[House Report 108-178]
[From the U.S. Government Publishing Office]



108th Congress                                            Rept. 108-178
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part 2
======================================================================
 
        MEDICARE PRESCRIPTION DRUG AND MODERNIZATION ACT OF 2003

                                _______
                                

 July 15, 2003.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

    Mr. Thomas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 2473]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 2473) to amend title XVIII of the Social Security 
Act to provide for a voluntary program for prescription drug 
coverage under the Medicare Program, to modernize the Medicare 
Program, and for other purposes, having considered the same, 
report favorably thereon with an amendment and recommend that 
the bill as amended do pass.

                                CONTENTS

                                                                   Page
  I. Introduction...................................................144
          A. Purpose and Summary.................................   144
          B. Background and Need for Legislation.................   144
          C. Legislative History.................................   147
 II. Explanation of Provisions......................................150
          A. Title I--Medicare Prescription Drug Benefit.........   150
          B. Title II--Medicare Enhanced Fee-for-Service and 
              Medicare Advantage Programs; Medicare Competition..   174
          C. Title III--Combatting Waste, Fraud and Abuse........   189
          D. Title IV--Rural Health Care Improvements............   199
          E. Title V--Provisions Relating to Part A..............   215
          F. Title VI--Provisions Relating to Part B.............   222
          G. Title VII--Provisions Relating to Parts A and B.....   239
          H. Title VIII--Medicare Benefits Administration........   250
          I. Title IX--Regulatory Relief.........................   253
III. Votes of the Committee.........................................288
 IV. Budget Effects of the Bill.....................................293
          The Congressional Budget Office has not submitted a 
              final score of the legislation at the time of the 
              filing of this report (July 15, 2003)..............
  V. Other Matters Required To Be Discussed Under House Rules.......293
          A. Committee Oversight Findings and Recommendations....   293
          B. Summary of General Performance Goals and Objectives.   293
          C. Constitutional Authority Statement..................   293
 VI. Changes in Existing Law Made by the Bill, as Reported.............
          Legislative Counsel has not prepared a Ramseyer at the 
              time of the filing of this report (July 15, 2003)..   294
VII. Views..........................................................295

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

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

              TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

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

         ``Part D--Voluntary Prescription Drug Benefit Program

        ``Sec. 1860D-1. Benefits; eligibility; enrollment; and coverage 
                        period.
        ``Sec. 1860D-2. Requirements for qualified prescription drug 
                        coverage.
        ``Sec. 1860D-3. Beneficiary protections for qualified 
                        prescription drug coverage.
        ``Sec. 1860D-4. Requirements for and contracts with 
                        prescription drug plan (PDP) sponsors.
        ``Sec. 1860D-5. Process for beneficiaries to select qualified 
                        prescription drug coverage.
        ``Sec. 1860D-6. Submission of bids and premiums.
        ``Sec. 1860D-7. Premium and cost-sharing subsidies for low-
                        income individuals.
        ``Sec. 1860D-8. Subsidies for all medicare beneficiaries for 
                        qualified prescription drug coverage.
        ``Sec. 1860D-9. Medicare Prescription Drug Trust Fund.
        ``Sec. 1860D-10. Definitions; application to medicare advantage 
                        and EFFS programs; treatment of references to 
                        provisions in part C.
Sec. 102. Offering of qualified prescription drug coverage under 
Medicare Advantage and enhanced fee-for-service (EFFS) program.
Sec. 103. Medicaid amendments.
``Sec. 1935. Special provisions relating to medicare prescription drug 
benefit.
Sec. 104. Medigap transition.
Sec. 105. Medicare prescription drug discount card endorsement program.
Sec. 106. Disclosure of return information for purposes of carrying out 
medicare catastrophic prescription drug program.
Sec. 107. State pharmaceutical assistance transition commission.

  TITLE II--MEDICARE ENHANCED FEE-FOR-SERVICE AND MEDICARE ADVANTAGE 
                     PROGRAMS; MEDICARE COMPETITION

Sec. 200. Medicare modernization and revitalization.

         Subtitle A--Medicare Enhanced Fee-for-Service Program

Sec. 201. Establishment of enhanced fee-for-service (EFFS) program 
under medicare.

               ``Part E--Enhanced Fee-for-Service Program

        ``Sec. 1860E-1. Offering of enhanced fee-for-service plans 
                        throughout the United States.
        ``Sec. 1860E-2. Offering of enhanced fee-for-service (EFFS) 
                        plans.
        ``Sec. 1860E-3. Submission of bids; beneficiary savings; 
                        payment of plans.
        ``Sec. 1860E-4. Premiums; organizational and financial 
                        requirements; establishment of standards; 
                        contracts with EFFS organizations.

                 Subtitle B--Medicare Advantage Program

                  Chapter 1--Implementation Of Program

Sec. 211. Implementation of medicare advantage program.
Sec. 212. Medicare advantage improvements.

            Chapter 2--Implementation Of Competition Program

Sec. 221. Competition program beginning in 2006.

                     Chapter 3--Additional Reforms

Sec. 231. Making permanent change in medicare advantage reporting 
deadlines and annual, coordinated election period.
Sec. 232. Avoiding duplicative State regulation.
Sec. 233. Specialized medicare advantage plans for special needs 
beneficiaries.
Sec. 234. Medicare MSAs.
Sec. 235. Extension of reasonable cost contracts.
Sec. 236. Extension of municipal health service demonstration projects.

       Subtitle C--Application of FEHBP-Style Competitive Reforms

Sec. 241. Application of FEHBP-style competitive reform beginning in 
2010.

             TITLE III--COMBATTING WASTE, FRAUD, AND ABUSE

Sec. 301. Medicare secondary payor (MSP) provisions.
Sec. 302. Competitive acquisition of certain items and services.
Sec. 303. Competitive acquisition of covered outpatient drugs and 
biologicals.
Sec. 304. Demonstration project for use of recovery audit contractors.

                TITLE IV--RURAL HEALTH CARE IMPROVEMENTS

Sec. 401. Enhanced disproportionate share hospital (DSH) treatment for 
rural hospitals and urban hospitals with fewer than 100 beds.
Sec. 402. Immediate establishment of uniform standardized amount in 
rural and small urban areas.
Sec. 403. Establishment of essential rural hospital classification.
Sec. 404. More frequent update in weights used in hospital market 
basket.
Sec. 405. Improvements to critical access hospital program.
Sec. 406. Redistribution of unused resident positions.
Sec. 407. Two-year extension of hold harmless provisions for small 
rural hospitals and sole community hospitals under prospective payment 
system for hospital outpatient department services.
Sec. 408. Exclusion of certain rural health clinic and federally 
qualified health center services from the prospective payment system 
for skilled nursing facilities.
Sec. 409. Recognition of attending nurse practitioners as attending 
physicians to serve hospice patients.
Sec. 410. Improvement in payments to retain emergency capacity for 
ambulance services in rural areas.
Sec. 411. Two-year increase for home health services furnished in a 
rural area.
Sec. 412. Providing safe harbor for certain collaborative efforts that 
benefit medically underserved populations.
Sec. 413. GAO study of geographic differences in payments for 
physicians' services.
Sec. 414. Treatment of missing cost reporting periods for sole 
community hospitals.
Sec. 415. Extension of telemedicine demonstration project.
Sec. 416. Adjustment to the medicare inpatient hospital PPS wage index 
to revise the labor-related share of such index.
Sec. 417. Medicare incentive payment program improvements for physician 
scarcity.

                 TITLE V--PROVISIONS RELATING TO PART A

                Subtitle A--Inpatient Hospital Services

Sec. 501. Revision of acute care hospital payment updates.
Sec. 502. Recognition of new medical technologies under inpatient 
hospital PPS.
Sec. 503. Increase in Federal rate for hospitals in Puerto Rico.
Sec. 504. Wage index adjustment reclassification reform .
Sec. 505. MedPAC report on specialty hospitals.

                      Subtitle B--Other Provisions

Sec. 511. Payment for covered skilled nursing facility services.
Sec. 512. Coverage of hospice consultation services.

                TITLE VI--PROVISIONS RELATING TO PART B

                    Subtitle A--Physicians' Services

Sec. 601. Revision of updates for physicians' services.
Sec. 602. Studies on access to physicians' services.
Sec. 603. MedPAC report on payment for physicians' services.

                    Subtitle B--Preventive Services

Sec. 611. Coverage of an initial preventive physical examination.
Sec. 612. Coverage of cholesterol and blood lipid screening.
Sec. 613. Waiver of deductible for colorectal cancer screening tests.
Sec. 614. Improved payment for certain mammography services.

                       Subtitle C--Other Services

Sec. 621. Hospital outpatient department (HOPD) payment reform.
Sec. 622. Payment for ambulance services.
Sec. 623. Renal dialysis services.
Sec. 624. One-year moratorium on therapy caps; provisions relating to 
reports.
Sec. 625. Adjustment to payments for services furnished in ambulatory 
surgical centers.
Sec. 626. Payment for certain shoes and inserts under the fee schedule 
for orthotics and prosthetics.
Sec. 627. Waiver of part B late enrollment penalty for certain military 
retirees; special enrollment period.
Sec. 628. Part B deductible.
Sec. 629. Extension of coverage of intravenous immune globulin (IVIG) 
for the treatment of primary immune deficiency diseases in the home.

            TITLE VII--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

Sec. 701. Update in home health services.
Sec. 702. Establishment of reduced copayment for a home health service 
episode of care for certain beneficiaries.
Sec. 703. MedPAC study on medicare margins of home health agencies.

             Subtitle B--Direct Graduate Medical Education

Sec. 711. Extension of update limitation on high cost programs.

                  Subtitle C--Chronic Care Improvement

Sec. 721. Voluntary chronic care improvement under traditional fee-for-
service.
Sec. 722. Chronic care improvement under medicare advantage and 
enhanced fee-for-service programs.
Sec. 723. Institute of Medicine report.
Sec. 724. MedPAC report.

                      Subtitle D--Other Provisions

Sec. 731. Modifications to medicare payment advisory commission 
(MedPAC).
Sec. 732. Demonstration project for medical adult day care services.
Sec. 733. Improvements in national and local coverage determination 
process to respond to changes in technology.
Sec. 734. Treatment of certain physician pathology services.

              TITLE VIII--MEDICARE BENEFITS ADMINISTRATION

Sec. 801. Establishment of Medicare Benefits Administration.

         TITLE IX--REGULATORY REDUCTION AND CONTRACTING REFORM

                     Subtitle A--Regulatory Reform

Sec. 901. Construction; definition of supplier.

                               ``Supplier

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

                     Subtitle B--Contracting Reform

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

                   Subtitle C--Education and Outreach

Sec. 921. Provider education and technical assistance.
``Sec. 1889. Provider education and technical assistance.
Sec. 922. Small provider technical assistance demonstration program.
Sec. 923. Medicare Provider Ombudsman; Medicare Beneficiary Ombudsman.
Sec. 924. Beneficiary outreach demonstration program.
Sec. 925. Inclusion of additional information in notices to 
beneficiaries about skilled nursing facility benefits.
Sec. 926. Information on medicare-certified skilled nursing facilities 
in hospital discharge plans.

                    Subtitle D--Appeals and Recovery

Sec. 931. Transfer of responsibility for medicare appeals.
Sec. 932. Process for expedited access to review.
Sec. 933. Revisions to medicare appeals process.
Sec. 934. Prepayment review.
Sec. 935. Recovery of overpayments.
Sec. 936. Provider enrollment process; right of appeal.
Sec. 937. Process for correction of minor errors and omissions without 
pursuing appeals process.
Sec. 938. Prior determination process for certain items and services; 
advance beneficiary notices.

                  Subtitle V--Miscellaneous Provisions

Sec. 941. Policy development regarding evaluation and management (E & 
M) documentation guidelines.
Sec. 942. Improvement in oversight of technology and coverage.
Sec. 943. Treatment of hospitals for certain services under medicare 
secondary payor (MSP) provisions.
Sec. 944. EMTALA improvements.
Sec. 945. Emergency Medical Treatment and Active Labor Act (EMTALA) 
technical advisory group.
Sec. 946. Authorizing use of arrangements to provide core hospice 
services in certain circumstances.
Sec. 947. Application of osha bloodborne pathogens standard to certain 
hospitals.
Sec. 948. BIPA-related technical amendments and corrections.
Sec. 949. Conforming authority to waive a program exclusion.
Sec. 950. Treatment of certain dental claims.
Sec. 951. Furnishing hospitals with information to compute dsh formula.
Sec. 952. Revisions to reassignment provisions.
Sec. 953. Other provisions.
Sec. 954. Temporary suspension of OASIS requirement for collection of 
data on non-medicare and non-medicaid patients.

              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 F; and
          (2) by inserting after part C the following new part:

         ``Part D--Voluntary Prescription Drug Benefit Program

``SEC. 1860D-1. 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 1860D-2(a)) as follows:
          ``(1) Medicare-related plans.--
                  ``(A) Medicare advantage.--If the individual is 
                eligible to enroll in a Medicare Advantage plan that 
                provides qualified prescription drug coverage under 
                section 1851(j), the individual may enroll in such plan 
                and obtain coverage through such plan.
                  ``(B) EFFS plans.--If the individual is eligible to 
                enroll in an EFFS plan that provides qualified 
                prescription drug coverage under part E under section 
                1860E-2(d), the individual may enroll in such plan and 
                obtain coverage through such plan.
                  ``(C) MA-EFFS plan; MA-EFFS Rx plan.--For purposes of 
                this part, the term `MA-EFFS plan' means a Medicare 
                Advantage plan under part C and an EFFS plan under part 
                E and the term `MA-EFFS Rx plan' means a MA-EFFS plan 
                insofar as such plan provides qualified prescription 
                drug coverage.
          ``(2) Prescription drug plan.--If the individual is not 
        enrolled in a MA-EFFS plan , the individual may enroll under 
        this part in a prescription drug plan (as defined in section 
        1860D-10(a)(5)).
Such individuals shall have a choice of such plans under section 1860D-
5(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 MA-EFFS Rx plan under part C 
        or part E, 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 1809(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 Advantage and EFFS programs 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 an 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 October 1, 2005, 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 
        1860D-3(b)(1) on prescription drug plans shall be made 
        available during election 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 MA-EFFS Rx 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 advantage 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 
                enrolls under a prescription drug plan or in a MA-EFFS 
                Rx plan during the individual's initial enrollment 
                period under this part or 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 entity offering a prescription drug plan 
                or MA-EFFS Rx plan 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 an entity offering 
                a MA-EFFS Rx plan 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 ma-effs rx plan.--Qualified prescription 
                        drug coverage under a prescription drug plan or 
                        under a MA-EFFS Rx 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 demonstration project under 
                        part C that demonstrates the application of 
                        capitation payment rates for frail elderly 
                        medicare beneficiaries through the use of an 
                        interdisciplinary team and through the 
                        provision of primary care services to such 
                        beneficiaries by means of such a team at the 
                        nursing facility involved.
                          ``(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 1860D-8(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, 2006, 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 MA-EFFS 
                Rx 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 that offers a 
        prescription drug plan in an area designated under section 
        1860D-4(b)(5) shall make such plan available to all eligible 
        individuals residing in the area without regard to their health 
        or economic status or their place of residence within the area.
  ``(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 2006.--In no case shall 
        any election take effect before January 1, 2006.
          ``(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. 1860D-2. REQUIREMENTS FOR QUALIFIED PRESCRIPTION DRUG COVERAGE.

  ``(a) Requirements.--
          ``(1) In general.--For purposes of this part and part C and 
        part E, 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 or E. If the 
                Administrator finds, in the case of a qualified 
                prescription drug coverage under a prescription drug 
                plan or a MA-EFFS Rx 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 or E.
          ``(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 2006, 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) 80:20 benefit structure.--
                  ``(A) 20 percent coinsurance.--The coverage has cost-
                sharing (for costs above the annual deductible 
                specified in paragraph (1) and up to the initial 
                coverage limit under paragraph (3)) that is--
                          ``(i) 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.
                  ``(B) Use of tiers.--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).
          ``(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 2006, 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.--
                          ``(i) In general.--For purposes of this part, 
                        the `annual out-of-pocket threshold' specified 
                        in this subparagraph is equal to $3,500 
                        (subject to adjustment under clause (ii) and 
                        subparagraph (D)).
                          ``(ii) Inflation increase.--For a year after 
                        2006, the dollar amount specified in clause (i) 
                        shall be increased by the annual percentage 
                        increase described in paragraph (5) for the 
                        year involved. Any amount determined under the 
                        previous sentence 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 1860D-7, under title XIX, or 
                        under a State pharmaceutical assistance program 
                        and the individual (or other individual) is not 
                        reimbursed through insurance or otherwise, a 
                        group health plan, or other third-party payment 
                        arrangement (other than under such title or 
                        such program) for such costs.
                  ``(D) Adjustment of annual out-of-pocket 
                thresholds.--
                          ``(i) In general.--For each enrollee in a 
                        prescription drug plan or in a MA-EFFS Rx plan 
                        whose adjusted gross income exceeds the income 
                        threshold as defined in clause (ii) for a year, 
                        the annual out-of-pocket threshold otherwise 
                        determined under subparagraph (B) for such year 
                        shall be increased by an amount equal to the 
                        percentage specified in clause (iii), 
                        multiplied by the lesser of--
                                  ``(I) the amount of such excess; or
                                  ``(II) the amount by which the income 
                                threshold limit exceeds the income 
                                threshold.
                        Any amount determined under the previous 
                        sentence that is not a multiple of $100 shall 
                        be rounded to the nearest multiple of $100.
                          ``(ii) Income threshold.--For purposes of 
                        clause (i)--
                                  ``(I) In general.--Subject to 
                                subclause (II), the term `income 
                                threshold' means $60,000 and the term 
                                `income threshold limit' means 
                                $200,000.
                                  ``(II) Income inflation adjustment.--
                                In the case of a year beginning after 
                                2006, each of the dollar amounts in 
                                subclause (I) shall be increased by an 
                                amount equal to such dollar amount 
                                multiplied by the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) of the Internal Revenue Code of 
                                1986 for such year, determined by 
                                substituting `calendar year 2005' for 
                                `calendar year 1992'. If any amount 
                                increased under the previous sentence 
                                is not a multiple of $100, such amount 
                                shall be rounded to the nearest 
                                multiple of $100.
                          ``(iii) Percentage.--The percentage specified 
                        in this clause for a year is a fraction 
                        (expressed as a percentage) equal to--
                                  ``(I) the annual out-of-pocket 
                                threshold for a year under subparagraph 
                                (B) (determined without regard to this 
                                subparagraph), divided by
                                  ``(II) the income threshold under 
                                clause (ii) for that year.
                        If any percentage determined under the previous 
                        sentence that is not a multiple of \1/10\th of 
                        1 percentage point, such percentage shall be 
                        rounded to the nearest multiple of \1/10\th of 
                        1 percentage point.
                          ``(iv) Use of most recent return 
                        information.--For purposes of clause (i) for an 
                        enrollee for a year, except as provided in 
                        clause (v), the adjusted gross income of an 
                        individual shall be based on the most recent 
                        information disclosed to the Secretary under 
                        section 6109(l)(19) of the Internal Revenue 
                        Code of 1986 before the beginning of that year.
                          ``(v) Individual election to present most 
                        recent information regarding income.--The 
                        Secretary shall provide, in coordination with 
                        the Secretary of the Treasury, a procedure 
                        under which, for purposes of applying this 
                        subparagraph for a calendar year, instead of 
                        using the information described in clause (iv), 
                        an enrollee may elect to use more recent 
                        information, including information with respect 
                        to a taxable year ending in such calendar year. 
                        Such process shall--
                                  ``(I) require the enrollee to provide 
                                the Secretary with a copy of the 
                                relevant portion of the more recent 
                                return to be used under this clause;
                                  ``(II) provide for the Medicare 
                                Beneficiary Ombudsman (under section 
                                1810) offering assistance to such 
                                enrollees in presenting such 
                                information and the toll-free number 
                                under such section being a point of 
                                contact for beneficiaries to inquire as 
                                to how to present such information;
                                  ``(III) provide for the verification 
                                of the information in such return by 
                                the Secretary of the Treasury under 
                                section 6103(l)(19) of the Internal 
                                Revenue Code of 1986; and
                                  ``(IV) provide for the payment by the 
                                Secretary (in a manner specified by the 
                                Secretary) to the enrollee of an amount 
                                equal to the excess of the benefit 
                                payments that would have been payable 
                                under the plan if the more recent 
                                return information were used, over the 
                                benefit payments that were made under 
                                the plan.
                        In the case of a payment under subclause (III) 
                        for an enrollee under a prescription drug plan, 
                        the PDP sponsor of the plan shall pay to the 
                        Secretary the amount so paid, less the 
                        applicable reinsurance amount that would have 
                        applied under section 1860D-8(c)(1)(B) if such 
                        payment had been treated as an allowable cost 
                        under such section. Such plan payment shall be 
                        deposited in the Treasury to the credit of the 
                        Medicare Prescription Drug Account in the 
                        Federal Supplementary Medical Insurance Trust 
                        Fund (under section 1841).
                          ``(vi) Dissemination of information on 
                        process.--The Secretary shall provide, through 
                        the annual medicare handbook under section 
                        1804(a), for a general description of the 
                        adjustment of annual out-of-pocket thresholds 
                        provided under this subparagraph, including the 
                        process for adjustment based upon more recent 
                        information and the confidentiality provisions 
                        of subparagraph (F), and shall provide for 
                        dissemination of a table for each year that 
                        sets forth the amount of the adjustment that is 
                        made under clause (i) based on the amount of an 
                        enrollee's adjusted gross income.
                  ``(E) Requesting information on enrollees.--
                          ``(i) In general.--The Secretary shall, 
                        periodically as required to carry out 
                        subparagraph (D), transmit to the Secretary of 
                        the Treasury a list of the names and TINs of 
                        enrollees in prescription drug plans (or in MA-
                        EFFS Rx plans) and request that such Secretary 
                        disclose to the Secretary information under 
                        subparagraph (A) of section 6103(l)(19) of the 
                        Internal Revenue Code of 1986 with respect to 
                        those enrollees for a specified taxable year 
                        for application in a particular calendar year.
                          ``(ii) Disclosure to plan sponsors.--In the 
                        case of a specified taxpayer (as defined in 
                        section 6103(l)(19)(B) of the Internal Revenue 
                        Code of 1986) who is enrolled in a prescription 
                        drug plan or in an MA-EFFS Rx plan, the 
                        Secretary shall disclose to the entity that 
                        offers the plan the annual out-of-pocket 
                        threshold applicable to such individual under 
                        subparagraph (D).
                  ``(F) Maintaining confidentiality of information.--
                          ``(i) In general.--The amount of any increase 
                        in an annual out-of-pocket threshold under 
                        subparagraph (D) may not be disclosed by the 
                        Secretary except to a PDP sponsor or entity 
                        that offers a MA-EFFS Rx plan to the extent 
                        necessary to carry out this part.
                          ``(ii) Criminal and civil penalties for 
                        unauthorized disclosure.--A person who makes an 
                        unauthorized disclosure of information 
                        disclosed under section 6103(l)(19) of the 
                        Internal Revenue Code of 1986 (including 
                        disclosure of any increase in an annual out-of-
                        pocket threshold under subparagraph (D)) shall 
                        be subject to penalty to the extent provided 
                        under--
                                  ``(I) section 7213 of such Code 
                                (relating to criminal penalty for 
                                unauthorized disclosure of 
                                information);
                                  ``(II) section 7213A of such Code 
                                (relating to criminal penalty for 
                                unauthorized inspection of returns or 
                                return information);
                                  ``(III) section 7431 of such Code 
                                (relating to civil damages for 
                                unauthorized inspection or disclosure 
                                of returns and return information);
                                  ``(IV) any other provision of the 
                                Internal Revenue Code of 1986; or
                                  ``(V) any other provision of law.
                          ``(iii) Application of additional civil 
                        monetary penalty for unauthorized 
                        disclosures.--In addition to any penalty 
                        otherwise provided under law, any person who 
                        makes an unauthorized disclosure of such 
                        information shall be subject to a civil 
                        monetary penalty of not to exceed $10,000 for 
                        each such unauthorized disclosure. The 
                        provisions of section 1128A (other than 
                        subsections (a) and (b)) shall apply to civil 
                        money penalties under this subparagraph in the 
                        same manner as they apply to a penalty or 
                        proceeding under section 1128A(a).
          ``(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 
MA-EFFS Rx 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 1860D-8 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 product of--
                          ``(i) the amount by which the initial 
                        coverage limit described in subsection (b)(3) 
                        exceeds the deductible described in subsection 
                        (b)(1); and
                          ``(ii) 100 percent minus the cost-sharing 
                        percentage specified in subsection 
                        (b)(2)(A)(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 an entity offering a MA-EFFS Rx 
        plan, the sponsor or entity 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 to a beneficiary enrolled under such 
        title and under a prescription drug plan or MA-EFFS Rx plan for 
        a drug based on the prices negotiated by a prescription drug 
        plan or MA-EFFS Rx 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 
        MA-EFFS Rx plan with respect to covered outpatient drugs, or by 
        a qualified retiree prescription drug plan (as defined in 
        section 1860D-8(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 entity offering a MA-
        EFFS Rx plan shall disclose to the Administrator (in a manner 
        specified by the Administrator) the extent to which discounts 
        or rebates or other remuneration or price concessions 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.
          ``(3) Audits and reports.--To protect against fraud and abuse 
        and to ensure proper disclosures and accounting under this 
        part, in addition to any protections against fraud and abuse 
        provided under section 1860D-4(b)(3)(C), the Administrator may 
        periodically audit the financial statements and records of PDP 
        sponsor or entities offering a MA-EFFS Rx plan.
  ``(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 1860D-8;
                          ``(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 entities offering MA-EFFS Rx 
        plans 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 
        1860D-3(f)(2).
          ``(4) Application of general exclusion provisions.--A 
        prescription drug plan or MA-EFFS Rx 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 1860D-3(f).

``SEC. 1860D-3. 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 1860D-1(c)(1), 1860D-
1(c)(2), 1860D-2(d), and 1860D-6(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 specific 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 upon request to 
        prospective enrollees.
          ``(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 each enrollee in a form 
        easily understandable to such enrollees 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 the annual out-of-pocket threshold 
        applicable to such enrollee 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) Participation of any willing pharmacy.--A PDP 
                sponsor and an entity offering a MA-EFFS Rx plan shall 
                permit the participation of any pharmacy that meets 
                terms and conditions that the plan has established.
                  ``(B) Discounts allowed for network pharmacies.--A 
                prescription drug plan and a MA-EFFS Rx plan may, 
                notwithstanding subparagraph (A), reduce coinsurance or 
                copayments for its enrolled beneficiaries below the 
                level otherwise provided for covered outpatient drugs 
                dispensed through in-network pharmacies, but in no case 
                shall such a reduction result in an increase in 
                payments made by the Administrator under section 1860D-
                8 to a plan.
                  ``(C) Convenient access for network pharmacies.--The 
                PDP sponsor of the prescription drug plan and the 
                entity offering a MA-EFFS Rx plan shall secure the 
                participation in its network of a sufficient number of 
                pharmacies that dispense (other than by mail order) 
                drugs directly to patients to ensure convenient access 
                (consistent with rules of the Administrator). The 
                Administrator shall establish convenient access rules 
                under this subparagraph that are no less favorable to 
                enrollees than the rules for convenient access to 
                pharmacies of the Secretary of Defense established as 
                of June 1, 2003, for purposes of the TRICARE Retail 
                Pharmacy (TRRx) program. Such rules shall include 
                adequate emergency access for enrolled beneficiaries.
                  ``(D) Level playing field.--Such a sponsor shall 
                permit enrollees to receive benefits (which may include 
                a 90-day supply of drugs or biologicals) through a 
                community pharmacy, rather than through mail order, 
                with any differential in cost paid by such enrollees.
                  ``(E)  Not required to accept insurance risk.--The 
                terms and conditions under subparagraph (A) may not 
                require participating pharmacies to accept insurance 
                risk as a condition of participation.
          ``(2) Use of standardized technology.--
                  ``(A) In general.--The PDP sponsor of a prescription 
                drug plan and an entity offering a MA-EFFS Rx plan 
                shall issue (and reissue, as appropriate) such a card 
                (or other technology) that may be used by an enrollee 
                to assure access to negotiated prices under section 
                1860D-2(d) for the purchase of prescription drugs for 
                which coverage is not otherwise provided under the 
                plan.
                  ``(B) Standards.--
                          ``(i) Development.--The Administrator shall 
                        provide for the development or utilization of 
                        uniform 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 or 
        an entity offering a MA-EFFS Rx plan uses a formulary, the 
        following requirements must be met:
                  ``(A) Pharmacy and therapeutic (p&t) committee.--The 
                sponsor or entity 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 independent and free of conflict with 
                respect to the committee both with expertise in the 
                care of elderly or disabled persons and a majority of 
                its members shall consist of individuals who are 
                practicing physicians or practicing pharmacists (or 
                both).
                  ``(B) Formulary development.--In developing and 
                reviewing the formulary, the committee shall--
                          ``(i) base clinical decisions on the strength 
                        of scientific evidence and standards of 
                        practice, including assessing peer-reviewed 
                        medical literature, such as randomized clinical 
                        trials, pharmacoeconomic studies, outcomes 
                        research data, and such other information as 
                        the committee determines to be appropriate; and
                          ``(ii) shall take into account whether 
                        including in the formulary particular covered 
                        outpatient drugs has therapeutic advantages in 
                        terms of safety and efficacy.
                  ``(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). In 
                establishing such classes, the committee shall take 
                into account the standards published in the United 
                States Pharmacopeia-Drug Information. The committee 
                shall make available to the enrollees under the plan 
                through the Internet or otherwise the bases for the 
                exclusion of coverage of any drug from the formulary.
                  ``(D) Provider and patient education.--The committee 
                shall establish policies and procedures to educate and 
                inform health care providers and enrollees concerning 
                the formulary.
                  ``(E) Notice before removing drug from formulary for 
                changing preferred or tier status of drug.--Any removal 
                of a covered outpatient drug from a formulary and any 
                change in the preferred or tier cost-sharing status of 
                such a drug shall take effect only after appropriate 
                notice is made available to beneficiaries and 
                physicians.
                  ``(F) Periodic evaluation of protocols.--In 
                connection with the formulary, a prescription drug plan 
                shall provide for the periodic evaluation and analysis 
                of treatment protocols and procedures.
                  ``(G) 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 or entity offering a MA-
        EFFS Rx plan shall have in place, directly or through 
        appropriate arrangements, 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 side-effects, and improve medication use, 
                including a medication therapy management program 
                described in paragraph (2) and for years beginning with 
                2007, 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 or entity from utilizing 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 may be furnished by a pharmacy provider and that 
                is designed to assure, with respect to beneficiaries at 
                risk for potential medication problems, such as 
                beneficiaries with complex or chronic diseases (such as 
                diabetes, asthma, hypertension, and congestive heart 
                failure) or multiple prescriptions, that covered 
                outpatient drugs under the prescription drug plan are 
                appropriately used to optimize therapeutic outcomes 
                through improved medication use and reduce the risk of 
                adverse events, including adverse drug interactions. 
                Such programs may distinguish between services in 
                ambulatory and institutional settings.
                  ``(B) Elements.--Such program may include--
                          ``(i) enhanced beneficiary understanding to 
                        promote the appropriate use of medications by 
                        beneficiaries and to reduce the risk of 
                        potential adverse events associated with 
                        medications, through beneficiary education, 
                        counseling, case management, disease state 
                        management programs, and other appropriate 
                        means;
                          ``(ii) increased beneficiary adherence with 
                        prescription medication regimens through 
                        medication refill reminders, special packaging, 
                        and other compliance programs 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 and an entity 
                offering a MA-EFFS Rx plan shall take into account, in 
                establishing fees for pharmacists and others providing 
                services under the medication therapy management 
                program, the resources and time used in implementing 
                the program. Each such sponsor or entity shall disclose 
                to the Administrator upon request the amount of any 
                such management or dispensing fees.
          ``(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 uniform standards established under subparagraph 
                (B):
                          ``(i) Electronic transmittal of 
                        prescriptions.--Prescriptions must be written 
                        and transmitted electronically (other than by 
                        facsimile), except in emergency cases and other 
                        exceptional circumstances recognized by the 
                        Administrator.
                          ``(ii) Provision of information to 
                        prescribing health care professional.--The 
                        program provides for the electronic transmittal 
                        to the prescribing health care professional of 
                        information that includes--
                                  ``(I) information (to the extent 
                                available and feasible) on the drug or 
                                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 uniform 
                        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, 
                        pharmacies, beneficiaries, pharmacy benefit 
                        managers, individuals with expertise in 
                        information technology, and pharmacy benefit 
                        experts of the Departments of Veterans Affairs 
                        and Defense and other appropriate Federal 
                        agencies to provide recommendations to the 
                        Administrator on such standards, including 
                        recommendations relating to 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 
                                standards and systems reduce medication 
                                errors and can be readily implemented 
                                by physicians, pharmacies, and 
                                hospitals.
                                  ``(III) Efforts to develop uniform 
                                standards and a common software 
                                platform for the secure electronic 
                                communication of medication history, 
                                eligibility, benefit, and prescription 
                                information.
                                  ``(IV) Efforts to develop and promote 
                                universal connectivity and 
                                interoperability for the secure 
                                electronic exchange of such 
                                information.
                                  ``(V) The cost of implementing such 
                                systems in the range of hospital and 
                                physician office settings and 
                                pharmacies, including hardware, 
                                software, and training costs.
                                  ``(VI) 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, 2004.
                                  ``(II) Such task force shall submit 
                                recommendations to Administrator by not 
                                later than January 1, 2005.
                                  ``(III) The Administrator shall 
                                provide for the development and 
                                promulgation, by not later than January 
                                1, 2006, of national standards relating 
                                to the electronic prescription drug 
                                program described in clause (ii). Such 
                                standards shall be issued by a 
                                standards organization accredited by 
                                the American National Standards 
                                Institute (ANSI) and shall be 
                                compatible with standards established 
                                under part C of title XI.
          ``(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 
        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 and each entity offering a 
        MA-EFFS Rx plan 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 available 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 an organization with respect to benefits 
        it offers under a 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 or a MA-EFFS Rx plan 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 either would not be as effective for the individual 
        or would have adverse effects for the individual or both.
  ``(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 (including a 
        determination related to the application of tiered cost-sharing 
        described in subsection (e)(3)) in the same manner as such 
        requirements apply to an organization with respect to benefits 
        it offers under a plan under part C.
          ``(2) Formulary determinations.--An individual who is 
        enrolled in a prescription drug plan offered by a PDP sponsor 
        or in a MA-EFFS Rx plan may appeal to obtain coverage for a 
        covered outpatient drug that is not on a formulary of the 
        sponsor or entity offering the plan if the prescribing 
        physician determines that the formulary drug for treatment of 
        the same condition either would not be as effective for the 
        individual or would have adverse effects for the individual or 
        both.
  ``(g) Confidentiality and Accuracy of Enrollee Records.--A PDP 
sponsor that offers a prescription drug plan shall meet the 
requirements of section 1852(h) with respect to enrollees under the 
plan in the same manner as such requirements apply to an organization 
with respect to enrollees under part C. A PDP sponsor shall be treated 
as a business associate for purposes of the provisions of subpart E of 
part 164 of title 45, Code of Federal Regulations, adopted pursuant to 
the authority of the Secretary under section 264(c) of the Health 
Insurance Portability and Accountability Act of 1996 (42 U.S. C. 1320d-
2 note).

