[House Report 107-553]
[From the U.S. Government Publishing Office]



107th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     107-553

======================================================================



 
 PROVIDING FOR CONSIDERATION OF H.R. 4954, MEDICARE MODERNIZATION AND 
                     PRESCRIPTION DRUG ACT OF 2002

                                _______
                                

   June 27 (legislative day, June 26), 2002.--Referred to the House 
                   Calendar and ordered to be printed

                                _______
                                

    Mr. Linder, from the Committee on Rules, submitted the following

                              R E P O R T

                       [To accompany H. Res. 465]

    The Committee on Rules, having had under consideration 
House Resolution 465, by a record vote of 9 to 4, report the 
same to the House with the recommendation that the resolution 
be adopted.

                SUMMARY OF PROVISIONS OF THE RESOLUTION

    The resolution provides for consideration in the House of 
H.R. 4954, the Medicare Modernization and Prescription Drug Act 
of 2002, under a closed rule. The rule provides two hours of 
debate on the bill, as amended, with one hour equally divided 
and controlled by the chairman and ranking minority member of 
the Committee on Ways and Means and one hour equally divided 
and controlled by the chairman and ranking minority member of 
the Committee on Energy and Commerce.
    The rule waives all points of order against consideration 
of the bill except those arising under section 302(f) of the 
Congressional Budget Act of 1974 (prohibiting spending above a 
302(a) allocation).
    The rule provides that in lieu of the amendment recommended 
by the Committee on Ways and Means, the amendment in the nature 
of a substitute printed in the report of the Committee on Rules 
accompanying this resolution shall be considered as adopted. 
The rule waives all points of order against the bill as 
amended. Finally, the rule provides one motion to recommit with 
or without instructions.
    The waiver of all points of order against consideration of 
the bill except those arising under section 302(f) of the 
Congressional Budget Act of 1974 includes a waiver of clause 
4(a) of rule XIII (requiring a three-day layover of the 
committee report). The waiver of clause 4(a) of rule XIII is 
needed because the report was not available until Wednesday, 
June 26 and the bill may be considered by the House as early as 
Thursday, June 27.
    The waiver of all points of order against the bill as 
amended includes a waiver of clause 4 of rule XXI (prohibiting 
appropriations on a legislative bill). The waiver of clause 4 
of rule XXI is needed because of technical violations with 
respect to creation of a new trust fund.

                            COMMITTEE VOTES

    Pursuant to clause 3(b) of House rule XIII the results of 
each record vote on an amendment or motion to report, together 
with the names of those voting for and against, are printed 
below.

Rules Committee record vote No. 140

    Date: June 26, 2002.
    Measure: H.R. 4954.
    Motion by: Mr. Frost.
    Summary of motion: To make in order the amendment offered 
by Representative Green, which ensures that separate payments 
toward a beneficiaries' costs by a retiree plan, supplemental 
insurance, friends, family, or charitable organizations, would 
be counted as out-of-pocket expenses as if they were paid by 
the beneficiary.
    Results: Defeated 4 to 8.
    Vote by Members: Goss--Nay; Linder--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Myrick--Nay; Sessions--Nay; Reynolds--Nay; 
Frost--Yea; Slaughter--Yea; McGovern--Yea; Hastings (FL)--Yea; 
Dreier--Nay.

Rules Committee record vote No. 141

    Date: June 26, 2002.
    Measure: H.R. 4954.
    Motion by: Mr. Frost.
    Summary of motion: To make in order the amendment in the 
nature of a substitute offered by Representative Brown of Ohio.
    Results: Defeated 4 to 8.
    Vote by Members: Goss--Nay; Linder--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Myrick--Nay; Sessions--Nay; Reynolds--Nay; 
Frost--Yea; Slaughter--Yea; McGovern--Yea; Hastings (FL)--Yea; 
Dreier--Nay.

Rules Committee record vote No. 142

    Date: June 26, 2002.
    Measure: H.R. 4954.
    Motion by: Mrs. Slaughter.
    Summary of motion: To make in order the amendment offered 
by Representatives Capps and Pallone, which directs CMS to 
operate as a private drug plan under the provisions of the bill 
to ensure that all seniors have the option of prescription drug 
coverage. If, as is the case with Medicare+Choice, insurance 
companies choose not to offer a plan in particular geographic 
areas, a national plan run by CMS will provide a fall back for 
all seniors. A national plan will also contribute to 
competition in all areas.
    Results: Defeated 4 to 8.
    Vote by Members: Goss--Nay; Linder--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Myrick--Nay; Sessions--Nay; Reynolds--Nay; 
Frost--Yea; Slaughter--Yea; McGovern--Yea; Hastings (FL)--Yea; 
Dreier--Nay.

Rules Committee record vote No. 143

    Date: June 26, 2002.
    Measure: H.R. 4954.
    Motion by: Mrs. Slaughter.
    Summary of motion: To make in order the amendment offered 
by Representative Davis of Illinois, which closes the 
``doughnut gap'' by allowing the 50 percent coverage to be 
extended by $3,800 out-of-pocket.
    Results: Defeated 4 to 8.
    Vote by Members: Goss--Nay; Linder--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Myrick--Nay; Sessions--Nay; Reynolds--Nay; 
Frost--Yea; Slaughter--Yea; McGovern--Yea; Hastings (FL)--Yea; 
Dreier--Nay.

Rules Committee record vote No. 144

    Date: June 26, 2002.
    Measure: H.R. 4954.
    Motion by: Mrs. Slaughter.
    Summary of motion: To make in order the amendment offered 
by Representative Davis of Illinois, which changes the proposed 
coverage for an initial preventive physical examinations to 
include annual preventive physical examinations
    Results: Defeated 4 to 8.
    Vote by Members: Goss--Nay; Linder--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Myrick--Nay; Sessions--Nay; Reynolds--Nay; 
Frost--Yea; Slaughter--Yea; McGovern--Yea; Hasting (FL)--Yea; 
Dreier--Nay.

Rules Committee record vote No. 145

    Date: June 26, 2002.
    Measure: H.R. 4954.
    Motion by: Mrs. Slaughter.
    Summary of motion: To make in order the amendment offered 
by Representative Pallone, which repeals the $1,500 beneficiary 
cap on outpatient rehabilitation therapy
    Results: Defeated 4 to 8.
    Vote by Members: Goss--Nay; Linder--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Myrick--Nay; Sessions--Nay; Reynolds--Nay; 
Frost--Yea; Slaughter--Yea; McGovern--Yea; Hasting (FL)--Yea; 
Dreier--Nay.

Rules Committee record vote No. 146

    Date: June 26, 2002.
    Measure: H.R. 4954.
    Motion by: Mr. McGovern.
    Summary of motion: The amendment offered by Representatives 
Thune, Manzullo and Moran of Virginia, which strikes section 
105, the Medicare Prescription Drug Discount Card Endorsement 
Program, from the bill.
    Results: Defeated 4 to 8.
    Vote by Members: Goss--Nay; Linder--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Myrick--Nay; Sessions--Nay; Reynolds--Nay; 
Frost--Yea; Slaughter--Yea; McGovern--Yea; Hasting (FL)--Yea; 
Dreier--Nay.

Rules Committee record vote No. 147

    Date: June 26, 2002.
    Measure: H.R. 4954.
    Motion by: Mr. McGovern.
    Summary of motion: To make in order the amendment offered 
by Representative Capps, which targets the increases in 
Medicare+Choice provided for in the base bill to geographic 
areas that have, in the opinion of the Secretary of HHS, 
suffered the most from Medicare HMO pullouts and benefit cuts. 
Requires plans that receive these increases to offer brand name 
prescription drug coverage and vision services.
    Results: Defeated 4 to 8.
    Vote by Members: Goss--Nay; Linder--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Myrick--Nay; Sessions--Nay; Reynolds--Nay; 
Frost--Yea; Slaughter--Yea; McGovern--Yea; Hastings (FL)--Yea; 
Dreier--Nay.

Rules Committee record vote No. 148

    Date: June 26, 2002.
    Measure: H.R. 4954.
    Motion by: Mr. McGovern.
    Summary of motion: To make in order the amendment offered 
by Representative McGovern, which strikes the competitive 
bidding requirement for medical equipment.
    Results: Defeated 4 to 8.
    Vote by Members: Goss--Nay; Linder--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Myrick--Nay; Sessions--Nay; Reynolds--Nay; 
Frost--Yea; Slaughter--Yea; McGovern--Yea; Hastings (FL)--Yea; 
Dreier--Nay.

Rules Committee record vote No. 149

    Date: June 26, 2002.
    Measure: H.R. 4954.
    Motion by: Mr. McGovern.
    Summary of motion: To make in order the amendment offered 
by Representative Pallone, which provides that Secretary of 
Health and Human Services shall use the collective purchasing 
power of 40 million Medicare beneficiaries to negotiate lower 
drug prices.
    Results: Defeated 4 to 8.
    Vote by Members: Goss--Nay; Linder--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Myrick--Nay; Sessions--Nay; Reynolds--Nay; 
Frost--Yea; Slaughter--Yea; McGovern--Yea; Hastings (FL)--Yea; 
Dreier--Nay.

Rules Committee record vote No. 150

    Date: June 26, 2002.
    Measure: H.R. 4954.
    Motion by: Mr. McGovern.
    Summary of motion: To make in order the amendment offered 
by Representative Pallone, which allows pharmacies to purchase 
prescription drugs for Medicare beneficiaries at the same 
prices available to the federal government such as the Federal 
Supply Schedule price or the Medicaid price.
    Results: Defeated 4 to 8.
    Vote by Members: Goss--Nay; Linder--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Myrick--Nay; Sessions--Nay; Reynolds--Nay; 
Frost--Yea; Slaughter--Yea; McGovern--Yea; Hastings (FL)--Yea; 
Dreier--Nay.

Rules Committee record vote No. 151

    Date: June 26, 2002.
    Measure: H.R. 4954.
    Motion by: Mr. McGovern.
    Summary of motion: To make in order the amendment offered 
by Representative Pallone, which allows pharmacies to purchase 
prescription drugs for Medicare beneficiaries at the drugs' low 
``average foreign price,'' which means the average price that 
the manufacturer realizes on drugs sold in Canada, France, 
Germany, Italy, Japan, and the United Kingdom.
    Results: Defeated 4 to 8.
    Vote by Members: Goss--Nay; Linder--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Myrick--Nay; Sessions--Nay; Reynolds--Nay; 
Frost--Yea; Slaughter--Yea; McGovern--Yea; Hastings (FL)--Yea; 
Dreier--Nay.

Rules Committee record vote No. 152

    Date: June 26, 2002.
    Measure: H.R. 4954.
    Motion by: Mr. Hastings of Florida.
    Summary of motion: To make in order the amendment offered 
by Representative Manzullo, which prohibits discrimination by 
either PDP plan sponsors or pharmaceutical manufacturers 
against pharmacies with a sponsor's network by mandating that 
terms and conditions of contracts, including wholesale lot 
prices and rebates, be identical for all pharmacies within the 
network. Requires that rules to implement the prescription drug 
benefit be issued pursuant to notice and comment, requires 
preparation of a regulatory flexibility analysis, and permits 
immediate judicial review of regulations in the federal circuit 
courts of appeals.
    Results: Defeated 4 to 8.
    Vote by Members: Goss--Nay; Linder--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Myrick--Nay; Sessions--Nay; Reynolds--Nay; 
Frost--Yea; Slaughter--Yea; McGovern--Yea; Hastings (FL)--Yea; 
Dreier--Nay.

Rules Committee record vote No. 153

    Date: June 26, 2002.
    Measure: H.R. 4954.
    Motion by: Mr. Hastings of Florida.
    Summary of motion: To make in order the amendment offered 
by Representative Pallone which allows a U.S.-licensed 
pharmacists and drug wholesalers to import FDA-approved 
medication from Canada only. The amendment also gives 
individuals a waiver to import prescription drugs from Canada 
as long as the medicine is for their own personal use (as 
evidence by a prescription) and is a 90-day supply or less.
    Results: Defeated 4 to 8.
    Vote by Members: Goss--Nay; Linder--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Myrick--Nay; Sessions--Nay; Reynolds--Nay; 
Frost--Yea; Slaughter--Yea; McGovern--Yea; Hastings--Yea; 
Dreier--Nay.

Rules Committee record vote No. 154

    Date: June 26, 2002.
    Measure: H.R. 4954.
    Motion by: Mr. Hastings of Florida.
    Summary of motion: To make in order the amendment offered 
by Representative Davis of Illinois, which strikes the language 
in the bill that excludes residents of the U.S. Territories.
    Results: Defeated 4 to 8.
    Vote by Members: Goss--Nay; Linder--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Myrick--Nay; Sessions--Nay; Reynolds--Nay; 
Frost--Yea; Slaughter--Yea; McGovern--Yea; Hastings (FL)--Yea; 
Dreier--Nay.

Rules Committee record vote No. 155

    Date: June 26, 2002.
    Measure: H.R. 4954.
    Motion by: Mr. Hastings of Florida.
    Summary of motion: To make in order the amendment offered 
by Representatives Allen and Thurman, which requires that 
prescription drug plans or Medicare+Choice plans obtain and 
make available to beneficiaries prescription drugs at prices no 
greater than the manufacturer's average foreign price. Average 
foreign price is defined as the average of prices charged in 
Canada, France, Germany, Italy, Japan, and the United Kingdom.
    Results: Defeated 4 to 8.
    Vote by Members: Goss--Nay; Linder--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Myrick--Nay; Sessions--Nay; Reynolds--Nay; 
Frost--Yea; Slaughter--Yea; McGovern--Yea; Hastings (FL)--Yea; 
Dreier--Nay.

Rules Committee record vote No. 156

    Date: June 26, 2002.
    Measure: H.R. 4954.
    Motion by: Mr. Hastings of Florida.
    Summary of motion: To make in order the amendment offered 
by Representative Davis of Illinois, which expands the project 
to examine impact on cost and health outcomes of disease 
management to Hispanics with diabetes to include other members 
of minority ethnic groups, particularly African-Americans, 
Hispanics, and Native Americans.
    Results: Defeated 4 to 9.
    Vote by Members: Goss--Nay; Linder--Nay; Pryce--Nay; Diaz-
Balart--Nay; Hastings (WA)--Nay; Myrick--Nay; Sessions--Nay; 
Reynolds--Nay; Frost--Yea; Slaughter--Yea; McGovern--Yea; 
Hastings (FL)--Yea; Dreier--Nay.

Rules Committee record vote No. 157

    Date: June 26, 2002.
    Measure: H.R. 4954.
    Motion by: Mr. Frost.
    Summary of motion: To make in order an en bloc amendment 
consisting of amendments offered by Representatives Capps, 
Davis, DeFazio, Pallone, Green, Cardin, Gutknecht.
    Results: Defeated 4 to 9.
    Vote by Members: Goss--Nay; Linder--Nay; Pryce--Nay; Diaz-
Balart--Nay; Hastings (WA)--Nay; Myrick--Nay; Sessions--Nay; 
Reynolds--Nay; Frost--Yea; Slaughter--Yea; McGovern--Yea; 
Hastings (FL)--Yea; Dreier--Nay.

Rules Committee record vote No. 158

    Date: June 26, 2002.
    Measure: H.R. 4954.
    Motion by: Mr. Goss.
    Summary of motion: To report the resolution.
    Results: Adopted 9 to 4.
    Vote by Members: Goss--Yea; Linder--Yea; Pryce--Yea; Diaz-
Balart--Yea; Hastings (WA)--Yea; Myrick--Yea; Sessions--Yea; 
Reynolds--Yea; Frost--Nay; Slaughter--Nay; McGovern--Nay; 
Hastings (FL)--Nay; Dreier--Yea.

               SUMMARY OF AMENDMENT CONSIDERED AS ADOPTED

    (Summary derived from information provided by sponsors.)
    Johnson/Bilirakis--Amendment in the nature of a substitute. 
The amendment makes the following changes to H.R. 4954 as 
reported from the Committee on Ways and Means:

Title I

    1. Addition of $3 billion Transitional Low Income 
Assistance Program.
    2. Applied the patient confidentiality rule to the 
prescription drug card sponsors.
    3. Lowers catastrophic threshold from $3,800 to $3,700.
    4. Increase premium subsidy from 65% to 67%.
    5. Clarifies that family members contributions may count 
towards individual's catastrophic benefit threshold.
    6. Clarification of how prescription drug premiums are 
established.
    7. Clarification that information requirements apply to 
prospective enrollees as well as current enrollees.
    8. Clarification that community rating requirements mean 
that plans may not vary or increase premiums.
    9. Clarified that practicing pharmacists must be on the 
pharmaceutical and therapeutic committees.
    10. Added study on the impact of the prescription drug 
benefit.

Title II

    11. Deleted extension of municipal demonstration program.
    12. Changed announcement date of M+C rates for 2003 from 2 
weeks to 4 weeks.

Title III

    13. Clarified the calculation of inpatient margins and non-
teaching hospitals with respect to relief for certain non-
teaching hospitals.
    14. Clarified that critical access hospitals may use more 
than 15 beds for acute care limit, subject to the 25 bed limit.

Title IV

    15. Clarified that recovery audit contractors must search 
for under and overpayments.
    16. Added study on improving hospital wage index.

Title V

    17. Added provision on physician fee schedule wage index 
revision related to GAO study and Secretary discretion.
    18. Clarified certain provisions in adult day care 
demonstration project.
    19. Added study related to inhalation drugs.
    20. Deleted acceleration of outpatient buy-down of 
beneficiary hospital coinsurance.

Title VI

    21. Deleted home health co-pay.
    22. Clarified home bound definition.
    23. Clarified that disease management demonstration must be 
consistent with Public Health Service Act.
    24. Added deadline of HHS issuance of report on 
prohibitions against discrimination by national origin with 
respect to health care services.

Title VII

    25. Deleted provisions related to Public Health Service Act 
and Food and Drug and Cosmetic Act.
    26. Added $2 billion provision for Medicaid DSH.
    27. Added $600 million grant to pharmacists in Medicaid.

                TEXT OF AMENDMENT CONSIDERED AS ADOPTED

  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 ``Medicare 
Modernization and Prescription Drug Act of 2002''.
  (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

Sec. 101. Establishment of a medicare prescription drug benefit.

          ``Part D--Voluntary Prescription Drug Benefit Program

    ``Sec. 1860A. Benefits; eligibility; enrollment; and coverage 
              period.
    ``Sec. 1860B. Requirements for qualified prescription drug coverage.
    ``Sec. 1860C. Beneficiary protections for qualified prescription 
              drug coverage.
    ``Sec. 1860D. Requirements for prescription drug plan (PDP) 
              sponsors; contracts; establishment of standards.
    ``Sec. 1860E. Process for beneficiaries to select qualified 
              prescription drug coverage.
    ``Sec. 1860F. Submission of bids and premiums.
    ``Sec. 1860G. Premium and cost-sharing subsidies for low-income 
              individuals.
    ``Sec. 1860H. Subsidies for all medicare beneficiaries for qualified 
              prescription drug coverage.
    ``Sec. 1860I. Medicare Prescription Drug Trust Fund.
    ``Sec. 1860J. Definitions; treatment of references to provisions in 
              part C.
Sec. 102. Offering of qualified prescription drug coverage under the 
          Medicare+Choice program.
Sec. 103. Medicaid amendments.
Sec. 104. Medigap transition.
Sec. 105. Medicare prescription drug discount card endorsement program.
Sec. 106. GAO study of the effectiveness of the new prescription drug 
          program.

TITLE II--MEDICARE+CHOICE REVITALIZATION AND MEDICARE+CHOICE COMPETITION 
                                 PROGRAM

               Subtitle A--Medicare+Choice Revitalization

Sec. 201. Medicare+Choice improvements.
Sec. 202. Making permanent change in Medicare+Choice reporting deadlines 
          and annual, coordinated election period.
Sec. 203. Avoiding duplicative State regulation.
Sec. 204. Specialized Medicare+Choice plans for special needs 
          beneficiaries.
Sec. 205. Medicare MSAs.
Sec. 206. Extension of reasonable cost and SHMO contracts.

             Subtitle B--Medicare+Choice Competition Program

Sec. 211. Medicare+Choice competition program.
Sec. 212. Demonstration program for competitive-demonstration areas.
Sec. 213. Conforming amendments.

                TITLE III--RURAL HEALTH CARE IMPROVEMENTS

Sec. 301. Reference to full market basket increase for sole community 
          hospitals.
Sec. 302. Enhanced disproportionate share hospital (DSH) treatment for 
          rural hospitals and urban hospitals with fewer than 100 beds.
Sec. 303. 2-year phased-in increase in the standardized amount in rural 
          and small urban areas to achieve a single, uniform 
          standardized amount.
Sec. 304. More frequent update in weights used in hospital market 
          basket.
Sec. 305. Improvements to critical access hospital program.
Sec. 306. Extension of temporary increase for home health services 
          furnished in a rural area.
Sec. 307. Reference to 10 percent increase in payment for hospice care 
          furnished in a frontier area and rural hospice demonstration 
          project.
Sec. 308. Reference to priority for hospitals located in rural or small 
          urban areas in redistribution of unused graduate medical 
          education residencies.
Sec. 309. GAO study of geographic differences in payments for 
          physicians' services.
Sec. 310. Providing safe harbor for certain collaborative efforts that 
          benefit medically underserved populations.
Sec. 311. Relief for certain non-teaching hospitals.

                 TITLE IV--PROVISIONS RELATING TO PART A

                 Subtitle A--Inpatient Hospital Services

Sec. 401. Revision of acute care hospital payment updates.
Sec. 402. 2-year increase in level of adjustment for indirect costs of 
          medical education (IME).
Sec. 403. Recognition of new medical technologies under inpatient 
          hospital PPS.
Sec. 404. Phase-in of Federal rate for hospitals in Puerto Rico.
Sec. 405. Reference to provision relating to enhanced disproportionate 
          share hospital (DSH) payments for rural hospitals and urban 
          hospitals with fewer than 100 beds.
Sec. 406. Reference to provision relating to 2-year phased-in increase 
          in the standardized amount in rural and small urban areas to 
          achieve a single, uniform standardized amount.
Sec. 407. Reference to provision for more frequent updates in the 
          weights used in hospital market basket.
Sec. 408. Reference to provision making improvements to critical access 
          hospital program.
Sec. 409. GAO study on improving the hospital wage index.

              Subtitle B--Skilled Nursing Facility Services

Sec. 411. Payment for covered skilled nursing facility services.

                           Subtitle C--Hospice

Sec. 421. Coverage of hospice consultation services.
Sec. 422. 10 percent increase in payment for hospice care furnished in a 
          frontier area.
Sec. 423. Rural hospice demonstration project.

                      Subtitle D--Other Provisions

Sec. 431. Demonstration project for use of recovery audit contractors 
          for part A services.

                 TITLE V--PROVISIONS RELATING TO PART B

                    Subtitle A--Physicians' Services

Sec. 501. Revision of updates for physicians' services.
Sec. 502. Studies on access to physicians' services.
Sec. 503. MedPAC report on payment for physicians' services.
Sec. 504. 1-year extension of treatment of certain physician pathology 
          services under medicare.
Sec. 505. Physician fee schedule wage index revision.

                       Subtitle B--Other Services

Sec. 511. Competitive acquisition of certain items and services.
Sec. 512. Payment for ambulance services.
Sec. 513. 2-year extension of moratorium on therapy caps; provisions 
          relating to reports.
Sec. 514. Coverage of an initial preventive physical examination.
Sec. 515. Renal dialysis services.
Sec. 516. Improved payment for certain mammography services.
Sec. 517. Waiver of part B late enrollment penalty for certain military 
          retirees; special enrollment period.
Sec. 518. Coverage of cholesterol and blood lipid screening.

             TITLE VI--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

Sec. 601. Elimination of 15 percent reduction in payment rates under the 
          prospective payment system.
Sec. 602. Update in home health services.
Sec. 603. OASIS Task Force; suspension of certain OASIS data collection 
          requirements pending Task Force submittal of report.
Sec. 604. MedPAC study on medicare margins of home health agencies.
Sec. 605. Clarification of treatment of occasional absences in 
          determining whether an individual is confined to the home.

              Subtitle B--Direct Graduate Medical Education

Sec. 611. Extension of update limitation on high cost programs.
Sec. 612. Redistribution of unused resident positions.

                      Subtitle C--Other Provisions

Sec. 621. Modifications to Medicare Payment Advisory Commission 
          (MedPAC).
Sec. 622. Demonstration project for disease management for certain 
          medicare beneficiaries with diabetes.
Sec. 623. Demonstration project for medical adult day care services.
Sec. 624. Publication on final written guidance concerning prohibitions 
          against discrimination by national origin with respect to 
          health care services.

               TITLE VII--MEDICARE BENEFITS ADMINISTRATION

Sec. 701. Establishment of Medicare Benefits Administration.

         TITLE VIII--REGULATORY REDUCTION AND CONTRACTING REFORM

                      Subtitle A--Regulatory Reform

Sec. 801. Construction; definition of supplier.
Sec. 802. Issuance of regulations.
Sec. 803. Compliance with changes in regulations and policies.
Sec. 804. Reports and studies relating to regulatory reform.

                     Subtitle B--Contracting Reform

Sec. 811. Increased flexibility in medicare administration.
Sec. 812. Requirements for information security for medicare 
          administrative contractors.

                   Subtitle C--Education and Outreach

Sec. 821. Provider education and technical assistance.
Sec. 822. Small provider technical assistance demonstration program.
Sec. 823. Medicare provider ombudsman; medicare beneficiary ombudsman.
Sec. 824. Beneficiary outreach demonstration program.

                    Subtitle D--Appeals and Recovery

Sec. 831. Transfer of responsibility for medicare appeals.
Sec. 832. Process for expedited access to review.
Sec. 833. Revisions to medicare appeals process.
Sec. 834. Prepayment review.
Sec. 835. Recovery of overpayments.
Sec. 836. Provider enrollment process; right of appeal.
Sec. 837. Process for correction of minor errors and omissions on claims 
          without pursuing appeals process.
Sec. 838. Prior determination process for certain items and services; 
          advance beneficiary notices.

                  Subtitle E--Miscellaneous Provisions

Sec. 841. Policy development regarding evaluation and management (E & M) 
          documentation guidelines.
Sec. 842. Improvement in oversight of technology and coverage.
Sec. 843. Treatment of hospitals for certain services under medicare 
          secondary payor (MSP) provisions.
Sec. 844. EMTALA improvements.
Sec. 845. Emergency Medical Treatment and Labor Act (EMTALA) Technical 
          Advisory Group.
Sec. 846. Authorizing use of arrangements with other hospice programs to 
          provide core hospice services in certain circumstances.
Sec. 847. Application of OSHA bloodborne pathogens standard to certain 
          hospitals.
Sec. 848. BIPA-related technical amendments and corrections.
Sec. 849. Conforming authority to waive a program exclusion.
Sec. 850. Treatment of certain dental claims.
Sec. 851. Annual publication of list of national coverage 
          determinations.

                      TITLE IX--MEDICAID PROVISIONS

Sec. 901. National Bipartisan Commission on the Future of Medicaid.
Sec. 902. Disproportionate share hospital (DSH) payments.
Sec. 903. Medicaid pharmacy assistance program.

              TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

SEC. 101. ESTABLISHMENT OF A MEDICARE PRESCRIPTION DRUG BENEFIT.

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

         ``Part D--Voluntary Prescription Drug Benefit Program


``SEC. 1860A. BENEFITS; ELIGIBILITY; ENROLLMENT; AND COVERAGE PERIOD.

  ``(a) Provision of Qualified Prescription Drug Coverage 
Through Enrollment in Plans.--Subject to the succeeding 
provisions of this part, each individual who is entitled to 
benefits under part A or is enrolled under part B is entitled 
to obtain qualified prescription drug coverage (described in 
section 1860B(a)) as follows:
          ``(1) Medicare+choice plan.--If the individual is 
        eligible to enroll in a Medicare+Choice plan that 
        provides qualified prescription drug coverage under 
        section 1851(j), the individual may enroll in the plan 
        and obtain coverage through such plan.
          ``(2) Prescription drug plan.--If the individual is 
        not enrolled in a Medicare+Choice plan that provides 
        qualified prescription drug coverage, the individual 
        may enroll under this part in a prescription drug plan 
        (as defined in section 1860J(a)(5)).
Such individuals shall have a choice of such plans under 
section 1860E(d).
  ``(b) General Election Procedures.--
          ``(1) In general.--An individual eligible to make an 
        election under subsection (a) may elect to enroll in a 
        prescription drug plan under this part, or elect the 
        option of qualified prescription drug coverage under a 
        Medicare+Choice plan under part C, and to change such 
        election only in such manner and form as may be 
        prescribed by regulations of the Administrator of the 
        Medicare Benefits Administration (appointed under 
        section 1808(b)) (in this part referred to as the 
        `Medicare Benefits Administrator') and only during an 
        election period prescribed in or under this subsection.
          ``(2) Election periods.--
                  ``(A) In general.--Except as provided in this 
                paragraph, the election periods under this 
                subsection shall be the same as the coverage 
                election periods under the Medicare+Choice 
                program under section 1851(e), including--
                          ``(i) annual coordinated election 
                        periods; and
                          ``(ii) special election periods.
                In applying the last sentence of section 
                1851(e)(4) (relating to discontinuance of a 
                Medicare+Choice election during the first year 
                of eligibility) under this subparagraph, in the 
                case of an election described in such section 
                in which the individual had elected or is 
                provided qualified prescription drug coverage 
                at the time of such first enrollment, the 
                individual shall be permitted to enroll in a 
                prescription drug plan under this part at the 
                time of the election of coverage under the 
                original fee-for-service plan.
                  ``(B) Initial election periods.--
                          ``(i) Individuals currently 
                        covered.--In the case of an individual 
                        who is entitled to benefits under part 
                        A or enrolled under part B as of 
                        November 1, 2004, there shall be an 
                        initial election period of 6 months 
                        beginning on that date.
                          ``(ii) Individual covered in 
                        future.--In the case of an individual 
                        who is first entitled to benefits under 
                        part A or enrolled under part B after 
                        such date, there shall be an initial 
                        election period which is the same as 
                        the initial enrollment period under 
                        section 1837(d).
                  ``(C) Additional special election periods.--
                The Administrator shall establish special 
                election periods--
                          ``(i) in cases of individuals who 
                        have and involuntarily lose 
                        prescription drug coverage described in 
                        subsection (c)(2)(C);
                          ``(ii) in cases described in section 
                        1837(h) (relating to errors in 
                        enrollment), in the same manner as such 
                        section applies to part B;
                          ``(iii) in the case of an individual 
                        who meets such exceptional conditions 
                        (including conditions provided under 
                        section 1851(e)(4)(D)) as the 
                        Administrator may provide; and
                          ``(iv) in cases of individuals (as 
                        determined by the Administrator) who 
                        become eligible for prescription drug 
                        assistance under title XIX under 
                        section 1935(d).
          ``(3) Information on plans.--Information described in 
        section 1860C(b)(1) on prescription drug plans shall be 
        made available during open enrollment periods.
  ``(c) Guaranteed Issue; Community Rating; and 
Nondiscrimination.--
          ``(1) Guaranteed issue.--
                  ``(A) In general.--An eligible individual who 
                is eligible to elect qualified prescription 
                drug coverage under a prescription drug plan or 
                Medicare+Choice plan at a time during which 
                elections are accepted under this part with 
                respect to the plan shall not be denied 
                enrollment based on any health status-related 
                factor (described in section 2702(a)(1) of the 
                Public Health Service Act) or any other factor.
                  ``(B) Medicare+choice limitations 
                permitted.--The provisions of paragraphs (2) 
                and (3) (other than subparagraph (C)(i), 
                relating to default enrollment) of section 
                1851(g) (relating to priority and limitation on 
                termination of election) shall apply to PDP 
                sponsors under this subsection.
          ``(2) Community-rated premium.--
                  ``(A) In general.--In the case of an 
                individual who maintains (as determined under 
                subparagraph (C)) continuous prescription drug 
                coverage since the date the individual first 
                qualifies to elect prescription drug coverage 
                under this part, a PDP sponsor or 
                Medicare+Choice organization offering a 
                prescription drug plan or Medicare+Choice plan 
                that provides qualified prescription drug 
                coverage and in which the individual is 
                enrolled may not deny, limit, or condition the 
                coverage or provision of covered prescription 
                drug benefits or vary or increase the premium 
                under the plan based on any health status-
                related factor described in section 2702(a)(1) 
                of the Public Health Service Act or any other 
                factor.
                  ``(B) Late enrollment penalty.--In the case 
                of an individual who does not maintain such 
                continuous prescription drug coverage (as 
                described in subparagraph (C)), a PDP sponsor 
                or Medicare+Choice organization may 
                (notwithstanding any provision in this title) 
                adjust the premium otherwise applicable or 
                impose a pre-existing condition exclusion with 
                respect to qualified prescription drug coverage 
                in a manner that reflects additional actuarial 
                risk involved. Such a risk shall be established 
                through an appropriate actuarial opinion of the 
                type described in subparagraphs (A) through (C) 
                of section 2103(c)(4).
                  ``(C) Continuous prescription drug 
                coverage.--An individual is considered for 
                purposes of this part to be maintaining 
                continuous prescription drug coverage on and 
                after the date the individual first qualifies 
                to elect prescription drug coverage under this 
                part if the individual establishes that as of 
                such date the individual is covered under any 
                of the following prescription drug coverage and 
                before the date that is the last day of the 63-
                day period that begins on the date of 
                termination of the particular prescription drug 
                coverage involved (regardless of whether the 
                individual subsequently obtains any of the 
                following prescription drug coverage):
                          ``(i) Coverage under prescription 
                        drug plan or medicare+choice plan.--
                        Qualified prescription drug coverage 
                        under a prescription drug plan or under 
                        a Medicare+Choice plan.
                          ``(ii) Medicaid prescription drug 
                        coverage.--Prescription drug coverage 
                        under a medicaid plan under title XIX, 
                        including through the Program of All-
                        inclusive Care for the Elderly (PACE) 
                        under section 1934, through a social 
                        health maintenance organization 
                        (referred to in section 4104(c) of the 
                        Balanced Budget Act of 1997), or 
                        through a Medicare+Choice project that 
                        demonstrates the application of 
                        capitation payment rates for frail 
                        elderly medicare beneficiaries through 
                        the use of a interdisciplinary team and 
                        through the provision of primary care 
                        services to such beneficiaries by means 
                        of such a team at the nursing facility 
                        involved.
                          ``(iii) Prescription drug coverage 
                        under group health plan.--Any 
                        outpatient prescription drug coverage 
                        under a group health plan, including a 
                        health benefits plan under the Federal 
                        Employees Health Benefit Plan under 
                        chapter 89 of title 5, United States 
                        Code, and a qualified retiree 
                        prescription drug plan as defined in 
                        section 1860H(f)(1), but only if 
                        (subject to subparagraph (E)(ii)) the 
                        coverage provides benefits at least 
                        equivalent to the benefits under a 
                        qualified prescription drug plan.
                          ``(iv) Prescription drug coverage 
                        under certain 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)), but 
                        only if the policy was in effect on 
                        January 1, 2005, and if (subject to 
                        subparagraph (E)(ii)) the coverage 
                        provides benefits at least equivalent 
                        to the benefits under a qualified 
                        prescription drug plan.
                          ``(v) State pharmaceutical assistance 
                        program.--Coverage of prescription 
                        drugs under a State pharmaceutical 
                        assistance program, but only if 
                        (subject to subparagraph (E)(ii)) the 
                        coverage provides benefits at least 
                        equivalent to the benefits under a 
                        qualified prescription drug plan.
                          ``(vi) Veterans' coverage of 
                        prescription drugs.--Coverage of 
                        prescription drugs for veterans under 
                        chapter 17 of title 38, United States 
                        Code, but only if (subject to 
                        subparagraph (E)(ii)) the coverage 
                        provides benefits at least equivalent 
                        to the benefits under a qualified 
                        prescription drug plan.
                  ``(D) Certification.--For purposes of 
                carrying out this paragraph, the certifications 
                of the type described in sections 2701(e) of 
                the Public Health Service Act and in section 
                9801(e) of the Internal Revenue Code shall also 
                include a statement for the period of coverage 
                of whether the individual involved had 
                prescription drug coverage described in 
                subparagraph (C).
                  ``(E) Disclosure.--
                          ``(i) In general.--Each entity that 
                        offers coverage of the type described 
                        in clause (iii), (iv), (v), or (vi) of 
                        subparagraph (C) shall provide for 
                        disclosure, consistent with standards 
                        established by the Administrator, of 
                        whether such coverage provides benefits 
                        at least equivalent to the benefits 
                        under a qualified prescription drug 
                        plan.
                          ``(ii) Waiver of limitations.--An 
                        individual may apply to the 
                        Administrator to waive the requirement 
                        that coverage of such type provide 
                        benefits at least equivalent to the 
                        benefits under a qualified prescription 
                        drug plan, if the individual 
                        establishes that the individual was not 
                        adequately informed that such coverage 
                        did not provide such level of benefits.
                  ``(F) Construction.--Nothing in this section 
                shall be construed as preventing the 
                disenrollment of an individual from a 
                prescription drug plan or a Medicare+Choice 
                plan based on the termination of an election 
                described in section 1851(g)(3), including for 
                non-payment of premiums or for other reasons 
                specified in subsection (d)(3), which takes 
                into account a grace period described in 
                section 1851(g)(3)(B)(i).
          ``(3) Nondiscrimination.--A PDP sponsor offering a 
        prescription drug plan shall not establish a service 
        area in a manner that would discriminate based on 
        health or economic status of potential enrollees.
  ``(d) Effective Date of Elections.--
          ``(1) In general.--Except as provided in this 
        section, the Administrator shall provide that elections 
        under subsection (b) take effect at the same time as 
        the Administrator provides that similar elections under 
        section 1851(e) take effect under section 1851(f).
          ``(2) No election effective before 2005.--In no case 
        shall any election take effect before January 1, 2005.
          ``(3) Termination.--The Administrator shall provide 
        for the termination of an election in the case of--
                  ``(A) termination of coverage under both part 
                A and part B; and
                  ``(B) termination of elections described in 
                section 1851(g)(3) (including failure to pay 
                required premiums).

``SEC. 1860B. REQUIREMENTS FOR QUALIFIED PRESCRIPTION DRUG COVERAGE.

  ``(a) Requirements.--
          ``(1) In general.--For purposes of this part and part 
        C, the term `qualified prescription drug coverage' 
        means either of the following:
                  ``(A) Standard coverage with access to 
                negotiated prices.--Standard coverage (as 
                defined in subsection (b)) and access to 
                negotiated prices under subsection (d).
                  ``(B) Actuarially equivalent coverage with 
                access to negotiated prices.--Coverage of 
                covered outpatient drugs which meets the 
                alternative coverage requirements of subsection 
                (c) and access to negotiated prices under 
                subsection (d), but only if it is approved by 
                the Administrator, as provided under subsection 
                (c).
          ``(2) Permitting additional outpatient prescription 
        drug coverage.--
                  ``(A) In general.--Subject to subparagraph 
                (B), nothing in this part shall be construed as 
                preventing qualified prescription drug coverage 
                from including coverage of covered outpatient 
                drugs that exceeds the coverage required under 
                paragraph (1), but any such additional coverage 
                shall be limited to coverage of covered 
                outpatient drugs.
                  ``(B) Disapproval authority.--The 
                Administrator shall review the offering of 
                qualified prescription drug coverage under this 
                part or part C. If the Administrator finds 
                that, in the case of a qualified prescription 
                drug coverage under a prescription drug plan or 
                a Medicare+Choice plan, that the organization 
                or sponsor offering the coverage is engaged in 
                activities intended to discourage enrollment of 
                classes of eligible medicare beneficiaries 
                obtaining coverage through the plan on the 
                basis of their higher likelihood of utilizing 
                prescription drug coverage, the Administrator 
                may terminate the contract with the sponsor or 
                organization under this part or part C.
          ``(3) 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.
  ``(b) Standard Coverage.--For purposes of this part, the 
`standard coverage' is coverage of covered outpatient drugs (as 
defined in subsection (f)) that meets the following 
requirements:
          ``(1) Deductible.--The coverage has an annual 
        deductible--
                  ``(A) for 2005, that is equal to $250; or
                  ``(B) 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.
        Any amount determined under subparagraph (B) that is 
        not a multiple of $10 shall be rounded to the nearest 
        multiple of $10.
          ``(2) Limits on cost-sharing.--
                  ``(A) In general.--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)) as 
                follows:
                          ``(i) First copayment range.--For 
                        costs above the annual deductible 
                        specified in paragraph (1) and up to 
                        amount specified in subparagraph (C), 
                        the cost-sharing--
                                  ``(I) is equal to 20 percent; 
                                or
                                  ``(II) is actuarially 
                                equivalent (using processes 
                                established under subsection 
                                (e)) to an average expected 
                                payment of 20 percent of such 
                                costs.
                          ``(ii) Secondary copayment range.--
                        For costs above the amount specified in 
                        subparagraph (C) and up to the initial 
                        coverage limit, the cost-sharing--
                                  ``(I) is equal to 50 percent; 
                                or
                                  ``(II) is actuarially 
                                consistent (using processes 
                                established under subsection 
                                (e)) with an average expected 
                                payment of 50 percent of such 
                                costs.
                  ``(B) Use of tiered copayments.--Nothing in 
                this part shall be construed as preventing a 
                PDP sponsor from applying tiered copayments, so 
                long as such tiered copayments are consistent 
                with subparagraph (A).
                  ``(C) Initial copayment threshold.--The 
                amount specified in this subparagraph--
                          ``(i) for 2005, is equal to $1,000; 
                        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.
                Any amount determined under clause (ii) that is 
                not a multiple of $10 shall be rounded to the 
                nearest multiple of $10.
          ``(3) Initial coverage limit.--Subject to paragraph 
        (4), the coverage has an initial coverage limit on the 
        maximum costs that may be recognized for payment 
        purposes--
                  ``(A) for 2005, that is equal to $2,000; or
                  ``(B) 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.
        Any amount determined under subparagraph (B) that is 
        not a multiple of $25 shall be rounded to the nearest 
        multiple of $25.
          ``(4) Catastrophic protection.--
                  ``(A) In general.--Notwithstanding paragraph 
                (3), the coverage provides benefits with no 
                cost-sharing after the individual has incurred 
                costs (as described in subparagraph (C)) for 
                covered outpatient drugs in a year equal to the 
                annual out-of-pocket threshold specified in 
                subparagraph (B).
                  ``(B) Annual out-of-pocket threshold.--For 
                purposes of this part, the `annual out-of-
                pocket threshold' specified in this 
                subparagraph--
                          ``(i) for 2005, is equal to $3,700; 
                        or
                          ``(ii) for a subsequent year, is 
                        equal to the amount specified in this 
                        subparagraph for the previous year, 
                        increased by the annual percentage 
                        increase described in paragraph (5) for 
                        the year involved.
                Any amount determined under clause (ii) that is 
                not a multiple of $100 shall be rounded to the 
                nearest multiple of $100.
                  ``(C) Application.--In applying subparagraph 
                (A)--
                          ``(i) incurred costs shall only 
                        include costs incurred for the annual 
                        deductible (described in paragraph 
                        (1)), cost-sharing (described in 
                        paragraph (2)), and amounts for which 
                        benefits are not provided because of 
                        the application of the initial coverage 
                        limit described in paragraph (3); and
                          ``(ii) such costs shall be treated as 
                        incurred only if they are paid by the 
                        individual (or by another individual, 
                        such as a family member, on behalf of 
                        the individual), under section 1860G, 
                        or under title XIX and the individual 
                        (or other individual) is not reimbursed 
                        through insurance or otherwise, a group 
                        health plan, or other third-party 
                        payment arrangement for such costs.
          ``(5) Annual percentage increase.--For purposes of 
        this part, the annual percentage increase specified in 
        this paragraph for a year is equal to the annual 
        percentage increase in average per capita aggregate 
        expenditures for covered outpatient drugs in the United 
        States for medicare beneficiaries, as determined by the 
        Administrator for the 12-month period ending in July of 
        the previous year.
  ``(c) Alternative Coverage Requirements.--A prescription drug 
plan or Medicare+Choice plan may provide a different 
prescription drug benefit design from the standard coverage 
described in subsection (b) so long as the Administrator 
determines (based on an actuarial analysis by the 
Administrator) that the following requirements are met and the 
plan applies for, and receives, the approval of the 
Administrator for such benefit design:
          ``(1) Assuring at least actuarially equivalent 
        coverage.--
                  ``(A) Assuring equivalent value of total 
                coverage.--The actuarial value of the total 
                coverage (as determined under subsection (e)) 
                is at least equal to the actuarial value (as so 
                determined) of standard coverage.
                  ``(B) Assuring equivalent unsubsidized value 
                of coverage.--The unsubsidized value of the 
                coverage is at least equal to the unsubsidized 
                value of standard coverage. For purposes of 
                this subparagraph, the unsubsidized value of 
                coverage is the amount by which the actuarial 
                value of the coverage (as determined under 
                subsection (e)) exceeds the actuarial value of 
                the subsidy payments under section 1860H 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 (e)), to provide 
                for the payment, with respect to costs incurred 
                that are equal to the initial coverage limit 
                under subsection (b)(3), of an amount equal to 
                at least the sum of the following products:
                          ``(i) First copayment range.--The 
                        product of--
                                  ``(I) the amount by which the 
                                initial copayment threshold 
                                described in subsection 
                                (b)(2)(C) exceeds the 
                                deductible described in 
                                subsection (b)(1); and
                                  ``(II) 100 percent minus the 
                                cost-sharing percentage 
                                specified in subsection 
                                (b)(2)(A)(i)(I).
                          ``(ii) Secondary copayment range.--
                        The product of--
                                  ``(I) the amount by which the 
                                initial coverage limit 
                                described in subsection (b)(3) 
                                exceeds the initial copayment 
                                threshold described in 
                                subsection (b)(2)(C); and
                                  ``(II) 100 percent minus the 
                                cost-sharing percentage 
                                specified in subsection 
                                (b)(2)(A)(ii)(I).
          ``(2) Catastrophic protection.--The coverage provides 
        for beneficiaries the catastrophic protection described 
        in subsection (b)(4).
  ``(d) Access to Negotiated Prices.--
          ``(1) In general.--Under qualified prescription drug 
        coverage offered by a PDP sponsor or a Medicare+Choice 
        organization, the sponsor or organization shall provide 
        beneficiaries with access to negotiated prices 
        (including applicable discounts) used for payment for 
        covered outpatient drugs, regardless of the fact that 
        no benefits may be payable under the coverage with 
        respect to such drugs because of the application of 
        cost-sharing or an initial coverage limit (described in 
        subsection (b)(3)). Insofar as a State elects to 
        provide medical assistance under title XIX for a drug 
        based on the prices negotiated by a prescription drug 
        plan under this part, the requirements of section 1927 
        shall not apply to such drugs. The prices negotiated by 
        a prescription drug plan under this part, by a 
        Medicare+Choice plan with respect to covered outpatient 
        drugs, or by a qualified retiree prescription drug plan 
        (as defined in section 1860H(f)(1)) with respect to 
        such drugs on behalf of individuals entitled to 
        benefits under part A or enrolled under part B, shall 
        (notwithstanding any other provision of law) not be 
        taken into account for the purposes of establishing the 
        best price under section 1927(c)(1)(C).
          ``(2) Disclosure.--The PDP sponsor or Medicare+Choice 
        organization shall disclose to the Administrator (in a 
        manner specified by the Administrator) the extent to 
        which discounts or rebates made available to the 
        sponsor 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.
  ``(e) Actuarial Valuation; Determination of Annual Percentage 
Increases.--
          ``(1) Processes.--For purposes of this section, the 
        Administrator shall establish processes and methods--
                  ``(A) for determining the actuarial valuation 
                of prescription drug coverage, including--
                          ``(i) an actuarial valuation of 
                        standard coverage and of the 
                        reinsurance subsidy payments under 
                        section 1860H;
                          ``(ii) the use of generally accepted 
                        actuarial principles and methodologies; 
                        and
                          ``(iii) applying the same methodology 
                        for determinations of alternative 
                        coverage under subsection (c) as is 
                        used with respect to determinations of 
                        standard coverage under subsection (b); 
                        and
                  ``(B) for determining annual percentage 
                increases described in subsection (b)(5).
          ``(2) Use of outside actuaries.--Under the processes 
        under paragraph (1)(A), PDP sponsors and 
        Medicare+Choice organizations may use actuarial 
        opinions certified by independent, qualified actuaries 
        to establish actuarial values, but the Administrator 
        shall determine whether such actuarial values meet the 
        requirements under subsection (c)(1).
  ``(f) Covered Outpatient Drugs Defined.--
          ``(1) In general.--Except as provided in this 
        subsection, for purposes of this part, the term 
        `covered outpatient drug' means--
                  ``(A) a drug that may be dispensed only upon 
                a prescription and that is described in 
                subparagraph (A)(i) or (A)(ii) of section 
                1927(k)(2); or
                  ``(B) a biological product described in 
                clauses (i) through (iii) of subparagraph (B) 
                of such section or insulin described in 
                subparagraph (C) of such section,
        and 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)).
          ``(2) Exclusions.--
                  ``(A) In general.--Such term does not include 
                drugs or classes of drugs, or their medical 
                uses, which may be excluded from coverage or 
                otherwise restricted under section 1927(d)(2), 
                other than subparagraph (E) thereof (relating 
                to smoking cessation agents), or under section 
                1927(d)(3).
                  ``(B) Avoidance of duplicate coverage.--A 
                drug prescribed for an individual that would 
                otherwise be a covered outpatient drug under 
                this part shall not be so considered if payment 
                for such drug is available under part A or B 
                for an individual entitled to benefits under 
                part A and enrolled under part B.
          ``(3) Application of formulary restrictions.--A drug 
        prescribed for an individual that would otherwise be a 
        covered outpatient 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 appealed under section 1860C(f)(2).
          ``(4) Application of general exclusion provisions.--A 
        prescription drug plan or Medicare+Choice plan may 
        exclude from qualified prescription drug coverage any 
        covered outpatient drug--
                  ``(A) for which payment would not be made if 
                section 1862(a) applied to part D; or
                  ``(B) which are not prescribed in accordance 
                with the plan or this part.
        Such exclusions are determinations subject to 
        reconsideration and appeal pursuant to section 
        1860C(f).

``SEC. 1860C. BENEFICIARY PROTECTIONS FOR QUALIFIED PRESCRIPTION DRUG 
                    COVERAGE.

