anticancer chemotherapeutic drugs or biologicals furnished by 
     physicians in such year (as estimated by the Secretary).''.
       (c) Linkage of Revised Drug Payments and Increases for Drug 
     Administration.--The Secretary shall not implement the 
     revisions in payment amounts for a category of drug or 
     biological as a result of the amendments made by subsection 
     (a) unless the Secretary concurrently implements the 
     adjustments to payment amounts for administration of such 
     category of drug or biological for which the Secretary is 
     required to make an adjustment, as specified in the 
     amendments made by, and provisions of, subsection (b).
       (d) Prohibition of Administrative and Judicial Review.--
       (1) Drugs.--Section 1842(o) (42 U.S.C. 1395u(o)), as 
     amended by subsection (a)(2) and paragraphs (4), (6), (7), 
     and (9) of subsection (b), is amended by adding at the end 
     the following new paragraph:
       ``(10) There shall be no administrative or judicial review 
     under section 1869, section 1878, or otherwise, of 
     determinations of payment amounts, methods, or adjustments 
     under paragraph (2) or paragraphs (4) through (9).''.
       (2) Physician fee schedule.--Section 1848(i)(1) (42 U.S.C. 
     1395w-4(i)(1)) is amended--
       (A) in subparagraph (D), by striking ``and'' at the end;
       (B) in subparagraph (E), by striking the period at the end 
     and inserting ``, and''; and
       (C) by adding at the end the following new subparagraph:
       ``(F) adjustments in practice expense relative value units 
     under subsection (c)(2)(H).''.
       (3) Multiple chemotherapy agents and other services 
     currently on the non-physician work pool.--There shall be no 
     administrative or judicial review under section 1869, section 
     1878, or otherwise, of determinations of payment amounts, 
     methods, or adjustments under paragraphs (2) and (3) of 
     subsection (b).
       (e) Studies and Reports.--
       (1) GAO study and report on beneficiary access to drugs and 
     biologicals.--
       (A) Study.--The Comptroller General of the United States 
     shall conduct a study that examines the impact the provisions 
     of, and the amendments made by, this section have on access 
     by medicare beneficiaries to drugs and biologicals covered 
     under the medicare program.
       (B) Report.--Not later than January 1, 2006, the 
     Comptroller General shall submit a report to Congress on the 
     study conducted under subparagraph (A) together with such 
     recommendations as the Comptroller General determines to be 
     appropriate.
       (2) Study and report by the hhs inspector general on market 
     prices of drugs and biologicals.--
       (A) Study.--The Inspector General of the Department of 
     Health and Human Services shall conduct 1 or more studies 
     that--
       (i) examine the market prices that drugs and biologicals 
     covered under the medicare program are widely available to 
     physicians and suppliers; and
       (ii) compare such widely available market prices to the 
     payment amount for such drugs and biologicals under section 
     1842(o) of the Social Security Act (42 U.S.C. 1395u(o).
       (B) Requirement.--In conducting the study under 
     subparagraph (A), the Inspector General shall focus on those 
     drugs and biologicals that represent the largest portions of 
     expenditures under the medicare program for drugs and 
     biologicals.
       (C) Report.--The Inspector General shall prepare a report 
     on any study conducted under subparagraph (A).

     SEC. 434. INDEXING PART B DEDUCTIBLE TO INFLATION.

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

     SEC. 435. REVISIONS TO REASSIGNMENT PROVISIONS.

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

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

       Section 542(c) of BIPA (114 Stat. 2763A-551) is amended by 
     inserting ``, and for services furnished during 2004 or 
     2005'' before the period at the end.

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

       (a) Special Rules for Drugs and Biologicals.--Section 
     1833(t) (42 U.S.C. 1395(t)) is amended--
       (1) by redesignating paragraph (13) as paragraph (14); and
       (2) by inserting after paragraph (12) the following new 
     paragraph:
       ``(13) Special rules for certain drugs and biologicals.--
       ``(A) Before 2007.--
       ``(i) In general.--Notwithstanding paragraph (6), but 
     subject to clause (ii), with respect to a separately payable 
     drug or biological described in subparagraph (D) furnished on 
     or after January 1, 2005, and before January 1, 2007, 
     hospitals shall be reimbursed as follows:

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

       ``(ii) Update for 2006.--For 2006, the amounts determined 
     under clauses (i) and (ii) shall be the amount established 
     for 2005 increased by the percentage increase in the Consumer 
     Price Index for all urban consumers (U.S. urban average) for 
     the 12-month period ending with June of the previous year.
       ``(B) After 2007.--
       ``(i) Ongoing study and reports on adequate 
     reimbursements.--

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

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

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

       ``(ii) Establishment of payment methodology.--
     Notwithstanding paragraph (6), the Secretary, in establishing 
     a payment methodology on or after the date of enactment of 
     the Prescription Drug and Medicare Improvement Act of 2003, 
     shall take into consideration the findings of the study 
     conducted under clause (i)(I) in determining payment amounts 
     for each drug and biological provided as part of a covered 
     OPD service furnished on or after January 1, 2007.
       ``(C) Applicable percentage defined.--In this paragraph, 
     the term `applicable percentage' means--
       ``(i) with respect to a biological product (approved under 
     a biologics license application under section 351 of the 
     Public Health Service Act), a single source drug (as defined 
     in section 1927(k)(7)(A)(iv)), or an orphan product 
     designated under section 526 of the

[[Page 16567]]

     Food, Drug, and Cosmetic Act to which the prospective payment 
     system established under this subsection did not apply under 
     the final rule for 2003 payments under such system, 94 
     percent;
       ``(ii) with respect to an innovator multiple source drug 
     (as defined in section 1927(k)(7)(A)(ii)), 91 percent; and
       ``(iii) with respect to a noninnovator multiple source drug 
     (as defined in as defined in section 1927(k)(7)(A)(iii)), 71 
     percent.
       ``(D) Drugs and biologicals described.--A drug or 
     biological described in this paragraph is any drug or 
     biological--
       ``(i) for which the amount of payment was determined under 
     paragraph (6) prior to January 1, 2005;
       ``(ii) which is assigned to a drug specific ambulatory 
     payment classification on or after the date of enactment of 
     the Prescription Drug and Medicare Improvement Act of 2003; 
     and
       ``(iii) that would have been reimbursed under paragraph (6) 
     but for the application of this paragraph.''.
       (b) Exceptions to budget neutrality requirement.--Section 
     1833(t)(9)(B) (42 U.S.C. 1395l(t)(9)(B)) is amended by adding 
     at the end the following: ``In determining the budget 
     neutrality adjustment required by the preceding sentence for 
     fiscal years 2005 and 2006, the Secretary shall not take into 
     account any expenditures that would not have been made but 
     for the application of paragraph (13).''.

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

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

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

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

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

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

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

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

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

       (a) Definitions.--In this section:
       (1) Chiropractic services.--The term ``chiropractic 
     services'' has the meaning given that term by the Secretary 
     for purposes of the demonstration projects, but shall 
     include, at a minimum--
       (A) care for neuromusculoskeletal conditions typical among 
     eligible beneficiaries; and
       (B) diagnostic and other services that a chiropractor is 
     legally authorized to perform by the State or jurisdiction in 
     which such treatment is provided.
       (2) Demonstration project.--The term ``demonstration 
     project'' means a demonstration project established by the 
     Secretary under subsection (b)(1).
       (3) Eligible beneficiary.--The term ``eligible 
     beneficiary'' means an individual who is enrolled under part 
     B of the medicare program.
       (4) Medicare program.--The term ``medicare program'' means 
     the health benefits program under title XVIII of the Social 
     Security Act (42 U.S.C. 1395 et seq.).
       (b) Demonstration of Coverage of Chiropractic Services 
     Under Medicare.--
       (1) Establishment.--The Secretary shall establish 
     demonstration projects in accordance with the provisions of 
     this section for the purpose of evaluating the feasibility 
     and advisability of covering chiropractic services under the 
     medicare program (in addition to the coverage provided for 
     services consisting of treatment by means of manual 
     manipulation of the spine to correct a subluxation described 
     in section 1861(r)(5) of the Social Security Act (42 U.S.C. 
     1395x(r)(5))).
       (2) No physician approval required.--In establishing the 
     demonstration projects, the Secretary shall ensure that an 
     eligible beneficiary who participates in a demonstration 
     project, including an eligible beneficiary who is enrolled 
     for coverage under a Medicare+Choice plan (or, on and after 
     January 1, 2006, under a MedicareAdvantage plan), is not 
     required to receive approval from a physician or other health 
     care provider in order to receive a chiropractic service 
     under a demonstration project.
       (3) Consultation.--In establishing the demonstration 
     projects, the Secretary shall consult with chiropractors, 
     organizations representing chiropractors, eligible 
     beneficiaries, and organizations representing eligible 
     beneficiaries.
       (4) Participation.--Any eligible beneficiary may 
     participate in the demonstration projects on a voluntary 
     basis.
       (c) Conduct of Demonstration Projects.--
       (1) Demonstration sites.--
       (A) Selection of demonstration sites.--The Secretary shall 
     conduct demonstration projects at 6 demonstration sites.
       (B) Geographic diversity.--Of the sites described in 
     subparagraph (A)--
       (i) 3 shall be in rural areas; and
       (ii) 3 shall be in urban areas.
       (C) Sites located in hpsas.--At least 1 site described in 
     clause (i) of subparagraph (B) and at least 1 site described 
     in clause (ii) of such subparagraph shall be located in an 
     area that is designated under section 332(a)(1)(A) of the 
     Public Health Service Act (42 U.S.C. 254e(a)(1)(A)) as a 
     health professional shortage area.
       (2) Implementation; duration.--
       (A) Implementation.--The Secretary shall not implement the 
     demonstration projects before October 1, 2004.
       (B) Duration.--The Secretary shall complete the 
     demonstration projects by the date that is 3 years after the 
     date on which the first demonstration project is implemented.
       (d) Evaluation and Report.--
       (1) Evaluation.--The Secretary shall conduct an evaluation 
     of the demonstration projects--
       (A) to determine whether eligible beneficiaries who use 
     chiropractic services use a lesser overall amount of items 
     and services for which payment is made under the medicare 
     program than eligible beneficiaries who do not use such 
     services;
       (B) to determine the cost of providing payment for 
     chiropractic services under the medicare program;
       (C) to determine the satisfaction of eligible beneficiaries 
     participating in the demonstration projects and the quality 
     of care received by such beneficiaries; and

[[Page 16568]]

       (D) to evaluate such other matters as the Secretary 
     determines is appropriate.
       (2) Report.--Not later than the date that is 1 year after 
     the date on which the demonstration projects conclude, the 
     Secretary shall submit to Congress a report on the evaluation 
     conducted under paragraph (1) together with such 
     recommendations for legislation or administrative action as 
     the Secretary determines is appropriate.
       (e) Waiver of Medicare Requirements.--The Secretary shall 
     waive compliance with such requirements of the medicare 
     program to the extent and for the period the Secretary finds 
     necessary to conduct the demonstration projects.
       (f) Funding.--
       (1) Demonstration projects.--
       (A) In general.--Subject to subparagraph (B) and paragraph 
     (2), the Secretary shall provide for the transfer from the 
     Federal Supplementary Insurance Trust Fund under section 1841 
     of the Social Security Act (42 U.S.C. 1395t) of such funds as 
     are necessary for the costs of carrying out the demonstration 
     projects under this section.
       (B) Limitation.--In conducting the demonstration projects 
     under this section, the Secretary shall ensure that the 
     aggregate payments made by the Secretary under the medicare 
     program do not exceed the amount which the Secretary would 
     have paid under the medicare program if the demonstration 
     projects under this section were not implemented.
       (2) Evaluation and report.--There are authorized to be 
     appropriated such sums as are necessary for the purpose of 
     developing and submitting the report to Congress under 
     subsection (d).

     SEC. 442. MEDICARE HEALTH CARE QUALITY DEMONSTRATION 
                   PROGRAMS.

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


              ``health care quality demonstration program

       ``Sec. 1866C. (a) Definitions.--In this section:
       ``(1) Beneficiary.--The term `beneficiary' means a 
     beneficiary who is enrolled in the original medicare fee-for-
     service program under parts A and B or a beneficiary in a 
     staff model or dedicated group model health maintenance 
     organization under the Medicare+Choice program (or, on and 
     after January 1, 2006, under the MedicareAdvantage program) 
     under part C.
       ``(2) Health care group.--
       ``(A) In general.--The term `health care group' means--
       ``(i) a group of physicians that is organized at least in 
     part for the purpose of providing physician's services under 
     this title;
       ``(ii) an integrated health care delivery system that 
     delivers care through coordinated hospitals, clinics, home 
     health agencies, ambulatory surgery centers, skilled nursing 
     facilities, rehabilitation facilities and clinics, and 
     employed, independent, or contracted physicians; or
       ``(iii) an organization representing regional coalitions of 
     groups or systems described in clause (i) or (ii).
       ``(B) Inclusion.--As the Secretary determines appropriate, 
     a health care group may include a hospital or any other 
     individual or entity furnishing items or services for which 
     payment may be made under this title that is affiliated with 
     the health care group under an arrangement structured so that 
     such hospital, individual, or entity participates in a 
     demonstration project under this section.
       ``(3) Physician.--Except as otherwise provided for by the 
     Secretary, the term `physician' means any individual who 
     furnishes services that may be paid for as physicians' 
     services under this title.
       ``(b) Demonstration Projects.--The Secretary shall 
     establish a 5-year demonstration program under which the 
     Secretary shall approve demonstration projects that examine 
     health delivery factors that encourage the delivery of 
     improved quality in patient care, including--
       ``(1) the provision of incentives to improve the safety of 
     care provided to beneficiaries;
       ``(2) the appropriate use of best practice guidelines by 
     providers and services by beneficiaries;
       ``(3) reduced scientific uncertainty in the delivery of 
     care through the examination of variations in the utilization 
     and allocation of services, and outcomes measurement and 
     research;
       ``(4) encourage shared decision making between providers 
     and patients;
       ``(5) the provision of incentives for improving the quality 
     and safety of care and achieving the efficient allocation of 
     resources;
       ``(6) the appropriate use of culturally and ethnically 
     sensitive health care delivery; and
       ``(7) the financial effects on the health care marketplace 
     of altering the incentives for care delivery and changing the 
     allocation of resources.
       ``(c) Administration by Contract.--
       ``(1) In general.--Except as otherwise provided in this 
     section, the Secretary may administer the demonstration 
     program established under this section in a manner that is 
     similar to the manner in which the demonstration program 
     established under section 1866A is administered in accordance 
     with section 1866B.
       ``(2) Alternative payment systems.--A health care group 
     that receives assistance under this section may, with respect 
     to the demonstration project to be carried out with such 
     assistance, include proposals for the use of alternative 
     payment systems for items and services provided to 
     beneficiaries by the group that are designed to--
       ``(A) encourage the delivery of high quality care while 
     accomplishing the objectives described in subsection (b); and
       ``(B) streamline documentation and reporting requirements 
     otherwise required under this title.
       ``(3) Benefits.--A health care group that receives 
     assistance under this section may, with respect to the 
     demonstration project to be carried out with such assistance, 
     include modifications to the package of benefits available 
     under the traditional fee-for-service program under parts A 
     and B or the package of benefits available through a staff 
     model or a dedicated group model health maintenance 
     organization under part C. The criteria employed under the 
     demonstration program under this section to evaluate outcomes 
     and determine best practice guidelines and incentives shall 
     not be used as a basis for the denial of medicare benefits 
     under the demonstration program to patients against their 
     wishes (or if the patient is incompetent, against the wishes 
     of the patient's surrogate) on the basis of the patient's age 
     or expected length of life or of the patient's present or 
     predicted disability, degree of medical dependency, or 
     quality of life.
       ``(d) Eligibility Criteria.--To be eligible to receive 
     assistance under this section, an entity shall--
       ``(1) be a health care group;
       ``(2) meet quality standards established by the Secretary, 
     including--
       ``(A) the implementation of continuous quality improvement 
     mechanisms that are aimed at integrating community-based 
     support services, primary care, and referral care;
       ``(B) the implementation of activities to increase the 
     delivery of effective care to beneficiaries;
       ``(C) encouraging patient participation in preference-based 
     decisions;
       ``(D) the implementation of activities to encourage the 
     coordination and integration of medical service delivery; and
       ``(E) the implementation of activities to measure and 
     document the financial impact on the health care marketplace 
     of altering the incentives of health care delivery and 
     changing the allocation of resources; and
       ``(3) meet such other requirements as the Secretary may 
     establish.
       ``(e) Waiver Authority.--The Secretary may waive such 
     requirements of titles XI and XVIII as may be necessary to 
     carry out the purposes of the demonstration program 
     established under this section.
       ``(f) Budget Neutrality.--With respect to the 5-year period 
     of the demonstration program under subsection (b), the 
     aggregate expenditures under this title for such period shall 
     not exceed the aggregate expenditures that would have been 
     expended under this title if the program established under 
     this section had not been implemented.
       ``(g) Notice Requirements.--In the case of an individual 
     that receives health care items or services under a 
     demonstration program carried out under this section, the 
     Secretary shall ensure that such individual is notified of 
     any waivers of coverage or payment rules that are applicable 
     to such individual under this title as a result of the 
     participation of the individual in such program.
       ``(h) Participation and Support by Federal Agencies.--In 
     carrying out the demonstration program under this section, 
     the Secretary may direct--
       ``(1) the Director of the National Institutes of Health to 
     expand the efforts of the Institutes to evaluate current 
     medical technologies and improve the foundation for evidence-
     based practice;
       ``(2) the Administrator of the Agency for Healthcare 
     Research and Quality to, where possible and appropriate, use 
     the program under this section as a laboratory for the study 
     of quality improvement strategies and to evaluate, monitor, 
     and disseminate information relevant to such program; and
       ``(3) the Administrator of the Centers for Medicare & 
     Medicaid Services and the Administrator of the Center for 
     Medicare Choices to support linkages of relevant medicare 
     data to registry information from participating health care 
     groups for the beneficiary populations served by the 
     participating groups, for analysis supporting the purposes of 
     the demonstration program, consistent with the applicable 
     provisions of the Health Insurance Portability and 
     Accountability Act of 1996.
       ``(i) Implementation.--The Secretary shall not implement 
     the demonstration program before October 1, 2004.''.

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

       (a) Establishment.--
       (1) In general.--The Secretary shall establish a 
     demonstration program to make the medicare program more 
     responsive to needs of eligible beneficiaries by promoting 
     continuity of care, helping stabilize medical conditions, 
     preventing or minimizing acute exacerbations of chronic 
     conditions, and reducing adverse health outcomes, such as 
     adverse drug interactions related to polypharmacy.