``SEC. 1860D-4. REQUIREMENTS FOR AND CONTRACTS WITH PRESCRIPTION DRUG 
                    PLAN (PDP) SPONSORS.

  ``(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 1860D-5(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 1860D-8.
                  ``(B) Reinsurance permitted.--The entity may obtain 
                insurance or make other arrangements for the cost of 
                coverage provided to any enrollee.
          ``(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 1860D-1 of a prescription drug plan 
        offered by a PDP sponsor under this part, and the sponsor shall 
        not be eligible for payments under section 1860D-7 or 1860D-8, 
        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 1860D-6(a)(2), the Administrator shall take into 
        account the subsidy payments under section 1860D-8.
          ``(3) Incorporation of certain medicare advantage 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 and part E);
                          ``(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 MA-EFFS Rx 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.
          ``(5) Service area requirement.--For purposes of this part, 
        the Administrator shall designate at least 10 areas covering 
        the entire United States and shall be consistent with EFFS 
        regions established under section 1860E-1(a)(2).
  ``(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) have 
        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, 2004, 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) 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. 1860D-5. 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 MA-EFFS Rx plan 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 1860D-1(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 the 
        entity offering a MA-EFFS Rx plan or a PDP sponsor, in the 
        manner described in (and in coordination with) section 
        1851(c)(2).
          ``(4) Informing each enrollee before the beginning of each 
        year of the annual out-of-pocket threshold applicable to the 
        enrollee for that year under section 1860D-2(b)(4) at such 
        time.
  ``(c) MA-EFFS Rx Enrollee May Only Obtain Benefits Through the 
Plan.--An individual who is enrolled under a MA-EFFS Rx plan 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 one 
                entity that offers a MA-EFFS Rx plan 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 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; and
                  ``(B) shall seek to maximize the assumption of 
                financial risk by PDP sponsors or entities offering a 
                MA-EFFS Rx plan.
          ``(4) Reports.--The Administrator shall, in each annual 
        report to Congress under section 1809(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 MA-EFFS Rx plan.

``SEC. 1860D-6. 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 an 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;
                          ``(iii) the reduction in such bid resulting 
                        from the reinsurance subsidy payments provided 
                        under section 1860D-8(a)(2); and
                          ``(iv) the reduction in such premium 
                        resulting from the direct and reinsurance 
                        subsidy payments provided under section 1860D-
                        8.
                  ``(D) Additional information.--Such other information 
                as the Administrator may require to carry out this 
                part.
          ``(3) Review of information; negotiation and approval of 
        premiums.--
                  ``(A) In general.--Subject to subparagraph (B), the 
                Administrator shall review the information filed under 
                paragraph (2) for the purpose of conducting 
                negotiations under section 1860D-4(b)(2) (relating to 
                using OPM-like authority under the FEHBP). 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 
                (i) the actuarial value of the benefits provided, and 
                (ii) the 73 percent average subsidy provided under 
                section 1860D-8 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) Exception.--In the case of a plan described in 
                section 1851(a)(2)(C), the provisions of subparagraph 
                (A) shall not apply and the provisions of paragraph 
                (5)(B) of section 1854(a), prohibiting the review, 
                approval, or disapproval of amounts described in such 
                paragraph, shall apply to the negotiation and rejection 
                of the monthly bid amounts and proportion referred to 
                in subparagraph (A).
  ``(b) Uniform Bid and Premium.--
          ``(1) In general.--The bid and premium for a prescription 
        drug plan under this section may not vary among enrollees 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 1860D-1(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 to the sponsor 
        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 premium payments that are withheld under this 
        paragraph shall be credited to the Medicare Prescription Drug 
        Trust Fund and shall be paid to the PDP sponsor involved.
          ``(2) Offsetting.--Reductions in premiums for coverage under 
        parts A and B as a result of a selection of a MA-EFFS Rx plan 
        may be used to reduce the premium otherwise imposed under 
        paragraph (1).
  ``(d) Acceptance of Reference Premium 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 1860D-7 and resides in the area, the PDP sponsor 
        of any prescription drug plan offered in the area (and any 
        entity offering a MA-EFFS Rx plan in the area) shall accept the 
        reference premium amount (under paragraph (3)) 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.
          ``(3) Reference premium amount defined.--For purposes of this 
        subsection, the term `reference premium 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 plan's PDP premium; or
                          ``(ii) provides alternative prescription drug 
                        coverage the actuarial value of which is 
                        greater than that of standard coverage, the 
                        plan's PDP premium multiplied by the ratio of 
                        (I) the actuarial value of standard coverage, 
                        to (II) the actuarial value of the alternative 
                        coverage;
                  ``(B) an EFFS plan, the EFFS monthly prescription 
                drug beneficiary premium (as defined in section 1860E-
                4(a)(3)(B)); or
                  ``(C) a Medicare Advantage, the Medicare Advantage 
                monthly prescription drug beneficiary premium (as 
                defined in section 1854(b)(2)(B)).
        For purposes of subparagraph (A), the term `PDP premium' means, 
        with respect to a prescription drug plan, the premium amount 
        for enrollment under the plan under this part (determined 
        without regard to any low-income subsidy under section 1860D-7 
        or any late enrollment penalty under section 1860D-1(c)(2)(B)).

``SEC. 1860D-7. PREMIUM AND COST-SHARING SUBSIDIES FOR LOW-INCOME 
                    INDIVIDUALS.

  ``(a) Income-Related Subsidies for Individuals With Income Below 150 
Percent of Federal Poverty Level.--
          ``(1) Full premium subsidy and reduction of cost-sharing for 
        individuals with income below 135 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 135 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 1860D-2(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 for individuals with 
        income above 135, but below 150 percent, of federal poverty 
        level.--In the case of a subsidy eligible individual who is 
        determined to have income that exceeds 135 percent, but does 
        not exceed 150 percent, of the Federal poverty level, the 
        individual is entitled under this section to 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 135 percent of such level to 0 
        percent of such amount for individuals with incomes at 150 
        percent of such level.
          ``(3) Construction.--Nothing in this section shall be 
        construed as preventing a PDP sponsor or entity offering a MA-
        EFFS Rx plan 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 150 percent of the 
                        Federal poverty line; and
                          ``(iii) meets the resources requirement 
                        described in subparagraph (D) .
                  ``(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) Resource standard applied to be based on twice 
                ssi resource standard.--The resource requirement of 
                this subparagraph is that an individual's resources (as 
                determined under section 1613 for purposes of the 
                supplemental security income program) do not exceed--
                          ``(i) for 2006 twice the maximum amount of 
                        resources that an individual may have and 
                        obtain benefits under that program; and
                          ``(ii) for a subsequent year the resource 
                        limitation established under this clause for 
                        the previous year increased by the annual 
                        percentage increase in the consumer price index 
                        (all items; U.S. city average) as of September 
                        of such previous year.
                Any resource limitation established under clause (ii) 
                that is not a multiple of $10 shall be rounded to the 
                nearest multiple of $10.
                  ``(E) 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).
                  ``(F) Treatment of conforming medigap policies.--For 
                purposes of this section, the term `qualified 
                prescription drug coverage' includes a medicare 
                supplemental policy described in section 1860D-8(b)(4).
          ``(5) Indexing dollar amounts.--
                  ``(A) For 2007.--The dollar amounts applied under 
                paragraphs (1)(B) for 2007 shall be the dollar amounts 
                specified in such paragraph increased by the annual 
                percentage increase described in section 1860D-2(b)(5) 
                for 2007.
                  ``(B) For subsequent years.--The dollar amounts 
                applied under paragraph (1)(B) for a year after 2007 
                shall be the amounts (under this paragraph) applied 
                under paragraph (1)(B) for the preceding year increased 
                by the annual percentage increase described in section 
                1860D-2(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 premium amount (as defined in paragraph (2)) for 
        qualified prescription drug coverage offered by the 
        prescription drug plan or the MA-EFFS Rx plan in which the 
        individual is enrolled.
          ``(2) Benchmark premium amount defined.--For purposes of this 
        subsection, the term `benchmark premium 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 of which is equivalent to that 
                        of standard coverage), the premium 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 1860D-1(c)(2)(B)); or
                          ``(ii) provides alternative prescription drug 
                        coverage the actuarial value of which is 
                        greater than that of standard coverage, the 
                        premium 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 MA-EFFS Rx plan, the portion of the premium 
                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 subsection (a)(1)(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), 
        the PDP sponsor or entity offering a MA-EFFS Rx plan may not 
        charge more than $5 per prescription.
          ``(3) Application of indexing rules.--The provisions of 
        subsection (a)(5) 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).
  ``(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 MA-EFFS Rx plan--
          ``(1) the Administrator provides for a notification of the 
        PDP sponsor or the entity offering the MA-EFFS Rx plan involved 
        that the individual is eligible for a subsidy and the amount of 
        the subsidy under subsection (a);
          ``(2) the sponsor or entity 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 entity 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 consistent with section 1935(d)(1).
          ``(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. 1860D-8. 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 73 percent, to reduce 
adverse selection among prescription drug plans and MA-EFFS Rx plans, 
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 enrollee enrolled 
        for a month in a prescription drug plan or a MA-EFFS Rx plan, a 
        direct subsidy equal to 43 percent of the national average 
        monthly bid amount (computed under subsection (g)) for that 
        month.
          ``(2) Subsidy through reinsurance.--In the case of an 
        enrollee enrolled for a month in a prescription drug plan or a 
        MA-EFFS Rx plan, the reinsurance payment amount (as defined in 
        subsection (c)), which in the aggregate is 30 percent of the 
        total payments made by qualifying entities for standard 
        coverage under the respective plan, for excess costs incurred 
        in providing qualified prescription drug coverage--
                  ``(A) for enrollees with a prescription drug plan 
                under this part; and
                  ``(B) for enrollees with a MA-EFFS Rx plan.
          ``(3) Employer and union flexibility.--In the case of an 
        individual who is a participant or beneficiary in a qualified 
        retiree prescription drug plan (as defined in subsection 
        (f)(1)) and who is not enrolled in a prescription drug plan or 
        in a MA-EFFS Rx plan, the special subsidy payments under 
        subsection (f)(3).
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. In applying the 
percentages under paragraphs (1) and (2), there shall be taken into 
account under the respective paragraphs the portion of the employer and 
union special subsidy payments under subsection (f)(3) that reflect 
payments that would have been made under the respective paragraphs if 
such paragraphs had applied to qualified retiree prescription drug 
plans instead of paragraph (3).
  ``(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) An entity that offers a MA-EFFS Rx plan.
          ``(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 
        paragraph (5)) for a coverage year (as defined in subsection 
        (h)(2)) is equal to the sum of the following:
                  ``(A) Reinsurance between initial reinsurance 
                threshold and the initial coverage limit.--For the 
                portion of the individual's gross covered prescription 
                drug costs (as defined in paragraph (3)) for the year 
                that exceeds the initial reinsurance threshold 
                specified in paragraph (4), but does not exceed the 
                initial coverage limit specified in section 1860D-
                2(b)(3), an amount equal to 20 percent of the allowable 
                costs (as defined in paragraph (2)) attributable to 
                such gross covered prescription drug costs.
                  ``(B) Reinsurance above annual out-of-pocket 
                threshold.--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 
                1860D-2(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 discounts, chargebacks, and 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) Initial reinsurance threshold.--The initial reinsurance 
        threshold specified in this paragraph--
                  ``(A) for 2006, is equal to $1,000; or
                  ``(B) for a subsequent year, is equal to the payment 
                threshold specified in this paragraph for the previous 
                year, increased by the annual percentage increase 
                described in section 1860D-2(b)(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.
          ``(5) Qualifying covered individual defined.--For purposes of 
        this subsection, the term `qualifying covered individual' means 
        an individual who--
                  ``(A) is enrolled with a prescription drug plan under 
                this part; or
                  ``(B) is enrolled with a MA-EFFS Rx plan.
  ``(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 (and under subsection (f)(3) insofar 
                as such payments reflect payments that would have been 
                made under such subsections if such subsections had 
                applied to qualified retiree prescription drug plans 
                instead of subsections (a)(3) and (f)(3)) 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) Rules Relating to Qualified Retiree Prescription Drug Plan.--
          ``(1) Definition.--For purposes of this section, the term 
        `qualified retiree prescription drug plan' means employment-
        based retiree health coverage (as defined in paragraph (4)(A)) 
        if, with respect to an individual who is a participant or 
        beneficiary under such coverage and is eligible to be enrolled 
        in a prescription drug plan or a MA-EFFS Rx plan under this 
        part, the following requirements are met:
                  ``(A) Actuarial equivalence to standard coverage.--
                The Administrator determines (based on an actuarial 
                analysis by the Administrator) that coverage provides 
                at least the same actuarial value as standard coverage. 
                Such determination may be made on an annual basis.
                  ``(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 1860D-1(c)(2)(D).
          ``(2) Limitation on benefit eligibility.--No payment shall be 
        provided under this section with respect to a participant or 
        beneficiary in a qualified retiree prescription drug plan 
        unless the individual is--
                  ``(A) is covered under the plan; and
                  ``(B) is eligible to obtain qualified prescription 
                drug coverage under section 1860D-1 but did not elect 
                such coverage under this part (either through a 
                prescription drug plan or through a MA-EFFS Rx plan).
          ``(3) Employer and union special subsidy amounts.--
                  ``(A) In general.--For purposes of subsection (a), 
                the special subsidy payment amount under this paragraph 
                for a qualifying covered retiree(as defined in 
                paragraph (6)) for a coverage year (as defined in 
                subsection (h)) enrolled in a qualifying entity 
                described in subsection (b)(3) under a qualified 
                retiree prescription drug plan is, for the portion of 
                the individual's gross covered prescription drug costs 
                for the year that exceeds the deductible amount 
                specified in subparagraph (B), an amount equal to, 
                subject to subparagraph (D), 28 percent of the 
                allowable costs attributable to such gross covered 
                prescription drug costs, but only to the extent such 
                costs exceed the deductible under subparagraph (B) and 
                do not exceed the cost limit under such subparagraph in 
                the case of any such individual for the plan year.
                  ``(B) Deductible and cost limit applicable.--Subject 
                to subparagraph (C)--
                          ``(i) the deductible under this subparagraph 
                        is equal to $250 for plan years that end in 
                        2006; and
                          ``(ii) the cost limit under this subparagraph 
                        is equal to $5,000 for plan years that end in 
                        2006.
                  ``(C) Indexing.--The deductible and cost limit 
                amounts specified in subparagraphs (B) for a plan year 
                that ends after 2006 shall be adjusted in the same 
                manner as the annual deductible under section 1860D-
                2(b)(1) is annually adjusted under such section.
                  ``(D) Adjustment contingency.--The Secretary may 
                adjust the percentage specified in subparagraph (A) 
                with respect to plan years that end in a year in a 
                manner so that the aggregate expenditures in the year 
                under this section are the same as the aggregate 
                expenditures that would have been made under this 
                section (taking into account the effect of any 
                adjustment under subsection (d)(1)(B)) if paragraphs 
                (1) and (2) of subsection (a) had applied to qualified 
                prescription drug coverage instead of this paragraph 
                and subsection (a)(3).
          ``(4) Related 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 eligible to enroll in a prescription 
                drug plan or MA-EFFS Rx plan under this part (or for 
                such individuals and their spouses and dependents) 
                under a group health plan (including such a plan that 
                is established or maintained under or pursuant to one 
                or more collective bargaining agreements) based on 
                their status as retired participants in such plan.
                  ``(B) Qualifying covered retiree.--The term 
                `qualifying covered retiree' means an individual who is 
                eligible to obtain qualified prescription drug coverage 
                under section 1860D-1 but did not elect such coverage 
                under this part (either through a prescription drug 
                plan or through a MA-EFFS Rx plan) but is covered under 
                a qualified retiree prescription drug plan.
                  ``(C) Sponsor.--The term `sponsor' means a plan 
                sponsor, as defined in section 3(16)(B) of the Employee 
                Retirement Income Security Act of 1974, except that, in 
                the case of a single-employer plan (as defined in 
                section 3(41) of such Act), such term means the 
                employer of the plan participants if such employer has 
                been designated as the plan sponsor in all prior 
                summary plan descriptions and annual reports issued 
                with respect to the plan under part 1 of subtitle B of 
                title I of such Act.
          ``(5) Construction.--Nothing in this subsection shall be 
        construed as--
                  ``(A) precluding an individual who is covered under 
                employment-based retiree health coverage from enrolling 
                in a prescription drug plan or in a MA-EFFS plan;
                  ``(B) precluding such employment-based retiree health 
                coverage or an employer or other person from paying all 
                or any portion of any premium required for coverage 
                under such a prescription drug plan or MA-EFFS plan on 
                behalf of such an individual; or
                  ``(C) preventing such employment-based retiree health 
                coverage from providing coverage for retirees--
                          ``(i) who are covered under a qualified 
                        retiree prescription plan that is better than 
                        standard coverage; or
                          ``(ii) who are not covered under a qualified 
                        retiree prescription plan but who are enrolled 
                        in a prescription drug plan or a MA-EFFS Rx 
                        plan, that is supplemental to the benefits 
                        provided under such prescription drug plan or 
                        MA-EFFS Rx plan, except that any such 
                        supplemental coverage (not including payment of 
                        any premium referred to in subparagraph (B)) 
                        shall be treated as primary coverage to which 
                        section 1862(b)(2)(A)(i) is deemed to apply.
  ``(g) Computation of National Average Monthly Bid Amount.--
          ``(1) In general.--For each year (beginning with 2006) the 
        Administrator shall compute a national average monthly bid 
        amount equal to the average of the benchmark bid amounts for 
        each prescription drug plan and for each MA-EFFS Rx plan (as 
        computed under paragraph (2), but excluding plans described in 
        section 1851(a)(2)(C))) adjusted under paragraph (4) to take 
        into account reinsurance payments.
          ``(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 of which is equivalent to that 
                        of standard coverage), the PDP bid; or
                          ``(ii) provides alternative prescription drug 
                        coverage the actuarial value of which is 
                        greater than that of standard coverage, the PDP 
                        bid multiplied by the ratio of (I) the 
                        actuarial value of standard coverage, to (II) 
                        the actuarial value of the alternative 
                        coverage; or
                  ``(B) a MA-EFFS Rx plan, the portion of the bid 
                amount that is attributable to statutory drug benefits 
                (described in section 1853(a)(1)(A)(ii)(II)).
        For purposes of subparagraph (A), the term `PDP bid' means, 
        with respect to a prescription drug plan, the bid amount for 
        enrollment under the plan under this part (determined without 
        regard to any low-income subsidy under section 1860D-7 or any 
        late enrollment penalty under section 1860D-1(c)(2)(B)).
          ``(3) Weighted average.--
                  ``(A) In general.--The monthly national average 
                monthly bid amount computed under paragraph (1) shall 
                be a weighted average, with the weight for each plan 
                being equal to the average number of beneficiaries 
                enrolled under such plan in the previous year.
                  ``(B) Special rule for 2006.--For purposes of 
                applying this subsection for 2006, the Administrator 
                shall establish procedures for determining the weighted 
                average under subparagraph (A) for 2005.
          ``(4) Adjustment to add back in value of reinsurance 
        subsidies.--The adjustment under this paragraph, to take into 
        account reinsurance payments under subsection (c) making up 30 
        percent of total payments, is such an adjustment as will make 
        the national average monthly bid amount represent represent 100 
        percent, instead of representing 70 percent, of average 
        payments under this part.
  ``(h) Coverage Year Defined.--For purposes of this section, 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. 1860D-9. 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 1860D-7 (relating to 
                low-income subsidy payments);
                  ``(B) payments under section 1860D-8 (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. 1860D-10. DEFINITIONS; APPLICATION TO MEDICARE ADVANTAGE AND 
                    EFFS PROGRAMS; 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 1860D-2(f).
          ``(2) Initial coverage limit.--The term `initial coverage 
        limit' means such limit as established under section 1860D-
        2(b)(3), or, in the case of coverage that is not standard 
        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 1860D-9(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-4(b);
                  ``(B) provides qualified prescription drug coverage; 
                and
                  ``(C) meets the applicable requirements of the 
                section 1860D-3 for a prescription drug plan.
          ``(6) Qualified prescription drug coverage.--The term 
        `qualified prescription drug coverage' is defined in section 
        1860D-2(a).
          ``(7) Standard coverage.--The term `standard coverage' is 
        defined in section 1860D-2(b).
  ``(b) Offer of Qualified Prescription Drug Coverage Under Medicare 
Advantage and EFFS Programs.--
          ``(1) As part of medicare advantage plan.--Medicare Advantage 
        organizations are required to offer Medicare Advantage plans 
        that include qualified prescription drug coverage under part C 
        pursuant to section 1851(j).
          ``(2) As part of effs plan.--EFFS organizations are required 
        to offer EFFS plans that include qualified prescription drug 
        coverage under part E pursuant to section 1860E-2(d).
  ``(c) Application of Part C Provisions Under This Part.--For purposes 
of applying provisions of part C under this part with respect to a 
prescription drug plan and a PDP sponsor, unless otherwise provided in 
this part such provisions shall be applied as if--
          ``(1) any reference to a Medicare Advantage or other plan 
        included a reference to a prescription drug plan;
          ``(2) any reference to a provider-sponsored organization 
        included a reference to a PDP sponsor;
          ``(3) any reference to a contract under section 1857 included 
        a reference to a contract under section 1860D-4(b); and
          ``(4) any reference to part C included a reference to this 
        part.
  ``(d) Report on Pharmacy Services Provided to Nursing Facility 
Patients.--
          ``(1) Review.--Within 6 months after the date of the 
        enactment of this section, the Secretary shall review the 
        current standards of practice for pharmacy services provided to 
        patients in nursing facilities.
          ``(2) Evaluations and recommendations.--Specifically in the 
        review under paragraph (1), the Secretary shall--
                  ``(A) assess the current standards of practice, 
                clinical services, and other service requirements 
                generally utilized for pharmacy services in the long-
                term care setting;
                  ``(B) evaluate the impact of those standards with 
                respect to patient safety, reduction of medication 
                errors and quality of care; and
                  ``(C) recommend (in the Secretary's report under 
                paragraph (3)) necessary actions and appropriate 
                reimbursement to ensure the provision of prescription 
                drugs to medicare beneficiaries residing in nursing 
                facilities in a manner consistent with existing patient 
                safety and quality of care standards under applicable 
                State and Federal laws.
          ``(3) Report.--The Secretary shall submit a report to the 
        Congress on the Secretary's findings and recommendations under 
        this subsection, including a detailed description of the 
        Secretary's plans to implement this part in a manner consistent 
        with applicable State and Federal laws designed to protect the 
        safety and quality of care of nursing facility patients.''.
  (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 F 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, 2005, 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 
                    MEDICARE ADVANTAGE AND ENHANCED FEE-FOR-SERVICE 
                    (EFFS) PROGRAM.

  (a) Medicare Advantage.--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 and Subsidies.--
          ``(1) Offering of qualified prescription drug coverage.--A 
        Medicare Advantage organization on and after January 1, 2006--
                  ``(A) may not offer a Medicare Advantage plan 
                described in section 1851(a)(2)(A) in an area unless 
                either that plan (or another Medicare Advantage plan 
                offered by the organization in that area) includes 
                qualified prescription drug coverage; and
                  ``(B) may not offer the prescription drug coverage 
                (other than that required under parts A and B) to an 
                enrollee under a Medicare Advantage 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.
          ``(2) Requirement for election of part d coverage to obtain 
        qualified prescription drug coverage.--For purposes of this 
        part, an individual who has not elected qualified prescription 
        drug coverage under section 1860D-1(b) shall be treated as 
        being ineligible to enroll in a Medicare Advantage plan under 
        this part that offers such coverage.
          ``(3) Compliance with certain additional beneficiary 
        protections for prescription drug coverage.--With respect to 
        the offering of qualified prescription drug coverage by a 
        Medicare Advantage organization under this part on and after 
        January 1, 2006, the organization and plan shall meet the 
        requirements of subsections (a) through (d) of section 1860D-3 
        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 1860D-
        6(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.
          ``(4) Availability of premium and cost-sharing subsidies.--In 
        the case of low-income individuals who are enrolled in a 
        Medicare Advantage plan that provides qualified prescription 
        drug coverage, premium and cost-sharing subsidies are provided 
        for such coverage under section 1860D-7.
          ``(5) Availability of direct and reinsurance subsidies to 
        reduce bids and premiums.--Medicare Advantage organizations are 
        provided direct and reinsurance subsidy payments for providing 
        qualified prescription drug coverage under this part under 
        section 1860D-8.
          ``(6) Consolidation of drug and non-drug premiums.--In the 
        case of a Medicare Advantage plan that includes qualified 
        prescription drug coverage, with respect to an enrollee in such 
        plan there shall be a single premium for both drug and non-drug 
        coverage provided under the plan.
          ``(7) Transition in initial enrollment period.--
        Notwithstanding any other provision of this part, the annual, 
        coordinated election period under subsection (e)(3)(B) for 2006 
        shall be the 6-month period beginning with November 2005.
          ``(8) 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 1860D-2.
          ``(9) Special rules for private fee-for-service plans.-- With 
        respect to a Medicare Advantage plan described in section 
        1851(a)(2)(C) that offers qualified prescription drug 
        coverage--
                  ``(A) Requirements regarding negotiated prices.--
                Subsections (a)(1) and (d)(1) of section 1860D-2 shall 
                not be construed to require the plan to negotiate 
                prices or discounts but shall apply to the extent the 
                plan does so.
                  ``(B) Modification of pharmacy participation 
                requirement.--If the plan provides access, without 
                charging additional copayments, to all pharmacies 
                without regard to whether they are participating 
                pharmacies in a network, section 1860D-3(c)(1)(A)(iii) 
                shall not apply to the plan.
                  ``(C) Drug utilization management program not 
                required.--The requirements of section 1860D-3(d)(1)(A) 
                shall not apply to the plan.
                  ``(D) Non-participating pharmacy disclosure 
                exception.--If the plan provides coverage for drugs 
                purchased from all pharmacies, without entering into 
                contracts or agreements with pharmacies to provide 
                drugs to enrollees covered by the plan, section 1860D-
                3(d)(5) shall not apply to the plan.''.
  (b) Application to EFFS Plans.--Subsection (d) of section 1860E-2, as 
added by section 201(a), is amended to read as follows:
  ``(d) Availability of Prescription Drug Benefits and Subsidies.--
          ``(1) Offering of qualified prescription drug coverage.--An 
        EFFS organization--
                  ``(A) may not offer an EFFS plan in an area unless 
                either that plan (or another EFFS plan offered by the 
                organization in that area) includes qualified 
                prescription drug coverage; and
                  ``(B) may not offer the prescription drug coverage 
                (other than that required under parts A and B) to an 
                enrollee under an EFFS 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.
          ``(2) Requirement for election of part d coverage to obtain 
        qualified prescription drug coverage.--For purposes of this 
        part, an individual who has not elected qualified prescription 
        drug coverage under section 1860D-1(b) shall be treated as 
        being ineligible to enroll in an EFFS plan under this part that 
        offers such coverage.
          ``(3) Compliance with certain additional beneficiary 
        protections for prescription drug coverage.--With respect to 
        the offering of qualified prescription drug coverage by an EFFS 
        organization under this part, the organization and plan shall 
        meet the requirements of subsections (a) through (d) of section 
        1860D-3 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 1860D-
        6(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.
          ``(4) Availability of premium and cost-sharing subsidies.--In 
        the case of low-income individuals who are enrolled in an EFFS 
        plan that provides qualified prescription drug coverage, 
        premium and cost-sharing subsidies are provided for such 
        coverage under section 1860D-7.
          ``(5) Availability of direct and reinsurance subsidies to 
        reduce bids and premiums.--EFFS organizations are provided 
        direct and reinsurance subsidy payments for providing qualified 
        prescription drug coverage under this part under section 1860D-
        8.
          ``(6) Consolidation of drug and non-drug premiums.--In the 
        case of an EFFS plan that includes qualified prescription drug 
        coverage, with respect to an enrollee in such plan there shall 
        be a single premium for both drug and non-drug coverage 
        provided under the plan.
          ``(7) 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 1860D-2.''.
  (c) 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 1860D-1.''; and
          (2) in subsection (g)(1), by inserting ``and section 1860D-
        1(c)(2)(B)'' after ``in this subsection''.
  (d) Effective Date.--The amendments made by this section apply to 
coverage provided on or after January 1, 2006.

SEC. 103. MEDICAID AMENDMENTS.

  (a) Determinations of Eligibility for Low-Income Subsidies.--
          (1) Requirement.--Section 1902(a) (42 U.S.C. 1396a(a)) is 
        amended--
                  (A) by striking ``and'' at the end of paragraph (64);
                  (B) by striking the period at the end of paragraph 
                (65) and inserting ``; and''; and
                  (C) by inserting after paragraph (65) the following 
                new paragraph:
          ``(66) provide for making eligibility determinations under 
        section 1935(a).''.
          (2) New section.--Title XIX is further amended--
                  (A) by redesignating section 1935 as section 1936; 
                and
                  (B) by inserting after section 1934 the following new 
                section:
  ``special provisions relating to medicare prescription drug benefit
  ``Sec. 1935. (a) 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 
        1860D-7;
          ``(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 1860D-7).
  ``(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 1860D-7 
                (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) 2006 is 93-\1/3\ percent;
                  ``(B) a subsequent year before 2021, is the phase-out 
                proportion for calendar quarters in the previous year 
                decreased by 6-\2/3\ percentage points; or
                  ``(C) a year after 2020 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 MA-EFFS Rx plan under part C or E of such 
        title) and medical assistance for prescribed drugs under this 
        title, medical assistance shall continue to be provided under 
        this title (other than for copayment amounts specified in 
        section 1860D-7(a)(1)(B), notwithstanding section 1916) for 
        prescribed drugs to the extent payment is not made under the 
        prescription drug plan or MA-EFFS Rx 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 1860D-1.''.
  (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 1860D-2(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) 2006, is equal to $25,000,000; 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 1860D-
                        2(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 MA-
                                EFFS Rx plan under part C or E of such 
                                title with respect to covered 
                                outpatient drugs, or by a qualified 
                                retiree prescription drug plan (as 
                                defined in section 1860D-8(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, 2006, 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. 
        Nothing in this subsection shall be construed as preventing the 
        policy holder of a medicare supplemental policy issued before 
        January 1, 2006, from continuing to receive benefits under such 
        policy on and after such date.
          ``(2) Issuance of substitute policies for beneficiaries 
        enrolled with a plan 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 Prescription 
        Drug and Modernization Act of 2003, with respect to policies 
        issued to individuals who are enrolled in a plan under part D, 
        the changes in standards shall only provide for substituting 
        (for the benefit packages described in paragraph (2)(B)(ii) 
        that included coverage for prescription drugs) two benefit 
        packages that may provide for coverage of cost-sharing (other 
        than the prescription drug deductible) with respect to 
        qualified prescription drug coverage 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 under parts A and 
                        B, 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 under parts A and B 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.''.
  (b) NAIC Report to Congress on Medigap Modernization.--The Secretary 
shall request the National Association of Insurance Commissioners to 
submit to Congress, not later than 18 months after the date of the 
enactment of this Act, a report that includes recommendations on the 
modernization of coverage under the medigap program under section 1882 
of the Social Security Act (42 U.S.C. 1395ss).