  ``(a) Guaranteed Issue, Community-Rated Premiums, Access to 
Negotiated Prices, and Nondiscrimination.--For provisions 
requiring guaranteed issue, community-rated premiums, access to 
negotiated prices, and nondiscrimination, see sections 
1860A(c)(1), 1860A(c)(2), 1860B(d), and 1860F(b), respectively.
  ``(b) Dissemination of Information.--
          ``(1) General information.--A PDP sponsor shall 
        disclose, in a clear, accurate, and standardized form 
        to each enrollee with a prescription drug plan offered 
        by the sponsor under this part at the time of 
        enrollment and at least annually thereafter, the 
        information described in section 1852(c)(1) relating to 
        such plan. Such information includes the following:
                  ``(A) Access to covered outpatient drugs, 
                including access through pharmacy networks.
                  ``(B) How any formulary used by the sponsor 
                functions, including the drugs included in the 
                formulary.
                  ``(C) Co-payments and deductible 
                requirements, including the identification of 
                the tiered or other co-payment level applicable 
                to each drug (or class of drugs).
                  ``(D) Grievance and appeals procedures.
        Such information shall also be made available on 
        request to prospective enrollees during annual open 
        enrollment periods.
          ``(2) Disclosure upon request of general coverage, 
        utilization, and grievance information.--Upon request 
        of an individual eligible to enroll under a 
        prescription drug plan, the PDP sponsor shall provide 
        the information described in section 1852(c)(2) (other 
        than subparagraph (D)) to such individual.
          ``(3) Response to beneficiary questions.--Each PDP 
        sponsor offering a prescription drug plan shall have a 
        mechanism for providing specific information to 
        enrollees upon request. The sponsor shall make 
        available on a timely basis, through an Internet 
        website and in writing upon request, information on 
        specific changes in its formulary.
          ``(4) Claims information.--Each PDP sponsor offering 
        a prescription drug plan must furnish to enrolled 
        individuals in a form easily understandable to such 
        individuals an explanation of benefits (in accordance 
        with section 1806(a) or in a comparable manner) and a 
        notice of the benefits in relation to initial coverage 
        limit and annual out-of-pocket threshold for the 
        current year, whenever prescription drug benefits are 
        provided under this part (except that such notice need 
        not be provided more often than monthly).
  ``(c) Access to Covered Benefits.--
          ``(1) Assuring pharmacy access.--
                  ``(A) In general.--The PDP sponsor of the 
                prescription drug plan shall secure the 
                participation in its network of a sufficient 
                number of pharmacies that dispense (other than 
                by mail order) drugs directly to patients to 
                ensure convenient access (as determined by the 
                Administrator and including adequate emergency 
                access) for enrolled beneficiaries, in 
                accordance with standards established under 
                section 1860D(e) that ensure such convenient 
                access.
                  ``(B) Use of point-of-service system.--A PDP 
                sponsor 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 
                        premiums and copayments any additional 
                        costs associated with the point-of-
                        service option.
                The additional copayments so charged shall not 
                count toward the application of section 
                1860B(b).
          ``(2) Use of standardized technology.--
                  ``(A) In general.--The PDP sponsor of a 
                prescription drug plan shall issue (and 
                reissue, as appropriate) such a card (or other 
                technology) that may be used by an enrolled 
                beneficiary to assure access to negotiated 
                prices under section 1860B(d) for the purchase 
                of prescription drugs for which coverage is not 
                otherwise provided under the prescription drug 
                plan.
                  ``(B) Standards.--
                          ``(i) Development.--The Administrator 
                        shall provide for the development of 
                        national standards relating to a 
                        standardized format for the card or 
                        other technology referred to in 
                        subparagraph (A). Such standards shall 
                        be compatible with standards 
                        established under part C of title XI.
                          ``(ii) Application of advisory task 
                        force.--The advisory task force 
                        established under subsection 
                        (d)(3)(B)(ii) shall provide 
                        recommendations to the Administrator 
                        under such subsection regarding the 
                        standards developed under clause (i).
          ``(3) Requirements on development and application of 
        formularies.--If a PDP sponsor of a prescription drug 
        plan uses a formulary, the following requirements must 
        be met:
                  ``(A) Pharmacy and therapeutic (p&t) 
                committee.--The sponsor must establish a 
                pharmacy and therapeutic committee that 
                develops and reviews the formulary. Such 
                committee shall include at least one practicing 
                physician and at least one practicing 
                pharmacist both with expertise in the care of 
                elderly or disabled persons and a majority of 
                its members shall consist of individuals who 
                are a practicing physician or a practicing 
                pharmacist (or both).
                  ``(B) Formulary development.--In developing 
                and reviewing the formulary, the committee 
                shall base clinical decisions on the strength 
                of scientific evidence and standards of 
                practice, including assessing peer-reviewed 
                medical literature, such as randomized clinical 
                trials, pharmacoeconomic studies, outcomes 
                research data, and such other information as 
                the committee determines to be appropriate.
                  ``(C) Inclusion of drugs in all therapeutic 
                categories.--The formulary must include drugs 
                within each therapeutic category and class of 
                covered outpatient drugs (although not 
                necessarily for all drugs within such 
                categories and classes).
                  ``(D) Provider education.--The committee 
                shall establish policies and procedures to 
                educate and inform health care providers 
                concerning the formulary.
                  ``(E) Notice before removing drugs from 
                formulary.--Any removal of a drug from a 
                formulary shall take effect only after 
                appropriate notice is made available to 
                beneficiaries and physicians.
                  ``(F) Grievances and appeals relating to 
                application of formularies.--For provisions 
                relating to grievances and appeals of coverage, 
                see subsections (e) and (f).
  ``(d) Cost and Utilization Management; Quality Assurance; 
Medication Therapy Management Program.--
          ``(1) In general.--The PDP sponsor shall have in 
        place with respect to covered outpatient drugs--
                  ``(A) an effective cost and drug utilization 
                management program, including medically 
                appropriate incentives to use generic drugs and 
                therapeutic interchange, when appropriate;
                  ``(B) quality assurance measures and systems 
                to reduce medical errors and adverse drug 
                interactions, including a medication therapy 
                management program described in paragraph (2) 
                and for years beginning with 2006, an 
                electronic prescription program described in 
                paragraph (3); and
                  ``(C) a program to control fraud, abuse, and 
                waste.
        Nothing in this section shall be construed as impairing 
        a PDP sponsor 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, and congestive heart failure) or 
                multiple prescriptions, that covered outpatient 
                drugs under the prescription drug plan are 
                appropriately used to achieve therapeutic goals 
                and reduce the risk of adverse events, 
                including adverse drug interactions.
                  ``(B) Elements.--Such program may include--
                          ``(i) enhanced beneficiary 
                        understanding of such appropriate use 
                        through beneficiary education, 
                        counseling, and other appropriate 
                        means;
                          ``(ii) increased beneficiary 
                        adherence with prescription medication 
                        regimens through medication refill 
                        reminders, special packaging, and other 
                        appropriate means; and
                          ``(iii) detection of patterns of 
                        overuse and underuse of prescription 
                        drugs.
                  ``(C) Development of program in cooperation 
                with licensed pharmacists.--The program shall 
                be developed in cooperation with licensed and 
                practicing pharmacists and physicians.
                  ``(D) Considerations in pharmacy fees.--The 
                PDP sponsor of a prescription drug program 
                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) Electronic prescription program.--
                  ``(A) In general.--An electronic prescription 
                drug program described in this paragraph is a 
                program that includes at least the following 
                components, consistent with national standards 
                established under subparagraph (B):
                          ``(i) Electronic transmittal of 
                        prescriptions.--Prescriptions are only 
                        received electronically, except in 
                        emergency cases and other exceptional 
                        circumstances recognized by the 
                        Administrator.
                          ``(ii) Provision of information to 
                        prescribing health care professional.--
                        The program provides, upon transmittal 
                        of a prescription by a prescribing 
                        health care professional, for 
                        transmittal by the pharmacist to the 
                        professional of information that 
                        includes--
                                  ``(I) information (to the 
                                extent available and feasible) 
                                on the drugs being prescribed 
                                for that patient and other 
                                information relating to the 
                                medical history or condition of 
                                the patient that may be 
                                relevant to the appropriate 
                                prescription for that patient;
                                  ``(II) cost-effective 
                                alternatives (if any) for the 
                                use of the drug prescribed; and
                                  ``(III) information on the 
                                drugs included in the 
                                applicable formulary.
                        To the extent feasible, such program 
                        shall permit the prescribing health 
                        care professional to provide (and be 
                        provided) related information on an 
                        interactive, real-time basis.
                  ``(B) Standards.--
                          ``(i) Development.--The Administrator 
                        shall provide for the development of 
                        national standards relating to the 
                        electronic prescription drug program 
                        described in subparagraph (A). Such 
                        standards shall be compatible with 
                        standards established under part C of 
                        title XI.
                          ``(ii) Advisory task force.--In 
                        developing such standards and the 
                        standards described in subsection 
                        (c)(2)(B)(i) the Administrator shall 
                        establish a task force that includes 
                        representatives of physicians, 
                        hospitals, pharmacists, and technology 
                        experts and representatives of the 
                        Departments of Veterans Affairs and 
                        Defense and other appropriate Federal 
                        agencies to provide recommendations to 
                        the Administrator on such standards, 
                        including recommendations relating to 
                        the following:
                                  ``(I) The range of available 
                                computerized prescribing 
                                software and hardware and their 
                                costs to develop and implement.
                                  ``(II) The extent to which 
                                such systems reduce medication 
                                errors and can be readily 
                                implemented by physicians and 
                                hospitals.
                                  ``(III) Efforts to develop a 
                                common software platform for 
                                computerized prescribing.
                                  ``(IV) The cost of 
                                implementing such systems in 
                                the range of hospital and 
                                physician office settings, 
                                including hardware, software, 
                                and training costs.
                                  ``(V) Implementation issues 
                                as they relate to part C of 
                                title XI, and current Federal 
                                and State prescribing laws and 
                                regulations and their impact on 
                                implementation of computerized 
                                prescribing.
                          ``(iii) Deadlines.--
                                  ``(I) The Administrator shall 
                                constitute the task force under 
                                clause (ii) by not later than 
                                April 1, 2003.
                                  ``(II) Such task force shall 
                                submit recommendations to 
                                Administrator by not later than 
                                January 1, 2004.
                                  ``(III) The Administrator 
                                shall develop and promulgate 
                                the national standards referred 
                                to in clause (ii) by not later 
                                than January 1, 2005.
                  ``(C) Reference to availability of grant 
                funds.--Grant funds are authorized under 
                section 399O of the Public Health Service Act 
                to provide assistance to health care providers 
                in implementing electronic prescription drug 
                programs.
          ``(4) Treatment of accreditation.--Section 1852(e)(4) 
        (relating to treatment of accreditation) shall apply to 
        prescription drug plans under this part with respect to 
        the following requirements, in the same manner as they 
        apply to Medicare+Choice plans under part C with 
        respect to the requirements described in a clause of 
        section 1852(e)(4)(B):
                  ``(A) Paragraph (1) (including quality 
                assurance), including medication therapy 
                management program under paragraph (2).
                  ``(B) Subsection (c)(1) (relating to access 
                to covered benefits).
                  ``(C) Subsection (g) (relating to 
                confidentiality and accuracy of enrollee 
                records).
          ``(5) Public disclosure of pharmaceutical prices for 
        equivalent drugs.--Each PDP sponsor shall provide that 
        each pharmacy or other dispenser that arranges for the 
        dispensing of a covered outpatient 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.
  ``(e) Grievance Mechanism, Coverage Determinations, and 
Reconsiderations.--
          ``(1) In general.--Each PDP sponsor shall provide 
        meaningful procedures for hearing and resolving 
        grievances between the organization (including any 
        entity or individual through which the sponsor provides 
        covered benefits) and enrollees with prescription drug 
        plans of the sponsor under this part in accordance with 
        section 1852(f).
          ``(2) Application of coverage determination and 
        reconsideration provisions.--A PDP sponsor shall meet 
        the requirements of paragraphs (1) through (3) of 
        section 1852(g) with respect to covered benefits under 
        the prescription drug plan it offers under this part in 
        the same manner as such requirements apply to a 
        Medicare+Choice organization with respect to benefits 
        it offers under a Medicare+Choice plan under part C.
          ``(3) Request for review of tiered formulary 
        determinations.--In the case of a prescription drug 
        plan offered by a PDP sponsor that provides for tiered 
        cost-sharing for drugs included within a formulary and 
        provides lower cost-sharing for preferred drugs 
        included within the formulary, 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.
  ``(f) Appeals.--
          ``(1) In general.--Subject to paragraph (2), a PDP 
        sponsor shall meet the requirements of paragraphs (4) 
        and (5) of section 1852(g) with respect to drugs not 
        included on any formulary in the same manner as such 
        requirements apply to a Medicare+Choice organization 
        with respect to benefits it offers under a 
        Medicare+Choice plan under part C.
          ``(2) Formulary determinations.--An individual who is 
        enrolled in a prescription drug plan offered by a PDP 
        sponsor may appeal to obtain coverage for a covered 
        outpatient drug that is not on a formulary of the 
        sponsor 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.
  ``(g) Confidentiality and Accuracy of Enrollee Records.--A 
PDP sponsor shall meet the requirements of section 1852(h) with 
respect to enrollees under this part in the same manner as such 
requirements apply to a Medicare+Choice organization with 
respect to enrollees under part C.

``SEC. 1860D. REQUIREMENTS FOR PRESCRIPTION DRUG PLAN (PDP) SPONSORS; 
                    CONTRACTS; ESTABLISHMENT OF STANDARDS.

  ``(a) General Requirements.--Each PDP sponsor of a 
prescription drug plan shall meet the following requirements:
          ``(1) Licensure.--Subject to subsection (c), the 
        sponsor is organized and licensed under State law as a 
        risk-bearing entity eligible to offer health insurance 
        or health benefits coverage in each State in which it 
        offers a prescription drug plan.
          ``(2) Assumption of financial risk for unsubsidized 
        coverage.--
                  ``(A) In general.--Subject to subparagraph 
                (B) and section 1860E(d)(2), the entity assumes 
                full financial risk on a prospective basis for 
                qualified prescription drug coverage that it 
                offers under a prescription drug plan and that 
                is not covered under section 1860H.
                  ``(B) Reinsurance permitted.--The entity may 
                obtain insurance or make other arrangements for 
                the cost of coverage provided to any enrolled 
                member under this part.
          ``(3) Solvency for unlicensed sponsors.--In the case 
        of a sponsor that is not described in paragraph (1), 
        the sponsor shall meet solvency standards established 
        by the Administrator under subsection (d).
  ``(b) Contract Requirements.--
          ``(1) In general.--The Administrator shall not permit 
        the election under section 1860A of a prescription drug 
        plan offered by a PDP sponsor under this part, and the 
        sponsor shall not be eligible for payments under 
        section 1860G or 1860H, unless the Administrator has 
        entered into a contract under this subsection with the 
        sponsor with respect to the offering of such plan. Such 
        a contract with a sponsor may cover more than one 
        prescription drug plan. Such contract shall provide 
        that the sponsor agrees to comply with the applicable 
        requirements and standards of this part and the terms 
        and conditions of payment as provided for in this part.
          ``(2) Negotiation regarding terms and conditions.--
        The Administrator shall have the same authority to 
        negotiate the terms and conditions of prescription drug 
        plans under this part as the Director of the Office of 
        Personnel Management has with respect to health 
        benefits plans under chapter 89 of title 5, United 
        States Code. In negotiating the terms and conditions 
        regarding premiums for which information is submitted 
        under section 1860F(a)(2), the Administrator shall take 
        into account the subsidy payments under section 1860H 
        and the adjusted community rate (as defined in section 
        1854(f)(3)) for the benefits covered.
          ``(3) Incorporation of certain medicare+choice 
        contract requirements.--The following provisions of 
        section 1857 shall apply, subject to subsection (c)(5), 
        to contracts under this section in the same manner as 
        they apply to contracts under section 1857(a):
                  ``(A) Minimum enrollment.--Paragraphs (1) and 
                (3) of section 1857(b).
                  ``(B) Contract period and effectiveness.--
                Paragraphs (1) through (3) and (5) of section 
                1857(c).
                  ``(C) Protections against fraud and 
                beneficiary protections.--Section 1857(d).
                  ``(D) Additional contract terms.--Section 
                1857(e); except that in applying section 
                1857(e)(2) under this part--
                          ``(i) such section shall be applied 
                        separately to costs relating to this 
                        part (from costs under part C);
                          ``(ii) in no case shall the amount of 
                        the fee established under this 
                        subparagraph for a plan exceed 20 
                        percent of the maximum amount of the 
                        fee that may be established under 
                        subparagraph (B) of such section; and
                          ``(iii) no fees shall be applied 
                        under this subparagraph with respect to 
                        Medicare+Choice plans.
                  ``(E) Intermediate sanctions.--Section 
                1857(g).
                  ``(F) Procedures for termination.--Section 
                1857(h).
          ``(4) Rules of application for intermediate 
        sanctions.--In applying paragraph (3)(E)--
                  ``(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.
  ``(c) Waiver of Certain Requirements to Expand Choice.--
          ``(1) In general.--In the case of an entity that 
        seeks to offer a 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) has been met.
          ``(2) Grounds for approval.--The grounds for approval 
        under this paragraph are the grounds for approval 
        described in subparagraph (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) Licensure does not substitute for or constitute 
        certification.--The fact that an entity is licensed in 
        accordance with subsection (a)(1) does not deem the 
        entity to meet other requirements imposed under this 
        part for a PDP sponsor.
          ``(5) References to certain provisions.--For purposes 
        of this subsection, in applying provisions of section 
        1855(a)(2) under this subsection to prescription drug 
        plans and PDP sponsors--
                  ``(A) any reference to a waiver application 
                under section 1855 shall be treated as a 
                reference to a waiver application under 
                paragraph (1); and
                  ``(B) any reference to solvency standards 
                shall be treated as a reference to solvency 
                standards established under subsection (d).
  ``(d) Solvency Standards for Non-Licensed Sponsors.--
          ``(1) Establishment.--The Administrator shall 
        establish, by not later than October 1, 2003, financial 
        solvency and capital adequacy standards that an entity 
        that does not meet the requirements of subsection 
        (a)(1) must meet to qualify as a PDP sponsor under this 
        part.
          ``(2) Compliance with standards.--Each PDP sponsor 
        that is not licensed by a State under subsection (a)(1) 
        and for which a waiver application has been approved 
        under subsection (c) shall meet solvency and capital 
        adequacy standards established under paragraph (1). The 
        Administrator shall establish certification procedures 
        for such PDP sponsors with respect to such solvency 
        standards in the manner described in section 
        1855(c)(2).
  ``(e) Other Standards.--The Administrator shall establish by 
regulation other standards (not described in subsection (d)) 
for PDP sponsors and plans consistent with, and to carry out, 
this part. The Administrator shall publish such regulations by 
October 1, 2003.
  ``(f) Relation to State Laws.--
          ``(1) In general.--The standards established under 
        this part shall supersede any State law or regulation 
        (other than State licensing laws or State laws relating 
        to plan solvency, except as provided in subsection (d)) 
        with respect to prescription drug plans which are 
        offered by PDP sponsors under this part.
          ``(2) Prohibition of state imposition of premium 
        taxes.--No State may impose a premium tax or similar 
        tax with respect to premiums paid to PDP sponsors for 
        prescription drug plans under this part, or with 
        respect to any payments made to such a sponsor by the 
        Administrator under this part.

``SEC. 1860E. PROCESS FOR BENEFICIARIES TO SELECT QUALIFIED 
                    PRESCRIPTION DRUG COVERAGE.

  ``(a) In General.--The Administrator shall establish a 
process for the selection of the prescription drug plan or 
Medicare+Choice plan which offer qualified prescription drug 
coverage through which eligible individuals elect qualified 
prescription drug coverage under this part.
  ``(b) Elements.--Such process shall include the following:
          ``(1) Annual, coordinated election periods, in which 
        such individuals can change the qualifying plans 
        through which they obtain coverage, in accordance with 
        section 1860A(b)(2).
          ``(2) Active dissemination of information to promote 
        an informed selection among qualifying plans based upon 
        price, quality, and other features, in the manner 
        described in (and in coordination with) section 
        1851(d), including the provision of annual comparative 
        information, maintenance of a toll-free hotline, and 
        the use of non-Federal entities.
          ``(3) Coordination of elections through filing with a 
        Medicare+Choice organization or a PDP sponsor, in the 
        manner described in (and in coordination with) section 
        1851(c)(2).
  ``(c) Medicare+Choice Enrollee In Plan Offering Prescription 
Drug Coverage May Only Obtain Benefits Through the Plan.--An 
individual who is enrolled under a Medicare+Choice plan that 
offers qualified prescription drug coverage may only elect to 
receive qualified prescription drug coverage under this part 
through such plan.
  ``(d) Assuring Access to a Choice of Qualified Prescription 
Drug Coverage.--
          ``(1) Choice of at least two plans in each area.--
                  ``(A) In general.--The Administrator shall 
                assure that each individual who is entitled to 
                benefits under part A or enrolled under part B 
                and who is residing in an area in the United 
                States has available, consistent with 
                subparagraph (B), a choice of enrollment in at 
                least two qualifying plans (as defined in 
                paragraph (5)) in the area in which the 
                individual resides, at least one of which is a 
                prescription drug plan.
                  ``(B) Requirement for different plan 
                sponsors.--The requirement in subparagraph (A) 
                is not satisfied with respect to an area if 
                only one PDP sponsor or Medicare+Choice 
                organization offers all the qualifying plans in 
                the area.
          ``(2) Guaranteeing access to coverage.--In order to 
        assure access under paragraph (1) and consistent with 
        paragraph (3), the Administrator may provide financial 
        incentives (including partial underwriting of risk) for 
        a PDP sponsor to expand the service area under an 
        existing prescription drug plan to adjoining or 
        additional areas or to establish such a plan (including 
        offering such a plan on a regional or nationwide 
        basis), but only so long as (and to the extent) 
        necessary to assure the access guaranteed under 
        paragraph (1).
          ``(3) Limitation on authority.--In exercising 
        authority under this subsection, the Administrator--
                  ``(A) shall not provide for the full 
                underwriting of financial risk for any PDP 
                sponsor;
                  ``(B) shall not provide for any underwriting 
                of financial risk for a public PDP sponsor with 
                respect to the offering of a nationwide 
                prescription drug plan; and
                  ``(C) shall seek to maximize the assumption 
                of financial risk by PDP sponsors or 
                Medicare+Choice organizations.
          ``(4) Reports.--The Administrator shall, in each 
        annual report to Congress under section 1808(f), 
        include information on the exercise of authority under 
        this subsection. The Administrator also shall include 
        such recommendations as may be appropriate to minimize 
        the exercise of such authority, including minimizing 
        the assumption of financial risk.
          ``(5) Qualifying plan defined.--For purposes of this 
        subsection, the term `qualifying plan' means a 
        prescription drug plan or a Medicare+Choice plan that 
        includes qualified prescription drug coverage.

``SEC. 1860F. SUBMISSION OF BIDS AND PREMIUMS.

  ``(a) Submission of Bids, Premiums, and Related 
Information.--
          ``(1) In general.--Each PDP sponsor shall submit to 
        the Administrator the information described in 
        paragraph (2) in the same manner as information is 
        submitted by a Medicare+Choice organization under 
        section 1854(a)(1).
          ``(2) Information submitted.--The information 
        described in this paragraph is the following:
                  ``(A) Coverage provided.--Information on the 
                qualified prescription drug coverage to be 
                provided.
                  ``(B) Actuarial value.--Information on the 
                actuarial value of the coverage.
                  ``(C) Bid and premium.--Information on the 
                bid and the premium for the coverage, including 
                an actuarial certification of--
                          ``(i) the actuarial basis for such 
                        bid and premium;
                          ``(ii) the portion of such bid and 
                        premium attributable to benefits in 
                        excess of standard coverage; and
                          ``(iii) the reduction in such bid and 
                        premium resulting from the subsidy 
                        payments provided under section 1860H.
                  ``(D) Additional information.--Such other 
                information as the Administrator may require to 
                carry out this part.
          ``(3) Review of information and approval of 
        premiums.--The Administrator shall review the 
        information filed under paragraph (2) for the purpose 
        of conducting negotiations under section 1860D(b)(2). 
        The Administrator, using the information provided 
        (including the actuarial certification under paragraph 
        (2)(C)) shall approve the premium submitted under this 
        subsection only if the premium accurately reflects both 
        (A) the actuarial value of the benefits provided, and 
        (B) the 67 percent subsidy provided under section 1860H 
        for the standard benefit. The Administrator shall apply 
        actuarial principles to approval of a premium under 
        this part in a manner similar to the manner in which 
        those principles are applied in establishing the 
        monthly part B premium under section 1839.
  ``(b) Uniform Bid and Premium.--
          ``(1) In general.--The bid and premium for a 
        prescription drug plan under this section may not vary 
        among individuals enrolled in the plan in the same 
        service area.
          ``(2) Construction.--Nothing in paragraph (1) shall 
        be construed as preventing the imposition of a late 
        enrollment penalty under section 1860A(c)(2)(B).
  ``(c) Collection.--
          ``(1) Beneficiary's option of payment through 
        withholding from social security payment or use of 
        electronic funds transfer mechanism.--In accordance 
        with regulations, a PDP sponsor shall permit each 
        enrollee, at the enrollee's option, to make payment of 
        premiums under this part through withholding from 
        benefit payments in the manner provided under section 
        1840 with respect to monthly premiums under section 
        1839 or through an electronic funds transfer mechanism 
        (such as automatic charges of an account at a financial 
        institution or a credit or debit card account) or 
        otherwise. All such amounts shall be credited to the 
        Medicare Prescription Drug Trust Fund.
          ``(2) Offsetting.--Reductions in premiums for 
        coverage under parts A and B as a result of a selection 
        of a Medicare+Choice plan may be used to reduce the 
        premium otherwise imposed under paragraph (1).
          ``(3) Payment of plans.--PDP plans shall receive 
        payment based on bid amounts in the same manner as 
        Medicare+Choice organizations receive payment based on 
        bid amounts under section 1853(a)(1)(A)(ii) except that 
        such payment shall be made from the Medicare 
        Prescription Drug Trust Fund.
  ``(d) Acceptance of Benchmark Amount as Full Premium for 
Subsidized Low-Income Individuals if No Standard (or 
Equivalent) Coverage in an Area.--
          ``(1) In general.--If there is no standard 
        prescription drug coverage (as defined in paragraph 
        (2)) offered in an area, in the case of an individual 
        who is eligible for a premium subsidy under section 
        1860G and resides in the area, the PDP sponsor of any 
        prescription drug plan offered in the area (and any 
        Medicare+Choice organization that offers qualified 
        prescription drug coverage in the area) shall accept 
        the benchmark bid amount (under section 1860G(b)(2)) as 
        payment in full for the premium charge for qualified 
        prescription drug coverage.
          ``(2) Standard prescription drug coverage defined.--
        For purposes of this subsection, the term `standard 
        prescription drug coverage' means qualified 
        prescription drug coverage that is standard coverage or 
        that has an actuarial value equivalent to the actuarial 
        value for standard coverage.

``SEC. 1860G. PREMIUM AND COST-SHARING SUBSIDIES FOR LOW-INCOME 
                    INDIVIDUALS.

  ``(a) Income-Related Subsidies for Individuals With Income 
Below 175 Percent of Federal Poverty Level.--
          ``(1) Full premium subsidy and reduction of cost-
        sharing for individuals with income below 150 percent 
        of federal poverty level.--In the case of a subsidy 
        eligible individual (as defined in paragraph (4)) who 
        is determined to have income that does not exceed 150 
        percent of the Federal poverty level, the individual is 
        entitled under this section--
                  ``(A) to an income-related premium subsidy 
                equal to 100 percent of the amount described in 
                subsection (b)(1); and
                  ``(B) subject to subsection (c), to the 
                substitution for the beneficiary cost-sharing 
                described in paragraphs (1) and (2) of section 
                1860B(b) (up to the initial coverage limit 
                specified in paragraph (3) of such section) of 
                amounts that do not exceed $2 for a multiple 
                source or generic drug (as described in section 
                1927(k)(7)(A)) and $5 for a non-preferred drug.
          ``(2) Sliding scale premium subsidy and reduction of 
        cost-sharing for individuals with income above 150, but 
        below 175 percent, of federal poverty level.--In the 
        case of a subsidy eligible individual who is determined 
        to have income that exceeds 150 percent, but does not 
        exceed 175 percent, of the Federal poverty level, the 
        individual is entitled under this section to--
                  ``(A) an income-related premium subsidy 
                determined on a linear sliding scale ranging 
                from 100 percent of the amount described in 
                subsection (b)(1) for individuals with incomes 
                at 150 percent of such level to 0 percent of 
                such amount for individuals with incomes at 175 
                percent of such level; and
                  ``(B) subject to subsection (c), to the 
                substitution for the beneficiary cost-sharing 
                described in paragraphs (1) and (2) of section 
                1860B(b) (up to the initial coverage limit 
                specified in paragraph (3) of such section) of 
                amounts that do not exceed $2 for a multiple 
                source or generic drug (as described in section 
                1927(k)(7)(A)) and $5 for a non-preferred drug.
          ``(3) Construction.--Nothing in this section shall be 
        construed as preventing a PDP sponsor from reducing to 
        0 the cost-sharing otherwise applicable to generic 
        drugs.
          ``(4) Determination of eligibility.--
                  ``(A) Subsidy eligible individual defined.--
                For purposes of this section, subject to 
                subparagraph (D), the term `subsidy eligible 
                individual' means an individual who--
                          ``(i) is eligible to elect, and has 
                        elected, to obtain qualified 
                        prescription drug coverage under this 
                        part;
                          ``(ii) has income below 175 percent 
                        of the Federal poverty line; and
                          ``(iii) meets the resources 
                        requirement described in section 
                        1905(p)(1)(C).
                  ``(B) Determinations.--The determination of 
                whether an individual residing in a State is a 
                subsidy eligible individual and the amount of 
                such individual's income shall be determined 
                under the State medicaid plan for the State 
                under section 1935(a) or by the Social Security 
                Administration. 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. There are authorized to be 
                appropriated to the Social Security 
                Administration such sums as may be necessary 
                for the determination of eligibility under this 
                subparagraph.
                  ``(C) Income determinations.--For purposes of 
                applying this section--
                          ``(i) income shall be determined in 
                        the manner described in section 
                        1905(p)(1)(B); and
                          ``(ii) the term `Federal poverty 
                        line' means the official poverty line 
                        (as defined by the Office of Management 
                        and Budget, and revised annually in 
                        accordance with section 673(2) of the 
                        Omnibus Budget Reconciliation Act of 
                        1981) applicable to a family of the 
                        size involved.
                  ``(D) Treatment of territorial residents.--In 
                the case of an individual who is not a resident 
                of the 50 States or the District of Columbia, 
                the individual is not eligible to be a subsidy 
                eligible individual but may be eligible for 
                financial assistance with prescription drug 
                expenses under section 1935(e).
                  ``(E) Treatment of conforming medigap 
                policies.--For purposes of this section, the 
                term `qualified prescription drug coverage' 
                includes a medicare supplemental policy 
                described in section 1860H(b)(4).
          ``(5) Indexing dollar amounts.--
                  ``(A) For 2006.--The dollar amounts applied 
                under paragraphs (1)(B) and (2)(B) for 2006 
                shall be the dollar amounts specified in such 
                paragraph increased by the annual percentage 
                increase described in section 1860B(b)(5) for 
                2006.
                  ``(B) For subsequent years.--The dollar 
                amounts applied under paragraphs (1)(B) and 
                (2)(B) for a year after 2006 shall be the 
                amounts (under this paragraph) applied under 
                paragraph (1)(B) or (2)(B) for the preceding 
                year increased by the annual percentage 
                increase described in section 1860B(b)(5) 
                (relating to growth in medicare prescription 
                drug costs per beneficiary) for the year 
                involved.
  ``(b) Premium Subsidy Amount.--
          ``(1) In general.--The premium subsidy amount 
        described in this subsection for an individual residing 
        in an area is the benchmark bid amount (as defined in 
        paragraph (2)) for qualified prescription drug coverage 
        offered by the prescription drug plan or the 
        Medicare+Choice plan in which the individual is 
        enrolled.
          ``(2) Benchmark bid amount defined.--For purposes of 
        this subsection, the term `benchmark bid amount' means, 
        with respect to qualified prescription drug coverage 
        offered under--
                  ``(A) a prescription drug plan that--
                          ``(i) provides standard coverage (or 
                        alternative prescription drug coverage 
                        the actuarial value is equivalent to 
                        that of standard coverage), the bid 
                        amount for enrollment under the plan 
                        under this part (determined without 
                        regard to any subsidy under this 
                        section or any late enrollment penalty 
                        under section 1860A(c)(2)(B)); or
                          ``(ii) provides alternative 
                        prescription drug coverage the 
                        actuarial value of which is greater 
                        than that of standard coverage, the bid 
                        amount described in clause (i) 
                        multiplied by the ratio of (I) the 
                        actuarial value of standard coverage, 
                        to (II) the actuarial value of the 
                        alternative coverage; or
                  ``(B) a Medicare+Choice plan, the portion of 
                the bid amount that is attributable to 
                statutory drug benefits (described in section 
                1853(a)(1)(A)(ii)(II)).
  ``(c) Rules in Applying Cost-Sharing Subsidies.--
          ``(1) In general.--In applying subsections (a)(1)(B) 
        and (a)(2)(B), nothing in this part shall be construed 
        as preventing a plan or provider from waiving or 
        reducing the amount of cost-sharing otherwise 
        applicable.
          ``(2) Limitation on charges.--In the case of an 
        individual receiving cost-sharing subsidies under 
        subsection (a)(1)(B) or (a)(2)(B), the PDP sponsor may 
        not charge more than $5 per prescription.
          ``(3) Application of indexing rules.--The provisions 
        of subsection (a)(4) shall apply to the dollar amount 
        specified in paragraph (2) in the same manner as they 
        apply to the dollar amounts specified in subsections 
        (a)(1)(B) and (a)(2)(B).
  ``(d) Administration of Subsidy Program.--The Administrator 
shall provide a process whereby, in the case of an individual 
who is determined to be a subsidy eligible individual and who 
is enrolled in prescription drug plan or is enrolled in a 
Medicare+Choice plan under which qualified prescription drug 
coverage is provided--
          ``(1) the Administrator provides for a notification 
        of the PDP sponsor or Medicare+Choice organization 
        involved that the individual is eligible for a subsidy 
        and the amount of the subsidy under subsection (a);
          ``(2) the sponsor or organization involved reduces 
        the premiums or 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 sponsor or organization for the 
        amount of such reductions.
The reimbursement under paragraph (3) with respect to cost-
sharing subsidies may be computed on a capitated basis, taking 
into account the actuarial value of the subsidies and with 
appropriate adjustments to reflect differences in the risks 
actually involved.
  ``(e) Relation to Medicaid Program.--
          ``(1) In general.--For provisions providing for 
        eligibility determinations, and additional financing, 
        under the medicaid program, see section 1935.
          ``(2) Medicaid providing wrap around benefits.--The 
        coverage provided under this part is primary payor to 
        benefits for prescribed drugs provided under the 
        medicaid program under title XIX.
          ``(3) Coordination.--The Administrator shall develop 
        and implement a plan for the coordination of 
        prescription drug benefits under this part with the 
        benefits provided under the medicaid program under 
        title XIX, with particular attention to insuring 
        coordination of payments and prevention of fraud and 
        abuse. In developing and implementing such plan, the 
        Administrator shall involve the Secretary, the States, 
        the data processing industry, pharmacists, and 
        pharmaceutical manufacturers, and other experts.

``SEC. 1860H. SUBSIDIES FOR ALL MEDICARE BENEFICIARIES FOR QUALIFIED 
                    PRESCRIPTION DRUG COVERAGE.

  ``(a) Subsidy Payment.--In order to reduce premium levels 
applicable to qualified prescription drug coverage for all 
medicare beneficiaries consistent with an overall subsidy level 
of 67 percent, to reduce adverse selection among prescription 
drug plans and Medicare+Choice plans that provide qualified 
prescription drug coverage, and to promote the participation of 
PDP sponsors under this part, the Administrator shall provide 
in accordance with this section for payment to a qualifying 
entity (as defined in subsection (b)) of the following 
subsidies:
          ``(1) Direct subsidy.--In the case of an individual 
        enrolled in a prescription drug plan, Medicare+Choice 
        plan that provides qualified prescription drug 
        coverage, or qualified retiree prescription drug plan, 
        a direct subsidy equal to 37 percent of the total 
        payments made by a qualifying entity for standard 
        coverage under the respective plan.
          ``(2) Subsidy through reinsurance.--The reinsurance 
        payment amount (as defined in subsection (c)), which in 
        the aggregate is 30 percent of such total payments, for 
        excess costs incurred in providing qualified 
        prescription drug coverage--
                  ``(A) for individuals enrolled with a 
                prescription drug plan under this part;
                  ``(B) for individuals enrolled with a 
                Medicare+Choice plan that provides qualified 
                prescription drug coverage; and
                  ``(C) for individuals who are enrolled in a 
                qualified retiree prescription drug plan.
This section constitutes budget authority in advance of 
appropriations Acts and represents the obligation of the 
Administrator to provide for the payment of amounts provided 
under this section.
  ``(b) Qualifying Entity Defined.--For purposes of this 
section, the term `qualifying entity' means any of the 
following that has entered into an agreement with the 
Administrator to provide the Administrator with such 
information as may be required to carry out this section:
          ``(1) A PDP sponsor offering a prescription drug plan 
        under this part.
          ``(2) A Medicare+Choice organization that provides 
        qualified prescription drug coverage under a 
        Medicare+Choice plan under part C.
          ``(3) The sponsor of a qualified retiree prescription 
        drug plan (as defined in subsection (f)).
  ``(c) Reinsurance Payment Amount.--
          ``(1) In general.--Subject to subsection (d)(1)(B) 
        and paragraph (4), the reinsurance payment amount under 
        this subsection for a qualifying covered individual (as 
        defined in subsection (g)(1)) for a coverage year (as 
        defined in subsection (g)(2)) is equal to the sum of 
        the following:
                  ``(A) For the portion of the individual's 
                gross covered prescription drug costs (as 
                defined in paragraph (3)) for the year that 
                exceeds the initial copayment threshold 
                specified in section 1860B(b)(2)(C), but does 
                not exceed the initial coverage limit specified 
                in section 1860B(b)(3), an amount equal to 30 
                percent of the allowable costs (as defined in 
                paragraph (2)) attributable to such gross 
                covered prescription drug costs.
                  ``(B) For the portion of the individual's 
                gross covered prescription drug costs for the 
                year that exceeds the annual out-of-pocket 
                threshold specified in 1860B(b)(4)(B), an 
                amount equal to 80 percent of the allowable 
                costs attributable to such gross covered 
                prescription drug costs.
          ``(2) Allowable costs.--For purposes of this section, 
        the term `allowable costs' means, with respect to gross 
        covered prescription drug costs under a plan described 
        in subsection (b) offered by a qualifying entity, the 
        part of such costs that are actually paid (net of 
        average percentage rebates) under the plan, but in no 
        case more than the part of such costs that would have 
        been paid under the plan if the prescription drug 
        coverage under the plan were standard coverage.
          ``(3) Gross covered prescription drug costs.--For 
        purposes of this section, the term `gross covered 
        prescription drug costs' means, with respect to an 
        enrollee with a qualifying entity under a plan 
        described in subsection (b) during a coverage year, the 
        costs incurred under the plan (including costs 
        attributable to administrative costs) for covered 
        prescription drugs dispensed during the year, including 
        costs relating to the deductible, whether paid by the 
        enrollee or under the plan, regardless of whether the 
        coverage under the plan exceeds standard coverage and 
        regardless of when the payment for such drugs is made.
          ``(4) Indexing dollar amounts.--
                  ``(A) Amounts for 2005.--The dollar amounts 
                applied under paragraph (1) for 2005 shall be 
                the dollar amounts specified in such paragraph.
                  ``(B) For 2006.--The dollar amounts applied 
                under paragraph (1) for 2006 shall be the 
                dollar amounts specified in such paragraph 
                increased by the annual percentage increase 
                described in section 1860B(b)(5) for 2006.
                  ``(C) For subsequent years.--The dollar 
                amounts applied under paragraph (1) for a year 
                after 2006 shall be the amounts (under this 
                paragraph) applied under paragraph (1) for the 
                preceding year increased by the annual 
                percentage increase described in section 
                1860B(b)(5) (relating to growth in medicare 
                prescription drug costs per beneficiary) for 
                the year involved.
                  ``(D) Rounding.--Any amount, determined under 
                the preceding provisions of this paragraph for 
                a year, which is not a multiple of $10 shall be 
                rounded to the nearest multiple of $10.
  ``(d) Adjustment of Payments.--
          ``(1) Adjustment of reinsurance payments to assure 30 
        percent level of subsidy through reinsurance.--
                  ``(A) Estimation of payments.--The 
                Administrator shall estimate--
                          ``(i) the total payments to be made 
                        (without regard to this subsection) 
                        during a year under subsections (a)(2) 
                        and (c); and
                          ``(ii) the total payments to be made 
                        by qualifying entities for standard 
                        coverage under plans described in 
                        subsection (b) during the year.
                  ``(B) Adjustment.--The Administrator shall 
                proportionally adjust the payments made under 
                subsections (a)(2) and (c) for a coverage year 
                in such manner so that the total of the 
                payments made under such subsections for the 
                year is equal to 30 percent of the total 
                payments described in subparagraph (A)(ii).
          ``(2) Risk adjustment for direct subsidies.--To the 
        extent the Administrator determines it appropriate to 
        avoid risk selection, the payments made for direct 
        subsidies under subsection (a)(1) are subject to 
        adjustment based upon risk factors specified by the 
        Administrator. Any such risk adjustment shall be 
        designed in a manner as to not result in a change in 
        the aggregate payments made under such subsection.
  ``(e) Payment Methods.--
          ``(1) In general.--Payments under this section shall 
        be based on such a method as the Administrator 
        determines. The Administrator may establish a payment 
        method by which interim payments of amounts under this 
        section are made during a year based on the 
        Administrator's best estimate of amounts that will be 
        payable after obtaining all of the information.
          ``(2) Source of payments.--Payments under this 
        section shall be made from the Medicare Prescription 
        Drug Trust Fund.
  ``(f) Qualified Retiree Prescription Drug Plan Defined.--
          ``(1) In general.--For purposes of this section, the 
        term `qualified retiree prescription drug plan' means 
        employment-based retiree health coverage (as defined in 
        paragraph (3)(A)) if, with respect to an individual 
        enrolled (or eligible to be enrolled) under this part 
        who is covered under the plan, the following 
        requirements are met:
                  ``(A) Assurance.--The sponsor of the plan 
                shall annually attest, and provide such 
                assurances as the Administrator may require, 
                that the coverage meets or exceeds the 
                requirements for qualified prescription drug 
                coverage.
                  ``(B) Audits.--The sponsor (and the plan) 
                shall maintain, and afford the Administrator 
                access to, such records as the Administrator 
                may require for purposes of audits and other 
                oversight activities necessary to ensure the 
                adequacy of prescription drug coverage, and the 
                accuracy of payments made.
                  ``(C) Provision of certification of 
                prescription drug coverage.--The sponsor of the 
                plan shall provide for issuance of 
                certifications of the type described in section 
                1860A(c)(2)(D).
          ``(2) Limitation on benefit eligibility.--No payment 
        shall be provided under this section with respect to an 
        individual who is enrolled under a qualified retiree 
        prescription drug plan unless the individual is--
                  ``(A) enrolled under this part;
                  ``(B) is covered under the plan; and
                  ``(C) is eligible to obtain qualified 
                prescription drug coverage under section 1860A 
                but did not elect such coverage under this part 
                (either through a prescription drug plan or 
                through a Medicare+Choice plan).
          ``(3) Definitions.--As used in this section:
                  ``(A) Employment-based retiree health 
                coverage.--The term `employment-based retiree 
                health coverage' means health insurance or 
                other coverage of health care costs for 
                individuals enrolled under this part (or for 
                such individuals and their spouses and 
                dependents) based on their status as former 
                employees or labor union members.
                  ``(B) Sponsor.--The term `sponsor' means a 
                plan sponsor, as defined in section 3(16)(B) of 
                the Employee Retirement Income Security Act of 
                1974.
  ``(g) General Definitions.--For purposes of this section:
          ``(1) Qualifying covered individual.--The term 
        `qualifying covered individual' means an individual 
        who--
                  ``(A) is enrolled with a prescription drug 
                plan under this part;
                  ``(B) is enrolled with a Medicare+Choice plan 
                that provides qualified prescription drug 
                coverage under part C; or
                  ``(C) is enrolled for benefits under this 
                title and is covered under a qualified retiree 
                prescription drug plan.
          ``(2) Coverage year.--The term `coverage year' means 
        a calendar year in which covered outpatient drugs are 
        dispensed if a claim for payment is made under the plan 
        for such drugs, regardless of when the claim is paid.

``SEC. 1860I. MEDICARE PRESCRIPTION DRUG TRUST FUND.

  ``(a) In General.--There is created on the books of the 
Treasury of the United States a trust fund to be known as the 
`Medicare Prescription Drug Trust Fund' (in this section 
referred to as the `Trust Fund'). The Trust Fund 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, such fund as provided in this part. Except as 
otherwise provided in this section, the provisions of 
subsections (b) through (i) of section 1841 shall apply to the 
Trust Fund in the same manner as they apply to the Federal 
Supplementary Medical Insurance Trust Fund under such section.
  ``(b) Payments From Trust Fund.--
          ``(1) In general.--The Managing Trustee shall pay 
        from time to time from the Trust Fund such amounts as 
        the Administrator certifies are necessary to make--
                  ``(A) payments under section 1860G (relating 
                to low-income subsidy payments);
                  ``(B) payments under section 1860H (relating 
                to subsidy payments); and
                  ``(C) payments with respect to administrative 
                expenses under this part in accordance with 
                section 201(g).
          ``(2) Transfers to medicaid account for increased 
        administrative costs.--The Managing Trustee shall 
        transfer from time to time from the Trust Fund to the 
        Grants to States for Medicaid account amounts the 
        Administrator certifies are attributable to increases 
        in payment resulting from the application of a higher 
        Federal matching percentage under section 1935(b).
  ``(c) Deposits Into Trust Fund.--
          ``(1) Low-income transfer.--There is hereby 
        transferred to the Trust Fund, from amounts 
        appropriated for Grants to States for Medicaid, amounts 
        equivalent to the aggregate amount of the reductions in 
        payments under section 1903(a)(1) attributable to the 
        application of section 1935(c).
          ``(2) Appropriations to cover government 
        contributions.--There are authorized to be appropriated 
        from time to time, out of any moneys in the Treasury 
        not otherwise appropriated, to the Trust Fund, an 
        amount equivalent to the amount of payments made from 
        the Trust Fund under subsection (b), reduced by the 
        amount transferred to the Trust Fund under paragraph 
        (1).
  ``(d) Relation to Solvency Requirements.--Any provision of 
law that relates to the solvency of the Trust Fund under this 
part shall take into account the Trust Fund and amounts 
receivable by, or payable from, the Trust Fund.

``SEC. 1860J. DEFINITIONS; TREATMENT OF REFERENCES TO PROVISIONS IN 
                    PART C.

  ``(a) Definitions.--For purposes of this part:
          ``(1) Covered outpatient drugs.--The term `covered 
        outpatient drugs' is defined in section 1860B(f).
          ``(2) Initial coverage limit.--The term `initial 
        coverage limit' means such limit as established under 
        section 1860B(b)(3), or, in the case of coverage that 
        is not standard coverage, the comparable limit (if any) 
        established under the coverage.
          ``(3) Medicare prescription drug trust fund.--The 
        term `Medicare Prescription Drug Trust Fund' means the 
        Trust Fund created under section 1860I(a).
          ``(4) PDP sponsor.--The term `PDP sponsor' means an 
        entity that is certified under this part as meeting the 
        requirements and standards of this part for such a 
        sponsor.
          ``(5) Prescription drug plan.--The term `prescription 
        drug plan' means health benefits coverage that--
                  ``(A) is offered under a policy, contract, or 
                plan by a PDP sponsor pursuant to, and in 
                accordance with, a contract between the 
                Administrator and the sponsor under section 
                1860D(b);
                  ``(B) provides qualified prescription drug 
                coverage; and
                  ``(C) meets the applicable requirements of 
                the section 1860C for a prescription drug plan.
          ``(6) Qualified prescription drug coverage.--The term 
        `qualified prescription drug coverage' is defined in 
        section 1860B(a).
          ``(7) Standard coverage.--The term `standard 
        coverage' is defined in section 1860B(b).
  ``(b) Application of Medicare+Choice Provisions Under This 
Part.--For purposes of applying provisions of part C under this 
part with respect to a prescription drug plan and a PDP 
sponsor, unless otherwise provided in this part such provisions 
shall be applied as if--
          ``(1) any reference to a Medicare+Choice plan 
        included a reference to a prescription drug plan;
          ``(2) any reference to a provider-sponsored 
        organization included a reference to a PDP sponsor;
          ``(3) any reference to a contract under section 1857 
        included a reference to a contract under section 
        1860D(b); and
          ``(4) any reference to part C included a reference to 
        this part.''.
  (b) Additional Conforming Changes.--
          (1) Conforming references to previous part d.--Any 
        reference in law (in effect before the date of the 
        enactment of this Act) to part D of title XVIII of the 
        Social Security Act is deemed a reference to part E of 
        such title (as in effect after such date).
          (2) Conforming amendment permitting waiver of cost-
        sharing.--Section 1128B(b)(3) (42 U.S.C. 1320a-
        7b(b)(3)) is amended--
                  (A) by striking ``and'' at the end of 
                subparagraph (E);
                  (B) by striking the period at the end of 
                subparagraph (F) and inserting ``; and''; and
                  (C) by adding at the end the following new 
                subparagraph:
          ``(G) the waiver or reduction of any cost-sharing 
        imposed under part D of title XVIII.''.
          (3) Submission of legislative proposal.--Not later 
        than 6 months after the date of the enactment of this 
        Act, the Secretary of Health and Human Services 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 subtitle.
  (c) Study on Transitioning Part B Prescription Drug 
Coverage.--Not later than January 1, 2004, the Medicare 
Benefits Administrator shall submit a report to Congress that 
makes recommendations regarding methods for providing benefits 
under part D of title XVIII of the Social Security Act for 
outpatient prescription drugs for which benefits are provided 
under part B of such title.

SEC. 102. OFFERING OF QUALIFIED PRESCRIPTION DRUG COVERAGE UNDER THE 
                    MEDICARE+CHOICE PROGRAM.