[[Page 16569]]

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

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

       (a) Establishment.--
       (1) In general.--The Secretary shall establish a 
     demonstration program to contract with qualified care 
     management organizations to provide health risk assessment 
     and care management services to eligible beneficiaries who 
     receive care under the original medicare fee-for-service 
     program under parts A and B of title XVIII of the Social 
     Security Act to eligible beneficiaries.
       (2) Sites.--The Secretary shall designate 6 sites at which 
     to conduct the demonstration program under this section. In 
     selecting sites under this paragraph, the Secretary shall 
     give preference to sites located in rural areas.
       (3) Duration.--The Secretary shall conduct the 
     demonstration program under this section for a 5-year period.
       (4) Implementation.--The Secretary shall not implement the 
     demonstration program before October 1, 2004.
       (b) Participants.--Any eligible beneficiary who resides in 
     an area designated by the Secretary as a demonstration site 
     under subsection (a)(2) may participate in the demonstration 
     program under this section if such beneficiary identifies a 
     care management organization who agrees to furnish care 
     management services to the eligible beneficiary under the 
     demonstration program.
       (c) Contracts With CMOs.--
       (1) In general.--The Secretary shall enter into a contract 
     with care management organizations to provide care management 
     services to eligible beneficiaries residing in the area 
     served by the care management organization.
       (2) Cancellation.--The Secretary may cancel a contract 
     entered into under paragraph (1) if the care management 
     organization does not meet negotiated savings or quality 
     outcomes targets for the year.
       (3) Number of cmos.--The Secretary may contract with more 
     than 1 care management organization in a geographic area.
       (d) Payment to CMOs.--
       (1) Payment.--Under an contract entered into under 
     subsection (c), the Secretary shall pay care management 
     organizations a fee for which the care management 
     organization is partially at risk based on bids submitted by 
     care management organizations.
       (2) Portion of payment at risk.--The Secretary shall 
     establish a benchmark for quality and cost against which the 
     results of the care management organization are to be 
     measured. The Secretary may not pay a care management 
     organization the portion of the fee described in paragraph 
     (1) that is at risk unless the Secretary determines that the 
     care management organization has met the agreed upon savings 
     and outcomes targets for the year.
       (e) Funding.--
       (1) In general.--The Secretary shall provide for the 
     transfer from the Federal Hospital Insurance Trust Fund under 
     section 1817 of the Social Security Act (42 U.S.C. 1395i) and 
     the Federal Supplementary Insurance Trust Fund established 
     under section 1841 of such Act (42 U.S.C. 1395t), in such 
     proportion as the Secretary determines to be appropriate, of 
     such funds as are necessary for the costs of carrying out the 
     demonstration program under this section.
       (2) Budget neutrality.--In conducting the demonstration 
     program under this section, the Secretary shall ensure that 
     the aggregate payments made by the Secretary do not exceed 
     the amount which the Secretary would have paid if the 
     demonstration program under this section was not implemented.
       (f) Waiver Authority.--
       (1) In general.--The Secretary may waive such requirements 
     of titles XI and XVIII of the Social Security Act (42 U.S.C. 
     1301 et seq.; 1395 et seq.) as may be necessary for the 
     purpose of carrying out the demonstration program under this 
     section.
       (2) Waiver of medigap preemptions.--The Secretary shall 
     waive any provision of section 1882 of the Social Security 
     Act that

[[Page 16570]]

     would prevent an insurance carrier described in subsection 
     (h)(3)(D) from participating in the demonstration program 
     under this section.
       (g) Report.--Not later than 6 months after the completion 
     of the demonstration program under this section, the 
     Secretary shall submit to Congress a report on such program, 
     together with recommendations for such legislation and 
     administrative action as the Secretary determines to be 
     appropriate.
       (h) Definitions.--In this section:
       (1) Care management services.--The term ``care management 
     services'' means services that are furnished to an eligible 
     beneficiary (as defined in paragraph (2)) by a care 
     management organization (as defined in paragraph (3)) in 
     accordance with guidelines established by the Secretary that 
     are consistent with guidelines established by the American 
     Geriatrics Society.
       (2) Eligible beneficiary.--The term ``eligible 
     beneficiary'' means an individual who is--
       (A) entitled to (or enrolled for) benefits under part A and 
     enrolled for benefits under part B of the Social Security Act 
     (42 U.S.C. 1395c et seq.; 1395j et seq.);
       (B) not enrolled with a Medicare+Choice plan or a 
     MedicareAdvantage plan under part C; and
       (C) at high-risk (as defined by the Secretary, but 
     including eligible beneficiaries with multiple sclerosis or 
     another disabling chronic condition, eligible beneficiaries 
     residing in a nursing home or at risk for nursing home 
     placement, or eligible beneficiaries eligible for assistance 
     under a State plan under title XIX).
       (3) Care management organization.--The term ``care 
     management organization'' means an organization that meets 
     such qualifications as the Secretary may specify and includes 
     any of the following:
       (A) A physician group practice, hospital, home health 
     agency, or hospice program.
       (B) A disease management organization.
       (C) A Medicare+Choice or MedicareAdvantage organization.
       (D) Insurance carriers offering medicare supplemental 
     policies under section 1882 of the Social Security Act (42 
     U.S.C. 1395ss).
       (E) Such other entity as the Secretary determines to be 
     appropriate.

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

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

            Subtitle C--Provisions Relating to Parts A and B

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

       (a) In General.--In the case of home health services 
     furnished in a rural area (as defined in section 
     1886(d)(2)(D) of the Social Security Act (42 U.S.C. 
     1395ww(d)(2)(D))) on or after October 1, 2003, and before 
     October 1, 2005, the Secretary shall increase the payment 
     amount otherwise made under section 1895 of such Act (42 
     U.S.C. 1395fff) for such services by 5 percent.
       (b) Waiving Budget Neutrality.--The Secretary shall not 
     reduce the standard prospective payment amount (or amounts) 
     under section 1895 of the Social Security Act (42 U.S.C. 
     1395fff) applicable to home health services furnished during 
     a period to offset the increase in payments resulting from 
     the application of subsection (a).
       (c) No Effect on Subsequent Periods.--The payment increase 
     provided under subsection (a) for a period under such 
     subsection--
       (1) shall not apply to episodes and visits ending after 
     such period; and
       (2) shall not be taken into account in calculating the 
     payment amounts applicable for episodes and visits occurring 
     after such period.

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

       Section 1895(b)(4)(C) (42 U.S.C. 1395fff(b)(4)(C)) is 
     amended--
       (1) by striking ``factors.--The Secretary'' and inserting 
     ``factors.--
       ``(i) In general.--Subject to clause (ii), the Secretary''; 
     and
       (2) by adding at the end the following new clause:
       ``(ii) Limitation on reduction in fiscal year 2005 and 
     2006.--For fiscal years 2004, 2005, and 2006, the area wage 
     adjustment factor applicable to home health services 
     furnished in an area in the fiscal year may not be more that 
     3 percent less than the area wage adjustment factor 
     applicable to home health services for the area for the 
     previous year.''.

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

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

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

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

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

       (a) Establishment.--The Secretary shall establish a 
     demonstration program (in this section referred to as the 
     ``demonstration

[[Page 16571]]

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

     SEC. 455. MEDICARE SECONDARY PAYOR (MSP) PROVISIONS.

       (a) Technical Amendment Concerning Secretary's Authority to 
     Make Conditional Payment When Certain Primary Plans Do Not 
     Pay Promptly.--
       (1) In general.--Section 1862(b)(2) (42 U.S.C. 1395y(b)(2)) 
     is amended--
       (A) in subparagraph (A)(ii), by striking ``promptly (as 
     determined in accordance with regulations)'';
       (B) in subparagraph (B)--
       (i) by redesignating clauses (i) through (iii) as clauses 
     (ii) through (iv), respectively; and
       (ii) by inserting before clause (ii), as so redesignated, 
     the following new clause:
       ``(i) Authority to make conditional payment.--The Secretary 
     may make payment under this title with respect to an item or 
     service if a primary plan described in subparagraph (A)(ii) 
     has not made or cannot reasonably be expected to make payment 
     with respect to such item or service promptly (as determined 
     in accordance with regulations). Any such payment by the 
     Secretary shall be conditioned on reimbursement to the 
     appropriate Trust Fund in accordance with the succeeding 
     provisions of this subsection.''.
       (2) Effective date.--The amendments made by paragraph (1) 
     shall be effective as if included in the enactment of title 
     III of the Medicare and Medicaid Budget Reconciliation 
     Amendments of 1984 (Public Law 98-369).
       (b) Clarifying Amendments to Conditional Payment 
     Provisions.--Section 1862(b)(2) (42 U.S.C. 1395y(b)(2)) is 
     further amended--
       (1) in subparagraph (A), in the matter following clause 
     (ii), by inserting the following sentence at the end: ``An 
     entity that engages in a business, trade, or profession shall 
     be deemed to have a self-insured plan if it carries its own 
     risk (whether by a failure to obtain insurance, or otherwise) 
     in whole or in part.'';
       (2) in subparagraph (B)(ii), as redesignated by subsection 
     (a)(2)(B)--
       (A) by striking the first sentence and inserting the 
     following: ``A primary plan, and an entity that receives 
     payment from a primary plan, shall reimburse the appropriate 
     Trust Fund for any payment made by the Secretary under this 
     title with respect to an item or service if it is 
     demonstrated that such primary plan has or had a 
     responsibility to make payment with respect to such item or 
     service. A primary plan's responsibility for such payment may 
     be demonstrated by a judgment, a payment conditioned upon the 
     recipient's compromise, waiver, or release (whether or not 
     there is a determination or admission of liability) of 
     payment for items or services included in a claim against the 
     primary plan or the primary plan's insured, or by other 
     means.''; and
       (B) in the final sentence, by striking ``on the date such 
     notice or other information is

[[Page 16572]]

     received'' and inserting ``on the date notice of, or 
     information related to, a primary plan's responsibility for 
     such payment or other information is received''; and
       (3) in subparagraph (B)(iii), as redesignated by subsection 
     (a)(2)(B), by striking the first sentence and inserting the 
     following: ``In order to recover payment made under this 
     title for an item or service, the United States may bring an 
     action against any or all entities that are or were required 
     or responsible (directly, as an insurer or self-insurer, as a 
     third-party administrator, as an employer that sponsors or 
     contributes to a group health plan, or large group health 
     plan, or otherwise) to make payment with respect to the same 
     item or service (or any portion thereof) under a primary 
     plan. The United States may, in accordance with paragraph 
     (3)(A) collect double damages against any such entity. In 
     addition, the United States may recover under this clause 
     from any entity that has received payment from a primary plan 
     or from the proceeds of a primary plan's payment to any 
     entity.''.
       (c) Clerical Amendments.--Section 1862(b) (42 U.S.C. 
     1395y(b)) is amended--
       (1) in paragraph (1)(A), by moving the indentation of 
     clauses (ii) through (v) 2 ems to the left; and
       (2) in paragraph (3)(A), by striking ``such'' before 
     ``paragraphs''.

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

                     Subtitle A--Regulatory Reform

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

       (a) In General.--Section 1871(a) (42 U.S.C. 1395hh(a)) is 
     amended by adding at the end the following new paragraph:
       ``(3)(A) With respect to the publication of a final 
     regulation based on the previous publication of an interim 
     final regulation--
       ``(i) subject to subparagraph (B), the Secretary shall 
     publish the final regulation within the 12-month period that 
     begins on the date of publication of the interim final 
     regulation;
       ``(ii) if a final regulation is not published by the 
     deadline established under this paragraph, the interim final 
     regulation shall not continue in effect unless the Secretary 
     publishes a notice described in subparagraph (B) by such 
     deadline; and
       ``(iii) the final regulation shall include responses to 
     comments submitted in response to the interim final 
     regulation.
       ``(B) If the Secretary determines before the deadline 
     otherwise established in this paragraph that there is good 
     cause, specified in a notice published before such deadline, 
     for delaying the deadline otherwise applicable under this 
     paragraph, the deadline otherwise established under this 
     paragraph shall be extended for such period (not to exceed 12 
     months) as the Secretary specifies in such notice.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the date of enactment of this Act and 
     shall apply to interim final regulations published on or 
     after such date.
       (c) Status of Pending Interim Final Regulations.--Not later 
     than 6 months after the date of enactment of this Act, the 
     Secretary shall publish a notice in the Federal Register that 
     provides the status of each interim final regulation that was 
     published on or before the date of enactment of this Act and 
     for which no final regulation has been published. Such notice 
     shall include the date by which the Secretary plans to 
     publish the final regulation that is based on the interim 
     final regulation.

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

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

     SEC. 503. REPORT ON LEGAL AND REGULATORY INCONSISTENCIES.

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

                   Subtitle B--Appeals Process Reform

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

       (a) Submission of Transition Plan.--
       (1) In general.--Not later than April 1, 2004, the 
     Commissioner of Social Security and the Secretary shall 
     develop and transmit to Congress and the Comptroller General 
     of the United States a plan under which the functions of 
     administrative law judges responsible for hearing cases under 
     title XVIII of the Social Security Act (and related 
     provisions in title XI of such Act) are transferred from the 
     responsibility of the Commissioner and the Social Security 
     Administration to the Secretary and the Department of Health 
     and Human Services.
       (2) Contents.--The plan shall include information on the 
     following:
       (A) Workload.--The number of such administrative law judges 
     and support staff required now and in the future to hear and 
     decide such cases in a timely manner, taking into account the 
     current and anticipated claims volume, appeals, number of 
     beneficiaries, and statutory changes.
       (B) Cost projections and financing.--Funding levels 
     required for fiscal year 2005 and subsequent fiscal years to 
     carry out the functions transferred under the plan and how 
     such transfer should be financed.
       (C) Transition timetable.--A timetable for the transition.
       (D) Regulations.--The establishment of specific regulations 
     to govern the appeals process.
       (E) Case tracking.--The development of a unified case 
     tracking system that will facilitate the maintenance and 
     transfer of case specific data across both the fee-for-
     service and managed care components of the medicare program.
       (F) Feasibility of precedential authority.--The feasibility 
     of developing a process to give decisions of the Departmental 
     Appeals Board in the Department of Health and Human Services 
     addressing broad legal issues binding, precedential 
     authority.
       (G) Access to administrative law judges.--The feasibility 
     of--
       (i) filing appeals with administrative law judges 
     electronically; and
       (ii) conducting hearings using tele- or video-conference 
     technologies.
       (H) Independence of administrative law judges.--The steps 
     that should be taken to ensure the independence of 
     administrative law judges, including ensuring that such 
     judges are in an office that is functionally and 
     operationally separate from the Centers for Medicare & 
     Medicaid Services and the Center for Medicare Choices.
       (I) Geographic distribution.--The steps that should be 
     taken to provide for an appropriate geographic distribution 
     of administrative law judges throughout the United States to 
     ensure timely access to such judges.
       (J) Hiring.--The steps that should be taken to hire 
     administrative law judges (and support staff).
       (K) Performance standards.--The establishment of 
     performance standards for administrative law judges with 
     respect to timelines for decisions in cases under title XVIII 
     of the Social Security Act.

[[Page 16573]]

       (L) Shared resources.--The feasibility of the Secretary 
     entering into such arrangements with the Commissioner of 
     Social Security as may be appropriate with respect to 
     transferred functions under the plan to share office space, 
     support staff, and other resources, with appropriate 
     reimbursement.
       (M) Training.--The training that should be provided to 
     administrative law judges with respect to laws and 
     regulations under title XVIII of the Social Security Act.
       (3) Additional information.--The plan may also include 
     recommendations for further congressional action, including 
     modifications to the requirements and deadlines established 
     under section 1869 of the Social Security Act (as amended by 
     sections 521 and 522 of BIPA (114 Stat. 2763A-534) and this 
     Act).
       (b) GAO Evaluation.--The Comptroller General of the United 
     States shall--
       (1) evaluate the plan submitted under subsection (a); and
       (2) not later than 6 months after such submission, submit 
     to Congress, the Commissioner of Social Security, and the 
     Secretary a report on such evaluation.
       (c) Submission of GAO Report Required Before Plan 
     Implementation.--The Commissioner of Social Security and the 
     Secretary may not implement the plan developed under 
     subsection (a) before the date that is 6 months after the 
     date the report required under subsection (b)(2) is submitted 
     to the Commissioner and the Secretary.

     SEC. 512. EXPEDITED ACCESS TO JUDICIAL REVIEW.

       (a) In General.--Section 1869(b) (42 U.S.C. 1395ff(b)) is 
     amended--
       (1) in paragraph (1)(A), by inserting ``, subject to 
     paragraph (2),'' before ``to judicial review of the 
     Secretary's final decision''; and
       (2) by adding at the end the following new paragraph:
       ``(2) Expedited access to judicial review.--
       ``(A) In general.--The Secretary shall establish a process 
     under which a provider of services or supplier that furnishes 
     an item or service or a beneficiary who has filed an appeal 
     under paragraph (1) (other than an appeal filed under 
     paragraph (1)(F)(i)) may obtain access to judicial review 
     when a review entity (described in subparagraph (D)), on its 
     own motion or at the request of the appellant, determines 
     that the Departmental Appeals Board does not have the 
     authority to decide the question of law or regulation 
     relevant to the matters in controversy and that there is no 
     material issue of fact in dispute. The appellant may make 
     such request only once with respect to a question of law or 
     regulation for a specific matter in dispute in a case of an 
     appeal.
       ``(B) Prompt determinations.--If, after or coincident with 
     appropriately filing a request for an administrative hearing, 
     the appellant requests a determination by the appropriate 
     review entity that the Departmental Appeals Board does not 
     have the authority to decide the question of law or 
     regulations relevant to the matters in controversy and that 
     there is no material issue of fact in dispute, and if such 
     request is accompanied by the documents and materials as the 
     appropriate review entity shall require for purposes of 
     making such determination, such review entity shall make a 
     determination on the request in writing within 60 days after 
     the date such review entity receives the request and such 
     accompanying documents and materials. Such a determination by 
     such review entity shall be considered a final decision and 
     not subject to review by the Secretary.
       ``(C) Access to judicial review.--
       ``(i) In general.--If the appropriate review entity--

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

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

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

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

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

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

     SEC. 514. REVISIONS TO MEDICARE APPEALS PROCESS.