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) Establishment of Program.--
          ``(1) In general.--The Secretary (or the Medicare Benefits 
        Administrator pursuant to section 1809(c)(3)(C)) shall 
        establish a program to endorse prescription drug discount card 
        programs (each such program referred to as an `endorsed 
        program') that meet the requirements of this section in order 
        to provide access to prescription drug discounts for medicare 
        beneficiaries throughout the United States. The Secretary shall 
        make available to medicare beneficiaries information regarding 
        endorsed programs under this section.
          ``(2) Limited period of operation.--The Secretary shall begin 
        the program under this section as soon as possible, but in no 
        case later than 90 days after the date of the enactment of this 
        section. The Secretary shall provide for an appropriate 
        transition and discontinuation of such program at the time 
        medicare prescription drug benefits first become available 
        under part D.
  ``(b) Requirements for Card Endorsement Program.--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, rebates, and other price concessions on prescription 
        drugs, including discounts negotiated with pharmacies and 
        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 program is operated 
        directly, or through arrangements with affiliated organization, 
        by an entity that has demonstrated experience and expertise in 
        operating such a program or a similar program.
          ``(6) Quality assurance.--Such operating entity has in place 
        adequate procedures for assuring quality service under the 
        program.
          ``(7) Enrollment fees.--The program may charge an annual 
        enrollment fee, but the amount of such annual fee may not 
        exceed $30. A State may pay some or all of the fee for 
        individuals residing in the State.
          ``(8) Confidentiality protections.--The program implements 
        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.
          ``(9) Periodic reports to secretary.--The entity operating 
        the program shall submit to the Secretary periodic reports on 
        performance, utilization, finances, and such other matters as 
        the Secretary may specify.
          ``(10) 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 Advantage 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 and 
        disclosure (upon request) of the discounts and services 
        provided, the amount of dispensing fees recognized, and audits 
        under section 1860D-2(d)(3).
          ``(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) Authorization of Appropriations.--There are authorized to be 
appropriated such sums as may be necessary to carry out this section.
  ``(e) Interim, Final Regulatory Authority.--In order to carry out 
this section in a timely manner, the Secretary may promulgate 
regulations that take effect on an interim basis, after notice and 
pending opportunity for public comment.
  ``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 incomes below 150 percent of the 
Federal poverty level immediate assistance in the purchase of covered 
outpatient prescription drugs during the period before the program 
under part D becomes effective.
  ``(b) Appropriations.--For the purpose of carrying out this section, 
there is appropriated, out of any money in the Treasury not otherwise 
appropriated--
          ``(1) for fiscal year 2004, $2,000,000,000; and
          ``(2) for fiscal year 2005, $3,000,000,000.
  ``(c) Eligibility.--
          ``(1) In general.--The Secretary shall establish eligibility 
        standards consistent with this subsection.
          ``(2) Specifics.--In no case shall an individual 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 150 percent of 
                the Federal poverty line;
                  ``(C) meets the resources requirement described in 
                section 1905(p)(1)(C);
                  ``(D) is enrolled under a prescription drug discount 
                card program under section 1807 (or under an 
                alternative program authorized under subsection 
                (d)(2)); 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.).
  ``(d) Form of Assistance.--
          ``(1) In general.--Subject to paragraph (2), the assistance 
        under this section to an eligible individual shall be in such 
        form as the Secretary shall specify, including the use of a 
        debit card mechanism to pay for drugs purchased through the use 
        of the prescription drug discount card program to eligible 
        individuals who are enrolled in such program.
          ``(2) 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--
                  ``(A) was in existence before the date of the 
                enactment of this section; and
                  ``(B) 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 paragraph had not 
                applied in the State.
          ``(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 for purposes of part D) 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).
  ``(e) Payment of Federal Subsidy to Sponsors.--
          ``(1) In general.--Insofar as assistance is provided under 
        this section through programs under section 1807, the Secretary 
        shall make payment (within the amounts under subsection (b), 
        less the administrative costs relating to determinations of 
        eligibility) to the sponsor of the prescription drug discount 
        card program (or to a State or other entity operating an 
        alternative program under subsection (d)(2)) 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 
        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) 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 an 
        alternative program authorized under subsection (d)(2), the 
        State or other entity operating the program.''.
  (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 1860D-8(f)(1))'' and inserting ``by a qualified retiree 
prescription drug plan (as defined in section 1860D-8(f)(1)), or by a 
prescription drug discount card program endorsed under section 1807''.

SEC. 106. DISCLOSURE OF RETURN INFORMATION FOR PURPOSES OF CARRYING OUT 
                    MEDICARE CATASTROPHIC PRESCRIPTION DRUG PROGRAM.

  (a) In General.--Subsection (l) of section 6103 of the Internal 
Revenue Code of 1986 (relating to disclosure of returns and return 
information for purposes other than tax administration) is amended by 
adding at the end the following new paragraph:
          ``(19) Disclosure of return information for purposes of 
        carrying out medicare catastrophic prescription drug program.--
                  ``(A) In general.--The Secretary may, upon written 
                request from the Secretary of Health and Human Services 
                under section 1860D-2(b)(4)(E)(i) of the Social 
                Security Act, disclose to officers and employees of the 
                Department of Health and Human Services with respect to 
                a specified taxpayer for the taxable year specified by 
                the Secretary of Health and Human Services in such 
                request--
                          ``(i) the taxpayer identity information with 
                        respect to such taxpayer, and
                          ``(ii) the adjusted gross income of such 
                        taxpayer for the taxable year (or, if less, the 
                        income threshold limit specified in section 
                        1860D-2(b)(4)(D)(ii) for the calendar year 
                        specified by such Secretary in such request).
                  ``(B) Specified taxpayer.--For purposes of this 
                paragraph, the term `specified taxpayer' means any 
                taxpayer who--
                          ``(i) is identified by the Secretary of 
                        Health and Human Services in the request 
                        referred to in subparagraph (A), and
                          ``(ii) either--
                                  ``(I) has an adjusted gross income 
                                for the taxable year referred to in 
                                subparagraph (A) in excess of the 
                                income threshold specified in section 
                                1860D-2(b)(4)(D)(ii) of such Act for 
                                the calendar year referred to in such 
                                subparagraph, or
                                  ``(II) is identified by such 
                                Secretary under subparagraph (A) as 
                                being an individual who elected to use 
                                more recent information under section 
                                1860D-2(b)(4)(D)(v) of such Act.
                  ``(C) Joint returns.--In the case of a joint return, 
                the Secretary shall, for purposes of applying this 
                paragraph, treat each spouse as a separate taxpayer 
                having an adjusted gross income equal to one-half of 
                the adjusted gross income determined with respect to 
                such return.
                  ``(D) Restriction on use of disclosed information.--
                Return information disclosed under subparagraph (A) may 
                be used by officers and employees of the Department of 
                Health and Human Services only for the purpose of 
                administering the prescription drug benefit under title 
                XVIII of the Social Security Act. Such officers and 
                employees may disclose the annual out-of-pocket 
                threshold which applies to an individual under such 
                part to the entity that offers the plan referred to in 
                section 1860D-2(b)(4)(E)(ii) of such Act in which such 
                individual is enrolled. Such sponsor may use such 
                information only for purposes of administering such 
                benefit.''.
  (b) Confidentiality.--Paragraph (3) of section 6103(a) of such Code 
is amended by striking ``or (16)'' and inserting ``(16), or (19)''.
  (c) Procedures and Recordkeeping Related to Disclosures.--Subsection 
(p)(4) of section 6103 of such Code is amended by striking ``any other 
person described in subsection (l)(16) or (17)'' each place it appears 
and inserting ``any other person described in subsection (l)(16), (17), 
or (19)''.
  (d) Unauthorized Disclosure.--Paragraph (2) of section 7213(a) of 
such Code is amended by striking ``or (16)'' and inserting ``(16), or 
(19)''.
  (e) Unauthorized Inspection.--Subparagraph (B) of section 7213A(a)(1) 
of such Code is amended by inserting ``or (19)'' after ``subsection 
(l)(18)''.

SEC. 107. STATE PHARMACEUTICAL ASSISTANCE TRANSITION COMMISSION.

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

  TITLE II--MEDICARE ENHANCED FEE-FOR-SERVICE AND MEDICARE ADVANTAGE 
                     PROGRAMS; MEDICARE COMPETITION

SEC. 200. MEDICARE MODERNIZATION AND REVITALIZATION.

  This title provides for--
          (1) establishment of the medicare enhanced fee-for-service 
        (EFFS) program under which medicare beneficiaries are provided 
        access to a range of enhanced fee-for-service (EFFS) plans that 
        may use preferred provider networks to offer an enhanced range 
        of benefits;
          (2) establishment of a Medicare Advantage program that offers 
        improved managed care plans with coordinated care; and
          (3) competitive bidding, in the style of the Federal 
        Employees Health Benefits program (FEHBP), among enhanced fee-
        for-service plans and Medicare Advantage plans in order to 
        promote greater efficiency and responsiveness to medicare 
        beneficiaries.

         Subtitle A--Medicare Enhanced Fee-for-Service Program

SEC. 201. ESTABLISHMENT OF ENHANCED FEE-FOR-SERVICE (EFFS) PROGRAM 
                    UNDER MEDICARE.

  (a) In General.--Title XVIII, as amended by section 101(a), is 
amended--
          (1) by redesignating part E as part F; and
          (2) by inserting after part D the following new part:

               ``Part E--Enhanced Fee-for-Service Program

  ``offering of enhanced fee-for-service plans throughout the united 
                                 states
  ``Sec. 1860E-1. (a) Establishment of Program.--
          ``(1) In general.--The Administrator shall establish under 
        this part beginning January 1, 2006, an enhanced fee-for-
        service program under which enhanced fee-for-service plans (as 
        defined in subsection (b)) are offered to EFFS-eligible 
        individuals (as so defined) in EFFS regions throughout the 
        United States.
          ``(2) EFFS regions.--For purposes of this part the 
        Administrator shall establish EFFS regions throughout the 
        United States by dividing the entire United States into at 
        least 10 such regions. Before establishing such regions, the 
        Administrator shall conduct a market survey and analysis, 
        including an examination of current insurance markets, to 
        determine how the regions should be established. The regions 
        shall be established in a manner to take into consideration 
        maximizing full access for all EFFS-eligible individuals, 
        especially those residing in rural areas.
  ``(b) Definitions.--For purposes of this part:
          ``(1) EFFS organization.--The `EFFS organization' means an 
        entity that the Administrator certifies as meeting the 
        requirements and standards applicable to such organization 
        under this part.
          ``(2) Enhanced fee-for-service plan; effs plan.--The terms 
        `enhanced fee-for-service plan' and `EFFS plan' mean health 
        benefits coverage offered under a policy, contract, or plan by 
        an EFFS organization pursuant to and in accordance with a 
        contract pursuant to section 1860E-4(c), but only if the plan 
        provides either fee-for-service coverage described in the 
        following subparagraph (A) or preferred provider coverage 
        described in the following subparagraph (B):
                  ``(A) Fee-for-service coverage.--The plan--
                          ``(i) reimburses hospitals, physicians, and 
                        other providers at a rate determined by the 
                        plan on a fee-for-service basis without placing 
                        the provider at financial risk;
                          ``(ii) does not vary such rates for such a 
                        provider based on utilization relating to such 
                        provider; and
                          ``(iii) does not restrict the selection of 
                        providers among those who are lawfully 
                        authorized to provide the covered services and 
                        agree to accept the terms and conditions of 
                        payment established by the plan.
                  ``(B) Preferred provider coverage.--The plan--
                          ``(i) has a network of providers that have 
                        agreed to a contractually specified 
                        reimbursement for covered benefits with the 
                        organization offering the plan; and
                          ``(ii) provides for reimbursement for all 
                        covered benefits regardless of whether such 
                        benefits are provided within such network of 
                        providers.
          ``(3) EFFS eligible individual.--The term `EFFS eligible 
        individual' means an eligible individual described in section 
        1851(a)(3).
          ``(4) EFFS region.--The term `EFFS region' means a region 
        established under subsection (a)(2).
  ``(c) Application of Certain Eligibility, Enrollment, Etc. 
Requirements.--The provisions of section 1851 (other than subsection 
(h)(4)(A)) shall apply to EFFS plans offered by an EFFS organization in 
an EFFS region, including subsection (g) (relating to guaranteed issue 
and renewal).
          ``offering of enhanced fee-for-service (effs) plans
  ``Sec. 1860E-2. (a) Plan Requirements.--No EFFS plan may be offered 
under this part in an EFFS region unless the requirements of this part 
are met with respect to the plan and EFFS organization offering the 
plan.
  ``(b) Available to All EFFS Beneficiaries in the Entire Region.--With 
respect to an EFFS plan offered in an EFFS region--
          ``(1) In general.--The plan must be offered to all EFFS-
        eligible individuals residing in the region.
          ``(2) Assuring access to services.--The plan shall comply 
        with the requirements of section 1852(d)(4).
  ``(c) Benefits.--
          ``(1) In general.--Each EFFS plan shall provide to members 
        enrolled in the plan under this part benefits, through 
        providers and other persons that meet the applicable 
        requirements of this title and part A of title XI--
                  ``(A) for the items and services described in section 
                1852(a)(1);
                  ``(B) that are uniform for the plan for all EFFS 
                eligible individuals residing in the same EFFS region;
                  ``(C) that include a single deductible applicable to 
                benefits under parts A and B and include a catastrophic 
                limit on out-of-pocket expenditures for such covered 
                benefits; and
                  ``(D) that include benefits for prescription drug 
                coverage for each enrollee who elects under part D to 
                be provided qualified prescription drug coverage 
                through the plan.
          ``(2) Disapproval authority.--The Administrator shall not 
        approve a plan of an EFFS organization if the Administrator 
        determines (pursuant to the last sentence of section 
        1852(b)(1)(A)) that the benefits are designed to substantially 
        discourage enrollment by certain EFFS eligible individuals with 
        the organization.
  ``(d) Outpatient Prescription Drug Coverage.--For rules concerning 
the offering of prescription drug coverage under EFFS plans, see the 
amendment made by section 102(b) of the Medicare Prescription Drug and 
Modernization Act of 2003.
  ``(e) Other Additional Provisions.--The provisions of section 1852 
(other than subsection (a)(1)) shall apply under this part to EFFS 
plans. For the application of chronic care improvement provisions, see 
the amendment made by section 722(b).
      ``submission of bids; beneficiary savings; payment of plans
  ``Sec. 1860E-3. (a) Submission of Bids.--
          ``(1) Requirement.--
                  ``(A) EFFS monthly bid amount.--For each year 
                (beginning with 2006), an EFFS organization shall 
                submit to the Administrator an EFFS monthly bid amount 
                for each EFFS plan offered in each region. Each such 
                bid is referred to in this section as the `EFFS monthly 
                bid amount'.
                  ``(B) Form.--Such bid amounts shall be submitted for 
                each such plan and region in a form and manner and time 
                specified by the Administrator, and shall include 
                information described in paragraph (3)(A).
          ``(2) Uniform bid amounts.--Each EFFS monthly bid amount 
        submitted under paragraph (1) by an EFFS organization under 
        this part for an EFFS plan in an EFFS region may not vary among 
        EFFS eligible individuals residing in the EFFS region involved.
          ``(3) Submission of bid amount information by effs 
        organizations.--
                  ``(A) Information to be submitted.--The information 
                described in this subparagraph is as follows:
                          ``(i) The EFFS monthly bid amount for 
                        provision of all items and services under this 
                        part, which amount shall be based on average 
                        costs for a typical beneficiary residing in the 
                        region, 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 EFFS 
                                statutory 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 section 1852(a)(1).
                          ``(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)), 
                and for such purpose, the Administrator has negotiation 
                authority that the Director of the Office of Personnel 
                Management has with respect to health benefits plans 
                under chapter 89 of title 5, United States Code. 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).
                  ``(D) Contract authority.--The Administrator may, 
                taking into account the unadjusted EFFS statutory non-
                drug monthly bid amounts accepted under subparagraph 
                (C), enter into contracts for the offering of up to 3 
                EFFS plans in any region.
  ``(b) Provision of Beneficiary Savings for Certain Plans.--
          ``(1) Beneficiary rebate rule.--
                  ``(A) Requirement.--The EFFS plan shall provide to 
                the enrollee a monthly rebate equal to 75 percent of 
                the average per capita savings (if any) described in 
                paragraph (2) applicable to the plan and year involved.
                  ``(B) Form of rebate.--A rebate required under this 
                paragraph shall be provided--
                          ``(i) through the crediting of the amount of 
                        the rebate towards the EFFS monthly 
                        prescription drug beneficiary premium (as 
                        defined in section 1860E-4(a)(3)(B)) and the 
                        EFFS monthly supplemental beneficiary premium 
                        (as defined in section 1860E-4(a)(3)(C));
                          ``(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.
          ``(2) Computation of average per capita monthly savings.--For 
        purposes of paragraph (1)(A), the average per capita monthly 
        savings referred to in such paragraph for an EFFS plan and year 
        is computed as follows:
                  ``(A) Determination of region-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 2006), for each EFFS region the 
                        average of the risk adjustment factors 
                        described in subsection (c)(3) to be applied to 
                        enrollees under this part in that region. In 
                        the case of an EFFS region in which an EFFS 
                        plan was offered in the previous year, the 
                        Administrator may compute such average based 
                        upon risk adjustment factors applied under 
                        subsection (c)(3) in that region in a previous 
                        year.
                          ``(ii) Treatment of new regions.--In the case 
                        of a region in which no EFFS 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 EFFS 
                        regions or applied on a national basis.
                  ``(B) Determination of risk adjusted benchmark and 
                risk-adjusted bid.--For each EFFS plan offered in an 
                EFFS region, the Administrator shall--
                          ``(i) adjust the EFFS region-specific non-
                        drug monthly benchmark amount (as defined in 
                        paragraph (3)) by the applicable average risk 
                        adjustment factor computed under subparagraph 
                        (A); and
                          ``(ii) adjust the unadjusted EFFS statutory 
                        non-drug monthly bid amount by such applicable 
                        average risk adjustment factor.
                  ``(C) Determination of average per capita monthly 
                savings.--The average per capita monthly savings 
                described in this subparagraph 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).
          ``(3) Computation of effs region-specific non-drug monthly 
        benchmark amount.--For purposes of this part, the term `EFFS 
        region-specific non-drug monthly benchmark amount' means, with 
        respect to an EFFS region for a month in a year, an amount 
        equal to \1/12\ of the average (weighted by number of EFFS 
        eligible individuals in each payment area described in section 
        1853(d)) of the annual capitation rate as calculated under 
        section 1853(c)(1) for that area.
  ``(c) Payment of Plans Based on Bid Amounts.--
          ``(1) Non-drug benefits.--Under a contract under section 
        1860E-4(c) and subject to section 1853(g) (as made applicable 
        under subsection (d)), the Administrator shall make monthly 
        payments under this subsection in advance to each EFFS 
        organization, with respect to coverage of an individual under 
        this part in an EFFS region for a month, in an amount 
        determined as follows:
                  ``(A) Plans with bids below benchmark.--In the case 
                of a plan for which there are average per capita 
                monthly savings described in subsection (b)(2)(C), the 
                payment under this subsection is equal to the 
                unadjusted EFFS statutory non-drug monthly bid amount, 
                adjusted under paragraphs (3) and (4), plus the amount 
                of the monthly rebate computed under subsection 
                (b)(1)(A) for that plan and year.
                  ``(B) 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 subsection 
                (b)(2)(C), the payment amount under this subsection is 
                equal to the EFFS region-specific non-drug monthly 
                benchmark amount, adjusted under paragraphs (3) and 
                (4).
          ``(2) For federal drug subsidies.--In the case in which an 
        enrollee who elects under part D to be provided qualified 
        prescription drug coverage through the plan, the EFFS 
        organization offering such plan also is entitled--
                  ``(A) to direct subsidy payment under section 1860D-
                8(a)(1);
                  ``(B) to reinsurance subsidy payments under section 
                1860D-8(a)(2); and
                  ``(C) to reimbursement for premium and cost-sharing 
                reductions for low-income individuals under section 
                1860D-7(c)(3).
          ``(3) Demographic risk adjustment, including adjustment for 
        health status.--The Administrator shall adjust under paragraph 
        (1)(A) the unadjusted EFFS statutory non-drug monthly bid 
        amount and under paragraph (1)(B) the EFFS region-specific non-
        drug monthly benchmark amount 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 section 1853(a)(3) 
        (as applied under subsection (d)), 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.
          ``(4) Adjustment for intra-regional geographic variations.--
        The Administrator shall also adjust such amounts in a manner to 
        take into account variations in payments rates under part C 
        among the different payment areas under such part included in 
        each EFFS region.
  ``(d) Application of Additional Payment Rules.--The provisions of 
section 1853 (other than subsections (a)(1)(A), (d), and (e)) shall 
apply to an EFFS plan under this part, except as otherwise provided in 
this section.
``premiums; organizational and financial requirements; establishment of 
              standards; contracts with effs organizations
  ``Sec. 1860E-4. (a) Premiums.--
          ``(1) In general.--The provisions of section 1854 (other than 
        subsections (a)(6)(C) and (h)), including subsection (b)(5) 
        relating to the consolidation of drug and non-drug beneficiary 
        premiums and subsection (c) relating to uniform bids and 
        premiums, shall apply to an EFFS plan under this part, subject 
        to paragraph (2).
          ``(2) Cross-walk.--In applying paragraph (1), any reference 
        in section 1854(b)(1)(A) or 1854(d) to--
                  ``(A) a Medicare Advantage monthly basic beneficiary 
                premium is deemed a reference to the EFFS monthly basic 
                beneficiary premium (as defined in paragraph (3)(A));
                  ``(B) a Medicare Advantage monthly prescription drug 
                beneficiary premium is deemed a reference to the EFFS 
                monthly prescription drug beneficiary premium (as 
                defined in paragraph (3)(B)); and
                  ``(C) a Medicare Advantage monthly supplemental 
                beneficiary premium is deemed a reference to the EFFS 
                monthly supplemental beneficiary premium (as defined in 
                paragraph (3)(C)).
          ``(3) Definitions.--For purposes of this part:
                  ``(A) EFFS monthly basic beneficiary premium.--The 
                term `EFFS monthly basic beneficiary premium' means, 
                with respect to an EFFS plan--
                          ``(i) described in section 1860E-3(c)(1)(A) 
                        (relating to plans providing rebates), zero; or
                          ``(ii) described in section 1860E-3(c)(1)(B), 
                        the amount (if any) by which the unadjusted 
                        EFFS statutory non-drug monthly bid amount 
                        exceeds the EFFS region-specific non-drug 
                        monthly benchmark amount (as defined in section 
                        1860E-3(b)(3)).
                  ``(B) EFFS monthly prescription drug beneficiary 
                premium.--The term `EFFS monthly prescription drug 
                beneficiary premium' means, with respect to an EFFS 
                plan, the portion of the aggregate monthly bid amount 
                submitted under clause (i) of section 1860E-3(a)(3)(A) 
                for the year that is attributable under such section to 
                the provision of statutory prescription drug benefits.
                  ``(C) EFFS monthly supplemental beneficiary 
                premium.--The term `EFFS monthly supplemental 
                beneficiary premium' means, with respect to an EFFS 
                plan, the portion of the aggregate monthly bid amount 
                submitted under clause (i) of section 1860E-3(a)(3)(A) 
                for the year that is attributable under such section to 
                the provision of nonstatutory benefits.
  ``(b) Organizational and Financial Requirements.--The provisions of 
section 1855 shall apply to an EFFS plan offered by an EFFS 
organization under this part.
  ``(c) Contracts with EFFS Organizations.--The provisions of section 
1857 shall apply to an EFFS plan offered by an EFFS organization under 
this part, except that any reference in such section to part C is 
deemed a reference to this part.''.
  (b) Prohibition on Coverage Under Medigap Plans of Deductible Imposed 
Under EFFS Plans.--Section 1882 (42 U.S.C. 1395ss), as amended by 
section 104(a), is amended by adding at the end the following new 
subsection:
  ``(w) Prohibition on Coverage of Deductible and Certain Cost-Sharing 
Imposed Under EFFS Plans.--Notwithstanding any other provision of law, 
no medicare supplemental policy (other than the 2 benefit packages 
described in subsection (v)(3)) may provide for coverage of the single 
deductible or more than 50 percent of other cost-sharing imposed under 
an EFFS plan under part E.''.
  (c) Conforming Provisions.--Section 1882 of the Social Security Act 
(42 U.S.C. 1395ss) shall be administered as if any reference to a 
Medicare+Choice organization offering a Medicare+Choice plan under part 
C of title XVIII of such Act were a reference both to a Medicare 
Advantage organization offering a Medicare Advantage plan under such 
part and an EFFS organization offering an EFFS plan under part E of 
such title.

                 Subtitle B--Medicare Advantage Program

                  CHAPTER 1--IMPLEMENTATION OF PROGRAM

SEC. 211. IMPLEMENTATION OF MEDICARE ADVANTAGE PROGRAM.

  (a) In General.--There is hereby established the Medicare Advantage 
program. The Medicare Advantage program shall consist of the program 
under part C of title XVIII of the Social Security Act, as amended by 
this title.
  (b) References.--Any reference to the program under part C of title 
XVIII of the Social Security Act shall be deemed a reference to the 
Medicare Advantage program and, with respect to such part, any 
reference to ``Medicare+Choice'' is deemed a reference to ``Medicare 
Advantage''.

SEC. 212. MEDICARE ADVANTAGE IMPROVEMENTS.

  (a) Equalizing Payments With Fee-For-Service.--
          (1) In general.--Section 1853(c)(1) (42 U.S.C. 1395w-
        23(c)(1)) is amended by adding at the end the following:
                  ``(D) Based on 100 percent of fee-for-service 
                costs.--
                          ``(i) In general.--For 2004, the adjusted 
                        average per capita cost for the year involved, 
                        determined under section 1876(a)(4) for the 
                        Medicare Advantage 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 
                        Advantage 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) Change in Budget Neutrality for Blend.--Section 1853(c) (42 
U.S.C. 1395w-23(c)) is amended--
          (1) in paragraph (1)(A), by inserting ``(for a year other 
        than 2004)'' after ``multiplied''; and
          (2) in paragraph (5), by inserting ``(other than 2004)'' 
        after ``for each year''.
  (c) Increasing Minimum Percentage Increase to National Growth Rate.--
          (1) In general.--Section 1853(c)(1) (42 U.S.C. 1395w-
        23(c)(1)) is amended--
                  (A) in subparagraph (B)(iv), by striking ``and each 
                succeeding year'' and inserting ``, 2003, and 2004'';
                  (B) in subparagraph (C)(iv), by striking ``and each 
                succeeding year'' and inserting ``and 2003''; and
                  (C) by adding at the end of subparagraph (C) the 
                following new clause:
                          ``(v) For 2004 and each succeeding year, the 
                        greater of--
                                  ``(I) 102 percent of the annual 
                                Medicare Advantage capitation rate 
                                under this paragraph for the area for 
                                the previous year; or
                                  ``(II) the annual Medicare Advantage 
                                capitation rate under this paragraph 
                                for the area for the previous year 
                                increased by the national per capita 
                                Medicare Advantage growth percentage, 
                                described in paragraph (6) for that 
                                succeeding year, but not taking into 
                                account any adjustment under paragraph 
                                (6)(C) for a year before 2004.''.
          (2) Conforming amendment.--Section 1853(c)(6)(C) (42 U.S.C. 
        1395w-23(c)(6)(C)) is amended by inserting before the period at 
        the end the following: ``, except that for purposes of 
        paragraph (1)(C)(v)(II), no such adjustment shall be made for a 
        year before 2004''.
  (d) Inclusion of Costs of DOD and VA Military Facility Services to 
Medicare-Eligible Beneficiaries in Calculation of 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 2004), the annual per capita rate of 
                payment for 1997 determined under section 1876(a)(1)(C) 
                shall be adjusted to include in the rate the 
                Secretary's estimate, on a per capita basis, of the 
                amount of additional payments that would have been made 
                in the area involved under this title if individuals 
                entitled to benefits under this title had not received 
                services from facilities of the Department of Defense 
                or the Department of Veterans Affairs.''.
  (e) Extending Special Rule for Certain Inpatient Hospital Stays to 
Rehabilitation Hospitals.--
          (1) In general.--Section 1853(g) (42 U.S.C. 1395w-23(g)) is 
        amended--
                  (A) by inserting ``or from a rehabilitation facility 
                (as defined in section 1886(j)(1)(A))'' after 
                ``1886(d)(1)(B))''; and
                  (B) in paragraph (2)(B), by inserting ``or section 
                1886(j), as the case may be,'' after ``1886(d)''.
          (2) Effective date.--The amendments made by paragraph (1) 
        shall apply to contract years beginning on or after January 1, 
        2004.
  (f) MedPAC Study of AAPCC.--
          (1) Study.--The Medicare Payment Advisory Commission shall 
        conduct a study that assesses the method used for determining 
        the adjusted average per capita cost (AAPCC) under section 
        1876(a)(4) of the Social Security Act (42 U.S.C. 1395mm(a)(4)) 
        as applied under section 1853(c)(1)(A) of such Act (as amended 
        by subsection (a)). Such study shall include an examination 
        of--
                  (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 Advantage program under part C of title 
                XVIII of such Act; and
                  (C) the accuracy of risk adjustment methods in 
                reflecting differences in costs of providing care to 
                different groups of beneficiaries served under such 
                program.
          (2) Report.--Not later than 18 months after the date of the 
        enactment of this Act, the Commission shall submit to Congress 
        a report on the study conducted under paragraph (1).
  (g) Report on Impact of Increased Financial Assistance to Medicare 
Advantage Plans.--Not later than July 1, 2006, the Medicare Benefits 
Administrator shall submit to Congress a report that describes the 
impact of additional financing provided under this Act and other Acts 
(including the Medicare, Medicaid, and SCHIP Balanced Budget Refinement 
Act of 1999 and BIPA) on the availability of Medicare Advantage plans 
in different areas and its impact on lowering premiums and increasing 
benefits under such plans.

            CHAPTER 2--IMPLEMENTATION OF COMPETITION PROGRAM

SEC. 221. COMPETITION PROGRAM BEGINNING IN 2006.