  (a) In General.--Section 1851 (42 U.S.C. 1395w-21) is amended 
by adding at the end the following new subsection:
  ``(j) Availability of Prescription Drug Benefits.--
          ``(1) Offer of qualified prescription drug 
        coverage.--
                  ``(A) In general.--A Medicare+Choice 
                organization may not offer prescription drug 
                coverage (other than that required under parts 
                A and B) to an enrollee under a Medicare+Choice 
                plan unless such drug coverage is at least 
                qualified prescription drug coverage and unless 
                the requirements of this subsection with 
                respect to such coverage are met.
                  ``(B) Construction.--Nothing in this 
                subsection shall be construed as--
                          ``(i) requiring a Medicare+Choice 
                        plan to include coverage of qualified 
                        prescription drug coverage; or
                          ``(ii) permitting a Medicare+Choice 
                        organization from providing such 
                        coverage to an individual who has not 
                        elected such coverage under section 
                        1860A(b).
                For purposes of this part, an individual who 
                has not elected qualified prescription drug 
                coverage under section 1860A(b) shall be 
                treated as being ineligible to enroll in a 
                Medicare+Choice plan under this part that 
                offers such coverage.
          ``(2) Compliance with additional beneficiary 
        protections.--With respect to the offering of qualified 
        prescription drug coverage by a Medicare+Choice 
        organization under a Medicare+Choice plan, the 
        organization and plan shall meet the requirements of 
        section 1860C, including requirements relating to 
        information dissemination and grievance and appeals, in 
        the same manner as they apply to a PDP sponsor and a 
        prescription drug plan under part D and shall submit to 
        the Administrator the information described in section 
        1860F(a)(2). The Administrator shall waive such 
        requirements to the extent the Administrator determines 
        that such requirements duplicate requirements otherwise 
        applicable to the organization or plan under this part.
          ``(3) Availability of premium and cost-sharing 
        subsidies for low-income enrollees and direct and 
        reinsurance subsidy payments for organizations.--For 
        provisions--
                  ``(A) providing premium and cost-sharing 
                subsidies to low-income individuals receiving 
                qualified prescription drug coverage through a 
                Medicare+Choice plan, see section 1860G; and
                  ``(B) providing a Medicare+Choice 
                organization with direct and insurance subsidy 
                payments for providing qualified prescription 
                drug coverage under this part, see section 
                1860H.
          ``(4) Transition in initial enrollment period.--
        Notwithstanding any other provision of this part, the 
        annual, coordinated election period under subsection 
        (e)(3)(B) for 2005 shall be the 6-month period 
        beginning with November 2004.
          ``(5) Qualified prescription drug coverage; standard 
        coverage.--For purposes of this part, the terms 
        `qualified prescription drug coverage' and `standard 
        coverage' have the meanings given such terms in section 
        1860B.''.
  (b) Conforming Amendments.--Section 1851 (42 U.S.C. 1395w-21) 
is amended--
          (1) in subsection (a)(1)--
                  (A) by inserting ``(other than qualified 
                prescription drug benefits)'' after 
                ``benefits'';
                  (B) by striking the period at the end of 
                subparagraph (B) and inserting a comma; and
                  (C) by adding after and below subparagraph 
                (B) the following:
        ``and may elect qualified prescription drug coverage in 
        accordance with section 1860A.''; and
          (2) in subsection (g)(1), by inserting ``and section 
        1860A(c)(2)(B)'' after ``in this subsection''.
  (c) Effective Date.--The amendments made by this section 
apply to coverage provided on or after January 1, 2005.

SEC. 103. MEDICAID AMENDMENTS.

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

  ``SPECIAL PROVISIONS RELATING TO MEDICARE PRESCRIPTION DRUG BENEFIT

  ``Sec. 1935. (a) Requirement for Making Eligibility 
Determinations for Low-Income Subsidies.--As a condition of its 
State plan under this title under section 1902(a)(66) and 
receipt of any Federal financial assistance under section 
1903(a), a State shall--
          ``(1) make determinations of eligibility for premium 
        and cost-sharing subsidies under (and in accordance 
        with) section 1860G;
          ``(2) inform the Administrator of the Medicare 
        Benefits Administration of such determinations in cases 
        in which such eligibility is established; and
          ``(3) otherwise provide such Administrator with such 
        information as may be required to carry out part D of 
        title XVIII (including section 1860G).
  ``(b) Payments for Additional Administrative Costs.--
          ``(1) In general.--The amounts expended by a State in 
        carrying out subsection (a) are, subject to paragraph 
        (2), expenditures reimbursable under the appropriate 
        paragraph of section 1903(a); except that, 
        notwithstanding any other provision of such section, 
        the applicable Federal matching rates with respect to 
        such expenditures under such section shall be increased 
        as follows (but in no case shall the rate as so 
        increased exceed 100 percent):
                  ``(A) For expenditures attributable to costs 
                incurred during 2005, the otherwise applicable 
                Federal matching rate shall be increased by 10 
                percent of the percentage otherwise payable 
                (but for this subsection) by the State.
                  ``(B)(i) For expenditures attributable to 
                costs incurred during 2006 and each subsequent 
                year through 2013, the otherwise applicable 
                Federal matching rate shall be increased by the 
                applicable percent (as defined in clause (ii)) 
                of the percentage otherwise payable (but for 
                this subsection) by the State.
                  ``(ii) For purposes of clause (i), the 
                `applicable percent' for--
                          ``(I) 2006 is 20 percent; or
                          ``(II) a subsequent year is the 
                        applicable percent under this clause 
                        for the previous year increased by 10 
                        percentage points.
                  ``(C) For expenditures attributable to costs 
                incurred after 2013, the otherwise applicable 
                Federal matching rate shall be increased to 100 
                percent.
          ``(2) Coordination.--The State shall provide the 
        Administrator with such information as may be necessary 
        to properly allocate administrative expenditures 
        described in paragraph (1) that may otherwise be made 
        for similar eligibility determinations.''.
  (b) Phased-In Federal Assumption of Medicaid Responsibility 
for Premium and Cost-Sharing Subsidies for Dually Eligible 
Individuals.--
          (1) In general.--Section 1903(a)(1) (42 U.S.C. 
        1396b(a)(1)) is amended by inserting before the 
        semicolon the following: ``, reduced by the amount 
        computed under section 1935(c)(1) for the State and the 
        quarter''.
          (2) Amount described.--Section 1935, as inserted by 
        subsection (a)(2), is amended by adding at the end the 
        following new subsection:
  ``(c) Federal Assumption of Medicaid Prescription Drug Costs 
for Dually-Eligible Beneficiaries.--
          ``(1) In general.--For purposes of section 
        1903(a)(1), for a State that is one of the 50 States or 
        the District of Columbia for a calendar quarter in a 
        year (beginning with 2005) the amount computed under 
        this subsection is equal to the product of the 
        following:
                  ``(A) Medicare subsidies.--The total amount 
                of payments made in the quarter under section 
                1860G (relating to premium and cost-sharing 
                prescription drug subsidies for low-income 
                medicare beneficiaries) that are attributable 
                to individuals who are residents of the State 
                and are entitled to benefits with respect to 
                prescribed drugs under the State plan under 
                this title (including such a plan operating 
                under a waiver under section 1115).
                  ``(B) State matching rate.--A proportion 
                computed by subtracting from 100 percent the 
                Federal medical assistance percentage (as 
                defined in section 1905(b)) applicable to the 
                State and the quarter.
                  ``(C) Phase-out proportion.--The phase-out 
                proportion (as defined in paragraph (2)) for 
                the quarter.
          ``(2) Phase-out proportion.--For purposes of 
        paragraph (1)(C), the `phase-out proportion' for a 
        calendar quarter in--
                  ``(A) 2005 is 90 percent;
                  ``(B) a subsequent year before 2014, is the 
                phase-out proportion for calendar quarters in 
                the previous year decreased by 10 percentage 
                points; or
                  ``(C) a year after 2013 is 0 percent.''.
  (c) Medicaid Providing Wrap-Around Benefits.--Section 1935, 
as so inserted and amended, is further amended by adding at the 
end the following new subsection:
  ``(d) Additional Provisions.--
          ``(1) Medicaid as secondary payor.--In the case of an 
        individual who is entitled to qualified prescription 
        drug coverage under a prescription drug plan under part 
        D of title XVIII (or under a Medicare+Choice plan under 
        part C of such title) and medical assistance for 
        prescribed drugs under this title, medical assistance 
        shall continue to be provided under this title for 
        prescribed drugs to the extent payment is not made 
        under the prescription drug plan or the Medicare+Choice 
        plan selected by the individual.
          ``(2) Condition.--A State may require, as a condition 
        for the receipt of medical assistance under this title 
        with respect to prescription drug benefits for an 
        individual eligible to obtain qualified prescription 
        drug coverage described in paragraph (1), that the 
        individual elect qualified prescription drug coverage 
        under section 1860A.''.
  (d) Treatment of Territories.--
          (1) In general.--Section 1935, as so inserted and 
        amended, is further amended--
                  (A) in subsection (a) in the matter preceding 
                paragraph (1), by inserting ``subject to 
                subsection (e)'' after ``section 1903(a)'';
                  (B) in subsection (c)(1), by inserting 
                ``subject to subsection (e)'' after 
                ``1903(a)(1)''; and
                  (C) by adding at the end the following new 
                subsection:
  ``(e) Treatment of Territories.--
          ``(1) In general.--In the case of a State, other than 
        the 50 States and the District of Columbia--
                  ``(A) the previous provisions of this section 
                shall not apply to residents of such State; and
                  ``(B) if the State establishes a plan 
                described in paragraph (2) (for providing 
                medical assistance with respect to the 
                provision of prescription drugs to medicare 
                beneficiaries), the amount otherwise determined 
                under section 1108(f) (as increased under 
                section 1108(g)) for the State shall be 
                increased by the amount specified in paragraph 
                (3).
          ``(2) Plan.--The plan described in this paragraph is 
        a plan that--
                  ``(A) provides medical assistance with 
                respect to the provision of covered outpatient 
                drugs (as defined in section 1860B(f)) to low-
                income medicare beneficiaries; and
                  ``(B) assures that additional amounts 
                received by the State that are attributable to 
                the operation of this subsection are used only 
                for such assistance.
          ``(3) Increased amount.--
                  ``(A) In general.--The amount specified in 
                this paragraph for a State for a year is equal 
                to the product of--
                          ``(i) the aggregate amount specified 
                        in subparagraph (B); and
                          ``(ii) the amount specified in 
                        section 1108(g)(1) for that State, 
                        divided by the sum of the amounts 
                        specified in such section for all such 
                        States.
                  ``(B) Aggregate amount.--The aggregate amount 
                specified in this subparagraph for--
                          ``(i) 2005, is equal to $20,000,000; 
                        or
                          ``(ii) a subsequent year, is equal to 
                        the aggregate amount specified in this 
                        subparagraph for the previous year 
                        increased by annual percentage increase 
                        specified in section 1860B(b)(5) for 
                        the year involved.
          ``(4) Report.--The Administrator shall submit to 
        Congress a report on the application of this subsection 
        and may include in the report such recommendations as 
        the Administrator deems appropriate.''.
          (2) Conforming amendment.--Section 1108(f) (42 U.S.C. 
        1308(f)) is amended by inserting ``and section 
        1935(e)(1)(B)'' after ``Subject to subsection (g)''.
  (e) Amendment to Best Price.--Section 1927(c)(1)(C)(i) (42 
U.S.C. 1396r-8(c)(1)(C)(i)) is amended--
          (1) by striking ``and'' at the end of subclause 
        (III);
          (2) by striking the period at the end of subclause 
        (IV) and inserting ``; and''; and
          (3) by adding at the end the following new subclause:
                                  ``(V) any prices charged 
                                which are negotiated by a 
                                prescription drug plan under 
                                part D of title XVIII, by a 
                                Medicare+Choice plan under part 
                                C of such title with respect to 
                                covered outpatient drugs, or by 
                                a qualified retiree 
                                prescription drug plan (as 
                                defined in section 1860H(f)(1)) 
                                with respect to such drugs on 
                                behalf of individuals entitled 
                                to benefits under part A or 
                                enrolled under part B of such 
                                title.''.

SEC. 104. MEDIGAP TRANSITION.

  (a) In General.--Section 1882 (42 U.S.C. 1395ss) is amended 
by adding at the end the following new subsection:
  ``(v) Coverage of Prescription Drugs.--
          ``(1) In general.--Notwithstanding any other 
        provision of law, except as provided in paragraph (3) 
        no new medicare supplemental policy that provides 
        coverage of expenses for prescription drugs may be 
        issued under this section on or after January 1, 2005, 
        to an individual unless it replaces a medicare 
        supplemental policy that was issued to that individual 
        and that provided some coverage of expenses for 
        prescription drugs.
          ``(2) Issuance of substitute policies if obtain 
        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', 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 not later than 63 days after the date of 
                the termination of enrollment described in such 
                paragraph and who submits evidence of the date 
                of termination or disenrollment along with the 
                application for such medicare supplemental 
                policy.
                  ``(B) Individual covered.--An individual 
                described in this subparagraph is an individual 
                who--
                          ``(i) enrolls in a prescription drug 
                        plan 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' 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 
                paragraph (4) of subsection (s) shall apply 
                with respect to the requirements of this 
                paragraph in the same manner as they apply to 
                the requirements of such subsection.
          ``(3) New standards.--In applying subsection 
        (p)(1)(E) (including permitting the NAIC to revise its 
        model regulations in response to changes in law) with 
        respect to the change in benefits resulting from title 
        I of the Medicare Modernization and Prescription Drug 
        Act of 2002, with respect to policies issued to 
        individuals who are enrolled under part D, the changes 
        in standards shall only provide for substituting for 
        the benefit packages that included coverage for 
        prescription drugs two benefit packages that may 
        provide for coverage of cost-sharing with respect to 
        qualified prescription drug coverage under such part, 
        except that such coverage may not cover the 
        prescription drug deductible under such part. The two 
        benefit packages shall be consistent with the 
        following:
                  ``(A) First new policy.--The policy described 
                in this subparagraph has the following 
                benefits, notwithstanding any other provision 
                of this section relating to a core benefit 
                package:
                          ``(i) Coverage of 50 percent of the 
                        cost-sharing otherwise applicable, 
                        except coverage of 100 percent of any 
                        cost-sharing otherwise applicable for 
                        preventive benefits.
                          ``(ii) No coverage of the part B 
                        deductible.
                          ``(iii) Coverage for all hospital 
                        coinsurance for long stays (as in the 
                        current core benefit package).
                          ``(iv) A limitation on annual out-of-
                        pocket expenditures to $4,000 in 2005 
                        (or, in a subsequent year, to such 
                        limitation for the previous year 
                        increased by an appropriate inflation 
                        adjustment specified by the Secretary).
                  ``(B) Second new policy.--The policy 
                described in this subparagraph has the same 
                benefits as the policy described in 
                subparagraph (A), except as follows:
                          ``(i) Substitute `75 percent' for `50 
                        percent' in clause (i) of such 
                        subparagraph.
                          ``(ii) Substitute `$2,000' for 
                        `$4,000' in clause (iv) of such 
                        subparagraph.
          ``(4) Construction.--Any provision in this section or 
        in a medicare supplemental policy relating to 
        guaranteed renewability of coverage shall be deemed to 
        have been met through the offering of other coverage 
        under this subsection.''.

SEC. 105. MEDICARE PRESCRIPTION DRUG DISCOUNT CARD ENDORSEMENT PROGRAM.

  (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) In General.--The Secretary (or the Medicare 
Benefits Administrator pursuant to section 1808(c)(3)(C)) shall 
establish a program--
          ``(1) to endorse prescription drug discount card 
        programs that meet the requirements of this section; 
        and
          ``(2) to make available to medicare beneficiaries 
        information regarding such endorsed programs.
  ``(b) Requirements for Endorsement.--The Secretary may not 
endorse a prescription drug discount card program under this 
section unless the program meets the following requirements:
          ``(1) Savings to medicare beneficiaries.--The program 
        passes on to medicare beneficiaries who enroll in the 
        program discounts on prescription drugs, including 
        discounts negotiated with manufacturers.
          ``(2) Prohibition on application only to mail 
        order.--The program applies to drugs that are available 
        other than solely through mail order.
          ``(3) Beneficiary services.--The program provides 
        pharmaceutical support services, such as education and 
        counseling, and services to prevent adverse drug 
        interactions.
          ``(4) Information.--The program makes available to 
        medicare beneficiaries through the Internet and 
        otherwise information, including information on 
        enrollment fees, prices charged to beneficiaries, and 
        services offered under the program, that the Secretary 
        identifies as being necessary to provide for informed 
        choice by beneficiaries among endorsed programs.
          ``(5) Demonstrated experience.--The entity operating 
        the program has demonstrated experience and expertise 
        in operating such a program or a similar program.
          ``(6) Quality assurance.--The entity has in place 
        adequate procedures for assuring quality service under 
        the program.
          ``(7) Operation of assistance program.--The entity 
        meets such requirements relating to solvency, 
        compliance with financial reporting requirements, audit 
        compliance, and contractual guarantees as the Secretary 
        finds necessary for the participation of the sponsor in 
        the low-income assistance program under section 1807A.
          ``(8) Enrollment fees.--The program may charge an 
        annual enrollment fee, but the amount of such annual 
        fee may not exceed $25.
          ``(9) Additional beneficiary protections.--The 
        program meets such additional requirements as the 
        Secretary identifies to protect and promote the 
        interest of medicare beneficiaries, including 
        requirements that ensure that beneficiaries are not 
        charged more than the lower of the negotiated retail 
        price or the usual and customary price.
The prices negotiated by a prescription drug discount card 
program endorsed under this section shall (notwithstanding any 
other provision of law) not be taken into account for the 
purposes of establishing the best price under section 
1927(c)(1)(C).
  ``(c) Program Operation.--The Secretary shall operate the 
program under this section consistent with the following:
          ``(1) Promotion of informed choice.--In order to 
        promote informed choice among endorsed prescription 
        drug discount card programs, the Secretary shall 
        provide for the dissemination of information which 
        compares the prices and services of such programs in a 
        manner coordinated with the dissemination of 
        educational information on Medicare+Choice plans under 
        part C.
          ``(2) Oversight.--The Secretary shall provide 
        appropriate oversight to ensure compliance of endorsed 
        programs with the requirements of this section, 
        including verification of the discounts and services 
        provided.
          ``(3) 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 program and 
        programs endorsed under this section.
          ``(4) Sanctions for abusive practices.--The Secretary 
        may implement intermediate sanctions or may revoke the 
        endorsement of a program in the case 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.
          ``(5) Enrollment practices.--A medicare beneficiary 
        may not be enrolled in more than one endorsed program 
        at any time. A medicare beneficiary may change the 
        endorsed program in which the beneficiary is enrolled, 
        but may not make such change until the beneficiary has 
        been enrolled in a program for a minimum period of time 
        specified by the Secretary.
  ``(d) Transition.--The Secretary shall provide for an 
appropriate transition and discontinuation of the program under 
this section at the time prescription drug benefits first 
become available under part D.
  ``(e) Endorsement Condition.--The Secretary shall require, as 
condition of endorsement under of a prescription drug discount 
card program under this section that the program implement 
policies and procedures to safeguard the use and disclosure of 
program beneficiaries' individually identifiable health 
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.
  ``(f) Authorization of Appropriations.--There are authorized 
to be appropriated such sums as may be necessary to carry out 
the program under this section and section 1807A.

  ``TRANSITIONAL PRESCRIPTION DRUG ASSISTANCE PROGRAM FOR LOW-INCOME 
                             BENEFICIARIES

  ``Sec. 1807A. (a) Purpose.--The purpose of this section is to 
provide low-income medicare beneficiaries with immediate 
assistance in the purchase of covered outpatient prescription 
drugs during the period before the program under part D becomes 
effective.
  ``(b) Funds Available; Allotments.--
          ``(1) Appropriations; total allotments.--
                  ``(A) Appropriations.--For the purpose of 
                carrying out this section, there is 
                appropriated, out of any money in the Treasury 
                not otherwise appropriated--
                          ``(i) for fiscal year 2003, 
                        $300,000,000;
                          ``(ii) for fiscal year 2004, 
                        $2,100,000,000; and
                          ``(iii) for fiscal year 2005, 
                        $500,000,000.
          ``(2) Allotments.--
                  ``(A) Among residents of 50 states and the 
                district of columbia.--Subject to subparagraph 
                (B), the amount appropriated under subparagraph 
                (A) for each fiscal year shall be allotted 
                among the 50 States and the District of 
                Columbia based upon the Secretary's estimate of 
                each State's or District's proportion of the 
                total number of medicare beneficiaries with 
                income below 175 percent of the Federal poverty 
                line residing in all such States and the 
                District. The Secretary shall determine the 
                amount of the allotment for each such State and 
                District not later than July 1, 2003.
                  ``(B) Among residents of territories.--Of the 
                amount appropriated under subparagraph (A) for 
                a fiscal year, the Secretary shall allot a 
                percentage (determined consistent with the 
                allotment provided to territories under the 
                State children's health insurance program under 
                section 2104(c)) among the commonwealths and 
                territories described in section 2104(c)(3) in 
                the same proportion as the allotment proportion 
                under such program is allowed among such 
                commonwealths and territories.
          ``(3) Availability of amounts allotted.--Amounts 
        allotted with respect to a State pursuant to this 
        subsection for a fiscal year shall remain available for 
        expenditure through the end of the fiscal year in which 
        benefits are first available under part D. Any funds 
        allotted to States that are not obligated revert to the 
        General Fund of the Treasury.
          ``(4) Limitation.--In no case shall the total amount 
        of payments for assistance to eligible individuals (and 
        administrative costs) in a State for a fiscal year (and 
        previous fiscal years) under this section exceed the 
        amount of the allotments with respect to that State in 
        that year (and previous fiscal years). Nothing in this 
        section shall be construed as preventing a State from 
        providing, with its own funds, pharmaceutical 
        assistance that is in addition to the assistance funded 
        under this section.
  ``(c) Eligibility.--
          ``(1) In general.--Taking into account the amounts 
        allotted with respect to each State under subsection 
        (b) and the minimum dollar value on assistance per 
        eligible individual specified by the Secretary under 
        subsection (d)(3), the Secretary shall establish 
        guidelines for the establishment by each State of 
        eligibility standards consistent with paragraph (2).
          ``(2) Eligibility restrictions.--In no case shall an 
        individual residing in a State be eligible for 
        assistance under this section unless the individual--
                  ``(A) is entitled to benefits under part A or 
                enrolled under part B;
                  ``(B) has income that is at or below a 
                percentage (specified under the State 
                eligibility plan under paragraph (1), but not 
                to exceed 175 percent) of the Federal poverty 
                line; and
                  ``(C) meets the resources requirement 
                described in section 1905(p)(1)(C);
                  ``(D) is enrolled under a prescription drug 
                discount card program (or under an alternative 
                program authorized under subsection (d)(1)(B)); 
                and
                  ``(E) is not eligible for coverage of, or 
                assistance for, outpatient prescription drugs 
                under any of the following:
                          ``(i) A medicaid plan under title XIX 
                        (including under any waiver approved 
                        under section 1115).
                          ``(ii) Enrollment under a group 
                        health plan or health insurance 
                        coverage.
                          ``(iii) Enrollment under a medicare 
                        supplemental insurance policy.
                          ``(iv) Chapter 55 of title 10, United 
                        States Code (relating to medical and 
                        dental care for members of the 
                        uniformed services).
                          ``(v) Chapter 17 of title 38, United 
                        States Code (relating to Veterans' 
                        medical care).
                          ``(vi) Enrollment under a plan under 
                        chapter 89 of title 5, United States 
                        Code (relating to the Federal 
                        employees' health benefits program).
                          ``(vii) The Indian Health Care 
                        Improvement Act (25 U.S.C. 1601 et 
                        seq.).
          ``(3) Income determinations.--The provisions of 
        section 1860G(4)(C) shall apply for purposes of 
        applying this subsection.
  ``(d) Form of Assistance and Amount of Benefits.--
          ``(1) In general.--
                  ``(A) Through program sponsor.--Subject to 
                subparagraph (B), the assistance under this 
                section to an eligible individual shall be in 
                the form of a discount (as identified by the 
                sponsor to the Secretary) provided by the 
                sponsor of a prescription drug discount card 
                program to eligible individuals who are 
                enrolled in such program.
                  ``(B) Through alternative state program.--A 
                State may apply to the Secretary for 
                authorization to provide the assistance under 
                this section to an eligible individual through 
                a State pharmaceutical assistance program or 
                private program of pharmaceutical assistance. 
                The Secretary shall not authorize the use of 
                such a program unless the Secretary finds that 
                the program--
                          ``(i) was in existence before the 
                        date of the enactment of this section; 
                        and
                          ``(ii) is reasonably designed to 
                        provide for pharmaceutical assistance 
                        for a number of individuals, and in a 
                        scope, that is not less than the number 
                        of individuals, and minimum required 
                        amount, that would occur if the 
                        provisions of this subparagraph had not 
                        applied in the State.
          ``(2) Guidance; minimum level of assistance.--The 
        Secretary shall establish guidelines for how the 
        program under this section will operate. Based upon the 
        aggregate amount appropriated in each fiscal year and 
        other relevant factors, the Secretary shall establish a 
        minimum amount of assistance that is available, subject 
        to paragraph (4)(B), to each eligible individual for 
        each calendar quarter (or other period specified by the 
        Secretary) and provide guidance to sponsors regarding 
        how assistance funds may be provided to eligible 
        individuals consistent with such amount and funding 
        limitations.
          ``(3) Relationship to discounts.--The assistance 
        provided under this section is in addition to the 
        discount otherwise available to individuals enrolled in 
        prescription drug discount card programs who are not 
        eligible individuals.
          ``(4) Limitation on assistance.--
                  ``(A) In general.--The assistance under this 
                section for an eligible individual shall be 
                limited to assistance--
                          ``(i) for covered outpatient drugs 
                        (as defined in section 1860B(f)) and 
                        for enrollment fees imposed under 
                        prescription drug discount card 
                        programs; and
                          ``(ii) for expenses incurred--
                                  ``(I) on and after the date 
                                the individual is both enrolled 
                                in the prescription drug 
                                discount card program and 
                                determined to be an eligible 
                                individual under this section; 
                                and
                                  ``(II) before the date 
                                benefits are first available 
                                under the program under part D.
                  ``(B) Authority.--The Secretary shall take 
                such steps as may be necessary to assure 
                compliance with the expenditure limitations 
                described in subsection (b)(4).
  ``(e) Payment of Federal Subsidy to Sponsors.--
          ``(1) In general.--The Secretary shall make payment 
        (within the allotments for each State, less the 
        administrative payments made subsection (f)(2) to each 
        State) to the sponsor of the prescription drug discount 
        card program (or to a State or other entity operating a 
        program under subsection (d)(1)(B)) in which an 
        eligible individual is enrolled of the amount of the 
        assistance provided by the sponsor pursuant to this 
        section.
          ``(2) Periodic payments.--Payments under this 
        subsection (and subsection (f)(2)) shall be made on a 
        monthly or other periodic installment basis, based upon 
        estimates of the Secretary and shall be reduced or 
        increased to the extent of any overpayment or 
        underpayment which the Secretary determines was made 
        under this section for any prior period and with 
        respect to which adjustment has not already been made 
        under this paragraph.
  ``(f) State Responsibilities.--
          ``(1) Eligibility determinations.--As a condition for 
        the payment of Federal financial participation to a 
        State under section 1903(a) for periods during which 
        assistance is available under this section, the State 
        must submit to the Secretary an eligibility plan under 
        which the State--
                  ``(A) establishes eligibility standards 
                consistent with the provisions of this section;
                  ``(B) conducts determinations of eligibility 
                and income in the same manner as the State is 
                required to make eligibility and income 
                determinations described in section 
                1860G(a)(4); and
                  ``(C) communicates to the Secretary (or the 
                Secretary's designee) determinations of 
                eligibility or discontinuation of eligibility 
                under this section.
        The Secretary shall provide a method for communicating 
        with sponsors concerning the identity of eligible 
        individuals.
          ``(2) Coverage of administrative costs.--Of the 
        amount allotted with respect to a State under 
        subsection (b), the Secretary shall pay to the State 
        the amount of its administrative costs in carrying out 
        this subsection, but not to exceed 10 percent of the 
        amount of such allotment to the State. The provisions 
        of subsection (e)(2) shall apply to such payments.
  ``(g) Definitions.--For purposes of this section:
          ``(1) Eligible individual.--The term `eligible 
        individual' means an individual who is determined by a 
        State to be eligible for assistance under this section.
          ``(2) Prescription drug discount card program.--The 
        term `prescription drug discount card program' means 
        such a program that is endorsed under section 1807.
          ``(3) Sponsor.--The term `sponsor' means the sponsor 
        of a prescription drug discount card program, or, in 
        the case of a program authorized under subsection 
        (d)(1)(B), the State or other entity operating the 
        program.
          ``(4) State.--The term `State' has the meaning given 
        such term for purposes of title XIX.''.
  (b) Conforming Amendment.--Section 1927(c)(1)(C)(i)(V) (42 
U.S.C. 1396r-8(c)(1)(C)(i)(V)), as added by section 103(e), is 
amended by striking ``or by a qualified retiree prescription 
drug plan (as defined in section 1860H(f)(1))'' and inserting 
``by a qualified retiree prescription drug plan (as defined in 
section 1860H(f)(1)), or by a prescription drug discount card 
program endorsed under section 1807''.

SEC. 106. GAO STUDY OF THE EFFECTIVENESS OF THE NEW PRESCRIPTION DRUG 
                    PROGRAM.

  (a) Study.--The Comptroller General of the United States 
shall conduct a study on the effectiveness of the prescription 
drug program provided under part D of title XVIII of the Social 
Security Act. Such study shall--
          (1) report--
                  (A) the percentage of eligible individuals 
                who enrolled in the program;
                  (B) the demographic characteristics 
                (including health status) of such enrollees;
                  (C) the number and type of qualified 
                prescription drug coverage available to such 
                individuals; and
                  (D) the premiums imposed for enrollment in 
                different areas;
          (2) evaluate the processes and methods developed by 
        the Administrator and the decisions reached by outside 
        actuaries to determine the actuarial valuation of 
        prescription drug coverage; and
          (3) assess whether the subsidy payments under such 
        part accomplished its stated goals of reducing premium 
        levels for all beneficiaries, reducing adverse 
        selection, and promoting participation of PDP sponsors.
  (b) Report.--Not later January 1, 2006, the Comptroller 
General shall submit a report to Congress on the study 
conducted under subsection (a).

     TITLE II--MEDICARE+CHOICE REVITALIZATION AND MEDICARE+CHOICE 
                          COMPETITION PROGRAM

               Subtitle A--Medicare+Choice Revitalization

SEC. 201. MEDICARE+CHOICE IMPROVEMENTS.

  (a) Equalizing Payments Between Fee-For-Service and 
Medicare+Choice.--
          (1) In general.--Section 1853(c)(1) (42 U.S.C. 1395w-
        23(c)(1)) is amended by adding at the end the 
        following:
                  ``(D) Based on 100 percent of fee-for-service 
                costs.--
                          ``(i) In general.--For 2003 and 2004, 
                        the adjusted average per capita cost 
                        for the year involved, determined under 
                        section 1876(a)(4) for the 
                        Medicare+Choice payment area for 
                        services covered under parts A and B 
                        for individuals entitled to benefits 
                        under part A and enrolled under part B 
                        who are not enrolled in a 
                        Medicare+Choice plan under this part 
                        for the year, but adjusted to exclude 
                        costs attributable to payments under 
                        section 1886(h).
                          ``(ii) Inclusion of costs of va and 
                        dod military facility services to 
                        medicare-eligible beneficiaries.--In 
                        determining the adjusted average per 
                        capita cost under clause (i) for a 
                        year, such cost shall be adjusted to 
                        include the Secretary's estimate, on a 
                        per capita basis, of the amount of 
                        additional payments that would have 
                        been made in the area involved under 
                        this title if individuals entitled to 
                        benefits under this title had not 
                        received services from facilities of 
                        the Department of Veterans Affairs or 
                        the Department of Defense.''.
          (2) Conforming amendment.--Such section is further 
        amended, in the matter before subparagraph (A), by 
        striking ``or (C)'' and inserting ``(C), or (D)''.
  (b) Revision of Blend.--
          (1) Revision of national average used in calculation 
        of blend.--Section 1853(c)(4)(B)(i)(II) (42 U.S.C. 
        1395w-23(c)(4)(B)(i)(II)) is amended by inserting ``who 
        (with respect to determinations for 2003 and for 2004) 
        are enrolled in a Medicare+Choice plan'' after ``the 
        average number of medicare beneficiaries''.
          (2) Change in budget neutrality.--Section 1853(c) (42 
        U.S.C. 1395w-23(c)) is amended--
                  (A) in paragraph (1)(A), by inserting ``(for 
                a year before 2003)'' after ``multiplied''; and
                  (B) in paragraph (5), by inserting ``(before 
                2003)'' after ``for each year''.
  (c) Revision in Minimum Percentage Increase for 2003 and 
2004.--Section 1853(c)(1)(C) (42 U.S.C. 1395w-23(c)(1)(C)) is 
amended by striking clause (iv) and inserting the following:
                          ``(iv) For 2002, 102 percent of the 
                        annual Medicare+Choice capitation rate 
                        under this paragraph for the area for 
                        2001.
                          ``(v) For 2003 and 2004, 103 percent 
                        of the annual Medicare+Choice 
                        capitation rate under this paragraph 
                        for the area for the previous year.
                          ``(vi) For 2005 and each succeeding 
                        year, 102 percent of the annual 
                        Medicare+Choice capitation rate under 
                        this paragraph for the area for the 
                        previous year.''.
  (d) Inclusion of Costs of DOD and VA Military Facility 
Services to Medicare-eligible Beneficiaries in Calculation of 
Medicare+Choice Payment Rates.--Section 1853(c)(3) (42 U.S.C. 
1395w-23(c)(3)) is amended--
          (1) in subparagraph (A), by striking ``subparagraph 
        (B)'' and inserting ``subparagraphs (B) and (E)'', and
          (2) by adding at the end the following new 
        subparagraph:
                  ``(E) Inclusion of costs of dod and va 
                military facility services to medicare-eligible 
                beneficiaries.--In determining the area-
                specific Medicare+Choice capitation rate under 
                subparagraph (A) for a year (beginning with 
                2003), the annual per capita rate of payment 
                for 1997 determined under section 1876(a)(1)(C) 
                shall be adjusted to include in the rate the 
                Secretary's estimate, on a per capita basis, of 
                the amount of additional payments that would 
                have been made in the area involved under this 
                title if individuals entitled to benefits under 
                this title had not received services from 
                facilities of the Department of Defense or the 
                Department of Veterans Affairs.''.
  (e) Announcement of Revised Medicare+Choice Payment Rates.--
Within 4 weeks after the date of the enactment of this Act, the 
Secretary shall determine, and shall announce (in a manner 
intended to provide notice to interested parties) 
Medicare+Choice capitation rates under section 1853 of the 
Social Security Act (42 U.S.C. 1395w-23) for 2003, revised in 
accordance with the provisions of this section.
  (f) MedPAC Study of AAPCC.--
          (1) Study.--The Medicare Payment Advisory Commission 
        shall conduct a study that assesses the method used for 
        determining the adjusted average per capita cost 
        (AAPCC) under section 1876(a)(4) of the Social Security 
        Act (42 U.S.C. 1395mm(a)(4)). Such study shall 
        examine--
                  (A) the bases for variation in such costs 
                between different areas, including differences 
                in input prices, utilization, and practice 
                patterns;
                  (B) the appropriate geographic area for 
                payment under the Medicare+Choice program under 
                part C of title XVIII of such Act; and
                  (C) the accuracy of risk adjustment methods 
                in reflecting differences in costs of providing 
                care to different groups of beneficiaries 
                served under such program.
          (2) Report.--Not later than 9 months after the date 
        of the enactment of this Act, the Commission shall 
        submit to Congress a report on the study conducted 
        under paragraph (1). Such report shall include 
        recommendations regarding changes in the methods for 
        computing the adjusted average per capita cost among 
        different areas.
  (g) Report on Impact of Increased Financial Assistance to 
Medicare+Choice Plans.--Not later than July 1, 2003, the 
Secretary of Health and Human Services shall submit to Congress 
a report that describes the impact of additional financing 
provided under this Act and other Acts (including the Medicare, 
Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 and 
BIPA) on the availability of Medicare+Choice plans in different 
areas and its impact on lowering premiums and increasing 
benefits under such plans.

SEC. 202. MAKING PERMANENT CHANGE IN MEDICARE+CHOICE REPORTING 
                    DEADLINES AND ANNUAL, COORDINATED ELECTION PERIOD.

  (a) Change in Reporting Deadline.--Section 1854(a)(1) (42 
U.S.C. 1395w-24(a)(1)), as amended by section 532(b)(1) of the 
Public Health Security and Bioterrorism Preparedness and 
Response Act of 2002, is amended by striking ``2002, 2003, and 
2004 (or July 1 of each other year)'' and inserting ``2002 and 
each subsequent year (or July 1 of each year before 2002)''.
  (b) Delay in Annual, Coordinated Election Period.--Section 
1851(e)(3)(B) (42 U.S.C. 1395w-21(e)(3)(B)), as amended by 
section 532(c)(1)(A) of the Public Health Security and 
Bioterrorism Preparedness and Response Act of 2002, is amended 
by striking ``and after 2005, the month of November before such 
year and with respect to 2003, 2004, and 2005'' and inserting 
``, the month of November before such year and with respect to 
2003 and any subsequent year''.
  (c) Annual Announcement of Payment Rates.--Section 1853(b)(1) 
(42 U.S.C. 1395w-23(b)(1)), as amended by section 532(d)(1) of 
the Public Health Security and Bioterrorism Preparedness and 
Response Act of 2002, is amended by striking ``and after 2005 
not later than March 1 before the calendar year concerned and 
for 2004 and 2005'' and inserting ``not later than March 1 
before the calendar year concerned and for 2004 and each 
subsequent year''.
  (d) Requiring Provision of Available Information Comparing 
Plan Options.--The first sentence of section 1851(d)(2)(A)(ii) 
(42 U.S.C. 1395w-21(d)(2)(A)(ii)) is amended by inserting 
before the period the following: ``to the extent such 
information is available at the time of preparation of 
materials for the mailing''.

SEC. 203. AVOIDING DUPLICATIVE STATE REGULATION.

  (a) In General.--Section 1856(b)(3) (42 U.S.C. 1395w-
26(b)(3)) is amended to read as follows:
          ``(3) Relation to state laws.--The standards 
        established under this subsection shall supersede any 
        State law or regulation (other than State licensing 
        laws or State laws relating to plan solvency) with 
        respect to Medicare+Choice plans which are offered by 
        Medicare+Choice organizations under this part.''.
  (b) Effective Date.--The amendment made by subsection (a) 
shall take effect on the date of the enactment of this Act.

SEC. 204. 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-29(b)) 
is amended by adding at the end the following new paragraph:
          ``(4) Specialized medicare+choice plans for special 
        needs beneficiaries.--
                  ``(A) In general.--The term `specialized 
                Medicare+Choice plan for special needs 
                beneficiaries' means a Medicare+Choice plan 
                that exclusively serves special needs 
                beneficiaries (as defined in subparagraph (B)).
                  ``(B) Special needs beneficiary.--The term 
                `special needs beneficiary' means a 
                Medicare+Choice eligible individual who--
                          ``(i) is institutionalized (as 
                        defined by the Secretary);
                          ``(ii) is entitled to medical 
                        assistance under a State plan under 
                        title XIX; or
                          ``(iii) meets such requirements as 
                        the Secretary may determine would 
                        benefit from enrollment in such a 
                        specialized Medicare+Choice plan 
                        described in subparagraph (A) for 
                        individuals with severe or disabling 
                        chronic conditions.''.
  (c) Restriction on Enrollment Permitted.--Section 1859 (42 
U.S.C. 1395w-29) 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, 2007, the plan may restrict the 
enrollment of individuals under the plan to individuals who are 
within one or more classes of special needs beneficiaries.''.
  (d) Report to Congress.--Not later than December 31, 2005, 
the Medicare Benefits Administrator 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 upon the date of 
        the enactment of this Act.
          (2) Deadline for issuance of requirements for special 
        needs beneficiaries; transition.--No later than 6 
        months after the date of the enactment of this Act, the 
        Secretary of Health and Human Services 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. 205. MEDICARE MSAS.

  (a) Exemption from Reporting Enrollee Encounter Data.--
          (1) In general.--Section 1852(e)(1) (42 U.S.C. 1395w-
        22(e)(1)) is amended by inserting ``(other than MSA 
        plans)'' after ``Medicare+Choice plans''.
          (2) Conforming amendments.--Section 1852 (42 U.S.C. 
        1395w-22) is amended--
                  (A) in subsection (c)(1)(I), by inserting 
                before the period at the end the following: 
                ``if required under such section''; and
                  (B) in subparagraphs (A) and (B) of 
                subsection (e)(2), by striking ``, a non-
                network MSA plan,'' and ``, non-network msa 
                plans,'' each place it appears.
  (b) Making Program Permanent and Eliminating Cap.--Section 
1851(b)(4) (42 U.S.C. 1395w-21(b)(4)) is amended--
          (1) in the heading, by striking ``on a demonstration 
        basis'';
          (2) by striking the first sentence of subparagraph 
        (A); and
          (3) by striking the second sentence of subparagraph 
        (C).
  (c) Applying Limitations on Balance Billing.--Section 
1852(k)(1) (42 U.S.C. 1395w-22(k)(1)) is amended by inserting 
``or with an organization offering a MSA plan'' after ``section 
1851(a)(2)(A)''.
  (d) Additional Amendment.--Section 1851(e)(5)(A) (42 U.S.C. 
1395w-21(e)(5)(A)) is amended--
          (1) by adding ``or'' at the end of clause (i);
          (2) by striking ``, or'' at the end of clause (ii) 
        and inserting a semicolon; and
          (3) by striking clause (iii).

SEC. 206. EXTENSION OF REASONABLE COST AND SHMO CONTRACTS.

  (a) Reasonable Cost Contracts.--
          (1) In general.--Section 1876(h)(5)(C) (42 U.S.C. 
        1395mm(h)(5)(C)) is amended--
                  (A) by inserting ``(i)'' after ``(C)'';
                  (B) by inserting before the period the 
                following: ``, except (subject to clause (ii)) 
                in the case of a contract for an area which is 
                not covered in the service area of 1 or more 
                coordinated care Medicare+Choice plans under 
                part C''; and
                  (C) by adding at the end the following new 
                clause:
  ``(ii) In the case in which--
          ``(I) a reasonable cost reimbursement contract 
        includes an area in its service area as of a date that 
        is after December 31, 2003;
          ``(II) such area is no longer included in such 
        service area after such date by reason of the operation 
        of clause (i) because of the inclusion of such area 
        within the service area of a Medicare+Choice plan; and
          ``(III) all Medicare+Choice plans subsequently 
        terminate coverage in such area;
such reasonable cost reimbursement contract may be extended and 
renewed to cover such area (so long as it is not included in 
the service area of any Medicare+Choice plan).''.
          (2) Study.--The Medicare Benefits Administrator shall 
        conduct a study of an appropriate transition for plans 
        offered under reasonable cost contracts under section 
        1876 of the Social Security Act on and after January 1, 
        2005. Such a transition may take into account whether 
        there are one or more coordinated care Medicare+Choice 
        plans being offered in the areas involved. Not later 
        than February 1, 2004, the Administrator shall submit 
        to Congress a report on such study and shall include 
        recommendations regarding any changes in the amendment 
        made by paragraph (1) as the Administrator determines 
        to be appropriate.
  (b) Extension of Social Health Maintenance Organization 
(SHMO) Demonstration Project.--
          (1) In general.--Section 4018(b)(1) of the Omnibus 
        Budget Reconciliation Act of 1987 is amended by 
        striking ``the date that is 30 months after the date 
        that the Secretary submits to Congress the report 
        described in section 4014(c) of the Balanced Budget Act 
        of 1997'' and inserting ``December 31, 2004''.
          (2) SHMOs offering medicare+choice plans.--Nothing in 
        such section 4018 shall be construed as preventing a 
        social health maintenance organization from offering a 
        Medicare+Choice plan under part C of title XVIII of the 
        Social Security Act.

            Subtitle B--Medicare+Choice Competition Program

SEC. 211. MEDICARE+CHOICE COMPETITION PROGRAM.