       (a) Timeframes for the Completion of the Record.--Section 
     1869(b) (42 U.S.C. 1395ff(b)), as amended by section 
     512(a)(2), is amended by adding at the end the following new 
     paragraph:
       ``(3) Timely completion of the record.--
       ``(A) Deadline.--Subject to subparagraph (B), the deadline 
     to complete the record in a hearing before an administrative 
     law judge or a review by the Departmental Appeals Board is 90 
     days after the date the request for the review or hearing is 
     filed.
       ``(B) Extensions for good cause.--The person filing a 
     request under subparagraph (A) may request an extension of 
     such deadline for good cause. The administrative law judge, 
     in the case of a hearing, and the Departmental Appeals Board, 
     in the case of a

[[Page 16574]]

     review, may extend such deadline based upon a finding of good 
     cause to a date specified by the judge or Board, as the case 
     may be.
       ``(C) Delay in decision deadlines until completion of 
     record.--Notwithstanding any other provision of this section, 
     the deadlines otherwise established under subsection (d) for 
     the making of determinations in hearings or review under this 
     section are 90 days after the date on which the record is 
     complete.
       ``(D) Complete record described.--For purposes of this 
     paragraph, a record is complete when the administrative law 
     judge, in the case of a hearing, or the Departmental Appeals 
     Board, in the case of a review, has received--
       ``(i) written or testimonial evidence, or both, submitted 
     by the person filing the request,
       ``(ii) written or oral argument, or both,
       ``(iii) the decision of, and the record for, the prior 
     level of appeal, and
       ``(iv) such other evidence as such judge or Board, as the 
     case may be, determines is required to make a determination 
     on the request.''.
       (b) Use of Patients' Medical Records.--Section 
     1869(c)(3)(B)(i) (42 U.S.C. 1395ff(c)(3)(B)(i)) is amended by 
     inserting ``(including the medical records of the individual 
     involved)'' after ``clinical experience''.
       (c) Notice Requirements for Medicare Appeals.--
       (1) Initial determinations and redeterminations.--Section 
     1869(a) (42 U.S.C. 1395ff(a)) is amended by adding at the end 
     the following new paragraph:
       ``(4) Requirements of notice of determinations and 
     redeterminations.--A written notice of a determination on an 
     initial determination or on a redetermination, insofar as 
     such determination or redetermination results in a denial of 
     a claim for benefits, shall be provided in printed form and 
     written in a manner to be understood by the beneficiary and 
     shall include--
       ``(A) the reasons for the determination, including, as 
     appropriate--
       ``(i) upon request in the case of an initial determination, 
     the provision of the policy, manual, or regulation that 
     resulted in the denial; and
       ``(ii) in the case of a redetermination, a summary of the 
     clinical or scientific evidence used in making the 
     determination (as appropriate);
       ``(B) the procedures for obtaining additional information 
     concerning the determination or redetermination; and
       ``(C) notification of the right to seek a redetermination 
     or otherwise appeal the determination and instructions on how 
     to initiate such a redetermination or appeal under this 
     section.''.
       (2)Reconsiderations.--Section1869(c)(3)(E) 
     (42 U.S.C. 1395ff(c)(3)(E)) is amended to read as follows:
       ``(E) Explanation of decision.--Any decision with respect 
     to a reconsideration of a qualified independent contractor 
     shall be in writing in a manner to be understood by the 
     beneficiary and shall include--
       ``(i) to the extent appropriate, a detailed explanation of 
     the decision as well as a discussion of the pertinent facts 
     and applicable regulations applied in making such decision;
       ``(ii) a notification of the right to appeal such 
     determination and instructions on how to initiate such appeal 
     under this section; and
       ``(iii) in the case of a determination of whether an item 
     or service is reasonable and necessary for the diagnosis or 
     treatment of illness or injury (under section 1862(a)(1)(A)) 
     an explanation of the medical or scientific rationale for the 
     decision.''.
       (3) Appeals.--Section 1869(d) (42 U.S.C. 1395ff(d)) is 
     amended--
       (A) in the heading, by inserting ``; Notice'' after 
     ``Secretary''; and
       (B) by adding at the end the following new paragraph:
       ``(4) Notice.--Notice of the decision of an administrative 
     law judge shall be in writing in a manner to be understood by 
     the beneficiary and shall include--
       ``(A) the specific reasons for the determination 
     (including, to the extent appropriate, a summary of the 
     clinical or scientific evidence used in making the 
     determination);
       ``(B) the procedures for obtaining additional information 
     concerning the decision; and
       ``(C) notification of the right to appeal the decision and 
     instructions on how to initiate such an appeal under this 
     section.''.
       (4) Preparation of record for appeal.--Section 
     1869(c)(3)(J) (42 U.S.C. 1395ff(c)(3)(J)) is amended by 
     striking ``such information as is required for an appeal'' 
     and inserting ``the record for the appeal''.
       (d) Qualified Independent Contractors.--
       (1) Eligibility requirements of qualified independent 
     contractors.--Section 1869(c) (42 U.S.C. 1395ff(c)) is 
     amended--
       (A) in paragraph (2)--
       (i) by inserting ``(except in the case of a utilization and 
     quality control peer review organization, as defined in 
     section 1152)'' after ``means an entity or organization 
     that''; and
       (ii) by striking the period at the end and inserting the 
     following: ``and meets the following requirements:
       ``(A) General requirements.--
       ``(i) The entity or organization has (directly or through 
     contracts or other arrangements) sufficient medical, legal, 
     and other expertise (including knowledge of the program under 
     this title) and sufficient staffing to carry out duties of a 
     qualified independent contractor under this section on a 
     timely basis.
       ``(ii) The entity or organization has provided assurances 
     that it will conduct activities consistent with the 
     applicable requirements of this section, including that it 
     will not conduct any activities in a case unless the 
     independence requirements of subparagraph (B) are met with 
     respect to the case.
       ``(iii) The entity or organization meets such other 
     requirements as the Secretary provides by regulation.
       ``(B) Independence requirements.--
       ``(i) In general.--Subject to clause (ii), an entity or 
     organization meets the independence requirements of this 
     subparagraph with respect to any case if the entity--

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

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

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

       ``(ii) prohibit an individual who has staff privileges at 
     the institution where the treatment involved takes place from 
     serving as a reviewer merely on the basis of such affiliation 
     if the affiliation is disclosed to the Secretary and the 
     beneficiary (or authorized representative), and neither party 
     objects; or
       ``(iii) prohibit receipt of compensation by a reviewing 
     professional from a contractor if the compensation is 
     provided consistent with paragraph (3).
       ``(3) Limitations on reviewer compensation.--Compensation 
     provided by a qualified independent contractor to a reviewer 
     in connection with a review under this section

[[Page 16575]]

     shall not be contingent on the decision rendered by the 
     reviewer.
       ``(4) Licensure and expertise.--Each reviewing professional 
     shall be a physician (allopathic or osteopathic) or health 
     care professional who--
       ``(A) is appropriately credentialed or licensed in 1 or 
     more States to deliver health care services; and
       ``(B) has medical expertise in the field of practice that 
     is appropriate for the items or services at issue.
       ``(5) Related party defined.--For purposes of this section, 
     the term `related party' means, with respect to a case under 
     this title involving an individual beneficiary, any of the 
     following:
       ``(A) The Secretary, the medicare administrative contractor 
     involved, or any fiduciary, officer, director, or employee of 
     the Department of Health and Human Services, or of such 
     contractor.
       ``(B) The individual (or authorized representative).
       ``(C) The health care professional that provides the items 
     or services involved in the case.
       ``(D) The institution at which the items or services (or 
     treatment) involved in the case are provided.
       ``(E) The manufacturer of any drug or other item that is 
     included in the items or services involved in the case.
       ``(F) Any other party determined under any regulations to 
     have a substantial interest in the case involved.''.
       (3) Number of qualified independent contractors.--Section 
     1869(c)(4) (42 U.S.C. 1395ff(c)(4)) is amended by striking 
     ``12'' and inserting ``4''.
       (e) Implementation of Certain BIPA Reforms.--
       (1) Delay in certain bipa reforms.--Section 521(d) of BIPA 
     (114 Stat. 2763A-543) is amended to read as follows:
       ``(d) Effective Date.--
       ``(1) In general.--Except as specified in paragraph (2), 
     the amendments made by this section shall apply with respect 
     to initial determinations made on or after December 1, 2004.
       ``(2) Expedited proceedings and reconsideration 
     requirements.--For the following provisions, the amendments 
     made by subsection (a) shall apply with respect to initial 
     determinations made on or after October 1, 2003:
       ``(A) Subsection (b)(1)(F)(i) of section 1869 of the Social 
     Security Act.
       ``(B) Subsection (c)(3)(C)(iii) of such section.
       ``(C) Subsection (c)(3)(C)(iv) of such section to the 
     extent that it applies to expedited reconsiderations under 
     subsection (c)(3)(C)(iii) of such section.
       ``(3) Transitional use of peer review organizations to 
     conduct expedited reconsiderations until qics are 
     operational.--Expedited reconsiderations of initial 
     determinations under section 1869(c)(3)(C)(iii) of the Social 
     Security Act shall be made by peer review organizations until 
     qualified independent contractors are available for such 
     expedited reconsiderations.''.
       (2) Conforming amendments.--Section 521(c) of BIPA (114 
     Stat. 2763A-543) and section 1869(c)(3)(C)(iii)(III) of the 
     Social Security Act (42 U.S.C. 1395ff(c)(3)(C)(iii)(III)), as 
     added by section 521 of BIPA, are repealed.
       (f) Effective Date.--The amendments made by this section 
     shall be effective as if included in the enactment of the 
     respective provisions of subtitle C of title V of BIPA, 114 
     Stat. 2763A-534.
       (g) Transition.--In applying section 1869(g) of the Social 
     Security Act (as added by subsection (d)(2)), any reference 
     to a medicare administrative contractor shall be deemed to 
     include a reference to a fiscal intermediary under section 
     1816 of the Social Security Act (42 U.S.C. 1395h) and a 
     carrier under section 1842 of such Act (42 U.S.C. 1395u).

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

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

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

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

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

       (a) Provider Access To Review of Local Coverage 
     Determinations.--Section 1869(f)(5) (42 U.S.C. 1395ff(f)(5)) 
     is amended to read as follows:
       ``(5) Aggrieved party defined.--In this section, the term 
     `aggrieved party' means--
       ``(A) with respect to a national coverage determination, an 
     individual entitled to benefits under part A, or enrolled 
     under part B, or both, who is in need of the items or 
     services that are the subject of the coverage determination; 
     and
       ``(B) with respect to a local coverage determination--
       ``(i) an individual who is entitled to benefits under part 
     A, or enrolled under part B, or both, who is adversely 
     affected by such a determination; or
       ``(ii) a provider of services, physician, practitioner, or 
     supplier that is adversely affected by such a 
     determination.''.
       (b) Clarification of Local Coverage Determination 
     Definition.--Section 1869(f)(2)(B) (42 U.S.C. 
     1395ff(f)(2)(B)) is amended by inserting ``, including, where 
     appropriate, the specific requirements and clinical 
     indications relating to the medical necessity of an item or 
     service'' before the period at the end.
       (c) Request for Local Coverage Determinations by 
     Providers.--Section 1869 (42 U.S.C. 1395ff), as amended by 
     section 514(d)(2)(B), is amended by adding at the end the 
     following new subsection:
       ``(h) Request for Local Coverage Determinations by 
     Providers.--
       ``(1) Establishment of process.--The Secretary shall 
     establish a process under which a provider of services, 
     physician, practitioner, or supplier who certifies that they 
     meet the requirements established in paragraph (3) may 
     request a local coverage determination in accordance with the 
     succeeding provisions of this subsection.
       ``(2) Provider local coverage determination request 
     defined.--In this subsection, the term `provider local 
     coverage determination request' means a request, filed with 
     the Secretary, at such time and in such form and manner as 
     the Secretary may specify, that the Secretary, pursuant to 
     paragraph (4)(A), require a fiscal intermediary, carrier, or 
     program safeguard contractor to make or revise a local 
     coverage determination under this section with respect to an 
     item or service.
       ``(3) Request requirements.--Under the process established 
     under paragraph (1), by not later than 30 days after the date 
     on which a provider local coverage determination request is 
     filed under paragraph (1), the Secretary shall determine 
     whether such request establishes that--
       ``(A) there have been at least 5 reversals of 
     redeterminations made by a fiscal intermediary or carrier 
     after a hearing before an administrative law judge on claims 
     submitted by the provider in at least 2 different cases 
     before an administrative law judge;
       ``(B) each reversal described in subparagraph (A) involves 
     substantially similar material facts;
       ``(C) each reversal described in subparagraph (A) involves 
     the same medical necessity issue; and
       ``(D) at least 50 percent of the total number of claims 
     submitted by such provider within the past year involving the 
     substantially similar material facts described in 
     subparagraph (B) and the same medical necessity issue 
     described in subparagraph (C) have been denied and have been 
     reversed by an administrative law judge.
       ``(4) Approval or rejection of request.--
       ``(A) Approval of request.--If the Secretary determines 
     that subparagraphs (A) through (D) of paragraph (3) have been 
     satisfied, the Secretary shall require the fiscal 
     intermediary, carrier, or program safeguard contractor 
     identified in the provider local coverage determination 
     request, to make or revise a local coverage determination 
     with respect to the item or service that is the subject of 
     the request not later than the date that is 210 days after 
     the date on which the Secretary makes the determination. Such 
     fiscal intermediary, carrier, or program safeguard contractor 
     shall retain the discretion to determine whether or not, and/
     or the circumstances under which, to cover the item

[[Page 16576]]

     or service for which a local coverage determination is 
     requested. Nothing in this subsection shall be construed to 
     require a fiscal intermediary, carrier or program safeguard 
     contractor to develop a local coverage determination that is 
     inconsistent with any national coverage determination, or any 
     coverage provision in this title or in regulation, manual, or 
     interpretive guidance of the Secretary.
       ``(B) Rejection of request.--If the Secretary determines 
     that subparagraphs (A) through (D) of paragraph (3) have not 
     been satisfied, the Secretary shall reject the provider local 
     coverage determination request and shall notify the provider 
     of services, physician, practitioner, or supplier that filed 
     the request of the reason for such rejection and no further 
     proceedings in relation to such request shall be 
     conducted.''.
       (d) Study and Report on the Use of Contractors To Monitor 
     Medicare Appeals.--
       (1) Study.--The Secretary shall conduct a study on the 
     feasibility and advisability of requiring fiscal 
     intermediaries and carriers to monitor and track--
       (A) the subject matter and status of claims denied by the 
     fiscal intermediary or carrier (as applicable) that are 
     appealed under section 1869 of the Social Security Act (42 
     U.S.C. 1395ff), as added by section 522 of BIPA (114 Stat. 
     2763A-543) and amended by this Act; and
       (B) any final determination made with respect to such 
     claims.
       (2) Report.--Not later than the date that is 1 year after 
     the date of enactment of this Act, the Secretary shall submit 
     to Congress a report on the study conducted under paragraph 
     (1) together with such recommendations for legislation and 
     administrative action as the Commission determines 
     appropriate.
       (e) Authorization of Appropriations.--There are authorized 
     to be appropriated such sums as are necessary to carry out 
     the amendments made by subsections (a), (b), and (c).
       (f) Effective Dates.--
       (1) Provider access to review of local coverage 
     determinations.--The amendments made by subsections (a) and 
     (b) shall apply to--
       (A) any review of any local coverage determination filed on 
     or after October 1, 2003;
       (B) any request to make such a determination made on or 
     after such date; or
       (C) any local coverage determination made on or after such 
     date.
       (2) Provider local coverage determination requests.--The 
     amendment made by subsection (c) shall apply with respect to 
     provider local coverage determination requests (as defined in 
     section 1869(h)(2) of the Social Security Act, as added by 
     subsection (c)) filed on or after the date of enactment of 
     this Act.

                     Subtitle C--Contracting Reform

     SEC. 521. INCREASED FLEXIBILITY IN MEDICARE ADMINISTRATION.

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


          ``contracts with medicare administrative contractors

       ``Sec. 1874A. (a) Authority.--
       ``(1) Authority to enter into contracts.--The Secretary may 
     enter into contracts with any eligible entity to serve as a 
     medicare administrative contractor with respect to the 
     performance of any or all of the functions described in 
     paragraph (4) or parts of those functions (or, to the extent 
     provided in a contract, to secure performance thereof by 
     other entities).
       ``(2) Eligibility of entities.--An entity is eligible to 
     enter into a contract with respect to the performance of a 
     particular function described in paragraph (4) only if--
       ``(A) the entity has demonstrated capability to carry out 
     such function;
       ``(B) the entity complies with such conflict of interest 
     standards as are generally applicable to Federal acquisition 
     and procurement;
       ``(C) the entity has sufficient assets to financially 
     support the performance of such function; and
       ``(D) the entity meets such other requirements as the 
     Secretary may impose.
       ``(3) Medicare administrative contractor defined.--For 
     purposes of this title and title XI--
       ``(A) In general.--The term `medicare administrative 
     contractor' means an agency, organization, or other person 
     with a contract under this section.
       ``(B) Appropriate medicare administrative contractor.--With 
     respect to the performance of a particular function in 
     relation to an individual entitled to benefits under part A 
     or enrolled under part B, or both, a specific provider of 
     services, physician, practitioner, facility, or supplier (or 
     class of such providers of services, physicians, 
     practitioners, facilities, or suppliers), the `appropriate' 
     medicare administrative contractor is the medicare 
     administrative contractor that has a contract under this 
     section with respect to the performance of that function in 
     relation to that individual, provider of services, physician, 
     practitioner, facility, or supplier or class of provider of 
     services, physician, practitioner, facility, or supplier.
       ``(4) Functions described.--The functions referred to in 
     paragraphs (1) and (2) are payment functions (including the 
     function of developing local coverage determinations, as 
     defined in section 1869(f)(2)(B)), provider services 
     functions, and beneficiary services functions as follows:
       ``(A) Determination of payment amounts.--Determining 
     (subject to the provisions of section 1878 and to such review 
     by the Secretary as may be provided for by the contracts) the 
     amount of the payments required pursuant to this title to be 
     made to providers of services, physicians, practitioners, 
     facilities, suppliers, and individuals.
       ``(B) Making payments.--Making payments described in 
     subparagraph (A) (including receipt, disbursement, and 
     accounting for funds in making such payments).
       ``(C) Beneficiary education and assistance.--Serving as a 
     center for, and communicating to individuals entitled to 
     benefits under part A or enrolled under part B, or both, with 
     respect to education and outreach for those individuals, and 
     assistance with specific issues, concerns, or problems of 
     those individuals.
       ``(D) Provider consultative services.--Providing 
     consultative services to institutions, agencies, and other 
     persons to enable them to establish and maintain fiscal 
     records necessary for purposes of this title and otherwise to 
     qualify as providers of services, physicians, practitioners, 
     facilities, or suppliers.
       ``(E) Communication with providers.--Serving as a center 
     for, and communicating to providers of services, physicians, 
     practitioners, facilities, and suppliers, any information or 
     instructions furnished to the medicare administrative 
     contractor by the Secretary, and serving as a channel of 
     communication from such providers, physicians, practitioners, 
     facilities, and suppliers to the Secretary.
       ``(F) Provider education and technical assistance.--
     Performing the functions described in subsections (e) and 
     (f), relating to education, training, and technical 
     assistance to providers of services, physicians, 
     practitioners, facilities, and suppliers.
       ``(G) Additional functions.--Performing such other 
     functions, including (subject to paragraph (5)) functions 
     under the Medicare Integrity Program under section 1893, as 
     are necessary to carry out the purposes of this title.
       ``(5) Relationship to mip contracts.--
       ``(A) Nonduplication of activities.--In entering into 
     contracts under this section, the Secretary shall assure that 
     activities of medicare administrative contractors do not 
     duplicate activities carried out under contracts entered into 
     under the Medicare Integrity Program under section 1893. The 
     previous sentence shall not apply with respect to the 
     activity described in section 1893(b)(5) (relating to prior 
     authorization of certain items of durable medical equipment 
     under section 1834(a)(15)).
       ``(B) Construction.--An entity shall not be treated as a 
     medicare administrative contractor merely by reason of having 
     entered into a contract with the Secretary under section 
     1893.
       ``(6) Application of federal acquisition regulation.--
     Except to the extent inconsistent with a specific requirement 
     of this title, the Federal Acquisition Regulation applies to 
     contracts under this title.
       ``(b) Contracting Requirements.--
       ``(1) Use of competitive procedures.--
       ``(A) In general.--Except as provided in laws with general 
     applicability to Federal acquisition and procurement, the 
     Federal Acquisition Regulation, or in subparagraph (B), the 
     Secretary shall use competitive procedures when entering into 
     contracts with medicare administrative contractors under this 
     section.
       ``(B) Renewal of contracts.--The Secretary may renew a 
     contract with a medicare administrative contractor under this 
     section from term to term without regard to section 5 of 
     title 41, United States Code, or any other provision of law 
     requiring competition, if the medicare administrative 
     contractor has met or exceeded the performance requirements 
     applicable with respect to the contract and contractor, 
     except that the Secretary shall provide for the application 
     of competitive procedures under such a contract not less 
     frequently than once every 6 years.
       ``(C) Transfer of functions.--The Secretary may transfer 
     functions among medicare administrative contractors without 
     regard to any provision of law requiring competition. The 
     Secretary shall ensure that performance quality is considered 
     in such transfers. The Secretary shall provide notice 
     (whether in the Federal Register or otherwise) of any such 
     transfer (including a description of the functions so 
     transferred and contact information for the contractors 
     involved) to providers of services, physicians, 
     practitioners, facilities, and suppliers affected by the 
     transfer.
       ``(D) Incentives for quality.--The Secretary may provide 
     incentives for medicare administrative contractors to provide 
     quality service and to promote efficiency.
       ``(2) Compliance with requirements.--No contract under this 
     section shall be entered into with any medicare 
     administrative contractor unless the Secretary finds that 
     such