  (a) Submission of EFFS-Like Bidding Information Beginning in 2006.--
Section 1854 (42 U.S.C. 1395w-24) is amended--
          (1) by amending the section heading to read as follows:
                      ``premiums and bid amount'';
          (2) in subsection (a)(1)(A)--
                  (A) by striking ``(A)'' and inserting ``(A)(i) if the 
                following year is before 2006,''; and
                  (B) by inserting before the semicolon at the end the 
                following: ``or (ii) if the following year is 2006 or 
                later, the information described in paragraph (3) or 
                (6)(A) for the type of plan involved''; and
          (3) by adding at the end of subsection (a) the following:
          ``(6) Submission of bid amounts by medicare advantage 
        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, which amount shall be based on average 
                        costs for a typical beneficiary residing in the 
                        area, 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 
                                Medicare Advantage statutory 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 section 1852(a)(1).
                          ``(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.--
                          ``(i) In general.--Subject to clause (ii)--
                                  ``(I) the Administrator has the 
                                authority to negotiate regarding 
                                monthly bid amounts submitted under 
                                subparagraph (A) (and the proportion 
                                described in subparagraph (A)(ii)), and 
                                for such purpose and subject to such 
                                clause, the Administrator has 
                                negotiation authority that the Director 
                                of the Office of Personnel Management 
                                has with respect to health benefits 
                                plans under chapter 89 of title 5, 
                                United States Code; and
                                  ``(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).
                          ``(ii) Exception.--In the case of a plan 
                        described in section 1851(a)(2)(C), the 
                        provisions of clause (i) shall not apply and 
                        the provisions of paragraph (5)(B), prohibiting 
                        the review, approval, or disapproval of amounts 
                        described in such paragraph, shall apply to the 
                        negotiation and rejection of the monthly bid 
                        amounts and proportion referred to in 
                        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 Advantage 
                        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 Advantage 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 
                paragraphs:
          ``(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 Advantage 
        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 2006), for each State the 
                        average of the risk adjustment factors to be 
                        applied under section 1853(a)(1)(A) to payment 
                        for enrollees in that State. In the case of a 
                        State in which a Medicare Advantage 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 Advantage 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 Advantage plan 
                offered in a State, the Administrator shall--
                          ``(i) adjust the Medicare Advantage area-
                        specific non-drug monthly benchmark amount (as 
                        defined in subsection (j)) by the applicable 
                        average risk adjustment factor computed under 
                        subparagraph (A); and
                          ``(ii) adjust the unadjusted Medicare 
                        Advantage statutory non-drug monthly bid amount 
                        by such applicable average risk adjustment 
                        factor.
                  ``(C) Determination of average per capita monthly 
                savings.--The average per capita monthly savings 
                described in this subparagraph 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.
          ``(4) Beneficiary's option of payment through withholding 
        from social security payment or use of electronic funds 
        transfer mechanism.--In accordance with regulations, a Medicare 
        Advantage organization shall permit each enrollee, at the 
        enrollee's option, to make payment of premiums under this part 
        to the organization indirectly 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 premium payments that are withheld 
        under this paragraph that are credited to the Federal 
        Supplementary Medical Insurance Drug Trust Fund shall be paid 
        to the Medicare Advantage organization involved.''.
          (2) Provision of single consolidated premium.--Section 
        1854(b) (42 U.S.C. 1395w-24(b)), as amended by paragraph (1), 
        is further amended by adding at the end the following new 
        paragraph:
          ``(5) Single consolidated premium.--In the case of an 
        enrollee in a Medicare Advantage plan who elects under part D 
        to be provided qualified prescription drug coverage through the 
        plan, the Administrator shall provide a mechanism for the 
        consolidation of the beneficiary premium amount for non-drug 
        benefits under this part with the premium amount for 
        prescription drug coverage under part D provided through the 
        plan.''.
          (3) Computation of medicare advantage 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 Medicare Advantage Area-Specific Non-Drug 
Monthly Benchmark Amount.--For purposes of this part, the term 
`Medicare Advantage area-specific non-drug monthly benchmark amount' 
means, with respect to a Medicare Advantage payment area for a month in 
a year, an amount equal to \1/12\ of the annual Medicare Advantage 
capitation rate under section 1853(c)(1) for the area for the year.''.
  (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 2006.--For years before 
                        2006, the payment amount shall be equal to \1/
                        12\ of the annual Medicare Advantage capitation 
                        rate (as calculated under subsection (c)(1)) 
                        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 (iv).
                          ``(ii) Payment for statutory non-drug 
                        benefits beginning with 2006.--For years 
                        beginning with 2006--
                                  ``(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 
                                Medicare Advantage statutory non-drug 
                                monthly bid amount, adjusted under 
                                clause (iv), 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 
                                Medicare Advantage area-specific non-
                                drug monthly benchmark amount, adjusted 
                                under clause (iv).
                          ``(iii) For federal drug subsidies.--In the 
                        case in which an enrollee who elects under part 
                        D to be provided qualified prescription drug 
                        coverage through the plan, the Medicare 
                        Advantage organization offering such plan also 
                        is entitled--
                                  ``(I) to direct subsidy payment under 
                                section 1860D-8(a)(1);
                                  ``(II) to reinsurance subsidy 
                                payments under section 1860D-8(a)(2); 
                                and
                                  ``(III) to reimbursement for premium 
                                and cost-sharing reductions for low-
                                income individuals under section 1860D-
                                7(c)(3).
                          ``(iv) Demographic adjustment, including 
                        adjustment for health status.--The 
                        Administrator shall adjust the payment amount 
                        under clause (i), the unadjusted Medicare 
                        Advantage statutory non-drug monthly bid amount 
                        under clause (ii)(I), and the Medicare 
                        Advantage area-specific non-drug monthly 
                        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.''.
  (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 Advantage eligible 
        individuals with the organization.''.
          (2) Conforming amendment to premium terminology.--Section 
        1854(b)(2) (42 U.S.C. 1395w-24(b)(2)) is amended by 
        redesignating subparagraph (C) as subparagraph (D) and by 
        striking subparagraphs (A) and (B) and inserting the following:
                  ``(A) Medicare advantage monthly basic beneficiary 
                premium.--The term `Medicare Advantage monthly basic 
                beneficiary premium' means, with respect to a Medicare 
                Advantage 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 Medicare Advantage 
                        statutory non-drug monthly bid amount exceeds 
                        the Medicare Advantage area-specific non-drug 
                        monthly benchmark amount.
                  ``(B) Medicare advantage monthly prescription drug 
                beneficiary premium.--The term `Medicare Advantage 
                monthly prescription drug beneficiary premium' means, 
                with respect to a Medicare Advantage plan, that portion 
                of the bid amount submitted under clause (i) of 
                subsection (a)(6)(A) for the year that is attributable 
                under such section to the provision of statutory 
                prescription drug benefits.
                  ``(C) Medicare advantage monthly supplemental 
                beneficiary premium.--The term `Medicare Advantage 
                monthly supplemental beneficiary premium' means, with 
                respect to a Medicare Advantage 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 premium and bid amounts.--Section 
        1854(c) (42 U.S.C. 1395w-24(c)) is amended to read as follows:
  ``(c) Uniform Premium and Bid Amounts.--The Medicare Advantage 
monthly bid amount submitted under subsection (a)(6), the Medicare 
Advantage monthly basic, prescription drug, and supplemental 
beneficiary premiums, and the Medicare Advantage monthly MSA premium 
charged under subsection (b) of a Medicare Advantage 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''.
          (5) Other conforming amendments relating to bids.--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''.
  (e) Additional Conforming Amendments.--
          (1) Annual determination and announcement of certain 
        factors.--Section 1853(b)(1) (42 U.S.C. 1395w-23(b)(1)) is 
        amended by striking ``the respective calendar year'' and all 
        that follows and inserting the following: ``the calendar year 
        concerned with respect to each Medicare Advantage payment area, 
        the following:
                  ``(A) Pre-competition information.--For years before 
                2006, the following:
                          ``(i) Medicare advantage capitation rates.--
                        The annual Medicare Advantage capitation rate 
                        for each Medicare Advantage 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 2006, the following:
                          ``(i) Benchmark.--The Medicare Advantage 
                        area-specific non-drug benchmark under section 
                        1853(j).
                          ``(ii) Adjustment factors.--The adjustment 
                        factors applied under section 1853(a)(1)(A)(iv) 
                        (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).''.
          (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 amendments.--(i) 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.
                  (ii) Section 1852(a)(1) (42 U.S.C. 1395w-22(a)(1)) is 
                amended by striking ``title XI'' and all that follows 
                and inserting the following: ``title XI those items and 
                services (other than hospice care) for which benefits 
                are available under parts A and B to individuals 
                residing in the area served by the plan.''.
                  (iii) Section 1857(d)(1) (42 U.S.C. 1395w-27(d)(1)) 
                is amended by striking ``, costs, and computation of 
                the adjusted community rate'' and inserting ``and 
                costs''.
  (f) References under Part E.--Section 1859 (42 U.S.C. 1395w-29) is 
amended by adding at the end the following new subsection:
  ``(f) Application under Part E.--In the case of any reference under 
part E to a requirement or provision of this part in the relation to an 
EFFS plan or organization under such part, except as otherwise 
specified any such requirement or provision shall be applied to such 
organization or plan in the same manner as such requirement or 
provision applies to a Medicare Advantage private fee-for-service plan 
(and the Medicare Advantage organization that offers such plan) under 
this part.''.
  (g) Effective Date.--The amendments made by this section shall apply 
to payments and premiums for months beginning with January 2006.

                     CHAPTER 3--ADDITIONAL REFORMS

SEC. 231. MAKING PERMANENT CHANGE IN MEDICARE ADVANTAGE 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''.
  (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--
          (1) by striking ``and after 2005''; and
          (2) by striking ``, 2004, and 2005'' and inserting ``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--
          (1) by striking ``and after 2005''; and
          (2) by striking ``and 2005'' and inserting ``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. 232. AVOIDING DUPLICATIVE STATE REGULATION.

  (a) In General.--Section 1856(b)(3) (42 U.S.C. 1395w-26(b)(3)) is 
amended to read as follows:
          ``(3) Relation to state laws.--The standards established 
        under this subsection shall supersede any State law or 
        regulation (other than State licensing laws or State laws 
        relating to plan solvency) with respect to Medicare Advantage 
        plans which are offered by Medicare Advantage 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. 233. SPECIALIZED MEDICARE ADVANTAGE 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 Advantage plans for special needs 
beneficiaries (as defined in section 1859(b)(4)) may be any type of 
coordinated care plan.''.
  (b) Specialized Medicare Advantage 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 advantage plans for special needs 
        beneficiaries.--
                  ``(A) In general.--The term `specialized Medicare 
                Advantage plan for special needs beneficiaries' means a 
                Medicare Advantage plan that exclusively serves special 
                needs beneficiaries (as defined in subparagraph (B)).
                  ``(B) Special needs beneficiary.--The term `special 
                needs beneficiary' means a Medicare Advantage 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 
                        Advantage 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 Advantage 
Plans for Special Needs Beneficiaries.--In the case of a specialized 
Medicare Advantage 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 Advantage 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 shall issue 
        interim 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. 234. 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 ``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. 235. EXTENSION OF REASONABLE COST CONTRACTS.

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

SEC. 236. EXTENSION OF MUNICIPAL HEALTH SERVICE DEMONSTRATION PROJECTS.

  Section 9215(a) of the Consolidated Omnibus Budget Reconciliation Act 
of 1985 (42 U.S.C. 1395b-1 note), as amended by section 6135 of the 
Omnibus Budget Reconciliation Act of 1989, section 13557 of the Omnibus 
Budget Reconciliation Act of 1993, section 4017 of BBA, section 534 of 
BBRA (113 Stat. 1501A-390), and section 633 of BIPA, is amended by 
striking ``December 31, 2004'' and inserting ``December 31, 2009''.

       Subtitle C--Application of FEHBP-Style Competitive Reforms

SEC. 241. APPLICATION OF FEHBP-STYLE COMPETITIVE REFORM BEGINNING IN 
                    2010.

  (a) Identification of Competitive EFFS Regions; Computation of 
Competitive EFFS Non-Drug Benchmarks Under EFFS Program.--
          (1) In general.--Section 1860E-3, as added by section 201(a), 
        is amended by adding at the end the following new subsection:
  ``(e) Application of Competition.--
          ``(1) Determination of competitive effs regions.--
                  ``(A) In general.--For purposes of this part, the 
                term `competitive EFFS region' means, for a year 
                beginning with 2010, an EFFS region that the 
                Administrator finds--
                          ``(i) there will be offered in the region 
                        during the annual, coordinated election period 
                        under section 1851(e)(3)(B) (as applied under 
                        section 1860E-1(c)) before the beginning of the 
                        year at least 2 EFFS plans (in addition to the 
                        fee-for-service program under parts A and B), 
                        each offered by a different EFFS organization 
                        and each of which met the minimum enrollment 
                        requirements of paragraph (1) of section 
                        1857(b) (as applied without regard to paragraph 
                        (3) thereof) as of March of the previous year; 
                        and
                          ``(ii) during March of the previous year at 
                        least the percentage specified in subparagraph 
                        (C) of the number of EFFS eligible individuals 
                        who reside in the region were enrolled in an 
                        EFFS plan.
                  ``(B) Percentage specified.--
                          ``(i) In general.--For purposes of 
                        subparagraph (A), subject to clause (ii), the 
                        percentage specified in this subparagraph for a 
                        year is equal the lesser of 20 percent or to 
                        the sum of--
                                  ``(I) the percentage, as estimated by 
                                the Administrator, of EFFS eligible 
                                individuals in the United States who 
                                are enrolled in EFFS plans during March 
                                of the previous year; and
                                  ``(II) the percentage, as estimated 
                                by the Administrator, of Medicare 
                                Advantage eligible individuals in the 
                                United States who are enrolled in 
                                Medicare Advantage plans during March 
                                of the previous year.
                          ``(ii) Exception.--In the case of an EFFS 
                        region that was a competitive EFFS region for 
                        the previous year, the Medicare Benefits 
                        Administrator may continue to treat the region 
                        as meeting the requirement of subparagraph 
                        (A)(ii) if the region would meet such 
                        requirement but for a de minimis reduction 
                        below the percentage specified in clause (i).
          ``(2) Competitive effs non-drug monthly benchmark amount.--
        For purposes of this part, the term `competitive EFFS non-drug 
        monthly benchmark amount' means, with respect to an EFFS region 
        for a month in a year and subject to paragraph (8), the sum of 
        the 2 components described in paragraph (3) for the region and 
        year. The Administrator shall compute such benchmark amount for 
        each competitive EFFS region before the beginning of each 
        annual, coordinated election period under section 1851(e)(3)(B) 
        for each year (beginning with 2010) in which it is designated 
        as such a region.
          ``(3) 2 components.--For purposes of paragraph (2), the 2 
        components described in this paragraph for an EFFS region and a 
        year are the following:
                  ``(A) EFFS component.--The product of the following:
                          ``(i) Weighted average of plan bids in 
                        region.--The weighted average of the EFFS plan 
                        bids for the region and year (as determined 
                        under paragraph (4)(A)).
                          ``(ii) Non-ffs market share.--1 minus the 
                        fee-for-service market share percentage 
                        determined under paragraph (5) for the region 
                        and the year.
                  ``(B) Fee-for-service component.--The product of the 
                following:
                          ``(i) Fee-for-service region-specific non-
                        drug amount.--The fee-for-service region-
                        specific non-drug amount (as defined in 
                        paragraph (6)) for the region and year.
                          ``(ii) Fee-for-service market share.--The 
                        fee-for-service market share percentage 
                        (determined under paragraph (5)) for the region 
                        and the year.
          ``(4) Determination of weighted average effs plan bids for a 
        region.--
                  ``(A) In general.--For purposes of paragraph 
                (3)(A)(i), the weighted average of EFFS plan bids for 
                an EFFS region and a year is the sum of the following 
                products for EFFS plans described in subparagraph (C) 
                in the region and year:
                          ``(i) Unadjusted effs statutory non-drug 
                        monthly bid amount.--The unadjusted EFFS 
                        statutory non-drug monthly bid amount (as 
                        defined in subsection (a)(3)(A)(ii)(I)) for the 
                        region and year.
                          ``(ii) Plan's share of effs enrollment in 
                        region.--The number of individuals described in 
                        subparagraph (B), divided by the total number 
                        of such individuals for all EFFS plans 
                        described in subparagraph (C) for that region 
                        and year.
                  ``(B) Counting of individuals.--The Administrator 
                shall count, for each EFFS plan described in 
                subparagraph (C) for an EFFS region and year, the 
                number of individuals who reside in the region 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 EFFS region and year, the EFFS plans 
                described in this subparagraph are plans that are 
                offered in the region and year and were offered in the 
                region in March of the previous year.
          ``(5) Computation of fee-for-service market share 
        percentage.--The Administrator shall determine, for a year and 
        an EFFS region, the proportion (in this subsection referred to 
        as the `fee-for-service market share percentage') of the EFFS 
        eligible individuals who are residents of the region during 
        March of the previous year, of such individuals who were not 
        enrolled in an EFFS plan or in a Medicare Advantage plan (or, 
        if greater, such proportion determined for individuals 
        nationally).
          ``(6) Fee-for-service region-specific non-drug amount.--
                  ``(A) In general.--For purposes of paragraph 
                (3)(B)(i) and section 1839(h)(2)(A), subject to 
                subparagraph (B), the term `fee-for-service region-
                specific non-drug amount' means, for a competitive EFFS 
                region and a year, the adjusted average per capita cost 
                for the year involved, determined under section 
                1876(a)(4) for such region for services covered under 
                parts A and B for individuals entitled to benefits 
                under part A and enrolled under this part who are not 
                enrolled in an EFFS plan under part E or a Medicare 
                Advantage plan under part C for the year, but adjusted 
                to exclude costs attributable to payments under section 
                1886(h).
                  ``(B) Inclusion of costs of va and dod military 
                facility services to medicare-eligible beneficiaries.--
                In determining the adjusted average per capita cost 
                under subparagraph (A) for a year, such cost shall be 
                adjusted to include the Administrator's estimate, on a 
                per capita basis, of the amount of additional payments 
                that would have been made in the region 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.
          ``(7) Application of competition.--In the case of an EFFS 
        region that is a competitive EFFS region for a year, for 
        purposes of applying subsections (b) and (c)(1) and section 
        1860E-4(a), any reference to an EFFS region-specific non-drug 
        monthly benchmark amount shall be treated as a reference to the 
        competitive EFFS non-drug monthly benchmark amount under 
        paragraph (2) for the region and year.
          ``(8) Phase-in of benchmark for each region.--
                  ``(A) Use of blended benchmark.--In the case of a 
                region that has not been a competitive EFFS region for 
                each of the previous 4 years, the competitive EFFS non-
                drug monthly benchmark amount shall be equal to the sum 
                of the following:
                          ``(i) New competitive component.--The product 
                        of--
                                  ``(I) the weighted average phase-in 
                                proportion for that area and year, as 
                                specified in subparagraph (B); and
                                  ``(II) the competitive EFFS non-drug 
                                monthly benchmark amount for the region 
                                and year, determined under paragraph 
                                (2) without regard to this paragraph.
                          ``(ii) Old competitive component.--The 
                        product of--
                                  ``(I) 1 minus the weighted average 
                                phase-in proportion for that region and 
                                year; and
                                  ``(II) the EFFS region-specific non-
                                drug benchmark amount for the region 
                                and the year.
                  ``(B) Computation of weighted average phase-in 
                proportion.--For purposes of this paragraph, the 
                `weighted average phase-in proportion' for an EFFS 
                region for a year shall be determined as follows:
                          ``(i) First year (and region not competitive 
                        region in previous year).--If the area was not 
                        a competitive EFFS region in the previous year, 
                        the weighted average phase-in proportion for 
                        the region for the year is equal to \1/5\.
                          ``(ii) Competitive region in previous year.--
                        If the region was a competitive EFFS region in 
                        the previous year, the weighted average phase-
                        in proportion for the region for the year is 
                        equal to the weighted average phase-in 
                        proportion determined under this subparagraph 
                        for the region for the previous year plus \1/
                        5\, but in no case more than 1.''.
          (2) Conforming amendments.--
                  (A) Such section 1860E-3 is further amended--
                          (i) in subsection (b), by adding at the end 
                        the following new paragraph:
                  ``(4) Application in competitive regions.--For 
                special rules applying this subsection in competitive 
                EFFS regions, see subsection (e)(7).'';
                          (ii) in subsection (c)(1), by inserting ``and 
                        subsection (e)(7)'' after ``(as made applicable 
                        under subsection (d))''; and
                          (iii) in subsection (d) , by striking ``and 
                        (e)'' and inserting ``(e), and (k) ''.
                  (B) Section 1860E-4(a)(1), as inserted by section 
                201(a)(2), is amended by inserting ``, except as 
                provided in section 1860E-3(e)(7)'' after ``paragraph 
                (2)''.
  (b) Identification of Competitive Medicare Advantage Areas; 
Application of Competitive Medicare Advantage Non-Drug Benchmarks Under 
Medicare Advantage Program.--
          (1) In general.--Section 1853, as amended by section 
        221(b)(3), is amended by adding at the end the following new 
        subsection:
  ``(k) Application of Competition.--
          ``(1) Determination of competitive medicare advantage 
        areas.--
                  ``(A) In general.--For purposes of this part, the 
                terms `competitive Medicare Advantage area' and `CMA 
                area' mean, for a year beginning with 2010, an area 
                (which is a metropolitan statistical area or other area 
                with a substantial number of Medicare Advantage 
                enrollees) that the Administrator finds--
                          ``(i) there will be offered during the 
                        annual, coordinated election period under 
                        section 1851(e)(3)(B) under this part before 
                        the beginning of the year at least 2 Medicare 
                        Advantage plans (in addition to the fee-for-
                        service program under parts A and B), each 
                        offered by a different Medicare Advantage 
                        organization and each of which met the minimum 
                        enrollment requirements of paragraph (1) of 
                        section 1857(b) (as applied without regard to 
                        paragraph (3) thereof) as of March of the 
                        previous year with respect to the area; and
                          ``(ii) during March of the previous year at 
                        least the percentage specified in subparagraph 
                        (B) of the number of Medicare Advantage 
                        eligible individuals who reside in the area 
                        were enrolled in a Medicare Advantage plan.
                  ``(B) Percentage specified.--
                          ``(i) In general.--For purposes of 
                        subparagraph (A), subject to clause (ii), the 
                        percentage specified in this subparagraph for a 
                        year is equal the lesser of 20 percent or to 
                        the sum of--
                                  ``(I) the percentage, as estimated by 
                                the Administrator, of EFFS eligible 
                                individuals in the United States who 
                                are enrolled in EFFS plans during March 
                                of the previous year; and
                                  ``(II) the percentage, as estimated 
                                by the Administrator, of Medicare 
                                Advantage eligible individuals in the 
                                United States who are enrolled in 
                                Medicare Advantage plans during March 
                                of the previous year.
                          ``(ii) Exception.--In the case of an area 
                        that was a competitive area for the previous 
                        year, the Medicare Benefits Administrator may 
                        continue to treat the area as meeting the 
                        requirement of subparagraph (A)(ii) if the area 
                        would meet such requirement but for a de 
                        minimis reduction below the percentage 
                        specified in clause (i).
          ``(2) Competitive medicare advantage non-drug monthly 
        benchmark amount.--For purposes of this part, the term 
        `competitive Medicare Advantage non-drug monthly benchmark 
        amount' means, with respect to a competitive Medicare Advantage 
        area for a month in a year subject to paragraph (8), 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 Medicare Advantage area before the beginning 
        of each annual, coordinated election period under section 
        1851(e)(3)(B) for each year (beginning with 2010) 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 a competitive 
        Medicare Advantage area and a year are the following:
                  ``(A) Medicare advantage component.--The product of 
                the following:
                          ``(i) Weighted average of medicare advantage 
                        plan bids in area.--The weighted average of the 
                        plan bids for the area and year (as determined 
                        under paragraph (4)(A)).
                          ``(ii) Non-ffs market share.--1 minus the 
                        fee-for-service market share percentage, 
                        determined under paragraph (5) for the area and 
                        year.
                  ``(B) Fee-for-service component.--The product of the 
                following:
                          ``(i) Fee-for-service area-specific non-drug 
                        amount.--The fee-for-service area-specific non-
                        drug amount (as defined in paragraph (6)) for 
                        the area and year.
                          ``(ii) Fee-for-service market share.--The 
                        fee-for-service market share percentage, 
                        determined under paragraph (5) for the area and 
                        year.
          ``(4) Determination of weighted average medicare advantage 
        bids for an area.--
                  ``(A) In general.--For purposes of paragraph 
                (3)(A)(i), the weighted average of plan bids for an 
                area and a year is the sum of the following products 
                for Medicare Advantage plans described in subparagraph 
                (C) in the area and year:
                          ``(i) Monthly medicare advantage statutory 
                        non-drug bid amount.--The unadjusted Medicare 
                        Advantage statutory non-drug monthly bid 
                        amount.
                          ``(ii) Plan's share of medicare advantage 
                        enrollment in area.--The number of individuals 
                        described in subparagraph (B), divided by the 
                        total number of such individuals for all 
                        Medicare Advantage plans described in 
                        subparagraph (C) for that area and year.
                  ``(B) Counting of individuals.--The Administrator 
                shall count, for each Medicare Advantage 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 Advantage 
                plans described in this subparagraph are plans 
                described in the first sentence of section 
                1851(a)(2)(A) that are offered in the area and year and 
                were offered in the area in March of the previous year.
          ``(5) Computation of fee-for-service market share 
        percentage.--The Administrator shall determine, for a year and 
        a competitive Medicare Advantage area, the proportion (in this 
        subsection referred to as the `fee-for-service market share 
        percentage') of Medicare Advantage eligible individuals 
        residing in the area who during March of the previous year were 
        not enrolled in a Medicare Advantage plan or in an EFFS plan 
        (or, if greater, such proportion determined for individuals 
        nationally).
          ``(6) Fee-for-service area-specific non-drug amount.--
                  ``(A) In general.--For purposes of paragraph 
                (3)(B)(i) and section 1839(h)(1)(A), subject to 
                subparagraph (B), the term `fee-for-service area-
                specific non-drug amount' means, for a competitive 
                Medicare Advantage area and a year, the adjusted 
                average per capita cost for the year involved, 
                determined under section 1876(a)(4) for such area for 
                services covered under parts A and B for individuals 
                entitled to benefits under part A and enrolled under 
                this part who are not enrolled in a Medicare Advantage 
                plan under part C or an EFFS plan under part E for the 
                year, but adjusted to exclude costs attributable to 
                payments under section 1886(h).
                  ``(B) Inclusion of costs of va and dod military 
                facility services to medicare-eligible beneficiaries.--
                In determining the adjusted average per capita cost 
                under subparagraph (A) for a year, such cost shall be 
                adjusted to include the Administrator'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.
          ``(7) Application of competition.--In the case of an area 
        that is a competitive Medicare Advantage area for a year, for 
        purposes of applying subsection (a)(1)(A)(ii) and sections 
        1854(b)(2)(A)(ii) and 1854(b)(3)(B)(i), any reference to a 
        Medicare Advantage area-specific non-drug monthly benchmark 
        amount shall be treated as a reference to the competitive 
        Medicare Advantage non-drug monthly benchmark amount under 
        paragraph (2) for the area and year.
          ``(8) Phase-in of benchmark for each area.--
                  ``(A) Use of blended benchmark.--In the case of an 
                area that has not been a competitive Medicare Advantage 
                area for each of the previous 4 years, the competitive 
                Medicare Advantage non-drug monthly benchmark amount 
                shall be equal to the sum of the following:
                          ``(i) New competitive component.--The product 
                        of--
                                  ``(I) the weighted average phase-in 
                                proportion for that area and year, as 
                                specified in subparagraph (B); and
                                  ``(II) the competitive Medicare 
                                Advantage non-drug monthly benchmark 
                                amount for the area and year, 
                                determined under paragraph (2) without 
                                regard to this paragraph.
                          ``(ii) Old competitive component.--The 
                        product of--
                                  ``(I) 1 minus the weighted average 
                                phase-in proportion for that area and 
                                year; and
                                  ``(II) the Medicare Advantage area-
                                wide non-drug benchmark amount for the 
                                area and the year.
                  ``(B) Computation of weighted average phase-in 
                proportion.--For purposes of this paragraph, the 
                `weighted average phase-in proportion' for a Medicare 
                Advantage payment area for a year shall be determined 
                as follows:
                          ``(i) First year (and area not competitive 
                        area in previous year).--If the area was not a 
                        Medicare Advantage competitive area in the 
                        previous year, the weighted average phase-in 
                        proportion for the area for the year is equal 
                        to \1/5\.
                          ``(ii) Competitive area in previous year.--If 
                        the area was a competitive Medicare Advantage 
                        area in the previous year, the weighted average 
                        phase-in proportion for the area for the year 
                        is equal to the weighted average phase-in 
                        proportion determined under this subparagraph 
                        for the area for the previous year plus \1/5\, 
                        but in no case more than 1.
                  ``(C) Medicare advantage area-wide non-drug benchmark 
                amount.--For purposes of subparagraph (A)(ii)(II), the 
                term `Medicare Advantage area-wide non-drug benchmark 
                amount' means, for an area and year, the weighted 
                average of the amounts described in section 1853(j) for 
                Medicare Advantage payment area or areas included in 
                the area (based on the number of traditional fee-for-
                service enrollees in such payment area or areas) and 
                year.''.
          (2) Application.--Section 1854 (42 U.S.C. 1395w-24) is 
        amended--
                  (A) in subsection (b)(1)(C)(i), as added by section 
                221(b)(1)(A), by striking ``(i) Requirement.--The'' and 
                inserting ``(i) Requirement for non-competitive 
                areas.--In the case of a Medicare Advantage payment 
                area that is not a competitive Medicare Advantage 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 medicare 
                        advantage areas.--In the case of a Medicare 
                        Advantage payment area that is designated as a 
                        competitive Medicare Advantage area under 
                        section 1853(k)(1), if there are average per 
                        capita monthly savings described in paragraph 
                        (6) for a Medicare Advantage plan and year, the 
                        Medicare Advantage plan shall provide to the 
                        enrollee a monthly rebate equal to 75 percent 
                        of such savings.''; and
                  (C) by adding at the end of subsection (b), as 
                amended by sections 221(b)(1)(B) and 221(b)(2), the 
                following new paragraph:
          ``(6) Computation of average per capita monthly savings for 
        competitive medicare advantage areas.--For purposes of 
        paragraph (1)(C)(ii), the average per capita monthly savings 
        referred to in such paragraph for a Medicare Advantage 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 Medicare Advantage area-specific non-
        drug monthly 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 competitive Medicare Advantage 
        non-drug monthly benchmark amount (or such amount as adjusted 
        in the manner described in paragraph (3)(B)(i)).''.
          (3) Additional conforming amendments.--
                  (A) Payment of plans.--Section 1853(a)(1)(A)(ii), as 
                amended by section 221(c)(1), is amended--
                          (i) in subclauses (I) and (II), by inserting 
                        ``(or, insofar as such payment area is a 
                        competitive Medicare Advantage area, described 
                        in section 1854(b)(6))'' after ``section 
                        1854(b)(3)(C)''; and
                          (ii) in subclause (II), by inserting ``(or, 
                        insofar as such payment area is a competitive 
                        Medicare Advantage area, the competitive 
                        Medicare Advantage non-drug monthly benchmark 
                        amount)'' after ``Medicare Advantage area-
                        specific non-drug monthly benchmark amount''; 
                        and
                  (B) Disclosure of information.--Section 
                1853(b)(1)(B), as amended by section 221(e)(1), is 
                amended to read as follows:
                  ``(B) Competition information.--For years beginning 
                with 2006, the following:
                          ``(i) Benchmarks.--The Medicare Advantage 
                        area-specific non-drug benchmark under section 
                        1853(j) and, if applicable, the competitive 
                        Medicare Advantage non-drug benchmark under 
                        section 1853(k)(2), for the year and 
                        competitive Medicare Advantage area involved 
                        and the national fee-for-service market share 
                        percentage for the area and year.
                          ``(ii) Adjustment factors.--The adjustment 
                        factors applied under section 1853(a)(1)(A)(iv) 
                        (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) Certain benchmarks and amounts.--In 
                        the case of a competitive Medicare Advantage 
                        area, the Medicare Advantage area-wide non-drug 
                        benchmark amount (as defined in subsection 
                        (k)(8)(C)) and the fee-for-service area-
                        specific non-drug amount (as defined in section 
                        1853(k)(6)) for the area.
                          ``(iv) Individuals.--The number of 
                        individuals counted under subsection (k)(4)(B) 
                        and enrolled in each Medicare Advantage plan in 
                        the area.''.
                  (C) Definition of monthly basic premium.--Section 
                1854(b)(2)(A)(ii), as amended by section 221(d)(2), is 
                amended by inserting ``(or, in the case of a 
                competitive Medicare Advantage area, the competitive 
                Medicare Advantage non-drug monthly benchmark amount 
                or, in applying this paragraph under part E in the case 
                of a competitive EFFS region, the competitive EFFS non-
                drug monthly benchmark amount)'' after ``benchmark 
                amount''.
  (c) Premium Adjustment.--
          (1) In general.--Section 1839 (42 U.S.C. 1395r) is amended by 
        adding at the end the following new subsection:
  ``(h)(1)(A) In the case of an individual who resides in a competitive 
Medicare Advantage area under section 1853(k)(1) (regardless of whether 
such area is in a competitive EFFS region under section 1860E-3(e)) and 
who is not enrolled in a Medicare Advantage plan under part C or in an 
EFFS plan under part E, 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 amount (as defined in section 
1853(k)(6)) for the competitive Medicare Advantage area in which the 
individual resides for a month--
          ``(i) does not exceed the competitive Medicare Advantage non-
        drug benchmark (as determined under paragraph (2) of section 
        1853(k), without regard to paragraph (8) thereof) for such 
        area, the amount of the premium for the individual for the 
        month shall be reduced by an amount equal to the product of the 
        adjustment factor under subparagraph (C) and 75 percent of the 
        amount by which such competitive benchmark exceeds such fee-
        for-service area-specific non-drug amount; or
          ``(ii) exceeds such competitive Medicare Advantage non-drug 
        benchmark, the amount of the premium for the individual for the 
        month shall be adjusted to ensure, subject to subparagraph (B), 
        that--
                  ``(I) the sum of the amount of the adjusted premium 
                and the competitive Medicare Advantage 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 amount 
                for the area.
  ``(B) In no case shall the actual amount of an adjustment under 
subparagraph (A)(ii) exceed the product of the adjustment factor under 
subparagraph (C) and the amount of the adjustment otherwise computed 
under subparagraph (A)(ii) without regard to this subparagraph.
  ``(C) The adjustment factor under this subparagraph for an area for a 
year is equal to--
          ``(i) the number of consecutive years (in the 5-year period 
        ending with the year involved) in which such area was a 
        competitive Medicare Advantage area; divided by
          ``(ii) 5.
  ``(2)(A) In the case of an individual who resides in an area that is 
within a competitive EFFS region under section 1860E-3(e) but is not 
within a competitive Medicare Advantage area under section 1853(k)(1) 
and who is not enrolled in a Medicare Advantage plan under part C or in 
an EFFS plan under part E, 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 region-specific non-drug amount (as defined in section 
1860E-3(e)(6)) for a region for a month--
          ``(i) does not exceed the competitive EFFS non-drug monthly 
        benchmark amount (as determined under paragraph (2) of section 
        1860E-3(e), without regard to paragraph (8) thereof) for such 
        region, the amount of the premium for the individual for the 
        month shall be reduced by an amount equal to the product of the 
        adjustment factor under subparagraph (C) and 75 percent of the 
        amount by which such competitive benchmark amount exceeds such 
        fee-for-service region-specific non-drug benchmark amount; or
          ``(ii) exceeds such competitive EFFS non-drug monthly 
        benchmark amount, the amount of the premium for the individual 
        for the month shall be adjusted to ensure, subject to 
        subparagraph (B), that--
                  ``(I) the sum of the amount of the adjusted premium 
                and the competitive EFFS non-drug monthly benchmark 
                amount for the region, is equal to
                  ``(II) the sum of the unadjusted premium plus the 
                amount of the EFFS region-specific non-drug monthly 
                bidfor the region.
  ``(B) In no case shall the actual amount of an adjustment under 
subparagraph (A)(ii) exceed the product of the adjustment factor under 
subparagraph (C) and the amount of the adjustment otherwise computed 
under subparagraph (A)(ii) without regard to this subparagraph.
  ``(C) The adjustment factor under this subparagraph for an EFFS 
region for a year is equal to--
          ``(i) the number of consecutive years (in the 5-year period 
        ending with the year involved) in which such region was a 
        competitive EFFS region; divided by
          ``(ii) 5.
  ``(3) Nothing in this subsection shall be construed as preventing a 
reduction under paragraph (1)(A) or paragraph (2)(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.
  ``(4) The adjustment in the premium under this subsection shall be 
effected in such manner as the Medicare Benefits Administrator 
determines appropriate.
  ``(5) 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.''.
          (2) 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.
  (d) Effective Date.--The amendments made by this section shall take 
effect on January 1, 2010.