  (a) Submission of Bid Amounts.--Section 1854 (42 U.S.C. 
1395w-24) is amended--
          (1) in the heading by inserting ``and bid amounts'' 
        after ``premiums'';
          (2) in subsection (a)(1)(A)--
                  (A) by striking ``(A)'' and inserting 
                ``(A)(i) if the following year is before 
                2005,''; and
                  (B) by inserting before the semicolon at the 
                end the following: ``or (ii) if the following 
                year is 2005 or later, the information 
                described in paragraph (6)(A)''; and
          (3) by adding at the end of subsection (a) the 
        following:
          ``(6) Submission of bid amounts by medicare+choice 
        organizations.--
                  ``(A) Information to be submitted.--The 
                information described in this subparagraph is 
                as follows:
                          ``(i) The monthly aggregate bid 
                        amount for provision of all items and 
                        services under this part and the 
                        actuarial basis for determining such 
                        amount.
                          ``(ii) The proportions of such bid 
                        amount that are attributable to--
                                  ``(I) the provision of 
                                statutory non-drug benefits 
                                (such portion referred to in 
                                this part as the `unadjusted 
                                non-drug monthly bid amount');
                                  ``(II) the provision of 
                                statutory prescription drug 
                                benefits; and
                                  ``(III) the provision of non-
                                statutory benefits;
                        and the actuarial basis for determining 
                        such proportions.
                          ``(iii) Such additional information 
                        as the Administrator may require to 
                        verify the actuarial bases described in 
                        clauses (i) and (ii).
                  ``(B) Statutory benefits defined.--For 
                purposes of this part:
                          ``(i) The term `statutory non-drug 
                        benefits' means benefits under parts A 
                        and B.
                          ``(ii) The term `statutory 
                        prescription drug benefits' means 
                        benefits under part D.
                          ``(iii) The term `statutory benefits' 
                        means statutory prescription drug 
                        benefits and statutory non-drug 
                        benefits.
                  ``(C) Acceptance and negotiation of bid 
                amounts.--The Administrator has the authority 
                to negotiate regarding monthly bid amounts 
                submitted under subparagraph (A) (and the 
                proportion described in subparagraph (A)(ii)). 
                The Administrator may reject such a bid amount 
                or proportion if the Administrator determines 
                that such amount or proportion is not supported 
                by the actuarial bases provided under 
                subparagraph (A).''.
  (b) Providing for Beneficiary Savings for Certain Plans.--
          (1) In general.--Section 1854(b) (42 U.S.C. 1395w-
        24(b)) is amended--
                  (A) by adding at the end of paragraph (1) the 
                following new subparagraph:
                  ``(C) Beneficiary rebate rule.--
                          ``(i) Requirement.--The 
                        Medicare+Choice plan shall provide to 
                        the enrollee a monthly rebate equal to 
                        75 percent of the average per capita 
                        savings (if any) described in paragraph 
                        (3) applicable to the plan and year 
                        involved.
                          ``(iii) Form of rebate.--A rebate 
                        required under this subparagraph shall 
                        be provided--
                                  ``(I) through the crediting 
                                of the amount of the rebate 
                                towards the Medicare+Choice 
                                monthly supplementary 
                                beneficiary premium or the 
                                premium imposed for 
                                prescription drug coverage 
                                under part D;
                                  ``(II) through a direct 
                                monthly payment (through 
                                electronic funds transfer or 
                                otherwise); or
                                  ``(III) through other means 
                                approved by the Medicare 
                                Benefits Administrator,
                        or any combination thereof.''; and
                  (B) by adding at the end the following new 
                paragraph:
          ``(3) Computation of average per capita monthly 
        savings.--For purposes of paragraph (1)(C)(i), the 
        average per capita monthly savings referred to in such 
        paragraph for a Medicare+Choice plan and year is 
        computed as follows:
                  ``(A) Determination of state-wide average 
                risk adjustment.--
                          ``(i) In general.--The Medicare 
                        Benefits Administrator shall determine, 
                        at the same time rates are promulgated 
                        under section 1853(b)(1) (beginning 
                        with 2005), for each State the average 
                        of the risk adjustment factors to be 
                        applied to enrollees under section 
                        1853(a)(1)(A) in that State. In the 
                        case of a State in which a 
                        Medicare+Choice plan was offered in the 
                        previous year, the Administrator may 
                        compute such average based upon risk 
                        adjustment factors applied in that 
                        State in a previous year.
                          ``(ii) Treatment of new states.--In 
                        the case of a State in which no 
                        Medicare+Choice plan was offered in the 
                        previous year, the Administrator shall 
                        estimate such average. In making such 
                        estimate, the Administrator may use 
                        average risk adjustment factors applied 
                        to comparable States or applied on a 
                        national basis.
                  ``(B) Determination of risk adjusted 
                benchmark and risk-adjusted bid.--For each 
                Medicare+Choice plan offered in a State, the 
                Administrator shall--
                          ``(i) adjust the fee-for-service 
                        area-specific non-drug benchmark amount 
                        by the applicable average risk 
                        adjustment factor computed under 
                        subparagraph (A); and
                          ``(ii) adjust the unadjusted non-drug 
                        monthly bid amount by such applicable 
                        average risk adjustment factor.
                  ``(C) Determination of average per capita 
                monthly savings.--The average per capita 
                monthly savings described in this subparagraph 
                is equal to the amount (if any) by which--
                          ``(i) the risk-adjusted benchmark 
                        amount computed under subparagraph 
                        (B)(i), exceeds
                          ``(ii) the risk-adjusted bid computed 
                        under subparagraph (B)(ii).
                  ``(D) Authority to determine risk adjustment 
                for areas other than states.--The Administrator 
                may provide for the determination and 
                application of risk adjustment factors under 
                this paragraph on the basis of areas other than 
                States.''.
          (2) Computation of fee-for-service area-specific non-
        drug benchmark.--Section 1853 (42 U.S.C. 1395w-23) is 
        amended by adding at the end the following new 
        subsection:
  ``(j) Computation of Fee-for-Service Area-Specific Non-Drug 
Benchmark Amount.--For purposes of this part, the term `fee-
for-service area-specific non-drug benchmark amount' means, 
with respect to a Medicare+Choice payment area for a month in a 
year, an amount equal to the greater of the following (but in 
no case less than \1/12\ of the rate computed under subsection 
(c)(1), without regard to subparagraph (A), for the year):
          ``(1) Based on 100 percent of fee-for-service costs 
        in the area.--An amount equal to \1/12\ of 100 percent 
        (for 2005 through 2007, or 95 percent for 2008 and 
        years thereafter) of the adjusted average per capita 
        cost for the year involved, determined under section 
        1876(a)(4) for the Medicare+Choice payment area, for 
        the area and the year involved, for services covered 
        under parts A and B for individuals entitled to 
        benefits under part A and enrolled under part B who are 
        not enrolled in a Medicare+Choice plan under this part 
        for the year, and adjusted to exclude from such cost 
        the amount the Medicare Benefits Administrator 
        estimates is payable for costs described in subclauses 
        (I) and (II) of subsection (c)(3)(C)(i) for the year 
        involved and also adjusted in the manner described in 
        subsection (c)(1)(D)(ii) (relating to inclusion of 
        costs of VA and DOD military facility services to 
        medicare-eligible beneficiaries).
          ``(2) Minimum monthly amount.--The minimum amount 
        specified in this paragraph is the amount specified in 
        subsection (c)(1)(B)(iv) for the year involved.''.
  (c) Payment of Plans Based on Bid Amounts.--
          (1) In general.--Section 1853(a)(1)(A) (42 U.S.C. 
        1395w-23) is amended by striking ``in an amount'' and 
        all that follows and inserting the following: ``in an 
        amount determined as follows:
                          ``(i) Payment before 2005.--For years 
                        before 2005, the payment amount shall 
                        be equal to \1/12\ of the annual 
                        Medicare+Choice capitation rate (as 
                        calculated under subsection (c)) with 
                        respect to that individual for that 
                        area, reduced by the amount of any 
                        reduction elected under section 1854(f 
                        )(1)(E) and adjusted under clause 
                        (iii).
                          ``(ii) Payment for statutory non-drug 
                        benefits beginning with 2005.--For 
                        years beginning with 2005--
                                  ``(I) Plans with bids below 
                                benchmark.--In the case of a 
                                plan for which there are 
                                average per capita monthly 
                                savings described in section 
                                1854(b)(3)(C), the payment 
                                under this subsection is equal 
                                to the unadjusted non-drug 
                                monthly bid amount, adjusted 
                                under clause (iii), plus the 
                                amount of the monthly rebate 
                                computed under section 
                                1854(b)(1)(C)(i) for that plan 
                                and year.
                                  ``(II) Plans with bids at or 
                                above benchmark.--In the case 
                                of a plan for which there are 
                                no average per capita monthly 
                                savings described in section 
                                1854(b)(3)(C), the payment 
                                amount under this subsection is 
                                equal to the fee-for-service 
                                area-specific non-drug 
                                benchmark amount, adjusted 
                                under clause (iii).
                          ``(iii) Demographic adjustment, 
                        including adjustment for health 
                        status.--The Administrator shall adjust 
                        the payment amount under clause (i), 
                        the unadjusted non-drug monthly bid 
                        amount under clause (ii)(I), and the 
                        fee-for-service area-specific non-drug 
                        benchmark amount under clause (ii)(II) 
                        for such risk factors as age, 
                        disability status, gender, 
                        institutional status, and such other 
                        factors as the Administrator determines 
                        to be appropriate, including adjustment 
                        for health status under paragraph (3), 
                        so as to ensure actuarial equivalence. 
                        The Administrator may add to, modify, 
                        or substitute for such adjustment 
                        factors if such changes will improve 
                        the determination of actuarial 
                        equivalence.
                          ``(iv) Reference to subsidy payment 
                        for statutory drug benefits.--In the 
                        case in which an enrollee is enrolled 
                        under part D, the Medicare+Choice 
                        organization also is entitled to a 
                        subsidy payment amount under section 
                        1860H.''.
  (d) Conforming Amendments.--
          (1) Protection against beneficiary selection.--
        Section 1852(b)(1)(A) (42 U.S.C. 1395w-22(b)(1)(A)) is 
        amended by adding at the end the following: ``The 
        Administrator shall not approve a plan of an 
        organization if the Administrator determines that the 
        benefits are designed to substantially discourage 
        enrollment by certain Medicare+Choice eligible 
        individuals with the organization.''.
          (2) Conforming amendment to premium terminology.--
        Subparagraphs (A) and (B) of section 1854(b)(2) (42 
        U.S.C. 1395w-24(b)(2)) are amended to read as follows:
                  ``(A) Medicare+Choice monthly basic 
                beneficiary premium.--The term `Medicare+Choice 
                monthly basic beneficiary premium' means, with 
                respect to a Medicare+Choice plan--
                          ``(i) described in section 
                        1853(a)(1)(A)(ii)(I) (relating to plans 
                        providing rebates), zero; or
                          ``(ii) described in section 
                        1853(a)(1)(A)(ii)(II), the amount (if 
                        any) by which the unadjusted non-drug 
                        monthly bid amount exceeds the fee-for-
                        service area-specific non-drug 
                        benchmark amount.
                  ``(B) Medicare+Choice monthly supplemental 
                beneficiary premium.--The term `Medicare+Choice 
                monthly supplemental beneficiary premium' 
                means, with respect to a Medicare+Choice plan, 
                the portion of the aggregate monthly bid amount 
                submitted under clause (i) of subsection 
                (a)(6)(A) for the year that is attributable 
                under such section to the provision of 
                nonstatutory benefits.''.
          (3) Requirement for uniform bid amounts.--Section 
        1854(c) (42 U.S.C. 1395w-24(c)) is amended to read as 
        follows:
  ``(c) Uniform Bid Amounts.--The Medicare+Choice monthly bid 
amount submitted under subsection (a)(6) of a Medicare+Choice 
organization under this part may not vary among individuals 
enrolled in the plan.''.
          (4) Permitting beneficiary rebates.--
                  (A) Section 1851(h)(4)(A) (42 U.S.C. 1395w-
                21(h)(4)(A)) is amended by inserting ``except 
                as provided under section 1854(b)(1)(C)'' after 
                ``or otherwise''.
                  (B) Section 1854(d) (42 U.S.C. 1395w-24(d)) 
                is amended by inserting ``, except as provided 
                under subsection (b)(1)(C),'' after ``and may 
                not provide''.
  (e) Effective Date.--The amendments made by this section 
shall apply to payments and premiums for months beginning with 
January 2005.

SEC. 212. DEMONSTRATION PROGRAM FOR COMPETITIVE-DEMONSTRATION AREAS.

  (a) Identification of Competitive-Demonstration Areas for 
Demonstration Program; Computation of Choice Non-Drug 
Benchmarks.--Section 1853, as amended by section 211(b)(2), is 
amended by adding at the end the following new subsection:
  ``(k) Establishment of Competitive Demonstration Program.--
          ``(1) Designation of competitive-demonstration areas 
        as part of program.--
                  ``(A) In general.--For purposes of this part, 
                the Administrator shall establish a 
                demonstration program under which the 
                Administrator designates Medicare+Choice areas 
                as competitive-demonstration areas consistent 
                with the following limitations:
                          ``(i) Limitation on number of areas 
                        that may be designated.--The 
                        Administrator may not designate more 
                        than 4 areas as competitive-
                        demonstration areas.
                          ``(ii) Limitation on period of 
                        designation of any area.--The 
                        Administrator may not designate any 
                        area as a competitive-demonstration 
                        area for a period of more than 2 years.
                The Administrator has the discretion to decide 
                whether or not to designate as a competitive-
                demonstration area an area that qualifies for 
                such designation.
                  ``(B) Qualifications for designation.--For 
                purposes of this title, a Medicare+Choice area 
                (which is a metropolitan statistical area or 
                other area with a substantial number of 
                Medicare+Choice enrollees) may not be 
                designated as a `competitive-demonstration 
                area' for a 2-year period beginning with a year 
                unless the Administrator determines, by such 
                date before the beginning of the year as the 
                Administrator determines appropriate, that--
                          ``(i) there will be offered during 
                        the open enrollment period under this 
                        part before the beginning of the year 
                        at least 2 Medicare+Choice plans (in 
                        addition to the fee-for-service program 
                        under parts A and B), each offered by a 
                        different Medicare+Choice organization; 
                        and
                          ``(ii) during March of the previous 
                        year at least 50 percent of the number 
                        of Medicare+Choice eligible individuals 
                        who reside in the area were enrolled in 
                        a Medicare+Choice plan.
          ``(2) Choice non-drug benchmark amount.--For purposes 
        of this part, the term `choice non-drug benchmark 
        amount' means, with respect to a Medicare+Choice 
        payment area for a month in a year, the sum of the 2 
        components described in paragraph (3) for the area and 
        year. The Administrator shall compute such benchmark 
        amount for each competitive-demonstration area before 
        the beginning of each annual, coordinated election 
        period under section 1851(e)(3)(B) for each year 
        (beginning with 2005) in which it is designated as such 
        an area.
          ``(3) 2 components.--For purposes of paragraph (2), 
        the 2 components described in this paragraph for an 
        area and a year are the following:
                  ``(A) Fee-for-service component weighted by 
                national fee-for-service market share.--The 
                product of the following:
                          ``(i) National fee-for-service market 
                        share.--The national fee-for-service 
                        market share percentage (determined 
                        under paragraph (5)) for the year.
                          ``(ii) Fee-for-service area-specific 
                        non-drug bid.--The fee-for-service 
                        area-specific non-drug bid (as defined 
                        in paragraph (6)) for the area and 
                        year.
                  ``(B) M+C component weighted by national 
                medicare+choice market share.--The product of 
                the following:
                          ``(i) National medicare+choice market 
                        share.--1 minus the national fee-for-
                        service market share percentage for the 
                        year.
                          ``(ii) Weighted average of plan bids 
                        in area.--The weighted average of the 
                        plan bids for the area and year (as 
                        determined under paragraph (4)(A)).
          ``(4) Determination of weighted average bids for an 
        area.--
                  ``(A) In general.--For purposes of paragraph 
                (3)(B)(ii), the weighted average of plan bids 
                for an area and a year is the sum of the 
                following products for Medicare+Choice plans 
                described in subparagraph (C) in the area and 
                year:
                          ``(i) Proportion of each plan's 
                        enrollees in the area.--The number of 
                        individuals described in subparagraph 
                        (B), divided by the total number of 
                        such individuals for all 
                        Medicare+Choice plans described in 
                        subparagraph (C) for that area and 
                        year.
                          ``(ii) Monthly non-drug bid amount.--
                        The unadjusted non-drug monthly bid 
                        amount.
                  ``(B) Counting of individuals.--The 
                Administrator shall count, for each 
                Medicare+Choice plan described in subparagraph 
                (C) for an area and year, the number of 
                individuals who reside in the area and who were 
                enrolled under such plan under this part during 
                March of the previous year.
                  ``(C) Exclusion of plans not offered in 
                previous year.--For an area and year, the 
                Medicare+Choice plans described in this 
                subparagraph are plans that are offered in the 
                area and year and were offered in the area in 
                March of the previous year.
          ``(5) Computation of national fee-for-service market 
        share percentage.--The Administrator shall determine, 
        for a year, the proportion (in this subsection referred 
        to as the `national fee-for-service market share 
        percentage') of Medicare+Choice eligible individuals 
        who during March of the previous year were not enrolled 
        in a Medicare+Choice plan.
          ``(6) Fee-for-service area-specific non-drug bid.--
        For purposes of this part, the term `fee-for-service 
        area-specific non-drug bid' means, for an area and 
        year, the amount described in section 1853(j)(1) for 
        the area and year, except that any reference to a 
        percent of less than 100 percent shall be deemed a 
        reference to 100 percent.''.
  (b) Application of Choice Non-Drug Benchmark in Competitive-
Demonstration Areas.--
          (1) In general.--Section 1854 is amended--
                  (A) in subsection (b)(1)(C)(i), as added by 
                section 211(b)(1)(A), by striking ``(i) 
                Requirement.--The'' and inserting ``(i) 
                Requirement for non-competitive-demonstration 
                areas.--In the case of a Medicare+Choice 
                payment area that is not a competitive-
                demonstration area designated under section 
                1853(k)(1), the'';
                  (B) in subsection (b)(1)(C), as so added, by 
                inserting after clause (i) the following new 
                clause:
                          ``(ii) Requirement for competitive-
                        demonstration areas.--In the case of a 
                        Medicare+Choice payment area that is 
                        designated as a competitive-
                        demonstration area under section 
                        1853(k)(1), if there are average per 
                        capita monthly savings described in 
                        paragraph (4) for a Medicare+Choice 
                        plan and year, the Medicare+Choice plan 
                        shall provide to the enrollee a monthly 
                        rebate equal to 75 percent of such 
                        savings.'';
                  (C) by adding at the end of subsection (b), 
                as amended by section 211(b)(1), the following 
                new paragraph:
          ``(4) Computation of average per capita monthly 
        savings for competitive-demonstration areas.--For 
        purposes of paragraph (1)(C)(ii), the average per 
        capita monthly savings referred to in such paragraph 
        for a Medicare+Choice plan and year shall be computed 
        in the same manner as the average per capita monthly 
        savings is computed under paragraph (3) except that the 
        reference to the fee-for-service area-specific non-drug 
        benchmark amount in paragraph (3)(B)(i) (or to the 
        benchmark amount as adjusted under paragraph (3)(C)(i)) 
        is deemed to be a reference to the choice non-drug 
        benchmark amount (or such amount as adjusted in the 
        manner described in paragraph (3)(B)(i)).''; and
                  (D) in subsection (d), as amended by section 
                211(d)(4), by inserting ``and subsection 
                (b)(1)(D)'' after ``subsection (b)(1)(C)''.
          (2) Conforming amendments.--
                  (A) Payment of plans.--Section 
                1853(a)(1)(A)(ii), as amended by section 
                211(c)(1), is amended--
                          (i) in subclause (I), by inserting 
                        ``(or, in the case of a competitive-
                        demonstration area, the choice non-drug 
                        benchmark amount)'' after ``unadjusted 
                        non-drug monthly bid amount''; and
                          (ii) in subclauses (I) and (II), by 
                        inserting ``(or, in the case of a 
                        competitive-demonstration area, 
                        described in section 1854(b)(4))'' 
                        after ``section 1854(b)(3)(C)''.
                  (B) Definition of monthly basic premium.--
                Section 1854(b)(2)(A)(ii), as amended by 
                section 211(d)(2), is amended by inserting 
                ``(or, in the case of a competitive-
                demonstration area, the choice non-drug 
                benchmark amount)'' after ``benchmark amount''.
  (c) Premium Adjustment.--Section 1839 (42 U.S.C. 1395r) is 
amended by adding at the end the following new subsection:
  ``(h)(1) In the case of an individual who resides in a 
competitive-demonstration area designated under section 
1851(k)(1) and who is not enrolled in a Medicare+Choice plan 
under part C, the monthly premium otherwise applied under this 
part (determined without regard to subsections (b) and (f) or 
any adjustment under this subsection) shall be adjusted as 
follows: If the fee-for-service area-specific non-drug bid (as 
defined in section 1853(k)(6)) for the Medicare+Choice area in 
which the individual resides for a month--
          ``(A) does not exceed the choice non-drug benchmark 
        (as determined under section 1853(k)(2)) for such area, 
        the amount of the premium for the individual for the 
        month shall be reduced by an amount equal to 75 percent 
        of the amount by which such benchmark exceeds such fee-
        for-service bid; or
          ``(B) exceeds such choice non-drug benchmark, the 
        amount of the premium for the individual for the month 
        shall be adjusted to ensure that--
                  ``(i) the sum of the amount of the adjusted 
                premium and the choice non-drug benchmark for 
                the area, is equal to
                  ``(ii) the sum of the unadjusted premium plus 
                amount of the fee-for-service area-specific 
                non-drug bid for the area.
  ``(2) Nothing in this subsection shall be construed as 
preventing a reduction under paragraph (1)(A) in the premium 
otherwise applicable under this part to zero or from requiring 
the provision of a rebate to the extent such premium would 
otherwise be required to be less than zero.
  ``(3) The adjustment in the premium under this subsection 
shall be effected in such manner as the Medicare Benefits 
Administrator determines appropriate.
  ``(4) In order to carry out this subsection (insofar as it is 
effected through the manner of collection of premiums under 
1840(a)), the Medicare Benefits Administrator shall transmit to 
the Commissioner of Social Security--
          ``(A) at the beginning of each year, the name, social 
        security account number, and the amount of the 
        adjustment (if any) under this subsection for each 
        individual enrolled under this part for each month 
        during the year; and
          ``(B) periodically throughout the year, information 
        to update the information previously transmitted under 
        this paragraph for the year.''.
  (d) Conforming Amendment.--Section 1844(c) (42 U.S.C. 
1395w(c)) is amended by inserting ``and without regard to any 
premium adjustment effected under section 1839(h)'' before the 
period at the end.
  (e) Report on Demonstration Program.--Not later than 6 months 
after the date on which the designation of the 4th competitive-
demonstration area under section 1851(k)(1) of the Social 
Security Act ends, the Medicare Payment Advisory Commission 
shall submit to Congress a report on the impact of the 
demonstration program under the amendments made by this 
section, including such impact on premiums of medicare 
beneficiaries, savings to the medicare program, and on adverse 
selection.
  (f) Effective Date.--The amendments made by this section 
shall apply to payments and premiums for periods beginning on 
or after January 1, 2005.

SEC. 213. CONFORMING AMENDMENTS.

  (a) Conforming Amendments Relating to Bids.--
          (1) Section 1854 (42 U.S.C. 1395w-24) is amended--
                  (A) in the heading of subsection (a), by 
                inserting ``and Bid Amounts'' after 
                ``Premiums''; and
                  (B) in subsection (a)(5)(A), by inserting 
                ``paragraphs (2), (3), and (4) of'' after 
                ``filed under''.
  (b) Additional Conforming Amendments.--
          (1) Annual determination and announcement of certain 
        factors.--Section 1853(b) (42 U.S.C. 1395w-23(b)) is 
        amended--
                  (A) in paragraph (1), by striking ``the 
                respective calendar year'' and all that follows 
                and inserting the following: ``the calendar 
                year concerned with respect to each 
                Medicare+Choice payment area, the following:
                  ``(A) Pre-competition information.--For years 
                before 2005, the following:
                          ``(i) Medicare+choice capitation 
                        rates.--The annual Medicare+Choice 
                        capitation rate for each 
                        Medicare+Choice payment area for the 
                        year.
                          ``(ii) Adjustment factors.--The risk 
                        and other factors to be used in 
                        adjusting such rates under subsection 
                        (a)(1)(A) for payments for months in 
                        that year.
                  ``(B) Competition information.--For years 
                beginning with 2005, the following:
                          ``(i) Benchmarks.--The fee-for-
                        service area-specific non-drug 
                        benchmark under section 1853(j) and, if 
                        applicable, the choice non-drug 
                        benchmark under section 1853(k)(2), for 
                        the year involved and, if applicable, 
                        the national fee-for-service market 
                        share percentage.
                          ``(ii) Adjustment factors.--The 
                        adjustment factors applied under 
                        section 1853(a)(1)(A)(iii) (relating to 
                        demographic adjustment), section 
                        1853(a)(1)(B) (relating to adjustment 
                        for end-stage renal disease), and 
                        section 1853(a)(3) (relating to health 
                        status adjustment).
                          ``(iii) Projected fee-for-service 
                        bid.--In the case of a competitive 
                        area, the projected fee-for-service 
                        area-specific non-drug bid (as 
                        determined under subsection (k)(6)) for 
                        the area.
                          ``(iv) Individuals.--The number of 
                        individuals counted under subsection 
                        (k)(4)(B) and enrolled in each 
                        Medicare+Choice plan in the area.''; 
                        and
                  (B) in paragraph (3), by striking ``in 
                sufficient detail'' and all that follows up to 
                the period at the end.
          (2) Repeal of provisions relating to adjusted 
        community rate (acr).--
                  (A) In general.--Subsections (e) and (f) of 
                section 1854 (42 U.S.C. 1395w-24) are repealed.
                  (B) Conforming amendment.--Section 1839(a)(2) 
                (42 U.S.C. 1395r(a)(2)) is amended by striking 
                ``, and to reflect'' and all that follows and 
                inserting a period.
          (3) Prospective implementation of national coverage 
        determinations.--Section 1852(a)(5) (42 U.S.C. 1395w-
        22(a)(5)) is amended to read as follows:
          ``(5) Prospective implementation of national coverage 
        determinations.--The Secretary shall only implement a 
        national coverage determination that will result in a 
        significant change in the costs to a Medicare+Choice 
        organization in a prospective manner that applies to 
        announcements made under section 1853(b) after the date 
        of the implementation of the determination.''.
          (4) Permitting geographic adjustment to consolidate 
        multiple medicare+choice payment areas in a state into 
        a single statewide medicare+choice payment area.--
        Section 1853(d)(3) (42 U.S.C. 1395w-23(e)(3)) is 
        amended--
                  (A) by amending clause (i) of subparagraph 
                (A) to read as follows:
                          ``(i) to a single statewide 
                        Medicare+Choice payment area,''; and
                  (B) by amending subparagraph (B) to read as 
                follows:
                  ``(B) Budget neutrality adjustment.--In the 
                case of a State requesting an adjustment under 
                this paragraph, the Medicare Benefits 
                Administrator shall initially (and annually 
                thereafter) adjust the payment rates otherwise 
                established under this section for 
                Medicare+Choice 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 
                Medicare+Choice payment areas in the State in 
                the absence of the adjustment under this 
                paragraph.''.
  (d) Effective Date.--The amendments made by this section 
shall apply to payments and premiums for periods beginning on 
or after January 1, 2005.

               TITLE III--RURAL HEALTH CARE IMPROVEMENTS

SEC. 301. REFERENCE TO FULL MARKET BASKET INCREASE FOR SOLE COMMUNITY 
                    HOSPITALS.

  For provision eliminating any reduction from full market 
basket in the update for inpatient hospital services for sole 
community hospitals, see section 401.

SEC. 302. ENHANCED DISPROPORTIONATE SHARE HOSPITAL (DSH) TREATMENT FOR 
                    RURAL HOSPITALS AND URBAN HOSPITALS WITH FEWER THAN 
                    100 BEDS.

  (a) Blending of Payment Amounts.--
          (1) In general.--Section 1886(d)(5)(F) (42 U.S.C. 
        1395ww(d)(5)(F)) is amended by adding at the end the 
        following new clause:
  ``(xiv)(I) In the case of discharges in a fiscal year 
beginning on or after October 1, 2002, subject to subclause 
(II), there shall be substituted for the disproportionate share 
adjustment percentage otherwise determined under clause (iv) 
(other than subclause (I)) or under clause (viii), (x), (xi), 
(xii), or (xiii), the old blend proportion (specified under 
subclause (III)) of the disproportionate share adjustment 
percentage otherwise determined under the respective clause and 
100 percent minus such old blend proportion of the 
disproportionate share adjustment percentage determined under 
clause (vii) (relating to large, urban hospitals).
  ``(II) Under subclause (I), the disproportionate share 
adjustment percentage shall not exceed 10 percent for a 
hospital that is not classified as a rural referral center 
under subparagraph (C).
  ``(III) For purposes of subclause (I), the old blend 
proportion for fiscal year 2003 is 80 percent, for each 
subsequent year (through 2006) is the old blend proportion 
under this subclause for the previous year minus 20 percentage 
points, and for each year beginning with 2007 is 0 percent.''.
          (2) Conforming amendments.--Section 1886(d)(5)(F) (42 
        U.S.C. 1395ww(d)(5)(F)) is amended--
                  (A) in each of subclauses (II), (III), (IV), 
                (V), and (VI) of clause (iv), by inserting 
                ``subject to clause (xiv) and'' before ``for 
                discharges occurring'';
                  (B) in clause (viii), by striking ``The 
                formula'' and inserting ``Subject to clause 
                (xiv), the formula''; and
                  (C) in each of clauses (x), (xi), (xii), and 
                (xiii), by striking ``For purposes'' and 
                inserting ``Subject to clause (xiv), for 
                purposes''.
  (b) Effective Date.--The amendments made by this section 
shall apply with respect to discharges occurring on or after 
October 1, 2002.

SEC. 303. 2-YEAR PHASED-IN INCREASE IN THE STANDARDIZED AMOUNT IN RURAL 
                    AND SMALL URBAN AREAS TO ACHIEVE A SINGLE, UNIFORM 
                    STANDARDIZED AMOUNT.

  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 
        2003, the average standardized amount for hospitals 
        located other than in a large urban area shall be 
        increased by \1/2\ of the difference between the 
        average 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 2004, the Secretary shall 
        compute an average standardized amount for hospitals 
        located in any area within the United States and within 
        each region equal to the average standardized amount 
        computed for the previous fiscal year under this 
        subparagraph for hospitals located in a large urban 
        area (or, beginning with fiscal year 2005, for 
        hospitals located in any area) increased by the 
        applicable percentage increase under subsection 
        (b)(3)(B)(i).''.

SEC. 304. MORE FREQUENT UPDATE IN WEIGHTS USED IN HOSPITAL MARKET 
                    BASKET.

  (a) More Frequent Updates in Weights.--After revising the 
weights used in the hospital market basket under section 
1886(b)(3)(B)(iii) of the Social Security Act (42 U.S.C. 
1395ww(b)(3)(B)(iii)) to reflect the most current data 
available, the Secretary shall establish a frequency for 
revising such weights in such market basket to reflect the most 
current data available more frequently than once every 5 years.
  (b) Report.--Not later than October 1, 2003, the Secretary 
shall submit a report to Congress on the frequency established 
under subsection (a), including an explanation of the reasons 
for, and options considered, in determining such frequency.

SEC. 305. IMPROVEMENTS TO CRITICAL ACCESS HOSPITAL PROGRAM.

  (a) Reinstatement of Periodic Interim Payment (PIP).--Section 
1815(e)(2) (42 U.S.C. 1395g(e)(2)) is amended--
          (1) by striking ``and'' at the end of subparagraph 
        (C);
          (2) by adding ``and'' at the end of subparagraph (D); 
        and
          (3) by inserting after subparagraph (D) the following 
        new subparagraph:
          ``(E) inpatient critical access hospital services;''.
  (b) Condition for Application of Special Physician Payment 
Adjustment.--Section 1834(g)(2) (42 U.S.C. 1395m(g)(2)) is 
amended by adding after and below subparagraph (B) the 
following:
        ``The Secretary may not require, as a condition for 
        applying subparagraph (B) with respect to a critical 
        access hospital, that each physician providing 
        professional services in the hospital must assign 
        billing rights with respect to such services, except 
        that such subparagraph shall not apply to those 
        physicians who have not assigned such billing 
        rights.''.
  (c) Flexibility in Bed Limitation for Hospitals.--Section 
1820 (42 U.S.C. 1395i-4) is amended--
          (1) in subsection (c)(2)(B)(iii), by inserting 
        ``subject to paragraph (3)'' after ``(iii) provides'';
          (2) by adding at the end of subsection (c) the 
        following new paragraph:
          ``(3) Increase in maximum number of beds for 
        hospitals with strong seasonal census fluctuations.--
                  ``(A) In general.--Subject to subparagraph 
                (C), in the case of a hospital that 
                demonstrates that it meets the standards 
                established under subparagraph (B) and has not 
                made the election described in subsection 
                (f)(2)(A), the bed limitations otherwise 
                applicable under paragraph (2)(B)(iii) and 
                subsection (f) shall be increased by 5 beds.
                  ``(B) Standards.--The Secretary shall specify 
                standards for determining whether a critical 
                access hospital has sufficiently strong 
                seasonal variations in patient admissions to 
                justify the increase in bed limitation provided 
                under subparagraph (A).''; and
          (3) in subsection (f)--
                  (A) by inserting ``(1)'' after ``(f)''; and
                  (B) by adding at the end the following new 
                paragraph:
  ``(2)(A) A hospital may elect to treat the reference in 
paragraph (1) to `15 beds' as a reference to `25 beds', but 
only if no more than 10 beds in the hospital are at any time 
used for non-acute care services. A hospital that makes such an 
election is not eligible for the increase provided under 
subsection (c)(3)(A).
  ``(B) The limitations in numbers of beds under the first 
sentence of paragraph (1) are subject to adjustment under 
subsection (c)(3).''.
  (d) 5-Year Extension of the Authorization for Appropriations 
for Grant Program.--Section 1820(j) (42 U.S.C. 1395i-4(j)) is 
amended by striking ``through 2002'' and inserting ``through 
2007''.
  (e) Prohibition of Retroactive Recoupment.--The Secretary 
shall not recoup (or otherwise seek to recover) overpayments 
made for outpatient critical access hospital services under 
part B of title XVIII of the Social Security Act, for services 
furnished in cost reporting periods that began before October 
1, 2002, insofar as such overpayments are attributable to 
payment being based on 80 percent of reasonable costs (instead 
of 100 percent of reasonable costs minus 20 percent of 
charges).
  (f) Effective Dates.--
          (1) Reinstatement of pip.--The amendments made by 
        subsection (a) shall apply to payments made on or after 
        January 1, 2003.
          (2) Physician payment adjustment condition.--The 
        amendment made by subsection (b) shall be effective as 
        if included in the enactment of section 403(d) of the 
        Medicare, Medicaid, and SCHIP Balanced Budget 
        Refinement Act of 1999 (113 Stat. 1501A-371).
          (3) Flexibility in bed limitation.--The amendments 
        made by subsection (c) shall apply to designations made 
        on or after January 1, 2003, but shall not apply to 
        critical access hospitals that were designated as of 
        such date.

SEC. 306. EXTENSION OF TEMPORARY INCREASE FOR HOME HEALTH SERVICES 
                    FURNISHED IN A RURAL AREA.

  (a) In General.--Section 508(a) BIPA (114 Stat. 2763A-533) is 
amended--
          (1) by striking ``24-Month Increase Beginning April 
        1, 2001'' and inserting ``In General''; and
          (2) by striking ``April 1, 2003'' and inserting 
        ``January 1, 2005''.
  (b) Conforming Amendment.--Section 547(c)(2) of BIPA (114 
Stat. 2763A-553) is amended by striking ``the period beginning 
on April 1, 2001, and ending on September 30, 2002,'' and 
inserting ``a period under such section''.

SEC. 307. REFERENCE TO 10 PERCENT INCREASE IN PAYMENT FOR HOSPICE CARE 
                    FURNISHED IN A FRONTIER AREA AND RURAL HOSPICE 
                    DEMONSTRATION PROJECT.

  For--
          (1) provision of 10 percent increase in payment for 
        hospice care furnished in a frontier area, see section 
        422; and
          (2) provision of a rural hospice demonstration 
        project, see section 423.

SEC. 308. REFERENCE TO PRIORITY FOR HOSPITALS LOCATED IN RURAL OR SMALL 
                    URBAN AREAS IN REDISTRIBUTION OF UNUSED GRADUATE 
                    MEDICAL EDUCATION RESIDENCIES.

  For provision providing priority for hospitals located in 
rural or small urban areas in redistribution of unused graduate 
medical education residencies, see section 612.

SEC. 309. 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; and
          (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.
  (b) Report.--Not later than 1 year after the date of the 
enactment of this Act, the Comptroller General shall submit to 
Congress a report on the study conducted under 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).

SEC. 310. PROVIDING SAFE HARBOR FOR CERTAIN COLLABORATIVE EFFORTS THAT 
                    BENEFIT MEDICALLY UNDERSERVED POPULATIONS.

  (a) In General.--Section 1128B(b)(3) (42 U.S.C. 1320a-
7(b)(3)), as amended by section 101(b)(2), is amended--
          (1) in subparagraph (F), by striking ``and'' after 
        the semicolon at the end;
          (2) in subparagraph (G), by striking the period at 
        the end and inserting ``; and''; and
          (3) by adding at the end the following new 
        subparagraph:
                  ``(H) any remuneration between a public or 
                nonprofit private health center entity 
                described under clause (i) or (ii) of section 
                1905(l)(2)(B) and any individual or entity 
                providing goods, items, services, donations or 
                loans, or a combination thereof, to such health 
                center entity pursuant to a contract, lease, 
                grant, loan, or other agreement, if such 
                agreement contributes to the ability of the 
                health center entity to maintain or increase 
                the availability, or enhance the quality, of 
                services provided to a medically underserved 
                population served by the health center 
                entity.''.
  (b) Rulemaking for Exception for Health Center Entity 
Arrangements.--
          (1) Establishment.--
                  (A) In general.--The Secretary of Health and 
                Human Services (in this subsection referred to 
                as the ``Secretary'') shall establish, on an 
                expedited basis, standards relating to the 
                exception described in section 1128B(b)(3)(H) 
                of the Social Security Act, as added by 
                subsection (a), for health center entity 
                arrangements to the antikickback penalties.
                  (B) Factors to consider.--The Secretary shall 
                consider the following factors, among others, 
                in establishing standards relating to the 
                exception for health center entity arrangements 
                under subparagraph (A):
                          (i) Whether the arrangement between 
                        the health center entity and the other 
                        party results in savings of Federal 
                        grant funds or increased revenues to 
                        the health center entity.
                          (ii) Whether the arrangement between 
                        the health center entity and the other 
                        party restricts or limits a patient's 
                        freedom of choice.
                          (iii) Whether the arrangement between 
                        the health center entity and the other 
                        party protects a health care 
                        professional's independent medical 
                        judgment regarding medically 
                        appropriate treatment.
                The Secretary may also include other standards 
                and criteria that are consistent with the 
                intent of Congress in enacting the exception 
                established under this section.
          (2) Interim final effect.--No later than 180 days 
        after the date of enactment of this Act, the Secretary 
        shall publish a rule in the Federal Register consistent 
        with the factors under paragraph (1)(B). Such rule 
        shall be effective and final immediately on an interim 
        basis, subject to such change and revision, after 
        public notice and opportunity (for a period of not more 
        than 60 days) for public comment, as is consistent with 
        this subsection.

SEC. 311. RELIEF FOR CERTAIN NON-TEACHING HOSPITALS.

  (a) In General.--In the case of a non-teaching hospital that 
meets the condition of subsection (b), in each of fiscal years 
2003, 2004, and 2005 the amount of payment made to the hospital 
under section 1886(d) of the Social Security Act for discharges 
occurring during such fiscal year only shall be increased as 
though the applicable percentage increase (otherwise applicable 
to discharges occurring during such fiscal year under section 
1886(b)(3)(B)(i) of the Social Security Act (42 U.S.C. 
1395ww(b)(3)(B)(i)) had been increased by 5 percentage points. 
The previous sentence shall be applied for each such fiscal 
year separately without regard to its application in a previous 
fiscal year and shall not affect payment for discharges for any 
hospital occurring during a fiscal year after fiscal year 2005.
  (b) Condition.--A non-teaching hospital meets the condition 
of this subsection if--
          (1) it is located in a rural area and the amount of 
        the aggregate payments under subsection (d) of section 
        1886 of the Social Security Act for hospitals located 
        in rural areas in the State for their cost reporting 
        periods beginning during fiscal year 1999 is less than 
        the aggregate allowable operating costs of inpatient 
        hospital services (as defined in subsection (a)(4) of 
        such section) for all subsection (d) hospitals in such 
        areas in such State with respect to such cost reporting 
        periods; or
          (2) it is located in an urban area and the amount of 
        the aggregate payments under subsection (d) of such 
        section for hospitals located in urban areas in the 
        State for their cost reporting periods beginning during 
        fiscal year 1999 is less than 103 percent of the 
        aggregate allowable operating costs of inpatient 
        hospital services (as defined in subsection (a)(4) of 
        such section) for all subsection (d) hospitals in such 
        areas in such State with respect to such cost reporting 
        periods.
The amounts under paragraphs (1) and (2) shall be determined by 
the Secretary of Health and Human Services based on data of the 
Medicare Payment Advisory Commission.
  (c) Definitions.--For purposes of this section:
          (1) Non-teaching hospital.--The term ``non-teaching 
        hospital'' means, for a cost reporting period, a 
        subsection (d) hospital (as defined in subsection 
        (d)(1)(B) of section 1886 of the Social Security Act, 
        42 U.S.C. 1395ww)) that is not receiving any additional 
        payment under subsection (d)(5)(B) of such section or a 
        payment under subsection (h) of such section for 
        discharges occurring during the period. A subsection 
        (d) hospital that receives additional payments under 
        subsection (d)(5)(B) or (h) of such section shall, for 
        purposes of this section, also be treated as a non-
        teaching hospital unless a chairman of a department in 
        the medical school with which the hospital is 
        affiliated is serving or has been appointed as a 
        clinical chief of service in the hospital.
          (2) Rural; urban.--The terms ``rural'' and ``urban'' 
        have the meanings given such terms for purposes of 
        section 1886(d) of the Social Security Act (42 U.S.C. 
        1395ww(d)).

                TITLE IV--PROVISIONS RELATING TO PART A

                Subtitle A--Inpatient Hospital Services

SEC. 401. REVISION OF ACUTE CARE HOSPITAL PAYMENT UPDATES.

  Subclause (XVIII) of section 1886(b)(3)(B)(i) (42 U.S.C. 
1395ww(b)(3)(B)(i)) is amended to read as follows:
          ``(XVIII) for fiscal year 2003, the market basket 
        percentage increase for sole community hospitals and 
        such increase minus 0.25 percentage points for other 
        hospitals, and''.

SEC. 402. 2-YEAR INCREASE IN LEVEL OF ADJUSTMENT FOR INDIRECT COSTS OF 
                    MEDICAL EDUCATION (IME).

  Section 1886(d)(5)(B)(ii) (42 U.S.C. 1395ww(d)(5)(B)(ii)) is 
amended--
          (1) in subclause (VI) by striking ``and'' at the end;
          (2) by redesignating subclause (VII) as subclause 
        (IX);
          (3) in subclause (IX) as so redesignated, by striking 
        ``2002'' and inserting ``2004''; and
          (4) by inserting after subclause (VI) the following 
        new subclause:
                  ``(VII) during fiscal year 2003, `c' is equal 
                to 1.47;
                  ``(VIII) during fiscal year 2004, `c' is 
                equal to 1.45; and''.

SEC. 403. RECOGNITION OF NEW MEDICAL TECHNOLOGIES UNDER INPATIENT 
                    HOSPITAL PPS.

  (a) Improving Timeliness of Data Collection.--Section 
1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)) is amended by adding 
at the end the following new clause:
  ``(vii) Under the mechanism under this subparagraph, the 
Secretary shall provide for the addition of new diagnosis and 
procedure codes in April 1 of each year, but the addition of 
such codes shall not require the Secretary to adjust the 
payment (or diagnosis-related group classification) under this 
subsection until the fiscal year that begins after such 
date.''.
  (b) Eligibility Standard.--
          (1) Minimum period for recognition of new 
        technologies.--Section 1886(d)(5)(K)(vi) (42 U.S.C. 
        1395ww(d)(5)(K)(vi)) is amended--
                  (A) by inserting ``(I)'' after ``(vi)''; and
                  (B) by adding at the end the following new 
                subclause:
  ``(II) Under such criteria, a service or technology shall not 
be denied treatment as a new service or technology on the basis 
of the period of time in which the service or technology has 
been in use if such period ends before the end of the 2-to-3-
year period that begins on the effective date of implementation 
of a code under ICD-9-CM (or a successor coding methodology) 
that enables the identification of a significant sample of 
specific discharges in which the service or technology has been 
used.''.
          (2) Adjustment of threshold.--Section 
        1886(d)(5)(K)(ii)(I) (42 U.S.C. 1395ww(d)(5)(K)(ii)(I)) 
        is amended by inserting ``(applying a threshold 
        specified by the Secretary that is the lesser of 50 
        percent of the national average standardized amount for 
        operating costs of inpatient hospital services for all 
        hospitals and all diagnosis-related groups or one 
        standard deviation for the diagnosis-related group 
        involved)'' after ``is inadequate''.
          (3) Criterion for substantial improvement.--Section 
        1886(d)(5)(K)(vi) (42 U.S.C. 1395ww(d)(5)(K)(vi)), as 
        amended by paragraph (1), is further amended by adding 
        at the end the following subclause:
  ``(III) The Secretary shall by regulation provide for further 
clarification of the criteria applied to determine whether a 
new service or technology represents an advance in medical 
technology that substantially improves the diagnosis or 
treatment of beneficiaries. Under such criteria, in determining 
whether a new service or technology represents an advance in 
medical technology that substantially improves the diagnosis or 
treatment of beneficiaries, the Secretary shall deem a service 
or technology as meeting such requirement if the service or 
technology is a drug or biological that is designated under 
section 506 or 526 of the Federal Food, Drug, and Cosmetic Act, 
approved under section 314.510 or 601.41 of title 21, Code of 
Federal Regulations, or designated for priority review when the 
marketing application for such drug or biological was filed or 
is a medical device for which an exemption has been granted 
under section 520(m) of such Act, or for which priority review 
has been provided under section 515(d)(5) of such Act.''.
          (4) Process for public input.--Section 1886(d)(5)(K) 
        (42 U.S.C. 1395ww(d)(5)(K)), as amended by paragraph 
        (1), is amended--
                  (A) in clause (i), by adding at the end the 
                following: ``Such mechanism shall be modified 
                to meet the requirements of clause (viii).''; 
                and
                  (B) by adding at the end the following new 
                clause:
  ``(viii) The mechanism established pursuant to clause (i) 
shall be adjusted to provide, before publication of a proposed 
rule, for public input regarding whether a new service or 
technology not described in the second sentence of clause 
(vi)(III) represents an advance in medical technology that 
substantially improves the diagnosis or treatment of 
beneficiaries as follows:
          ``(I) The Secretary shall make public and 
        periodically update a list of all the services and 
        technologies for which an application for additional 
        payment under this subparagraph is pending.
          ``(II) The Secretary shall accept comments, 
        recommendations, and data from the public regarding 
        whether the service or technology represents a 
        substantial improvement.
          ``(III) The Secretary shall provide for a meeting at 
        which organizations representing hospitals, physicians, 
        medicare beneficiaries, manufacturers, and any other 
        interested party may present comments, recommendations, 
        and data to the clinical staff of the Centers for 
        Medicare & Medicaid Services before publication of a 
        notice of proposed rulemaking regarding whether service 
        or technology represents a substantial improvement.''.
  (c) Preference for Use of DRG Adjustment.--Section 
1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)) is further amended by 
adding at the end the following new clause:
  ``(ix) Before establishing any add-on payment under this 
subparagraph with respect to a new technology, the Secretary 
shall seek to identify one or more diagnosis-related groups 
associated with such technology, based on similar clinical or 
anatomical characteristics and the cost of the technology. 
Within such groups the Secretary shall assign an eligible new 
technology into a diagnosis-related group where the average 
costs of care most closely approximate the costs of care of 
using the new technology. In such case, no add-on payment under 
this subparagraph shall be made with respect to such new 
technology and this clause shall not affect the application of 
paragraph (4)(C)(iii).''.
  (d) Improvement in Payment for New Technology.--Section 
1886(d)(5)(K)(ii)(III) (42 U.S.C. 1395ww(d)(5)(K)(ii)(III)) is 
amended by inserting after ``the estimated average cost of such 
service or technology'' the following: ``(based on the marginal 
rate applied to costs under subparagraph (A))''.
  (e) Effective Date.--
          (1) In general.--The Secretary shall implement the 
        amendments made by this section so that they apply to 
        classification for fiscal years beginning with fiscal 
        year 2004.
          (2) Reconsiderations of applications for fiscal year 
        2003 that are denied.--In the case of an application 
        for a classification of a medical service or technology 
        as a new medical service or technology under section 
        1886(d)(5)(K) of the Social Security Act (42 U.S.C. 
        1395ww(d)(5)(K)) that was filed for fiscal year 2003 
        and that is denied--
                  (A) the Secretary shall automatically 
                reconsider the application as an application 
                for fiscal year 2004 under the amendments made 
                by this section; and
                  (B) the maximum time period otherwise 
                permitted for such classification of the 
                service or technology shall be extended by 12 
                months.

SEC. 404. PHASE-IN 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, 2003, the applicable Puerto Rico percentage 
        is 50 percent and the applicable Federal percentage is 
        50 percent;
          ``(iii) during fiscal year 2004, the applicable 
        Puerto Rico percentage is 45 percent and the applicable 
        Federal percentage is 55 percent;
          ``(iv) during fiscal year 2005, the applicable Puerto 
        Rico percentage is 40 percent and the applicable 
        Federal percentage is 60 percent;
          ``(v) during fiscal year 2006, the applicable Puerto 
        Rico percentage is 35 percent and the applicable 
        Federal percentage is 65 percent;
          ``(vi) during fiscal year 2007, the applicable Puerto 
        Rico percentage is 30 percent and the applicable 
        Federal percentage is 70 percent; and
          ``(vii) on or after October 1, 2007, the applicable 
        Puerto Rico percentage is 25 percent and the applicable 
        Federal percentage is 75 percent.''.

SEC. 405. REFERENCE TO PROVISION RELATING TO ENHANCED DISPROPORTIONATE 
                    SHARE HOSPITAL (DSH) PAYMENTS FOR RURAL HOSPITALS 
                    AND URBAN HOSPITALS WITH FEWER THAN 100 BEDS.

  For provision enhancing disproportionate share hospital (DSH) 
treatment for rural hospitals and urban hospitals with fewer 
than 100 beds, see section 302.

SEC. 406. REFERENCE TO PROVISION RELATING TO 2-YEAR PHASED-IN INCREASE 
                    IN THE STANDARDIZED AMOUNT IN RURAL AND SMALL URBAN 
                    AREAS TO ACHIEVE A SINGLE, UNIFORM STANDARDIZED 
                    AMOUNT.

  For provision phasing in over a 2-year period an increase in 
the standardized amount for rural and small urban areas to 
achieve a single, uniform, standardized amount, see section 
303.

SEC. 407. REFERENCE TO PROVISION FOR MORE FREQUENT UPDATES IN THE 
                    WEIGHTS USED IN HOSPITAL MARKET BASKET.

  For provision providing for more frequent updates in the 
weights used in hospital market basket, see section 304.

SEC. 408. REFERENCE TO PROVISION MAKING IMPROVEMENTS TO CRITICAL ACCESS 
                    HOSPITAL PROGRAM.

  For provision providing making improvements to critical 
access hospital program, see section 305.

SEC. 409. GAO STUDY ON IMPROVING THE HOSPITAL WAGE INDEX.

  (a) Study.--
          (1) In general.--The Comptroller General of the 
        United States shall conduct a study on the improvements 
        that can be made in the measurement of regional 
        differences in hospital wages reflected in the hospital 
        wage index under section 1886(d) of the Social Security 
        Act (42 U.S.C. 1395ww(d)).
          (2) Examination of use of metropolitan statistical 
        areas (msas).--The study shall specifically examine the 
        use of metropolitan statistical areas for purposes of 
        computing and applying the wage index and whether the 
        boundaries of such areas accurately reflect local labor 
        markets. In addition, the study shall examine whether 
        regional inequities are created as a result of 
        infrequent updates of such boundaries and policies of 
        the Bureau of the Census relating to commuting 
        criteria.
          (3) Wage data.--The study shall specifically examine 
        the portions of the hospital cost reports relating to 
        wages, and methods for improving the accuracy of the 
        wage data and for reducing inequities resulting from 
        differences among hospitals in the reporting of wage 
        data.
  (b) Consultation with OMB.--The Comptroller General shall 
consult with the Director of Office of Management and Budget in 
conducting the study under subsection (a)(2).
  (c) Report.--Not later than May 1, 2003, the Comptroller 
General shall submit to Congress a report on the study 
conducted under subsection (a) and shall include in the report 
such recommendations as may be appropriate on--
          (1) changes in the definition of labor market areas 
        used for purposes of the area wage index under section 
        1886 of the Social Security Act; and
          (2) improvements in methods for the collection of 
        wage data.

             Subtitle B--Skilled Nursing Facility Services

SEC. 411. PAYMENT FOR COVERED SKILLED NURSING FACILITY SERVICES.

  (a) Temporary Increase in Nursing Component of PPS Federal 
Rate.--Section 312(a) of BIPA is amended by adding at the end 
the following new sentence: ``The Secretary of Health and Human 
Services shall increase by 12, 10, and 8 percent the nursing 
component of the case-mix adjusted Federal prospective payment 
rate specified in Tables 3 and 4 of the final rule published in 
the Federal Register by the Health Care Financing 
Administration on July 31, 2000 (65 Fed. Reg. 46770) and as 
subsequently updated under section 1888(e)(4)(E)(ii) of the 
Social Security Act (42 U.S.C. 1395yy(e)(4)(E)(ii)), effective 
for services furnished during fiscal years 2003, 2004, and 
2005, respectively.''.
  (b) Adjustment to RUGs for AIDS Residents.--
          (1) In general.--Paragraph (12) of section 1888(e) 
        (42 U.S.C. 1395yy(e)) is amended to read as follows:
          ``(12) Adjustment for residents with aids.--
                  ``(A) In general.--Subject to subparagraph 
                (B), in the case of a resident of a skilled 
                nursing facility who is afflicted with acquired 
                immune deficiency syndrome (AIDS), the per diem 
                amount of payment otherwise applicable shall be 
                increased by 128 percent to reflect increased 
                costs associated with such residents.
                  ``(B) Sunset.--Subparagraph (A) shall not 
                apply on and after such date as the Secretary 
                certifies that there is an appropriate 
                adjustment in the case mix under paragraph 
                (4)(G)(i) to compensate for the increased costs 
                associated with residents described in such 
                subparagraph.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall apply to services furnished on or after 
        October 1, 2003.

                          Subtitle C--Hospice

SEC. 421. COVERAGE OF HOSPICE CONSULTATION SERVICES.

  (a) Coverage of Hospice Consultation Services.--Section 
1812(a) (42 U.S.C. 1395d(a)) is amended--
          (1) by striking ``and'' at the end of paragraph (3);
          (2) by striking the period at the end of paragraph 
        (4) and inserting ``; and''; and
          (3) by inserting after paragraph (4) the following 
        new paragraph:
          ``(5) for individuals who are terminally ill, have 
        not made an election under subsection (d)(1), and have 
        not previously received services under this paragraph, 
        services that are furnished by a physician who is 
        either the medical director or an employee of a hospice 
        program and that consist of--
                  ``(A) an evaluation of the individual's need 
                for pain and symptom management;
                  ``(B) counseling the individual with respect 
                to end-of-life issues and care options; and
                  ``(C) advising the individual regarding 
                advanced care planning.''.
  (b) Payment.--Section 1814(i) (42 U.S.C. l395f(i)) is amended 
by adding at the end the following new paragraph:
  ``(4) The amount paid to a hospice program with respect to 
the services under section 1812(a)(5) for which payment may be 
made under this part shall be equal to an amount equivalent to 
the amount established for an office or other outpatient visit 
for evaluation and management associated with presenting 
problems of moderate severity under the fee schedule 
established under section 1848(b), other than the portion of 
such amount attributable to the practice expense component.''.
  (c) Conforming Amendment.--Section 1861(dd)(2)(A)(i) (42 
U.S.C. 1395x(dd)(2)(A)(i)) is amended by inserting before the 
comma at the end the following: ``and services described in 
section 1812(a)(5)''.
  (d) Effective Date.--The amendments made by this section 
shall apply to services provided by a hospice program on or 
after January 1, 2004.