[[Page 16577]]

     medicare administrative contractor will perform its 
     obligations under the contract efficiently and effectively 
     and will meet such requirements as to financial 
     responsibility, legal authority, and other matters as the 
     Secretary finds pertinent.
       ``(3) Performance requirements.--
       ``(A) Development of specific performance requirements.--
     The Secretary shall develop contract performance requirements 
     to carry out the specific requirements applicable under this 
     title to a function described in subsection (a)(4) and shall 
     develop standards for measuring the extent to which a 
     contractor has met such requirements. In developing such 
     performance requirements and standards for measurement, the 
     Secretary shall consult with providers of services, 
     organizations representative of beneficiaries under this 
     title, and organizations and agencies performing functions 
     necessary to carry out the purposes of this section with 
     respect to such performance requirements. The Secretary shall 
     make such performance requirements and measurement standards 
     available to the public.
       ``(B) Considerations.--The Secretary shall include, as 1 of 
     the standards, provider and beneficiary satisfaction levels.
       ``(C) Inclusion in contracts.--All contractor performance 
     requirements shall be set forth in the contract between the 
     Secretary and the appropriate medicare administrative 
     contractor. Such performance requirements--
       ``(i) shall reflect the performance requirements published 
     under subparagraph (A), but may include additional 
     performance requirements;
       ``(ii) shall be used for evaluating contractor performance 
     under the contract; and
       ``(iii) shall be consistent with the written statement of 
     work provided under the contract.
       ``(4) Information requirements.--The Secretary shall not 
     enter into a contract with a medicare administrative 
     contractor under this section unless the contractor agrees--
       ``(A) to furnish to the Secretary such timely information 
     and reports as the Secretary may find necessary in performing 
     his functions under this title; and
       ``(B) to maintain such records and afford such access 
     thereto as the Secretary finds necessary to assure the 
     correctness and verification of the information and reports 
     under subparagraph (A) and otherwise to carry out the 
     purposes of this title.
       ``(5) Surety bond.--A contract with a medicare 
     administrative contractor under this section may require the 
     medicare administrative contractor, and any of its officers 
     or employees certifying payments or disbursing funds pursuant 
     to the contract, or otherwise participating in carrying out 
     the contract, to give surety bond to the United States in 
     such amount as the Secretary may deem appropriate.
       ``(6) Retaining diversity of local coverage 
     determinations.--A contract with a medicare administrative 
     contractor under this section to perform the function of 
     developing local coverage determinations (as defined in 
     section 1869(f)(2)(B)) shall provide that the contractor 
     shall--
       ``(A) designate at least 1 different individual to serve as 
     medical director for each State for which such contract 
     performs such function;
       ``(B) utilize such medical director in the performance of 
     such function; and
       ``(C) appoint a contractor advisory committee with respect 
     to each such State to provide a formal mechanism for 
     physicians in the State to be informed of, and participate 
     in, the development of a local coverage determination in an 
     advisory capacity.
       ``(c) Terms and Conditions.--
       ``(1) In general.--Subject to subsection (a)(6), a contract 
     with any medicare administrative contractor under this 
     section may contain such terms and conditions as the 
     Secretary finds necessary or appropriate and may provide for 
     advances of funds to the medicare administrative contractor 
     for the making of payments by it under subsection (a)(4)(B).
       ``(2) Prohibition on mandates for certain data 
     collection.--The Secretary may not require, as a condition of 
     entering into, or renewing, a contract under this section, 
     that the medicare administrative contractor match data 
     obtained other than in its activities under this title with 
     data used in the administration of this title for purposes of 
     identifying situations in which the provisions of section 
     1862(b) may apply.
       ``(d) Limitation on Liability of Medicare Administrative 
     Contractors and Certain Officers.--
       ``(1) Certifying officer.--No individual designated 
     pursuant to a contract under this section as a certifying 
     officer shall, in the absence of the reckless disregard of 
     the individual's obligations or the intent by that individual 
     to defraud the United States, be liable with respect to 
     any payments certified by the individual under this 
     section.
       ``(2) Disbursing officer.--No disbursing officer shall, in 
     the absence of the reckless disregard of the officer's 
     obligations or the intent by that officer to defraud the 
     United States, be liable with respect to any payment by such 
     officer under this section if it was based upon an 
     authorization (which meets the applicable requirements for 
     such internal controls established by the Comptroller 
     General) of a certifying officer designated as provided in 
     paragraph (1) of this subsection.
       ``(3) Liability of medicare administrative contractor.--No 
     medicare administrative contractor shall be liable to the 
     United States for a payment by a certifying or disbursing 
     officer unless, in connection with such a payment, the 
     medicare administrative contractor acted with reckless 
     disregard of its obligations under its medicare 
     administrative contract or with intent to defraud the United 
     States.
       ``(4) Relationship to false claims act.--Nothing in this 
     subsection shall be construed to limit liability for conduct 
     that would constitute a violation of sections 3729 through 
     3731 of title 31, United States Code (commonly known as the 
     ``False Claims Act'').
       ``(5) Indemnification by secretary.--
       ``(A) In general.--Notwithstanding any other provision of 
     law and subject to the succeeding provisions of this 
     paragraph, in the case of a medicare administrative 
     contractor (or a person who is a director, officer, or 
     employee of such a contractor or who is engaged by the 
     contractor to participate directly in the claims 
     administration process) who is made a party to any judicial 
     or administrative proceeding arising from, or relating 
     directly to, the claims administration process under this 
     title, the Secretary may, to the extent specified in the 
     contract with the contractor, indemnify the contractor (and 
     such persons).
       ``(B) Conditions.--The Secretary may not provide 
     indemnification under subparagraph (A) insofar as the 
     liability for such costs arises directly from conduct that is 
     determined by the Secretary to be criminal in nature, 
     fraudulent, or grossly negligent.
       ``(C) Scope of indemnification.--Indemnification by the 
     Secretary under subparagraph (A) may include payment of 
     judgments, settlements (subject to subparagraph (D)), awards, 
     and costs (including reasonable legal expenses).
       ``(D) Written approval for settlements.--A contractor or 
     other person described in subparagraph (A) may not propose to 
     negotiate a settlement or compromise of a proceeding 
     described in such subparagraph without the prior written 
     approval of the Secretary to negotiate a settlement. Any 
     indemnification under subparagraph (A) with respect to 
     amounts paid under a settlement are conditioned upon the 
     Secretary's prior written approval of the final settlement.
       ``(E) Construction.--Nothing in this paragraph shall be 
     construed--
       ``(i) to change any common law immunity that may be 
     available to a medicare administrative contractor or person 
     described in subparagraph (A); or
       ``(ii) to permit the payment of costs not otherwise 
     allowable, reasonable, or allocable under the Federal 
     Acquisition Regulations.''.
       (2) Consideration of incorporation of current law 
     standards.--In developing contract performance requirements 
     under section 1874A(b) of the Social Security Act (as added 
     by paragraph (1)) the Secretary shall consider inclusion of 
     the performance standards described in sections 1816(f)(2) of 
     such Act (relating to timely processing of reconsiderations 
     and applications for exemptions) and section 1842(b)(2)(B) of 
     such Act (relating to timely review of determinations and 
     fair hearing requests), as such sections were in effect 
     before the date of enactment of this Act.
       (b) Conforming Amendments to Section 1816 (Relating to 
     Fiscal Intermediaries).--Section 1816 (42 U.S.C. 1395h) is 
     amended as follows:
       (1) The heading is amended to read as follows:


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

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


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

       (2) Subsection (a) is amended to read as follows:

[[Page 16578]]

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

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

       (vi) by striking subparagraph (I);
       (vii) in subparagraph (L), by striking the semicolon and 
     inserting a period;
       (viii) in the first sentence, after subparagraph (L), by 
     striking ``and shall contain'' and all that follows through 
     the period; and
       (ix) in the seventh sentence, by inserting ``medicare 
     administrative contractor,'' after ``carrier,'';
       (D) by striking paragraph (5);
       (E) in paragraph (6)(D)(iv), by striking ``carrier'' and 
     inserting ``medicare administrative contractor''; and
       (F) in paragraph (7), by striking ``the carrier'' and 
     inserting ``the Secretary'' each place it appears.
       (4) Subsection (c) is amended--
       (A) by striking paragraph (1);
       (B) in paragraph (2), by striking ``contract under this 
     section which provides for the disbursement of funds, as 
     described in subsection (a)(1)(B),'' and inserting ``contract 
     under section 1874A that provides for making payments under 
     this part'';
       (C) in paragraph (3)(A), by striking ``subsection 
     (a)(1)(B)'' and inserting ``section 1874A(a)(3)(B)'';
       (D) in paragraph (4), by striking ``carrier'' and inserting 
     ``medicare administrative contractor'';
       (E) in paragraph (5), by striking ``contract under this 
     section which provides for the disbursement of funds, as 
     described in subsection (a)(1)(B), shall require the 
     carrier'' and ``carrier responses'' and inserting ``contract 
     under section 1874A that provides for making payments under 
     this part shall require the medicare administrative 
     contractor'' and ``contractor responses'', respectively; and
       (F) by striking paragraph (6).
       (5) Subsections (d), (e), and (f) are repealed.
       (6) Subsection (g) is amended by striking ``carrier or 
     carriers'' and inserting ``medicare administrative contractor 
     or contractors''.
       (7) Subsection (h) is amended--
       (A) in paragraph (2)--
       (i) by striking ``Each carrier having an agreement with the 
     Secretary under subsection (a)'' and inserting ``The 
     Secretary''; and
       (ii) by striking ``Each such carrier'' and inserting ``The 
     Secretary'';
       (B) in paragraph (3)(A)--
       (i) by striking ``a carrier having an agreement with the 
     Secretary under subsection (a)'' and inserting ``medicare 
     administrative contractor having a contract under section 
     1874A that provides for making payments under this part''; 
     and
       (ii) by striking ``such carrier'' and inserting ``such 
     contractor'';
       (C) in paragraph (3)(B)--
       (i) by striking ``a carrier'' and inserting ``a medicare 
     administrative contractor'' each place it appears; and
       (ii) by striking ``the carrier'' and inserting ``the 
     contractor'' each place it appears; and
       (D) in paragraphs (5)(A) and (5)(B)(iii), by striking 
     ``carriers'' and inserting ``medicare administrative 
     contractors'' each place it appears.
       (8) Subsection (l) is amended--
       (A) in paragraph (1)(A)(iii), by striking ``carrier'' and 
     inserting ``medicare administrative contractor''; and
       (B) in paragraph (2), by striking ``carrier'' and inserting 
     ``medicare administrative contractor''.
       (9) Subsection (p)(3)(A) is amended by striking ``carrier'' 
     and inserting ``medicare administrative contractor''.
       (10) Subsection (q)(1)(A) is amended by striking 
     ``carrier''.
       (d) Effective Date; Transition Rule.--
       (1) Effective date.--
       (A) In general.--Except as otherwise provided in this 
     subsection, the amendments made by this section shall take 
     effect on October 1, 2005, and the Secretary is authorized to 
     take such steps before such date as may be necessary to 
     implement such amendments on a timely basis.
       (B) Construction for current contracts.--Such amendments 
     shall not apply to contracts in effect before the date 
     specified under subparagraph (A) that continue to retain the 
     terms and conditions in effect on such date (except as 
     otherwise provided under this title, other than under this 
     section) until such date as the contract is let out for 
     competitive bidding under such amendments.
       (C) Deadline for competitive bidding.--The Secretary shall 
     provide for the letting by competitive bidding of all 
     contracts for functions of medicare administrative 
     contractors for annual contract periods that begin on or 
     after October 1, 2011.
       (2) General transition rules.--
       (A) Authority to continue to enter into new agreements and 
     contracts and waiver of provider nomination provisions during 
     transition.--Prior to the date specified in paragraph (1)(A), 
     the Secretary may, consistent with subparagraph (B), continue 
     to enter into agreements under section 1816 and contracts 
     under section 1842 of the Social Security Act (42 U.S.C. 
     1395h, 1395u). The Secretary may enter into new agreements 
     under section 1816 during the time period without regard to 
     any of the provider nomination provisions of such section.
       (B) Appropriate transition.--The Secretary shall take such 
     steps as are necessary to provide for an appropriate 
     transition from agreements under section 1816 and contracts 
     under section 1842 of the Social Security Act (42 U.S.C. 
     1395h, 1395u) to contracts under section 1874A, as added by 
     subsection (a)(1).
       (3) Authorizing continuation of mip activities under 
     current contracts and agreements and under transition 
     contracts.--The provisions contained in the exception in 
     section 1893(d)(2) of the Social Security Act (42 U.S.C. 
     1395ddd(d)(2)) shall continue to apply notwithstanding the 
     amendments made by this section, and any reference in such 
     provisions to an agreement or contract shall be deemed to 
     include agreements and contracts entered into pursuant to 
     paragraph (2)(A).
       (e) References.--On and after the effective date provided 
     under subsection (d)(1), any reference to a fiscal 
     intermediary or carrier under title XI or XVIII of the Social 
     Security Act (or any regulation, manual instruction, 
     interpretative rule, statement of policy, or guideline issued 
     to carry out such titles) shall be deemed a reference to an 
     appropriate medicare administrative contractor (as provided 
     under section 1874A of the Social Security Act).
       (f) Secretarial Submission of Legislative Proposal.--Not 
     later than 6 months after the date of enactment of this Act, 
     the Secretary shall submit to the appropriate committees of 
     Congress a legislative proposal providing for such technical 
     and conforming amendments in the law as are required by the 
     provisions of this section.
       (g) Reports on Implementation.--
       (1) Proposal for implementation.--At least 1 year before 
     the date specified in subsection (d)(1)(A), the Secretary 
     shall submit a report to Congress and the Comptroller General 
     of the United States that describes a plan for an appropriate 
     transition. The Comptroller General shall conduct an 
     evaluation of such plan and shall submit to Congress, not 
     later than 6 months after the date the report is received, a 
     report on such evaluation and shall include in such report 
     such recommendations as the Comptroller General deems 
     appropriate.
       (2) Status of implementation.--The Secretary shall submit a 
     report to Congress not later than October 1, 2008, that 
     describes the status of implementation of such amendments and 
     that includes a description of the following:
       (A) The number of contracts that have been competitively 
     bid as of such date.
       (B) The distribution of functions among contracts and 
     contractors.
       (C) A timeline for complete transition to full competition.
       (D) A detailed description of how the Secretary has 
     modified oversight and management of medicare contractors to 
     adapt to full competition.

            Subtitle D--Education and Outreach Improvements

     SEC. 531. PROVIDER EDUCATION AND TECHNICAL ASSISTANCE.

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


             ``provider education and technical assistance

       ``Sec. 1889. (a) Coordination of Education Funding.--The 
     Secretary shall coordinate the educational activities 
     provided through medicare contractors (as defined in 
     subsection (e), including under section 1893) in order to 
     maximize the effectiveness of Federal education efforts for 
     providers of services, physicians, practitioners, and 
     suppliers.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect on the date of enactment of this Act.
       (3) Report.--Not later than October 1, 2004, the Secretary 
     shall submit to Congress a report that includes a description 
     and evaluation of the steps taken to coordinate the

[[Page 16579]]

     funding of provider education under section 1889(a) of the 
     Social Security Act, as added by paragraph (1).
       (b) Incentives To Improve Contractor Performance.--
       (1) In general.--Section 1874A, as added by section 
     521(a)(1), is amended by adding at the end the following new 
     subsection:
       ``(e) Incentives To Improve Contractor Performance in 
     Provider Education and Outreach.--
       ``(1) Methodology to measure contractor error rates.--In 
     order to give medicare contractors (as defined in paragraph 
     (3)) an incentive to implement effective education and 
     outreach programs for providers of services, physicians, 
     practitioners, and suppliers, the Secretary shall develop and 
     implement by October 1, 2004, a methodology to measure the 
     specific claims payment error rates of such contractors in 
     the processing or reviewing of medicare claims.
       ``(2) GAO review of methodology.--The Comptroller General 
     of the United States shall review, and make recommendations 
     to the Secretary, regarding the adequacy of such methodology.
       ``(3) Medicare contractor defined.--For purposes of this 
     subsection, the term `medicare contractor' includes a 
     medicare administrative contractor, a fiscal intermediary 
     with a contract under section 1816, and a carrier with a 
     contract under section 1842.''.
       (2) Report.--The Secretary shall submit to Congress a 
     report that describes how the Secretary intends to use the 
     methodology developed under section 1874A(e)(1) of the Social 
     Security Act, as added by paragraph (1), in assessing 
     medicare contractor performance in implementing effective 
     education and outreach programs, including whether to use 
     such methodology as a basis for performance bonuses.
       (c) Improved Provider Education and Training.--
       (1) Increased funding for enhanced education and training 
     through medicare integrity program.--Section 1817(k)(4) (42 
     U.S.C. 1395i(k)(4)) is amended--
       (A) in subparagraph (A), by striking ``subparagraph (B)'' 
     and inserting ``subparagraphs (B) and (C)'';
       (B) in subparagraph (B), by striking ``The amount 
     appropriated'' and inserting ``Subject to subparagraph (C), 
     the amount appropriated''; and
       (C) by adding at the end the following new subparagraph:
       ``(C) Enhanced provider education and training.--
       ``(i) In general.--In addition to the amount appropriated 
     under subparagraph (B), the amount appropriated under 
     subparagraph (A) for a fiscal year (beginning with fiscal 
     year 2004) is increased by $35,000,000.
       ``(ii) Use.--The funds made available under this 
     subparagraph shall be used only to increase the conduct by 
     medicare contractors of education and training of providers 
     of services, physicians, practitioners, and suppliers 
     regarding billing, coding, and other appropriate items and 
     may also be used to improve the accuracy, consistency, and 
     timeliness of contractor responses to written and phone 
     inquiries from providers of services, physicians, 
     practitioners, and suppliers.''.
       (2) Tailoring education and training for small providers or 
     suppliers.--
       (A) In general.--Section 1889, as added by subsection (a), 
     is amended by adding at the end the following new subsection:
       ``(b) Tailoring Education and Training Activities for Small 
     Providers or Suppliers.--
       ``(1) In general.--Insofar as a medicare contractor 
     conducts education and training activities, it shall take 
     into consideration the special needs of small providers of 
     services or suppliers (as defined in paragraph (2)). Such 
     education and training activities for small providers of 
     services and suppliers may include the provision of technical 
     assistance (such as review of billing systems and internal 
     controls to determine program compliance and to suggest more 
     efficient and effective means of achieving such compliance).
       ``(2) Small provider of services or supplier.--In this 
     subsection, the term `small provider of services or supplier' 
     means--
       ``(A) an institutional provider of services with fewer than 
     25 full-time-equivalent employees; or
       ``(B) a physician, practitioner, or supplier with fewer 
     than 10 full-time-equivalent employees.''.
       (B) Effective date.--The amendment made by subparagraph (A) 
     shall take effect on January 1, 2004.
       (d) Additional Provider Education Provisions.--
       (1) In general.--Section 1889, as added by subsection (a) 
     and as amended by subsection (c)(2), is amended by adding at 
     the end the following new subsections:
       ``(c) Encouragement of Participation in Education Program 
     Activities.--A medicare contractor may not use a record of 
     attendance at (or failure to attend) educational activities 
     or other information gathered during an educational program 
     conducted under this section or otherwise by the Secretary to 
     select or track providers of services, physicians, 
     practitioners, or suppliers for the purpose of conducting any 
     type of audit or prepayment review.
       ``(d) Construction.--Nothing in this section or section 
     1893(g) shall be construed as providing for disclosure by a 
     medicare contractor--
       ``(1) of the screens used for identifying claims that will 
     be subject to medical review; or
       ``(2) of information that would compromise pending law 
     enforcement activities or reveal findings of law enforcement-
     related audits.
       ``(e) Definitions.--For purposes of this section and 
     section 1817(k)(4)(C), the term `medicare contractor' 
     includes the following:
       ``(1) A medicare administrative contractor with a contract 
     under section 1874A, a fiscal intermediary with a contract 
     under section 1816, and a carrier with a contract under 
     section 1842.
       ``(2) An eligible entity with a contract under section 
     1893.