             TITLE III--COMBATTING WASTE, FRAUD, AND ABUSE

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

  (a) Technical Amendment Concerning Secretary's Authority to Make 
Conditional Payment When Certain Primary Plans Do Not Pay Promptly.--
          (1) In general.--Section 1862(b)(2) (42 U.S.C. 1395y(b)(2)) 
        is amended--
                  (A) in subparagraph (A)(ii), by striking ``promptly 
                (as determined in accordance with regulations)'';
                  (B) in subparagraph (B)--
                          (i) by redesignating clauses (i) through 
                        (iii) as clauses (ii) through (iv), 
                        respectively; and
                          (ii) by inserting before clause (ii), as so 
                        redesignated, the following new clause:
                          ``(i) Authority to make conditional 
                        payment.--The Secretary may make payment under 
                        this title with respect to an item or service 
                        if a primary plan described in subparagraph 
                        (A)(ii) has not made or cannot reasonably be 
                        expected to make payment with respect to such 
                        item or service promptly (as determined in 
                        accordance with regulations). Any such payment 
                        by the Secretary shall be conditioned on 
                        reimbursement to the appropriate Trust Fund in 
                        accordance with the succeeding provisions of 
                        this subsection.''.
          (2) Effective date.--The amendments made by paragraph (1) 
        shall be effective as if included in the enactment of title III 
        of the Medicare and Medicaid Budget Reconciliation Amendments 
        of 1984 (Public Law 98-369).
  (b) Clarifying Amendments to Conditional Payment Provisions.--Section 
1862(b)(2) (42 U.S.C. 1395y(b)(2)) is further amended--
          (1) in subparagraph (A), in the matter following clause (ii), 
        by inserting the following sentence at the end: ``An entity 
        that engages in a business, trade, or profession shall be 
        deemed to have a self-insured plan if it carries its own risk 
        (whether by a failure to obtain insurance, or otherwise) in 
        whole or in part.'';
          (2) in subparagraph (B)(ii), as redesignated by subsection 
        (a)(2)(B)--
                  (A) by striking the first sentence and inserting the 
                following: ``A primary plan, and an entity that 
                receives payment from a primary plan, shall reimburse 
                the appropriate Trust Fund for any payment made by the 
                Secretary under this title with respect to an item or 
                service if it is demonstrated that such primary plan 
                has or had a responsibility to make payment with 
                respect to such item or service. A primary plan's 
                responsibility for such payment may be demonstrated by 
                a judgment, a payment conditioned upon the recipient's 
                compromise, waiver, or release (whether or not there is 
                a determination or admission of liability) of payment 
                for items or services included in a claim against the 
                primary plan or the primary plan's insured, or by other 
                means.''; and
                  (B) in the final sentence, by striking ``on the date 
                such notice or other information is received'' and 
                inserting ``on the date notice of, or information 
                related to, a primary plan's responsibility for such 
                payment or other information is received''; and
          (3) in subparagraph (B)(iii), , as redesignated by subsection 
        (a)(2)(B), by striking the first sentence and inserting the 
        following: ``In order to recover payment made under this title 
        for an item or service, the United States may bring an action 
        against any or all entities that are or were required or 
        responsible (directly, as an insurer or self-insurer, as a 
        third-party administrator, as an employer that sponsors or 
        contributes to a group health plan, or large group health plan, 
        or otherwise) to make payment with respect to the same item or 
        service (or any portion thereof) under a primary plan. The 
        United States may, in accordance with paragraph (3)(A) collect 
        double damages against any such entity. In addition, the United 
        States may recover under this clause from any entity that has 
        received payment from a primary plan or from the proceeds of a 
        primary plan's payment to any entity.''.
  (c) Clerical Amendments.--Section 1862(b) (42 U.S.C. 1395y(b)) is 
amended--
          (1) in paragraph (1)(A), by moving the indentation of clauses 
        (ii) through (v) 2 ems to the left; and
          (2) in paragraph (3)(A), by striking ``such'' before 
        ``paragraphs''.

SEC. 302. 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--
                          ``(i) 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 
                                2005; and
                                  ``(II) at least \2/3\ of such areas 
                                in 2006; and
                          ``(ii) among items and services in a manner 
                        such that the programs apply to the highest 
                        cost and highest volume items and services 
                        first.
                  ``(C) Waiver of certain provisions.--In carrying out 
                the programs, the Secretary may waive such provisions 
                of the Federal Acquisition Regulation as are necessary 
                for the efficient implementation of this section, other 
                than provisions relating to confidentiality of 
                information and such other provisions as the Secretary 
                determines appropriate.
          ``(2) Items and services described.--The items and services 
        referred to in paragraph (1) are the following:
                  ``(A) Durable medical equipment and medical 
                supplies.--Covered items (as defined in section 
                1834(a)(13)) for which payment is otherwise made under 
                section 1834(a), including items used in infusion and 
                drugs and supplies used in conjunction with durable 
                medical equipment, but excluding class III devices 
                under the Federal Food, Drug, and Cosmetic Act.
                  ``(B) Other equipment and supplies.--Items, 
                equipment, and supplies (as described in section 
                1842(s)(2)(D) other than enteral nutrients).
                  ``(C) 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) Exception authority.--In carrying out the programs 
        under this section, the Secretary may exempt--
                  ``(A) rural areas and areas with low population 
                density within urban areas that are not competitive, 
                unless there is a significant national market through 
                mail order for a particular item or service; and
                  ``(B) items and services for which the application of 
                competitive acquisition is not likely to result in 
                significant savings.
          ``(4) Special rule for certain rented items of durable 
        medical equipment.--In the case of a covered item for which 
        payment is made on a rental basis under section 1834(a), the 
        Secretary shall establish a process by which rental agreements 
        for the covered items entered into before the application of 
        the competitive acquisition program under this section for the 
        item may be continued notwithstanding this section. In the case 
        of any such continuation, the supplier involved shall provide 
        for appropriate servicing and replacement, as required under 
        section 1834(a).
          ``(5) Physician authorization.--The Secretary may establish a 
        process under which a physician may prescribe a particular 
        brand or mode of delivery of an item or service if the item or 
        service involved is clinically more appropriate than other 
        similar items or services.
          ``(6) Application.--For each competitive acquisition area in 
        which the program is implemented under this subsection with 
        respect to items and services, the payment basis determined 
        under the competition conducted under subsection (b) shall be 
        substituted for the payment basis otherwise applied under 
        section 1834(a).
  ``(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 the Program Advisory and Oversight 
                        Committee established under subsection (c).
                          ``(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 20 
                        percent of the applicable contract award price, 
                        except in such cases where a supplier has 
                        furnished an upgraded item and has executed an 
                        advanced beneficiary notice.
                  ``(B) Development of quality standards for dme 
                products.--
                          ``(i) In general.--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. 
                        Not later than July 1, 2004, the Secretary 
                        shall establish new quality standards for 
                        products subject to competitive acquisition 
                        under this section. Such standards shall be 
                        applied prospectively and shall be published on 
                        the website of the Department of Health and 
                        Human Services.
                          ``(ii) Consultation with program advisory and 
                        oversight committee.--The Secretary shall 
                        consult with the Program Advisory and Oversight 
                        Committee (established under subsection (c)) to 
                        review (and advise the Secretary concerning) 
                        the quality standards referred to in clause 
                        (i).
          ``(3) Contents of contract.--
                  ``(A) In general.--A contract entered into with an 
                entity under the competition conducted pursuant to 
                paragraph (1) is subject to terms and conditions that 
                the Secretary may specify.
                  ``(B) Term of contracts.--The Secretary shall 
                recompete contracts under this section not less often 
                than once every 3 years.
          ``(4) Limit on number of contractors.--
                  ``(A) In general.--The Secretary may limit the number 
                of contractors in a competitive acquisition area to the 
                number needed to meet projected demand for items and 
                services covered under the contracts. In awarding 
                contracts, the Secretary shall take into account the 
                ability of bidding entities to furnish items or 
                services in sufficient quantities to meet the 
                anticipated needs of 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 multiple entities submitting bids in each 
                area for an item or service.
          ``(5) Payment.--Payment under this part for competitively 
        priced items and services described in subsection (a)(2) shall 
        be based on the bids submitted and accepted under this section 
        for such items and services.
          ``(6) 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.
        In this section, the term `bid' means a request for a proposal 
        for an item or service that includes the cost of the item or 
        service, and where appropriate, any services that are attendant 
        to the provision of the item or service.
          ``(7) Consideration in determining categories for bids.--The 
        Secretary shall consider the similarity of the clinical 
        efficiency and value of specific codes and products, including 
        products that may provide a therapeutic advantage to 
        beneficiaries, before delineating the categories and products 
        that will be subject to bidding.
          ``(8) Authority to contract for education, monitoring, 
        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 and 
        monitoring quality of services with respect to the program.
  ``(c) Program Advisory and Oversight Committee.--
          ``(1) Establishment.--There is established a Program Advisory 
        and Oversight Committee (hereinafter in this section referred 
        to as the `Committee').
          ``(2) Membership; terms.--The Committee shall consist of such 
        members as the Secretary may appoint who shall serve for such 
        term as the Secretary may specify.
          ``(3) Duties.--
                  ``(A) Technical assistance.--The Committee shall 
                provide advice and technical assistance to the 
                Secretary with respect to the following functions:
                          ``(i) The implementation of the program under 
                        this section.
                          ``(ii) The establishment of requirements for 
                        collection of data.
                          ``(iii) The development of proposals for 
                        efficient interaction among manufacturers and 
                        distributors of the items and services and 
                        providers and beneficiaries.
                  ``(B) Additional duties.--The Committee shall perform 
                such additional functions to assist the Secretary in 
                carrying out this section as the Secretary may specify.
          ``(4) Inapplicability of faca.--The provisions of the Federal 
        Advisory Committee Act (5 U.S.C. App.) shall not apply.
  ``(d) 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 beneficiary 
cost-sharing, access to and quality of items and services, and 
beneficiary satisfaction.
  ``(e) Demonstration Project for Clinical Laboratory Services.--
          ``(1) In general.--The Secretary shall conduct a 
        demonstration project on the application of competitive 
        acquisition under this section to clinical diagnostic 
        laboratory tests--
                  ``(A) for which payment is otherwise made under 
                section 1833(h) or 1834(d)(1) (relating to colorectal 
                cancer screening tests); and
                  ``(B) which are furnished by entities that did not 
                have a face-to-face encounter with the individual.
          ``(2) Terms and conditions.--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, 2005; and
                  ``(B) such progress and final reports on the project 
                after such date as the Secretary determines 
                appropriate.''.
  (b) Conforming Amendments.--
          (1) Durable medical equipment; elimination of inherent 
        reasonableness authority.--Section 1834(a) (42 U.S.C. 1395m(a)) 
        is amended--
                  (A) in paragraph (1)(B), by striking ``The payment 
                basis'' and inserting ``Subject to subparagraph (E)(i), 
                the payment basis'';
                  (B) in paragraph (1)(C), by striking ``This 
                subsection'' and inserting ``Subject to subparagraph 
                (E)(ii), this subsection'';
                  (C) by adding at the end of paragraph (1) the 
                following new subparagraph:
                  ``(E) Application of competitive acquisition; 
                elimination of inherent reasonableness authority.--In 
                the case of covered items and services that are 
                included in a competitive acquisition program in a 
                competitive acquisition area under section 1847(a)--
                          ``(i) the payment basis under this subsection 
                        for such items and services furnished in such 
                        area shall be the payment basis determined 
                        under such competitive acquisition program; and
                          ``(ii) the Secretary may use information on 
                        the payment determined under such competitive 
                        acquisition programs to adjust the payment 
                        amount otherwise recognized under subparagraph 
                        (B)(ii) for an area that is not a competitive 
                        acquisition area under section 1847 and in the 
                        case of such adjustment, paragraph (10)(B) 
                        shall not be applied.''; and
                  (D) in paragraph (10)(B), by inserting ``in an area 
                and with respect to covered items and services for 
                which the Secretary does not make a payment amount 
                adjustment under paragraph (1)(E)'' after ``under this 
                subsection''.
          (2) Off-the-shelf orthotics; elimination of inherent 
        reasonableness authority.--Section 1834(h) (42 U.S.C. 1395m(h)) 
        is amended--
                  (A) in paragraph (1)(B), by striking ``and (E)'' and 
                inserting ``, (E) , and (H)(i)'';
                  (B) in paragraph (1)(D), by striking ``This 
                subsection'' and inserting ``Subject to subparagraph 
                (H)(ii), this subsection'';
                  (C) by adding at the end of paragraph (1) the 
                following new subparagraph:
                  ``(H) Application of competitive acquisition to 
                orthotics; elimination of inherent reasonableness 
                authority.--In the case of orthotics described in 
                paragraph (2)(B) of section 1847(a) that are included 
                in a competitive acquisition program in a competitive 
                acquisition area under such section--
                          ``(i) the payment basis under this subsection 
                        for such orthotics furnished in such area shall 
                        be the payment basis determined under such 
                        competitive acquisition program; and
                          ``(ii) the Secretary may use information on 
                        the payment determined under such competitive 
                        acquisition programs to adjust the payment 
                        amount otherwise recognized under subparagraph 
                        (B)(ii) for an area that is not a competitive 
                        acquisition area under section 1847, and in the 
                        case of such adjustment, paragraphs (8) and (9) 
                        of section 1842(b) shall not be applied.''.
  (c) Report on Activities of Suppliers.--The Secretary shall conduct a 
study to determine the extent to which (if any) suppliers of covered 
items of durable medical equipment that are subject to the competitive 
acquisition program under section 1847 of the Social Security Act, as 
amended by subsection (a), are soliciting physicians to prescribe 
certain brands or modes of delivery of covered items based on 
profitability.

SEC. 303. COMPETITIVE ACQUISITION OF COVERED OUTPATIENT DRUGS AND 
                    BIOLOGICALS.