SEC. 422. 10 PERCENT INCREASE IN PAYMENT FOR HOSPICE CARE FURNISHED IN 
                    A FRONTIER AREA.

  (a) In General.--Section 1814(i)(1) (42 U.S.C. 1395f(i)(1)) 
is amended by adding at the end the following new subparagraph:
  ``(D) With respect to hospice care furnished in a frontier 
area on or after January 1, 2003, and before January 1, 2008, 
the payment rates otherwise established for such care shall be 
increased by 10 percent. For purposes of this subparagraph, the 
term `frontier area' means a county in which the population 
density is less than 7 persons per square mile.''.
  (b) Report on Costs.--Not later than January 1, 2007, the 
Comptroller General of the United States shall submit to 
Congress a report on the costs of furnishing hospice care in 
frontier areas. Such report shall include recommendations 
regarding the appropriateness of extending, and modifying, the 
payment increase provided under the amendment made by 
subsection (a).

SEC. 423. RURAL HOSPICE DEMONSTRATION PROJECT.

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

                      Subtitle D--Other Provisions

SEC. 431. DEMONSTRATION PROJECT FOR USE OF RECOVERY AUDIT CONTRACTORS.

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

                 TITLE V--PROVISIONS RELATING TO PART B

                    Subtitle A--Physicians' Services

SEC. 501. REVISION OF UPDATES FOR PHYSICIANS' SERVICES.

  (a) Update for 2003 through 2005.--
          (1) In general.--Section 1848(d) (42 U.S.C. 1395w-
        4(d)) is amended by adding at the end the following new 
        paragraphs:
          ``(5) Update for 2003.--The update to the single 
        conversion factor established in paragraph (1)(C) for 
        2003 is 2 percent.
          ``(6) Special rules for update for 2004 and 2005.--
        The following rules apply in determining the update 
        adjustment factors under paragraph (4)(B) for 2004 and 
        2005:
                  ``(A) Use of 2002 data in determining 
                allowable costs.--
                          ``(i) The reference in clause (ii)(I) 
                        of such paragraph to April 1, 1996, is 
                        deemed to be a reference to January 1, 
                        2002.
                          ``(ii) The allowed expenditures for 
                        2002 is deemed to be equal to the 
                        actual expenditures for physicians' 
                        services furnished during 2002, as 
                        estimated by the Secretary.
                  ``(B) 1 percentage point increase in gdp 
                under sgr.--The annual average percentage 
                growth in real gross domestic product per 
                capita under subsection (f)(2)(C) for each of 
                2003, 2004, and 2005 is deemed to be increased 
                by 1 percentage point.''.
          (2) Conforming amendment.--Paragraph (4)(B) of such 
        section is amended, in the matter before clause (i), by 
        inserting ``and paragraph (6)'' after ``subparagraph 
        (D)''.
          (3) Not treated as change in law and regulation in 
        sustainable growth rate determination.--The amendments 
        made by this subsection shall not be treated as a 
        change in law for purposes of applying section 
        1848(f)(2)(D) of the Social Security Act (42 U.S.C. 
        1395w-4(f)(2)(D)).
  (b) Use of 10-Year Rolling Average in Computing Gross 
Domestic Product.--
          (1) In general.--Section 1848(f)(2)(C) (42 U.S.C. 
        1395w-4(f)(2)(C)) is amended--
                  (A) by striking ``projected'' and inserting 
                ``annual average''; and
                  (B) by striking ``from the previous 
                applicable period to the applicable period 
                involved'' and inserting ``during the 10-year 
                period ending with the applicable period 
                involved''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall apply to computations of the sustainable 
        growth rate for years beginning with 2002.
  (c) Elimination of Transitional Adjustment.--Section 
1848(d)(4)(F) (42 U.S.C. 1395w-4(d)(4)(F)) is amended by 
striking ``subparagraph (A)'' and all that follows and 
inserting ``subparagraph (A), for each of 2001 and 2002, of 
-0.2 percent.''
  (d) GAO Study of Medicare Payment for Inhalation Therapy.--
          (1) Study.--The Comptroller General of the United 
        States shall conduct a study to examine the adequacy of 
        current reimbursements for inhalation therapy under the 
        medicare program.
          (2) Report.--Not later than May 1, 2003, the 
        Comptroller General shall submit to Congress a report 
        on the study conducted under paragraph (1).

SEC. 502. STUDIES ON ACCESS TO PHYSICIANS' SERVICES.

  (a) GAO Study on Beneficiary Access to Physicians' 
Services.--
          (1) Study.--The Comptroller General of the United 
        States shall conduct a study on access of medicare 
        beneficiaries to physicians' services under the 
        medicare program. The study shall include--
                  (A) an assessment of the use by beneficiaries 
                of such services through an analysis of claims 
                submitted by physicians for such services under 
                part B of the medicare program;
                  (B) an examination of changes in the use by 
                beneficiaries of physicians' services over 
                time;
                  (C) an examination of the extent to which 
                physicians are not accepting new medicare 
                beneficiaries as patients.
          (2) Report.--Not later than 18 months after the date 
        of the enactment of this Act, the Comptroller General 
        shall submit to Congress a report on the study 
        conducted under paragraph (1). The report shall include 
        a determination whether--
                  (A) data from claims submitted by physicians 
                under part B of the medicare program indicate 
                potential access problems for medicare 
                beneficiaries in certain geographic areas; and
                  (B) access by medicare beneficiaries to 
                physicians' services may have improved, 
                remained constant, or deteriorated over time.
  (b) Study and Report on Supply of Physicians.--
          (1) Study.--The Secretary shall request the Institute 
        of Medicine of the National Academy of Sciences to 
        conduct a study on the adequacy of the supply of 
        physicians (including specialists) in the United States 
        and the factors that affect such supply.
          (2) Report to congress.--Not later than 2 years after 
        the date of enactment of this section, the Secretary 
        shall submit to Congress a report on the results of the 
        study described in paragraph (1), including any 
        recommendations for legislation.

SEC. 503. MEDPAC REPORT ON PAYMENT FOR PHYSICIANS' SERVICES.

  Not later than 1 year after the date of the enactment of this 
Act, the Medicare Payment Advisory Commission shall submit to 
Congress a report on the effect of refinements to the practice 
expense component of payments for physicians' services, after 
the transition to a full resource-based payment system in 2002, 
under section 1848 of the Social Security Act (42 U.S.C. 1395w-
4). Such report shall examine the following matters by 
physician specialty:
          (1) The effect of such refinements on payment for 
        physicians' services.
          (2) The interaction of the practice expense component 
        with other components of and adjustments to payment for 
        physicians' services under such section.
          (3) The appropriateness of the amount of compensation 
        by reason of such refinements.
          (4) The effect of such refinements on access to care 
        by medicare beneficiaries to physicians' services.
          (5) The effect of such refinements on physician 
        participation under the medicare program.

SEC. 504. 1-YEAR EXTENSION OF TREATMENT OF CERTAIN PHYSICIAN PATHOLOGY 
                    SERVICES UNDER MEDICARE.

  Section 542(c) of BIPA is amended by striking ``2-year 
period'' and inserting ``3-year period''.

SEC. 505. PHYSICIAN FEE SCHEDULE WAGE INDEX REVISION.

  (a) Index Revision.--
          (1) In general.--Subject to paragraph (2), 
        notwithstanding any other provision of law, for 
        purposes of payment under the physician fee schedule 
        under section 1848 of the Social Security Act (42 
        U.S.C. 1395w-4) for physicians' services furnished 
        during 2004, in no case may the work geographic index 
        otherwise calculated under subsection (e)(1)(A)(iii) of 
        such section be less than 0.985.
          (2) Secretarial discretion.--Paragraph (1) shall not 
        take effect or be in force if the Secretary determines, 
        taking into account the report of the Comptroller 
        General under subsection (b)(2), that there is no sound 
        economic rationale for the implementation of such 
        paragraph.
          (3) Exemption from limitation on annual 
        adjustments.--Any increase in expenditures attributable 
        to paragraph (1) during 2004 shall not be taken into 
        account in applying section 1848(c)(2)(B)(ii)(II) of 
        the Social Security Act (42 U.S.C. 1395w-
        4(c)(2)(B)(ii)(II)) for that year.
  (b) GAO Report.--
          (1) Evaluation.--As part of the study on geographic 
        differences in payments for physicians' services 
        conducted under section 309, the Comptroller General 
        shall evaluate the following:
                  (A) Whether there is a sound economic basis 
                for the implementation of the adjustment under 
                subsection (a)(1) in those areas in which the 
                adjustment applies.
                  (B) The effect of such adjustment on 
                physician location and retention in areas 
                affected by such adjustment, taking into 
                account--
                          (i) differences in recruitment costs 
                        and retention rates for physicians, 
                        including specialists, between large 
                        urban areas and other areas; and
                          (ii) the mobility of physicians, 
                        including specialists, over the last 
                        decade.
                  (C) The appropriateness of establishing a 
                floor of 1.0 for the work geographic index.
          (2) Report.--By not later than September 1, 2003, the 
        Comptroller General shall submit to Congress and to the 
        Secretary a report on the evaluation conducted under 
        paragraph (1).

                       Subtitle B--Other Services

SEC. 511. COMPETITIVE ACQUISITION OF CERTAIN ITEMS AND SERVICES.

  (a) In General.--Section 1847 (42 U.S.C. 1395w-3) is amended 
to read as follows:

        ``COMPETITIVE ACQUISITION OF CERTAIN ITEMS AND SERVICES

  ``Sec. 1847. (a) Establishment of Competitive Acquisition 
Programs.--
          ``(1) Implementation of programs.--
                  ``(A) In general.--The Secretary shall 
                establish and implement programs under which 
                competitive acquisition areas are established 
                throughout the United States for contract award 
                purposes for the furnishing under this part of 
                competitively priced items and services 
                (described in paragraph (2)) for which payment 
                is made under this part. Such areas may differ 
                for different items and services.
                  ``(B) Phased-in implementation.--The programs 
                shall be phased-in among competitive 
                acquisition areas over a period of not longer 
                than 3 years in a manner so that the 
                competition under the programs occurs in--
                          ``(i) at least \1/3\ of such areas in 
                        2004; and
                          ``(ii) at least \2/3\ of such areas 
                        in 2005.
                  ``(C) Waiver of certain provisions.--In 
                carrying out the programs, the Secretary may 
                waive such provisions of the Federal 
                Acquisition Regulation as are necessary for the 
                efficient implementation of this section, other 
                than provisions relating to confidentiality of 
                information and such other provisions as the 
                Secretary determines appropriate.
          ``(2) Items and services described.--The items and 
        services referred to in paragraph (1) are the 
        following:
                  ``(A) Durable medical equipment and 
                inhalation drugs used in connection with 
                durable medical equipment.--Covered items (as 
                defined in section 1834(a)(13)) for which 
                payment is otherwise made under section 
                1834(a), other than items used in infusion, and 
                inhalation drugs used in conjunction with 
                durable medical equipment.
                  ``(B) Off-the-shelf orthotics.--Orthotics 
                (described in section 1861(s)(9)) for which 
                payment is otherwise made under section 1834(h) 
                which require minimal self-adjustment for 
                appropriate use and does not require expertise 
                in trimming, bending, molding, assembling, or 
                customizing to fit to the patient.
          ``(3) Exemption authority.--In carrying out the 
        programs under this section, the Secretary may exempt--
                  ``(A) areas that are not competitive due to 
                low population density; and
                  ``(B) items and services for which the 
                application of competitive acquisition is not 
                likely to result in significant savings.
  ``(b) Program Requirements.--
          ``(1) In general.--The Secretary shall conduct a 
        competition among entities supplying items and services 
        described in subsection (a)(2) for each competitive 
        acquisition area in which the program is implemented 
        under subsection (a) with respect to such items and 
        services.
          ``(2) Conditions for awarding contract.--
                  ``(A) In general.--The Secretary may not 
                award a contract to any entity under the 
                competition conducted in an competitive 
                acquisition area pursuant to paragraph (1) to 
                furnish such items or services unless the 
                Secretary finds all of the following:
                          ``(i) The entity meets quality and 
                        financial standards specified by the 
                        Secretary or developed by accreditation 
                        entities or organizations recognized by 
                        the Secretary.
                          ``(ii) The total amounts to be paid 
                        under the contract (including costs 
                        associated with the administration of 
                        the contract) are expected to be less 
                        than the total amounts that would 
                        otherwise be paid.
                          ``(iii) Beneficiary access to a 
                        choice of multiple suppliers in the 
                        area is maintained.
                          ``(iv) Beneficiary liability is 
                        limited to the applicable percentage of 
                        contract award price.
                  ``(B) Quality standards.--The quality 
                standards specified under subparagraph (A)(i) 
                shall not be less than the quality standards 
                that would otherwise apply if this section did 
                not apply and shall include consumer services 
                standards. The Secretary shall consult with an 
                expert outside advisory panel composed of an 
                appropriate selection of representatives of 
                physicians, practitioners, and suppliers to 
                review (and advise the Secretary concerning) 
                such quality standards.
          ``(3) Contents of contract.--
                  ``(A) In general.--A contract entered into 
                with an entity under the competition conducted 
                pursuant to paragraph (1) is subject to terms 
                and conditions that the Secretary may specify.
                  ``(B) Term of contracts.--The Secretary shall 
                rebid contracts under this section not less 
                often than once every 3 years.
          ``(4) Limit on number of contractors.--
                  ``(A) In general.--The Secretary may limit 
                the number of contractors in a competitive 
                acquisition area to the number needed to meet 
                projected demand for items and services covered 
                under the contracts. In awarding contracts, the 
                Secretary shall take into account the ability 
                of bidding entities to furnish items or 
                services in sufficient quantities to meet the 
                anticipated needs of beneficiaries for such 
                items or services in the geographic area 
                covered under the contract on a timely basis.
                  ``(B) Multiple winners.--The Secretary shall 
                award contracts to more than one entity 
                submitting a bid in each area for an item or 
                service.
          ``(5) Participating contractors.--Payment shall not 
        be made for items and services described in subsection 
        (a)(2) furnished by a contractor and for which 
        competition is conducted under this section unless--
                  ``(A) the contractor has submitted a bid for 
                such items and services under this section; and
                  ``(B) the Secretary has awarded a contract to 
                the contractor for such items and services 
                under this section.
          ``(6) Authority to contract for education, outreach 
        and complaint services.--The Secretary may enter into a 
        contract with an appropriate entity to address 
        complaints from beneficiaries who receive items and 
        services from an entity with a contract under this 
        section and to conduct appropriate education of and 
        outreach to such beneficiaries with respect to the 
        program.
  ``(c) Annual Reports.--The Secretary shall submit to Congress 
an annual management report on the programs under this section. 
Each such report shall include information on savings, 
reductions in cost-sharing, access to items and services, and 
beneficiary satisfaction.
  ``(d) Demonstration Project for Clinical Laboratory 
Services.--
          ``(1) In general.--The Secretary shall conduct a 
        demonstration project on the application of competitive 
        acquisition under this section to clinical diagnostic 
        laboratory tests--
                  ``(A) for which payment is otherwise made 
                under section 1833(h) or 1834(d)(1) (relating 
                to colorectal cancer screening tests); and
                  ``(B) which are furnished without a face-to-
                face encounter between the individual and the 
                hospital or physician ordering the tests.
          ``(2) Terms and conditions.--Such project shall be 
        under the same conditions as are applicable to items 
        and services described in subsection (a)(2).
          ``(3) Report.--The Secretary shall submit to 
        Congress--
                  ``(A) an initial report on the project not 
                later than December 31, 2004; and
                  ``(B) such progress and final reports on the 
                project after such date as the Secretary 
                determines appropriate.''.
  (b) Continuation of Certain Demonstration Projects.--
Notwithstanding the amendment made by subsection (a), with 
respect to demonstration projects implemented by the Secretary 
under section 1847 of the Social Security Act (42 U.S.C. 1395w-
3) (relating to the establishment of competitive acquisition 
areas) that was in effect on the day before the date of the 
enactment of this Act, each such demonstration project may 
continue under the same terms and conditions applicable under 
that section as in effect on that date.
  (c) Report on Differences in Payment for Laboratory 
Services.--Not later than 18 months after the date of the 
enactment of this Act, the Comptroller General of the United 
States shall submit to Congress a report that analyzes 
differences in reimbursement between public and private payors 
for clinical diagnostic laboratory services.

SEC. 512. PAYMENT FOR AMBULANCE SERVICES.

  (a) Phase-In Providing Floor Using Blend of Fee Schedule and 
Regional Fee Schedules.--Section 1834(l) (42 U.S.C. 1395m(l)) 
is amended--
          (1) in paragraph (2)(E), by inserting ``consistent 
        with paragraph (10)'' after ``in an efficient and fair 
        manner'';
          (2) by redesignating the paragraph (8) added by 
        section 221(a) of BIPA as paragraph (9); and
          (3) by adding at the end the following new paragraph:
          ``(10) Phase-in providing floor using blend of fee 
        schedule and regional fee schedules.--In carrying out 
        the phase-in under paragraph (2)(E) for each level of 
        service furnished in a year before January 1, 2007, the 
        portion of the payment amount that is based on the fee 
        schedule shall not be less than the following blended 
        rate of the fee schedule under paragraph (1) and of a 
        regional fee schedule for the region involved:
                  ``(A) For 2003, the blended rate shall be 
                based 20 percent on the fee schedule under 
                paragraph (1) and 80 percent on the regional 
                fee schedule.
                  ``(B) For 2004, the blended rate shall be 
                based 40 percent on the fee schedule under 
                paragraph (1) and 60 percent on the regional 
                fee schedule.
                  ``(C) For 2005, the blended rate shall be 
                based 60 percent on the fee schedule under 
                paragraph (1) and 40 percent on the regional 
                fee schedule.
                  ``(D) For 2006, the blended rate shall be 
                based 80 percent on the fee schedule under 
                paragraph (1) and 20 percent on the regional 
                fee schedule.
        For purposes of this paragraph, the Secretary shall 
        establish a regional fee schedule for each of the 9 
        Census divisions using the methodology (used in 
        establishing the fee schedule under paragraph (1)) to 
        calculate a regional conversion factor and a regional 
        mileage payment rate and using the same payment 
        adjustments and the same relative value units as used 
        in the fee schedule under such paragraph.''.
  (b) Adjustment in Payment for Certain Long Trips.--Section 
1834(l), as amended by subsection (a), is further amended by 
adding at the end the following new paragraph:
          ``(11) Adjustment in payment for certain long 
        trips.--In the case of ground ambulance services 
        furnished on or after January 1, 2003, and before 
        January 1, 2008, regardless of where the transportation 
        originates, the fee schedule established under this 
        subsection shall provide that, with respect to the 
        payment rate for mileage for a trip above 50 miles the 
        per mile rate otherwise established shall be increased 
        by \1/4\ of the payment per mile otherwise applicable 
        to such miles.''.
  (c) Effective Date.--The amendments made by this section 
shall apply to ambulance services furnished on or after January 
1, 2003.

SEC. 513. 2-YEAR EXTENSION OF MORATORIUM ON THERAPY CAPS; PROVISIONS 
                    RELATING TO REPORTS.

  (a) 2-Year Extension of Moratorium on Therapy Caps.--Section 
1833(g)(4) (42 U.S.C. 1395l(g)(4)) is amended by striking ``and 
2002'' and inserting ``2002, 2003, and 2004''.
  (b) Prompt Submission of Overdue Reports on Payment and 
Utilization of Outpatient Therapy Services.--Not later than 
December 31, 2002, the Secretary shall submit to Congress the 
reports required under section 4541(d)(2) of the Balanced 
Budget Act of 1997 (relating to alternatives to a single annual 
dollar cap on outpatient therapy) and under section 221(d) of 
the Medicare, Medicaid, and SCHIP Balanced Budget Refinement 
Act of 1999 (relating to utilization patterns for outpatient 
therapy).
  (c) Identification of Conditions and Diseases Justifying 
Waiver of Therapy Cap.--
          (1) Study.--The Secretary shall request the Institute 
        of Medicine of the National Academy of Sciences to 
        identify conditions or diseases that should justify 
        conducting an assessment of the need to waive the 
        therapy caps under section 1833(g)(4) of the Social 
        Security Act (42 U.S.C. 1395l(g)(4)).
          (2) Reports to congress.--Not later than September 1, 
        2003, the Secretary shall submit to Congress a 
        preliminary report on the conditions and diseases 
        identified under paragraph (1) and not later than 
        December 31, 2003, a final report on the conditions and 
        diseases so identified.
  (d) GAO Study of Patient Access to Physical Therapist 
Services.--
          (1) Study.--The Comptroller General of the United 
        States shall conduct a study on access to physical 
        therapist services in States authorizing such services 
        without a physician referral and in States that require 
        such a physician referral. The study shall--
                  (A) examine the use of and referral patterns 
                for physical therapist services for patients 
                age 50 and older in States that authorize such 
                services without a physician referral and in 
                States that require such a physician referral;
                  (B) examine the use of and referral patterns 
                for physical therapist services for patients 
                who are medicare beneficiaries;
                  (C) examine the potential effect of 
                prohibiting a physician from referring patients 
                to physical therapy services owned by the 
                physician and provided in the physician's 
                office;
                  (D) examine the delivery of physical 
                therapists' services within the facilities of 
                Department of Defense; and
                  (E) analyze the potential impact on medicare 
                beneficiaries and on expenditures under the 
                medicare program of eliminating the need for a 
                physician referral and physician certification 
                for physical therapist services under the 
                medicare program.
          (2) Report.--The Comptroller General shall submit to 
        Congress a report on the study conducted under 
        paragraph (1) by not later than 1 year after the date 
        of the enactment of this Act.

SEC. 514. COVERAGE OF AN INITIAL PREVENTIVE PHYSICAL EXAMINATION.

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

               ``Initial Preventive Physical Examination

  ``(ww) The term `initial preventive physical examination' 
means physicians' services consisting of a physical examination 
with the goal of health promotion and disease detection and 
includes items and services (excluding clinical laboratory 
tests), as determined by the Secretary, consistent with the 
recommendations of the United States Preventive Services Task 
Force.''.
  (c) Waiver of Deductible and Coinsurance.--
          (1) Deductible.--The first sentence of section 
        1833(b) (42 U.S.C. 1395l(b)) is amended--
                  (A) by striking ``and'' before ``(6)'', and
                  (B) by inserting before the period at the end 
                the following: ``, and (7) such deductible 
                shall not apply with respect to an initial 
                preventive physical examination (as defined in 
                section 1861(ww))''.
          (2) Coinsurance.--Section 1833(a)(1) (42 U.S.C. 
        1395l(a)(1)) is amended--
                  (A) in clause (N), by inserting ``(or 100 
                percent in the case of an initial preventive 
                physical examination, as defined in section 
                1861(ww))'' after ``80 percent''; and
                  (B) in clause (O), by inserting ``(or 100 
                percent in the case of an initial preventive 
                physical examination, as defined in section 
                1861(ww))'' after ``80 percent''.
  (d) Payment as Physicians' Services.--Section 1848(j)(3) (42 
U.S.C. 1395w-4(j)(3)) is amended by inserting ``(2)(W),'' after 
``(2)(S),''.
  (e) Other Conforming Amendments.--Section 1862(a) (42 U.S.C. 
1395y(a)) is amended--
          (1) in paragraph (1)--
                  (A) by striking ``and'' at the end of 
                subparagraph (H);
                  (B) by striking the semicolon at the end of 
                subparagraph (I) and inserting ``, and''; and
                  (C) by adding at the end the following new 
                subparagraph:
          ``(J) in the case of an initial preventive physical 
        examination, which is performed not later than 6 months 
        after the date the individual's first coverage period 
        begins under part B;''; and
          (2) in paragraph (7), by striking ``or (H)'' and 
        inserting ``(H), or (J)''.
  (f) Effective Date.--The amendments made by this section 
shall apply to services furnished on or after January 1, 2004, 
but only for individuals whose coverage period begins on or 
after such date.

SEC. 515. RENAL DIALYSIS SERVICES.

  (a) Report on Differences in Costs in Different Settings.--
Not later than 1 year after the date of the enactment of this 
Act, the Comptroller General of the United States shall submit 
to Congress a report containing--
          (1) an analysis of the differences in costs of 
        providing renal dialysis services under the medicare 
        program in home settings and in facility settings;
          (2) an assessment of the percentage of overhead costs 
        in home settings and in facility settings; and
          (3) an evaluation of whether the charges for home 
        dialysis supplies and equipment are reasonable and 
        necessary.
  (b) Restoring Composite Rate Exceptions for Pediatric 
Facilities.--
          (1) In general.--Section 422(a)(2) of BIPA is 
        amended--
                  (A) in subparagraph (A), by striking ``and 
                (C)'' and inserting ``, (C), and (D)'';
                  (B) in subparagraph (B), by striking ``In the 
                case'' and inserting ``Subject to subparagraph 
                (D), in the case''; and
                  (C) by adding at the end the following new 
                subparagraph:
                  ``(D) Inapplicability to pediatric 
                facilities.--Subparagraphs (A) and (B) shall 
                not apply, as of October 1, 2002, to pediatric 
                facilities that do not have an exception rate 
                described in subparagraph (C) in effect on such 
                date. For purposes of this subparagraph, the 
                term `pediatric facility' means a renal 
                facility at least 50 percent of whose patients 
                are individuals under 18 years of age.''.
          (2) Conforming amendment.--The fourth sentence of 
        section 1881(b)(7) (42 U.S.C. 1395rr(b)(7)) is amended 
        by striking ``The Secretary'' and inserting ``Subject 
        to section 422(a)(2) of the Medicare, Medicaid, and 
        SCHIP Benefits Improvement and Protection Act of 2000, 
        the Secretary''.
  (c) Increase in Renal Dialysis Composite Rate for Services 
Furnished in 2004.--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 
2004, the composite payment rate otherwise established under 
section 1881(b)(7) of such Act (42 U.S.C. 1395rr(b)(7)) shall 
be increased by 1.2 percent.

SEC. 516. IMPROVED PAYMENT FOR CERTAIN MAMMOGRAPHY SERVICES.

  (a) Exclusion from OPD Fee Schedule.--Section 
1833(t)(1)(B)(iv) (42 U.S.C. 1395l(t)(1)(B)(iv)) is amended by 
inserting before the period at the end the following: ``and 
does not include screening mammography (as defined in section 
1861(jj)) and unilateral and bilateral diagnostic 
mammography''.
  (b) Adjustment to Technical Component.--For diagnostic 
mammography performed on or after January 1, 2004, for which 
payment is made under the physician fee schedule under section 
1848 of the Social Security Act (42 U.S.C. 1395w-4), the 
Secretary, based on the most recent cost data available, shall 
provide for an appropriate adjustment in the payment amount for 
the technical component of the diagnostic mammography.
  (c) Effective Date.--The amendment made by subsection (a) 
shall apply to mammography performed on or after January 1, 
2004.

SEC. 517. 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 2001, 2002, or 2003, and who demonstrates 
        to the Secretary before December 31, 2003, that the 
        individual is a covered beneficiary (as defined in 
        section 1072(5) of title 10, United States Code). The 
        Secretary of Health and Human Services shall consult 
        with the Secretary of Defense in identifying 
        individuals described in the previous sentence.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall apply to premiums for months beginning with 
        January 2003. The Secretary of Health and Human 
        Services shall establish a method for providing rebates 
        of premium penalties paid for months on or after 
        January 2003 for which a penalty does not apply under 
        such amendment but for which a penalty was previously 
        collected.
  (b) Medicare Part B Special Enrollment Period.--
          (1) In general.--In the case of any individual who, 
        as of the date of the enactment of this Act, is 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 of Health and Human Services shall 
        provide for a special enrollment period during which 
        the individual may enroll under such part. Such period 
        shall begin as soon as possible after the date of the 
        enactment of this Act and shall end on December 31, 
        2003.
          (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. 518. COVERAGE OF CHOLESTEROL AND BLOOD LIPID SCREENING.

  (a) Coverage.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), as 
amended by section 514(a), is amended--
          (1) in subparagraph (V), by striking ``and'' at the 
        end;
          (2) in subparagraph (W), by inserting ``and'' at the 
        end; and
          (3) by adding at the end the following new 
        subparagraph:
                  ``(X) cholesterol and other blood lipid 
                screening tests (as defined in subsection 
                (XX));''.
  (b) Services Described.--Section 1861 (42 U.S.C. 1395x), as 
amended by section 514(b), is amended by adding at the end the 
following new subsection:

           ``Cholesterol and Other Blood Lipid Screening Test

  ``(xx)(1) The term `cholesterol and other blood lipid 
screening test' means diagnostic testing of cholesterol and 
other lipid levels of the blood for the purpose of early 
detection of abnormal cholesterol and other lipid levels.
  ``(2) The Secretary shall establish standards, in 
consultation with appropriate organizations, regarding the 
frequency and type of cholesterol and other blood lipid 
screening tests, except that such frequency may not be more 
often than once every 2 years.''.
  (c) Frequency.--Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)), 
as amended by section 514(e), is amended
          (1) by striking ``and'' at the end of subparagraph 
        (I);
          (2) by striking the semicolon at the end of 
        subparagraph (J) and inserting ``; and''; and
          (3) by adding at the end the following new 
        subparagraph:
          ``(K) in the case of a cholesterol and other blood 
        lipid screening test (as defined in section 
        1861(xx)(1)), which is performed more frequently than 
        is covered under section 1861(xx)(2).''.
  (d) Effective Date.--The amendments made by this section 
shall apply to tests furnished on or after January 1, 2004.

             TITLE VI--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

SEC. 601. ELIMINATION OF 15 PERCENT REDUCTION IN PAYMENT RATES UNDER 
                    THE PROSPECTIVE PAYMENT SYSTEM.

  (a) In General.--Section 1895(b)(3)(A) (42 U.S.C. 
1395fff(b)(3)(A)) is amended to read as follows:
                  ``(A) Initial basis.--Under such system the 
                Secretary shall provide for computation of a 
                standard prospective payment amount (or 
                amounts) as follows:
                          ``(i) Such amount (or amounts) shall 
                        initially be based on the most current 
                        audited cost report data available to 
                        the Secretary and shall be computed in 
                        a manner so that the total amounts 
                        payable under the system for fiscal 
                        year 2001 shall be equal to the total 
                        amount that would have been made if the 
                        system had not been in effect and if 
                        section 1861(v)(1)(L)(ix) had not been 
                        enacted.
                          ``(ii) For fiscal year 2002 and for 
                        the first quarter of fiscal year 2003, 
                        such amount (or amounts) shall be equal 
                        to the amount (or amounts) determined 
                        under this paragraph for the previous 
                        fiscal year, updated under subparagraph 
                        (B).
                          ``(iii) For 2003, such amount (or 
                        amounts) shall be equal to the amount 
                        (or amounts) determined under this 
                        paragraph for fiscal year 2002, updated 
                        under subparagraph (B) for 2003.
                          ``(iv) For 2004 and each subsequent 
                        year, such amount (or amounts) shall be 
                        equal to the amount (or amounts) 
                        determined under this paragraph for the 
                        previous year, updated under 
                        subparagraph (B).
                Each such amount shall be standardized in a 
                manner that eliminates the effect of variations 
                in relative case mix and area wage adjustments 
                among different home health agencies in a 
                budget neutral manner consistent with the case 
                mix and wage level adjustments provided under 
                paragraph (4)(A). Under the system, the 
                Secretary may recognize regional differences or 
                differences based upon whether or not the 
                services or agency are in an urbanized area.''.
  (b) Effective Date.--The amendment made by subsection (a) 
shall take effect as if included in the amendments made by 
section 501 of 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).

SEC. 602. UPDATE IN HOME HEALTH SERVICES.

  (a) Change to Calendar Year Update.--
          (1) In general.--Section 1895(b) (42 U.S.C. 
        1395fff(b)(3)) is amended--
                  (A) in paragraph (3)(B)(i)--
                          (i) by striking ``each fiscal year 
                        (beginning with fiscal year 2002)'' and 
                        inserting ``fiscal year 2002 and for 
                        each subsequent year (beginning with 
                        2003)''; and
                          (ii) by inserting ``or year'' after 
                        ``the fiscal year'';
                  (B) in paragraph (3)(B)(ii)--
                          (i) in subclause (II), by striking 
                        ``fiscal year'' and inserting ``year'' 
                        and by redesignating such subclause as 
                        subclause (III); and
                          (ii) in subclause (I), by striking 
                        ``each of fiscal years 2002 and 2003'' 
                        and inserting the following: ``fiscal 
                        year 2002, the home health market 
                        basket percentage increase (as defined 
                        in clause (iii)) minus 1.1 percentage 
                        points;
                                  ``(II) 2003'';
                  (C) in paragraph (3)(B)(iii), by inserting 
                ``or year'' after ``fiscal year'' each place it 
                appears;
                  (D) in paragraph (3)(B)(iv)--
                          (i) by inserting ``or year'' after 
                        ``fiscal year'' each place it appears; 
                        and
                          (ii) by inserting ``or years'' after 
                        ``fiscal years''; and
                  (E) in paragraph (5), by inserting ``or 
                year'' after ``fiscal year''.
          (2) Transition rule.--The standard prospective 
        payment amount (or amounts) under section 1895(b)(3) of 
        the Social Security Act for the calendar quarter 
        beginning on October 1, 2002, shall be such amount (or 
        amounts) for the previous calendar quarter.
  (b) Changes in Updates for 2003, 2004, and 2005.--Section 
1895(b)(3)(B)(ii) (42 U.S.C. 1395fff(b)(3)(B)(ii)), as amended 
by subsection (a)(1)(B), is amended--
          (1) in subclause (II), by striking ``the home health 
        market basket percentage increase (as defined in clause 
        (iii)) minus 1.1 percentage points'' and inserting 
        ``2.0 percentage points'';
          (2) by striking ``or'' at the end of subclause (II);
          (3) by redesignating subclause (III) as subclause 
        (V); and
          (4) by inserting after subclause (II) the following 
        new subclause:
                                  ``(III) 2004, 1.1 percentage 
                                points;
                                  ``(IV) 2005, 2.7 percentage 
                                points; or''.
  (c) Payment Adjustment.--
          (1) In general.--Section 1895(b)(5) (42 U.S.C. 
        1395fff(b)(5)) is amended by striking ``5 percent'' and 
        inserting ``3 percent''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall apply to years beginning with 2003.

SEC. 603. OASIS TASK FORCE; SUSPENSION OF CERTAIN OASIS DATA COLLECTION 
                    REQUIREMENTS PENDING TASK FORCE SUBMITTAL OF 
                    REPORT.

  (a) Establishment.--The Secretary of Health and Human 
Services shall establish and appoint a task force (to be known 
as the ``OASIS Task Force'') to examine the data collection and 
reporting requirements under OASIS. For purposes of this 
section, the term ``OASIS'' means the Outcome and Assessment 
Information Set required by reason of section 4602(e) of 
Balanced Budget Act of 1997 (42 U.S.C. 1395fff note).
  (b) Composition.--The OASIS Task Force shall be composed of 
the following:
          (1) Staff of the Centers for Medicare & Medicaid 
        Services with expertise in post-acute care.
          (2) Representatives of home health agencies.
          (3) Health care professionals and research and health 
        care quality experts outside the Federal Government 
        with expertise in post-acute care.
          (4) Advocates for individuals requiring home health 
        services.
  (c) Duties.--
          (1) Review and recommendations.--The OASIS Task Force 
        shall review and make recommendations to the Secretary 
        regarding changes in OASIS to improve and simplify data 
        collection for purposes of--
                  (A) assessing the quality of home health 
                services; and
                  (B) providing consistency in classification 
                of patients into home health resource groups 
                (HHRGs) for payment under section 1895 of the 
                Social Security Act (42 U.S.C. 1395fff).
          (2) Specific items.--In conducting the review under 
        paragraph (1), the OASIS Task Force shall specifically 
        examine--
                  (A) the 41 outcome measures currently in use;
                  (B) the timing and frequency of data 
                collection; and
                  (C) the collection of information on 
                comorbidities and clinical indicators.
          (3) Report.--The OASIS Task Force shall submit a 
        report to the Secretary containing its findings and 
        recommendations for changes in OASIS by not later than 
        18 months after the date of the enactment of this Act.
  (d) Sunset.--The OASIS Task Force shall terminate 60 days 
after the date on which the report is submitted under 
subsection (c)(2).
  (e) Nonapplication of FACA.--The provisions of the Federal 
Advisory Committee Act shall not apply to the OASIS Task Force.
  (f) Suspension of OASIS Requirement for Collection of Data on 
Non-Medicare and Non-Medicaid Patients Pending Task Force 
Report.--
          (1) In general.--During the period described in 
        paragraph (2), the Secretary of Health and Human 
        Services may not require, under section 4602(e) of the 
        Balanced Budget Act of 1997 or otherwise under OASIS, a 
        home health agency to gather or submit information that 
        relates to an individual who is not eligible for 
        benefits under either title XVIII or title XIX of the 
        Social Security Act.
          (2) Period of suspension.--The period described in 
        this paragraph--
                  (A) begins on January 1, 2003, and
                  (B) ends on the last day of the 2nd month 
                beginning after the date the report is 
                submitted under subsection (c)(2).

SEC. 604. MEDPAC STUDY ON MEDICARE MARGINS OF HOME HEALTH AGENCIES.

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

SEC. 605. CLARIFICATION OF TREATMENT OF OCCASIONAL ABSENCES IN 
                    DETERMINING WHETHER AN INDIVIDUAL IS CONFINED TO 
                    THE HOME.

  (a) In General.--The penultimate sentence of section 1814(a) 
(42 U.S.C. 1395f(a) and the penultimate sentence of section 
1835(a) (42 U.S.C. 1395n(a)) are each amended to read as 
follows: ``Any other absence of an individual from the home 
shall not so disqualify the individual if the absence is 
infrequent or of relatively short duration, such as an 
occasional trip to the barber or a walk around the block, and 
is not inconsistent with the assessment underlying the 
individual's plan of care for home health services.''.
  (b) Effective Date.--The amendments made by subsection (a) 
shall take effect on the date of the enactment of this Act.

             Subtitle B--Direct Graduate Medical Education

SEC. 611. EXTENSION OF UPDATE LIMITATION ON HIGH COST PROGRAMS.

  Section 1886(h)(2)(D)(iv) (42 U.S.C. 1395ww(h)(2)(D)(iv)) is 
amended--
          (1) in subclause (I)--
                  (A) by striking ``and 2002'' and inserting 
                ``through 2012'';
                  (B) by striking ``during fiscal year 2001 or 
                fiscal year 2002'' and inserting ``during the 
                period beginning with fiscal year 2001 and 
                ending with fiscal year 2012''; and
                  (C) by striking ``subject to subclause 
                (III),'';
          (2) by striking subclause (II); and
          (3) in subclause (III)--
                  (A) by redesignating such subclause as 
                subclause (II); and
                  (B) by striking ``or (II)''.

SEC. 612. REDISTRIBUTION OF UNUSED RESIDENT POSITIONS.

  (a) In General.--Section 1886(h)(4) (42 U.S.C. 1395ww(h)(4)) 
is amended--
          (1) in subparagraph (F)(i), by inserting ``subject to 
        subparagraph (I),'' after ``October 1, 1997,'';
          (2) in subparagraph (H)(i), by inserting ``subject to 
        subparagraph (I),'' after ``subparagraphs (F) and 
        (G),''; and
          (3) by adding at the end the following new 
        subparagraph:
                  ``(I) Redistribution of unused resident 
                positions.--
                          ``(i) Reduction in limit based on 
                        unused positions.--
                                  ``(I) In general.--If a 
                                hospital's resident level (as 
                                defined in clause (iii)(I)) is 
                                less than the otherwise 
                                applicable resident limit (as 
                                defined in clause (iii)(II)) 
                                for each of the reference 
                                periods (as defined in 
                                subclause (II)), effective for 
                                cost reporting periods 
                                beginning on or after January 
                                1, 2003, the otherwise 
                                applicable resident limit shall 
                                be reduced by 75 percent of the 
                                difference between such limit 
                                and the reference resident 
                                level specified in subclause 
                                (III) (or subclause (IV) if 
                                applicable).
                                  ``(II) Reference periods 
                                defined.--In this clause, the 
                                term `reference periods' means, 
                                for a hospital, the 3 most 
                                recent consecutive cost 
                                reporting periods of the 
                                hospital for which cost reports 
                                have been settled (or, if not, 
                                submitted) on or before 
                                September 30, 2001.
                                  ``(III) Reference resident 
                                level.--Subject to subclause 
                                (IV), the reference resident 
                                level specified in this 
                                subclause for a hospital is the 
                                highest resident level for the 
                                hospital during any of the 
                                reference periods.
                                  ``(IV) Adjustment process.--
                                Upon the timely request of a 
                                hospital, the Secretary may 
                                adjust the reference resident 
                                level for a hospital to be the 
                                resident level for the hospital 
                                for the cost reporting period 
                                that includes July 1, 2002.
                          ``(ii) Redistribution.--
                                  ``(I) In general.--The 
                                Secretary is authorized to 
                                increase the otherwise 
                                applicable resident limits for 
                                hospitals by an aggregate 
                                number estimated by the 
                                Secretary that does not exceed 
                                the aggregate reduction in such 
                                limits attributable to clause 
                                (i) (without taking into 
                                account any adjustment under 
                                subclause (IV) of such clause).
                                  ``(II) Effective date.--No 
                                increase under subclause (I) 
                                shall be permitted or taken 
                                into account for a hospital for 
                                any portion of a cost reporting 
                                period that occurs before July 
                                1, 2003, or before the date of 
                                the hospital's application for 
                                an increase under this clause. 
                                No such increase shall be 
                                permitted for a hospital unless 
                                the hospital has applied to the 
                                Secretary for such increase by 
                                December 31, 2004.
                                  ``(III) Considerations in 
                                redistribution.--In determining 
                                for which hospitals the 
                                increase in the otherwise 
                                applicable resident limit is 
                                provided under subclause (I), 
                                the Secretary shall take into 
                                account the need for such an 
                                increase by specialty and 
                                location involved, consistent 
                                with subclause (IV).
                                  ``(IV) Priority for rural and 
                                small urban areas.--In 
                                determining for which hospitals 
                                and residency training programs 
                                an increase in the otherwise 
                                applicable resident limit is 
                                provided under subclause (I), 
                                the Secretary shall first 
                                distribute the increase to 
                                programs of hospitals located 
                                in rural areas or in urban 
                                areas that are not large urban 
                                areas (as defined for purposes 
                                of subsection (d)) on a first-
                                come-first-served basis (as 
                                determined by the Secretary) 
                                based on a demonstration that 
                                the hospital will fill the 
                                positions made available under 
                                this clause and not to exceed 
                                an increase of 25 full-time 
                                equivalent positions with 
                                respect to any hospital.
                                  ``(V) Application of locality 
                                adjusted national average per 
                                resident amount.--With respect 
                                to additional residency 
                                positions in a hospital 
                                attributable to the increase 
                                provided under this clause, 
                                notwithstanding any other 
                                provision of this subsection, 
                                the approved FTE resident 
                                amount is deemed to be equal to 
                                the locality adjusted national 
                                average per resident amount 
                                computed under subparagraph (E) 
                                for that hospital.
                                  ``(VI) Construction.--Nothing 
                                in this clause shall be 
                                construed as permitting the 
                                redistribution of reductions in 
                                residency positions 
                                attributable to voluntary 
                                reduction programs under 
                                paragraph (6) or as affecting 
                                the ability of a hospital to 
                                establish new medical residency 
                                training programs under 
                                subparagraph (H).
                          ``(iii) Resident level and limit 
                        defined.--In this subparagraph:
                                  ``(I) Resident level.--The 
                                term `resident level' means, 
                                with respect to a hospital, the 
                                total number of full-time 
                                equivalent residents, before 
                                the application of weighting 
                                factors (as determined under 
                                this paragraph), in the fields 
                                of allopathic and osteopathic 
                                medicine for the hospital.
                                  ``(II) Otherwise applicable 
                                resident limit.--The term 
                                `otherwise applicable resident 
                                limit' means, with respect to a 
                                hospital, the limit otherwise 
                                applicable under subparagraphs 
                                (F)(i) and (H) on the resident 
                                level for the hospital 
                                determined without regard to 
                                this subparagraph.''.
  (b) No Application of Increase to IME.--Section 
1886(d)(5)(B)(v) (42 U.S.C. 1395ww(d)(5)(B)(v)) is amended by 
adding at the end the following: ``The provisions of clause (i) 
of subparagraph (I) of subsection (h)(4) shall apply with 
respect to the first sentence of this clause in the same manner 
as it applies with respect to subparagraph (F) of such 
subsection, but the provisions of clause (ii) of such 
subparagraph shall not apply.''.
  (c) Report on Extension of Applications Under Redistribution 
Program.--Not later than July 1, 2004, the Secretary shall 
submit to Congress a report containing recommendations 
regarding whether to extend the deadline for applications for 
an increase in resident limits under section 
1886(h)(4)(I)(ii)(II) of the Social Security Act (as added by 
subsection (a)).

                      Subtitle C--Other Provisions

SEC. 621. MODIFICATIONS TO MEDICARE PAYMENT ADVISORY COMMISSION 
                    (MEDPAC).

  (a) Examination of Budget Consequences.--Section 1805(b) (42 
U.S.C. 1395b-6(b)) is amended by adding at the end the 
following new paragraph:
          ``(8) Examination of budget consequences.--Before 
        making any recommendations, the Commission shall 
        examine the budget consequences of such 
        recommendations, directly or through consultation with 
        appropriate expert entities.''.
  (b) Consideration of Efficient Provision of Services.--
Section 1805(b)(2)(B)(i) (42 U.S.C. 1395b-6(b)(2)(B)(i)) is 
amended by inserting ``the efficient provision of'' after 
``expenditures for''.
  (c) Additional Reports.--
          (1) Data needs and sources.--The Medicare Payment 
        Advisory Commission shall conduct a study, and submit a 
        report to Congress by not later than June 1, 2003, on 
        the need for current data, and sources of current data 
        available, to determine the solvency and financial 
        circumstances of hospitals and other medicare providers 
        of services. The Commission shall examine data on 
        uncompensated care, as well as the share of 
        uncompensated care accounted for by the expenses for 
        treating illegal aliens.
          (2) Use of tax-related returns.--Using return 
        information provided under Form 990 of the Internal 
        Revenue Service, the Commission shall submit to 
        Congress, by not later than June 1, 2003, a report on 
        the following:
                  (A) Investments and capital financing of 
                hospitals participating under the medicare 
                program and related foundations.
                  (B) Access to capital financing for private 
                and for not-for-profit hospitals.

SEC. 622. DEMONSTRATION PROJECT FOR DISEASE MANAGEMENT FOR CERTAIN 
                    MEDICARE BENEFICIARIES WITH DIABETES.

  (a) In General.--The Secretary of Health and Human Services 
shall conduct a demonstration project under this section (in 
this section referred to as the ``project'') to demonstrate the 
impact on costs and health outcomes of applying disease 
management to certain medicare beneficiaries with diagnosed 
diabetes. In no case may the number of participants in the 
project exceed 30,000 at any time.
  (b) Voluntary Participation.--
          (1) Eligibility.--Medicare beneficiaries are eligible 
        to participate in the project only if--
                  (A) they are a member of a health disparity 
                population (as defined in section 485E(d) of 
                the Public Health Service Act), such as 
                Hispanics;
                  (B) they meet specific medical criteria 
                demonstrating the appropriate diagnosis and the 
                advanced nature of their disease;
                  (C) their physicians approve of participation 
                in the project; and
                  (D) they are not enrolled in a 
                Medicare+Choice plan.
          (2) Benefits.--A medicare beneficiary who is enrolled 
        in the project shall be eligible--
                  (A) for disease management services related 
                to their diabetes; and
                  (B) for payment for all costs for 
                prescription drugs without regard to whether or 
                not they relate to the diabetes, except that 
                the project may provide for modest cost-sharing 
                with respect to prescription drug coverage.
  (c) Contracts With Disease Management Organizations.--
          (1) In general.--The Secretary of Health and Human 
        Services shall carry out the project through contracts 
        with up to three disease management organizations. The 
        Secretary shall not enter into such a contract with an 
        organization unless the organization demonstrates that 
        it can produce improved health outcomes and reduce 
        aggregate medicare expenditures consistent with 
        paragraph (2).
          (2) Contract provisions.--Under such contracts--
                  (A) such an organization shall be required to 
                provide for prescription drug coverage 
                described in subsection (b)(2)(B);
                  (B) such an organization shall be paid a fee 
                negotiated and established by the Secretary in 
                a manner so that (taking into account savings 
                in expenditures under parts A and B of the 
                medicare program under title XVIII of the 
                Social Security Act) there will be no net 
                increase, and to the extent practicable, there 
                will be a net reduction in expenditures under 
                the medicare program as a result of the 
                project; and
                  (C) such an organization shall guarantee, 
                through an appropriate arrangement with a 
                reinsurance company or otherwise, the 
                prohibition on net increases in expenditures 
                described in subparagraph (B).
          (3) Payments.--Payments to such organizations shall 
        be made in appropriate proportion from the Trust Funds 
        established under title XVIII of the Social Security 
        Act.
  (d) Application of Medigap Protections to Demonstration 
Project Enrollees.--(1) Subject to paragraph (2), the 
provisions of section 1882(s)(3) (other than clauses (i) 
through (iv) of subparagraph (B)) and 1882(s)(4) of the Social 
Security Act shall apply to enrollment (and termination of 
enrollment) in the demonstration project under this section, in 
the same manner as they apply to enrollment (and termination of 
enrollment) with a Medicare+Choice organization in a 
Medicare+Choice plan.
  (2) In applying paragraph (1)--
          (A) any reference in clause (v) or (vi) of section 
        1882(s)(3)(B) of such Act to 12 months is deemed a 
        reference to the period of the demonstration project; 
        and
          (B) the notification required under section 
        1882(s)(3)(D) of such Act shall be provided in a manner 
        specified by the Secretary of Health and Human 
        Services.
  (e) Duration.--The project shall last for not longer than 3 
years.
  (f) Waiver.--The Secretary of Health and Human Services shall 
waive such provisions of title XVIII of the Social Security Act 
as may be necessary to provide for payment for services under 
the project in accordance with subsection (c)(3).
  (g) Report.--The Secretary of Health and Human Services shall 
submit to Congress an interim report on the project not later 
than 2 years after the date it is first implemented and a final 
report on the project not later than 6 months after the date of 
its completion. Such reports shall include information on the 
impact of the project on costs and health outcomes and 
recommendations on the cost-effectiveness of extending or 
expanding the project.
  (h) Working Group on Medicare Disease Management Programs.--
The Secretary shall establish within the Department of Health 
and Human Services a working group consisting of employees of 
the Department to carry out the following:
          (1) To oversee the project.
          (2) To establish policy and criteria for medicare 
        disease management programs within the Department, 
        including the establishment of policy and criteria for 
        such programs.
          (3) To identify targeted medical conditions and 
        targeted individuals.
          (4) To select areas in which such programs are 
        carried out.
          (5) To monitor health outcomes under such programs.
          (6) To measure the effectiveness of such programs in 
        meeting any budget neutrality requirements.
          (7) Otherwise to serve as a central focal point 
        within the Department for dissemination of information 
        on medicare disease management programs.
  (i) GAO Study on Disease Management Programs.--The 
Comptroller General of the United States shall conduct a study 
that compares disease management programs under title XVIII of 
the Social Security Act with such programs conducted in the 
private sector, including the prevalence of such programs and 
programs for case management. The study shall identify the 
cost-effectiveness of such programs and any savings achieved by 
such programs. The Comptroller General shall submit a report on 
such study to Congress by not later than 18 months after the 
date of the enactment of this Act.