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

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

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

     SEC. 533. RELIANCE ON GUIDANCE.

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

     in response to a written inquiry with respect to the 
     furnishing of items or services or the submission of a claim 
     for benefits for such items or services;
       ``(B) the Secretary determines that--

[[Page 16580]]

       ``(i) the provider of services, physician, practitioner, or 
     supplier has accurately presented the circumstances relating 
     to such items, services, and claim to the Secretary or the 
     contractor in the written guidance; and
       ``(ii) there is no indication of fraud or abuse committed 
     by the provider of services, physician, practitioner, or 
     supplier against the program under this title; and
       ``(C) the guidance was in error;

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

     SEC. 534. MEDICARE PROVIDER OMBUDSMAN.

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

     SEC. 535. BENEFICIARY OUTREACH DEMONSTRATION PROGRAMS.

       (a) Demonstration on the Provision of Advice and Assistance 
     to Medicare Beneficiaries at Local Offices of the Social 
     Security Administration.--
       (1) Establishment.--The Secretary shall establish a 
     demonstration program (in this subsection referred to as the 
     ``demonstration program'') under which medicare specialists 
     employed by the Department of Health and Human Services 
     provide advice and assistance to medicare beneficiaries at 
     the location of existing local offices of the Social Security 
     Administration.
       (2) Locations.--
       (A) In general.--The demonstration program shall be 
     conducted in at least 6 offices or areas. Subject to 
     subparagraph (B), in selecting such offices and areas, the 
     Secretary shall provide preference for offices with a high 
     volume of visits by medicare beneficiaries.
       (B) Assistance for rural beneficiaries.--The Secretary 
     shall provide for the selection of at least 2 rural areas to 
     participate in the demonstration program. In conducting the 
     demonstration program in such rural areas, the Secretary 
     shall provide for medicare specialists to travel among local 
     offices in a rural area on a scheduled basis.
       (3) Duration.--The demonstration program shall be conducted 
     over a 3-year period.
       (4) Evaluation and report.--
       (A) Evaluation.--The Secretary shall provide for an 
     evaluation of the demonstration program. Such evaluation 
     shall include an analysis of--
       (i) utilization of, and beneficiary satisfaction with, the 
     assistance provided under the program; and
       (ii) the cost-effectiveness of providing beneficiary 
     assistance through out-stationing medicare specialists at 
     local social security offices.
       (B) Report.--The Secretary shall submit to Congress a 
     report on such evaluation and shall include in such report 
     recommendations regarding the feasibility of permanently out-
     stationing Medicare specialists at local social security 
     offices.
       (b) Demonstration on Providing Prior Determinations.--
       (1) Establishment.--By not later than 1 year after the date 
     of enactment of this Act, the Secretary shall establish a 
     demonstration project to test the administrative feasibility 
     of providing a process for medicare beneficiaries and 
     entities and individuals furnishing such beneficiaries with 
     items and services under title XVIII of the Social Security 
     Act program to make a request for, and receive, a 
     determination (after an advance beneficiary notice is issued 
     with respect to the item or service involved but before such 
     item or service is furnished to the beneficiary) as to 
     whether the item or service is covered under such title 
     consistent with the applicable requirements of section 
     1862(a)(1)(A) of such Act (42 U.S.C. 1395y(a)(1)(A)) 
     (relating to medical necessity).
       (2) Evaluation and report.--
       (A) Evaluation.--The Secretary shall provide for an 
     evaluation of the demonstration program conducted under 
     paragraph (1).
       (B) Report.--By not later than January 1, 2006, the 
     Secretary shall submit to Congress a report on such 
     evaluation together with recommendations for such legislation 
     and administrative actions as the Secretary considers 
     appropriate.

          Subtitle E--Review, Recovery, and Enforcement Reform

     SEC. 541. PREPAYMENT REVIEW.

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

[[Page 16581]]

     Secretary shall specify. The Secretary shall develop and 
     publish the standard protocol under such section by not later 
     than 1 year after the date of enactment of this Act.

     SEC. 542. RECOVERY OF OVERPAYMENTS.

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

     In developing standards with regard to financial hardship 
     with respect to a provider of services, physician, 
     practitioner, or supplier, the Secretary shall take into 
     account the amount of the proposed recovery as a proportion 
     of payments made to that provider, physician, practitioner, 
     or supplier.
       ``(C) Exceptions.--Subparagraph (A) shall not apply if--
       ``(i) the Secretary has reason to suspect that the provider 
     of services, physician, practitioner, or supplier may file 
     for bankruptcy or otherwise cease to do business or 
     discontinue participation in the program under this title; or
       ``(ii) there is an indication of fraud or abuse committed 
     against the program.
       ``(D) Immediate collection if violation of repayment 
     plan.--If a provider of services, physician, practitioner, or 
     supplier fails to make a payment in accordance with a 
     repayment plan under this paragraph, the Secretary may 
     immediately seek to offset or otherwise recover the total 
     balance outstanding (including applicable interest) under the 
     repayment plan.
       ``(E) Relation to no fault provision.--Nothing in this 
     paragraph shall be construed as affecting the application of 
     section 1870(c) (relating to no adjustment in the cases of 
     certain overpayments).
       ``(2) Limitation on recoupment.--
       ``(A) No recoupment until reconsideration exercised.--In 
     the case of a provider of services, physician, practitioner, 
     or supplier that is determined to have received an 
     overpayment under this title and that seeks a reconsideration 
     of such determination by a qualified independent contractor 
     under section 1869(c), the Secretary may not take any action 
     (or authorize any other person, including any Medicare 
     contractor, as defined in subparagraph (C)) to recoup the 
     overpayment until the date the decision on the 
     reconsideration has been rendered.
       ``(B) Payment of interest.--
       ``(i) Return of recouped amount with interest in case of 
     reversal.--Insofar as such determination on appeal against 
     the provider of services, physician, practitioner, or 
     supplier is later reversed, the Secretary shall provide for 
     repayment of the amount recouped plus interest for the period 
     in which the amount was recouped.
       ``(ii) Interest in case of affirmation.--Insofar as the 
     determination on such appeal is against the provider of 
     services, physician, practitioner, or supplier, interest on 
     the overpayment shall accrue on and after the date of the 
     original notice of overpayment.
       ``(iii) Rate of interest.--The rate of interest under this 
     subparagraph shall be the rate otherwise applicable under 
     this title in the case of overpayments.
       ``(C) Medicare contractor defined.--For purposes of this 
     subsection, the term `medicare contractor' has the meaning 
     given such term in section 1889(e).
       ``(3) Payment audits.--
       ``(A) Written notice for post-payment audits.--Subject to 
     subparagraph (C), if a medicare contractor decides to conduct 
     a post-payment audit of a provider of services, physician, 
     practitioner, or supplier under this title, the contractor 
     shall provide the provider of services, physician, 
     practitioner, or supplier with written notice (which may be 
     in electronic form) of the intent to conduct such an audit.
       ``(B) Explanation of findings for all audits.--Subject to 
     subparagraph (C), if a medicare contractor audits a provider 
     of services, physician, practitioner, or supplier under this 
     title, the contractor shall--
       ``(i) give the provider of services, physician, 
     practitioner, or supplier a full review and explanation of 
     the findings of the audit in a manner that is understandable 
     to the provider of services, physician, practitioner, or 
     supplier and permits the development of an appropriate 
     corrective action plan;
       ``(ii) inform the provider of services, physician, 
     practitioner, or supplier of the appeal rights under this 
     title as well as consent settlement options (which are at the 
     discretion of the Secretary); and
       ``(iii) give the provider of services, physician, 
     practitioner, or supplier an opportunity to provide 
     additional information to the contractor.
       ``(C) Exception.--Subparagraphs (A) and (B) shall not apply 
     if the provision of notice or findings would compromise 
     pending law enforcement activities, whether civil or 
     criminal, or reveal findings of law enforcement-related 
     audits.
       ``(4) Notice of over-utilization of codes.--The Secretary 
     shall establish, in consultation with organizations 
     representing the classes of providers of services, 
     physicians, practitioners, and suppliers, a process under 
     which the Secretary provides for notice to classes of 
     providers of services, physicians, practitioners, and 
     suppliers served by a medicare contractor in cases in which 
     the contractor has identified that particular billing codes 
     may be overutilized by that class of providers of services, 
     physicians, practitioners, or suppliers under the programs 
     under this title (or provisions of title XI insofar as they 
     relate to such programs).
       ``(5) Standard methodology for probe sampling.--The 
     Secretary shall establish a standard methodology for medicare 
     administrative contractors to use in selecting a sample of 
     claims for review in the case of an abnormal billing pattern.
       ``(6) Consent settlement reforms.--
       ``(A) In general.--The Secretary may use a consent 
     settlement (as defined in subparagraph (D)) to settle a 
     projected overpayment.
       ``(B) Opportunity to submit additional information before 
     consent settlement offer.--Before offering a provider of 
     services, physician, practitioner, or supplier a consent 
     settlement, the Secretary shall--
       ``(i) communicate to the provider of services, physician, 
     practitioner, or supplier in a nonthreatening manner that, 
     based on a review of the medical records requested by the 
     Secretary, a preliminary evaluation of those records 
     indicates that there would be an overpayment; and
       ``(ii) provide for a 45-day period during which the 
     provider of services, physician, practitioner, or supplier 
     may furnish additional information concerning the medical 
     records for the claims that had been reviewed.
       ``(C) Consent settlement offer.--The Secretary shall review 
     any additional information furnished by the provider of 
     services, physician, practitioner, or supplier under 
     subparagraph (B)(ii). Taking into consideration such 
     information, the Secretary shall determine if there still 
     appears to be an overpayment. If so, the Secretary--
       ``(i) shall provide notice of such determination to the 
     provider of services, physician, practitioner, or supplier, 
     including an explanation of the reason for such 
     determination; and
       ``(ii) in order to resolve the overpayment, may offer the 
     provider of services, physician, practitioner, or supplier--

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

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

[[Page 16582]]

       (3) Section 1874A(h)(3) of the Social Security Act, as 
     added by subsection (a), shall apply to audits initiated 
     after the date of enactment of this Act.
       (4) Section 1874A(h)(6) of the Social Security Act, as 
     added by subsection (a), shall apply to consent settlements 
     entered into after the date of enactment of this Act.

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

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

     SEC. 544. AUTHORITY TO WAIVE A PROGRAM EXCLUSION.

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

                       TITLE VI--OTHER PROVISIONS

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

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

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

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

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

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

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

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

[[Page 16583]]



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

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

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

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

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

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

     SEC. 606. ESTABLISHMENT OF CONSUMER OMBUDSMAN ACCOUNT.

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

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

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

     SEC. 608. HEALTH CARE INFRASTRUCTURE IMPROVEMENT.

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

          ``TITLE XXII--HEALTH CARE INFRASTRUCTURE IMPROVEMENT

     ``SEC. 2201. DEFINITIONS.

       ``In this title, the following definitions apply:
       ``(1) Eligible project costs.--The term `eligible project 
     costs' means amounts substantially all of which are paid by, 
     or for the account of, an obligor in connection with a 
     project, including the cost of--
       ``(A) development phase activities, including planning, 
     feasibility analysis, revenue forecasting, environmental 
     study and review, permitting, architectural engineering and 
     design work, and other preconstruction activities;
       ``(B) construction, reconstruction, rehabilitation, 
     replacement, and acquisition of facilities and real property 
     (including land related to the project and improvements to 
     land), environmental mitigation, construction contingencies, 
     and acquisition of equipment;
       ``(C) capitalized interest necessary to meet market 
     requirements, reasonably required reserve funds, capital 
     issuance expenses, and other carrying costs during 
     construction;
       ``(D) major medical equipment determined to be appropriate 
     by the Secretary; and
       ``(E) refinancing projects or activities that are otherwise 
     eligible for financial assistance under subparagraphs (A) 
     through (D).
       ``(2) Federal credit instrument.--The term `Federal credit 
     instrument' means a secured loan, loan guarantee, or line of 
     credit authorized to be made available under this title with 
     respect to a project.
       ``(3) Investment-grade rating.--The term `investment-grade 
     rating' means a rating category of BBB minus, Baa3, or higher 
     assigned by a rating agency to project obligations offered 
     into the capital markets.
       ``(4) Lender.--The term `lender' means any non-Federal 
     qualified institutional buyer (as defined in section 
     230.144A(a) of title 17, Code of Federal Regulations (or any 
     successor regulation), known as Rule 144A(a) of the 
     Securities and Exchange Commission and issued

[[Page 16584]]

     under the Securities Act of 1933 (15 U.S.C. 77a et seq.)), 
     including--
       ``(A) a qualified retirement plan (as defined in section 
     4974(c) of the Internal Revenue Code of 1986) that is a 
     qualified institutional buyer; and
       ``(B) a governmental plan (as defined in section 414(d) of 
     the Internal Revenue Code of 1986) that is a qualified 
     institutional buyer.
       ``(5) Line of credit.--The term `line of credit' means an 
     agreement entered into by the Secretary with an obligor under 
     section 2204 to provide a direct loan at a future date upon 
     the occurrence of certain events.
       ``(6) Loan guarantee.--The term `loan guarantee' means any 
     guarantee or other pledge by the Secretary to pay all or part 
     of the principal of and interest on a loan or other debt 
     obligation issued by an obligor and funded by a lender.
       ``(7) Local servicer.--The term `local servicer' means a 
     State or local government or any agency of a State or local 
     government that is responsible for servicing a Federal credit 
     instrument on behalf of the Secretary.
       ``(8) Obligor.--The term `obligor' means a party primarily 
     liable for payment of the principal of or interest on a 
     Federal credit instrument, which party may be a corporation, 
     partnership, joint venture, trust, or governmental entity, 
     agency, or instrumentality.
       ``(9) Project.--The term `project' means any project that 
     is designed to improve the health care infrastructure, 
     including the construction, renovation, or other capital 
     improvement of any hospital, medical research facility, or 
     other medical facility or the purchase of any equipment to be 
     used in a hospital, research facility, or other medical 
     research facility.
       ``(10) Project obligation.--The term `project obligation' 
     means any note, bond, debenture, lease, installment sale 
     agreement, or other debt obligation issued or entered into by 
     an obligor in connection with the financing of a project, 
     other than a Federal credit instrument.
       ``(11) Rating agency.--The term `rating agency' means a 
     bond rating agency identified by the Securities and Exchange 
     Commission as a Nationally Recognized Statistical Rating 
     Organization.
       ``(12) Secured loan.--The term `secured loan' means a 
     direct loan or other debt obligation issued by an obligor and 
     funded by the Secretary in connection with the financing of a 
     project under section 2203.
       ``(13) State.--The term `State' has the meaning given the 
     term in section 101 of title 23, United States Code.
       ``(14) Subsidy amount.--The term `subsidy amount' means the 
     amount of budget authority sufficient to cover the estimated 
     long-term cost to the Federal Government of a Federal credit 
     instrument, calculated on a net present value basis, 
     excluding administrative costs and any incidental effects on 
     governmental receipts or outlays in accordance with the 
     provisions of the Federal Credit Reform Act of 1990 (2 U.S.C. 
     661 et seq.).
       ``(15) Substantial completion.--The term `substantial 
     completion' means the opening of a project to patients or for 
     research purposes.

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

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

     ``SEC. 2203. SECURED LOANS.

       ``(a) In General.--
       ``(1) Agreements.--Subject to paragraphs (2) through (4), 
     the Secretary may enter into agreements with 1 or more 
     obligors to make secured loans, the proceeds of which shall 
     be used--
       ``(A) to finance eligible project costs;
       ``(B) to refinance interim construction financing of 
     eligible project costs; or
       ``(C) to refinance existing debt or prior project 
     obligations;

     of any project selected under section 2202.
       ``(2) Limitation on refinancing of interim construction 
     financing.--A loan under paragraph (1) shall not refinance 
     interim construction financing under paragraph (1)(B) later 
     than 1 year after the date of substantial completion of the 
     project.
       ``(3) Risk assessment.--Before entering into an agreement 
     for a secured loan under this subsection, the Secretary, in 
     consultation with each rating agency providing a rating 
     letter under section 2202(b)(2)(B), shall determine an 
     appropriate capital reserve subsidy amount for each secured 
     loan, taking into account such letter.
       ``(4) Investment-grade rating requirement.--The funding of 
     a secured loan under this section shall be contingent on the 
     project's senior obligations receiving an investment-grade 
     rating, except that--
       ``(A) the Secretary may fund an amount of the secured loan 
     not to exceed the capital reserve subsidy amount determined 
     under paragraph (3) prior to the obligations receiving an 
     investment-grade rating; and
       ``(B) the Secretary may fund the remaining portion of the 
     secured loan only after the obligations have received an 
     investment-grade rating by at least 1 rating agency.
       ``(b) Terms and Limitations.--
       ``(1) In general.--A secured loan under this section with 
     respect to a project shall be on such terms and conditions 
     and contain such covenants, representations, warranties, and 
     requirements (including requirements for audits) as the 
     Secretary determines appropriate.
       ``(2) Maximum amount.--The amount of the secured loan shall 
     not exceed 100 percent of the reasonably anticipated eligible 
     project costs.
       ``(3) Payment.--The secured loan--
       ``(A) shall--
       ``(i) be payable, in whole or in part, from reliable 
     revenue sources; and
       ``(ii) include a rate covenant, coverage requirement, or 
     similar security feature supporting the project obligations; 
     and
       ``(B) may have a lien on revenues described in subparagraph 
     (A) subject to any lien securing project obligations.
       ``(4) Interest rate.--The interest rate on the secured loan 
     shall be not less than the yield on marketable United States 
     Treasury securities of a similar maturity to the maturity of 
     the secured loan on the date of execution of the loan 
     agreement.
       ``(5) Maturity date.--The final maturity date of the 
     secured loan shall be not later than 30 years after the date 
     of substantial completion of the project.
       ``(6) Nonsubordination.--The secured loan shall not be 
     subordinated to the claims of any holder of project 
     obligations in the event of bankruptcy, insolvency, or 
     liquidation of the obligor.
       ``(7) Fees.--The Secretary may establish fees at a level 
     sufficient to cover all or a portion of the costs to the 
     Federal Government of making a secured loan under this 
     section.
       ``(c) Repayment.--
       ``(1) Schedule.--The Secretary shall establish a repayment 
     schedule for each secured loan under this section based on 
     the projected cash flow from project revenues and other 
     repayment sources.