  (a) Adjustment to Physician Fee Schedule.--
          (1) Adjustment in practice expense relative value units.--
        Section 1848(c)(2) (42 U.S.C. 1395w-4(c)(2)) is amended--
                  (A) in subparagraph (B)--
                          (i) in clause (ii)(II), by striking ``The 
                        adjustments'' and inserting ``Subject to clause 
                        (iv), the adjustments''; and
                          (ii) by adding at the end of subparagraph 
                        (B), the following new clause:
                          ``(iv) Exception to budget neutrality.--The 
                        additional expenditures attributable to clauses 
                        (ii) and (iii) of subparagraph (H) shall not be 
                        taken into account in applying clause (ii)(II) 
                        for 2005.''; and
                  (B) by adding at the end the following new 
                subparagraph:
                  ``(H) Adjustments in practice expense relative value 
                units for 2004.--
                          ``(i) In general.--As part of the annual 
                        process of establishing the physician fee 
                        schedule under subsection (b) for 2004, the 
                        Secretary shall increase the practice expense 
                        relative value units for 2004 consistent with 
                        clauses (ii) and (iii).
                          ``(ii) Use of supplemental survey data.--For 
                        2004 for any specialty that submitted survey 
                        data that included expenses for the 
                        administration of drugs and biologicals for 
                        which payment is made under section 1842(o) (or 
                        section 1847A), the Secretary shall use such 
                        supplemental survey data in carrying out this 
                        subparagraph insofar as they are collected and 
                        provided by entities and organizations 
                        consistent with the criteria established by the 
                        Secretary pursuant to section 212(a) of the 
                        Medicare, Medicaid, and SCHIP Balanced Budget 
                        Refinement Act of 1999 and insofar as such data 
                        are submitted to the Secretary by the date of 
                        the enactment of this subparagraph.
                          ``(iii) Expediting consideration of cpt codes 
                        for affected physician specialties.--The 
                        Secretary shall, in cooperation with 
                        representatives of physician specialities 
                        affected by section 1847A, take such actions as 
                        are necessary to expedite considerations of CPT 
                        codes, or expand the ability to appropriately 
                        bill for physicians' services under existing 
                        CPT codes, for costs associated with the 
                        administration of covered outpatient drugs. The 
                        Secretary shall consult with representatives of 
                        advisory physician groups in expediting such 
                        considerations.
                          ``(iv) Subsequent, budget neutral adjustments 
                        permitted.--Nothing in this subparagraph shall 
                        be construed as preventing the Secretary from 
                        providing for adjustments in practice expense 
                        relative value units under (and consistent 
                        with) subparagraph (B) for years after 2004.
                          ``(v) Consultation.--Before publishing the 
                        notice of proposed rulemaking to carry out this 
                        subparagraph, the Secretary shall consult with 
                        the Comptroller General of the United States 
                        and with groups representing the physician 
                        specialties involved.
                          ``(vi) Treatment as change in law and 
                        regulation in sustainable growth rate 
                        determination.--The enactment of subparagraph 
                        (B)(iv) and this subparagraph shall be treated 
                        as a change in law for purposes of applying 
                        subsection (f)(2)(D).''.
          (2) Prohibition of administrative and judicial review.--
        Section 1848(i)(1) (42 U.S.C. 1395w-4(i)(1)) is amended--
          (A) by striking ``and'' at the end of subparagraph (D);
          (B) by striking the period at the end of subparagraph (E) and 
        inserting ``, and''; and
          (C) by adding at the end the following new subparagraph:
                  ``(F) adjustments in practice expense relative value 
                units for 2005 under subsection (c)(2)(H).''.
          (3) Treatment of other services currently in the non-
        physician work pool.--The Secretary shall make adjustments to 
        the non-physician work pool methodology (as such term is used 
        in the regulations promulgated by the Secretary in the Federal 
        Register as of December 31, 2002) for determination of practice 
        expense relative value units under the physician fee schedule 
        described in section 1848(c)(2)(C)(ii) of the Social Security 
        Act so that the practice expense relative value units for 
        services determined under such methodology are not 
        disproportionately reduced relative to the practice expense 
        relative value units of other services not determined under 
        such non-physician work pool methodology, as the result of 
        amendments made by paragraph (1).
          (4) Submission of practice expense survey data.--Any 
        physician specialty may submit survey data related to practice 
        expenses to the Secretary through Decmeber 31, 2004. Nothing in 
        this paragraph shall be construed as waiving the application of 
        budget neutrality under section 1848 of the Social Security 
        Act.
  (b) Payment Based on Competition.--Title XVIII is amended by 
inserting after section 1847 (42 U.S.C. 1395w-3), as amended by section 
302, the following new sections:
 ``competitive acquisition of covered outpatient drugs and biologicals
  ``Sec. 1847A. (a) Implementation of Competitive Acquisition.--
          ``(1) Implementation of program.--
                  ``(A) In general.--The Secretary shall establish and 
                implement a competitive acquisition program under 
                which--
                          ``(i) competitive acquisition areas are 
                        established throughout the United States for 
                        contract award purposes for acquisition of and 
                        payment for categories of covered outpatient 
                        drugs and biologicals (as defined in paragraph 
                        (2)) under this part; and
                          ``(ii) each physician who does not elect 
                        section 1847B to apply makes an annual 
                        selection, under paragraph (5) of the 
                        contractor through which drugs and biologicals 
                        within a category of drugs and biologicals will 
                        be acquired and delivered to the physician 
                        under this part.
                  ``(B) Implementation.--The Secretary shall implement 
                the program so that the program applies to--
                          ``(i) the oncology category beginning in 
                        2005; and
                          ``(ii) the non-oncology category beginning in 
                        2006.
                This section shall not apply in the case of a physician 
                who elects section 1847B to apply.
                  ``(C) Waiver of certain provisions.--In order to 
                promote competition, efficient service, and product 
                quality, in carrying out the program the Secretary may 
                waive such provisions of the Federal Acquisition 
                Regulation as are necessary for the efficient 
                implementation of this section, other than provisions 
                relating to confidentiality of information and such 
                other provisions as the Secretary determines 
                appropriate.
                  ``(D) Exclusion authority.--The Secretary may exclude 
                covered outpatient drugs and biologicals (including a 
                class of such drugs and biologicals) from the 
                competitive bidding system under this section if the 
                drugs or biologicals (or class) are not appropriate for 
                competitive bidding due to low volume of utilization by 
                beneficiaries under this part or a unique mode or 
                method of delivery or similar reasons.
          ``(2) Covered outpatient drugs and biologicals, categories, 
        program defined.--For purposes of this section--
                  ``(A) Covered outpatient drugs and biologicals 
                defined.--The term `covered outpatient drugs and 
                biologicals' means drugs and biologicals to which 
                section 1842(o) applies and which are not covered under 
                section 1847 (relating to competitive acquisition for 
                items of durable medical equipment). Such term does not 
                include the following:
                          ``(i) Blood clotting factors.
                          ``(ii) Drugs and biologicals furnished to 
                        individuals in connection with the treatment of 
                        end stage renal disease.
                          ``(iii) Radiopharmaceuticals.
                  ``(B) 2 categories.--Each of the following shall be a 
                separate category of covered outpatient drugs and 
                biologicals, as identified by the Secretary:
                          ``(i) Oncology category.--A category (in this 
                        section referred to as the `oncology category') 
                        consisting of those covered outpatient drugs 
                        and biologicals that, as determined by the 
                        Secretary, are typically primarily billed by 
                        oncologists or are otherwise used to treat 
                        cancer.
                          ``(ii) Non-oncology categories.--Such numbers 
                        of categories (in this section referred to as 
                        the `non-oncology categories') consisting of 
                        covered outpatient drugs and biologicals not 
                        described in clause (i), and appropriate 
                        subcategories of such drugs and biologicals as 
                        the Secretary may specify.
                  ``(C) Program.--The term `program' means the 
                competitive acquisition program under this section.
                  ``(D) Competitive acquisition area; area.--The terms 
                `competitive acquisition area' and `area' mean an 
                appropriate geographic region established by the 
                Secretary under the program.
                  ``(E) Contractor.--The term `contractor' means an 
                entity that has entered into a contract with the 
                Secretary under this section.
          ``(3) Application of program payment methodology.--With 
        respect to covered outpatient drugs and biologicals which are 
        supplied under the program in an area and which are prescribed 
        by a physician who has not elected section 1847B to apply--
                  ``(A) the claim for such drugs and biologicals shall 
                be submitted by the contractor that supplied the drugs 
                and biologicals;
                  ``(B) collection of amounts of any deductible and 
                coinsurance applicable with respect to such drugs and 
                biologicals shall be the responsibility of such 
                contractor and shall not be collected unless the drug 
                or biological is administered to the beneficiary 
                involved; and
                  ``(C) the payment under this section (and related 
                coinsurance amounts) for such drugs and biologicals--
                          ``(i) shall be made only to such contractor;
                          ``(ii) shall be conditioned upon the 
                        administration of such drugs and biologicals; 
                        and
                          ``(iii) shall be based on the average of the 
                        bid prices for such drugs and biologicals in 
                        the area, as computed under subsection (d).
                The Secretary shall provide a process for recoupment in 
                the case in which payment is made for drugs and 
                biologicals which were billed at the time of dispensing 
                but which were not actually administered.
          ``(4) Contract required.--
                  ``(A) In general.--Payment may not be made under this 
                part for covered outpatient drugs and biologicals 
                prescribed by a physician who has not elected section 
                1847B to apply within a category and a competitive 
                acquisition area with respect to which the program 
                applies unless--
                          ``(i) the drugs or biologicals are supplied 
                        by a contractor with a contract under this 
                        section for such category of drugs and 
                        biologicals and area; and
                          ``(ii) the physician has elected such 
                        contractor under paragraph (5) for such 
                        category and area.
                  ``(B) Physician choice.--Subparagraph (A) shall not 
                apply for a category of drugs for an area if the 
                physician prescribing the covered outpatient drug in 
                such category and area has elected to apply section 
                1847B instead of this section.
          ``(5) Contractor selection process.--
                  ``(A) In general.--The Secretary shall provide a 
                process for the selection of a contractor, on an annual 
                basis and in such exigent circumstances as the 
                Secretary may provide and with respect to each category 
                of covered outpatient drugs and biologicals for an 
                area, by physicians prescribing such drugs and 
                biologicals in the area of the contractor under this 
                section that will supply the drugs and biologicals 
                within that category and area. Such selection shall 
                also include the election described in section 
                1847B(a).
                  ``(B) Information on contractors.--The Secretary 
                shall make available to physicians on an ongoing basis, 
                through a directory posted on the Department's Internet 
                website or otherwise and upon request, a list of the 
                contractors under this section in the different 
                competitive acquisition areas.
                  ``(C) Selecting physician defined.--For purposes of 
                this section, the term `selecting physician' means, 
                with respect to a contractor and category and 
                competitive acquisition area, a physician who has not 
                elected section 1847B to apply and has selected to 
                apply under this section such contractor for such 
                category and area.
  ``(b) Program Requirements.--
          ``(1) Contract for covered outpatient drugs and 
        biologicals.--The Secretary shall conduct a competition among 
        entities for the acquisition of a covered outpatient drug or 
        biological within each HCPCS code within each category for each 
        competitive acquisition area.
          ``(2) Conditions for awarding contract.--
                  ``(A) In general.--The Secretary may not award a 
                contract to any entity under the competition conducted 
                in a competitive acquisition area pursuant to paragraph 
                (1) with respect to the acquisition of covered 
                outpatient drugs and biologicals within a category 
                unless the Secretary finds that the entity meets all of 
                the following with respect to the contract period 
                involved:
                          ``(i) Capacity to supply covered outpatient 
                        drug or biological within category.--
                                  ``(I) In general.--The entity has 
                                sufficient arrangements to acquire and 
                                to deliver covered outpatient drugs and 
                                biologicals within such category in the 
                                area specified in the contract at the 
                                bid price specified in the contract for 
                                all physicians that may elect such 
                                entity.
                                  ``(II) Shipment methodology.--The 
                                entity has arrangements in effect for 
                                the shipment at least 5 days each week 
                                of covered outpatient drugs and 
                                biologicals under the contract and for 
                                the timely delivery (including for 
                                emergency situations) of such drugs and 
                                biologicals in the area under the 
                                contract.
                          ``(ii) Quality, service, financial 
                        performance and solvency standards.--The entity 
                        meets quality, service, financial performance, 
                        and solvency standards specified by the 
                        Secretary, including--
                                  ``(I) the establishment of procedures 
                                for the prompt response and resolution 
                                of physician and beneficiary complaints 
                                and inquiries regarding the shipment of 
                                covered outpatient drugs and 
                                biologicals; and
                                  ``(II) a grievance process for the 
                                resolution of disputes.
                  ``(B) Additional considerations.--The Secretary may 
                refuse to award a contract under this section, and may 
                terminate such a contract, with an entity based upon--
                          ``(i) the suspension or revocation, by the 
                        Federal Government or a State government, of 
                        the entity's license for the distribution of 
                        drugs or biologicals (including controlled 
                        substances); or
                          ``(ii) the exclusion of the entity under 
                        section 1128 from participation under this 
                        title.
                  ``(C) Application of medicare provider ombudsman.--
                For provision providing for a program-wide Medicare 
                Provider Ombudsman to review complaints, see section 
                1868(b), as added by section 923 of the Medicare 
                Prescription Drug and Modernization Act of 2003.
          ``(3) Awarding multiple contracts for a category and area.--
        In order to provide a choice of at least 2 contractors in each 
        competitive acquisition area for a category of drugs and 
        biologicals, the Secretary may limit (but not below 2) the 
        number of qualified entities that are awarded such contracts 
        for any category and area. The Secretary shall select among 
        qualified entities based on the following:
                  ``(A) The bid prices for covered outpatient drugs and 
                biologicals within the category and area.
                  ``(B) Bid price for distribution of such drugs and 
                biologicals.
                  ``(C) Ability to ensure product integrity.
                  ``(D) Customer service.
                  ``(E) Past experience in the distribution of drugs 
                and biologicals, including controlled substances.
                  ``(F) Such other factors as the Secretary may 
                specify.
          ``(4) Terms of contracts.--
                  ``(A) In general.--A contract entered into with an 
                entity under the competition conducted pursuant to 
                paragraph (1) is subject to terms and conditions that 
                the Secretary may specify consistent with this section.
                  ``(B) Period of contracts.--A contract under this 
                section shall be for a term of 2 years, but may be 
                terminated by the Secretary or the entity with 
                appropriate, advance notice.
                  ``(C) Integrity of drug and biological distribution 
                system.--The Secretary--
                          ``(i) shall require that for all drug and 
                        biological products distributed by a contractor 
                        under this section be acquired directly from 
                        the manufacturer or from a distributor that has 
                        acquired the products directly from the 
                        manufacturer; and
                          ``(ii) may require, in the case of such 
                        products that are particularly susceptible to 
                        counterfeit or diversion, that the contractor 
                        comply with such additional product integrity 
                        safeguards as may be determined to be 
                        necessary.
                  ``(D) Implementation of anti-counterfeiting, quality, 
                safety, and record keeping requirements.--The Secretary 
                shall require each contractor to implement (through its 
                officers, agents, representatives, and employees) 
                requirements relating to the storage and handling of 
                covered outpatient drugs and biologicals and for the 
                establishment and maintenance of distribution records 
                for such drugs and biologicals. A contract under this 
                section may include requirements relating to the 
                following:
                          ``(i) Secure facilities.
                          ``(ii) Safe and appropriate storage of drugs 
                        and biologicals.
                          ``(iii) Examination of drugs and biologicals 
                        received and dispensed.
                          ``(iv) Disposition of damaged and outdated 
                        drugs and biologicals.
                          ``(v) Record keeping and written policies and 
                        procedures.
                          ``(vi) Compliance personnel.
                  ``(E) Compliance with code of conduct and fraud and 
                abuse rules.--Under the contract--
                          ``(i) the contractor shall comply with a code 
                        of conduct, specified or recognized by the 
                        Secretary, that includes standards relating to 
                        conflicts of interest; and
                          ``(ii) the contractor shall comply with all 
                        applicable provisions relating to prevention of 
                        fraud and abuse, including compliance with 
                        applicable guidelines of the Department of 
                        Justice and the Inspector General of the 
                        Department of Health and Human Services.
                  ``(F) Direct delivery of drugs and biologicals to 
                physicians.--Under the contract the contractor shall 
                only supply covered outpatient drugs and biologicals 
                directly to the selecting physicians and not directly 
                to beneficiaries, except under circumstances and 
                settings where a beneficiary currently receives a drug 
                or biological in the beneficiary's home or other non-
                physician office setting as the Secretary may provide. 
                The contractor shall not deliver drugs and biologicals 
                to a selecting physician except upon receipt of a 
                prescription for such drugs and biologicals, and such 
                necessary data as may be required by the Secretary to 
                carry out this section. This section does not require a 
                physician to submit a prescription for each individual 
                treatment and does not change the physician's 
                flexibility in terms of writing a prescription for 
                drugs for a single treatment or a course of treatment.
          ``(5) Permitting access to drugs and biologicals.--The 
        Secretary shall establish rules under this section under which 
        drugs and biologicals which are acquired through a contractor 
        under this section may be used to resupply inventories of such 
        drugs and biologicals which are administered consistent with 
        safe drug practices and with adequate safeguards against fraud 
        and abuse. The previous sentence shall apply--
                  ``(A) in cases in which the drugs or biologicals are 
                immediately required;
                  ``(B) in cases in which the physician could not have 
                reasonably anticipated the immediate requirement for 
                the drugs or biologicals;
                  ``(C) in cases in which the contractor could not 
                deliver to the physician the drugs or biologicals in a 
                timely manner; and
                  ``(D) in emergency situations.
          ``(6) Construction.--Nothing in this section shall be 
        construed as waiving applicable State requirements relating to 
        licensing of pharmacies.
  ``(c) Bidding Process.--
          ``(1) In general.--In awarding a contract for a category of 
        drugs and biologicals in an area under the program, the 
        Secretary shall consider with respect to each entity seeking to 
        be awarded a contract the prices bid to acquire and supply the 
        covered outpatient drugs and biologicals for that category and 
        area and the other factors referred to in subsection (b)(3).
          ``(2) Prices bid.--The prices bid by an entity under 
        paragraph (1) shall be the prices in effect and available for 
        the supply of contracted drugs and biologicals in the area 
        through the entity for the contract period.
          ``(3) Rejection of contract offer.--The Secretary shall 
        reject the contract offer of an entity with respect to a 
        category of drugs and biologicals for an area if the Secretary 
        estimates that the prices bid, in the aggregate on average, 
        would exceed 120 percent of the average sales price (as 
        determined under section 1847B).
          ``(4) Bidding on a national or regional basis.--Nothing in 
        this section shall be construed as precluding a bidder from 
        bidding for contracts in all areas of the United States or as 
        requiring a bidder to submit a bid for all areas of the United 
        States.
          ``(5) Uniformity of bids within area.--The amount of the bid 
        submitted under a contract offer for any covered outpatient 
        drug or biological for an area shall be the same for that drug 
        or biological for all portions of that area.
          ``(6) Confidentiality of bids.--The provisions of 
        subparagraph (D) of section 1927(b)(3) shall apply to a bid 
        submitted in a contract offer for a covered outpatient drug or 
        biological under this section in the same manner as it applies 
        to information disclosed under such section, except that any 
        reference--
                  ``(A) in that subparagraph to a `manufacturer or 
                wholesaler' is deemed a reference to a `bidder' under 
                this section;
                  ``(B) in that section to `prices charged for drugs' 
                is deemed a reference to a `bid' submitted under this 
                section; and
                  ``(C) in clause (i) of that section to `this 
                section', is deemed a reference to `part B of title 
                XVIII'.
          ``(7) Inclusion of costs.--The bid price submitted in a 
        contract offer for a covered outpatient drug or biological 
        shall--
                  ``(A) include all costs related to the delivery of 
                the drug or biological to the selecting physician (or 
                other point of delivery); and
                  ``(B) include the costs of dispensing (including 
                shipping) of such drug or biological and management 
                fees, but shall not include any costs related to the 
                administration of the drug or biological, or wastage, 
                spillage, or spoilage.
          ``(8) Price adjustments during contract period; disclosure of 
        costs.--Each contract awarded shall provide for--
                  ``(A) disclosure to the Secretary the contractor's 
                reasonable, net acquisition costs for periods specified 
                by the Secretary, not more often than quarterly, of the 
                contract; and
                  ``(B) appropriate price adjustments over the period 
                of the contract to reflect significant increases or 
                decreases in a contractor's reasonable, net acquisition 
                costs, as so disclosed.
  ``(d) Computation of Average Bid Prices for a Category and Area.--
          ``(1) In general.--For each year or other contract period for 
        each covered outpatient drug or biological and area with 
        respect to which a competition is conducted under the program, 
        the Secretary shall compute an area average of the bid prices 
        submitted, in contract offers accepted for the category and 
        area, for that year or other contract period.
          ``(2) Special rules.--The Secretary shall establish rules 
        regarding the use under this section of the alternative payment 
        amount provided under section 1847B to the use of a price for 
        specific covered outpatient drugs and biologicals in the 
        following cases:
                  ``(A) New drugs and biologicals.--A covered 
                outpatient drug or biological for which an average bid 
                price has not been previously determined.
                  ``(B) Other cases.--Such other exceptional cases as 
                the Secretary may specify in regulations.
        Such alternative payment amount shall be based upon actual 
        market price information and in no case shall it exceed the 
        average sales price (as determined under section 1847B).
  ``(e) Coinsurance.--
          ``(1) In general.--Coinsurance under this part with respect 
        to a covered outpatient drug or biological for which payment is 
        payable under this section shall be based on 20 percent of the 
        payment basis under this section.
          ``(2) Collection.--Such coinsurance shall be collected by the 
        contractor that supplies the drug or biological involved and, 
        subject to subsection (a)(3)(B), in the same manner as 
        coinsurance is collected for durable medical equipment under 
        this part.
  ``(f) Special Payment Rules.--
          ``(1) In general.--The Secretary may not provide for an 
        adjustment to reimbursement for covered outpatient drugs and 
        biologicals unless adjustments to the practice expense payment 
        adjustment are made on the basis of supplemental surveys under 
        section 1848(c)(2)(H)(ii) of the Social Security Act, as added 
        by subsection (a)(1)(B).
                  ``(B) Use in exclusion cases.--If the Secretary 
                excludes a drug or biological (or class of drugs or 
                biologicals) under subsection (a)(1)(D), the Secretary 
                may provide for reimbursement to be made under this 
                part for such drugs and biologicals (or class) using 
                the payment methodology under section 1847B or other 
                market based pricing system.
          ``(2) Coordination rules.--The provisions of section 
        1842(h)(3) shall apply to a contractor with respect to covered 
        outpatients drugs and biologicals supplied by that contractor 
        in the same manner as they apply to a participating supplier. 
        In order to administer this section, the Secretary may 
        condition payment under this part to a person for the 
        administration of a drug or biological supplied under this 
        section upon person's provision of information on such 
        administration.
          ``(3) Application of requirement for assignment.--For 
        provision requiring assignment of claims for covered outpatient 
        drugs and biologicals, see section 1842(o)(3).
          ``(4) Protection for beneficiary in case of medical necessity 
        denial.--For protection of beneficiaries against liability in 
        the case of medical necessity determinations, see section 
        1842(b)(3)(B)(ii)(III).
          ``(5) Physician role in appeals process.--The Secretary shall 
        establish a procedure under which a physician who prescribes a 
        drug or biological for which payment is made under this section 
        has appeal rights that are similar to those provided to a 
        physician who prescribes durable medical equipment or a 
        laboratory test.
  ``(g) Advisory Committee.--The Secretary shall establish an advisory 
committee that includes representatives of parties affected by the 
program under this section, including physicians, specialty pharmacies, 
distributors, manufacturers, and beneficiaries. The committee shall 
advise the Secretary on issues relating to the effective implementation 
of this section.
  ``(h) Annual Reports.--The Secretary shall submit to Congress an 
annual report in each of 2004, 2005, and 2006, on the program. Each 
such report shall include information on savings, reductions in cost-
sharing, access to covered outpatient drugs and biologicals, the range 
of choices of contractors available to providers, and beneficiary and 
provider satisfaction.
       ``optional use of average sales price payment methodology
  ``Sec. 1847B. (a) In General.--In connection with the election made 
by a physician under section 1847A(a)(5), the physician may elect to 
apply this section to the payment for covered outpatient drugs instead 
of the payment methodology under section 1847A. For purposes of this 
section, the term `covered outpatient drug' has the meaning given such 
term in section 1847A(a)(2)(A).
  ``(b) Computation of Payment Amount.--
          ``(1) In general.--If this section applies with respect to a 
        covered outpatient drug, the amount payable for the drug (based 
        on a minimum dosage unit) is, subject to applicable deductible 
        and coinsurance--
                  ``(A) in the case of a multiple source drug (as 
                defined in subsection (c)(6)(C)), the amount determined 
                under paragraph (3); or
                  ``(B) in the case of a single source drug (as defined 
                in subsection (c)(6)(D)), the amount determined under 
                paragraph (4).
          ``(2) Specification of unit.--
                  ``(A) Specification by manufacturer.--The 
                manufacturer of a covered outpatient drug shall specify 
                the unit associated with each National Drug Code as 
                part of the submission of data under section 
                1927(b)(3)(A)(iii).
                  ``(B) Unit defined.--In this section, the term `unit' 
                means, with respect to a covered outpatient drug, the 
                lowest identifiable quantity (such as a capsule or 
                tablet, milligram of molecules, or grams) of the drug 
                that is dispensed, exclusive of any diluent without 
                reference to volume measures pertaining to liquids.
          ``(3) Multiple source drug.--For all drug products included 
        within the same multiple source drug, the amount specified in 
        this paragraph is the volume-weighted average of the average 
        sales prices reported under section 1927(b)(3)(A)(iii) computed 
        as follows:
                  ``(A) Compute the sum of the products (for each 
                national drug code assigned to such drug products) of--
                          ``(i) the manufacturer's average sales price 
                        (as defined in subsection (c)); and
                          ``(ii) the total number of units specified 
                        under paragraph (2) sold, as reported under 
                        section 1927(b)(3)(A)(iii).
                  ``(B) Divide the sum computed under subparagraph (A) 
                by the sum of the total number of units under 
                subparagraph (A)(ii) for all national drug codes 
                assigned to such drug products.
          ``(4) Single source drug.--The amount specified in this 
        paragraph for a single source drug is the lesser of the 
        following:
                  ``(A) Manufacturer's average sales price.--The 
                manufacturer's average sales price for a national drug 
                code, as computed using the methodology applied under 
                paragraph (3).
                  ``(B) Wholesale acquisition cost (wac).--The 
                wholesale acquisition cost (as defined in subsection 
                (c)(6)(B)) reported for the single source drug.
          ``(5) Basis for determination.--The payment amount shall be 
        determined under this subsection based on information reported 
        under subsection (e) and without regard to any special 
        packaging, labeling, or identifiers on the dosage form or 
        product or package.
  ``(c) Manufacturer's Average Sales Price.--
          ``(1) In general.--For purposes of this subsection, subject 
        to paragraphs (2) and (3), the manufacturer's `average sales 
        price' means, of a covered outpatient drug for a NDC code for a 
        calendar quarter for a manufacturer for a unit--
                  ``(A) the manufacturer's total sales (as defined by 
                the Secretary in regulations for purposes of section 
                1927(c)(1)) in the United States for such drug in the 
                calendar quarter; divided by
                  ``(B) the total number of such units of such drug 
                sold by the manufacturer in such quarter.
          ``(2) Certain sales exempted from computation.--In 
        calculating the manufacturer's average sales price under this 
        subsection, the following sales shall be excluded:
                  ``(A) Sales exempt from best price.--Sales exempt 
                from the inclusion in the determination of `best price' 
                under section 1927(c)(1)(C)(i).
                  ``(B) Sales at nominal charge.--Such other sales as 
                the Secretary identifies by regulation as sales to an 
                entity that are nominal in price or do not reflect a 
                market price paid by an entity to which payment is made 
                under this section.
          ``(3) Sale price net of discounts.--In calculating the 
        manufacturer's average sales price under this subsection, such 
        price shall be determined taking into account volume discounts, 
        prompt pay discounts, cash discounts, the free goods that are 
        contingent on any purchase requirement, chargebacks, and 
        rebates (other than rebates under section 1927), that result in 
        a reduction of the cost to the purchaser. A rebate to a payor 
        or other entity that does not take title to a covered 
        outpatient drug shall not be taken into account in determining 
        such price unless the manufacturer has an agreement with the 
        payor or other entity under which the purchaser's price for the 
        drug is reduced as a consequence of such rebate.
          ``(4) Authority to disregard average sales price during first 
        quarter of sales.--In the case of a covered outpatient drug 
        during an initial period (not to exceed a full calendar 
        quarter) in which data on the prices for sales for the drug is 
        not sufficiently available from the manufacturer to compute an 
        average sales price for the drug, the Secretary may determine 
        the amount payable under this section for the drug without 
        considering the manufacturer's average sales price of that 
        manufacturer for that drug.
          ``(5) Frequency of determinations.--
                  ``(A) In general on a quarterly basis.--The 
                manufacturer's average sales price, for a covered 
                outpatient drug of a manufacturer, shall be determined 
                by such manufacturer under this subsection on a 
                quarterly basis. In making such determination insofar 
                as there is a lag in the reporting of the information 
                on rebates and chargebacks under paragraph (3) so that 
                adequate data are not available on a timely basis, the 
                manufacturer shall apply a methodology established by 
                the Secretary based on a 12-month rolling average for 
                the manufacturer to estimate costs attributable to 
                rebates and chargebacks.
                  ``(B) Updates in rates.--The payment rates under 
                subsection (b)(1) and (b)(2)(A) shall be updated by the 
                Secretary on a quarterly basis and shall be applied 
                based upon the manufacturer's average sales price 
                determined for the most recent calendar quarter.
                  ``(C) Use of contractors; implementation.--The 
                Secretary may use a carrier, fiscal intermediary, or 
                other contractor to determine the payment amount under 
                subsection (b). Notwithstanding any other provision of 
                law, the Secretary may implement, by program memorandum 
                or otherwise, any of the provisions of this section.
          ``(6) Definitions and other rules.--In this section:
                  ``(A) Manufacturer.--The term `manufacturer' means, 
                with respect to a covered outpatient drug, the 
                manufacturer (as defined in section 1927(k)(5)) whose 
                national drug code appears on such drug.
                  ``(ii) Wholesale acquisition cost.--The term 
                `wholesale acquisition cost' means, with respect to a 
                covered outpatient drug, the manufacturer's list price 
                for the drug to wholesalers or direct purchasers in the 
                United States, not including prompt pay or other 
                discounts, rebates or reductions in price, for the most 
                recent month for which the information is available, as 
                reported in wholesale price guides or other 
                publications of drug pricing data.
                  ``(C) Multiple source drug.--The term `multiple 
                source drug' means, for a calendar quarter, a covered 
                outpatient drug for which there are 2 or more drug 
                products which--
                          ``(i) are rated as therapeutically equivalent 
                        (under the Food and Drug Administration's most 
                        recent publication of `Approved Drug Products 
                        with Therapeutic Equivalence Evaluations'),
                          ``(ii) except as provided in subparagraph 
                        (E), are pharmaceutically equivalent and 
                        bioequivalent, as determined under subparagraph 
                        (F) and as determined by the Food and Drug 
                        Administration, and
                          ``(iii) are sold or marketed in the United 
                        States during the quarter.
                  ``(D) Single source drug.--The term `single source 
                drug' means a covered outpatient drug which is not a 
                multiple source drug and which is produced or 
                distributed under an original new drug application 
                approved by the Food and Drug Administration, including 
                a drug product marketed by any cross-licensed producers 
                or distributors operating under the new drug 
                application, or which is a biological.
                  ``(E) Exception from pharmaceutical equivalence and 
                bioequivalence requirement.--Subparagraph (C)(ii) shall 
                not apply if the Food and Drug Administration changes 
                by regulation the requirement that, for purposes of the 
                publication described in subparagraph (C)(i), in order 
                for drug products to be rated as therapeutically 
                equivalent, they must be pharmaceutically equivalent 
                and bioequivalent, as defined in subparagraph (F).
                  ``(F) Determination of pharmaceutical equivalence and 
                bioequivalence.--For purposes of this paragraph--
                          ``(i) drug products are pharmaceutically 
                        equivalent if the products contain identical 
                        amounts of the same active drug ingredient in 
                        the same dosage form and meet compendial or 
                        other applicable standards of strength, 
                        quality, purity, and identity; and
                          ``(ii) drugs are bioequivalent if they do not 
                        present a known or potential bioequivalence 
                        problem, or, if they do present such a problem, 
                        they are shown to meet an appropriate standard 
                        of bioequivalence.
                  ``(G) Inclusion of vaccines.--In applying provisions 
                of section 1927 under this section, `other than a 
                vaccine' is deemed deleted from section 1927(k)(2)(B).
  ``(d) Monitoring price information.--
          ``(1) In general.--The Secretary shall monitor available 
        pricing information, including information on average sales 
        price and average manufacturer price.
          ``(2) Response to significant discrepancies.--
                  ``(A) Report to congress.--If the Secretary finds 
                that there are significant discrepancies among such 
                prices and that the manufacturer's average sales price 
                does not reflect a broad-based market price or a 
                reasonable approximation of the acquisition cost of the 
                covered outpatient drug involved to purchasers 
                reimbursed under this section, the Secretary shall 
                submit to Congress a report.
                  ``(B) Confidentiality of information reported.--
                Consistent with requirements relating to maintaining 
                the confidentiality of information reported on 
                manufacturer's average prices under section 
                1927(b)(3)(D), such report shall include details 
                regarding such discrepancies and recommendations on how 
                to best address such discrepancies. Such report shall 
                not disclose average manufacturer prices or average 
                sales prices.
                  ``(C) Recommendations.--Such recommendations may 
                include other changes in payment methodology.
                  ``(D) Authority to modify payment methodology by 
                rule.--Upon submission of such report, the Secretary 
                may commence a rulemaking to change such percent or 
                payment methodologies under paragraph (1)(D) and (2) as 
                applied to the covered outpatient drug involved under 
                this section.
          ``(3) Response to public health emergency.--In the case of a 
        public health emergency under section 319 of the Public Health 
        Service Act in which there is a documented inability to access 
        covered outpatient drugs, and a concomitant increase in the 
        price, of a drug which is not reflected in the manufacturer's 
        average sales price for one or more quarters, the Secretary may 
        use the wholesale acquisition cost (or other reasonable measure 
        of drug price) instead of the manufacturer's average sales 
        price for such quarters and for subsequent quarters until the 
        price and availability of the drug has stabilized and is 
        substantially reflected in the applicable manufacturer's 
        average sales price.
          ``(4) Annual report to congress.--The Secretary shall submit 
        to the Committees on Energy and Commerce and Ways and Means of 
        the House of Representatives and the Committee on Finance of 
        the Senate an annual report on the operation of this section. 
        Such report shall be submitted in coordination with the 
        submission of reports under section 1927(i). Such report shall 
        include information on the following:
                  ``(A) Trends in average sales price under subsection 
                (b).
                  ``(B) Administrative costs associated with compliance 
                with this section.
                  ``(C) Total value of payments made under this 
                section.
                  ``(D) Comparison of the average manufacturer price as 
                applied under section 1927 for a covered outpatient 
                drug with the manufacturer's average sales price for 
                the drug under this section.
  ``(e) Reports on pricing information.--
          ``(1) Reference to reporting requirement on average sales 
        price.--For requirements for reporting the manufacturer's 
        average sales price (and, if required to make payment, the 
        manufacturer's wholesale acquisition cost) for the covered 
        outpatient drug, see section 1927(b)(3).
          ``(2) MedPAC review.--The Medicare Payment Advisory 
        Commission shall periodically review the payment methodology 
        established under this section and submit to Congress such 
        recommendations on such methodology as it deems appropriate as 
        part of its annual reports to Congress.
          ``(3) Construction.--Nothing in this subsection shall be 
        construed as authorizing the Secretary to review for purposes 
        of this section information reported only under section 
        1927(b)(3).
  ``(f) Restriction on administrative and judicial review.--There shall 
be no administrative or judicial review under section 1869, section 
1878, or otherwise, of determinations of manufacturer's average sales 
price under subsection (c).''.
  (c) Continuation of Payment Methodology for Radiopharmaceuticals.--
Nothing in the amendments made by this section shall be construed as 
changing the payment methodology under part B of title XVIII of the 
Social Security Act for radiopharmaceuticals, including the use by 
carriers of invoice pricing methodology.
  (d) Conforming Amendments.--
          (1) In general.--Section 1842(o) (42 U.S.C. 1395u(o)) is 
        amended--
                  (A) in paragraph (1), by inserting ``, subject to 
                section 1847A and 1847B,'' before ``the amount payable 
                for the drug or biological''; and
                  (B) by adding at the end of paragraph (2) the 
                following: ``This paragraph shall not apply in the case 
                of payment under section 1847A or 1847B.''.
          (2) No change in coverage basis.--Section 1861(s)(2)(A) (42 
        U.S.C. 1395x(s)(2)(A)) is amended by inserting ``(or would have 
        been so included but for the application of section 1847A or 
        1847B)'' after ``included in the physicians' bills''.
          (3) Payment.--Section 1833(a)(1)(S) (42 U.S.C. 
        1395l(a)(1)(S)) is amended by inserting ``(or, if applicable, 
        under section 1847A or 1847B)'' after ``1842(o)''.
          (4) Consolidated reporting of pricing information.--Section 
        1927 (42 U.S.C. 1396r-8) is amended--
                  (A) in subsection (a)(1), by inserting ``or under 
                part B of title XVIII'' after ``section 1903(a)'';
                  (B) in subsection (b)(3)(A)--
                          (i) in clause (i), by striking ``and'' at the 
                        end;
                          (ii) in clause (ii), by striking the period 
                        and inserting ``; and''; and
                          (iii) by adding at the end the following new 
                        clause:
                          ``(iii) for calendar quarters beginning on or 
                        after April 1, 2004, in conjunction with 
                        reporting required under clause (i) and by 
                        national drug code (NDC)--
                                  ``(I) the manufacturer's average 
                                sales price (as defined in section 
                                1847B(c)) and the total number of units 
                                specified under section 1847B(b)(2)(A);
                                  ``(II) if required to make payment 
                                under section 1847B, the manufacturer's 
                                wholesale acquisition cost, as defined 
                                in subsection (c)(6) of such section; 
                                and
                                  ``(III) information on those sales 
                                that were made at a nominal price or 
                                otherwise described in section 
                                1847B(c)(2)(B), which information is 
                                subject to audit by the Inspector 
                                General of the Department of Health and 
                                Human Services;
                        for a covered outpatient drug for which payment 
                        is made under section 1847B.'';
                  (C) in subsection (b)(3)(B)--
                          (i) in the heading, by inserting ``and 
                        manufacturer's average sales price'' after 
                        ``price''; and
                          (ii) by inserting ``and manufacturer's 
                        average sales prices (including wholesale 
                        acquisition cost) if required to make payment'' 
                        after ``manufacturer prices''; and
                  (D) in subsection (b)(3)(D)(i), by inserting ``and 
                section 1847B'' after ``this section''.
  (e) GAO Study.--
          (1) Study.--The Comptroller General of the United States 
        shall conduct a study to assess the impact of the amendments 
        made by this section on the delivery of services, including 
        their impact on--
                  (A) beneficiary access to drugs and biologicals for 
                which payment is made under part B of title XVIII of 
                the Social Security Act; and
                  (B) the site of delivery of such services.
          (2) Report.--Not later than 2 years after the year in which 
        the amendment made by subsection (a)(1) first takes effect, the 
        Comptroller General shall submit to Congress a report on the 
        study conducted under paragraph (1).
  (f) MedPAC Recommendations on Blood Clotting Factors.--The Medicare 
Payment Advisory Commission shall submit to Congress, in its annual 
report in 2004, specific recommendations regarding a payment amount (or 
amounts) for blood clotting factors and its administration under the 
medicare program.
  (g) Establishment of Pharmaceutical Management Fee Where Drugs 
Provided Through a Contractor.--Section 1848(a) (42 U.S.C. 1395w-4(a)) 
is amended by adding at the end the following new paragraph:
          ``(5) Recognition of pharmaceutical management fee in certain 
        cases.--In establishing the fee schedule under this section, 
        the Secretary shall provide for a separate payment with respect 
        to physicians' services consisting of the unique administrative 
        and management costs associated with covered drugs and 
        biologicals which are furnished to physicians through a 
        contractor under section 1847A (compared with such costs if 
        such drugs and biologicals were acquired directly by such 
        physicians).''.

SEC. 304. 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 or 
part B of title XVIII of the Social Security Act. Under the project--
          (1) payment may be made to such a contractor on a contingent 
        basis;
          (2) 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.--
          (1) Scope.--The project shall cover at least 2 States that 
        are among the States with--
                  (A) the highest per capita utilization rates of 
                medicare services, and
                  (B) at least 3 contractors.
          (2) Duration.--The project shall last for not longer than 3 
        years.
  (c) Waiver.--The Secretary 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 the appropriate clinical knowledge of 
        and experience with the payment rules and regulations under the 
        medicare program or the entity has or will contract with 
        another entity that has such knowledgeable and experienced 
        staff.
          (2) Ineligibility of certain contractors.--The Secretary may 
        not enter into a recovery audit contract under this section 
        with an entity to the extent that the entity is a fiscal 
        intermediary under section 1816 of the Social Security Act (42 
        U.S.C. 1395h), a carrier under section 1842 of such Act (42 
        U.S.C. 1395u), or a Medicare Administrative Contractor under 
        section 1874A of such Act.
          (3) Preference for entities with demonstrated proficiency 
        with private insurers.--In awarding contracts to recovery audit 
        contractors under this section, the Secretary shall give 
        preference to those risk entities that the Secretary determines 
        have demonstrated more than 3 years direct management 
        experience and a proficiency in recovery audits with private 
        insurers or under the medicaid program under title XIX of such 
        Act.
  (e) Construction Relating to Conduct of Investigation of Fraud.--A 
recovery of an overpayment to a provider by a recovery audit contractor 
shall not be construed to prohibit the Secretary or the Attorney 
General from investigating and prosecuting, if appropriate, allegations 
of fraud or abuse arising from such overpayment.
  (f) Report.--The Secretary 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 IV--RURAL HEALTH CARE IMPROVEMENTS

SEC. 401. ENHANCED DISPROPORTIONATE SHARE HOSPITAL (DSH) TREATMENT FOR 
                    RURAL HOSPITALS AND URBAN HOSPITALS WITH FEWER THAN 
                    100 BEDS.

  (a) Doubling the Cap.--
          (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, 2003, subject to subclause (II), there shall be 
substituted for the disproportionate share adjustment percentage 
otherwise determined under clause (iv) (other than subclause (I)) or 
under clause (viii), (x), (xi), (xii), or (xiii), the disproportionate 
share adjustment percentage determined under clause (vii) (relating to 
large, urban hospitals).
  ``(II) Under subclause (I), the disproportionate share adjustment 
percentage shall not exceed 10 percent for a hospital that is not 
classified as a rural referral center under subparagraph (C).''.
          (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, 2003.

SEC. 402. IMMEDIATE ESTABLISHMENT OF UNIFORM STANDARDIZED AMOUNT IN 
                    RURAL AND SMALL URBAN AREAS.

  (a) In General.--Section 1886(d)(3)(A) (42 U.S.C. 1395ww(d)(3)(A)) is 
amended--
          (1) in clause (iv), by inserting ``and ending on or before 
        September 30, 2003,'' after ``October 1, 1995,''; and
          (2) by redesignating clauses (v) and (vi) as clauses (vii) 
        and (viii), respectively, and inserting after clause (iv) the 
        following new clauses:
          ``(v) For discharges occurring in the fiscal year beginning 
        on October 1, 2003, the average standardized amount for 
        hospitals located in areas other than a large urban area shall 
        be equal to the average standardized amount for hospitals 
        located in a large urban area.''.
  (b) Conforming Amendments.--
          (1) Computing drg-specific rates.--Section 1886(d)(3)(D) (42 
        U.S.C. 1395ww(d)(3)(D)) is amended--
                  (A) in the heading, by striking ``in different 
                areas'';
                  (B) in the matter preceding clause (i), by striking 
                ``, each of'';
                  (C) in clause (i)--
                          (i) in the matter preceding subclause (I), by 
                        inserting ``for fiscal years before fiscal year 
                        2004,'' before ``for hospitals''; and
                          (ii) in subclause (II), by striking ``and'' 
                        after the semicolon at the end;
                  (D) in clause (ii)--
                          (i) in the matter preceding subclause (I), by 
                        inserting ``for fiscal years before fiscal year 
                        2004,'' before ``for hospitals''; and
                          (ii) in subclause (II), by striking the 
                        period at the end and inserting ``; and''; and
                  (E) by adding at the end the following new clause:
                  ``(iii) for a fiscal year beginning after fiscal year 
                2003, for hospitals located in all areas, to the 
                product of--
                          ``(I) the applicable standardized amount 
                        (computed under subparagraph (A)), reduced 
                        under subparagraph (B), and adjusted or reduced 
                        under subparagraph (C) for the fiscal year; and
                          ``(II) the weighting factor (determined under 
                        paragraph (4)(B)) for that diagnosis-related 
                        group.''.
          (2) Technical conforming sunset.--Section 1886(d)(3) (42 
        U.S.C. 1395ww(d)(3)) is amended--
                  (A) in the matter preceding subparagraph (A), by 
                inserting ``, for fiscal years before fiscal year 
                1997,'' before ``a regional adjusted DRG prospective 
                payment rate''; and
                  (B) in subparagraph (D), in the matter preceding 
                clause (i), by inserting ``, for fiscal years before 
                fiscal year 1997,'' before ``a regional DRG prospective 
                payment rate for each region,''.

SEC. 403. ESTABLISHMENT OF ESSENTIAL RURAL HOSPITAL CLASSIFICATION.

  (a) Classification.--Section 1861(mm) (42 U.S.C. 1395x(mm)) is 
amended--
          (1) in the heading by adding ``Essential Rural Hospitals'' at 
        the end; and
          (2) by adding at the end the following new paragraphs:
  ``(4)(A) The term `essential rural hospital' means a subsection (d) 
hospital (as defined in section 1886(d)(1)(B)) that is located in a 
rural area (as defined for purposes of section 1886(d)), has more than 
25 licensed acute care inpatient beds, has applied to the Secretary for 
classification as such a hospital, and with respect to which the 
Secretary has determined that the closure of the hospital would 
significantly diminish the ability of medicare beneficiaries to obtain 
essential health care services.
  ``(B) The determination under subparagraph (A) shall be based on the 
following criteria:
          ``(i) High proportion of medicare beneficiaries receiving 
        care from hospital.--(I) A high percentage of such 
        beneficiaries residing in the area of the hospital who are 
        hospitalized (during the most recent year for which complete 
        data are available) receive basic inpatient medical care at the 
        hospital.
          ``(II) For a hospital with more than 200 licensed beds, a 
        high percentage of such beneficiaries residing in such area who 
        are hospitalized (during such recent year) receive specialized 
        surgical inpatient care at the hospital.
          ``(III) Almost all physicians described in section 1861(r)(1) 
        in such area have privileges at the hospital and provide their 
        inpatient services primarily at the hospital.
          ``(ii) Significant adverse impact in absence of hospital.--If 
        the hospital were to close--
                  ``(I) there would be a significant amount of time 
                needed for residents to reach emergency treatment, 
                resulting in a potential significant harm to 
                beneficiaries with critical illnesses or injuries;
                  ``(II) there would be an inability in the community 
                to stablize emergency cases for transfers to another 
                acute care setting, resulting in a potential for 
                significant harm to medicare beneficiaries; and
                  ``(III) any other nearby hospital lacks the physical 
                and clinical capacity to take over the hospital's 
                typical admissions.
  ``(C) In making such determination, the Secretary may also consider 
the following:
          ``(i) Free-standing ambulatory surgery centers, office-based 
        oncology care, and imaging center services are insufficient in 
        the hospital's area to handle the outpatient care of the 
        hospital.
          ``(ii) Beneficiaries in nearby areas would be adversely 
        affected if the hospital were to close as the hospital provides 
        specialized knowledge and services to a network of smaller 
        hospitals and critical access hospitals.
          ``(iii) Medicare beneficiaries would have difficulty in 
        accessing care if the hospital were to close as the hospital 
        provides significant subsidies to support ambulatory care in 
        local clinics, including mental health clinics and to support 
        post acute care.
          ``(iv) The hospital has a committment to provide graduate 
        medical education in a rural area.
          ``(C) Quality care.--The hospital inpatient score for quality 
        of care is not less than the median hospital score for qualify 
        of care for hospitals in the State, as established under 
        standards of the utilization and quality control peer review 
        organization under part B of title XI or other quality 
        standards recognized by the Secretary.
A hospital classified as an essential rural hospital may not change 
such classification and a hospital so classified shall not be treated 
as a sole community hospital, medicare dependent hospital, or rural 
referral center for purposes of section 1886.''.
  (b) Payment Based on 102 Percent of Allowed Costs.--
          (1) Inpatient hospital services.--Section 1886(d) (42 U.S.C. 
        1395ww(d)) is amended by adding at the end the following:
  ``(11) In the case of a hospital classified as an essential rural 
hospital under section 1861(mm)(4) for a cost reporting period, the 
payment under this subsection for inpatient hospital services for 
discharges occurring during the period shall be based on 102 percent of 
the reasonable costs for such services. Nothing in this paragraph shall 
be construed as affecting the application or amount of deductibles or 
copayments otherwise applicable to such services under part A or as 
waiving any requirement for billing for such services.''.
          (2) Hospital outpatient services.--Section 1833(t)(13) (42 
        U.S.C. 1395l(t)(13)) is amended by adding at the end the 
        following new subparagraph:
                  ``(B) Special rule for essential rural hospitals.--In 
                the case of a hospital classified as an essential rural 
                hospital under section 1861(mm)(4) for a cost reporting 
                period, the payment under this subsection for covered 
                OPD services during the period shall be based on 102 
                percent of the reasonable costs for such services. 
                Nothing in this subparagraph shall be construed as 
                affecting the application or amount of deductibles or 
                copayments otherwise applicable to such services under 
                this part or as waiving any requirement for billing for 
                such services.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to cost reporting periods beginning on or after October 1, 2004.

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

  (a) More Frequent Updates in Weights.--After revising the weights 
used in the hospital market basket under section 1886(b)(3)(B)(iii) of 
the Social Security Act (42 U.S.C. 1395ww(b)(3)(B)(iii)) to reflect the 
most current data available, the Secretary shall establish a frequency 
for revising such weights, including the labor share, in such market 
basket to reflect the most current data available more frequently than 
once every 5 years.
  (b) Report.--Not later than October 1, 2004, 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. 405. IMPROVEMENTS TO CRITICAL ACCESS HOSPITAL PROGRAM.