SEC. 623. DEMONSTRATION PROJECT FOR MEDICAL ADULT DAY CARE SERVICES.

  (a) Establishment.--Subject to the succeeding provisions of 
this section, the Secretary of Health and Human Services shall 
establish a demonstration project (in this section referred to 
as the ``demonstration project'') under which the Secretary 
shall, as part of a plan of an episode of care for home health 
services established for a medicare beneficiary, permit a home 
health agency, directly or under arrangements with a medical 
adult day care facility, to provide medical adult day care 
services as a substitute for a portion of home health services 
that would otherwise be provided in the beneficiary's home.
  (b) Payment.--
          (1) In general.--The amount of payment for an episode 
        of care for home health services, a portion of which 
        consists of substitute medical adult day care services, 
        under the demonstration project shall be made at a rate 
        equal to 95 percent of the amount that would otherwise 
        apply for such home health services under section 1895 
        of the Social Security Act (42 u.s.c. 1395fff). In no 
        case may a home health agency, or a medical adult day 
        care facility under arrangements with a home health 
        agency, separately charge a beneficiary for medical 
        adult day care services furnished under the plan of 
        care.
          (2) Budget neutrality for demonstration project.--
        Notwithstanding any other provision of law, the 
        Secretary shall provide for an appropriate reduction in 
        the aggregate amount of additional payments made under 
        section 1895 of the Social Security Act (42 U.S.C. 
        1395fff) to reflect any increase in amounts expended 
        from the Trust Funds as a result of the demonstration 
        project conducted under this section.
  (c) Demonstration Project Sites.--The project established 
under this section shall be conducted in not more than 5 States 
selected by the Secretary that license or certify providers of 
services that furnish medical adult day care services.
  (d) Duration.--The Secretary shall conduct the demonstration 
project for a period of 3 years.
  (e) Voluntary Participation.--Participation of medicare 
beneficiaries in the demonstration project shall be voluntary. 
The total number of such beneficiaries that may participate in 
the project at any given time may not exceed 15,000.
  (f) Preference in Selecting Agencies.--In selecting home 
health agencies to participate under the demonstration project, 
the Secretary shall give preference to those agencies that are 
currently licensed or certified through common ownership and 
control to furnish medical adult day care services.
  (g) Waiver Authority.--The Secretary may waive such 
requirements of title XVIII of the Social Security Act as may 
be necessary for the purposes of carrying out the demonstration 
project, other than waiving the requirement that an individual 
be homebound in order to be eligible for benefits for home 
health services.
  (h) Evaluation and Report.--The Secretary shall conduct an 
evaluation of the clinical and cost effectiveness of the 
demonstration project. Not later 30 months after the 
commencement of the project, the Secretary shall submit to 
Congress a report on the evaluation, and shall include in the 
report the following:
          (1) An analysis of the patient outcomes and costs of 
        furnishing care to the medicare beneficiaries 
        participating in the project as compared to such 
        outcomes and costs to beneficiaries receiving only home 
        health services for the same health conditions.
          (2) Such recommendations regarding the extension, 
        expansion, or termination of the project as the 
        Secretary determines appropriate.
  (i) Definitions.--In this section:
          (1) Home health agency.--The term ``home health 
        agency'' has the meaning given such term in section 
        1861(o) of the Social Security Act (42 U.S.C. 
        1395x(o)).
          (2) Medical adult day care facility.--The term 
        ``medical adult day care facility'' means a facility 
        that--
                  (A) has been licensed or certified by a State 
                to furnish medical adult day care services in 
                the State for a continuous 2-year period;
                  (B) is engaged in providing skilled nursing 
                services and other therapeutic services 
                directly or under arrangement with a home 
                health agency;
                  (C) meets such standards established by the 
                Secretary to assure quality of care and such 
                other requirements as the Secretary finds 
                necessary in the interest of the health and 
                safety of individuals who are furnished 
                services in the facility; and
                  (D) provides medical adult day care services.
          (3) Medical adult day care services.--The term 
        ``medical adult day care services'' means--
                  (A) home health service items and services 
                described in paragraphs (1) through (7) of 
                section 1861(m) furnished in a medical adult 
                day care facility;
                  (B) a program of supervised activities 
                furnished in a group setting in the facility 
                that--
                          (i) meet such criteria as the 
                        Secretary determines appropriate; and
                          (ii) is designed to promote physical 
                        and mental health of the individuals; 
                        and
                  (C) such other services as the Secretary may 
                specify.
          (4) Medicare beneficiary.--The term ``medicare 
        beneficiary'' means an individual entitled to benefits 
        under part A of this title, enrolled under part B of 
        this title, or both.

SEC. 624. PUBLICATION ON FINAL WRITTEN GUIDANCE CONCERNING PROHIBITIONS 
                    AGAINST DISCRIMINATION BY NATIONAL ORIGIN WITH 
                    RESPECT TO HEALTH CARE SERVICES.

  Not later than January 1, 2003, the Secretary shall issue 
final written guidance concerning the application of the 
prohibition in title VI of the Civil Rights Act of 1964 against 
national origin discrimination as it affects persons with 
limited English proficiency with respect to access to health 
care services under the medicare program.

              TITLE VII--MEDICARE BENEFITS ADMINISTRATION

SEC. 701. ESTABLISHMENT OF MEDICARE BENEFITS ADMINISTRATION.

  (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.), as 
amended by section 105, is amended by inserting after 1806 the 
following new section:

                   ``MEDICARE BENEFITS ADMINISTRATION

  ``Sec. 1808. (a) Establishment.--There is established within 
the Department of Health and Human Services an agency to be 
known as the Medicare Benefits Administration.
  ``(b) Administrator; Deputy Administrator; Chief Actuary.--
          ``(1) Administrator.--
                  ``(A) In general.--The Medicare Benefits 
                Administration shall be headed by an 
                administrator to be known as the `Medicare 
                Benefits 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 be in direct line of 
                authority to the Secretary.
                  ``(B) Compensation.--The Administrator shall 
                be paid at the rate of basic pay payable for 
                level III of the Executive Schedule under 
                section 5314 of title 5, United States Code.
                  ``(C) Term of office.--The Administrator 
                shall be appointed for a term of 5 years. In 
                any case in which a successor does not take 
                office at the end of an Administrator's term of 
                office, that Administrator may continue in 
                office until the entry upon office of such a 
                successor. An Administrator appointed to a term 
                of office after the commencement of such term 
                may serve under such appointment only for the 
                remainder of such term.
                  ``(D) General authority.--The Administrator 
                shall be responsible for the exercise of all 
                powers and the discharge of all duties of the 
                Administration, and shall have authority and 
                control over all personnel and activities 
                thereof.
                  ``(E) Rulemaking authority.--The 
                Administrator may prescribe such rules and 
                regulations as the Administrator determines 
                necessary or appropriate to carry out the 
                functions of the Administration. The 
                regulations prescribed by the Administrator 
                shall be subject to the rulemaking procedures 
                established under section 553 of title 5, 
                United States Code.
                  ``(F) Authority to establish organizational 
                units.--The Administrator may establish, alter, 
                consolidate, or discontinue such organizational 
                units or components within the Administration 
                as the Administrator considers necessary or 
                appropriate, except as specified in this 
                section.
                  ``(G) Authority to delegate.--The 
                Administrator may assign duties, and delegate, 
                or authorize successive redelegations of, 
                authority to act and to render decisions, to 
                such officers and employees of the 
                Administration as the Administrator may find 
                necessary. Within the limitations of such 
                delegations, redelegations, or assignments, all 
                official acts and decisions of such officers 
                and employees shall have the same force and 
                effect as though performed or rendered by the 
                Administrator.
          ``(2) Deputy administrator.--
                  ``(A) In general.--There shall be a Deputy 
                Administrator of the Medicare Benefits 
                Administration who shall be appointed by the 
                President, by and with the advice and consent 
                of the Senate.
                  ``(B) Compensation.--The Deputy Administrator 
                shall be paid at the rate of basic pay payable 
                for level IV of the Executive Schedule under 
                section 5315 of title 5, United States Code.
                  ``(C) Term of office.--The Deputy 
                Administrator shall be appointed for a term of 
                5 years. In any case in which a successor does 
                not take office at the end of a Deputy 
                Administrator's term of office, such Deputy 
                Administrator may continue in office until the 
                entry upon office of such a successor. A Deputy 
                Administrator appointed to a term of office 
                after the commencement of such term may serve 
                under such appointment only for the remainder 
                of such term.
                  ``(D) Duties.--The Deputy Administrator shall 
                perform such duties and exercise such powers as 
                the Administrator shall from time to time 
                assign or delegate. The Deputy Administrator 
                shall be Acting Administrator of the 
                Administration during the absence or disability 
                of the Administrator and, unless the President 
                designates another officer of the Government as 
                Acting Administrator, in the event of a vacancy 
                in the office of the Administrator.
          ``(3) Chief actuary.--
                  ``(A) In general.--There is established in 
                the Administration the position of Chief 
                Actuary. The Chief Actuary shall be appointed 
                by, and in direct line of authority to, the 
                Administrator of such Administration. The Chief 
                Actuary shall be appointed from among 
                individuals who have demonstrated, by their 
                education and experience, superior expertise in 
                the actuarial sciences. The Chief Actuary may 
                be removed only for cause.
                  ``(B) Compensation.--The Chief Actuary shall 
                be compensated at the highest rate of basic pay 
                for the Senior Executive Service under section 
                5382(b) of title 5, United States Code.
                  ``(C) Duties.--The Chief Actuary shall 
                exercise such duties as are appropriate for the 
                office of the Chief Actuary and in accordance 
                with professional standards of actuarial 
                independence.
          ``(4) Secretarial coordination of program 
        administration.--The Secretary shall ensure appropriate 
        coordination between the Administrator and the 
        Administrator of the Centers for Medicare & Medicaid 
        Services in carrying out the programs under this title.
  ``(c) Duties; Administrative Provisions.--
          ``(1) Duties.--
                  ``(A) General duties.--The Administrator 
                shall carry out parts C and D, including--
                          ``(i) negotiating, entering into, and 
                        enforcing, contracts with plans for the 
                        offering of Medicare+Choice plans under 
                        part C, including the offering of 
                        qualified prescription drug coverage 
                        under such plans; and
                          ``(ii) negotiating, entering into, 
                        and enforcing, contracts with PDP 
                        sponsors for the offering of 
                        prescription drug plans under part D.
                  ``(B) Other duties.--The Administrator shall 
                carry out any duty provided for under part C or 
                part D, including demonstration projects 
                carried out in part or in whole under such 
                parts, the programs of all-inclusive care for 
                the elderly (PACE program) under section 1894, 
                the social health maintenance organization 
                (SHMO) demonstration projects (referred to in 
                section 4104(c) of the Balanced Budget Act of 
                1997), and through a Medicare+Choice project 
                that demonstrates the application of capitation 
                payment rates for frail elderly medicare 
                beneficiaries through the use of a 
                interdisciplinary team and through the 
                provision of primary care services to such 
                beneficiaries by means of such a team at the 
                nursing facility involved).
                  ``(C) Prescription drug card.--The 
                Administrator shall carry out section 1807 
                (relating to the medicare prescription drug 
                discount card endorsement program).
                  ``(D) Noninterference.--In carrying out its 
                duties with respect to the provision of 
                qualified prescription drug coverage to 
                beneficiaries under this title, the 
                Administrator may not--
                          ``(i) require a particular formulary 
                        or institute a price structure for the 
                        reimbursement of covered outpatient 
                        drugs;
                          ``(ii) interfere in any way with 
                        negotiations between PDP sponsors and 
                        Medicare+Choice organizations and drug 
                        manufacturers, wholesalers, or other 
                        suppliers of covered outpatient drugs; 
                        and
                          ``(iii) otherwise interfere with the 
                        competitive nature of providing such 
                        coverage through such sponsors and 
                        organizations.
                  ``(E) Annual reports.--Not later March 31 of 
                each year, the Administrator shall submit to 
                Congress and the President a report on the 
                administration of parts C and D during the 
                previous fiscal year.
          ``(2) Staff.--
                  ``(A) In general.--The Administrator, with 
                the approval of the Secretary, may employ, 
                without regard to chapter 31 of title 5, United 
                States Code, other than sections 3110 and 3112, 
                such officers and employees as are necessary to 
                administer the activities to be carried out 
                through the Medicare Benefits Administration. 
                The Administrator shall employ staff with 
                appropriate and necessary expertise in 
                negotiating contracts in the private sector.
                  ``(B) Flexibility with respect to 
                compensation.--
                          ``(i) In general.--The staff of the 
                        Medicare Benefits Administration shall, 
                        subject to clause (ii), be paid without 
                        regard to the provisions of chapter 51 
                        (other than section 5101) and chapter 
                        53 (other than section 5301) of such 
                        title (relating to classification and 
                        schedule pay rates).
                          ``(ii) Maximum rate.--In no case may 
                        the rate of compensation determined 
                        under clause (i) exceed the rate of 
                        basic pay payable for level IV of the 
                        Executive Schedule under section 5315 
                        of title 5, United States Code.
                  ``(C) Limitation on full-time equivalent 
                staffing for current cms functions being 
                transferred.--The Administrator may not employ 
                under this paragraph a number of full-time 
                equivalent employees, to carry out functions 
                that were previously conducted by the Centers 
                for Medicare & Medicaid Services and that are 
                conducted by the Administrator by reason of 
                this section, that exceeds the number of such 
                full-time equivalent employees authorized to be 
                employed by the Centers for Medicare & Medicaid 
                Services to conduct such functions as of the 
                date of the enactment of this Act.
          ``(3) Redelegation of certain functions of the 
        centers for medicare & medicaid services.--
                  ``(A) In general.--The Secretary, the 
                Administrator, and the Administrator of the 
                Centers for Medicare & Medicaid Services shall 
                establish an appropriate transition of 
                responsibility in order to redelegate the 
                administration of part C from the Secretary and 
                the Administrator of the Centers for Medicare & 
                Medicaid Services to the Administrator as is 
                appropriate to carry out the purposes of this 
                section.
                  ``(B) Transfer of data and information.--The 
                Secretary shall ensure that the Administrator 
                of the Centers for Medicare & Medicaid Services 
                transfers to the Administrator of the Medicare 
                Benefits Administration such information and 
                data in the possession of the Administrator of 
                the Centers for Medicare & Medicaid Services as 
                the Administrator of the Medicare Benefits 
                Administration requires to carry out the duties 
                described in paragraph (1).
                  ``(C) Construction.--Insofar as a 
                responsibility of the Secretary or the 
                Administrator of the Centers for Medicare & 
                Medicaid Services is redelegated to the 
                Administrator under this section, any reference 
                to the Secretary or the Administrator of the 
                Centers for Medicare & Medicaid Services in 
                this title or title XI with respect to such 
                responsibility is deemed to be a reference to 
                the Administrator.
  ``(d) Office of Beneficiary Assistance.--
          ``(1) Establishment.--The Secretary shall establish 
        within the Medicare Benefits Administration an Office 
        of Beneficiary Assistance to coordinate functions 
        relating to outreach and education of medicare 
        beneficiaries under this title, including the functions 
        described in paragraph (2). The Office shall be 
        separate operating division within the Administration.
          ``(2) Dissemination of information on benefits and 
        appeals rights.--
                  ``(A) Dissemination of benefits 
                information.--The Office of Beneficiary 
                Assistance shall disseminate, directly or 
                through contract, to medicare beneficiaries, by 
                mail, by posting on the Internet site of the 
                Medicare Benefits Administration and through a 
                toll-free telephone number, 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.
                Such information shall be presented in a manner 
                so that medicare beneficiaries may compare 
                benefits under parts A, B, D, and medicare 
                supplemental policies with benefits under 
                Medicare+Choice plans under part C.
                  ``(B) Dissemination of appeals rights 
                information.--The Office of Beneficiary 
                Assistance shall disseminate to medicare 
                beneficiaries in the manner provided under 
                subparagraph (A) a description of procedural 
                rights (including grievance and appeals 
                procedures) of beneficiaries under the original 
                medicare fee-for-service program under parts A 
                and B, the Medicare+Choice program under part 
                C, and the Voluntary Prescription Drug Benefit 
                Program under part D.
  ``(e) Medicare Policy Advisory Board.--
          ``(1) Establishment.--There is established within the 
        Medicare Benefits Administration the Medicare Policy 
        Advisory Board (in this section referred to the 
        `Board'). The Board shall advise, consult with, and 
        make recommendations to the Administrator of the 
        Medicare Benefits Administration 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 of the Medicare Benefits 
                Administration 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 
                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 to 
                        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) Implementation of risk-
                        adjustment.--Evaluation of the 
                        implementation under section 
                        1853(a)(3)(C) of the risk adjustment 
                        methodology to payment rates under that 
                        section to Medicare+Choice 
                        organizations offering Medicare+Choice 
                        plans that accounts for variations in 
                        per capita costs based on health status 
                        and other demographic factors.
                          ``(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 of medicare benefits 
        administration.--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 
        of the Medicare Benefits Administration 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 seven 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 
                        chairmen and the ranking minority 
                        members 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 Senate Committee on 
                        Finance.
                  ``(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 three times during 
        each fiscal year.
          ``(9) Director and staff.--
                  ``(A) Appointment of director.--The Board 
                shall have a Director who shall be appointed by 
                the Chair.
                  ``(B) In general.--With the approval of the 
                Board, the Director may appoint, without regard 
                to chapter 31 of title 5, United States Code, 
                such additional personnel as the Director 
                considers appropriate.
                  ``(C) Flexibility with respect to 
                compensation.--
                          ``(i) In general.--The Director and 
                        staff of the Board shall, subject to 
                        clause (ii), be paid without regard to 
                        the provisions of chapter 51 and 
                        chapter 53 of such title (relating to 
                        classification and schedule pay rates).
                          ``(ii) Maximum rate.--In no case may 
                        the rate of compensation determined 
                        under clause (i) exceed the rate of 
                        basic pay payable for level IV of the 
                        Executive Schedule under section 5315 
                        of title 5, United States Code.
                  ``(D) Assistance from the administrator of 
                the medicare benefits administration.--The 
                Administrator of the Medicare Benefits 
                Administration shall make available to the 
                Board such information and other assistance as 
                it may require to carry out its functions.
          ``(10) Contract authority.--The Board may contract 
        with and compensate government and private agencies or 
        persons to carry out its duties under this subsection, 
        without regard to section 3709 of the Revised Statutes 
        (41 U.S.C. 5).
  ``(f) Funding.--There is authorized to be appropriated, in 
appropriate part from the Federal Hospital Insurance Trust Fund 
and from the Federal Supplementary Medical Insurance Trust Fund 
(including the Medicare Prescription Drug Account), such sums 
as are necessary to carry out this section.''.
  (b) Effective Date.--
          (1) In general.--The amendment made by subsection (a) 
        shall take effect on the date of the enactment of this 
        Act.
          (2) Timing of initial appointments.--The 
        Administrator and Deputy Administrator of the Medicare 
        Benefits Administration may not be appointed before 
        March 1, 2003.
          (3) Duties with respect to eligibility determinations 
        and enrollment.--The Administrator of the Medicare 
        Benefits Administration shall carry out enrollment 
        under title XVIII of the Social Security Act, make 
        eligibility determinations under such title, and carry 
        out part C of such title for years beginning or after 
        January 1, 2005.
          (4) Transition.--Before the date the Administrator of 
        the Medicare Benefits Administration is appointed and 
        assumes responsibilities under this section and section 
        1807 of the Social Security Act, the Secretary of 
        Health and Human Services shall provide for the conduct 
        of any responsibilities of such Administrator that are 
        otherwise provided under law.
  (c) Miscellaneous Administrative Provisions.--
          (1) Administrator as member of the board of trustees 
        of the medicare trust funds.--Section 1817(b) and 
        section 1841(b) (42 U.S.C. 1395i(b), 1395t(b)) are each 
        amended by striking ``and the Secretary of Health and 
        Human Services, all ex officio,'' and inserting ``the 
        Secretary of Health and Human Services, and the 
        Administrator of the Medicare Benefits Administration, 
        all ex officio,''.
          (2) Increase in grade to executive level iii for the 
        administrator of the centers for medicare & medicaid 
        services; level for medicare benefits administrator.--
                  (A) In general.--Section 5314 of title 5, 
                United States Code, by adding at the end the 
                following:
          ``Administrator of the Centers for Medicare & 
        Medicaid Services .
          ``Administrator of the Medicare Benefits 
        Administration.''.
                  (B) Conforming amendment.--Section 5315 of 
                such title is amended by striking 
                ``Administrator of the Health Care Financing 
                Administration.''.
                  (C) Effective date.--The amendments made by 
                this paragraph take effect on January 1, 2003.

        TITLE VIII--REGULATORY REDUCTION AND CONTRACTING REFORM

                     Subtitle A--Regulatory Reform

SEC. 801. CONSTRUCTION; DEFINITION OF SUPPLIER.

  (a) Construction.--Nothing in this title shall be construed--
          (1) to compromise or affect existing legal remedies 
        for addressing fraud or abuse, whether it be criminal 
        prosecution, civil enforcement, or administrative 
        remedies, including under sections 3729 through 3733 of 
        title 31, United States Code (known as the False Claims 
        Act); or
          (2) to prevent or impede the Department of Health and 
        Human Services in any way from its ongoing efforts to 
        eliminate waste, fraud, and abuse in the medicare 
        program.
Furthermore, the consolidation of medicare administrative 
contracting set forth in this Act does not constitute 
consolidation of the Federal Hospital Insurance Trust Fund and 
the Federal Supplementary Medical Insurance Trust Fund or 
reflect any position on that issue.
  (b) Definition of Supplier.--Section 1861 (42 U.S.C. 1395x) 
is amended by inserting after subsection (c) the following new 
subsection:

                               ``Supplier

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

SEC. 802. ISSUANCE OF REGULATIONS.

  (a) Consolidation of Promulgation to Once a Month.--
          (1) In general.--Section 1871 (42 U.S.C. 1395hh) is 
        amended by adding at the end the following new 
        subsection:
  ``(d)(1) Subject to paragraph (2), the Secretary shall issue 
proposed or final (including interim final) regulations to 
carry out this title only on one business day of every month.
  ``(2) The Secretary may issue a proposed or final regulation 
described in paragraph (1) on any other day than the day 
described in paragraph (1) if the Secretary--
          ``(A) finds that issuance of such regulation on 
        another day is necessary to comply with requirements 
        under law; or
          ``(B) finds that with respect to that regulation the 
        limitation of issuance on the date described in 
        paragraph (1) is contrary to the public interest.
If the Secretary makes a finding under this paragraph, the 
Secretary shall include such finding, and brief statement of 
the reasons for such finding, in the issuance of such 
regulation.
  ``(3) The Secretary shall coordinate issuance of new 
regulations described in paragraph (1) relating to a category 
of provider of services or suppliers based on an analysis of 
the collective impact of regulatory changes on that category of 
providers or suppliers.''.
          (2) GAO report on publication of regulations on a 
        quarterly basis.--Not later than 3 years after the date 
        of the enactment of this Act, the Comptroller General 
        of the United States shall submit to Congress a report 
        on the feasibility of requiring that regulations 
        described in section 1871(d) of the Social Security Act 
        be promulgated on a quarterly basis rather than on a 
        monthly basis.
          (3) Effective date.--The amendment made by paragraph 
        (1) shall apply to regulations promulgated on or after 
        the date that is 30 days after the date of the 
        enactment of this Act.
  (b) Regular Timeline for Publication of Final Rules.--
          (1) In general.--Section 1871(a) (42 U.S.C. 
        1395hh(a)) is amended by adding at the end the 
        following new paragraph:
  ``(3)(A) The Secretary, in consultation with the Director of 
the Office of Management and Budget, shall establish and 
publish a regular timeline for the publication of final 
regulations based on the previous publication of a proposed 
regulation or an interim final regulation.
  ``(B) Such timeline may vary among different regulations 
based on differences in the complexity of the regulation, the 
number and scope of comments received, and other relevant 
factors, but shall not be longer than 3 years except under 
exceptional circumstances. If the Secretary intends to vary 
such timeline with respect to the publication of a final 
regulation, the Secretary shall cause to have published in the 
Federal Register notice of the different timeline by not later 
than the timeline previously established with respect to such 
regulation. Such notice shall include a brief explanation of 
the justification for such variation.
  ``(C) In the case of interim final regulations, upon the 
expiration of the regular timeline established under this 
paragraph for the publication of a final regulation after 
opportunity for public comment, the interim final regulation 
shall not continue in effect unless the Secretary publishes (at 
the end of the regular timeline and, if applicable, at the end 
of each succeeding 1-year period) a notice of continuation of 
the regulation that includes an explanation of why the regular 
timeline (and any subsequent 1-year extension) was not complied 
with. If such a notice is published, the regular timeline (or 
such timeline as previously extended under this paragraph) for 
publication of the final regulation shall be treated as having 
been extended for 1 additional year.
  ``(D) The Secretary shall annually submit to Congress a 
report that describes the instances in which the Secretary 
failed to publish a final regulation within the applicable 
regular timeline under this paragraph and that provides an 
explanation for such failures.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall take effect on the date of the enactment of 
        this Act. The Secretary shall provide for an 
        appropriate transition to take into account the backlog 
        of previously published interim final regulations.
  (c) Limitations on New Matter in Final Regulations.--
          (1) In general.--Section 1871(a) (42 U.S.C. 
        1395hh(a)), as amended by subsection (b), is further 
        amended by adding at the end the following new 
        paragraph:
  ``(4) If the Secretary publishes notice of proposed 
rulemaking relating to a regulation (including an interim final 
regulation), insofar as such final regulation includes a 
provision that is not a logical outgrowth of such notice of 
proposed rulemaking, that provision shall be treated as a 
proposed regulation and shall not take effect until there is 
the further opportunity for public comment and a publication of 
the provision again as a final regulation.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall apply to final regulations published on or 
        after the date of the enactment of this Act.

SEC. 803. COMPLIANCE WITH CHANGES IN REGULATIONS AND POLICIES.

  (a) No Retroactive Application of Substantive Changes.--
          (1) In general.--Section 1871 (42 U.S.C. 1395hh), as 
        amended by section 802(a), is amended by adding at the 
        end the following new subsection:
  ``(e)(1)(A) A substantive change in regulations, manual 
instructions, interpretative rules, statements of policy, or 
guidelines of general applicability under this title shall not 
be applied (by extrapolation or otherwise) retroactively to 
items and services furnished before the effective date of the 
change, unless the Secretary determines that--
          ``(i) such retroactive application is necessary to 
        comply with statutory requirements; or
          ``(ii) failure to apply the change retroactively 
        would be contrary to the public interest.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall apply to substantive changes issued on or 
        after the date of the enactment of this Act.
  (b) Timeline for Compliance With Substantive Changes After 
Notice.--
          (1) In general.--Section 1871(e)(1), as added by 
        subsection (a), is amended by adding at the end the 
        following:
  ``(B)(i) Except as provided in clause (ii), a substantive 
change referred to in subparagraph (A) shall not become 
effective before the end of the 30-day period that begins on 
the date that the Secretary has issued or published, as the 
case may be, the substantive change.
  ``(ii) The Secretary may provide for such a substantive 
change to take effect on a date that precedes the end of the 
30-day period under clause (i) if the Secretary finds that 
waiver of such 30-day period is necessary to comply with 
statutory requirements or that the application of such 30-day 
period is contrary to the public interest. If the Secretary 
provides for an earlier effective date pursuant to this clause, 
the Secretary shall include in the issuance or publication of 
the substantive change a finding described in the first 
sentence, and a brief statement of the reasons for such 
finding.
  ``(C) No action shall be taken against a provider of services 
or supplier with respect to noncompliance with such a 
substantive change for items and services furnished before the 
effective date of such a change.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall apply to compliance actions undertaken on or 
        after the date of the enactment of this Act.
  (c) Reliance on Guidance.--
          (1) In general.--Section 1871(e), as added by 
        subsection (a), is further amended by adding at the end 
        the following new paragraph:
  ``(2)(A) If--
          ``(i) a provider of services or supplier follows the 
        written guidance (which may be transmitted 
        electronically) provided by the Secretary or by a 
        medicare contractor (as defined in section 1889(g)) 
        acting within the scope of the contractor's contract 
        authority, with respect to the furnishing of items or 
        services and submission of a claim for benefits for 
        such items or services with respect to such provider or 
        supplier;
          ``(ii) the Secretary determines that the provider of 
        services or supplier has accurately presented the 
        circumstances relating to such items, services, and 
        claim to the contractor in writing; and
          ``(iii) the guidance was in error;
the provider of services or supplier shall not be subject to 
any sanction (including any penalty or requirement for 
repayment of any amount) if the provider of services or 
supplier reasonably relied on such guidance.
  ``(B) Subparagraph (A) shall not be construed as preventing 
the recoupment or repayment (without any additional penalty) 
relating to an overpayment insofar as the overpayment was 
solely the result of a clerical or technical operational 
error.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall take effect on the date of the enactment of 
        this Act but shall not apply to any sanction for which 
        notice was provided on or before the date of the 
        enactment of this Act.

SEC. 804. REPORTS AND STUDIES RELATING TO REGULATORY REFORM.

  (a) GAO Study on Advisory Opinion Authority.--
          (1) Study.--The Comptroller General of the United 
        States shall conduct a study to determine the 
        feasibility and appropriateness of establishing in the 
        Secretary authority to provide legally binding advisory 
        opinions on appropriate interpretation and application 
        of regulations to carry out the medicare program under 
        title XVIII of the Social Security Act. Such study 
        shall examine the appropriate timeframe for issuing 
        such advisory opinions, as well as the need for 
        additional staff and funding to provide such opinions.
          (2) Report.--The Comptroller General shall submit to 
        Congress a report on the study conducted under 
        paragraph (1) by not later than January 1, 2004.
  (b) Report on Legal and Regulatory Inconsistencies.--Section 
1871 (42 U.S.C. 1395hh), as amended by section 803(a), is 
amended by adding at the end the following new subsection:
  ``(f)(1) Not later than 2 years after the date of the 
enactment of this subsection, and every 2 years thereafter, the 
Secretary shall submit to Congress a report with respect to the 
administration of this title and areas of inconsistency or 
conflict among the various provisions under law and regulation.
  ``(2) In preparing a report under paragraph (1), the 
Secretary shall collect--
          ``(A) information from individuals entitled to 
        benefits under part A or enrolled under part B, or 
        both, providers of services, and suppliers and from the 
        Medicare Beneficiary Ombudsman and the Medicare 
        Provider Ombudsman with respect to such areas of 
        inconsistency and conflict; and
          ``(B) information from medicare contractors that 
        tracks the nature of written and telephone inquiries.
  ``(3) A report under paragraph (1) shall include a 
description of efforts by the Secretary to reduce such 
inconsistency or conflicts, and recommendations for legislation 
or administrative action that the Secretary determines 
appropriate to further reduce such inconsistency or 
conflicts.''.

                     Subtitle B--Contracting Reform

SEC. 811. INCREASED FLEXIBILITY IN MEDICARE ADMINISTRATION.

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

          ``CONTRACTS WITH MEDICARE ADMINISTRATIVE CONTRACTORS

  ``Sec. 1874A. (a) Authority.--
          ``(1) Authority to enter into contracts.--The 
        Secretary may enter into contracts with any eligible 
        entity to serve as a medicare administrative contractor 
        with respect to the performance of any or all of the 
        functions described in paragraph (4) or parts of those 
        functions (or, to the extent provided in a contract, to 
        secure performance thereof by other entities).
          ``(2) Eligibility of entities.--An entity is eligible 
        to enter into a contract with respect to the 
        performance of a particular function described in 
        paragraph (4) only if--
                  ``(A) the entity has demonstrated capability 
                to carry out such function;
                  ``(B) the entity complies with such conflict 
                of interest standards as are generally 
                applicable to Federal acquisition and 
                procurement;
                  ``(C) the entity has sufficient assets to 
                financially support the performance of such 
                function; and
                  ``(D) the entity meets such other 
                requirements as the Secretary may impose.
          ``(3) Medicare administrative contractor defined.--
        For purposes of this title and title XI--
                  ``(A) In general.--The term `medicare 
                administrative contractor' means an agency, 
                organization, or other person with a contract 
                under this section.
                  ``(B) Appropriate medicare administrative 
                contractor.--With respect to the performance of 
                a particular function in relation to an 
                individual entitled to benefits under part A or 
                enrolled under part B, or both, a specific 
                provider of services or supplier (or class of 
                such providers of services or suppliers), the 
                `appropriate' medicare administrative 
                contractor is the medicare administrative 
                contractor that has a contract under this 
                section with respect to the performance of that 
                function in relation to that individual, 
                provider of services or supplier or class of 
                provider of services or supplier.
          ``(4) Functions described.--The functions referred to 
        in paragraphs (1) and (2) are payment functions, 
        provider services functions, and functions relating to 
        services furnished to individuals entitled to benefits 
        under part A or enrolled under part B, or both, as 
        follows:
                  ``(A) Determination of payment amounts.--
                Determining (subject to the provisions of 
                section 1878 and to such review by the 
                Secretary as may be provided for by the 
                contracts) the amount of the payments required 
                pursuant to this title to be made to providers 
                of services, suppliers and individuals.
                  ``(B) Making payments.--Making payments 
                described in subparagraph (A) (including 
                receipt, disbursement, and accounting for funds 
                in making such payments).
                  ``(C) Beneficiary education and assistance.--
                Providing education and outreach to individuals 
                entitled to benefits under part A or enrolled 
                under part B, or both, and providing assistance 
                to those individuals with specific issues, 
                concerns or problems.
                  ``(D) Provider consultative services.--
                Providing consultative services to 
                institutions, agencies, and other persons to 
                enable them to establish and maintain fiscal 
                records necessary for purposes of this title 
                and otherwise to qualify as providers of 
                services or suppliers.
                  ``(E) Communication with providers.--
                Communicating to providers of services and 
                suppliers any information or instructions 
                furnished to the medicare administrative 
                contractor by the Secretary, and facilitating 
                communication between such providers and 
                suppliers and the Secretary.
                  ``(F) Provider education and technical 
                assistance.--Performing the functions relating 
                to provider education, training, and technical 
                assistance.
                  ``(G) Additional functions.--Performing such 
                other functions as are necessary to carry out 
                the purposes of this title.
          ``(5) Relationship to mip contracts.--
                  ``(A) Nonduplication of duties.--In entering 
                into contracts under this section, the 
                Secretary shall assure that functions of 
                medicare administrative contractors in carrying 
                out activities under parts A and B do not 
                duplicate activities carried out under 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 or in subparagraph 
                (B), the Secretary shall use competitive 
                procedures when entering into contracts with 
                medicare administrative contractors under this 
                section, taking into account performance 
                quality as well as price and other factors.
                  ``(B) Renewal of contracts.--The Secretary 
                may renew a contract with a medicare 
                administrative contractor under this section 
                from term to term without regard to section 5 
                of title 41, United States Code, or any other 
                provision of law requiring competition, if the 
                medicare administrative contractor has met or 
                exceeded the performance requirements 
                applicable with respect to the contract and 
                contractor, except that the Secretary shall 
                provide for the application of competitive 
                procedures under such a contract not less 
                frequently than once every five years.
                  ``(C) Transfer of functions.--The Secretary 
                may transfer functions among medicare 
                administrative contractors consistent with the 
                provisions of this paragraph. The Secretary 
                shall ensure that performance quality is 
                considered in such transfers. The Secretary 
                shall provide public notice (whether in the 
                Federal Register or otherwise) of any such 
                transfer (including a description of the 
                functions so transferred, a description of the 
                providers of services and suppliers affected by 
                such transfer, and contact information for the 
                contractors involved).
                  ``(D) Incentives for quality.--The Secretary 
                shall provide incentives for medicare 
                administrative contractors to provide quality 
                service and to promote efficiency.
          ``(2) Compliance with requirements.--No contract 
        under this section shall be entered into with any 
        medicare administrative contractor unless the Secretary 
        finds that such medicare administrative contractor will 
        perform its obligations under the contract efficiently 
        and effectively and will meet such requirements as to 
        financial responsibility, legal authority, quality of 
        services provided, and other matters as the Secretary 
        finds pertinent.
          ``(3) Performance requirements.--
                  ``(A) Development of specific performance 
                requirements.--In developing contract 
                performance requirements, the Secretary shall 
                develop performance requirements applicable to 
                functions described in subsection (a)(4).
                  ``(B) Consultation.-- In developing such 
                requirements, the Secretary may consult with 
                providers of services and suppliers, 
                organizations representing individuals entitled 
                to benefits under part A or enrolled under part 
                B, or both, and organizations and agencies 
                performing functions necessary to carry out the 
                purposes of this section with respect to such 
                performance requirements.
                  ``(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 developed under 
                        subparagraph (A), but may include 
                        additional performance requirements;
                          ``(ii) shall be used for evaluating 
                        contractor performance under the 
                        contract; and
                          ``(iii) shall be consistent with the 
                        written statement of work provided 
                        under the contract.
          ``(4) Information requirements.--The Secretary shall 
        not enter into a contract with a medicare 
        administrative contractor under this section unless the 
        contractor agrees--
                  ``(A) to furnish to the Secretary such timely 
                information and reports as the Secretary may 
                find necessary in performing his functions 
                under this title; and
                  ``(B) to maintain such records and afford 
                such access thereto as the Secretary finds 
                necessary to assure the correctness and 
                verification of the information and reports 
                under subparagraph (A) and otherwise to carry 
                out the purposes of this title.
          ``(5) Surety bond.--A contract with a medicare 
        administrative contractor under this section may 
        require the medicare administrative contractor, and any 
        of its officers or employees certifying payments or 
        disbursing funds pursuant to the contract, or otherwise 
        participating in carrying out the contract, to give 
        surety bond to the United States in such amount as the 
        Secretary may deem appropriate.
  ``(c) Terms and Conditions.--
          ``(1) In general.--A contract with any medicare 
        administrative contractor under this section may 
        contain such terms and conditions as the Secretary 
        finds necessary or appropriate and may provide for 
        advances of funds to the medicare administrative 
        contractor for the making of payments by it under 
        subsection (a)(4)(B).
          ``(2) Prohibition on mandates for certain data 
        collection.--The Secretary may not require, as a 
        condition of entering into, or renewing, a contract 
        under this section, that the medicare administrative 
        contractor match data obtained other than in its 
        activities under this title with data used in the 
        administration of this title for purposes of 
        identifying situations in which the provisions of 
        section 1862(b) may apply.
  ``(d) Limitation on Liability of Medicare Administrative 
Contractors and Certain Officers.--
          ``(1) Certifying officer.--No individual designated 
        pursuant to a contract under this section as a 
        certifying officer shall, in the absence of gross 
        negligence or intent 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 gross negligence or intent 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 payment or in the supervision of or selection 
        of such officer the medicare administrative contractor 
        acted with gross negligence.
          ``(4) Indemnification by secretary.--
                  ``(A) In general.--Subject to subparagraphs 
                (B) and (D), in the case of a medicare 
                administrative contractor (or a person who is a 
                director, officer, or employee of such a 
                contractor or who is engaged by the contractor 
                to participate directly in the claims 
                administration process) who is made a party to 
                any judicial or administrative proceeding 
                arising from or relating directly to the claims 
                administration process under this title, the 
                Secretary may, to the extent the Secretary 
                determines to be appropriate and as specified 
                in the contract with the contractor, indemnify 
                the contractor and such persons.
                  ``(B) Conditions.--The Secretary may not 
                provide indemnification under subparagraph (A) 
                insofar as the liability for such costs arises 
                directly from conduct that is determined by the 
                judicial proceeding or by the Secretary to be 
                criminal in nature, fraudulent, or grossly 
                negligent. If indemnification is provided by 
                the Secretary with respect to a contractor 
                before a determination that such costs arose 
                directly from such conduct, the contractor 
                shall reimburse the Secretary for costs of 
                indemnification.
                  ``(C) Scope of indemnification.--
                Indemnification by the Secretary under 
                subparagraph (A) may include payment of 
                judgments, settlements (subject to subparagraph 
                (D)), awards, and costs (including reasonable 
                legal expenses).
                  ``(D) Written approval for settlements.--A 
                contractor or other person described in 
                subparagraph (A) may not propose to negotiate a 
                settlement or compromise of a proceeding 
                described in such subparagraph without the 
                prior written approval of the Secretary to 
                negotiate such settlement or compromise. Any 
                indemnification under subparagraph (A) with 
                respect to amounts paid under a settlement or 
                compromise of a proceeding described in such 
                subparagraph are conditioned upon prior written 
                approval by the Secretary of the final 
                settlement or compromise.
                  ``(E) Construction.--Nothing in this 
                paragraph shall be construed--
                          ``(i) to change any common law 
                        immunity that may be available to a 
                        medicare administrative contractor or 
                        person described in subparagraph (A); 
                        or
                          ``(ii) to permit the payment of costs 
                        not otherwise allowable, reasonable, or 
                        allocable under the Federal Acquisition 
                        Regulations.''.
          (2) Consideration of incorporation of current law 
        standards.--In developing contract performance 
        requirements under section 1874A(b) of the Social 
        Security Act, as inserted by paragraph (1), the 
        Secretary shall consider inclusion of the performance 
        standards described in sections 1816(f)(2) of such Act 
        (relating to timely processing of reconsiderations and 
        applications for exemptions) and section 1842(b)(2)(B) 
        of such Act (relating to timely review of 
        determinations and fair hearing requests), as such 
        sections were in effect before the date of the 
        enactment of this Act.
  (b) Conforming Amendments to Section 1816 (Relating to Fiscal 
Intermediaries).--Section 1816 (42 U.S.C. 1395h) is amended as 
follows:
          (1) The heading is amended to read as follows:

        ``PROVISIONS RELATING TO THE ADMINISTRATION OF PART A''.

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

        ``PROVISIONS RELATING TO THE ADMINISTRATION OF PART B''.

          (2) Subsection (a) is amended to read as follows:
  ``(a) The administration of this part shall be conducted 
through contracts with medicare administrative contractors 
under section 1874A.''.
          (3) Subsection (b) is amended--
                  (A) by striking paragraph (1);
                  (B) in paragraph (2)--
                          (i) by striking subparagraphs (A) and 
                        (B);
                          (ii) in subparagraph (C), by striking 
                        ``carriers'' and inserting ``medicare 
                        administrative contractors''; and
                          (iii) by striking subparagraphs (D) 
                        and (E);
                  (C) in paragraph (3)--
                          (i) in the matter before subparagraph 
                        (A), by striking ``Each such contract 
                        shall provide that the carrier'' and 
                        inserting ``The Secretary'';
                          (ii) by striking ``will'' the first 
                        place it appears in each of 
                        subparagraphs (A), (B), (F), (G), (H), 
                        and (L) and inserting ``shall'';
                          (iii) in subparagraph (B), in the 
                        matter before clause (i), by striking 
                        ``to the policyholders and subscribers 
                        of the carrier'' and inserting ``to the 
                        policyholders and subscribers of the 
                        medicare administrative contractor'';
                          (iv) by striking subparagraphs (C), 
                        (D), and (E);
                          (v) in subparagraph (H)--
                                  (I) by striking ``if it makes 
                                determinations or payments with 
                                respect to physicians' 
                                services,'' in the matter 
                                preceding clause (i); and
                                  (II) by striking ``carrier'' 
                                and inserting ``medicare 
                                administrative contractor'' in 
                                clause (i);
                          (vi) by striking subparagraph (I);
                          (vii) in subparagraph (L), by 
                        striking the semicolon and inserting a 
                        period;
                          (viii) in the first sentence, after 
                        subparagraph (L), by striking ``and 
                        shall contain'' and all that follows 
                        through the period; and
                          (ix) in the seventh sentence, by 
                        inserting ``medicare administrative 
                        contractor,'' after ``carrier,''; and
                  (D) by striking paragraph (5);
                  (E) in paragraph (6)(D)(iv), by striking 
                ``carrier'' and inserting ``medicare 
                administrative contractor''; and
                  (F) in paragraph (7), by striking ``the 
                carrier'' and inserting ``the Secretary'' each 
                place it appears.
          (4) Subsection (c) is amended--
                  (A) by striking paragraph (1);
                  (B) in paragraph (2)(A), by striking 
                ``contract under this section which provides 
                for the disbursement of funds, as described in 
                subsection (a)(1)(B),'' and inserting 
                ``contract under section 1874A that provides 
                for making payments under this part'';
                  (C) in paragraph (3)(A), by striking 
                ``subsection (a)(1)(B)'' and inserting 
                ``section 1874A(a)(3)(B)'';
                  (D) in paragraph (4), in the matter preceding 
                subparagraph (A), by striking ``carrier'' and 
                inserting ``medicare administrative 
                contractor''; and
                  (E) by striking paragraphs (5) and (6).
          (5) Subsections (d), (e), and (f) are repealed.
          (6) Subsection (g) is amended by striking ``carrier 
        or carriers'' and inserting ``medicare administrative 
        contractor or contractors''.
          (7) Subsection (h) is amended--
                  (A) in paragraph (2)--
                          (i) by striking ``Each carrier having 
                        an agreement with the Secretary under 
                        subsection (a)'' and inserting ``The 
                        Secretary''; and
                          (ii) by striking ``Each such 
                        carrier'' and inserting ``The 
                        Secretary'';
                  (B) in paragraph (3)(A)--
                          (i) by striking ``a carrier having an 
                        agreement with the Secretary under 
                        subsection (a)'' and inserting 
                        ``medicare administrative contractor 
                        having a contract under section 1874A 
                        that provides for making payments under 
                        this part''; and
                          (ii) by striking ``such carrier'' and 
                        inserting ``such contractor'';
                  (C) in paragraph (3)(B)--
                          (i) by striking ``a carrier'' and 
                        inserting ``a medicare administrative 
                        contractor'' each place it appears; and
                          (ii) by striking ``the carrier'' and 
                        inserting ``the contractor'' each place 
                        it appears; and
                  (D) in paragraphs (5)(A) and (5)(B)(iii), by 
                striking ``carriers'' and inserting ``medicare 
                administrative contractors'' each place it 
                appears.
          (8) Subsection (l) is amended--
                  (A) in paragraph (1)(A)(iii), by striking 
                ``carrier'' and inserting ``medicare 
                administrative contractor''; and
                  (B) in paragraph (2), by striking ``carrier'' 
                and inserting ``medicare administrative 
                contractor''.
          (9) Subsection (p)(3)(A) is amended by striking 
        ``carrier'' and inserting ``medicare administrative 
        contractor''.
          (10) Subsection (q)(1)(A) is amended by striking 
        ``carrier''.
  (d) Effective Date; Transition Rule.--
          (1) Effective date.--
                  (A) In general.--Except as otherwise provided 
                in this subsection, the amendments made by this 
                section shall take effect on October 1, 2004, 
                and the Secretary is authorized to take such 
                steps before such date as may be necessary to 
                implement such amendments on a timely basis.
                  (B) Construction for current contracts.--Such 
                amendments shall not apply to contracts in 
                effect before the date specified under 
                subparagraph (A) that continue to retain the 
                terms and conditions in effect on such date 
                (except as otherwise provided under this Act, 
                other than under this section) until such date 
                as the contract is let out for competitive 
                bidding under such amendments.
                  (C) Deadline for competitive bidding.--The 
                Secretary shall provide for the letting by 
                competitive bidding of all contracts for 
                functions of medicare administrative 
                contractors for annual contract periods that 
                begin on or after October 1, 2009.
                  (D) Waiver of provider nomination provisions 
                during transition.--During the period beginning 
                on the date of the enactment of this Act and 
                before the date specified under subparagraph 
                (A), the Secretary may enter into new 
                agreements under section 1816 of the Social 
                Security Act (42 U.S.C. 1395h) without regard 
                to any of the provider nomination provisions of 
                such section.
          (2) General transition rules.--The Secretary shall 
        take such steps, consistent with paragraph (1)(B) and 
        (1)(C), as are necessary to provide for an appropriate 
        transition from contracts under section 1816 and 
        section 1842 of the Social Security Act (42 U.S.C. 
        1395h, 1395u) to contracts under section 1874A, as 
        added by subsection (a)(1).
          (3) Authorizing continuation of mip functions under 
        current contracts and agreements and under rollover 
        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 a contract under 
        section 1874A of such Act, as inserted by subsection 
        (a)(1), that continues the activities referred to in 
        such provisions.
  (e) References.--On and after the effective date provided 
under subsection (d)(1), any reference to a fiscal intermediary 
or carrier under title XI or XVIII of the Social Security Act 
(or any regulation, manual instruction, interpretative rule, 
statement of policy, or guideline issued to carry out such 
titles) shall be deemed a reference to an appropriate medicare 
administrative contractor (as provided under section 1874A of 
the Social Security Act).
  (f) Reports on Implementation.--
          (1) Plan for implementation.--By not later than 
        October 1, 2003, the Secretary shall submit a report to 
        Congress and the Comptroller General of the United 
        States that describes the plan for implementation of 
        the amendments made by this section. The Comptroller 
        General shall conduct an evaluation of such plan and 
        shall submit to Congress, not later than 6 months after 
        the date the report is received, a report on such 
        evaluation and shall include in such report such 
        recommendations as the Comptroller General deems 
        appropriate.
          (2) Status of implementation.--The Secretary shall 
        submit a report to Congress not later than October 1, 
        2007, that describes the status of implementation of 
        such amendments and that includes a description of the 
        following:
                  (A) The number of contracts that have been 
                competitively bid as of such date.
                  (B) The distribution of functions among 
                contracts and contractors.
                  (C) A timeline for complete transition to 
                full competition.
                  (D) A detailed description of how the 
                Secretary has modified oversight and management 
                of medicare contractors to adapt to full 
                competition.