[[Page 16585]]

       ``(2) Commencement.--Scheduled loan repayments of principal 
     or interest on a secured loan under this section shall 
     commence not later than 5 years after the date of substantial 
     completion of the project.
       ``(3) Sources of repayment funds.--The sources of funds for 
     scheduled loan repayments under this section shall include 
     any revenue generated by the project.
       ``(4) Deferred payments.--
       ``(A) Authorization.--If, at any time during the 10 years 
     after the date of substantial completion of the project, the 
     project is unable to generate sufficient revenues to pay the 
     scheduled loan repayments of principal and interest on the 
     secured loan, the Secretary may, subject to subparagraph (C), 
     allow the obligor to add unpaid principal and interest to the 
     outstanding balance of the secured loan.
       ``(B) Interest.--Any payment deferred under subparagraph 
     (A) shall--
       ``(i) continue to accrue interest in accordance with 
     subsection (b)(4) until fully repaid; and
       ``(ii) be scheduled to be amortized over the remaining term 
     of the loan beginning not later than 10 years after the date 
     of substantial completion of the project in accordance with 
     paragraph (1).
       ``(C) Criteria.--
       ``(i) In general.--Any payment deferral under subparagraph 
     (A) shall be contingent on the project meeting criteria 
     established by the Secretary.
       ``(ii) Repayment standards.--The criteria established under 
     clause (i) shall include standards for reasonable assurance 
     of repayment.
       ``(5) Prepayment.--
       ``(A) Use of excess revenues.--Any excess revenues that 
     remain after satisfying scheduled debt service requirements 
     on the project obligations and secured loan and all deposit 
     requirements under the terms of any trust agreement, bond 
     resolution, reimbursement agreement, credit agreement, loan 
     agreement, or similar agreement securing project obligations 
     may be applied annually to prepay the secured loan without 
     penalty.
       ``(B) Use of proceeds of refinancing.--The secured loan may 
     be prepaid at any time without penalty, regardless of whether 
     such repayment is from the proceeds of refinancing from non-
     Federal funding sources.
       ``(6) Forgiveness of indebtedness.--The Secretary may 
     forgive a loan secured under this title under terms and 
     conditions that are analogous to the loan forgiveness 
     provision for student loans under part D of title IV of the 
     Higher Education Act of 1965 (20 U.S.C. 1087a et seq.), 
     except that the Secretary shall condition such forgiveness on 
     the establishment by the project of--
       ``(A) an outreach program for cancer prevention, early 
     diagnosis, and treatment that provides services to a 
     substantial majority of the residents of a State or region, 
     including residents of rural areas;
       ``(B) an outreach program for cancer prevention, early 
     diagnosis, and treatment that provides services to multiple 
     Indian tribes; and
       ``(C)(i) unique research resources (such as population 
     databases); or
       ``(ii) an affiliation with an entity that has unique 
     research resources.
       ``(d) Sale of Secured Loans.--
       ``(1) In general.--Subject to paragraph (2), as soon as 
     practicable after substantial completion of a project and 
     after notifying the obligor, the Secretary may sell to 
     another entity or reoffer into the capital markets a secured 
     loan for the project if the Secretary determines that the 
     sale or reoffering can be made on favorable terms.
       ``(2) Consent of obligor.--In making a sale or reoffering 
     under paragraph (1), the Secretary may not change the 
     original terms and conditions of the secured loan without the 
     written consent of the obligor.
       ``(e) Loan Guarantees.--
       ``(1) In general.--The Secretary may provide a loan 
     guarantee to a lender in lieu of making a secured loan if the 
     Secretary determines that the budgetary cost of the loan 
     guarantee is substantially the same as that of a secured 
     loan.
       ``(2) Terms.--The terms of a guaranteed loan shall be 
     consistent with the terms set forth in this section for a 
     secured loan, except that the rate on the guaranteed loan and 
     any prepayment features shall be negotiated between the 
     obligor and the lender, with the consent of the Secretary.

     ``SEC. 2204. LINES OF CREDIT.

       ``(a) In General.--
       ``(1) Agreements.--Subject to paragraphs (2) through (4), 
     the Secretary may enter into agreements to make available 
     lines of credit to 1 or more obligors in the form of direct 
     loans to be made by the Secretary at future dates on the 
     occurrence of certain events for any project selected under 
     section 2202.
       ``(2) Use of proceeds.--The proceeds of a line of credit 
     made available under this section shall be available to pay 
     debt service on project obligations issued to finance 
     eligible project costs, extraordinary repair and replacement 
     costs, operation and maintenance expenses, and costs 
     associated with unexpected Federal or State environmental 
     restrictions.
       ``(3) Risk assessment.--Before entering into an agreement 
     for a secured loan under this subsection, the Secretary, in 
     consultation with each rating agency providing a rating 
     letter under section 2202(b)(2)(B), shall determine an 
     appropriate subsidy amount for each secured loan, taking into 
     account such letter.
       ``(4) Investment-grade rating requirement.--The funding of 
     a line of credit under this section shall be contingent on 
     the project's senior obligations receiving an investment-
     grade rating from at least 1 rating agency.
       ``(b) Terms and Limitations.--
       ``(1) In general.--A line of credit under this section with 
     respect to a project shall be on such terms and conditions 
     and contain such covenants, representations, warranties, and 
     requirements (including requirements for audits) as the 
     Secretary determines appropriate.
       ``(2) Maximum amounts.--
       ``(A) Total amount.--The total amount of the line of credit 
     shall not exceed 33 percent of the reasonably anticipated 
     eligible project costs.
       ``(B) 1-year draws.--The amount drawn in any 1 year shall 
     not exceed 20 percent of the total amount of the line of 
     credit.
       ``(3) Draws.--Any draw on the line of credit shall 
     represent a direct loan and shall be made only if net 
     revenues from the project (including capitalized interest, 
     any debt service reserve fund, and any other available 
     reserve) are insufficient to pay the costs specified in 
     subsection (a)(2).
       ``(4) Interest rate.--The interest rate on a direct loan 
     resulting from a draw on the line of credit shall be not less 
     than the yield on 30-year marketable United States Treasury 
     securities as of the date on which the line of credit is 
     obligated.
       ``(5) Security.--The line of credit--
       ``(A) shall--
       ``(i) be payable, in whole or in part, from reliable 
     revenue sources; and
       ``(ii) include a rate covenant, coverage requirement, or 
     similar security feature supporting the project obligations; 
     and
       ``(B) may have a lien on revenues described in subparagraph 
     (A) subject to any lien securing project obligations.
       ``(6) Period of availability.--The line of credit shall be 
     available during the period beginning on the date of 
     substantial completion of the project and ending not later 
     than 10 years after that date.
       ``(7) Rights of third-party creditors.--
       ``(A) Against federal government.--A third-party creditor 
     of the obligor shall not have any right against the Federal 
     Government with respect to any draw on the line of credit.
       ``(B) Assignment.--An obligor may assign the line of credit 
     to 1 or more lenders or to a trustee on the lenders' behalf.
       ``(8) Nonsubordination.--A direct loan under this section 
     shall not be subordinated to the claims of any holder of 
     project obligations in the event of bankruptcy, insolvency, 
     or liquidation of the obligor.
       ``(9) Fees.--The Secretary may establish fees at a level 
     sufficient to cover all or a portion of the costs to the 
     Federal Government of providing a line of credit under this 
     section.
       ``(10) Relationship to other credit instruments.--A project 
     that receives a line of credit under this section also shall 
     not receive a secured loan or loan guarantee under section 
     2203 of an amount that, combined with the amount of the line 
     of credit, exceeds 100 percent of eligible project costs.
       ``(c) Repayment.--
       ``(1) Terms and conditions.--The Secretary shall establish 
     repayment terms and conditions for each direct loan under 
     this section based on the projected cash flow from project 
     revenues and other repayment sources.
       ``(2) Timing.--All scheduled repayments of principal or 
     interest on a direct loan under this section shall commence 
     not later than 5 years after the end of the period of 
     availability specified in subsection (b)(6) and be fully 
     repaid, with interest, by the date that is 25 years after the 
     end of the period of availability specified in subsection 
     (b)(6).
       ``(3) Sources of repayment funds.--The sources of funds for 
     scheduled loan repayments under this section shall include 
     reliable revenue sources.

     ``SEC. 2205. PROJECT SERVICING.

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

     ``SEC. 2206. STATE AND LOCAL PERMITS.

       ``The provision of financial assistance under this title 
     with respect to a project shall not--

[[Page 16586]]

       ``(1) relieve any recipient of the assistance of any 
     obligation to obtain any required State or local permit or 
     approval with respect to the project;
       ``(2) limit the right of any unit of State or local 
     government to approve or regulate any rate of return on 
     private equity invested in the project; or
       ``(3) otherwise supersede any State or local law (including 
     any regulation) applicable to the construction or operation 
     of the project.

     ``SEC. 2207. REGULATIONS.

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

     ``SEC. 2208. FUNDING.

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

     ``SEC. 2209. REPORT TO CONGRESS.

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

     SEC. 609. CAPITAL INFRASTRUCTURE REVOLVING LOAN PROGRAM.

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

            ``capital infrastructure revolving loan program

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

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

       (a) Total Amount Available for Allotment.--There is 
     appropriated, out of any funds in the Treasury not otherwise 
     appropriated, $250,000,000 for each of fiscal years 2005 
     through 2008, for the purpose of making allotments under this 
     section to States described in paragraph (1) or (2) of 
     subsection (b). Funds appropriated under the preceding 
     sentence shall remain available until expended.
       (b) State Allotments.--
       (1) Based on percentage of undocumented aliens.--
       (A) In general.--Out of the amount appropriated under 
     subsection (a) for a fiscal year, the Secretary shall use 
     $167,000,000 of such amount to make allotments for such 
     fiscal year in accordance with subparagraph (B).
       (B) Formula.--The amount of the allotment for each State 
     for a fiscal year shall be equal to the product of--
       (i) the total amount available for allotments under this 
     paragraph for the fiscal year; and
       (ii) the percentage of undocumented aliens residing in the 
     State with respect to the total number of such aliens 
     residing in all States, as determined by the Statistics 
     Division of the Immigration and Naturalization Service, as of 
     January 2003, based on the 2000 decennial census.
       (2) Based on number of undocumented alien apprehension 
     states.--
       (A) In general.--Out of the amount appropriated under 
     subsection (a) for a fiscal year, the Secretary shall use 
     $83,000,000 of such amount to make allotments for such fiscal 
     year for each of the 6 States with the highest number of 
     undocumented alien apprehensions for such fiscal year.
       (B) Determination of allotments.--The amount of the 
     allotment for each State described in subparagraph (A) for a 
     fiscal year shall bear the same ratio to the total amount 
     available for allotments under this paragraph for the fiscal 
     year as the ratio of the number of undocumented alien 
     apprehensions in the State in that fiscal year bears to the 
     total of such numbers for all such States for such fiscal 
     year.
       (C) Data.--For purposes of this paragraph, the highest 
     number of undocumented alien apprehensions for a fiscal year 
     shall be based on the 4 most recent quarterly apprehension 
     rates for undocumented aliens in such States, as reported by 
     the Immigration and Naturalization Service.
       (3) Rule of construction.--Nothing in this section shall be 
     construed as prohibiting a State that is described in both of 
     paragraphs (1) and (2) from receiving an allotment under both 
     paragraphs for a fiscal year.
       (c) Use of Funds.--
       (1) Authority to make payments.--From the allotments made 
     for a State under subsection (b) for a fiscal year, the 
     Secretary shall pay directly to local governments, hospitals, 
     or other providers located in the State (including providers 
     of services received through an Indian Health Service 
     facility whether operated by the Indian Health Service or by 
     an Indian tribe or tribal organization) that provide 
     uncompensated emergency health services furnished to 
     undocumented aliens during that fiscal year, and to the 
     State, such amounts (subject to the total

[[Page 16587]]

     amount available from such allotments) as the local 
     governments, hospitals, providers, or State demonstrate were 
     incurred for the provision of such services during that 
     fiscal year.
       (2) Limitation on state use of funds.--Funds paid to a 
     State from allotments made under subsection (b) for a fiscal 
     year may only be used for making payments to local 
     governments, hospitals, or other providers for costs incurred 
     in providing emergency health services to undocumented aliens 
     or for State costs incurred with respect to the provision of 
     emergency health services to such aliens.
       (3) Inclusion of costs incurred with respect to certain 
     aliens.--Uncompensated emergency health services furnished to 
     aliens who have been allowed to enter the United States for 
     the sole purpose of receiving emergency health services may 
     be included in the determination of costs incurred by a 
     State, local government, hospital, or other provider with 
     respect to the provision of such services.
       (d) Applications; Advance Payments.--
       (1) Deadline for establishment of application process.--
       (A) In general.--Not later than September 1, 2004, the 
     Secretary shall establish a process under which States, local 
     governments, hospitals, or other providers located in the 
     State may apply for payments from allotments made under 
     subsection (b) for a fiscal year for uncompensated emergency 
     health services furnished to undocumented aliens during that 
     fiscal year.
       (B) Inclusion of measures to combat fraud.--The Secretary 
     shall include in the process established under subparagraph 
     (A) measures to ensure that fraudulent payments are not made 
     from the allotments determined under subsection (b).
       (2) Advance payment; retrospective adjustment.--The process 
     established under paragraph (1) shall allow for making 
     payments under this section for each quarter of a fiscal year 
     on the basis of advance estimates of expenditures submitted 
     by applicants for such payments and such other investigation 
     as the Secretary may find necessary, and for making 
     reductions or increases in the payments as necessary to 
     adjust for any overpayment or underpayment for prior quarters 
     of such fiscal year.
       (e) Definitions.--In this section:
       (1) Hospital.--The term ``hospital'' has the meaning given 
     such term in section 1861(e) of the Social Security Act (42 
     U.S.C. 1395x(e)).
       (2) Indian tribe; tribal organization.--The terms ``Indian 
     tribe'' and ``tribal organization'' have the meanings given 
     such terms in section 4 of the Indian Health Care Improvement 
     Act (25 U.S.C. 1603).
       (3) Provider.--The term ``provider'' includes a physician, 
     any other health care professional licensed under State law, 
     and any other entity that furnishes emergency health 
     services, including ambulance services.
       (4) Secretary.--The term ``Secretary'' means the Secretary 
     of Health and Human Services.
       (5) State.--The term ``State'' means the 50 States and the 
     District of Columbia.

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

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

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

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

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

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

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

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

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

            TITLE VII--ACCESS TO AFFORDABLE PHARMACEUTICALS

     SEC. 701. SHORT TITLE.

       This title may be cited as the ``Greater Access to 
     Affordable Pharmaceuticals Act''.

     SEC. 702. 30-MONTH STAY-OF-EFFECTIVENESS PERIOD.

       (a) Abbreviated New Drug Applications.--Section 505(j) of 
     the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)) 
     is amended--
       (1) in paragraph (2), by striking subparagraph (B) and 
     inserting the following:
       ``(B) Notice of opinion that patent is not valid or will 
     not be infringed.--
       ``(i) Agreement to give notice.--An applicant that makes a 
     certification described in subparagraph (A)(vii)(IV) shall 
     include in the application a statement that the applicant 
     will give notice as required by this subparagraph.
       ``(ii) Timing of notice.--An applicant that makes a 
     certification described in subparagraph (A)(vii)(IV) shall 
     give notice as required under this subparagraph--
       ``(I) if the certification is in the application, not later 
     than 20 days after the date of the postmark on the notice 
     with which the Secretary informs the applicant that the 
     application has been filed; or
       ``(II) if the certification is in an amendment or 
     supplement to the application, at the time at which the 
     applicant submits the amendment or supplement, regardless of 
     whether the applicant has already given notice with respect 
     to another such certification contained in the application or 
     in an amendment or supplement to the application.
       ``(iii) Recipients of notice.--An applicant required under 
     this subparagraph to give notice shall give notice to--
       ``(I) each owner of the patent that is the subject of the 
     certification (or a representative of the owner designated to 
     receive such a notice); and
       ``(II) the holder of the approved application under 
     subsection (b) for the drug that is claimed by the patent or 
     a use of which is claimed by the patent (or a representative 
     of the holder designated to receive such a notice).
       ``(iv) Contents of notice.--A notice required under this 
     subparagraph shall--
       ``(I) state that an application that contains data from 
     bioavailability or bioequivalence studies has been submitted 
     under this subsection for the drug with respect to which the 
     certification is made to obtain approval to engage in the 
     commercial manufacture, use, or sale of the drug before the 
     expiration of the patent referred to in the certification; 
     and
       ``(II) include a detailed statement of the factual and 
     legal basis of the opinion of the applicant that the patent 
     is not valid or will not be infringed.''; and
       (2) in paragraph (5)--
       (A) in subparagraph (B)--
       (i) by striking ``under the following'' and inserting ``by 
     applying the following to each certification made under 
     paragraph (2)(A)(vii)''; and
       (ii) in clause (iii)--

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

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

       ``(AA) the date on which the court of appeals decides that 
     the patent is invalid or not infringed (including any 
     substantive determination that there is no cause of action 
     for patent infringement or invalidity); or

[[Page 16588]]

       ``(BB) the date of a settlement order or consent decree 
     signed and entered by the court of appeals stating that the 
     patent that is the subject of the certification is invalid or 
     not infringed; or

       ``(bb) if the judgment of the district court is not 
     appealed or is affirmed, the approval shall be made effective 
     on the date specified by the district court in a court order 
     under section 271(e)(4)(A) of title 35, United States 
     Code;'';
       (cc) in subclause (III), by striking ``on the date of such 
     court decision.'' and inserting ``as provided in subclause 
     (I); or''; and
       (dd) by inserting after subclause (III) the following:
       ``(IV) if before the expiration of such period the court 
     grants a preliminary injunction prohibiting the applicant 
     from engaging in the commercial manufacture or sale of the 
     drug until the court decides the issues of patent validity 
     and infringement and if the court decides that such patent 
     has been infringed, the approval shall be made effective as 
     provided in subclause (II).'';
       (B) by redesignating subparagraphs (C) and (D) as 
     subparagraphs (E) and (F), respectively; and
       (C) by inserting after subparagraph (B) the following:
       ``(C) Civil action to obtain patent certainty.--
       ``(i) Declaratory judgment absent infringement action.--If 
     an owner of the patent or the holder of the approved 
     application under subsection (b) for the drug that is claimed 
     by the patent or a use of which is claimed by the patent does 
     not bring a civil action against the applicant for 
     infringement of the patent on or before the date that is 45 
     days after the date on which the notice given under paragraph 
     (2)(B) was received, the applicant may bring a civil action 
     against the owner or holder (but not against any owner or 
     holder that has brought such a civil action against that 
     applicant, unless that civil action was dismissed without 
     prejudice) for a declaratory judgment under section 2201 of 
     title 28, United States Code, that the patent is invalid or 
     will not be infringed by the drug for which the applicant 
     seeks approval.
       ``(ii) Counterclaim to infringement action.--