  (a) Increase in Payment Amounts.--
          (1) In general.--Sections 1814(l), 1834(g)(1), and 1883(a)(3) 
        (42 U.S.C. 1395f(l); 1395m(g)(1); 42 U.S.C. 1395tt(a)(3)) are 
        each amended by inserting ``equal to 102 percent of'' before 
        ``the reasonable costs''.
          (2) Effective date.--The amendments made by paragraph (1) 
        shall apply to payments for services furnished during cost 
        reporting periods beginning on or after October 1, 2003.
  (b) Coverage of Costs for Certain Emergency Room On-Call Providers.--
          (1) In general.--Section 1834(g)(5) (42 U.S.C. 1395m(g)(5)) 
        is amended--
                  (A) in the heading--
                          (i) by inserting ``certain'' before 
                        ``emergency''; and
                          (ii) by striking ``physicians'' and inserting 
                        ``providers'';
                  (B) by striking ``emergency room physicians who are 
                on-call (as defined by the Secretary)'' and inserting 
                ``physicians, physician assistants, nurse 
                practitioners, and clinical nurse specialists who are 
                on-call (as defined by the Secretary) to provide 
                emergency services''; and
                  (C) by striking ``physicians' services'' and 
                inserting ``services covered under this title''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall apply with respect to costs incurred for services 
        provided on or after January 1, 2004.
  (c) Modification of the Isolation Test for Cost-Based CAH Ambulance 
Services.--
          (1) In general.--Section 1834(l)(8) (42 U.S.C. 1395m(l)), as 
        added by section 205(a) of BIPA (114 Stat. 2763A-482), is 
        amended by adding at the end the following: ``The limitation 
        described in the matter following subparagraph (B) in the 
        previous sentence shall not apply if the ambulance services are 
        furnished by such a provider or supplier of ambulance services 
        who is a first responder to emergencies (as determined by the 
        Secretary).''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to ambulances services furnished on or after the 
        first cost reporting period that begins after the date of the 
        enactment of this Act.
  (d) Reinstatement of Periodic Interim Payment (PIP).--
          (1) In general.--Section 1815(e)(2) (42 U.S.C. 1395g(e)(2)) 
        is amended--
                  (A) in the matter before subparagraph (A), by 
                inserting ``, in the cases described in subparagraphs 
                (A) through (D)'' after ``1986''; and
                  (B) by striking ``and'' at the end of subparagraph 
                (C);
                  (C) by adding ``and'' at the end of subparagraph (D); 
                and
                  (D) by inserting after subparagraph (D) the following 
                new subparagraph:
          ``(E) inpatient critical access hospital services;''.
          (2) Development of alternative methods of periodic interim 
        payments.--With respect to periodic interim payments to 
        critical access hospitals for inpatient critical access 
        hospital services under section 1815(e)(2)(E) of the Social 
        Security Act, as added by paragraph (1), the Secretary shall 
        develop alternative methods for such payments that are based on 
        expenditures of the hospital.
          (3) Reinstatement of pip.--The amendments made by paragraph 
        (1) shall apply to payments made on or after January 1, 2004.
  (e) Condition for Application of Special Physician Payment 
Adjustment.--
          (1) In general.--Section 1834(g)(2) (42 U.S.C. 1395m(g)(2)) 
        is amended by adding after and below subparagraph (B) the 
        following:
        ``The Secretary may not require, as a condition for applying 
        subparagraph (B) with respect to a critical access hospital, 
        that each physician 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.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        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).
  (f) 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).''.
          (4) Effective date.--The amendments made by this subsection 
        shall apply to designations made before, on, or after January 
        1, 2004.
  (g) Additional 5-Year Period of Funding for Grant Program.--
          (1) In general.--Section 1820(g) (42 U.S.C. 1395i-4(g)) is 
        amended by adding at the end the following new paragraph:
          ``(4) Funding.--
                  ``(A) In general.--Subject to subparagraph (B), 
                payment for grants made under this subsection during 
                fiscal years 2004 through 2008 shall be made from the 
                Federal Hospital Insurance Trust Fund.
                  ``(B) Annual aggregate limitation.--In no case may 
                the amount of payment provided for under subparagraph 
                (A) for a fiscal year exceed $25,000,000.''.
          (2) Conforming amendment.--Section 1820 (42 U.S.C. 1395i-4) 
        is amended by striking subsection (j).

SEC. 406. 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, 2004, 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, 
                                2002.
                                  ``(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, 2003.
                                  ``(V) Affiliation.--With respect to 
                                hospitals which are members of the same 
                                affiliated group (as defined by the 
                                Secretary under subparagraph (H)(ii)), 
                                the provisions of this section shall be 
                                applied with respect to such an 
                                affiliated group by deeming the 
                                affiliated group to be a single 
                                hospital.
                          ``(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, 2004, 
                                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, 2005.
                                  ``(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) Conforming Amendment 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 subparagraph (I) of subsection (h)(4) shall apply 
with respect to the first sentece of this clause in the same manner as 
it applies with respect to subparagraph (F) of such subsection.''.
  (c) Report on Extension of Applications Under Redistribution 
Program.--Not later than July 1, 2005, the Secretary shall submit to 
Congress a report containing recommendations regarding whether to 
extend the deadline for applications for an increase in resident limits 
under section 1886(h)(4)(I)(ii)(II) of the Social Security Act (as 
added by subsection (a)).

SEC. 407. TWO-YEAR EXTENSION OF HOLD HARMLESS PROVISIONS FOR SMALL 
                    RURAL HOSPITALS AND SOLE COMMUNITY HOSPITALS UNDER 
                    PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL OUTPATIENT 
                    DEPARTMENT SERVICES.

  (a) Hold Harmless Provisions.--
          (1) In general.--Section 1833(t)(7)(D)(i) (42 U.S.C. 
        1395l(t)(7)(D)(i)) is amended--
                  (A) in the heading, by striking ``small'' and 
                inserting ``certain'';
                  (B) by inserting ``or a sole community hospital (as 
                defined in section 1886(d)(5)(D)(iii)) located in a 
                rural area'' after ``100 beds''; and
                  (C) by striking ``2004'' and inserting ``2006''.
          (2) Effective date.--The amendment made by subsection (a)(2) 
        shall apply with respect to payment for OPD services furnished 
        on and after January 1, 2004.
  (b) Study; Adjustment.--
          (1) Study.--The Secretary shall conduct a study to determine 
        if, under the prospective payment system for hospital 
        outpatient department services under section 1833(t) of the 
        Social Security Act (42 U.S.C. 1395l(t)), costs incurred by 
        rural providers of services by ambulatory payment 
        classification groups (APCs) exceed those costs incurred by 
        urban providers of services.
          (2) Adjustment.--Insofar as the Secretary determines under 
        paragraph (1) that costs incurred by rural providers exceed 
        those costs incurred by urban providers of services, the 
        Secretary shall provide for an appropriate adjustment under 
        such section 1833(t) to reflect those higher costs by January 
        1, 2005.

SEC. 408. EXCLUSION OF CERTAIN RURAL HEALTH CLINIC AND FEDERALLY 
                    QUALIFIED HEALTH CENTER SERVICES FROM THE 
                    PROSPECTIVE PAYMENT SYSTEM FOR SKILLED NURSING 
                    FACILITIES.

  (a) In General.--Section 1888(e)(2)(A) (42 U.S.C. 1395yy(e)(2)(A)) is 
amended--
          (1) in clause (i)(II), by striking ``clauses (ii) and (iii)'' 
        and inserting ``clauses (ii), (iii), and (iv)''; and
          (2) by adding at the end the following new clause:
                          ``(iv) Exclusion of certain rural health 
                        clinic and federally qualified health center 
                        services.--Services described in this clause 
                        are--
                                  ``(I) rural health clinic services 
                                (as defined in paragraph (1) of section 
                                1861(aa)); and
                                  ``(II) Federally qualified health 
                                center services (as defined in 
                                paragraph (3) of such section);
                        that would be described in clause (ii) if such 
                        services were not furnished by an individual 
                        affiliated with a rural health clinic or a 
                        Federally qualified health center.''.
  (b) Effective Date.--The amendments made by subsection (a) shall 
apply to services furnished on or after January 1, 2004.

SEC. 409. RECOGNITION OF ATTENDING NURSE PRACTITIONERS AS ATTENDING 
                    PHYSICIANS TO SERVE HOSPICE PATIENTS.

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

SEC. 410. IMPROVEMENT IN PAYMENTS TO RETAIN EMERGENCY CAPACITY FOR 
                    AMBULANCE SERVICES IN RURAL AREAS.

  Section 1834(l) (42 U.S.C. 1395m(l)) is amended--
          (1) by redesignating paragraph (8), as added by section 
        221(a) of BIPA (114 Stat. 2763A-486), as paragraph (9); and
          (2) by adding at the end the following new paragraph:
          ``(10) Assistance for rural providers furnishing services in 
        low medicare population density areas.--
                  ``(A) In general.--In the case of ground ambulance 
                services furnished on or after January 1, 2004, for 
                which the transportation originates in a qualified 
                rural area (as defined in subparagraph (B)), the 
                Secretary shall provide for an increase in the base 
                rate of the fee schedule for mileage for a trip 
                established under this subsection. In establishing such 
                increase, the Secretary shall, based on the 
                relationship of cost and volume, estimate the average 
                increase in cost per trip for such services as compared 
                with the cost per trip for the average ambulance 
                service.
                  ``(B) Qualified rural area defined.--For purposes of 
                subparagraph (A), the term `qualified rural area' is a 
                rural area (as defined in section 1886(d)(2)(D)) with a 
                population density of medicare beneficiaries residing 
                in the area that is in the lowest quartile of all rural 
                county populations.''.

SEC. 411. TWO-YEAR INCREASE FOR HOME HEALTH SERVICES FURNISHED IN A 
                    RURAL AREA.

  (a) In General.--In the case of home health services furnished in a 
rural area (as defined in section 1886(d)(2)(D) of the Social Security 
Act (42 U.S.C. 1395ww(d)(2)(D))) during 2004 and 2005, the Secretary 
shall increase the payment amount otherwise made under section 1895 of 
such Act (42 U.S.C. 1395fff ) for such services by 5 percent.
  (b) Waiving Budget Neutrality.--The Secretary shall not reduce the 
standard prospective payment amount (or amounts) under section 1895 of 
the Social Security Act (42 U.S.C. 1395fff ) applicable to home health 
services furnished during a period to offset the increase in payments 
resulting from the application of subsection (a).

SEC. 412. 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. 413. 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. 414. TREATMENT OF MISSING COST REPORTING PERIODS FOR SOLE 
                    COMMUNITY HOSPITALS.

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

SEC. 415. EXTENSION OF TELEMEDICINE DEMONSTRATION PROJECT.

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

SEC. 416. ADJUSTMENT TO THE MEDICARE INPATIENT HOSPITAL PPS WAGE INDEX 
                    TO REVISE THE LABOR-RELATED SHARE OF SUCH INDEX.

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

SEC. 417. MEDICARE INCENTIVE PAYMENT PROGRAM IMPROVEMENTS FOR PHYSICIAN 
                    SCARCITY.

  (a) Additional Bonus Payment for Certain Physician Scarcity Areas.--
          (1) In general.--Section 1833 (42 U.S.C. 1395l) is amended by 
        adding at the end the following new subsection:
  ``(u) Incentive Payments for Physician Scarcity Areas.--
          ``(1) In general.--In the case of physicians' services 
        furnished in a year--
                  ``(A) by a primary care physician in a primary care 
                scarcity county (identified under paragraph (4)); or
                  ``(B) by a physician who is not a primary care 
                physician in a specialist care scarcity county (as so 
                identified),
        in addition to the amount of payment that would otherwise be 
        made for such services under this part, there also shall be 
        paid an amount equal to 5 percent of the payment amount for the 
        service under this part.
          ``(2) Determination of ratios of physicians to medicare 
        beneficiaries in area.--Based upon available data, the 
        Secretary shall periodically determine, for each county or 
        equivalent area in the United States, the following:
                  ``(A) Number of physicians practicing in the area.--
                The number of physicians who furnish physicians' 
                services in the active practice of medicine or 
                osteopathy in that county or area, other than 
                physicians whose practice is exclusively for the 
                Federal Government, physicians who are retired, or 
                physicians who only provide administrative services. Of 
                such number, the number of such physicians who are--
                          ``(i) primary care physicians; or
                          ``(ii) physicians who are not primary care 
                        physicians.
                  ``(B) Number of medicare beneficiaries residing in 
                the area.--The number of individuals who are residing 
                in the county and are entitled to benefits under part A 
                or enrolled under this part, or both.
                  ``(C) Determination of ratios.--
                          ``(i) Primary care ratio.--The ratio (in this 
                        paragraph referred to as the `primary care 
                        ratio') of the number of primary care 
                        physicians (determined under subparagraph 
                        (A)(i)), to number of medicare beneficiaries 
                        determined under subparagraph (B).
                          ``(ii) Specialist care ratio.--The ratio (in 
                        this paragraph referred to as the `specialist 
                        care ratio') of the number of other physicians 
                        (determined under subparagraph (A)(ii)), to 
                        number of medicare beneficiaries determined 
                        under subparagraph (B).
          ``(3) Ranking of counties.--The Secretary shall rank each 
        such county or area based separately on its primary care ratio 
        and its specialist care ratio.
          ``(4) Identification of counties.--The Secretary shall 
        identify--
                  ``(A) those counties and areas (in this paragraph 
                referred to as `primary care scarcity counties') with 
                the lowest primary care ratios that represent, if each 
                such county or area were weighted by the number of 
                medicare beneficiaries determined under paragraph 
                (2)(B), an aggregate total of 20 percent of the total 
                of the medicare beneficiaries determined under such 
                paragraph; and
                  ``(B) those counties and areas (in this subsection 
                referred to as `specialist care scarcity counties') 
                with the lowest specialist care ratios that represent, 
                if each such county or area were weighted by the number 
                of medicare beneficiaries determined under paragraph 
                (2)(B), an aggregate total of 20 percent of the total 
                of the medicare beneficiaries determined under such 
                paragraph.
        There is no administrative or judicial review respecting the 
        identification of a county or area or the assignment of a 
        specialty of any physician under this paragraph.
          ``(5) Rural census tracks.--To the extent feasible, the 
        Secretary shall treat a rural census tract of a metropolitan 
        statistical area (as determined under the most recent 
        modification of the Goldsmith Modification, originally 
        published in the Federal Register on February 27, 1992 (57 Fed. 
        Reg. 6725) as an equivalent area for purposes of qualifying as 
        a primary care scarcity county or specialist care scarcity 
        county under this subsection.
          ``(6) Physician Defined.--For purposes of this paragraph, the 
        term `physician' means a physician described in section 
        1861(r)(1) and the term `primary care physician' means a 
        physician who is identified in the available data as a general 
        practitioner, family practice practitioner, general internist, 
        or obstetrician or gynecologist.
          ``(7) Publication of list of counties.--In carrying out this 
        subsection for a year, the Secretary shall include, as part of 
        the proposed and final rule to implement the physician fee 
        schedule under section 1848 for the year, a list of all areas 
        which will qualify as a primary care scarcity county or 
        specialist care scarcity county under this subsection for the 
        year involved.''.
          (2) Effective date.--The amendments made by subsection (a) 
        shall apply to physicians' services furnished or after January 
        1, 2004.
  (b) Improvement to Medicare Incentive Payment Program.--
          (1) In general.--Section 1833(m) (42 U.S.C. 1395l(m)) is 
        amended--
                  (A) by inserting ``(1)'' after ``(m)''; and
                  (B) by adding at the end the following new 
                paragraphs:
  ``(2) The Secretary shall establish procedures under which the 
Secretary, and not the physician furnishing the service, is responsible 
for determining when a payment is required to be made under paragraph 
(1).
  ``(3) In carrying out paragraph (1) for a year, the Secretary shall 
include, as part of the proposed and final rule to implement the 
physician fee schedule under section 1848 for the year, a list of all 
areas which will qualify as a health professional shortage area under 
paragraph (1) for the year involved.''.
          (2) Effective date.--The amendments made by paragraph (1) 
        shall apply to physicians' services furnished or after January 
        1, 2004.

                 TITLE V--PROVISIONS RELATING TO PART A

                Subtitle A--Inpatient Hospital Services

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

  Section 1886(b)(3)(B)(i) (42 U.S.C. 1395ww(b)(3)(B)(i)) is amended--
          (1) by striking ``and'' at the end of subclause (XVIII);
          (2) by striking subclause (XIX); and
          (3) by inserting after subclause (XVIII) the following new 
        subclauses:
          ``(XIX) for each of fiscal years 2004 through 2006, the 
        market basket percentage increase minus 0.4 percentage points 
        for hospitals in all areas; and
          ``(XX) for fiscal year 2007 and each subsequent fiscal year, 
        the market basket percentage increase for hospitals in all 
        areas.''.

SEC. 502. 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 for Technology Outliers.--
          (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 
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 75 
        percent of 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 
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. Nothing in this subclause shall be construed as effecting the 
authority of the Secretary to determine whether items and services are 
medically necessary and appropriate under section 1862(a)(1).''.
          (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, the new technology would no 
longer meet the threshold of exceeding 75 percent of the standard 
deviation for the diagnosis-related group involved under clause 
(ii)(I). 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) Establishment of New Funding for Hospital Inpatient Technology.--
Section 1886(d)(5)(K)(ii)(III) (42 U.S.C. 1395ww(d)(5)(K)(ii)(III)) is 
amended by striking ``subject to paragraph (4)(C)(iii),''.
  (f) Effective Date.--
          (1) In general.--The Secretary shall implement the amendments 
        made by this section so that they apply to classification for 
        fiscal years beginning with fiscal year 2005.
          (2) Reconsiderations of applications for fiscal year 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 2004 and that is denied--
                  (A) the Secretary shall automatically reconsider the 
                application as an application for fiscal year 2005 
                under the amendments made by this section; and
                  (B) the maximum time period otherwise permitted for 
                such classification of the service or technology shall 
                be extended by 12 months.

SEC. 503. INCREASE IN FEDERAL RATE FOR HOSPITALS IN PUERTO RICO.

  Section 1886(d)(9) (42 U.S.C. 1395ww(d)(9)) is amended--
          (1) in subparagraph (A)--
                  (A) in clause (i), by striking ``for discharges 
                beginning on or after October 1, 1997, 50 percent (and 
                for discharges between October 1, 1987, and September 
                30, 1997, 75 percent)'' and inserting ``the applicable 
                Puerto Rico percentage (specified in subparagraph 
                (E))''; and
                  (B) in clause (ii), by striking ``for discharges 
                beginning in a fiscal year beginning on or after 
                October 1, 1997, 50 percent (and for discharges between 
                October 1, 1987, and September 30, 1997, 25 percent)'' 
                and inserting ``the applicable Federal percentage 
                (specified in subparagraph (E))''; and
          (2) by adding at the end the following new subparagraph:
  ``(E) For purposes of subparagraph (A), for discharges occurring--
          ``(i) on or after October 1, 1987, and before October 1, 
        1997, the applicable Puerto Rico percentage is 75 percent and 
        the applicable Federal percentage is 25 percent;
          ``(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 41 percent and the applicable Federal percentage 
        is 59 percent;
          ``(iv) during fiscal year 2005, the applicable Puerto Rico 
        percentage is 33 percent and the applicable Federal percentage 
        is 67 percent; and
          ``(v) on or after October 1, 2005, the applicable Puerto Rico 
        percentage is 25 percent and the applicable Federal percentage 
        is 75 percent.''.

SEC. 504. WAGE INDEX ADJUSTMENT RECLASSIFICATION REFORM .

  (a) In General.--Section 1886(d) (42 U.S.C. 1395ww(d)) is amended by 
adding at the end the following:
  ``(11)(A) In order to recognize commuting patterns among Metropolitan 
Statistical Areas and between such Areas and rural areas, the Secretary 
shall establish a process, upon application of a subsection (d) 
hospital that establishes that it is a qualifying hospital described in 
subparagraph (B), for an increase of the wage index applied under 
paragraph (3)(E) for the hospital in the amount computed under 
subparagraph (D).
  ``(B) A qualifying hospital described in this subparagraph is a 
subsection (d) hospital--
          ``(i) the average wages of which exceed the average wages for 
        the area in which the hospital is located; and
          ``(ii) which has at least 10 percent of its employees who 
        reside in one or more higher wage index areas.
  ``(C) For purposes of this paragraph, the term `higher wage index 
area' means, with respect to a hospital, an area with a wage index that 
exceeds that of the area in which the hospital is located.
  ``(D) The increase in the wage index under subparagraph (A) for a 
hospital shall be equal to the percentage of the employees of the 
hospital that resides in any higher wage index area multiplied by the 
sum of the products, for each higher wage index area of--
          ``(i) the difference between (I) the wage index for such 
        area, and (II) the wage index of the area in which the hospital 
        is located (before the application of this paragraph); and
          ``(ii) the number of employees of the hospital that reside in 
        such higher wage index area divided by the total number of such 
        employees that reside in all high wage index areas.
  ``(E) The process under this paragraph shall be based upon the 
process used by the Medicare Geographic Classification Review Board 
under paragraph (10) with respect to data submitted by hospitals to the 
Board on the location of residence of hospital employees and wages 
under the applicable schedule established for geographic 
reclassification.
  ``(F) A reclassification under this paragraph shall be effective for 
a period of 3 fiscal years, except that the Secretary shall establish 
procedures under which a subsection (d) hospital may elect to terminate 
such reclassification before the end of such period.
  ``(G) A hospital that is reclassified under this paragraph for a 
period is not eligible for reclassification under paragraphs (8) or 
(10) during that period.
  ``(H) Any increase in a wage index under this paragraph for a 
hospital shall not be taken into account for purposes of--
          ``(i) computing the wage index for the area in which the 
        hospital is located or any other area; or
          ``(ii) applying any budget neutrality adjustment with respect 
        to such index under paragraph (8)(D).''.
  (b) Effective Date.--The amendment made by subsection (a) shall first 
apply to the wage index for cost reporting period beginning on or after 
October 1, 2004.

SEC. 505. MEDPAC REPORT ON SPECIALTY HOSPITALS.

  (a) MedPAC Study.--The Medicare Payment Advisory Commission shall 
conduct a study of specialty hospitals compared with other similar 
general acute care hospitals under the medicare program. Such study 
shall examine--
          (1) whether there are excessive self-referrals;
          (2) quality of care furnished;
          (3) the impact of specialty hospitals on such general acute 
        care hospitals; and
          (4) differences in the scope of services, medicaid 
        utilization, and uncompensated care furnished.
  (b) Report.--Not later than 1 year after the date of the enactment of 
this Act, the Secretary shall submit to Congress a report on the study 
conducted under subsection (a), and shall include any recommendations 
for legislation or administrative change as the Secretary determines 
appropriate.

                      Subtitle B--Other Provisions

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

  (a) Adjustment to RUGs for AIDS Residents.--Paragraph (12) of section 
1888(e) (42 U.S.C. 1395yy(e)) is amended to read as follows:
          ``(12) Adjustment for residents with aids.--
                  ``(A) In general.--Subject to subparagraph (B), in 
                the case of a resident of a skilled nursing facility 
                who is afflicted with acquired immune deficiency 
                syndrome (AIDS), the per diem amount of payment 
                otherwise applicable shall be increased by 128 percent 
                to reflect increased costs associated with such 
                residents.
                  ``(B) Sunset.--Subparagraph (A) shall not apply on 
                and after such date as the Secretary certifies that 
                there is an appropriate adjustment in the case mix 
                under paragraph (4)(G)(i) to compensate for the 
                increased costs associated with residents described in 
                such subparagraph.''.
  (b) Effective Date.--The amendment made by paragraph (1) shall apply 
to services furnished on or after October 1, 2003.

SEC. 512. COVERAGE OF HOSPICE CONSULTATION SERVICES.

  (a) Coverage of Hospice Consultation Services.--Section 1812(a) (42 
U.S.C. 1395d(a)) is amended--
          (1) by striking ``and'' at the end of paragraph (3);
          (2) by striking the period at the end of paragraph (4) and 
        inserting ``; and''; and
          (3) by inserting after paragraph (4) the following new 
        paragraph:
          ``(5) for individuals who are terminally ill, have not made 
        an election under subsection (d)(1), and have not previously 
        received services under this paragraph, services that are 
        furnished by a physician 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.

                TITLE VI--PROVISIONS RELATING TO PART B

                    Subtitle A--Physicians' Services

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

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

SEC. 602. 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.
  (c) 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, 2004, the Comptroller 
        General shall submit to Congress a report on the study 
        conducted under paragraph (1).

SEC. 603. MEDPAC REPORT ON PAYMENT FOR PHYSICIANS' SERVICES.

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

                    Subtitle B--Preventive Services

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

  (a) Coverage.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)) is 
amended--
          (1) in subparagraph (U), by striking ``and'' at the end;
          (2) in subparagraph (V), 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. 612. COVERAGE OF CHOLESTEROL AND BLOOD LIPID SCREENING.

  (a) Coverage.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), as amended 
by section 611(a), is amended--
          (1) in subparagraph (V), 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 611(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 611(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, 2005.

SEC. 613. WAIVER OF DEDUCTIBLE FOR COLORECTAL CANCER SCREENING TESTS.

  (a) In General.--The first sentence of section 1833(b) (42 U.S.C. 
1395l(b)), as amended by section 611(c)(1), is amended--
          (1) by striking ``and'' before ``(7)''; and
          (2) by inserting before the period at the end the following: 
        ``, and (8) such deductible shall not apply with respect to 
        colorectal cancer screening tests (as described in section 
        1861(pp)(1))''.
  (b) Conforming Amendments.--Paragraphs (2)(C)(ii) and (3)(C)(ii) of 
section 1834(d) (42 U.S.C. 1395m(d)) are each amended--
          (1) by striking ``deductible and'' in the heading; and
          (2) in subclause (I), by striking ``deductible or'' each 
        place it appears.
  (c) Effective Date.--The amendment made by this section shall apply 
to items and services furnished on or after Janaury 1, 2004.

SEC. 614. IMPROVED PAYMENT FOR CERTAIN MAMMOGRAPHY SERVICES.

  (a) Exclusion from OPD Fee Schedule.--Section 1833(t)(1)(B)(iv) (42 
U.S.C. 1395l(t)(1)(B)(iv)) is amended by inserting before the period at 
the end the following: ``and does not include screening mammography (as 
defined in section 1861(jj)) and 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.

                       Subtitle C--Other Services

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

  (a) Payment for Drugs.--
          (1) Modification of ambulatory payment classification (apc) 
        groups.--Section 1833(t) (42 U.S.C. 1395l(t)) is amended--
                  (A) by redesignating paragraph (13) as paragraph 
                (14); and
                  (B) by inserting after paragraph (12) the following 
                new paragraph:
          ``(13) Drug apc payment rates.--
                  ``(A) In general.--With respect to payment for 
                covered OPD services that includes a specified covered 
                outpatient drug (defined in subparagraph (B)), the 
                amount provided for payment for such drug under the 
                payment system under this subsection for services 
                furnished in--
                          ``(i) 2004, 2005, or 2006, shall in no case--
                                  ``(I) exceed 95 percent of the 
                                average wholesale price for the drug; 
                                or
                                  ``(II) be less than the transition 
                                percentage (under subparagraph (C)) of 
                                the average wholesale price for the 
                                drug; or
                          ``(ii) a subsequent year, shall be equal to 
                        the average price for the drug for that area 
                        and year established under the competitive 
                        acquisition program under section 1847A as 
                        calculated and applied by the Secretary for 
                        purposes of this paragraph.
                  ``(B) Specified covered outpatient drug defined.--
                          ``(i) In general.--In this paragraph, the 
                        term `specified covered outpatient drug' means, 
                        subject to clause (ii), a covered outpatient 
                        drug (as defined in 1927(k)(2), that is--
                                  ``(I) a radiopharmaceutical; or
                                  ``(II) a drug or biological for which 
                                payment was made under paragraph (6) 
                                (relating to pass-through payments) on 
                                or before December 31, 2002.
                          ``(ii) Exception.--Such term does not 
                        include--
                                  ``(I) a drug for which payment is 
                                first made on or after January 1, 2003, 
                                under paragraph (6); or
                                  ``(II) a drug for a which a temporary 
                                HCPCS code has not been assigned.
                  ``(C) Transition towards historical average 
                acquisition cost.--The transition percentage under this 
                subparagraph for drugs furnished in a year is 
                determined in accordance with the following table:



                                                                        The transition percentage for--

                        For the year--                                             Innovator
                                                                Single source   multiple source   Generic drugs
                                                                 drugs are--      drugs are--         are--

2004.........................................................              83%            81.5%              46%
2005.........................................................              77%              75%              46%
2006.........................................................              71%              68%              46%


                  ``(D) Payment for new drugs until temporary hcpcs 
                code assigned.--With respect to payment for covered OPD 
                services that includes a covered outpatient drug (as 
                defined in 1927(k)) for a which a temporary HCPCS code 
                has not been assigned, the amount provided for payment 
                for such drug under the payment system under this 
                subsection shall be equal to 95 percent of the average 
                wholesale price for the drug.
                  ``(E) Classes of drugs.--For purposes of this 
                paragraph, each of the following shall be treated as a 
                separate class of drugs:
                          ``(i) Sole source drugs.--A sole source drug 
                        which for purposes of this paragraph means a 
                        drug or biological that is not a multiple 
                        source drug (as defined in subclauses (I) and 
                        (II) of section 1927(k)(7)(A)(i)) and is not a 
                        drug approved under an abbreviated new drug 
                        application under section 355(j) of the Federal 
                        Food, Drug, and Cosmetic Act.
                          ``(ii) Innovator multiple source drugs.--
                        Innovator multiple source drugs (as defined in 
                        section 1927(k)(7)(A)(ii)).
                          ``(iii) Noninnovator multiple source drugs.--
                        Noninnovator multiple source drugs (as defined 
                        in section 1927(k)(7)(A)(iii)).
                  ``(F) Inapplicability of expenditures in determining 
                conversion factors.--Additional expenditures resulting 
                from this paragraph and paragraph (14)(C) in a year 
                shall not be taken into account in establishing the 
                conversion factor for that year.''.
          (2) Reduction in threshold for separate apcs for drugs.--
        Section 1833(t)(14), as redesignated by paragraph (1)(A), is 
        amended by adding at the end the following new subparagraph:
                  ``(B) Threshold for establishment of separate apcs 
                for drugs.--The Secretary shall reduce the threshold 
                for the establishment of separate ambulatory procedure 
                classification groups (APCs) with respect to drugs to 
                $50 per administration.''.
          (3) Exclusion of separate drug apcs from outlier payments.--
        Section 1833(t)(5) is amended by adding at the end the 
        following new subparagraph:
                  ``(E) Exclusion of separate drug apcs from outlier 
                payments.--No additional payment shall be made under 
                subparagraph (A) in the case of ambulatory procedure 
                codes established separately for drugs.''.
          (4) Payment for pass through drugs.--Clause (i) of section 
        1833(t)(6)(D) (42 U.S.C. 1395l(t)(6)(D)) is amended by 
        inserting after ``under section 1842(o)'' the following: ``(or 
        if the drug is covered under a competitive acquisition contract 
        under section 1847A for an area, an amount determined by the 
        Secretary equal to the average price for the drug for that area 
        and year established under such section as calculated and 
        applied by the Secretary for purposes of this paragraph)''.
          (5) Effective date.--The amendments made by this subsection 
        shall apply to services furnished on or after January 1, 2004.
  (b) Special Payment for Brachytherapy.--
          (1) In general.--Section 1833(t)(14), as so redesignated and 
        amended by subsection (a)(2), is amended by adding at the end 
        the following new subparagraph:
                  ``(C) Payment for devices of brachytherapy at charges 
                adjusted to cost.--Notwithstanding the preceding 
                provisions of this subsection, for a device of 
                brachytherapy furnished on or after January 1, 2004, 
                and before January 1, 2007, the payment basis for the 
                device under this subsection shall be equal to the 
                hospital's charges for each device furnished, adjusted 
                to cost.''.
          (2) Specification of groups for brachytherapy devices.--
        Section 1833(t)(2) (42 U.S.C. 1395l(t)(2) is amended--
                  (A) in subparagraph (F), by striking ``and'' at the 
                end;
                  (B) in subparagraph (G), by striking the period at 
                the end and inserting ``; and''; and
                  (C) by adding at the end the following new 
                subparagraph:
                  ``(H) with respect to devices of brachytherapy, the 
                Secretary shall create additional groups of covered OPD 
                services that classify such devices separately from the 
                other services (or group of services) paid for under 
                this subsection in a manner reflecting the number, 
                isotope, and radioactive intensity of such devices 
                furnished, including separate groups for palladium-103 
                and iodine-125 devices.''.
          (3) GAO report.--The Comptroller General of the United States 
        shall conduct a study to determine appropriate payment amounts 
        under section 1833(t)(13)(B) of the Social Security Act, as 
        added by paragraph (1), for devices of brachytherapy. Not later 
        than January 1, 2005, the Comptroller General shall submit to 
        Congress and the Secretary a report on the study conducted 
        under this paragraph, and shall include specific 
        recommendations for appropriate payments for such devices.
  (c) Application of Functional Equivalence Test.--
          (1) In general.--Section 1833(t)(6) (42 U.S.C. 1395l(t)(6)) 
        is amended by adding at the end the following new subparagraph:
                  ``(F) Limitation on application of functional 
                equivalence standard.--The Secretary may not apply a 
                `functional equivalence' payment standard (including 
                such standard promulgated on November 1, 2002) or any 
                other similar standard in order to deem a particular 
                drug or biological to be identical to or similar to 
                another drug or biological with respect to its 
                mechanism of action or clinical effect to deny pass-
                through status to new drugs or biologics or to remove 
                such status of an existing eligible drug or biologic 
                under this paragraph unless--
                          ``(i) the Secretary develops by regulation 
                        (after providing notice and a period for public 
                        comment) criteria for the application of such 
                        standard; and
                          ``(ii) such criteria provide for coordination 
                        with the Federal Food and Drug Administration 
                        and require scientific studies that show the 
                        clinical relationship between the drugs or 
                        biologicals treated as functionally 
                        equivalent.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to the application of a functional equivalence 
        standard to a drug or biological on or after the date of the 
        enactment of this Act, unless such application was being made 
        to such drug or biological prior to June 13, 2003.
  (d) Hospital Acquisition Cost Study.--
          (1) In general.--The Secretary shall conduct a study on the 
        costs incurred by hospitals in acquiring covered outpatient 
        drugs for which payment is made under section 1833(t) of the 
        Social Security Act (42 U.S.C. 1395l(t)).
          (2) Drugs covered.--The study in paragraph (1) shall not 
        include those drugs for which the acquisition costs is less 
        than $50 per administration.
          (3) Representative sample of hospitals.--In conducting the 
        study under paragraph (1), the Secretary shall collect data 
        from a statistically valid sample of hospitals with an urban/
        rural stratification.
          (4) Report.--Not later than January 1, 2006, the Secretary 
        shall submit to Congress a report on the study conducted under 
        paragraph (1), and shall include recommendations with respect 
        to the following:
                  (A) Whether the study should be repeated, and if so, 
                how frequently.
                  (B) Whether the study produced useful data on 
                hospital acquisition cost.
                  (C) Whether data produced in the study is appropriate 
                for use in making adjustments to payments for drugs and 
                biologicals under section 1847A of the Social Security 
                Act.
                  (D) Whether separate estimates can made of overhead 
                costs, including handing and administering costs for 
                drugs.