SEC. 812. REQUIREMENTS FOR INFORMATION SECURITY FOR MEDICARE 
                    ADMINISTRATIVE CONTRACTORS.

  (a) In General.--Section 1874A, as added by section 
811(a)(1), is amended by adding at the end the following new 
subsection:
  ``(e) Requirements for Information Security.--
          ``(1) Development of information security program.--A 
        medicare administrative contractor that performs the 
        functions referred to in subparagraphs (A) and (B) of 
        subsection (a)(4) (relating to determining and making 
        payments) shall implement a contractor-wide information 
        security program to provide information security for 
        the operation and assets of the contractor with respect 
        to such functions under this title. An information 
        security program under this paragraph shall meet the 
        requirements for information security programs imposed 
        on Federal agencies under section 3534(b)(2) of title 
        44, United States Code (other than requirements under 
        subparagraphs (B)(ii), (F)(iii), and (F)(iv) of such 
        section).
          ``(2) Independent audits.--
                  ``(A) Performance of annual evaluations.--
                Each year a medicare administrative contractor 
                that performs the functions referred to in 
                subparagraphs (A) and (B) of subsection (a)(4) 
                (relating to determining and making payments) 
                shall undergo an evaluation of the information 
                security of the contractor with respect to such 
                functions under this title. The evaluation 
                shall--
                          ``(i) be performed by an entity that 
                        meets such requirements for 
                        independence as the Inspector General 
                        of the Department of Health and Human 
                        Services may establish; and
                          ``(ii) test the effectiveness of 
                        information security control techniques 
                        for an appropriate subset of the 
                        contractor's information systems (as 
                        defined in section 3502(8) of title 44, 
                        United States Code) relating to such 
                        functions under this title and an 
                        assessment of compliance with the 
                        requirements of this subsection and 
                        related information security policies, 
                        procedures, standards and guidelines.
                  ``(B) Deadline for initial evaluation.--
                          ``(i) New contractors.--In the case 
                        of a medicare administrative contractor 
                        covered by this subsection that has not 
                        previously performed the functions 
                        referred to in subparagraphs (A) and 
                        (B) of subsection (a)(4) (relating to 
                        determining and making payments) as a 
                        fiscal intermediary or carrier under 
                        section 1816 or 1842, the first 
                        independent evaluation conducted 
                        pursuant subparagraph (A) shall be 
                        completed prior to commencing such 
                        functions.
                          ``(ii) Other contractors.--In the 
                        case of a medicare administrative 
                        contractor covered by this subsection 
                        that is not described in clause (i), 
                        the first independent evaluation 
                        conducted pursuant subparagraph (A) 
                        shall be completed within 1 year after 
                        the date the contractor commences 
                        functions referred to in clause (i) 
                        under this section.
                  ``(C) Reports on evaluations.--
                          ``(i) To the inspector general.--The 
                        results of independent evaluations 
                        under subparagraph (A) shall be 
                        submitted promptly to the Inspector 
                        General of the Department of Health and 
                        Human Services.
                          ``(ii) To congress.--The Inspector 
                        General of Department of Health and 
                        Human Services shall submit to Congress 
                        annual reports on the results of such 
                        evaluations.''.
  (b) Application of Requirements to Fiscal Intermediaries and 
Carriers.--
          (1) In general.--The provisions of section 
        1874A(e)(2) of the Social Security Act (other than 
        subparagraph (B)), as added by subsection (a), shall 
        apply to each fiscal intermediary under section 1816 of 
        the Social Security Act (42 U.S.C. 1395h) and each 
        carrier under section 1842 of such Act (42 U.S.C. 
        1395u) in the same manner as they apply to medicare 
        administrative contractors under such provisions.
          (2) Deadline for initial evaluation.--In the case of 
        such a fiscal intermediary or carrier with an agreement 
        or contract under such respective section in effect as 
        of the date of the enactment of this Act, the first 
        evaluation under section 1874A(e)(2)(A) of the Social 
        Security Act (as added by subsection (a)), pursuant to 
        paragraph (1), shall be completed (and a report on the 
        evaluation submitted to the Secretary) by not later 
        than 1 year after such date.

                   Subtitle C--Education and Outreach

SEC. 821. 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 (g), 
including under section 1893) in order to maximize the 
effectiveness of Federal education efforts for providers of 
services and suppliers.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall take effect on the date of the enactment of 
        this Act.
          (3) Report.--Not later than October 1, 2003, the 
        Secretary shall submit to Congress a report that 
        includes a description and evaluation of the steps 
        taken to coordinate the funding of provider education 
        under section 1889(a) of the Social Security Act, as 
        added by paragraph (1).
  (b) Incentives To Improve Contractor Performance.--
          (1) In general.--Section 1874A, as added by section 
        811(a)(1) and as amended by section 812(a), is amended 
        by adding at the end the following new subsection:
  ``(f) Incentives To Improve Contractor Performance in 
Provider Education and Outreach.--In order to give medicare 
administrative contractors an incentive to implement effective 
education and outreach programs for providers of services and 
suppliers, the Secretary shall develop and implement a 
methodology to measure the specific claims payment error rates 
of such contractors in the processing or reviewing of medicare 
claims.''.
          (2) Application to fiscal intermediaries and 
        carriers.--The provisions of section 1874A(f) of the 
        Social Security Act, as added by paragraph (1), shall 
        apply to each fiscal intermediary under section 1816 of 
        the Social Security Act (42 U.S.C. 1395h) and each 
        carrier under section 1842 of such Act (42 U.S.C. 
        1395u) in the same manner as they apply to medicare 
        administrative contractors under such provisions.
          (3) GAO report on adequacy of methodology.--Not later 
        than October 1, 2003, the Comptroller General of the 
        United States shall submit to Congress and to the 
        Secretary a report on the adequacy of the methodology 
        under section 1874A(f) of the Social Security Act, as 
        added by paragraph (1), and shall include in the report 
        such recommendations as the Comptroller General 
        determines appropriate with respect to the methodology.
          (4) Report on use of methodology in assessing 
        contractor performance.--Not later than October 1, 
        2003, the Secretary shall submit to Congress a report 
        that describes how the Secretary intends to use such 
        methodology in assessing medicare contractor 
        performance in implementing effective education and 
        outreach programs, including whether to use such 
        methodology as a basis for performance bonuses. The 
        report shall include an analysis of the sources of 
        identified errors and potential changes in systems of 
        contractors and rules of the Secretary that could 
        reduce claims error rates.
  (c) Provision of Access to and Prompt Responses From Medicare 
Administrative Contractors.--
          (1) In general.--Section 1874A, as added by section 
        811(a)(1) and as amended by section 812(a) and 
        subsection (b), is further amended by adding at the end 
        the following new subsection:
  ``(g) Communications with Beneficiaries, Providers of 
Services and Suppliers.--
          ``(1) Communication strategy.--The Secretary shall 
        develop a strategy for communications with individuals 
        entitled to benefits under part A or enrolled under 
        part B, or both, and with providers of services and 
        suppliers under this title.
          ``(2) Response to written inquiries.--Each medicare 
        administrative contractor shall, for those providers of 
        services and suppliers which submit claims to the 
        contractor for claims processing and for those 
        individuals entitled to benefits under part A or 
        enrolled under part B, or both, with respect to whom 
        claims are submitted for claims processing, provide 
        general written responses (which may be through 
        electronic transmission) in a clear, concise, and 
        accurate manner to inquiries of providers of services, 
        suppliers and individuals entitled to benefits under 
        part A or enrolled under part B, or both, concerning 
        the programs under this title within 45 business days 
        of the date of receipt of such inquiries.
          ``(3) Response to toll-free lines.--The Secretary 
        shall ensure that each medicare administrative 
        contractor shall provide, for those providers of 
        services and suppliers which submit claims to the 
        contractor for claims processing and for those 
        individuals entitled to benefits under part A or 
        enrolled under part B, or both, with respect to whom 
        claims are submitted for claims processing, a toll-free 
        telephone number at which such individuals, providers 
        of services and suppliers may obtain information 
        regarding billing, coding, claims, coverage, and other 
        appropriate information under this title.
          ``(4) Monitoring of contractor responses.--
                  ``(A) In general.--Each medicare 
                administrative contractor shall, consistent 
                with standards developed by the Secretary under 
                subparagraph (B)--
                          ``(i) maintain a system for 
                        identifying who provides the 
                        information referred to in paragraphs 
                        (2) and (3); and
                          ``(ii) monitor the accuracy, 
                        consistency, and timeliness of the 
                        information so provided.
                  ``(B) Development of standards.--
                          ``(i) In general.--The Secretary 
                        shall establish and make public 
                        standards to monitor the accuracy, 
                        consistency, and timeliness of the 
                        information provided in response to 
                        written and telephone inquiries under 
                        this subsection. Such standards shall 
                        be consistent with the performance 
                        requirements established under 
                        subsection (b)(3).
                          ``(ii) Evaluation.--In conducting 
                        evaluations of individual medicare 
                        administrative contractors, the 
                        Secretary shall take into account the 
                        results of the monitoring conducted 
                        under subparagraph (A) taking into 
                        account as performance requirements the 
                        standards established under clause (i). 
                        The Secretary shall, in consultation 
                        with organizations representing 
                        providers of services, suppliers, and 
                        individuals entitled to benefits under 
                        part A or enrolled under part B, or 
                        both, establish standards relating to 
                        the accuracy, consistency, and 
                        timeliness of the information so 
                        provided.
                  ``(C) Direct monitoring.--Nothing in this 
                paragraph shall be construed as preventing the 
                Secretary from directly monitoring the 
                accuracy, consistency, and timeliness of the 
                information so provided.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall take effect October 1, 2003.
          (3) Application to fiscal intermediaries and 
        carriers.--The provisions of section 1874A(g) of the 
        Social Security Act, as added by paragraph (1), shall 
        apply to each fiscal intermediary under section 1816 of 
        the Social Security Act (42 U.S.C. 1395h) and each 
        carrier under section 1842 of such Act (42 U.S.C. 
        1395u) in the same manner as they apply to medicare 
        administrative contractors under such provisions.
  (d) Improved Provider Education and Training.--
          (1) In general.--Section 1889, as added by subsection 
        (a), is amended by adding at the end the following new 
        subsections:
  ``(b) Enhanced Education and Training.--
          ``(1) Additional resources.--There are authorized to 
        be appropriated to the Secretary (in appropriate part 
        from the Federal Hospital Insurance Trust Fund and the 
        Federal Supplementary Medical Insurance Trust Fund) 
        $25,000,000 for each of fiscal years 2004 and 2005 and 
        such sums as may be necessary for succeeding fiscal 
        years.
          ``(2) Use.--The funds made available under paragraph 
        (1) shall be used to increase the conduct by medicare 
        contractors of education and training of providers of 
        services and suppliers regarding billing, coding, and 
        other appropriate items and may also be used to improve 
        the accuracy, consistency, and timeliness of contractor 
        responses.
  ``(c) Tailoring Education and Training Activities for Small 
Providers or Suppliers.--
          ``(1) In general.--Insofar as a medicare contractor 
        conducts education and training activities, it shall 
        tailor such activities to meet the special needs of 
        small providers of services or suppliers (as defined in 
        paragraph (2)).
          ``(2) Small provider of services or supplier.--In 
        this subsection, the term `small provider of services 
        or supplier' means--
                  ``(A) a provider of services with fewer than 
                25 full-time-equivalent employees; or
                  ``(B) a supplier with fewer than 10 full-
                time-equivalent employees.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall take effect on October 1, 2003.
  (e) Requirement To Maintain Internet Sites.--
          (1) In general.--Section 1889, as added by subsection 
        (a) and as amended by subsection (d), is further 
        amended by adding at the end the following new 
        subsection:
  ``(d) Internet Sites; FAQs.--The Secretary, and each medicare 
contractor insofar as it provides services (including claims 
processing) for providers of services or suppliers, shall 
maintain an Internet site which--
          ``(1) provides answers in an easily accessible format 
        to frequently asked questions, and
          ``(2) includes other published materials of the 
        contractor,
that relate to providers of services and suppliers under the 
programs under this title (and title XI insofar as it relates 
to such programs).''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall take effect on October 1, 2003.
  (f) Additional Provider Education Provisions.--
          (1) In general.--Section 1889, as added by subsection 
        (a) and as amended by subsections (d) and (e), is 
        further amended by adding at the end the following new 
        subsections:
  ``(e) Encouragement of Participation in Education Program 
Activities.--A medicare contractor may not use a record of 
attendance at (or failure to attend) educational activities or 
other information gathered during an educational program 
conducted under this section or otherwise by the Secretary to 
select or track providers of services or suppliers for the 
purpose of conducting any type of audit or prepayment review.
  ``(f) Construction.--Nothing in this section or section 
1893(g) shall be construed as providing for disclosure by a 
medicare contractor of information that would compromise 
pending law enforcement activities or reveal findings of law 
enforcement-related audits.
  ``(g) Definitions.--For purposes of this section, the term 
`medicare contractor' includes the following:
          ``(1) A medicare administrative contractor with a 
        contract under section 1874A, including a fiscal 
        intermediary with a contract under section 1816 and a 
        carrier with a contract under section 1842.
          ``(2) An eligible entity with a contract under 
        section 1893.
Such term does not include, with respect to activities of a 
specific provider of services or supplier an entity that has no 
authority under this title or title IX with respect to such 
activities and such provider of services or supplier.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall take effect on the date of the enactment of 
        this Act.

SEC. 822. SMALL PROVIDER TECHNICAL ASSISTANCE DEMONSTRATION PROGRAM.

  (a) Establishment.--
          (1) In general.--The Secretary shall establish a 
        demonstration program (in this section referred to as 
        the ``demonstration program'') under which technical 
        assistance described in paragraph (2) is made 
        available, upon request and on a voluntary basis, to 
        small providers of services or suppliers in order to 
        improve compliance with the applicable requirements of 
        the programs under medicare program under title XVIII 
        of the Social Security Act (including provisions of 
        title XI of such Act insofar as they relate to such 
        title and are not administered by the Office of the 
        Inspector General of the Department of Health and Human 
        Services).
          (2) Forms of technical assistance.--The technical 
        assistance described in this paragraph is--
                  (A) evaluation and recommendations regarding 
                billing and related systems; and
                  (B) information and assistance regarding 
                policies and procedures under the medicare 
                program, including coding and reimbursement.
          (3) Small providers of services or suppliers.--In 
        this section, the term ``small providers of services or 
        suppliers'' means--
                  (A) a provider of services with fewer than 25 
                full-time-equivalent employees; or
                  (B) a supplier with fewer than 10 full-time-
                equivalent employees.
  (b) Qualification of Contractors.--In conducting the 
demonstration program, the Secretary shall enter into contracts 
with qualified organizations (such as peer review organizations 
or entities described in section 1889(g)(2) of the Social 
Security Act, as inserted by section 5(f)(1)) with appropriate 
expertise with billing systems of the full range of providers 
of services and suppliers to provide the technical assistance. 
In awarding such contracts, the Secretary shall consider any 
prior investigations of the entity's work by the Inspector 
General of Department of Health and Human Services or the 
Comptroller General of the United States.
  (c) Description of Technical Assistance.--The technical 
assistance provided under the demonstration program shall 
include a direct and in-person examination of billing systems 
and internal controls of small providers of services or 
suppliers to determine program compliance and to suggest more 
efficient or effective means of achieving such compliance.
  (d) Avoidance of Recovery Actions for Problems Identified as 
Corrected.--The Secretary shall provide that, absent evidence 
of fraud and notwithstanding any other provision of law, any 
errors found in a compliance review for a small provider of 
services or supplier that participates in the demonstration 
program shall not be subject to recovery action if the 
technical assistance personnel under the program determine 
that--
          (1) the problem that is the subject of the compliance 
        review has been corrected to their satisfaction within 
        30 days of the date of the visit by such personnel to 
        the small provider of services or supplier; and
          (2) such problem remains corrected for such period as 
        is appropriate.
The previous sentence applies only to claims filed as part of 
the demonstration program and lasts only for the duration of 
such program and only as long as the small provider of services 
or supplier is a participant in such program.
  (e) GAO Evaluation.--Not later than 2 years after the date of 
the date the demonstration program is first implemented, the 
Comptroller General, in consultation with the Inspector General 
of the Department of Health and Human Services, shall conduct 
an evaluation of the demonstration program. The evaluation 
shall include a determination of whether claims error rates are 
reduced for small providers of services or suppliers who 
participated in the program and the extent of improper payments 
made as a result of the demonstration program. The Comptroller 
General shall submit a report to the Secretary and the Congress 
on such evaluation and shall include in such report 
recommendations regarding the continuation or extension of the 
demonstration program.
  (f) Financial Participation by Providers.--The provision of 
technical assistance to a small provider of services or 
supplier under the demonstration program is conditioned upon 
the small provider of services or supplier paying an amount 
estimated (and disclosed in advance of a provider's or 
supplier's participation in the program) to be equal to 25 
percent of the cost of the technical assistance.
  (g) Authorization of Appropriations.--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) to carry out the 
demonstration program--
          (1) for fiscal year 2004, $1,000,000, and
          (2) for fiscal year 2005, $6,000,000.

SEC. 823. MEDICARE PROVIDER OMBUDSMAN; MEDICARE BENEFICIARY 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.--The Secretary shall 
appoint within the Department of Health and Human Services a 
Medicare Provider Ombudsman. The Ombudsman shall--
          ``(1) provide assistance, on a confidential basis, to 
        providers of services and suppliers 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
          ``(2) submit recommendations to the Secretary for 
        improvement in the administration of this title and 
        such provisions, including--
                  ``(A) 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
                  ``(B) 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.
The Ombudsman shall not serve as an advocate for any increases 
in payments or new coverage of services, but may identify 
issues and problems in payment or coverage policies.''.
  (b) Medicare Beneficiary Ombudsman.--Title XVIII, as amended 
by sections 105 and 701, is amended by inserting after section 
1808 the following new section:

                    ``MEDICARE BENEFICIARY OMBUDSMAN

  ``Sec. 1809. (a) In General.--The Secretary shall appoint 
within the Department of Health and Human Services a Medicare 
Beneficiary Ombudsman who shall have expertise and experience 
in the fields of health care and education of (and assistance 
to) individuals entitled to benefits under this title.
  ``(b) Duties.--The Medicare Beneficiary Ombudsman shall--
          ``(1) receive complaints, grievances, and requests 
        for information submitted by individuals entitled to 
        benefits under part A or enrolled under part B, or 
        both, with respect to any aspect of the medicare 
        program;
          ``(2) provide assistance with respect to complaints, 
        grievances, and requests referred to in paragraph (1), 
        including--
                  ``(A) assistance in collecting relevant 
                information for such individuals, to seek an 
                appeal of a decision or determination made by a 
                fiscal intermediary, carrier, Medicare+Choice 
                organization, or the Secretary; and
                  ``(B) assistance to such individuals with any 
                problems arising from disenrollment from a 
                Medicare+Choice plan under part C; and
          ``(3) submit annual reports to Congress and the 
        Secretary that describe the activities of the Office 
        and that include such recommendations for improvement 
        in the administration of this title as the Ombudsman 
        determines appropriate.
The Ombudsman shall not serve as an advocate for any increases 
in payments or new coverage of services, but may identify 
issues and problems in payment or coverage policies.
  ``(c) Working with Health Insurance Counseling Programs.--To 
the extent possible, the Ombudsman shall work with health 
insurance counseling programs (receiving funding under section 
4360 of Omnibus Budget Reconciliation Act of 1990) to 
facilitate the provision of information to individuals entitled 
to benefits under part A or enrolled under part B, or both 
regarding Medicare+Choice plans and changes to those plans. 
Nothing in this subsection shall preclude further collaboration 
between the Ombudsman and such programs.''.
  (c) Deadline for Appointment.--The Secretary shall appoint 
the Medicare Provider Ombudsman and the Medicare Beneficiary 
Ombudsman, under the amendments made by subsections (a) and 
(b), respectively, by not later than 1 year after the date of 
the enactment of this Act.
  (d) 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) to carry out the provisions of subsection 
(b) of section 1868 of the Social Security Act (relating to the 
Medicare Provider Ombudsman), as added by subsection (a)(5) and 
section 1809 of such Act (relating to the Medicare Beneficiary 
Ombudsman), as added by subsection (b), such sums as are 
necessary for fiscal year 2003 and each succeeding fiscal year.
  (e) Use of Central, Toll-Free Number (1-800-MEDICARE).--
          (1) Phone triage system; listing in medicare handbook 
        instead of other toll-free numbers.--Section 1804(b) 
        (42 U.S.C. 1395b-2(b)) is amended by adding at the end 
        the following: ``The Secretary shall provide, through 
        the toll-free number 1-800-MEDICARE, for a means by 
        which individuals seeking information about, or 
        assistance with, such programs who phone such toll-free 
        number are transferred (without charge) to appropriate 
        entities for the provision of such information or 
        assistance. Such toll-free number shall be the toll-
        free number listed for general information and 
        assistance in the annual notice under subsection (a) 
        instead of the listing of numbers of individual 
        contractors.''.
          (2) Monitoring accuracy.--
                  (A) Study.--The Comptroller General of the 
                United States shall conduct a study to monitor 
                the accuracy and consistency of information 
                provided to individuals entitled to benefits 
                under part A or enrolled under part B, or both, 
                through the toll-free number 1-800-MEDICARE, 
                including an assessment of whether the 
                information provided is sufficient to answer 
                questions of such individuals. In conducting 
                the study, the Comptroller General shall 
                examine the education and training of the 
                individuals providing information through such 
                number.
                  (B) Report.--Not later than 1 year after the 
                date of the enactment of this Act, the 
                Comptroller General shall submit to Congress a 
                report on the study conducted under 
                subparagraph (A).

SEC. 824. BENEFICIARY OUTREACH DEMONSTRATION PROGRAM.

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

                    Subtitle D--Appeals and Recovery

SEC. 831. TRANSFER OF RESPONSIBILITY FOR MEDICARE APPEALS.

  (a) Transition Plan.--
          (1) In general.--Not later than October 1, 2003, 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) GAO evaluation.--The Comptroller General of the 
        United States shall evaluate the plan and, not later 
        than the date that is 6 months after the date on which 
        the plan is received by the Comptroller General, shall 
        submit to Congress a report on such evaluation.
  (b) Transfer of Adjudication Authority.--
          (1) In general.--Not earlier than July 1, 2004, and 
        not later than October 1, 2004, the Commissioner of 
        Social Security and the Secretary shall implement the 
        transition plan under subsection (a) and transfer the 
        administrative law judge functions described in such 
        subsection from the Social Security Administration to 
        the Secretary.
          (2) Assuring independence of judges.--The Secretary 
        shall assure the independence of administrative law 
        judges performing the administrative law judge 
        functions transferred under paragraph (1) from the 
        Centers for Medicare & Medicaid Services and its 
        contractors.
          (3) Geographic distribution.--The Secretary shall 
        provide for an appropriate geographic distribution of 
        administrative law judges performing the administrative 
        law judge functions transferred under paragraph (1) 
        throughout the United States to ensure timely access to 
        such judges.
          (4) Hiring authority.--Subject to the amounts 
        provided in advance in appropriations Act, the 
        Secretary shall have authority to hire administrative 
        law judges to hear such cases, giving priority to those 
        judges with prior experience in handling medicare 
        appeals and in a manner consistent with paragraph (3), 
        and to hire support staff for such judges.
          (5) Financing.--Amounts payable under law to the 
        Commissioner for administrative law judges performing 
        the administrative law judge functions transferred 
        under paragraph (1) from the Federal Hospital Insurance 
        Trust Fund and the Federal Supplementary Medical 
        Insurance Trust Fund shall become payable to the 
        Secretary for the functions so transferred.
          (6) Shared resources.--The Secretary shall enter into 
        such arrangements with the Commissioner as may be 
        appropriate with respect to transferred functions of 
        administrative law judges to share office space, 
        support staff, and other resources, with appropriate 
        reimbursement from the Trust Funds described in 
        paragraph (5).
  (c) Increased Financial Support.--In addition to any amounts 
otherwise appropriated, to ensure timely action on appeals 
before administrative law judges and the Departmental Appeals 
Board consistent with section 1869 of the Social Security Act 
(as amended by section 521 of BIPA, 114 Stat. 2763A-534), 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 as are necessary for fiscal year 2004 and each 
subsequent fiscal year to--
          (1) increase the number of administrative law judges 
        (and their staffs) under subsection (b)(4);
          (2) improve education and training opportunities for 
        administrative law judges (and their staffs); and
          (3) increase the staff of the Departmental Appeals 
        Board.
  (d) Conforming Amendment.--Section 1869(f)(2)(A)(i) (42 
U.S.C. 1395ff(f)(2)(A)(i)), as added by section 522(a) of BIPA 
(114 Stat. 2763A-543), is amended by striking ``of the Social 
Security Administration''.

SEC. 832. PROCESS FOR EXPEDITED ACCESS TO REVIEW.

  (a) Expedited Access to Judicial Review.--Section 1869(b) (42 
U.S.C. 1395ff(b)) as amended by BIPA, is amended--
          (1) in paragraph (1)(A), by inserting ``, subject to 
        paragraph (2),'' before ``to judicial review of the 
        Secretary's final decision'';
          (2) in paragraph (1)(F)--
                  (A) by striking clause (ii);
                  (B) by striking ``proceeding'' and all that 
                follows through ``determination'' and inserting 
                ``determinations and reconsiderations''; and
                  (C) by redesignating subclauses (I) and (II) 
                as clauses (i) and (ii) and by moving the 
                indentation of such subclauses (and the matter 
                that follows) 2 ems to the left; and
          (3) by adding at the end the following new paragraph:
          ``(2) Expedited access to judicial review.--
                  ``(A) In general.--The Secretary shall 
                establish a process under which a provider of 
                services or supplier that furnishes an item or 
                service or an individual entitled to benefits 
                under part A or enrolled under part B, or both, 
                who has filed an appeal under paragraph (1) may 
                obtain access to judicial review when a review 
                panel (described in subparagraph (D)), on its 
                own motion or at the request of the appellant, 
                determines that no entity in the administrative 
                appeals process has 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 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 panel that no review panel has 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 panel shall require for 
                purposes of making such determination, such 
                review panel shall make a determination on the 
                request in writing within 60 days after the 
                date such review panel receives the request and 
                such accompanying documents and materials. Such 
                a determination by such review panel 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 panel--
                                  ``(I) determines that there 
                                are no material issues of fact 
                                in dispute and that the only 
                                issue is one of law or 
                                regulation that no review panel 
                                has the 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 date of the 
                                determination described in such 
                                subparagraph; or
                                  ``(II) clause (i)(II), within 
                                60 days of the end of the 
                                period provided under 
                                subparagraph (B) for the 
                                determination.
                          ``(iii) Venue.--Such action shall be 
                        brought in the district court of the 
                        United States for the judicial district 
                        in which the appellant is located (or, 
                        in the case of an action brought 
                        jointly by more than one applicant, the 
                        judicial district in which the greatest 
                        number of applicants are located) or in 
                        the district court for the District of 
                        Columbia.
                          ``(iv) Interest on amounts in 
                        controversy.--Where a provider of 
                        services or supplier seeks judicial 
                        review pursuant to this paragraph, the 
                        amount in controversy 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 
                        Hospital Insurance Trust Fund and by 
                        the Federal Supplementary Medical 
                        Insurance Trust Fund for the month in 
                        which the civil action authorized under 
                        this paragraph is commenced, to be 
                        awarded by the reviewing court in favor 
                        of the prevailing party. No interest 
                        awarded pursuant to the preceding 
                        sentence shall be deemed income or cost 
                        for the purposes of determining 
                        reimbursement due providers of services 
                        or suppliers under this Act.
                  ``(D) Review panels.--For purposes of this 
                subsection, a `review panel' is a panel 
                consisting of 3 members (who shall be 
                administrative law judges, members of the 
                Departmental Appeals Board, or qualified 
                individuals associated with a qualified 
                independent contractor (as defined in 
                subsection (c)(2)) or with another independent 
                entity) designated by the Secretary for 
                purposes 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 
individuals entitled to benefits under part A or enrolled under 
part B, or both, may obtain expedited access to judicial review 
under the process established under section 1869(b)(2). Nothing 
in this subparagraph shall be construed to affect the 
application of any remedy imposed under section 1819 during the 
pendency of an appeal under this subparagraph.''.
  (c) Effective Date.--The amendments made by this section 
shall apply to appeals filed on or after October 1, 2003.
  (d) Expedited Review of Certain Provider Agreement 
Determinations.--
          (1) Termination and certain other immediate 
        remedies.--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 the remedy of termination of participation, or a 
        remedy described in clause (i) or (iii) of section 
        1819(h)(2)(B) of such Act (42 U.S.C. 1395i-3(h)(2)(B)) 
        which is applied on an immediate basis, has been 
        imposed. Under such process priority shall be provided 
        in cases of termination.
          (2) 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 additional sums for fiscal year 2004 and 
        each subsequent fiscal year as may be necessary. The 
        purposes for which such amounts are available include 
        increasing the number of administrative law judges (and 
        their staffs) and the appellate level staff at the 
        Departmental Appeals Board of the Department of Health 
        and Human Services and educating such judges and staffs 
        on long-term care issues.

SEC. 833. REVISIONS TO MEDICARE APPEALS PROCESS.

  (a) Requiring Full and Early Presentation of Evidence.--
          (1) In general.--Section 1869(b) (42 U.S.C. 
        1395ff(b)), as amended by BIPA and as amended by 
        section 832(a), is further amended by adding at the end 
        the following new paragraph:
          ``(3) Requiring full and early presentation of 
        evidence by providers.--A provider of services or 
        supplier may not introduce evidence in any appeal under 
        this section that was not presented at the 
        reconsideration conducted by the qualified independent 
        contractor under subsection (c), unless there is good 
        cause which precluded the introduction of such evidence 
        at or before that reconsideration.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall take effect on October 1, 2003.
  (b) Use of Patients' Medical Records.--Section 
1869(c)(3)(B)(i) (42 U.S.C. 1395ff(c)(3)(B)(i)), as amended by 
BIPA, 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)), as amended by 
        BIPA, 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 
        include--
                  ``(A) the specific reasons for the 
                determination, including--
                          ``(i) upon request, the provision of 
                        the policy, manual, or regulation used 
                        in making the determination; and
                          ``(ii) as appropriate in the case of 
                        a redetermination, a summary of the 
                        clinical or scientific evidence used in 
                        making the determination;
                  ``(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.
        The written notice on a redetermination shall be 
        provided in printed form and written in a manner 
        calculated to be understood by the individual entitled 
        to benefits under part A or enrolled under part B, or 
        both.''.
          (2) Reconsiderations.--Section 1869(c)(3)(E) (42 
        U.S.C. 1395ff(c)(3)(E)), as amended by BIPA, is 
        amended--
                  (A) by inserting ``be written in a manner 
                calculated to be understood by the individual 
                entitled to benefits under part A or enrolled 
                under part B, or both, and shall include (to 
                the extent appropriate)'' after ``in writing, 
                ''; and
                  (B) by inserting ``and a notification of the 
                right to appeal such determination and 
                instructions on how to initiate such appeal 
                under this section'' after ``such decision, ''.
          (3) Appeals.--Section 1869(d) (42 U.S.C. 1395ff(d)), 
        as amended by BIPA, is amended--
                  (A) in the heading, by inserting ``; Notice'' 
                after ``Secretary''; and
                  (B) by adding at the end the following new 
                paragraph:
          ``(4) Notice.--Notice of the decision of an 
        administrative law judge shall be in writing in a 
        manner calculated to be understood by the individual 
        entitled to benefits under part A or enrolled under 
        part B, or both, and shall include--
                  ``(A) the specific reasons for the 
                determination (including, to the extent 
                appropriate, a summary of the clinical or 
                scientific evidence used in making the 
                determination);
                  ``(B) the procedures for obtaining additional 
                information concerning the decision; and
                  ``(C) notification of the right to appeal the 
                decision and instructions on how to initiate 
                such an appeal under this section.''.
          (4) Submission of record for appeal.--Section 
        1869(c)(3)(J)(i) (42 U.S.C. 1395ff(c)(3)(J)(i)) by 
        striking ``prepare'' and inserting ``submit'' and by 
        striking ``with respect to'' and all that follows 
        through ``and relevant policies''.
  (d) Qualified Independent Contractors.--
          (1) Eligibility requirements of qualified independent 
        contractors.--Section 1869(c)(3) (42 U.S.C. 
        1395ff(c)(3)), as amended by BIPA, is amended--
                  (A) in subparagraph (A), by striking 
                ``sufficient training and expertise in medical 
                science and legal matters'' and inserting 
                ``sufficient medical, legal, and other 
                expertise (including knowledge of the program 
                under this title) and sufficient staffing''; 
                and
                  (B) by adding at the end the following new 
                subparagraph:
                  ``(K) Independence requirements.--
                          ``(i) In general.--Subject to clause 
                        (ii), a qualified independent 
                        contractor shall not conduct any 
                        activities in a case unless the 
                        entity--
                                  ``(I) is not a related party 
                                (as defined in subsection 
                                (g)(5));
                                  ``(II) does not have a 
                                material familial, financial, 
                                or professional relationship 
                                with such a party in relation 
                                to such case; and
                                  ``(III) does not otherwise 
                                have a conflict of interest 
                                with such a party.
                          ``(ii) Exception for reasonable 
                        compensation.--Nothing in clause (i) 
                        shall be construed to prohibit receipt 
                        by a qualified independent contractor 
                        of compensation from the Secretary for 
                        the conduct of activities under this 
                        section if the compensation is provided 
                        consistent with clause (iii).
                          ``(iii) Limitations on entity 
                        compensation.--Compensation provided by 
                        the Secretary to a qualified 
                        independent contractor in connection 
                        with reviews under this section shall 
                        not be contingent on any decision 
                        rendered by the contractor or by any 
                        reviewing professional.''.
          (2) Eligibility requirements for reviewers.--Section 
        1869 (42 U.S.C. 1395ff), as amended by BIPA, is 
        amended--
                  (A) by amending subsection (c)(3)(D) to read 
                as follows:
                  ``(D) Qualifications for reviewers.--The 
                requirements of subsection (g) shall be met 
                (relating to qualifications of reviewing 
                professionals).''; and
                  (B) by adding at the end the following new 
                subsection:
  ``(g) Qualifications of Reviewers.--
          ``(1) In general.--In reviewing determinations under 
        this section, a qualified independent contractor shall 
        assure that--
                  ``(A) each individual conducting a review 
                shall meet the qualifications of paragraph (2);
                  ``(B) compensation provided by the contractor 
                to each such reviewer is consistent with 
                paragraph (3); and
                  ``(C) in the case of a review by a panel 
                described in subsection (c)(3)(B) composed of 
                physicians or other health care professionals 
                (each in this subsection referred to as a 
                `reviewing professional'), each reviewing 
                professional meets the qualifications described 
                in paragraph (4) and, where a claim is 
                regarding the furnishing of treatment by a 
                physician (allopathic or osteopathic) or the 
                provision of items or services by a physician 
                (allopathic or osteopathic), each reviewing 
                professional shall be a physician (allopathic 
                or osteopathic).
          ``(2) Independence.--
                  ``(A) In general.--Subject to subparagraph 
                (B), each individual conducting a review in a 
                case shall--
                          ``(i) not be a related party (as 
                        defined in paragraph (5));
                          ``(ii) not have a material familial, 
                        financial, or professional relationship 
                        with such a party in the case under 
                        review; and
                          ``(iii) not otherwise have a conflict 
                        of interest with such a party.
                  ``(B) Exception.--Nothing in subparagraph (A) 
                shall be construed to--
                          ``(i) prohibit an individual, solely 
                        on the basis of a participation 
                        agreement with a fiscal intermediary, 
                        carrier, or other contractor, from 
                        serving as a reviewing professional 
                        if--
                                  ``(I) the individual is not 
                                involved in the provision of 
                                items or services in the case 
                                under review;
                                  ``(II) the fact of such an 
                                agreement is disclosed to the 
                                Secretary and the individual 
                                entitled to benefits under part 
                                A or enrolled under part B, or 
                                both, (or authorized 
                                representative) and neither 
                                party objects; and
                                  ``(III) the individual is not 
                                an employee of the 
                                intermediary, carrier, or 
                                contractor and does not provide 
                                services exclusively or 
                                primarily to or on behalf of 
                                such intermediary, carrier, or 
                                contractor;
                          ``(ii) prohibit an individual who has 
                        staff privileges at the institution 
                        where the treatment involved takes 
                        place from serving as a reviewer merely 
                        on the basis of having such staff 
                        privileges if the existence of such 
                        privileges is disclosed to the 
                        Secretary and such individual (or 
                        authorized representative), and neither 
                        party objects; or
                          ``(iii) prohibit receipt of 
                        compensation by a reviewing 
                        professional from a contractor if the 
                        compensation is provided consistent 
                        with paragraph (3).
                For purposes of this paragraph, the term 
                `participation agreement' means an agreement 
                relating to the provision of health care 
                services by the individual and does not include 
                the provision of services as a reviewer under 
                this subsection.
          ``(3) Limitations on reviewer compensation.--
        Compensation provided by a qualified independent 
        contractor to a reviewer in connection with a review 
        under this section shall not be contingent on the 
        decision rendered by the reviewer.
          ``(4) Licensure and expertise.--Each reviewing 
        professional shall be--
                  ``(A) a physician (allopathic or osteopathic) 
                who is appropriately credentialed or licensed 
                in one or more States to deliver health care 
                services and has medical expertise in the field 
                of practice that is appropriate for the items 
                or services at issue; or
                  ``(B) a health care professional who is 
                legally authorized in one or more States (in 
                accordance with State law or the State 
                regulatory mechanism provided by State law) to 
                furnish the health care items or services at 
                issue and has medical expertise in the field of 
                practice that is appropriate for such items or 
                services.
          ``(5) Related party defined.--For purposes of this 
        section, the term `related party' means, with respect 
        to a case under this title involving a specific 
        individual entitled to benefits under part A or 
        enrolled under part B, or both, any of the following:
                  ``(A) The Secretary, the medicare 
                administrative contractor involved, or any 
                fiduciary, officer, director, or employee of 
                the Department of Health and Human Services, or 
                of such contractor.
                  ``(B) The individual (or authorized 
                representative).
                  ``(C) The health care professional that 
                provides the items or services involved in the 
                case.
                  ``(D) The institution at which the items or 
                services (or treatment) involved in the case 
                are provided.
                  ``(E) The manufacturer of any drug or other 
                item that is included in the items or services 
                involved in the case.
                  ``(F) Any other party determined under any 
                regulations to have a substantial interest in 
                the case involved.''.
          (3) Effective date.--The amendments made by 
        paragraphs (1) and (2) shall be effective as if 
        included in the enactment of the respective provisions 
        of subtitle C of title V of BIPA, (114 Stat. 2763A-
        534).
          (4) Transition.--In applying section 1869(g) of the 
        Social Security Act (as added by paragraph (2)), any 
        reference to a medicare administrative contractor shall 
        be deemed to include a reference to a fiscal 
        intermediary under section 1816 of the Social Security 
        Act (42 U.S.C. 1395h) and a carrier under section 1842 
        of such Act (42 U.S.C. 1395u).

SEC. 834. PREPAYMENT REVIEW.

  (a) In General.--Section 1874A, as added by section 811(a)(1) 
and as amended by sections 812(b), 821(b)(1), and 821(c)(1), is 
further amended by adding at the end the following new 
subsection:
  ``(h) Conduct of Prepayment Review.--
          ``(1) Conduct of random prepayment review.--
                  ``(A) In general.--A medicare administrative 
                contractor may conduct random prepayment review 
                only to develop a contractor-wide or program-
                wide claims payment error rates or under such 
                additional circumstances as may be provided 
                under regulations, developed in consultation 
                with providers of services and suppliers.
                  ``(B) Use of standard protocols when 
                conducting prepayment reviews.--When a medicare 
                administrative contractor conducts a random 
                prepayment review, the contractor may conduct 
                such review only in accordance with a standard 
                protocol for random prepayment audits developed 
                by the Secretary.
                  ``(C) Construction.--Nothing in this 
                paragraph shall be construed as preventing the 
                denial of payments for claims actually reviewed 
                under a random prepayment review.
                  ``(D) Random prepayment review.--For purposes 
                of this subsection, the term `random prepayment 
                review' means a demand for the production of 
                records or documentation absent cause with 
                respect to a claim.
          ``(2) Limitations on non-random prepayment review.--
                  ``(A) Limitations on initiation of non-random 
                prepayment review.--A medicare administrative 
                contractor may not initiate non-random 
                prepayment review of a provider of services or 
                supplier based on the initial identification by 
                that provider of services or supplier of an 
                improper billing practice unless there is a 
                likelihood of sustained or high level of 
                payment error (as defined in subsection 
                (i)(3)(A)).
                  ``(B) Termination of non-random prepayment 
                review.--The Secretary shall issue regulations 
                relating to the termination, including 
                termination dates, of non-random prepayment 
                review. Such regulations may vary such a 
                termination date based upon the differences in 
                the circumstances triggering prepayment 
                review.''.
  (b) Effective Date.--
          (1) In general.--Except as provided in this 
        subsection, the amendment made by subsection (a) shall 
        take effect 1 year after the date of the enactment of 
        this Act.
          (2) Deadline for promulgation of certain 
        regulations.--The Secretary shall first issue 
        regulations under section 1874A(h) of the Social 
        Security Act, as added by subsection (a), by not later 
        than 1 year after the date of the enactment of this 
        Act.
          (3) Application of standard protocols for random 
        prepayment review.--Section 1874A(h)(1)(B) of the 
        Social Security Act, as added by subsection (a), shall 
        apply to random prepayment reviews conducted on or 
        after such date (not later than 1 year after the date 
        of the enactment of this Act) as the Secretary shall 
        specify.
  (c) Application to Fiscal Intermediaries and Carriers.--The 
provisions of section 1874A(h) of the Social Security Act, as 
added by subsection (a), shall apply to each fiscal 
intermediary under section 1816 of the Social Security Act (42 
U.S.C. 1395h) and each carrier under section 1842 of such Act 
(42 U.S.C. 1395u) in the same manner as they apply to medicare 
administrative contractors under such provisions.

SEC. 835. RECOVERY OF OVERPAYMENTS.

  (a) In General.--Section 1893 (42 U.S.C. 1395ddd) is amended 
by adding at the end the following new subsection:
  ``(f) Recovery of Overpayments.--
          ``(1) Use of repayment plans.--
                  ``(A) In general.--If the repayment, within 
                30 days by a provider of services or supplier, 
                of an overpayment under this title would 
                constitute a hardship (as defined in 
                subparagraph (B)), subject to subparagraph (C), 
                upon request of the provider of services or 
                supplier the Secretary shall enter into a plan 
                with the provider of services or supplier for 
                the repayment (through offset or otherwise) of 
                such overpayment over a period of at least 6 
                months but not longer than 3 years (or not 
                longer than 5 years in the case of extreme 
                hardship, as determined by the Secretary). 
                Interest shall accrue on the balance through 
                the period of repayment. Such plan shall meet 
                terms and conditions determined to be 
                appropriate by the Secretary.
                  ``(B) Hardship.--
                          ``(i) In general.--For purposes of 
                        subparagraph (A), the repayment of an 
                        overpayment (or overpayments) within 30 
                        days is deemed to constitute a hardship 
                        if--
                                  ``(I) in the case of a 
                                provider of services that files 
                                cost reports, the aggregate 
                                amount of the overpayments 
                                exceeds 10 percent of the 
                                amount paid under this title to 
                                the provider of services for 
                                the cost reporting period 
                                covered by the most recently 
                                submitted cost report; or
                                  ``(II) in the case of another 
                                provider of services or 
                                supplier, the aggregate amount 
                                of the overpayments exceeds 10 
                                percent of the amount paid 
                                under this title to the 
                                provider of services or 
                                supplier for the previous 
                                calendar year.
                          ``(ii) Rule of application.--The 
                        Secretary shall establish rules for the 
                        application of this subparagraph in the 
                        case of a provider of services or 
                        supplier that was not paid under this 
                        title during the previous year or was 
                        paid under this title only during a 
                        portion of that year.
                          ``(iii) Treatment of previous 
                        overpayments.--If a provider of 
                        services or supplier has entered into a 
                        repayment plan under subparagraph (A) 
                        with respect to a specific overpayment 
                        amount, such payment amount under the 
                        repayment plan shall not be taken into 
                        account under clause (i) with respect 
                        to subsequent overpayment amounts.
                  ``(C) Exceptions.--Subparagraph (A) shall not 
                apply if--
                          ``(i) the Secretary has reason to 
                        suspect that the provider of services 
                        or supplier may file for bankruptcy or 
                        otherwise cease to do business or 
                        discontinue participation in the 
                        program under this title; or
                          ``(ii) there is an indication of 
                        fraud or abuse committed against the 
                        program.
                  ``(D) Immediate collection if violation of 
                repayment plan.--If a provider of services or 
                supplier fails to make a payment in accordance 
                with a repayment plan under this paragraph, the 
                Secretary may immediately seek to offset or 
                otherwise recover the total balance outstanding 
                (including applicable interest) under the 
                repayment plan.
                  ``(E) Relation to no fault provision.--
                Nothing in this paragraph shall be construed as 
                affecting the application of section 1870(c) 
                (relating to no adjustment in the cases of 
                certain overpayments).
          ``(2) Limitation on recoupment.--
                  ``(A) In general.--In the case of a provider 
                of services or supplier that is determined to 
                have received an overpayment under this title 
                and that seeks a reconsideration by a qualified 
                independent contractor on such determination 
                under section 1869(b)(1), the Secretary may not 
                take any action (or authorize any other person, 
                including any medicare contractor, as defined 
                in subparagraph (C)) to recoup the overpayment 
                until the date the decision on the 
                reconsideration has been rendered. If the 
                provisions of section 1869(b)(1) (providing for 
                such a reconsideration by a qualified 
                independent contractor) are not in effect, in 
                applying the previous sentence any reference to 
                such a reconsideration shall be treated as a 
                reference to a redetermination by the fiscal 
                intermediary or carrier involved.
                  ``(B) Collection with interest.--Insofar as 
                the determination on such appeal is against the 
                provider of services or supplier, interest on 
                the overpayment shall accrue on and after the 
                date of the original notice of overpayment. 
                Insofar as such determination against the 
                provider of services or supplier is later 
                reversed, the Secretary shall provide for 
                repayment of the amount recouped plus interest 
                at the same rate as would apply under the 
                previous sentence for the period in which the 
                amount was recouped.
                  ``(C) Medicare contractor defined.--For 
                purposes of this subsection, the term `medicare 
                contractor' has the meaning given such term in 
                section 1889(g).
          ``(3) Limitation on use of extrapolation.--A medicare 
        contractor may not use extrapolation to determine 
        overpayment amounts to be recovered by recoupment, 
        offset, or otherwise unless--
                  ``(A) there is a sustained or high level of 
                payment error (as defined by the Secretary by 
                regulation); or
                  ``(B) documented educational intervention has 
                failed to correct the payment error (as 
                determined by the Secretary).
          ``(4) Provision of supporting documentation.--In the 
        case of a provider of services or supplier with respect 
        to which amounts were previously overpaid, a medicare 
        contractor may request the periodic production of 
        records or supporting documentation for a limited 
        sample of submitted claims to ensure that the previous 
        practice is not continuing.
          ``(5) Consent settlement reforms.--
                  ``(A) In general.--The Secretary may use a 
                consent settlement (as defined in subparagraph 
                (D)) to settle a projected overpayment.
                  ``(B) Opportunity to submit additional 
                information before consent settlement offer.--
                Before offering a provider of services or 
                supplier a consent settlement, the Secretary 
                shall--
                          ``(i) communicate to the provider of 
                        services or supplier--
                                  ``(I) that, based on a review 
                                of the medical records 
                                requested by the Secretary, a 
                                preliminary evaluation of those 
                                records indicates that there 
                                would be an overpayment;
                                  ``(II) the nature of the 
                                problems identified in such 
                                evaluation; and
                                  ``(III) the steps that the 
                                provider of services or 
                                supplier should take to address 
                                the problems; and
                          ``(ii) provide for a 45-day period 
                        during which the provider of services 
                        or supplier may furnish additional 
                        information concerning the medical 
                        records for the claims that had been 
                        reviewed.
                  ``(C) Consent settlement offer.--The 
                Secretary shall review any additional 
                information furnished by the provider of 
                services or supplier under subparagraph 
                (B)(ii). Taking into consideration such 
                information, the Secretary shall determine if 
                there still appears to be an overpayment. If 
                so, the Secretary--
                          ``(i) shall provide notice of such 
                        determination to the provider of 
                        services or supplier, including an 
                        explanation of the reason for such 
                        determination; and
                          ``(ii) in order to resolve the 
                        overpayment, may offer the provider of 
                        services or supplier--
                                  ``(I) the opportunity for a 
                                statistically valid random 
                                sample; or
                                  ``(II) a consent settlement.
                The opportunity provided under clause (ii)(I) 
                does not waive any appeal rights with respect 
                to the alleged overpayment involved.
                  ``(D) Consent settlement defined.--For 
                purposes of this paragraph, the term `consent 
                settlement' means an agreement between the 
                Secretary and a provider of services or 
                supplier whereby both parties agree to settle a 
                projected overpayment based on less than a 
                statistically valid sample of claims and the 
                provider of services or supplier agrees not to 
                appeal the claims involved.
          ``(6) Notice of over-utilization of codes.--The 
        Secretary shall establish, in consultation with 
        organizations representing the classes of providers of 
        services and suppliers, a process under which the 
        Secretary provides for notice to classes of providers 
        of services and suppliers served by the contractor in 
        cases in which the contractor has identified that 
        particular billing codes may be overutilized by that 
        class of providers of services or suppliers under the 
        programs under this title (or provisions of title XI 
        insofar as they relate to such programs).
          ``(7) Payment audits.--
                  ``(A) Written notice for post-payment 
                audits.--Subject to subparagraph (C), if a 
                medicare contractor decides to conduct a post-
                payment audit of a provider of services or 
                supplier under this title, the contractor shall 
                provide the provider of services or supplier 
                with written notice (which may be in electronic 
                form) of the intent to conduct such an audit.
                  ``(B) Explanation of findings for all 
                audits.--Subject to subparagraph (C), if a 
                medicare contractor audits a provider of 
                services or supplier under this title, the 
                contractor shall--
                          ``(i) give the provider of services 
                        or supplier a full review and 
                        explanation of the findings of the 
                        audit in a manner that is 
                        understandable to the provider of 
                        services or supplier and permits the 
                        development of an appropriate 
                        corrective action plan;
                          ``(ii) inform the provider of 
                        services or supplier of the appeal 
                        rights under this title as well as 
                        consent settlement options (which are 
                        at the discretion of the Secretary);
                          ``(iii) give the provider of services 
                        or supplier an opportunity to provide 
                        additional information to the 
                        contractor; and
                          ``(iv) take into account information 
                        provided, on a timely basis, by the 
                        provider of services or supplier under 
                        clause (iii).
                  ``(C) Exception.--Subparagraphs (A) and (B) 
                shall not apply if the provision of notice or 
                findings would compromise pending law 
                enforcement activities, whether civil or 
                criminal, or reveal findings of law 
                enforcement-related audits.
          ``(8) Standard methodology for probe sampling.--The 
        Secretary shall establish a standard methodology for 
        medicare contractors to use in selecting a sample of 
        claims for review in the case of an abnormal billing 
        pattern.''.
  (b) Effective Dates and Deadlines.--
          (1) Use of repayment plans.--Section 1893(f)(1) of 
        the Social Security Act, as added by subsection (a), 
        shall apply to requests for repayment plans made after 
        the date of the enactment of this Act.
          (2) Limitation on recoupment.--Section 1893(f)(2) of 
        the Social Security Act, as added by subsection (a), 
        shall apply to actions taken after the date of the 
        enactment of this Act.
          (3) Use of extrapolation.--Section 1893(f)(3) of the 
        Social Security Act, as added by subsection (a), shall 
        apply to statistically valid random samples initiated 
        after the date that is 1 year after the date of the 
        enactment of this Act.
          (4) Provision of supporting documentation.--Section 
        1893(f)(4) of the Social Security Act, as added by 
        subsection (a), shall take effect on the date of the 
        enactment of this Act.
          (5) Consent settlement.--Section 1893(f)(5) of the 
        Social Security Act, as added by subsection (a), shall 
        apply to consent settlements entered into after the 
        date of the enactment of this Act.
          (6) Notice of overutilization.--Not later than 1 year 
        after the date of the enactment of this Act, the 
        Secretary shall first establish the process for notice 
        of overutilization of billing codes under section 
        1893A(f)(6) of the Social Security Act, as added by 
        subsection (a).
          (7) Payment audits.--Section 1893A(f)(7) of the 
        Social Security Act, as added by subsection (a), shall 
        apply to audits initiated after the date of the 
        enactment of this Act.
          (8) Standard for abnormal billing patterns.--Not 
        later than 1 year after the date of the enactment of 
        this Act, the Secretary shall first establish a 
        standard methodology for selection of sample claims for 
        abnormal billing patterns under section 1893(f)(8) of 
        the Social Security Act, as added by subsection (a).