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

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

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

       ``(iii) No damages.--An applicant shall not be entitled to 
     damages in a civil action under subparagraph (i) or a 
     counterclaim under subparagraph (ii).''.
       (b) Applications Generally.--Section 505 of the Federal 
     Food, Drug, and Cosmetic Act (21 U.S.C. 355) is amended--
       (1) in subsection (b), by striking paragraph (3) and 
     inserting the following:
       ``(3) Notice of opinion that patent is not valid or will 
     not be infringed.--
       ``(A) Agreement to give notice.--An applicant that makes a 
     certification described in paragraph (2)(A)(iv) shall include 
     in the application a statement that the applicant will give 
     notice as required by this paragraph.
       ``(B) Timing of notice.--An applicant that makes a 
     certification described in paragraph (2)(A)(iv) shall give 
     notice as required under this paragraph--
       ``(i) if the certification is in the application, not later 
     than 20 days after the date of the postmark on the notice 
     with which the Secretary informs the applicant that the 
     application has been filed; or
       ``(ii) if the certification is in an amendment or 
     supplement to the application, at the time at which the 
     applicant submits the amendment or supplement, regardless of 
     whether the applicant has already given notice with respect 
     to another such certification contained in the application or 
     in an amendment or supplement to the application.
       ``(C) Recipients of notice.--An applicant required under 
     this paragraph to give notice shall give notice to--
       ``(i) each owner of the patent that is the subject of the 
     certification (or a representative of the owner designated to 
     receive such a notice); and
       ``(ii) the holder of the approved application under this 
     subsection for the drug that is claimed by the patent or a 
     use of which is claimed by the patent (or a representative of 
     the holder designated to receive such a notice).
       ``(D) Contents of notice.--A notice required under this 
     paragraph shall--
       ``(i) state that an application that contains data from 
     bioavailability or bioequivalence studies has been submitted 
     under this subsection for the drug with respect to which the 
     certification is made to obtain approval to engage in the 
     commercial manufacture, use, or sale of the drug before the 
     expiration of the patent referred to in the certification; 
     and
       ``(ii) include a detailed statement of the factual and 
     legal basis of the opinion of the applicant that the patent 
     is not valid or will not be infringed.''; and
       (2) in subsection (c)(3)--
       (A) in the first sentence, by striking ``under the 
     following'' and inserting ``by applying the following to each 
     certification made under subsection (b)(2)(A)(iv)'';
       (B) in subparagraph (C)--
       (i) in the first sentence, by striking ``unless'' and all 
     that follows and inserting ``unless, before the expiration of 
     45 days after the date on which the notice described in 
     subsection (b)(3) is received, an action is brought for 
     infringement of the patent that is the subject of the 
     certification and for which information was submitted to the 
     Secretary under paragraph (2) or subsection (b)(1) before the 
     date on which the application (excluding an amendment or 
     supplement to the application) was submitted.'';
       (ii) in the second sentence--

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

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

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

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

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

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

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

       ``(iv) if before the expiration of such period the court 
     grants a preliminary injunction prohibiting the applicant 
     from engaging in the commercial manufacture or sale of the 
     drug until the court decides the issues of patent validity 
     and infringement and if the court decides that such patent 
     has been infringed, the approval shall be made effective as 
     provided in clause (ii).''; and
       (iii) in the third sentence, by striking ``paragraph 
     (3)(B)'' and inserting ``subsection (b)(3)'';
       (C) by redesignating subparagraph (D) as subparagraph (E); 
     and
       (D) by inserting after subparagraph (C) the following:
       ``(D) Civil action to obtain patent certainty.--
       ``(i) Declaratory judgment absent infringement action.--If 
     an owner of the patent or the holder of the approved 
     application under subsection (b) for the drug that is claimed 
     by the patent or a use of which is claimed by the patent does 
     not bring a civil action against the applicant for 
     infringement of the patent on or before the date that is 45 
     days after the date on which the notice given under 
     subsection (b)(3) was received, the applicant may bring a 
     civil action against the owner or holder (but not against any 
     owner or holder that has brought such a civil action against 
     that applicant, unless that civil action was dismissed 
     without prejudice) for a declaratory judgment under section 
     2201 of title 28, United States Code, that the patent is 
     invalid or will not be infringed by the drug for which the 
     applicant seeks approval.
       ``(ii) Counterclaim to infringement action.--

       ``(I) In general.--If an owner of the patent or the holder 
     of the approved application under subsection (b) for the drug 
     that is claimed by the patent or a use of which is claimed by 
     the patent brings a patent infringement action against the 
     applicant, the applicant may assert a counterclaim seeking an 
     order requiring the holder to correct or delete the patent 
     information submitted by

[[Page 16589]]

     the holder under subsection (b) or this subsection on the 
     ground that the patent does not claim either--

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

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

       ``(iii) No damages.--An applicant shall not be entitled to 
     damages in a civil action under clause (i) or a counterclaim 
     under clause (ii).''.
       (c) Infringement Actions.--Section 271(e) of title 35, 
     United States Code, is amended by adding at the end the 
     following:
       ``(5) The filing of an application described in paragraph 
     (2) that includes a certification under subsection 
     (b)(2)(A)(iv) or (j)(2)(A)(vii)(IV) of section 505 of the 
     Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355), and the 
     failure of the owner of the patent to bring an action for 
     infringement of a patent that is the subject of the 
     certification before the expiration of 45 days after the date 
     on which the notice given under subsection (b)(3) or 
     (j)(2)(B) of that section is received, shall establish an 
     actual controversy between the applicant and the patent owner 
     sufficient to confer subject matter jurisdiction in the 
     courts of the United States in any action brought by the 
     applicant under section 2201 of title 28 for a declaratory 
     judgment that any patent that is the subject of the 
     certification is invalid or not infringed.''.
       (d) Applicability.--
       (1) In general.--Except as provided in paragraphs (2) and 
     (3), the amendments made by subsections (a), (b), and (c) 
     apply to any proceeding under section 505 of the Federal 
     Food, Drug, and Cosmetic Act (21 U.S.C. 355) that is pending 
     on or after the date of enactment of this Act regardless of 
     the date on which the proceeding was commenced or is 
     commenced.
       (2) Notice of opinion that patent is invalid or will not be 
     infringed.--The amendments made by subsections (a)(1) and 
     (b)(1) apply with respect to any certification under 
     subsection (b)(2)(A)(iv) or (j)(2)(A)(vii)(IV) of section 505 
     of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355) 
     after the date of enactment of this Act in an application 
     filed under subsection (b)(2) or (j) of that section or in an 
     amendment or supplement to an application filed under 
     subsection (b)(2) or (j) of that section.
       (3) Effective date of approval.--The amendments made by 
     subsections (a)(2)(A)(ii)(I) and (b)(2)(B)(i) apply with 
     respect to any patent information submitted under subsection 
     (b)(1) or (c)(2) of section 505 of the Federal Food, Drug, 
     and Cosmetic Act (21 U.S.C. 355) made after the date of 
     enactment of this Act.

     SEC. 703. FORFEITURE OF 180-DAY EXCLUSIVITY PERIOD.

       (a) In General.--Section 505(j)(5) of the Federal Food, 
     Drug, and Cosmetic Act (21 U.S.C. 355(j)(5)) (as amended by 
     section __02) is amended--
       (1) in subparagraph (B), by striking clause (iv) and 
     inserting the following:
       ``(iv) 180-day exclusivity period.--
       ``(I) Definitions.--In this paragraph:
       ``(aa) 180-day exclusivity period.--The term `180-day 
     exclusivity period' means the 180-day period ending on the 
     day before the date on which an application submitted by an 
     applicant other than a first applicant could become effective 
     under this clause.
       ``(bb) First applicant.--The term `first applicant' means 
     an applicant that, on the first day on which a substantially 
     complete application containing a certification described in 
     paragraph (2)(A)(vii)(IV) is submitted for approval of a 
     drug, submits a substantially complete application containing 
     a certification described in paragraph (2)(A)(vii)(IV) for 
     the drug.
       ``(cc) Substantially complete application.--The term 
     `substantially complete application' means an application 
     under this subsection that on its face is sufficiently 
     complete to permit a substantive review and contains all the 
     information required by paragraph (2)(A).
       ``(dd) Tentative approval.--

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

       ``(II) Effectiveness of application.--Subject to 
     subparagraph (D), if the application contains a certification 
     described in paragraph (2)(A)(vii)(IV) and is for a drug for 
     which a first applicant has submitted an application 
     containing such a certification, the application shall be 
     made effective on the date that is 180 days after the date of 
     the first commercial marketing of the drug (including the 
     commercial marketing of the listed drug) by any first 
     applicant.''; and
       (2) by inserting after subparagraph (C) the following:
       ``(D) Forfeiture of 180-day exclusivity period.--
       ``(i) Definition of forfeiture event.--In this 
     subparagraph, the term `forfeiture event', with respect to an 
     application under this subsection, means the occurrence of 
     any of the following:

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

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

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

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

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

       (b) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendment made by subsection (a) shall be effective only with 
     respect to an application filed under section 505(j) of the 
     Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)) after 
     the date of enactment of this Act for a listed drug for which 
     no certification under section 505(j)(2)(A)(vii)(IV) of that 
     Act was made before the date of enactment of this Act.
       (2) Collusive agreements.--If a forfeiture event described 
     in section 505(j)(5)(D)(i)(V) of

[[Page 16590]]

     that Act occurs in the case of an applicant, the applicant 
     shall forfeit the 180-day period under section 
     505(j)(5)(B)(iv) of that Act without regard to when the first 
     certification under section 505(j)(2)(A)(vii)(IV) of that Act 
     for the listed drug was made.
       (3) Decision of a court when the 180-day exclusivity period 
     has not been triggered.--With respect to an application filed 
     before, on, or after the date of enactment of this Act for a 
     listed drug for which a certification under section 
     505(j)(2)(A)(vii)(IV) of that Act was made before the date of 
     enactment of this Act and for which neither of the events 
     described in subclause (I) or (II) of section 
     505(j)(5)(B)(iv) of that Act (as in effect on the day before 
     the date of enactment of this Act) has occurred on or before 
     the date of enactment of this Act, the term ``decision of a 
     court'' as used in clause (iv) of section 505(j)(5)(B) of 
     that Act means a final decision of a court from which no 
     appeal (other than a petition to the Supreme Court for a writ 
     of certiorari) has been or can be taken.

     SEC. 704. BIOAVAILABILITY AND BIOEQUIVALENCE.

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

     SEC. 705. REMEDIES FOR INFRINGEMENT.

       Section 287 of title 35, United States Code, is amended by 
     adding at the end the following:
       ``(d) Consideration.--In making a determination with 
     respect to remedy brought for infringement of a patent that 
     claims a drug or a method or using a drug, the court shall 
     consider whether information on the patent was filed as 
     required under 21 U.S.C. 355 (b) or (c), and, if such 
     information was required to be filed but was not, the court 
     may refuse to award treble damages under section 284.''.

     SEC. 706. CONFORMING AMENDMENTS.

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

             TITLE VIII--IMPORTATION OF PRESCRIPTION DRUGS

     SEC. 801. 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

[[Page 16591]]

       ``(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 that specific prescription drug or by that 
     specific importer of drugs that are counterfeit or in 
     violation of any requirement under this section, until an 
     investigation is completed and the Secretary determines that 
     the public is adequately protected from counterfeit and 
     violative prescription drugs being imported under subsection 
     (b).
       ``(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..--he 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) Effectiveness of Section.--
       ``(1) In general.--If, after the date that is 1 year after 
     the effective date of the regulations under subsection (b) 
     and before the date that is 18 months after the effective 
     date, the Secretary submits to Congress a certification that, 
     in the opinion of the Secretary, based on substantial 
     evidence obtained after the effective date, the benefits of 
     implementation of this section do not outweigh any detriment 
     of implementation of this section, this section shall cease 
     to be effective as of the date that is 30 days after the date 
     on which the Secretary submits the certification.
       ``(2) Procedure.--The Secretary shall not submit a 
     certification under paragraph (1) unless, after a hearing on 
     the record under sections 556 and 557 of title 5, United 
     States Code, the Secretary--
       ``(A)(i) determines that it is more likely than not that 
     implementation of this section would result in an increase in 
     the risk to the public health and safety;
       ``(ii) identifies specifically, in qualitative and 
     quantitative terms, the nature of the increased risk;
       ``(iii) identifies specifically the causes of the increased 
     risk; and
       ``(iv)(I) considers whether any measures can be taken to 
     avoid, reduce, or mitigate the increased risk; and
       ``(II) if the Secretary determines that any measures 
     described in subclause (I) would require additional statutory 
     authority, submits to Congress a report describing the 
     legislation that would be required;
       ``(B) identifies specifically, in qualitative and 
     quantitative terms, the benefits that would result from 
     implementation of this section (including the benefit of 
     reductions in the cost of covered products to consumers in 
     the United States, allowing consumers to procure needed 
     medication that consumers might not otherwise be able to 
     procure without foregoing other necessities of life); and
       ``(C)(i) compares in specific terms the detriment 
     identified under subparagraph (A) with the benefits 
     identified under subparagraph (B); and
       ``(ii) determines that the benefits do not outweigh the 
     detriment.
       ``(o) Authorization of Appropriations.--There are 
     authorized to be appropriated such sums as are necessary to 
     carry out this section.''.
       (b) Conforming amendments.--The Federal Food, Drug, and 
     Cosmetic Act is amended--
       (1) in section 301(aa) (21 U.S.C. 331(aa)), by striking 
     ``covered product in violation of section 804'' and inserting 
     ``prescription drug in violation of section 804''; and

[[Page 16592]]

       (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)''.

                            TITLE IX--OFFSET

     SEC. 901. INCREASE IN MEDICAID BEST PRICE REBATE PERCENTAGE.

       Section 1927(c)(1)(B)(i) (42 U.S.C. 1396r-8(c)(1)(B)(i)) is 
     amended--
       (1) in subclause (IV), by striking ``and'' at the end;
       (2) in subclause (V)--
       (A) by inserting ``and before January 1, 2004,'' after 
     ``December 31, 1995,''; and
       (B) by striking the period at the end and inserting ``; 
     and''; and
       (3) by adding at the end the following new subclause:

       ``(V) after December 31, 2003, is 20 percent.''.

       Make such changes in subsidy payments to employers under 
     1860D-21, as added by section 101, to ensure that the total 
     cost of this Act does not exceed $393,000,000,000 during the 
     10-fiscal-year period that begins on October 1, 2003.

  Mr. THOMPSON of California (during the reading). Mr. Speaker, I ask 
unanimous consent that the motion to recommit be considered as read and 
printed in the Record.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from California?
  There was no objection.
  The SPEAKER pro tempore. The gentleman from California (Mr. Thompson) 
is recognized for 5 minutes on his motion to recommit.
  Mr. THOMPSON of California. Mr. Speaker, I yield myself 1 minute.
  Mr. Speaker, during tonight's debate we have heard a number of times 
the Democrats do not have a feasible Medicare prescription drug 
proposal. This is just not true. The Blue Dogs have a motion to 
recommit that offers a real and an affordable prescription drug 
alternative, and it does so without calling for an end of Medicare. And 
we have included strong safeguard language that specifically instructs 
the Secretary to keep the costs of this measure within the $400 billion 
budget window. The Blue Dog motion to recommit provides Medicare 
fallback, unlike the Republican bill, protects traditional fee for 
service Medicare, unlike the Republican bill, and provides billions of 
dollars of relief for rural providers.
  Unfortunately, for America's seniors, our proposal will only get 5 
minutes of discussion tonight, 5 minutes to protect Medicare from 
privatization, 5 minutes to ensure rural seniors have a benefit if the 
PPOs do not come to their areas. And for all of the Members tonight who 
have said they are supporting the Republican bill in order to move the 
debate, the best way to do that is to support this recommit so we can 
promptly get a measure back here in the morning to vote on.

                              {time}  0115

  Mr. THOMPSON of California. Mr. Speaker, I yield 45 seconds to the 
gentleman from Texas (Mr. Stenholm).
  Mr. STENHOLM. Mr. Speaker, I rise in humble appreciation for the 45 
seconds being allowed to me tonight to speak for what I am for in 
Medicare and to express my extreme disappointment in the leadership of 
this House for bringing to the floor a bill based on an ideological 
agenda that will undermine the traditional Medicare program and fail to 
offer reliable prescription drug coverage for seniors in rural areas, 
or seriously address the issue of prescription drug costs.
  The motion to recommit promptly reported back to the floor will have 
a guaranteed fallback within Medicare for rural areas if private plans 
are not available, stronger provisions for rural providers, stays 
within the $400 billion allocation which safeguards to make sure that 
that happens, and it is based on the compromise in the other body that 
will give strong bipartisan support and become law.
  Mr. THOMPSON of California. Mr. Speaker, I yield 45 seconds to the 
gentleman from Tennessee (Mr. Tanner).
  Mr. TANNER. Mr. Speaker, I did not vote for the Democratic substitute 
because I thought it was too light on reform. The Republican bill is 
too light on substance.
  Mr. Speaker, we have a middle ground here, if we were only allowed to 
offer it; and it is what the gentleman from Texas (Mr. Stenholm) said. 
Basically, any meaningful reform in the Medicare or health care area, 
the crux of that matter is, one, a Federal backstop for rural America, 
which is not in the bill we are considering; and, two, some measure of 
cost containment. That is how we save the program. Neither one of these 
essential elements in my judgment is in the bill. If we could get this 
motion to recommit, we could fix it and we could come back here with 
strong bipartisan support.
  Mr. THOMPSON of California. Mr. Speaker, I yield 45 seconds to our 
colleague, the gentleman from Georgia (Mr. Scott).
  Mr. SCOTT of Georgia. Mr. Speaker, I say to my colleagues, I plead 
with my colleagues to let us have this opportunity to recommit. We have 
had so much debate where we have talked about the cost of these plans, 
and I thought it was an unfair dig at my good friends, the gentleman 
from New York (Mr. Rangel) and the gentleman from Michigan (Mr. 
Dingell), and their bill being $1 trillion. That was not true, because 
there was no effort to put the cost containment in.
  But we and the Blue Dogs have put together a budget; we put together 
a plan at $400 billion that falls right within the issue.
  This is an important issue to all the people of this Nation. And here 
we are at 1:30 in the morning on my birthday. But I will tell my 
colleagues this: I could not find a better thing to do on my birthday 
than to be down here fighting for these seniors, that the Democratic 
Party has been fighting for ever since we have had a Democratic Party. 
I would hope that we would get this opportunity to recommit.
  Mr. THOMPSON of California. Mr. Speaker, I yield 45 seconds to our 
colleague, the gentleman from Vermont (Mr. Sanders).
  Mr. SANDERS. Mr. Speaker, I am not really a Blue Dog.
  Mr. Speaker, the Republican proposal ignores the most important 
prescription drug issue facing our country: cost containment and the 
need to end the national disgrace by which our citizens are forced to 
pay, by far, the highest prices in the world for prescription drugs. If 
we do not pass this motion to recommit, the pharmaceutical industry 
will have succeeded in keeping prices high and their profits high.
  This motion to recommit removes the poison pill in H.R. 1, the so-
called Cochran amendment, and establishes a real prescription drug 
reimportation program with Canada. This provision alone, without 
costing the taxpayers one penny, will do more to help seniors and all 
Americans get affordable drugs than the $400 billion being spent by the 
Republicans.
  Mr. THOMPSON of California. Mr. Speaker, I yield 45 seconds to our 
colleague, the gentleman from Illinois (Mr. Emanuel), who is not a Blue 
Dog, but knows a good deal when he sees one.
  Mr. EMANUEL. Mr. Speaker, the speaker earlier talked about using 
competition and market forces. This bill allows competition between 
generics versus name brand, so we get the best price. It allows us to 
have competition whether we want to buy here in the United States, 
England, France, or Germany, and allows competition between those 
prices. It would save money. It uses market forces to reduce prices.
  Third, it allows the Secretary of HHS to get the best available 
price, just like all of the Sam's Clubs all over America. It does that 
here. It allows competition and market forces to reduce prices.
  These provisions have, in the past, received bipartisan support. They 
should receive bipartisan support today because they represent our 
common principles of reducing prices and making medications affordable 
to all Americans.
  Mr. THOMPSON of California. Mr. Speaker, I urge this body to vote to 
send this motion back to committee and promptly report back a solid 
Medicare prescription drug benefit that we can pass tomorrow.
  Mr. THOMAS. Mr. Speaker, I rise in opposition to the motion to 
recommit.
  I do want to announce that today is the gentleman from Iowa's (Mr. 
Nussle) birthday as well.
  As my colleagues know, I have a reputation for reading legislation. I 
apologize. As I began reading the motion to

[[Page 16593]]

recommit, as I got to page 3, the comment of the gentleman from Vermont 
ringing in my ears, about how they are really concerned about cost 
containment.
  It turns out subtitle D has been scratched from the bill, my 
colleagues might like to know. It contains section 131, additional 
requirements for annual financial report and oversight on the Medicare 
program. Section 132, trustee report on Medicare's unfunded 
obligations. That has been scratched from the bill.
  And I continued to try to go through; but, actually, you only need 
the front page. My colleagues heard them say over and over again: 
``promptly.'' We know by now: ``forthwith,'' ``it works.'' ``It comes 
back, we can vote on it.''
  I say: promptly, it does not mean a thing.
  Vote ``no'' on the motion to recommit.
  Mr. Speaker, I yield back the balance of my time.
  The SPEAKER pro tempore (Mr. Hastings of Washington). Without 
objection, the previous question is ordered on the motion to recommit.
  There was no objection.
  The SPEAKER pro tempore. The question is on the motion to recommit.
  The question was taken; and the Speaker pro tempore announced that 
the noes appeared to have it.


                             Recorded Vote

  Mr. THOMPSON of California. Mr. Speaker, I demand a recorded vote.
  A recorded vote was ordered.
  The vote was taken by electronic device, and there were--ayes 208, 
noes 223, not voting 4, as follows:

                             [Roll No. 331]

                               AYES--208

     Abercrombie
     Ackerman
     Alexander
     Allen
     Andrews
     Baca
     Baird
     Baldwin
     Ballance
     Becerra
     Bell
     Berkley
     Berman
     Berry
     Bishop (GA)
     Bishop (NY)
     Blumenauer
     Boswell
     Boucher
     Boyd
     Brady (PA)
     Brown (OH)
     Brown, Corrine
     Capps
     Capuano
     Cardin
     Cardoza
     Carson (IN)
     Carson (OK)
     Case
     Clay
     Clyburn
     Conyers
     Cooper
     Costello
     Cramer
     Crowley
     Cummings
     Davis (AL)
     Davis (CA)
     Davis (FL)
     Davis (IL)
     Davis (TN)
     DeFazio
     DeGette
     Delahunt
     DeLauro
     Deutsch
     Dicks
     Dingell
     Doggett
     Dooley (CA)
     Doyle
     Edwards
     Emanuel
     Emerson
     Engel
     Eshoo
     Etheridge
     Evans
     Farr
     Fattah
     Filner
     Ford
     Frank (MA)
     Frost
     Gephardt
     Gonzalez
     Gordon
     Green (TX)
     Grijalva
     Gutierrez
     Gutknecht
     Hall
     Harman
     Hastings (FL)
     Hill
     Hinchey
     Hinojosa
     Hoeffel
     Holden
     Holt
     Honda
     Hooley (OR)
     Hoyer
     Inslee
     Israel
     Jackson (IL)
     Jackson-Lee (TX)
     Jefferson
     John
     Johnson, E. B.
     Jones (OH)
     Kanjorski
     Kaptur
     Kennedy (RI)
     Kildee
     Kilpatrick
     Kind
     Kleczka
     Kucinich
     Lampson
     Langevin
     Lantos
     Larsen (WA)
     Larson (CT)
     Lee
     Levin
     Lewis (GA)
     Lipinski
     Lofgren
     Lowey
     Lucas (KY)
     Lynch
     Majette
     Maloney
     Markey
     Marshall
     Matheson
     Matsui
     McCarthy (MO)
     McCarthy (NY)
     McCollum
     McDermott
     McGovern
     McIntyre
     McNulty
     Meehan
     Meek (FL)
     Meeks (NY)
     Menendez
     Michaud
     Millender-McDonald
     Miller (NC)
     Miller, George
     Mollohan
     Moore
     Moran (VA)
     Murtha
     Nadler
     Napolitano
     Neal (MA)
     Oberstar
     Obey
     Olver
     Ortiz
     Owens
     Pallone
     Pascrell
     Pastor
     Payne
     Pelosi
     Peterson (MN)
     Pomeroy
     Price (NC)
     Rahall
     Rangel
     Reyes
     Rodriguez
     Ross
     Rothman
     Roybal-Allard
     Ruppersberger
     Rush
     Ryan (OH)
     Sabo
     Sanchez, Linda T.
     Sanchez, Loretta
     Sanders
     Sandlin
     Schakowsky
     Schiff
     Scott (GA)
     Scott (VA)
     Serrano
     Sherman
     Skelton
     Slaughter
     Snyder
     Solis
     Spratt
     Stark
     Stenholm
     Strickland
     Stupak
     Tanner
     Tauscher
     Taylor (MS)
     Thompson (CA)
     Thompson (MS)
     Tierney
     Towns
     Turner (TX)
     Udall (CO)
     Udall (NM)
     Van Hollen
     Velazquez
     Visclosky
     Wamp
     Waters
     Watson
     Watt
     Waxman
     Weiner
     Wexler
     Woolsey
     Wu
     Wynn

                               NOES--223

     Aderholt
     Akin
     Bachus
     Baker
     Ballenger
     Barrett (SC)
     Bartlett (MD)
     Barton (TX)
     Bass
     Beauprez
     Bereuter
     Biggert
     Bilirakis
     Bishop (UT)
     Blackburn
     Blunt
     Boehlert
     Boehner
     Bonilla
     Bonner
     Bono
     Boozman
     Bradley (NH)
     Brady (TX)
     Brown (SC)
     Brown-Waite, Ginny
     Burgess
     Burns
     Burr
     Burton (IN)
     Buyer
     Calvert
     Camp
     Cannon
     Cantor
     Capito
     Carter
     Castle
     Chabot
     Chocola
     Coble
     Cole
     Collins
     Cox
     Crane
     Crenshaw
     Cubin
     Culberson
     Cunningham
     Davis, Jo Ann
     Davis, Tom
     Deal (GA)
     DeLay
     DeMint
     Diaz-Balart, L.
     Diaz-Balart, M.
     Doolittle
     Dreier
     Duncan
     Dunn
     Ehlers
     English
     Everett
     Feeney
     Ferguson
     Flake
     Fletcher
     Foley
     Forbes
     Fossella
     Franks (AZ)
     Frelinghuysen
     Gallegly
     Garrett (NJ)
     Gerlach
     Gibbons
     Gilchrest
     Gillmor
     Gingrey
     Goode
     Goodlatte
     Goss
     Granger
     Graves
     Green (WI)
     Greenwood
     Harris
     Hart
     Hastert
     Hastings (WA)
     Hayes
     Hayworth
     Hefley
     Hensarling
     Herger
     Hobson
     Hoekstra
     Hostettler
     Houghton
     Hulshof
     Hunter
     Hyde
     Isakson
     Issa
     Istook
     Janklow
     Jenkins
     Johnson (CT)
     Johnson (IL)
     Johnson, Sam
     Jones (NC)
     Keller
     Kelly
     Kennedy (MN)
     King (IA)
     King (NY)
     Kingston
     Kirk
     Kline
     Knollenberg
     Kolbe
     LaHood
     Latham
     Leach
     Lewis (CA)
     Lewis (KY)
     Linder
     LoBiondo
     Lucas (OK)
     Manzullo
     McCotter
     McCrery
     McHugh
     McKeon
     Mica
     Miller (FL)
     Miller (MI)
     Miller, Gary
     Moran (KS)
     Murphy
     Musgrave
     Myrick
     Nethercutt
     Neugebauer
     Ney
     Northup
     Norwood
     Nunes
     Nussle
     Osborne
     Ose
     Otter
     Oxley
     Paul
     Pearce
     Pence
     Peterson (PA)
     Petri
     Pickering
     Pitts
     Platts
     Pombo
     Porter
     Portman
     Pryce (OH)
     Putnam
     Quinn
     Radanovich
     Ramstad
     Regula
     Rehberg
     Renzi
     Reynolds
     Rogers (AL)
     Rogers (KY)
     Rogers (MI)
     Rohrabacher
     Ros-Lehtinen
     Royce
     Ryan (WI)
     Ryun (KS)
     Saxton
     Schrock
     Sensenbrenner
     Sessions
     Shadegg
     Shaw
     Shays
     Sherwood
     Shimkus
     Shuster
     Simmons
     Simpson
     Smith (MI)
     Smith (NJ)
     Smith (TX)
     Souder
     Stearns
     Sullivan
     Sweeney
     Tancredo
     Tauzin
     Taylor (NC)
     Terry
     Thomas
     Thornberry
     Tiahrt
     Tiberi
     Toomey
     Turner (OH)
     Upton
     Vitter
     Walden (OR)
     Walsh
     Weldon (FL)
     Weldon (PA)
     Weller
     Whitfield
     Wicker
     Wilson (NM)
     Wilson (SC)
     Wolf
     Young (AK)

                             NOT VOTING--4

     LaTourette
     McInnis
     Smith (WA)
     Young (FL)


                Announcement by the Speaker Pro Tempore

  The SPEAKER pro tempore (Mr. Hastings of Washington) (during the 
vote). Members are advised there are 2 minutes remaining in this vote.

                              {time}  0138

  So the motion to recommit was rejected.
  The result of the vote was announced as above recorded.
  The SPEAKER pro tempore. The question is on the passage of the bill.
  The question was taken; and the Speaker pro tempore announced that 
the ayes appeared to have it.


                             Recorded Vote

  Mr. LEVIN. Mr. Speaker, I demand a recorded vote.
  A recorded vote was ordered.
  The SPEAKER pro tempore. Pursuant to clause 8 of rule XX, this 15-
minute vote will be followed by a 5-minute vote on H.R. 2417.
  The vote was taken by electronic device, and there were--ayes 216, 
noes 215, answered ``present'' 1, not voting 3, as follows:

                             [Roll No. 332]

                               AYES--216

     Aderholt
     Akin
     Alexander
     Bachus
     Baker
     Ballenger
     Barrett (SC)
     Bartlett (MD)
     Barton (TX)
     Bass
     Beauprez
     Bereuter
     Biggert
     Bilirakis
     Bishop (UT)
     Blackburn
     Blunt
     Boehlert
     Boehner
     Bonilla
     Bonner
     Bono
     Boozman
     Boswell
     Bradley (NH)
     Brady (TX)
     Brown (SC)
     Brown-Waite, Ginny
     Burgess
     Burns
     Calvert
     Camp
     Cannon
     Cantor
     Capito
     Carter
     Castle
     Chabot
     Chocola
     Coble
     Cole
     Collins
     Cox
     Cramer
     Crane
     Crenshaw
     Cubin
     Culberson
     Cunningham
     Davis, Jo Ann
     Davis, Tom
     Deal (GA)
     DeLay
     Diaz-Balart, L.
     Diaz-Balart, M.
     Doolittle
     Dreier
     Duncan
     Dunn
     Ehlers
     Emerson
     English
     Everett
     Feeney
     Ferguson
     Fletcher
     Foley
     Forbes
     Fossella
     Franks (AZ)
     Frelinghuysen
     Gallegly
     Garrett (NJ)
     Gerlach
     Gibbons
     Gilchrest
     Gillmor
     Gingrey
     Goode
     Goodlatte
     Goss
     Granger
     Graves
     Green (WI)
     Greenwood
     Hall
     Harris
     Hart
     Hastert
     Hastings (WA)
     Hayes
     Hayworth
     Hefley
     Hensarling
     Herger
     Hobson
     Hoekstra
     Houghton
     Hulshof
     Hunter
     Hyde
     Isakson
     Israel
     Issa

[[Page 16594]]


     Janklow
     Jenkins
     Johnson (CT)
     Johnson (IL)
     Johnson, Sam
     Keller
     Kelly
     Kennedy (MN)
     King (IA)
     King (NY)
     Kingston
     Kirk
     Kline
     Knollenberg
     Kolbe
     LaHood
     Latham
     LaTourette
     Leach
     Lewis (CA)
     Lewis (KY)
     Linder
     LoBiondo
     Lucas (KY)
     Lucas (OK)
     Manzullo
     Matheson
     McCotter
     McCrery
     McHugh
     McKeon
     Mica
     Miller (MI)
     Miller, Gary
     Murphy
     Myrick
     Nethercutt
     Neugebauer
     Ney
     Northup
     Nunes
     Nussle
     Osborne
     Ose
     Otter
     Oxley
     Pearce
     Peterson (MN)
     Peterson (PA)
     Petri
     Pickering
     Pitts
     Platts
     Pombo
     Pomeroy
     Porter
     Portman
     Pryce (OH)
     Putnam
     Quinn
     Radanovich
     Ramstad
     Regula
     Rehberg
     Renzi
     Reynolds
     Rogers (AL)
     Rogers (KY)
     Rogers (MI)
     Rohrabacher
     Ros-Lehtinen
     Royce
     Ryan (WI)
     Saxton
     Schrock
     Sessions
     Shaw
     Shays
     Sherwood
     Shimkus
     Shuster
     Simmons
     Simpson
     Smith (NJ)
     Smith (TX)
     Souder
     Stearns
     Sullivan
     Sweeney
     Tauzin
     Taylor (NC)
     Terry
     Thomas
     Thornberry
     Tiahrt
     Tiberi
     Toomey
     Turner (OH)
     Upton
     Vitter
     Walden (OR)
     Walsh
     Wamp
     Weldon (FL)
     Weldon (PA)
     Weller
     Whitfield
     Wicker
     Wilson (NM)
     Wilson (SC)
     Wolf
     Young (AK)

                               NOES--215

     Abercrombie
     Ackerman
     Allen
     Andrews
     Baca
     Baird
     Baldwin
     Ballance
     Becerra
     Bell
     Berkley
     Berman
     Berry
     Bishop (GA)
     Bishop (NY)
     Blumenauer
     Boucher
     Boyd
     Brady (PA)
     Brown (OH)
     Brown, Corrine
     Burr
     Burton (IN)
     Buyer
     Capps
     Capuano
     Cardin
     Cardoza
     Carson (IN)
     Carson (OK)
     Case
     Clay
     Clyburn
     Conyers
     Cooper
     Costello
     Crowley
     Cummings
     Davis (AL)
     Davis (CA)
     Davis (FL)
     Davis (IL)
     Davis (TN)
     DeFazio
     DeGette
     Delahunt
     DeLauro
     DeMint
     Deutsch
     Dicks
     Dingell
     Doggett
     Dooley (CA)
     Doyle
     Edwards
     Emanuel
     Engel
     Eshoo
     Etheridge
     Evans
     Farr
     Fattah
     Filner
     Flake
     Ford
     Frank (MA)
     Frost
     Gephardt
     Gonzalez
     Gordon
     Green (TX)
     Grijalva
     Gutierrez
     Gutknecht
     Harman
     Hastings (FL)
     Hill
     Hinchey
     Hinojosa
     Hoeffel
     Holden
     Holt
     Honda
     Hooley (OR)
     Hostettler
     Hoyer
     Inslee
     Jackson (IL)
     Jackson-Lee (TX)
     Jefferson
     John
     Johnson, E. B.
     Jones (NC)
     Jones (OH)
     Kanjorski
     Kaptur
     Kennedy (RI)
     Kildee
     Kilpatrick
     Kind
     Kleczka
     Kucinich
     Lampson
     Langevin
     Lantos
     Larsen (WA)
     Larson (CT)
     Lee
     Levin
     Lewis (GA)
     Lipinski
     Lofgren
     Lowey
     Lynch
     Majette
     Maloney
     Markey
     Marshall
     Matsui
     McCarthy (MO)
     McCarthy (NY)
     McCollum
     McDermott
     McGovern
     McIntyre
     McNulty
     Meehan
     Meek (FL)
     Meeks (NY)
     Menendez
     Michaud
     Millender-McDonald
     Miller (FL)
     Miller (NC)
     Miller, George
     Mollohan
     Moore
     Moran (KS)
     Moran (VA)
     Murtha
     Musgrave
     Nadler
     Napolitano
     Neal (MA)
     Norwood
     Oberstar
     Obey
     Olver
     Ortiz
     Owens
     Pallone
     Pascrell
     Pastor
     Paul
     Payne
     Pelosi
     Pence
     Price (NC)
     Rahall
     Rangel
     Reyes
     Rodriguez
     Ross
     Rothman
     Roybal-Allard
     Ruppersberger
     Rush
     Ryan (OH)
     Ryun (KS)
     Sabo
     Sanchez, Linda T.
     Sanchez, Loretta
     Sanders
     Sandlin
     Schakowsky
     Schiff
     Scott (GA)
     Scott (VA)
     Sensenbrenner
     Serrano
     Shadegg
     Sherman
     Skelton
     Slaughter
     Smith (MI)
     Snyder
     Solis
     Spratt
     Stark
     Stenholm
     Strickland
     Stupak
     Tancredo
     Tanner
     Tauscher
     Taylor (MS)
     Thompson (CA)
     Thompson (MS)
     Tierney
     Towns
     Turner (TX)
     Udall (CO)
     Udall (NM)
     Van Hollen
     Velazquez
     Visclosky
     Waters
     Watson
     Watt
     Waxman
     Weiner
     Wexler
     Woolsey
     Wu
     Wynn

                        ANSWERED ``PRESENT''--1

       
     Istook
       

                             NOT VOTING--3

     McInnis
     Smith (WA)
     Young (FL)


                Announcement by the Speaker Pro Tempore

  The SPEAKER pro tempore (Mr. Hastings of Washington) (during the 
vote). Members are advised there are 2 minutes remaining in this vote.

                              {time}  0233

  Live pair:
  On this vote:

       Mr. Istook with Mr. Young of Florida:

  Mr. ISTOOK. Mr. Speaker, on my vote just recorded I voted ``no.'' I 
have a pair with the gentleman from Florida, Mr. Young, who is at a 
funeral, and desire to change my vote and be recorded as ``present.''
  Mr. OTTER and Mrs. EMERSON changed their vote from ``no'' to ``aye.''
  So the bill was passed.
  The result of the vote was announced as above recorded.
  A motion to reconsider was laid on the table.
  The SPEAKER pro tempore. Pursuant to section 3 of House Resolution 
299, the text of H.R. 2596 will be appended to the engrossment of H.R. 
1; and H.R. 2596 shall be laid on the table.

                          ____________________