SEC. 836. PROVIDER ENROLLMENT PROCESS; RIGHT OF APPEAL.

  (a) In General.--Section 1866 (42 U.S.C. 1395cc) is amended--
          (1) by adding at the end of the heading the 
        following: ``; enrollment processes''; and
          (2) by adding at the end the following new 
        subsection:
  ``(j) Enrollment Process for Providers of Services and 
Suppliers.--
          ``(1) Enrollment process.--
                  ``(A) In general.--The Secretary shall 
                establish by regulation a process for the 
                enrollment of providers of services and 
                suppliers under this title.
                  ``(B) Deadlines.--The Secretary shall 
                establish by regulation procedures under which 
                there are deadlines for actions on applications 
                for enrollment (and, if applicable, renewal of 
                enrollment). The Secretary shall monitor the 
                performance of medicare administrative 
                contractors in meeting the deadlines 
                established under this subparagraph.
                  ``(C) Consultation before changing provider 
                enrollment forms.--The Secretary shall consult 
                with providers of services and suppliers before 
                making changes in the provider enrollment forms 
                required of such providers and suppliers to be 
                eligible to submit claims for which payment may 
                be made under this title.
          ``(2) Hearing rights in cases of denial or non-
        renewal.--A provider of services or supplier whose 
        application to enroll (or, if applicable, to renew 
        enrollment) under this title is denied may have a 
        hearing and judicial review of such denial under the 
        procedures that apply under subsection (h)(1)(A) to a 
        provider of services that is dissatisfied with a 
        determination by the Secretary.''.
  (b) Effective Dates.--
          (1) Enrollment process.--The Secretary shall provide 
        for the establishment of the enrollment process under 
        section 1866(j)(1) of the Social Security Act, as added 
        by subsection (a)(2), within 6 months after the date of 
        the enactment of this Act.
          (2) Consultation.--Section 1866(j)(1)(C) of the 
        Social Security Act, as added by subsection (a)(2), 
        shall apply with respect to changes in provider 
        enrollment forms made on or after January 1, 2003.
          (3) Hearing rights.--Section 1866(j)(2) of the Social 
        Security Act, as added by subsection (a)(2), shall 
        apply to denials occurring on or after such date (not 
        later than 1 year after the date of the enactment of 
        this Act) as the Secretary specifies.

SEC. 837. PROCESS FOR CORRECTION OF MINOR ERRORS AND OMISSIONS ON 
                    CLAIMS WITHOUT PURSUING APPEALS PROCESS.

  The Secretary shall develop, in consultation with appropriate 
medicare contractors (as defined in section 1889(g) of the 
Social Security Act, as inserted by section 821(a)(1)) and 
representatives of providers of services and suppliers, a 
process whereby, in the case of minor errors or omissions (as 
defined by the Secretary) that are detected in the submission 
of claims under the programs under title XVIII of such Act, a 
provider of services or supplier is given an opportunity to 
correct such an error or omission without the need to initiate 
an appeal. Such process shall include the ability to resubmit 
corrected claims.

SEC. 838. PRIOR DETERMINATION PROCESS FOR CERTAIN ITEMS AND SERVICES; 
                    ADVANCE BENEFICIARY NOTICES.

  (a) In General.--Section 1869 (42 U.S.C. 1395ff(b)), as 
amended by sections 521 and 522 of BIPA and section 
833(d)(2)(B), is further amended by adding at the end the 
following new subsection:
  ``(h) Prior Determination Process for Certain Items and 
Services.--
          ``(1) Establishment of process.--
                  ``(A) In general.--With respect to a medicare 
                administrative contractor that has a contract 
                under section 1874A that provides for making 
                payments under this title with respect to 
                eligible items and services described in 
                subparagraph (C), the Secretary shall establish 
                a prior determination process that meets the 
                requirements of this subsection and that shall 
                be applied by such contractor in the case of 
                eligible requesters.
                  ``(B) Eligible requester.--For purposes of 
                this subsection, each of the following shall be 
                an eligible requester:
                          ``(i) A physician, but only with 
                        respect to eligible items and services 
                        for which the physician may be paid 
                        directly.
                          ``(ii) An individual entitled to 
                        benefits under this title, but only 
                        with respect to an item or service for 
                        which the individual receives, from the 
                        physician who may be paid directly for 
                        the item or service, an advance 
                        beneficiary notice under section 
                        1879(a) that payment may not be made 
                        (or may no longer be made) for the item 
                        or service under this title.
                  ``(C) Eligible items and services.--For 
                purposes of this subsection and subject to 
                paragraph (2), eligible items and services are 
                items and services which are physicians' 
                services (as defined in paragraph (4)(A) of 
                section 1848(f) for purposes of calculating the 
                sustainable growth rate under such section).
          ``(2) Secretarial flexibility.--The Secretary shall 
        establish by regulation reasonable limits on the 
        categories of eligible items and services for which a 
        prior determination of coverage may be requested under 
        this subsection. In establishing such limits, the 
        Secretary may consider the dollar amount involved with 
        respect to the item or service, administrative costs 
        and burdens, and other relevant factors.
          ``(3) Request for prior determination.--
                  ``(A) In general.--Subject to paragraph (2), 
                under the process established under this 
                subsection an eligible requester may submit to 
                the contractor a request for a determination, 
                before the furnishing of an eligible item or 
                service involved as to whether the item or 
                service is covered under this title consistent 
                with the applicable requirements of section 
                1862(a)(1)(A) (relating to medical necessity).
                  ``(B) Accompanying documentation.--The 
                Secretary may require that the request be 
                accompanied by a description of the item or 
                service, supporting documentation relating to 
                the medical necessity for the item or service, 
                and any other appropriate documentation. In the 
                case of a request submitted by an eligible 
                requester who is described in paragraph 
                (1)(B)(ii), the Secretary may require that the 
                request also be accompanied by a copy of the 
                advance beneficiary notice involved.
          ``(4) Response to request.--
                  ``(A) In general.--Under such process, the 
                contractor shall provide the eligible requester 
                with written notice of a determination as to 
                whether--
                          ``(i) the item or service is so 
                        covered;
                          ``(ii) the item or service is not so 
                        covered; or
                          ``(iii) the contractor lacks 
                        sufficient information to make a 
                        coverage determination.
                If the contractor makes the determination 
                described in clause (iii), the contractor shall 
                include in the notice a description of the 
                additional information required to make the 
                coverage determination.
                  ``(B) Deadline to respond.--Such notice shall 
                be provided within the same time period as the 
                time period applicable to the contractor 
                providing notice of initial determinations on a 
                claim for benefits under subsection (a)(2)(A).
                  ``(C) Informing beneficiary in case of 
                physician request.--In the case of a request in 
                which an eligible requester is not the 
                individual described in paragraph (1)(B)(ii), 
                the process shall provide that the individual 
                to whom the item or service is proposed to be 
                furnished shall be informed of any 
                determination described in clause (ii) 
                (relating to a determination of non-coverage) 
                and the right (referred to in paragraph (6)(B)) 
                to obtain the item or service and have a claim 
                submitted for the item or service.
          ``(5) Effect of determinations.--
                  ``(A) Binding nature of positive 
                determination.--If the contractor makes the 
                determination described in paragraph (4)(A)(i), 
                such determination shall be binding on the 
                contractor in the absence of fraud or evidence 
                of misrepresentation of facts presented to the 
                contractor.
                  ``(B) Notice and right to redetermination in 
                case of a denial.--
                          ``(i) In general.--If the contractor 
                        makes the determination described in 
                        paragraph (4)(A)(ii)--
                                  ``(I) the eligible requester 
                                has the right to a 
                                redetermination by the 
                                contractor on the determination 
                                that the item or service is not 
                                so covered; and
                                  ``(II) the contractor shall 
                                include in notice under 
                                paragraph (4)(A) a brief 
                                explanation of the basis for 
                                the determination, including on 
                                what national or local coverage 
                                or noncoverage determination 
                                (if any) the determination is 
                                based, and the right to such a 
                                redetermination.
                          ``(ii) Deadline for 
                        redeterminations.--The contractor shall 
                        complete and provide notice of such 
                        redetermination within the same time 
                        period as the time period applicable to 
                        the contractor providing notice of 
                        redeterminations relating to a claim 
                        for benefits under subsection 
                        (a)(3)(C)(ii).
          ``(6) Limitation on further review.--
                  ``(A) In general.--Contractor determinations 
                described in paragraph (4)(A)(ii) or 
                (4)(A)(iii) (and redeterminations made under 
                paragraph (5)(B)), relating to pre-service 
                claims are not subject to further 
                administrative appeal or judicial review under 
                this section or otherwise.
                  ``(B) Decision not to seek prior 
                determination or negative determination does 
                not impact right to obtain services, seek 
                reimbursement, or appeal rights.--Nothing in 
                this subsection shall be construed as affecting 
                the right of an individual who--
                          ``(i) decides not to seek a prior 
                        determination under this subsection 
                        with respect to items or services; or
                          ``(ii) seeks such a determination and 
                        has received a determination described 
                        in paragraph (4)(A)(ii),
                from receiving (and submitting a claim for) 
                such items services and from obtaining 
                administrative or judicial review respecting 
                such claim under the other applicable 
                provisions of this section. Failure to seek a 
                prior determination under this subsection with 
                respect to items and services shall not be 
                taken into account in such administrative or 
                judicial review.
                  ``(C) No prior determination after receipt of 
                services.--Once an individual is provided items 
                and services, there shall be no prior 
                determination under this subsection with 
                respect to such items or services.''.
  (b) Effective Date; Transition.--
          (1) Effective date.--The Secretary shall establish 
        the prior determination process under the amendment 
        made by subsection (a) in such a manner as to provide 
        for the acceptance of requests for determinations under 
        such process filed not later than 18 months after the 
        date of the enactment of this Act.
          (2) Transition.--During the period in which the 
        amendment made by subsection (a) has become effective 
        but contracts are not provided under section 1874A of 
        the Social Security Act with medicare administrative 
        contractors, any reference in section 1869(g) of such 
        Act (as added by such amendment) to such a contractor 
        is deemed a reference to a fiscal intermediary or 
        carrier with an agreement under section 1816, or 
        contract under section 1842, respectively, of such Act.
          (3) Limitation on application to sgr.--For purposes 
        of applying section 1848(f)(2)(D) of the Social 
        Security Act (42 U.S.C. 1395w-4(f)(2)(D)), the 
        amendment made by subsection (a) shall not be 
        considered to be a change in law or regulation.
  (c) Provisions Relating to Advance Beneficiary Notices; 
Report on Prior Determination Process.--
          (1) Data collection.--The Secretary shall establish a 
        process for the collection of information on the 
        instances in which an advance beneficiary notice (as 
        defined in paragraph (4)) has been provided and on 
        instances in which a beneficiary indicates on such a 
        notice that the beneficiary does not intend to seek to 
        have the item or service that is the subject of the 
        notice furnished.
          (2) Outreach and education.--The Secretary shall 
        establish a program of outreach and education for 
        beneficiaries and providers of services and other 
        persons on the appropriate use of advance beneficiary 
        notices and coverage policies under the medicare 
        program.
          (3) GAO report report on use of advance beneficiary 
        notices.--Not later than 18 months after the date on 
        which section 1869(g) of the Social Security Act (as 
        added by subsection (a)) takes effect, the Comptroller 
        General of the United States shall submit to Congress a 
        report on the use of advance beneficiary notices under 
        title XVIII of such Act. Such report shall include 
        information concerning the providers of services and 
        other persons that have provided such notices and the 
        response of beneficiaries to such notices.
          (4) GAO report on use of prior determination 
        process.--Not later than 18 months after the date on 
        which section 1869(g) of the Social Security Act (as 
        added by subsection (a)) takes effect, the Comptroller 
        General of the United States shall submit to Congress a 
        report on the use of the prior determination process 
        under such section. Such report shall include--
                  (A) information concerning the types of 
                procedures for which a prior determination has 
                been sought, determinations made under the 
                process, and changes in receipt of services 
                resulting from the application of such process; 
                and
                  (B) an evaluation of whether the process was 
                useful for physicians (and other suppliers) and 
                beneficiaries, whether it was timely, and 
                whether the amount of information required was 
                burdensome to physicians and beneficiaries.
          (5) Advance beneficiary notice defined.--In this 
        subsection, the term ``advance beneficiary notice'' 
        means a written notice provided under section 1879(a) 
        of the Social Security Act (42 U.S.C. 1395pp(a)) to an 
        individual entitled to benefits under part A or B of 
        title XVIII of such Act before items or services are 
        furnished under such part in cases where a provider of 
        services or other person that would furnish the item or 
        service believes that payment will not be made for some 
        or all of such items or services under such title.

                  Subtitle E--Miscellaneous Provisions

SEC. 841. POLICY DEVELOPMENT REGARDING EVALUATION AND MANAGEMENT (E & 
                    M) DOCUMENTATION GUIDELINES.

  (a) In General.--The Secretary may not implement any new 
documentation guidelines for evaluation and management 
physician services under the title XVIII of the Social Security 
Act on or after the date of the enactment of this Act unless 
the Secretary--
          (1) has developed the guidelines in collaboration 
        with practicing physicians (including both generalists 
        and specialists) and provided for an assessment of the 
        proposed guidelines by the physician community;
          (2) has established a plan that contains specific 
        goals, including a schedule, for improving the use of 
        such guidelines;
          (3) has conducted appropriate and representative 
        pilot projects under subsection (b) to test 
        modifications to the evaluation and management 
        documentation guidelines;
          (4) finds that the objectives described in subsection 
        (c) will be met in the implementation of such 
        guidelines; and
          (5) has established, and is implementing, a program 
        to educate physicians on the use of such guidelines and 
        that includes appropriate outreach.
The Secretary shall make changes to the manner in which 
existing evaluation and management documentation guidelines are 
implemented to reduce paperwork burdens on physicians.
  (b) Pilot Projects to Test Evaluation and Management 
Documentation Guidelines.--
          (1) In general.--The Secretary shall conduct under 
        this subsection appropriate and representative pilot 
        projects to test new evaluation and management 
        documentation guidelines referred to in subsection (a).
          (2) Length and consultation.--Each pilot project 
        under this subsection shall--
                  (A) be voluntary;
                  (B) be of sufficient length as determined by 
                the Secretary to allow for preparatory 
                physician and medicare contractor education, 
                analysis, and use and assessment of potential 
                evaluation and management guidelines; and
                  (C) be conducted, in development and 
                throughout the planning and operational stages 
                of the project, in consultation with practicing 
                physicians (including both generalists and 
                specialists).
          (3) Range of pilot projects.--Of the pilot projects 
        conducted under this subsection--
                  (A) at least one shall focus on a peer review 
                method by physicians (not employed by a 
                medicare contractor) which evaluates medical 
                record information for claims submitted by 
                physicians identified as statistical outliers 
                relative to definitions published in the 
                Current Procedures Terminology (CPT) code book 
                of the American Medical Association;
                  (B) at least one shall focus on an 
                alternative method to detailed guidelines based 
                on physician documentation of face to face 
                encounter time with a patient;
                  (C) at least one shall be conducted for 
                services furnished in a rural area and at least 
                one for services furnished outside such an 
                area; and
                  (D) at least one shall be conducted in a 
                setting where physicians bill under physicians' 
                services in teaching settings and at least one 
                shall be conducted in a setting other than a 
                teaching setting.
          (4) Banning of targeting of pilot project 
        participants.--Data collected under this subsection 
        shall not be used as the basis for overpayment demands 
        or post-payment audits. Such limitation applies only to 
        claims filed as part of the pilot project and lasts 
        only for the duration of the pilot project and only as 
        long as the provider is a participant in the pilot 
        project.
          (5) Study of impact.--Each pilot project shall 
        examine the effect of the new evaluation and management 
        documentation guidelines on--
                  (A) different types of physician practices, 
                including those with fewer than 10 full-time-
                equivalent employees (including physicians); 
                and
                  (B) the costs of physician compliance, 
                including education, implementation, auditing, 
                and monitoring.
          (6) Periodic reports.--The Secretary shall submit to 
        Congress periodic reports on the pilot projects under 
        this subsection.
  (c) Objectives for Evaluation and Management Guidelines.--The 
objectives for modified evaluation and management documentation 
guidelines developed by the Secretary shall be to--
          (1) identify clinically relevant documentation needed 
        to code accurately and assess coding levels accurately;
          (2) decrease the level of non-clinically pertinent 
        and burdensome documentation time and content in the 
        physician's medical record;
          (3) increase accuracy by reviewers; and
          (4) educate both physicians and reviewers.
  (d) Study of Simpler, Alternative Systems of Documentation 
for Physician Claims.--
          (1) Study.--The Secretary shall carry out a study of 
        the matters described in paragraph (2).
          (2) Matters described.--The matters referred to in 
        paragraph (1) are--
                  (A) the development of a simpler, alternative 
                system of requirements for documentation 
                accompanying claims for evaluation and 
                management physician services for which payment 
                is made under title XVIII of the Social 
                Security Act; and
                  (B) consideration of systems other than 
                current coding and documentation requirements 
                for payment for such physician services.
          (3) Consultation with practicing physicians.--In 
        designing and carrying out the study under paragraph 
        (1), the Secretary shall consult with practicing 
        physicians, including physicians who are part of group 
        practices and including both generalists and 
        specialists.
          (4) Application of hipaa uniform coding 
        requirements.--In developing an alternative system 
        under paragraph (2), the Secretary shall consider 
        requirements of administrative simplification under 
        part C of title XI of the Social Security Act.
          (5) Report to congress.--(A) Not later than October 
        1, 2004, the Secretary shall submit to Congress a 
        report on the results of the study conducted under 
        paragraph (1).
          (B) The Medicare Payment Advisory Commission shall 
        conduct an analysis of the results of the study 
        included in the report under subparagraph (A) and shall 
        submit a report on such analysis to Congress.
  (e) Study on Appropriate Coding of Certain Extended Office 
Visits.--The Secretary shall conduct a study of the 
appropriateness of coding in cases of extended office visits in 
which there is no diagnosis made. Not later than October 1, 
2004, the Secretary shall submit a report to Congress on such 
study and shall include recommendations on how to code 
appropriately for such visits in a manner that takes into 
account the amount of time the physician spent with the 
patient.
  (f) Definitions.--In this section--
          (1) the term ``rural area'' has the meaning given 
        that term in section 1886(d)(2)(D) of the Social 
        Security Act, 42 U.S.C. 1395ww(d)(2)(D); and
          (2) the term ``teaching settings'' are those settings 
        described in section 415.150 of title 42, Code of 
        Federal Regulations.

SEC. 842. IMPROVEMENT IN OVERSIGHT OF TECHNOLOGY AND COVERAGE.

  (a) Improved Coordination Between FDA and CMS on Coverage of 
Breakthrough Medical Devices.--
          (1) In general.--Upon request by an applicant and to 
        the extent feasible (as determined by the Secretary), 
        the Secretary shall, in the case of a class III medical 
        device that is subject to premarket approval under 
        section 515 of the Federal Food, Drug, and Cosmetic 
        Act, ensure the sharing of appropriate information from 
        the review for application for premarket approval 
        conducted by the Food and Drug Administration for 
        coverage decisions under title XVIII of the Social 
        Security Act.
          (2) Publication of plan.--Not later than 6 months 
        after the date of the enactment of this Act, the 
        Secretary shall submit to appropriate Committees of 
        Congress a report that contains the plan for improving 
        such coordination and for shortening the time lag 
        between the premarket approval by the Food and Drug 
        Administration and coding and coverage decisions by the 
        Centers for Medicare & Medicaid Services.
          (3) Construction.--Nothing in this subsection shall 
        be construed as changing the criteria for coverage of a 
        medical device under title XVIII of the Social Security 
        Act nor premarket approval by the Food and Drug 
        Administration and nothing in this subsection shall be 
        construed to increase premarket approval application 
        requirements under the Federal Food, Drug, and Cosmetic 
        Act.
  (b) Council for Technology and Innovation.--Section 1868 (42 
U.S.C. 1395ee), as amended by section 823(a), is amended by 
adding at the end the following new subsection:
  ``(c) Council for Technology and Innovation.--
          ``(1) Establishment.--The Secretary shall establish a 
        Council for Technology and Innovation within the 
        Centers for Medicare & Medicaid Services (in this 
        section referred to as `CMS').
          ``(2) Composition.--The Council shall be composed of 
        senior CMS staff and clinicians and shall be chaired by 
        the Executive Coordinator for Technology and Innovation 
        (appointed or designated under paragraph (4)).
          ``(3) Duties.--The Council shall coordinate the 
        activities of coverage, coding, and payment processes 
        under this title with respect to new technologies and 
        procedures, including new drug therapies, and shall 
        coordinate the exchange of information on new 
        technologies between CMS and other entities that make 
        similar decisions.
          ``(4) Executive coordinator for technology and 
        innovation.--The Secretary shall appoint (or designate) 
        a noncareer appointee (as defined in section 3132(a)(7) 
        of title 5, United States Code) who shall serve as the 
        Executive Coordinator for Technology and Innovation. 
        Such executive coordinator shall report to the 
        Administrator of CMS, shall chair the Council, shall 
        oversee the execution of its duties, and shall serve as 
        a single point of contact for outside groups and 
        entities regarding the coverage, coding, and payment 
        processes under this title.''.
  (c) GAO Study on Improvements in External Data Collection for 
Use in the Medicare Inpatient Payment System.--
          (1) Study.--The Comptroller General of the United 
        States shall conduct a study that analyzes which 
        external data can be collected in a shorter time frame 
        by the Centers for Medicare & Medicaid Services for use 
        in computing payments for inpatient hospital services. 
        The study may include an evaluation of the feasibility 
        and appropriateness of using of quarterly samples or 
        special surveys or any other methods. The study shall 
        include an analysis of whether other executive 
        agencies, such as the Bureau of Labor Statistics in the 
        Department of Commerce, are best suited to collect this 
        information.
          (2) Report.--By not later than October 1, 2003, the 
        Comptroller General shall submit a report to Congress 
        on the study under paragraph (1).
  (d) IOM Study on Local Coverage Determinations.--
          (1) Study.--The Secretary shall enter into an 
        arrangement with the Institute of Medicine of the 
        National Academy of Sciences under which the Institute 
        shall conduct a study on local coverage determinations 
        (including the application of local medical review 
        policies) under the medicare program under title XVIII 
        of the Social Security Act. Such study shall examine--
                  (A) the consistency of the definitions used 
                in such determinations;
                  (B) the types of evidence on which such 
                determinations are based, including medical and 
                scientific evidence;
                  (C) the advantages and disadvantages of local 
                coverage decisionmaking, including the 
                flexibility it offers for ensuring timely 
                patient access to new medical technology for 
                which data are still be collected;
                  (D) the manner in which the local coverage 
                determination process is used to develop data 
                needed for a national coverage determination, 
                including the need for collection of such data 
                within a protocol and informed consent by 
                individuals entitled to benefits under part A 
                of title XVIII of the Social Security Act, or 
                enrolled under part B of such title, or both; 
                and
                  (E) the advantages and disadvantages of 
                maintaining local medicare contractor advisory 
                committees that can advise on local coverage 
                decisions based on an open, collaborative 
                public process.
          (2) Report.--Such arrangement shall provide that the 
        Institute shall submit to the Secretary a report on 
        such study by not later than 3 years after the date of 
        the enactment of this Act. The Secretary shall promptly 
        transmit a copy of such report to Congress.
  (e) Methods for Determining Payment Basis For New Lab 
Tests.--Section 1833(h) (42 U.S.C. 1395l(h)) is amended by 
adding at the end the following:
  ``(8)(A) The Secretary shall establish by regulation 
procedures for determining the basis for, and amount of, 
payment under this subsection for any clinical diagnostic 
laboratory test with respect to which a new or substantially 
revised HCPCS code is assigned on or after January 1, 2004 (in 
this paragraph referred to as `new tests').
  ``(B) Determinations under subparagraph (A) shall be made 
only after the Secretary--
          ``(i) makes available to the public (through an 
        Internet site and other appropriate mechanisms) a list 
        that includes any such test for which establishment of 
        a payment amount under this subsection is being 
        considered for a year;
          ``(ii) on the same day such list is made available, 
        causes to have published in the Federal Register notice 
        of a meeting to receive comments and recommendations 
        (and data on which recommendations are based) from the 
        public on the appropriate basis under this subsection 
        for establishing payment amounts for the tests on such 
        list;
          ``(iii) not less than 30 days after publication of 
        such notice convenes a meeting, that includes 
        representatives of officials of the Centers for 
        Medicare & Medicaid Services involved in determining 
        payment amounts, to receive such comments and 
        recommendations (and data on which the recommendations 
        are based);
          ``(iv) taking into account the comments and 
        recommendations (and accompanying data) received at 
        such meeting, develops and makes available to the 
        public (through an Internet site and other appropriate 
        mechanisms) a list of proposed determinations with 
        respect to the appropriate basis for establishing a 
        payment amount under this subsection for each such 
        code, together with an explanation of the reasons for 
        each such determination, the data on which the 
        determinations are based, and a request for public 
        written comments on the proposed determination; and
          ``(v) taking into account the comments received 
        during the public comment period, develops and makes 
        available to the public (through an Internet site and 
        other appropriate mechanisms) a list of final 
        determinations of the payment amounts for such tests 
        under this subsection, together with the rationale for 
        each such determination, the data on which the 
        determinations are based, and responses to comments and 
        suggestions received from the public.
  ``(C) Under the procedures established pursuant to 
subparagraph (A), the Secretary shall--
          ``(i) set forth the criteria for making 
        determinations under subparagraph (A); and
          ``(ii) make available to the public the data (other 
        than proprietary data) considered in making such 
        determinations.
  ``(D) The Secretary may convene such further public meetings 
to receive public comments on payment amounts for new tests 
under this subsection as the Secretary deems appropriate.
  ``(E) For purposes of this paragraph:
          ``(i) The term `HCPCS' refers to the Health Care 
        Procedure Coding System.
          ``(ii) A code shall be considered to be 
        `substantially revised' if there is a substantive 
        change to the definition of the test or procedure to 
        which the code applies (such as a new analyte or a new 
        methodology for measuring an existing analyte-specific 
        test).''.

SEC. 843. TREATMENT OF HOSPITALS FOR CERTAIN SERVICES UNDER MEDICARE 
                    SECONDARY PAYOR (MSP) PROVISIONS.

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

SEC. 844. EMTALA IMPROVEMENTS.

  (a) Payment for EMTALA-Mandated Screening and Stabilization 
Services.--
          (1) In general.--Section 1862 (42 U.S.C. 1395y) is 
        amended by inserting after subsection (c) the following 
        new subsection:
  ``(d) For purposes of subsection (a)(1)(A), in the case of 
any item or service that is required to be provided pursuant to 
section 1867 to an individual who is entitled to benefits under 
this title, determinations as to whether the item or service is 
reasonable and necessary shall be made on the basis of the 
information available to the treating physician or practitioner 
(including the patient's presenting symptoms or complaint) at 
the time the item or service was ordered or furnished by the 
physician or practitioner (and not on the patient's principal 
diagnosis). When making such determinations with respect to 
such an item or service, the Secretary shall not consider the 
frequency with which the item or service was provided to the 
patient before or after the time of the admission or visit.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall apply to items and services furnished on or 
        after January 1, 2003.
  (b) Notification of Providers When EMTALA Investigation 
Closed.--Section 1867(d) (42 U.S.C. 42 U.S.C. 1395dd(d)) is 
amended by adding at the end the following new paragraph:
          ``(4) Notice upon closing an investigation.--The 
        Secretary shall establish a procedure to notify 
        hospitals and physicians when an investigation under 
        this section is closed.''.
  (c) Prior Review by Peer Review Organizations in EMTALA Cases 
Involving Termination of Participation.--
          (1) In general.--Section 1867(d)(3) (42 U.S.C. 
        1395dd(d)(3)) is amended--
                  (A) in the first sentence, by inserting ``or 
                in terminating a hospital's participation under 
                this title'' after ``in imposing sanctions 
                under paragraph (1)''; and
                  (B) by adding at the end the following new 
                sentences: ``Except in the case in which a 
                delay would jeopardize the health or safety of 
                individuals, the Secretary shall also request 
                such a review before making a compliance 
                determination as part of the process of 
                terminating a hospital's participation under 
                this title for violations related to the 
                appropriateness of a medical screening 
                examination, stabilizing treatment, or an 
                appropriate transfer as required by this 
                section, and shall provide a period of 5 days 
                for such review. The Secretary shall provide a 
                copy of the organization's report to the 
                hospital or physician consistent with 
                confidentiality requirements imposed on the 
                organization under such part B.''.
          (2) Effective date.--The amendments made by paragraph 
        (1) shall apply to terminations of participation 
        initiated on or after the date of the enactment of this 
        Act.

SEC. 845. EMERGENCY MEDICAL TREATMENT AND LABOR ACT (EMTALA) TECHNICAL 
                    ADVISORY GROUP.

  (a) Establishment.--The Secretary shall establish a Technical 
Advisory Group (in this section referred to as the ``Advisory 
Group'') to review issues related to the Emergency Medical 
Treatment and Labor Act (EMTALA) and its implementation. In 
this section, the term ``EMTALA'' refers to the provisions of 
section 1867 of the Social Security Act (42 U.S.C. 1395dd).
  (b) Membership.--The Advisory Group shall be composed of 19 
members, including the Administrator of the Centers for 
Medicare & Medicaid Services and the Inspector General of the 
Department of Health and Human Services and of which--
          (1) 4 shall be representatives of hospitals, 
        including at least one public hospital, that have 
        experience with the application of EMTALA and at least 
        2 of which have not been cited for EMTALA violations;
          (2) 7 shall be practicing physicians drawn from the 
        fields of emergency medicine, cardiology or 
        cardiothoracic surgery, orthopedic surgery, 
        neurosurgery, obstetrics-gynecology, and psychiatry, 
        with not more than one physician from any particular 
        field;
          (3) 2 shall represent patients;
          (4) 2 shall be staff involved in EMTALA 
        investigations from different regional offices of the 
        Centers for Medicare & Medicaid Services; and
          (5) 1 shall be from a State survey office involved in 
        EMTALA investigations and 1 shall be from a peer review 
        organization, both of whom shall be from areas other 
        than the regions represented under paragraph (4).
In selecting members described in paragraphs (1) through (3), 
the Secretary shall consider qualified individuals nominated by 
organizations representing providers and patients.
  (c) General Responsibilities.--The Advisory Group--
          (1) shall review EMTALA regulations;
          (2) may provide advice and recommendations to the 
        Secretary with respect to those regulations and their 
        application to hospitals and physicians;
          (3) shall solicit comments and recommendations from 
        hospitals, physicians, and the public regarding the 
        implementation of such regulations; and
          (4) may disseminate information on the application of 
        such regulations to hospitals, physicians, and the 
        public.
  (d) Administrative Matters.--
          (1) Chairperson.--The members of the Advisory Group 
        shall elect a member to serve as chairperson of the 
        Advisory Group for the life of the Advisory Group.
          (2) Meetings.--The Advisory Group shall first meet at 
        the direction of the Secretary. The Advisory Group 
        shall then meet twice per year and at such other times 
        as the Advisory Group may provide.
  (e) Termination.--The Advisory Group shall terminate 30 
months after the date of its first meeting.
  (f) Waiver of Administrative Limitation.--The Secretary shall 
establish the Advisory Group notwithstanding any limitation 
that may apply to the number of advisory committees that may be 
established (within the Department of Health and Human Services 
or otherwise).

SEC. 846. AUTHORIZING USE OF ARRANGEMENTS WITH OTHER HOSPICE PROGRAMS 
                    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 new subparagraph:
  ``(D) In extraordinary, exigent, or other non-routine 
circumstances, such as unanticipated periods of high patient 
loads, staffing shortages due to illness or other events, or 
temporary travel of a patient outside a hospice program's 
service area, a hospice program may enter into arrangements 
with another hospice program for the provision by that other 
program of services described in paragraph (2)(A)(ii)(I). The 
provisions of paragraph (2)(A)(ii)(II) shall apply with respect 
to the services provided under such arrangements.''.
  (b) Conforming Payment Provision.--Section 1814(i) (42 U.S.C. 
1395f(i)), as amended by section 421(b), is amended by adding 
at the end the following new paragraph:
  ``(5) In the case of hospice care provided by a hospice 
program under arrangements under section 1861(dd)(5)(D) made by 
another hospice program, the hospice program that made the 
arrangements shall bill and be paid for the hospice care.''.
  (c) Effective Date.--The amendments made by this section 
shall apply to hospice care provided on or after the date of 
the enactment of this Act.

SEC. 847. APPLICATION OF OSHA BLOODBORNE PATHOGENS STANDARD TO CERTAIN 
                    HOSPITALS.

  (a) In General.--Section 1866 (42 U.S.C. 1395cc) is amended--
          (1) in subsection (a)(1)--
                  (A) in subparagraph (R), by striking ``and'' 
                at the end;
                  (B) in subparagraph (S), by striking the 
                period at the end and inserting ``, and''; and
                  (C) by inserting after subparagraph (S) the 
                following new subparagraph:
          ``(T) in the case of hospitals that are not otherwise 
        subject to the Occupational Safety and Health Act of 
        1970, to comply with the Bloodborne Pathogens standard 
        under section 1910.1030 of title 29 of the Code of 
        Federal Regulations (or as subsequently 
        redesignated).''; and
          (2) by adding at the end of subsection (b) the 
        following new paragraph:
  ``(4)(A) A hospital that fails to comply with the requirement 
of subsection (a)(1)(T) (relating to the Bloodborne Pathogens 
standard) is subject to a civil money penalty in an amount 
described in subparagraph (B), but is not subject to 
termination of an agreement under this section.
  ``(B) The amount referred to in subparagraph (A) is an amount 
that is similar to the amount of civil penalties that may be 
imposed under section 17 of the Occupational Safety and Health 
Act of 1970 for a violation of the Bloodborne Pathogens 
standard referred to in subsection (a)(1)(T) by a hospital that 
is subject to the provisions of such Act.
  ``(C) A civil money penalty under this paragraph shall be 
imposed and collected in the same manner as civil money 
penalties under subsection (a) of section 1128A are imposed and 
collected under that section.''.
  (b) Effective Date.--The amendments made by this subsection 
(a) shall apply to hospitals as of July 1, 2003.

SEC. 848. BIPA-RELATED TECHNICAL AMENDMENTS AND CORRECTIONS.

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

SEC. 849. CONFORMING AUTHORITY TO WAIVE A PROGRAM EXCLUSION.

  The first sentence of section 1128(c)(3)(B) (42 U.S.C. 1320a-
7(c)(3)(B)) is amended to read as follows: ``Subject to 
subparagraph (G), in the case of an exclusion under subsection 
(a), the minimum period of exclusion shall be not less than 
five years, except that, upon the request of the administrator 
of a Federal health care program (as defined in section 
1128B(f)) who determines that the exclusion would impose a 
hardship on individuals entitled to benefits under part A of 
title XVIII or enrolled under part B of such title, or both, 
the Secretary may waive the exclusion under subsection (a)(1), 
(a)(3), or (a)(4) with respect to that program in the case of 
an individual or entity that is the sole community physician or 
sole source of essential specialized services in a 
community.''.

SEC. 850. TREATMENT OF CERTAIN DENTAL CLAIMS.

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

SEC. 851. ANNUAL PUBLICATION OF LIST OF NATIONAL COVERAGE 
                    DETERMINATIONS.

  The Secretary shall provide, in an appropriate annual 
publication available to the public, a list of national 
coverage determinations made under title XVIII of the Social 
Security Act in the previous year and information on how to get 
more information with respect to such determinations.

                     TITLE IX--MEDICAID PROVISIONS

SEC. 901. NATIONAL BIPARTISAN COMMISSION ON THE FUTURE OF MEDICAID.

  (a) Establishment.--There is established a commission to be 
known as the National Bipartisan Commission on the Future of 
Medicaid (in this section referred to as the ``Commission'').
  (b) Duties of the Commission.--The Commission shall--
          (1) review and analyze the long-term financial 
        condition of the medicaid program under title XIX of 
        the Social Security Act (42 U.S.C. 1396 et seq.);
          (2) identify the factors that are causing, and the 
        consequences of, increases in costs under the medicaid 
        program, including--
                  (A) the impact of these cost increases upon 
                State budgets, funding for other State 
                programs, and levels of State taxes necessary 
                to fund growing expenditures under the medicaid 
                program;
                  (B) the financial obligations of the Federal 
                government arising from the Federal matching 
                requirement for expenditures under the medicaid 
                program; and
                  (C) the size and scope of the current program 
                and how the program has evolved over time;
          (3) analyze potential policies that will ensure both 
        the financial integrity of the medicaid program and the 
        provision of appropriate benefits under such program;
          (4) make recommendations for establishing incentives 
        and structures to promote enhanced efficiencies and 
        ways of encouraging innovative State policies under the 
        medicaid program;
          (5) make recommendations for establishing the 
        appropriate balance between benefits covered, payments 
        to providers, State and Federal contributions and, 
        where appropriate, recipient cost-sharing obligations;
          (6) make recommendations on the impact of promoting 
        increased utilization of competitive, private 
        enterprise models to contain program cost growth, 
        through enhanced utilization of private plans, pharmacy 
        benefit managers, and other methods currently being 
        used to contain private sector health-care costs;
          (7) make recommendations on the financing of 
        prescription drug benefits currently covered under 
        medicaid programs, including analysis of the current 
        Federal manufacturer rebate program, its impact upon 
        both private market prices as well as those paid by 
        other government purchasers, recent State efforts to 
        negotiate additional supplemental manufacturer rebates 
        and the ability of pharmacy benefit managers to lower 
        drug costs;
          (8) review and analyze such other matters relating to 
        the medicaid program as the Commission deems 
        appropriate; and
          (9) analyze the impact of impending demographic 
        changes upon medicaid benefits, including long term 
        care services, and make recommendations for how best to 
        appropriately divide State and Federal responsibilities 
        for funding these benefits.
  (c) Membership.--
          (1) Number and appointment.--The Commission shall be 
        composed of 17 members, of whom--
                  (A) four shall be appointed by the President;
                  (B) six shall be appointed by the Majority 
                Leader of the Senate, in consultation with the 
                Minority Leader of the Senate, of whom not more 
                than 4 shall be of the same political party;
                  (C) six shall be appointed by the Speaker of 
                the House of Representatives, in consultation 
                with the Minority Leader of the House of 
                Representatives, of whom not more than 4 shall 
                be of the same political party; and
                  (D) one, who shall serve as Chairman of the 
                Commission, appointed jointly by the President, 
                Majority Leader of the Senate, and the Speaker 
                of the House of Representatives.
          (2) Deadline for appointment.--Members of the 
        Commission shall be appointed by not later than 
        December 1, 2002.
          (3) Terms of appointment.--The term of any 
        appointment under paragraph (1) to the Commission shall 
        be for the life of the Commission.
          (4) Meetings.--The Commission shall meet at the call 
        of its Chairman or a majority of its members.
          (5) Quorum.--A quorum shall consist of 8 members of 
        the Commission, except that 4 members may conduct a 
        hearing under subsection (e).
          (6) Vacancies.--A vacancy on the Commission shall be 
        filled in the same manner in which the original 
        appointment was made not later than 30 days after the 
        Commission is given notice of the vacancy and shall not 
        affect the power of the remaining members to execute 
        the duties of the Commission.
          (7) Compensation.--Members of the Commission shall 
        receive no additional pay, allowances, or benefits by 
        reason of their service on the Commission.
          (8) Expenses.--Each member of the Commission shall 
        receive travel expenses and per diem in lieu of 
        subsistence in accordance with sections 5702 and 5703 
        of title 5, United States Code.
  (d) Staff and Support Services.--
          (1) Executive director.--
                  (A) Appointment.--The Chairman shall appoint 
                an executive director of the Commission.
                  (B) Compensation.--The executive director 
                shall be paid the rate of basic pay for level V 
                of the Executive Schedule.
          (2) Staff.--With the approval of the Commission, the 
        executive director may appoint such personnel as the 
        executive director considers appropriate.
          (3) Applicability of civil service laws.--The staff 
        of the Commission shall be appointed without regard to 
        the provisions of title 5, United States Code, 
        governing appointments in the competitive service, and 
        shall be paid without regard to the provisions of 
        chapter 51 and subchapter III of chapter 53 of such 
        title (relating to classification and General Schedule 
        pay rates).
          (4) Experts and consultants.--With the approval of 
        the Commission, the executive director may procure 
        temporary and intermittent services under section 
        3109(b) of title 5, United States Code.
          (5) Physical facilities.--The Administrator of the 
        General Services Administration shall locate suitable 
        office space for the operation of the Commission. The 
        facilities shall serve as the headquarters of the 
        Commission and shall include all necessary equipment 
        and incidentals required for the proper functioning of 
        the Commission.
  (e) Powers of Commission.--
          (1) Hearings and other activities.--For the purpose 
        of carrying out its duties, the Commission may hold 
        such hearings and undertake such other activities as 
        the Commission determines to be necessary to carry out 
        its duties.
          (2) Studies by gao.--Upon the request of the 
        Commission, the Comptroller General shall conduct such 
        studies or investigations as the Commission determines 
        to be necessary to carry out its duties.
          (3) Cost estimates by congressional budget office and 
        office of the chief actuary of cms.--
                  (A) The Director of the Congressional Budget 
                Office or the Chief Actuary of the Centers for 
                Medicare & Medicaid Services, or both, shall 
                provide to the Commission, upon the request of 
                the Commission, such cost estimates as the 
                Commission determines to be necessary to carry 
                out its duties.
                  (B) The Commission shall reimburse the 
                Director of the Congressional Budget Office for 
                expenses relating to the employment in the 
                office of the Director of such additional staff 
                as may be necessary for the Director to comply 
                with requests by the Commission under 
                subparagraph (A).
          (4) Detail of federal employees.--Upon the request of 
        the Commission, the head of any Federal agency is 
        authorized to detail, without reimbursement, any of the 
        personnel of such agency to the Commission to assist 
        the Commission in carrying out its duties. Any such 
        detail shall not interrupt or otherwise affect the 
        civil service status or privileges of the Federal 
        employee.
          (5) Technical assistance.--Upon the request of the 
        Commission, the head of a Federal agency shall provide 
        such technical assistance to the Commission as the 
        Commission determines to be necessary to carry out its 
        duties.
          (6) Use of mails.--The Commission may use the United 
        States mails in the same manner and under the same 
        conditions as Federal agencies and shall, for purposes 
        of the frank, be considered a commission of Congress as 
        described in section 3215 of title 39, United States 
        Code.
          (7) Obtaining information.--The Commission may secure 
        directly from any Federal agency information necessary 
        to enable it to carry out its duties, if the 
        information may be disclosed under section 552 of title 
        5, United States Code. Upon request of the Chairman of 
        the Commission, the head of such agency shall furnish 
        such information to the Commission.
          (8) Administrative support services.--Upon the 
        request of the Commission, the Administrator of General 
        Services shall provide to the Commission on a 
        reimbursable basis such administrative support services 
        as the Commission may request.
          (9) Printing.--For purposes of costs relating to 
        printing and binding, including the cost of personnel 
        detailed from the Government Printing Office, the 
        Commission shall be deemed to be a committee of the 
        Congress.
  (f) Report.--Not later than March 1, 2004, the Commission 
shall submit a report to the President and Congress which shall 
contain a detailed statement of the recommendations, findings, 
and conclusions of the Commission.
  (g) Termination.--The Commission shall terminate 30 days 
after the date of submission of the report required in 
subsection (f).
  (h) Authorization of Appropriations.--There are authorized to 
be appropriated $1,500,000 to carry out this section.

SEC. 902. DISPROPORTIONATE SHARE HOSPITAL (DSH) PAYMENTS.

  Section 1923(f)(3) (42 U.S.C. 1396r-4(f)(3)) is amended--
          (1) in subparagraph (A), by amending subparagraph (A) 
        to read as follows:
                  ``(A) In general.--The DSH allotment for any 
                State--
                          ``(i) for fiscal year 2003 is equal 
                        to the DSH allotment for the State for 
                        fiscal year 2001 under the table in 
                        paragraph (2), without regard to 
                        paragraph (4), 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 
                        fiscal year 2001; and
                          ``(ii) for each succeeding fiscal 
                        year is equal to the DSH allotment for 
                        the State for the previous fiscal year 
                        under this subparagraph increased, 
                        subject to subparagraph (B) and 
                        paragraph (5), by 1.7 percent or, in 
                        the case of fiscal years beginning with 
                        the fiscal year specified in 
                        subparagraph (C) for that State, the 
                        percentage change in the consumer price 
                        index for all urban consumers (all 
                        items; U.S. city average), for the 
                        previous fiscal year.''; and
          (2) by adding at the end the following new 
        subparagraph:
                  ``(C) Fiscal year specified.--For purposes of 
                subparagraph (A)(ii), the fiscal year specified 
                in this subparagraph for a State is the first 
                fiscal year for which the Secretary estimates 
                that the DSH allotment for that State will 
                equal (or no longer exceed) the DSH allotment 
                for that State under the law as in effect 
                before the date of the enactment of this 
                subparagraph.''.

SEC. 903. MEDICAID PHARMACY ASSISTANCE PROGRAM.

  Title XIX is amended--
          (1) by redesignating section 1935 as section 1936; 
        and
          (2) by inserting after section 1934 the following new 
        section:

                     ``PHARMACY ASSISTANCE PROGRAM

  ``Sec. 1936. (a) In General.--A State plan under this title 
may provide assistance, consistent with this section, to 
pharmacies in implementing the new prescription drug benefit 
under part D of title XVIII.
  ``(b) Use of Funds.--Such grants may be provided to assist 
pharmacies--
          ``(1) in complying with requirements relating to 
        electronic prescribing;
          ``(2) in prospective drug utilization review; and
          ``(3) in developing innovative medication therapy 
        management programs using information technology.
  ``(c) Condition for Receipt.--A pharmacy is not eligible for 
a grant under this section unless the pharmacy demonstrates how 
it will operate a program that will work effectively with 
patients to reduce adverse drug reactions and medical errors. 
No grant shall be awarded under this section before January 1, 
2004.
  (d) Priorities.--In awarding grants under this section, a 
State shall take into account and give priority to the needs of 
small or rural pharmacies and to pharmacies which service 
underserved areas.
  ``(e) Funding.--
          ``(1) Treatment as medical assistance.--Subject to 
        paragraph (2), amounts provided under grants by a State 
        under this section (and the reasonable administrative 
        expenses of a State in carrying out this section, not 
        to exceed 10 percent of the total amount awarded as 
        grants by a State) shall be treated as the provision of 
        medical assistance for purposes of section 1903. In 
        applying section 1903(a)(1) with respect to such 
        assistance, the Federal medical assistance percentage 
        is deemed to be 100 percent.
          ``(2) Limitation and allotment.--
                  ``(A) Limitation.--The total amount for which 
                Federal financial participation is available 
                under section 1903(a) for grants and 
                administrative expenses under this section in 
                calendar quarters in any fiscal year is limited 
                to $150,000,000 in each of fiscal years 2004 
                through 2007.
                  ``(B) Allocation.--The Secretary shall 
                provide a method for the allocation of the 
                amount of funds described in subparagraph (A) 
                in each fiscal year among the States. Such 
                method shall take into account the distribution 
                among States of priority pharmacies specified 
                in subsection (d).
          ``(3) Requirement for application.--The preceding 
        provisions of this section shall only apply to a State 
        if the State has filed with the Secretary an amendment 
        to its State plan that provides for the awarding of 
        grants under this section that is consistent with the 
        requirements of this section.''.

                                  
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