SEC. 622. 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)), as amended by 
section 410(a), is amended--
          (1) in paragraph (2)(E), by inserting ``consistent with 
        paragraph (11)'' after ``in an efficient and fair manner''; and
          (2) by adding at the end the following new paragraph:
          ``(11) 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, 
        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 2004, the blended rate shall be based 20 
                percent on the fee schedule under paragraph (1) and 80 
                percent on the regional fee schedule.
                  ``(B) For 2005, the blended rate shall be based 40 
                percent on the fee schedule under paragraph (1) and 60 
                percent on the regional fee schedule.
                  ``(C) For 2006, the blended rate shall be based 60 
                percent on the fee schedule under paragraph (1) and 40 
                percent on the regional fee schedule.
                  ``(D) For 2007, 2008, and 2009, the blended rate 
                shall be based 80 percent on the fee schedule under 
                paragraph (1) and 20 percent on the regional fee 
                schedule.
                  ``(E) For 2010 and each succeeding year, the blended 
                rate shall be based 100 percent on the fee schedule 
                under paragraph (1).
        For purposes of this paragraph, the Secretary shall establish a 
        regional fee schedule for each of the 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:
          ``(12) Adjustment in payment for certain long trips.--In the 
        case of ground ambulance services furnished on or after January 
        1, 2004, and before January 1, 2009, regardless of where the 
        transportation originates, the fee schedule established under 
        this subsection shall provide that, with respect to the payment 
        rate for mileage for a trip above 50 miles the per mile rate 
        otherwise established shall be increased by \1/4\ of the 
        payment per mile otherwise applicable to such miles.''.
  (c) GAO Report on Costs and Access.--Not later than December 31, 
2005, the Comptroller General of the United States shall submit to 
Congress an initial report on how costs differ among the types of 
ambulance providers and on access, supply, and quality of ambulance 
services in those regions and States that have a reduction in payment 
under the medicare ambulance fee schedule (under section 1834(l) of the 
Social Security Act, as amended by this section). Not later than 
December 31, 2007, the Comptroller General shall submit to Congress a 
final report on such access and supply.
  (d) Effective Date.--The amendments made by this section shall apply 
to ambulance services furnished on or after January 1, 2004.

SEC. 623. RENAL DIALYSIS SERVICES.

  (a) Demonstration of Alternative Delivery Models.--
          (1) Use of advisory board.--In carrying out the demonstration 
        project relating to improving care for people with end-stage 
        renal disease through alternative delivery models (as published 
        in the Federal Register of June 4, 2003), the Secretary shall 
        establish an advisory board comprised of representatives 
        described in paragraph (2) to provide advice and 
        recommendations with respect to the establishment and operation 
        of such demonstration project.
          (2) Representatives.--Representatives referred to in 
        paragraph (1) include representatives of the following:
                  (A) Patient organizations.
                  (B) Clinicians.
                  (C) The medicare payment advisory commission, 
                established under section 1805 of the Social Security 
                Act (42 U.S.C. 1395b-6).
                  (D) The National Kidney Foundation.
                  (E) The National Institute of Diabetes and Digestive 
                and Kidney Diseases of National Institutes of Health.
                  (F) End-stage renal disease networks.
                  (G) Medicare contractors to monitor quality of care.
                  (I) providers of services and renal dialysis 
                facilities furnishing end-stage renal disease services.
                  (J) Economists.
                  (K) Researchers.
  (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)), as amended by subsection 
        (b), is further amended by striking ``Until'' and inserting 
        ``Subject to section 422(a)(2) of the Medicare, Medicaid, and 
        SCHIP Benefits Improvement and Protection Act of 2000, and 
        until''.
  (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 1.6 percent.

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

  (a) 1-Year Moratorium on Therapy Caps.--Section 1833(g)(4) (42 U.S.C. 
1395l(g)(4)) is amended by striking ``and 2002'' and inserting ``2002, 
and 2004''.
  (b) Prompt Submission of Overdue Reports on Payment and Utilization 
of Outpatient Therapy Services.--Not later than December 31, 2003, 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.--
                  (A) Preliminary report.--Not later than July 1, 2004, 
                the Secretary shall submit to Congress a preliminary 
                report on the conditions and diseases identified under 
                paragraph (1).
                  (B) Final report.--Not later than September 1, 2004, 
                the Secretary shall submit to Congress a final report 
                on such conditions and diseases.
                  (C) Recommendations.--Not later than October 1, 2004, 
                the Secretary shall submit to Congress a recommendation 
                of criteria, with respect to such conditions and 
                disease, under which a waiver of the therapy caps would 
                apply.
  (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. 625. ADJUSTMENT TO PAYMENTS FOR SERVICES FURNISHED IN AMBULATORY 
                    SURGICAL CENTERS.

  Section 1833(i)(2)(C) (42 U.S.C. 1395l(i)(2)(C)) is amended in the 
last sentence by inserting ``and each of fiscal years 2004 through 
2008'' after ``In each of the fiscal years 1998 through 2002''.

SEC. 626. PAYMENT FOR CERTAIN SHOES AND INSERTS UNDER THE FEE SCHEDULE 
                    FOR ORTHOTICS AND PROSTHETICS.

  (a) In General.--Section 1833(o) (42 U.S.C. 1395l(o)) is amended--
          (1) in paragraph (1), by striking ``no more than the limits 
        established under paragraph (2)'' and inserting ``no more than 
        the amount of payment applicable under paragraph (2)''; and
          (2) in paragraph (2), to read as follows:
  ``(2)(A) Except as provided by the Secretary under subparagraphs (B) 
and (C), the amount of payment under this paragraph for custom molded 
shoes, extra depth shoes, and inserts shall be the amount determined 
for such items by the Secretary under section 1834(h).
  ``(B) The Secretary or a carrier may establish payment amounts for 
shoes and inserts that are lower than the amount established under 
section 1834(h) if the Secretary finds that shoes and inserts of an 
appropriate quality are readily available at or below the amount 
established under such section.
  ``(C) In accordance with procedures established by the Secretary, an 
individual entitled to benefits with respect to shoes described in 
section 1861(s)(12) may substitute modification of such shoes instead 
of obtaining one (or more, as specified by the Secretary) pair of 
inserts (other than the original pair of inserts with respect to such 
shoes). In such case, the Secretary shall substitute, for the payment 
amount established under section 1834(h), a payment amount that the 
Secretary estimates will assure that there is no net increase in 
expenditures under this subsection as a result of this subparagraph.''.
  (b) Conforming Amendments.--(1) Section 1834(h)(4)(C) (42 U.S.C. 
1395m(h)(4)(C)) is amended by inserting ``(and includes shoes described 
in section 1861(s)(12))'' after ``in section 1861(s)(9)''.
  (2) Section 1842(s)(2) (42 U.S.C. 1395u(s)(2)) is amended by striking 
subparagraph (C).
  (c) Effective Date.--The amendments made by this section shall apply 
to items furnished on or after January 1, 2004.

SEC. 627. 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, 2003, or 2004 and 
        who demonstrates to the Secretary before December 31, 2004, 
        that the individual is a covered beneficiary (as defined in 
        section 1072(5) of title 10, United States Code). The Secretary 
        of Health and Human Services shall consult with the Secretary 
        of Defense in identifying individuals described in the previous 
        sentence.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to premiums for months beginning with January 2004. 
        The Secretary of Health and Human Services shall establish a 
        method for providing rebates of premium penalties paid for 
        months on or after January 2004 for which a penalty does not 
        apply under such amendment but for which a penalty was 
        previously collected.
  (b) Medicare Part B Special Enrollment Period.--
          (1) In general.--In the case of any individual who, as of the 
        date of the enactment of this Act, is 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, 2004.
          (2) Coverage period.--In the case of an individual who 
        enrolls during the special enrollment period provided under 
        paragraph (1), the coverage period under part B of title XVIII 
        of the Social Security Act shall begin on the first day of the 
        month following the month in which the individual enrolls.

SEC. 628. PART B DEDUCTIBLE.

  Section 1833(b) (42 U.S.C. 1395l(b)) is amended--
          (1) by striking ``1991 and'' and inserting ``1991,''; and
          (2) by striking ``and subsequent years'' and inserting ``and 
        each subsequent year through 2003, and for a subsequent year 
        after 2003 the amount of such deductible for the previous year 
        increased by the annual percentage increase in the monthly 
        actuarial rate under section 1839(a)(1) ending with such 
        subsequent year (rounded to the nearest $1)''.

SEC. 629. EXTENSION OF COVERAGE OF INTRAVENOUS IMMUNE GLOBULIN (IVIG) 
                    FOR THE TREATMENT OF PRIMARY IMMUNE DEFICIENCY 
                    DISEASES IN THE HOME.

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

                     ``Intravenous Immune Globulin

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

            TITLE VII--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

SEC. 701. UPDATE IN HOME HEALTH SERVICES.

  (a) Change to Calender 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 fiscal year 2003 and for each 
                        subsequent year (beginning with 2004)''; and
                          (ii) by inserting ``or year'' after ``the 
                        fiscal year'';
                  (B) in paragraph (3)(B)(ii)(II), by striking ``any 
                subsequent fiscal year'' and inserting ``2004 and any 
                subsequent year'';
                  (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, 2003, 
        shall be such amount (or amounts) for the previous calendar 
        quarter.
  (b) Changes in Updates for 2004, 2005, and 2006.--Section 
1895(b)(3)(B)(ii) (42 U.S.C. 1395fff(b)(3)(B)(ii)), as amended by 
subsection (a)(1)(B), is amended--
          (1) by striking ``or'' at the end of subclause (I);
          (2) by redesignating subclause (II) as subclause (III);
          (3) in subclause (III), as so redesignated, by striking 
        ``2004'' and inserting ``2007''; and
          (4) by inserting after subclause (I) the following new 
        subclause:
                                  ``(II) each of 2004, 2005, and 2006 
                                the home health market basket 
                                percentage increase minus 0.4 
                                percentage points; or''.

SEC. 702. ESTABLISHMENT OF REDUCED COPAYMENT FOR A HOME HEALTH SERVICE 
                    EPISODE OF CARE FOR CERTAIN BENEFICIARIES.

  (a) Part A.--
          (1) In general.--Section 1813(a) (42 U.S.C. 1395e(a)) is 
        amended by adding at the end the following new paragraph:
  ``(5)(A)(i) Subject to clause (ii), the amount payable for home 
health services furnished to the individual under this title for each 
episode of care beginning in a year (beginning with 2004) shall be 
reduced by a copayment equal to the copayment amount specified in 
subparagraph (B)(ii) for such year.
  ``(ii) The copayment under clause (i) shall not apply--
          ``(I) in the case of an individual who has been determined to 
        be entitled to medical assistance under section 1902(a)(10)(A) 
        or 1902(a)(10)(C) or to be a qualified medicare beneficiary (as 
        defined in section 1905(p)(1)), a specified low-income medicare 
        beneficiary described in section 1902(a)(10)(E)(iii), or a 
        qualifying individual described in section 
        1902(a)(10)(E)(iv)(I); and
          ``(II) in the case of an episode of care which consists of 4 
        or fewer visits.
  ``(B)(i) The Secretary shall estimate, before the beginning of each 
year (beginning with 2004), the national average payment under this 
title per episode for home health services projected for the year 
involved.
  ``(ii) For each year the copayment amount under this clause is equal 
to 1.5 percent of the national average payment estimated for the year 
involved under clause (i). Any amount determined under the preceding 
sentence which is not a multiple of $5 shall be rounded to the nearest 
multiple of $5.
  ``(iii) There shall be no administrative or judicial review under 
section 1869, 1878, or otherwise of the estimation of average payment 
under clause (i).''.
          (2) Timely implementation.--Unless the Secretary of Health 
        and Human Services otherwise provides on a timely basis, the 
        copayment amount specified under section 1813(a)(5)(B)(ii) of 
        the Social Security Act (as added by paragraph (1)) for 2004 
        shall be deemed to be $40.
  (b) Conforming Provisions.--
          (1) Section 1833(a)(2)(A) (42 U.S.C. 1395l(a)(2)(A)) is 
        amended by inserting ``less the copayment amount applicable 
        under section 1813(a)(5)'' after ``1895''.
          (2) Section 1866(a)(2)(A)(i) (42 U.S.C. 1395cc(a)(2)(A)(i)) 
        is amended--
                  (A) by striking ``or coinsurance'' and inserting ``, 
                coinsurance, or copayment''; and
                  (B) by striking ``or (a)(4)'' and inserting ``(a)(4), 
                or (a)(5)''.

SEC. 703. 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).

             Subtitle B--Direct Graduate Medical Education

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

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

                  Subtitle C--Chronic Care Improvement

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

  Title XVIII, as amended by section 105(a), is amended by inserting 
after section 1807 the following new section:
                       ``chronic care improvement
  ``Sec. 1808. (a) In General.--
          ``(1) In general.--The Secretary shall establish a process 
        for providing chronic care improvement programs in each CCIA 
        region for medicare beneficiaries who are not enrolled under 
        part C or E and who have certain chronic conditions, such as 
        congestive heart failure, diabetes, chronic obstructive 
        pulmonary disease (COPD), stroke, or other disease as 
        identified by the Secretary as appropriate for chronic care 
        improvement. Such a process shall begin to be implemented no 
        later than 1 year after the date of the enactment of this 
        section.
          ``(2) Terminology.--For purposes of this section:
                  ``(A) CCIA region.--The term `CCIA region' means a 
                chronic care improvement administrative region 
                delineated under subsection (b)(2).
                  ``(B) Chronic care improvement program.--The terms 
                `chronic care improvement program' and `program' means 
                such a program provided by a contractor under this 
                section.
                  ``(C) Contractor.--The term `contractor' means an 
                entity with a contract to provide a chronic care 
                improvement program in a CCIA region under this 
                section.
                  ``(D) Individual plan.--The term `individual plan' 
                means a chronic care improvement plan established under 
                subsection (c)(5) for an individual.
          ``(3) Construction.--Nothing in this section shall be 
        construed as expanding the amount, duration, or scope of 
        benefits under this title.
  ``(b) Competitive Bidding Process.--
          ``(1) In general.--Under this section the Secretary shall 
        award contracts to qualified entities for chronic care 
        improvement programs for each CCIA region under this section 
        through a competitive bidding process.
          ``(2) Process.--Under such process--
                  ``(A) the Secretary shall delineate the United States 
                into multiple chronic care improvement administrative 
                regions; and
                  ``(B) the Secretary shall select at least 2 winning 
                bidders in each CCIA region on the basis of the ability 
                of each bidder to carry out a chronic care improvement 
                program in accordance with this section, in order to 
                achieve improved health and financial outcomes.
          ``(3) Eligible contractor.--A contractor may be a disease 
        improvement organization, health insurer, provider 
        organization, a group of physicians, or any other legal entity 
        that the Secretary determines appropriate.
  ``(c) Chronic Care Improvement Programs.--
          ``(1) In general.--Each contract under this section shall 
        provide for the operation of a chronic care improvement program 
        by a contractor in a CCIA region consistent with this 
        subsection.
          ``(2) Identification of prospective program participants.--
        Each contractor shall have a method for identifying medicare 
        beneficiaries in the region to whom it will offer services 
        under its program. The contractor shall identify such 
        beneficiaries through claims or other data and other means 
        permitted consistent with applicable disclosure provisions.
          ``(3) Initial contact by secretary.--The Secretary shall 
        communicate with each beneficiary identified under paragraph 
        (2) as a prospective participant in one or more programs 
        concerning participation in a program. Such communication may 
        be made by the Secretary (or on behalf of the Secretary) and 
        shall include information on the following:
                  ``(A) A description of the advantages to the 
                beneficiary in participating in a program.
                  ``(B) Notification that the contractor offering a 
                program may contact the beneficiary directly concerning 
                such participation.
                  ``(C) Notification that participation in a program is 
                voluntary.
                  ``(D) A description of the method for the beneficiary 
                to select the single program in which the beneficiary 
                wishes to participate and for declining to participate 
                and a method for obtaining additional information 
                concerning such participation.
          ``(4) Participation.--A medicare beneficiary may participate 
        in only one program under this section and may terminate 
        participation at any time in a manner specified by the 
        Secretary.
          ``(5) Individual chronic care improvement plans.--
                  ``(A) In general.--For each beneficiary participating 
                in a program of a contractor under this section, the 
                contractor shall develop with the beneficiary an 
                individualized, goal-oriented chronic care improvement 
                plan.
                  ``(B) Elements of individual plan.--Each individual 
                plan developed under subparagraph (A) shall include a 
                single point of contact to coordinate care and the 
                following, as appropriate:
                          ``(i) Self-improvement education for the 
                        beneficiary and support education for health 
                        care providers, primary caregivers, and family 
                        members.
                          ``(ii) Coordination of health care services, 
                        such as application of a prescription drug 
                        regimen and home health services.
                          ``(iii) Collaboration with physicians and 
                        other providers to enhance communication of 
                        relevant clinical information.
                          ``(iv) The use of monitoring technologies 
                        that enable patient guidance through the 
                        exchange of pertinent clinical information, 
                        such as vital signs, symptomatic information, 
                        and health self-assessment.
                          ``(v) The provision of information about 
                        hospice care, pain and palliative care, and 
                        end-of-life care.
                  ``(C) Contractor responsibilities.--In establishing 
                and carrying out individual plans under a program, a 
                contractor shall, directly or through subcontractors--
                          ``(i) guide participants in managing their 
                        health, including all their co-morbidities, and 
                        in performing activities as specified under the 
                        elements of the plan;
                          ``(ii) use decision support tools such as 
                        evidence-based practice guidelines or other 
                        criteria as determined by the Secretary; and
                          ``(iii) develop a clinical information 
                        database to track and monitor each participant 
                        across settings and to evaluate outcomes.
          ``(6) Additional requirements.--The Secretary may establish 
        additional requirements for programs and contractors under this 
        section.
          ``(7) Accreditation.--The Secretary may provide that programs 
        that are accredited by qualified organizations may be deemed to 
        meet such requirements under this section as the Secretary may 
        specify.
  ``(c) Contract Terms.--
          ``(1) In general.--A contract under this section shall 
        contain such terms and conditions as the Secretary may specify 
        consistent with this section. The Secretary may not enter into 
        a contract with an entity under this section unless the entity 
        meets such clinical, quality improvement, financial, and other 
        requirements as the Secretary deems to be appropriate for the 
        population to be served.
          ``(2) Use of subcontractors permitted.--A contractor may 
        carry out a program directly or through contracts with 
        subcontractors.
          ``(3) Budget neutral payment condition.--In entering into a 
        contract with an entity under this subsection, the Secretary 
        shall establish payment rates that assure that there will be no 
        net aggregate increase in payments under this title over any 
        period of 3 years or longer, as agreed to by the Secretary. 
        Under this section, the Secretary shall assure that medicare 
        program outlays plus administrative expenses (that would not 
        have been paid under this title without implementation of this 
        section), including contractor fees, shall not exceed the 
        expenditures that would have been incurred under this title for 
        a comparable population in the absence of the program under 
        this section for the 3-year contract period.
          ``(4) At risk relationship.--For purposes of section 
        1128B(b)(3)(F), a contract under this section shall be treated 
        as a risk-sharing arrangement referred to in such section.
          ``(5) Performance standards.--Payment to contractors under 
        this section shall be subject to the contractor's meeting of 
        clinical and financial performance standards set by the 
        Secretary.
          ``(6) Contractor outcomes report.--Each contractor offering a 
        program shall monitor and report to the Secretary, in a manner 
        specified by the Secretary, the quality of care and efficacy of 
        such program in terms of--
                  ``(A) process measures, such as reductions in errors 
                of treatment and rehospitalization rates;
                  ``(B) beneficiary and provider satisfaction;
                  ``(C) health outcomes; and
                  ``(D) financial outcomes.
          ``(7) Phased in implementation.--Nothing in this section 
        shall be construed as preventing the Secretary from phasing in 
        the implementation of programs.
  ``(d) Biannual Outcomes Reports.--The Secretary shall submit to the 
Congress biannual reports on the implementation of this section. Each 
such report shall include information on--
          ``(1) the scope of implementation (in terms of both regions 
        and chronic conditions);
          ``(2) program design; and
          ``(3) improvements in health outcomes and financial 
        efficiencies that result from such implementation.
  ``(e) Clinical Trials.--The Secretary shall conduct randomized 
clinical trials, that compare program participants with medicare 
beneficiaries who are offered, but decline, to participate, in order to 
assess the potential of programs to--
          ``(1) reduce costs under this title; and
          ``(2) improve health outcomes under this title.
  ``(f) Authorization of Appropriations.--There are authorized to be 
appropriated to the Secretary, in appropriate part from the Hospital 
Insurance Trust Fund and the Supplementary Medical Insurance Trust 
Fund, such sums as may be necessary to provide for contracts with 
chronic care improvement programs under this section.
  ``(g) Limitation on Funding.--In no case shall the funding under this 
section exceed $100,000,000 over a period of 3 years.''.

SEC. 722. CHRONIC CARE IMPROVEMENT UNDER MEDICARE ADVANTAGE AND 
                    ENHANCED FEE-FOR-SERVICE PROGRAMS.

  (a) Under Medicare Advantage Program.--Section 1852 (42 U.S.C. 1395w-
22) is amended--
          (1) by amending subsection (e) to read as follows:
  ``(e) Implementation of Chronic Care Improvement Programs for 
Beneficiaries with Multiple or Sufficiently Severe Chronic 
Conditions.--
          ``(1) In general.--Each Medicare Advantage organization with 
        respect to each Medicare Advantage plan it offers shall have in 
        effect, for enrollees with multiple or sufficiently severe 
        chronic conditions, a chronic care improvement program that is 
        designed to manage the needs of such enrollees and that meets 
        the requirements of this subsection.
          ``(2) Enrollee with multiple or sufficiently severe chronic 
        conditions.--For purposes of this subsection, the term 
        `enrollee with multiple or sufficiently severe chronic 
        conditions' means, with respect to an enrollee in a Medicare 
        Advantage plan of a Medicare Advantage organization, an 
        enrollee in the plan who has one or more chronic conditions, 
        such as congestive heart failure, diabetes, COPD, stroke, or 
        other disease as identified by the organization as appropriate 
        for chronic care improvement.
          ``(3) General requirements.--
                  ``(A) In general.--Each chronic care improvement 
                program under this subsection shall be conducted 
                consistent with this subsection.
                  ``(B) Identification of enrollees.--Each such program 
                shall have a method for monitoring and identifying 
                enrollees with multiple or sufficiently severe chronic 
                conditions that meet the organization's criteria for 
                participation under the program.
                  ``(C) Development of plans.--For an enrollee 
                identified under subparagraph (B) for participation in 
                a program, the program shall develop, with the 
                enrollee's consent, an individualized, goal-oriented 
                chronic care improvement plan for chronic care 
                improvement.
                  ``(D) Elements of plans.--Each chronic care 
                improvement plan developed under subparagraph (C) shall 
                include a single point of contact to coordinate care 
                and the following, as appropriate:
                          ``(i) Self-improvement education for the 
                        enrollee and support education for health care 
                        providers, primary caregivers, and family 
                        members.
                          ``(ii) Coordination of health care services, 
                        such as application of a prescription drug 
                        regimen and home health services.
                          ``(iii) Collaboration with physicians and 
                        other providers to enhance communication of 
                        relevant clinical information.
                          ``(iv) The use of monitoring technologies 
                        that enable patient guidance through the 
                        exchange of pertinent clinical information, 
                        such as vital signs, symptomatic information, 
                        and health self-assessment.
                          ``(v) The provision of information about 
                        hospice care, pain and palliative care, and 
                        end-of-life care.
                  ``(E) Organization responsibilities.--In establishing 
                and carrying out chronic care improvement plans for 
                participants under this paragraph, a Medicare Advantage 
                organization shall, directly or through 
                subcontractors--
                          ``(i) guide participants in managing their 
                        health, including all their co-morbidities, and 
                        in performing the activities as specified under 
                        the elements of the plan;
                          ``(ii) use decision support tools such as 
                        evidence-based practice guidelines or other 
                        criteria as determined by the Secretary; and
                          ``(iii) develop a clinical information 
                        database to track and monitor each participant 
                        across settings and to evaluate outcomes.
          ``(3) Additional requirements.--The Secretary may establish 
        additional requirements for chronic care improvement programs 
        under this section.
          ``(4) Accreditation.--The Secretary may provide that chronic 
        care improvement programs that are accredited by qualified 
        organizations may be deemed to meet such requirements under 
        this subsection as the Secretary may specify.
          ``(5) Outcomes report.--Each Medicare Advantage organization 
        with respect to its chronic care improvement program under this 
        subsection shall monitor and report to the Secretary 
        information on the quality of care and efficacy of such program 
        as the Secretary may require.''; and
          (2) by amending subparagraph (I) of subsection (c)(1) to read 
        as follows:
                  ``(I) Chronic care improvement program.--A 
                description of the organization's chronic care 
                improvement program under subsection (e).''.
  (b) Application under Enhanced Fee-for-Service Program.--Section 
1860E-2(c)(3), as inserted by section 201(a), is amended by inserting 
``, including subsection (e) (relating to implementation of chronic 
care improvement programs)'' after ``The provisions of section 1852''.
  (c) Effective Date.--The amendments made by this section shall apply 
for contract years beginning on or after 1 year after the date of the 
enactment of this Act.

SEC. 723. INSTITUTE OF MEDICINE REPORT.

  (a) Study.--
          (1) In general.--The Secretary of Health and Human Services 
        shall contract with the Institute of Medicine of the National 
        Academy of Sciences to conduct a study of the barriers to 
        effective integrated care improvement for medicare 
        beneficiaries with multiple or severe chronic conditions across 
        settings and over time and to submit a report under subsection 
        (b).
          (2) Specific items.--The study shall examine the statutory 
        and regulatory barriers to coordinating care across settings 
        for medicare beneficiaries in transition from one setting to 
        another (such as between hospital, nursing facility, home 
        health, hospice, and home). The study shall specifically 
        identify the following:
                  (A) Clinical, financial, or administrative 
                requirements in the medicare program that present 
                barriers to effective, seamless transitions across care 
                settings.
                  (B) Policies that impede the establishment of 
                administrative and clinical information systems to 
                track health status, utilization, cost, and quality 
                data across settings.
                  (C) State-level requirements that may present 
                barriers to better care for medicare beneficiaries.
          (3) Consultation.--The study under this subsection shall be 
        conducted in consultation with experts in the field of chronic 
        care, consumers, and family caregivers, working to integrate 
        care delivery and create more seamless transitions across 
        settings and over time.
  (b) Report.--The report under this subsection shall be submitted to 
the Secretary and Congress not later than 18 months after the date of 
the enactment of this Act.

SEC. 724. MEDPAC REPORT.

  (a) Evaluation.--shall conduct an evaluation that includes a 
description of the status of the implementation of chronic care 
improvement programs under section 1808 of the Social Security Act, the 
quality of health care services provided to individuals in such 
program, the health status of the participants of such program, and the 
cost savings attributed to implementation of such program.
  (b) Report.--Not later than 2 years after the date of implementation 
of such chronic care improvement programs, the Commission shall submit 
a report on such evaluation.

                      Subtitle D--Other Provisions

SEC. 731. MODIFICATIONS TO MEDICARE PAYMENT ADVISORY COMMISSION 
                    (MEDPAC).

  (a) Examination of Budget Consequences.--Section 1805(b) (42 U.S.C. 
1395b-6(b)) is amended by adding at the end the following new 
paragraph:
          ``(8) Examination of budget consequences.--Before making any 
        recommendations, the Commission shall examine the budget 
        consequences of such recommendations, directly or through 
        consultation with appropriate expert entities.''.
  (b) Consideration of Efficient Provision of Services.--Section 
1805(b)(2)(B)(i) (42 U.S.C. 1395b-6(b)(2)(B)(i)) is amended by 
inserting ``the efficient provision of'' after ``expenditures for''.
  (c) Application of Disclosure Requirements.--
          (1) In general.--Section 1805(c)(2)(D) (42 U.S.C. 1395b-
        6(c)(2)(D)) is amended by adding at the end the following: 
        ``Members of the Commission shall be treated as employees of 
        the Congress for purposes of applying title I of the Ethics in 
        Government Act of 1978 (Public Law 95-521).''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on January 1, 2004.
  (d) Additional Reports.--
          (1) Data needs and sources.--The Medicare Payment Advisory 
        Commission shall conduct a study, and submit a report to 
        Congress by not later than June 1, 2004, on the need for 
        current data, and sources of current data available, to 
        determine the solvency and financial circumstances of hospitals 
        and other medicare providers of services. 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, 
        2004, a report on the following:
                  (A) Investments, endowments, and fundraising of 
                hospitals participating under the medicare program and 
                related foundations.
                  (B) Access to capital financing for private and for 
                not-for-profit hospitals.

SEC. 732. 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. 733. IMPROVEMENTS IN NATIONAL AND LOCAL COVERAGE DETERMINATION 
                    PROCESS TO RESPOND TO CHANGES IN TECHNOLOGY.

  (a) National and Local Coverage Determination Process.--
          (1) In general.--Section 1862 (42 U.S.C. 1395y) is amended--
                  (A) in the third sentence of subsection (a) by 
                inserting ``consistent with subsection (k)'' after 
                ``the Secretary shall ensure''; and
                  (B) by adding at the end the following new 
                subsection:
  ``(k) National and Local Coverage Determination Process.--
          ``(1) Criteria and evidence used in making national coverage 
        determinations.--The Secretary shall make available to the 
        public the criteria the Secretary uses in making national 
        coverage determinations, including how evidence to demonstrate 
        that a procedure or device is reasonable and necessary is 
        considered.
          ``(2) Timeframe for decisions on requests for national 
        coverage determinations.--In the case of a request for a 
        national coverage determination that--
                  ``(A) does not require a technology assessment from 
                an outside entity or deliberation from the Medicare 
                Coverage Advisory Committee, the decision on the 
                request shall be made not later than 6 months after the 
                date of the request; or
                  ``(B) requires such an assessment or deliberation and 
                in which a clinical trial is not requested, the 
                decision on the request shall be made not later than 12 
                months after the date of the request.
          ``(3) Process for public comment in national coverage 
        determinations.--At the end of the 6-month period that begins 
        on the date a request for a national coverage determination is 
        made, the Secretary shall--
                  ``(A) make a draft of proposed decision on the 
                request available to the public through the Medicare 
                Internet site of the Department of Health and Human 
                Services or other appropriate means;
                  ``(B) provide a 30-day period for public comment on 
                such draft;
                  ``(C) make a final decision on the request within 60 
                days of the conclusion of the 30-day period referred to 
                under subparagraph (B);
                  ``(D) include in such final decision summaries of the 
                public comments received and responses thereto;
                  ``(E) make available to the public the clinical 
                evidence and other data used in making such a decision 
                when the decision differs from the recommendations of 
                the Medicare Coverage Advisory Committee; and
                  ``(F) in the case of a decision to grant the coverage 
                determination, assign a temporary or permanent code 
                during the 60-day period referred to in subparagraph 
                (C).
          ``(4) Consultation with outside experts in certain national 
        coverage determinations.--With respect to a request for a 
        national coverage determination for which there is not a review 
        by the Medicare Coverage Advisory Committee, the Secretary 
        shall consult with appropriate outside clinical experts.
          ``(5) Local coverage determination process.--With respect to 
        local coverage determinations made on or after January 1, 
        2004--
                  ``(A) Plan to promote consistency of coverage 
                determinations.--The Secretary shall develop a plan to 
                evaluate new local coverage determinations to determine 
                which determinations should be adopted nationally and 
                to what extent greater consistency can be achieved 
                among local coverage determinations.
                  ``(B) Consultation.--The Secretary shall require the 
                fiscal intermediaries or carriers providing services 
                within the same area to consult on all new local 
                coverage determinations within the area.
                  ``(C) Dissemination of information.--The Secretary 
                should serve as a center to disseminate information on 
                local coverage determinations among fiscal 
                intermediaries and carriers to reduce duplication of 
                effort.
          ``(6) National and local coverage determination defined.--For 
        purposes of this subsection, the terms `national coverage 
        determination' and `local coverage determination' have the 
        meaning given such terms in paragraphs (1)(B) and (2)(B), 
        respectively, of section 1869(f).''.
          (2) Effective date.--The amendments made by paragraph (1) 
        shall apply to national and local coverage determinations as of 
        January 1, 2004.
  (b) Medicare Coverage of Routine Costs Associated With Certain 
Clinical Trials.--
          (1) In general.--With respect to the coverage of routine 
        costs of care for beneficiaries participating in a qualifying 
        clinical trial, as set forth on the date of the enactment of 
        this Act in National Coverage Determination 30-1 of the 
        Medicare Coverage Issues Manual, the Secretary shall deem 
        clinical trials conducted in accordance with an investigational 
        device exemption approved under section 520(g) of the Federal 
        Food, Drug, and Cosmetic Act (42 U.S.C. 360j(g)) to be 
        automatically qualified for such coverage.
          (2) Rule of construction.--Nothing in this subsection shall 
        be construed as authorizing or requiring the Secretary to 
        modify the regulations set forth on the date of the enactment 
        of this Act at subpart B of part 405 of title 42, Code of 
        Federal Regulations, or subpart A of part 411 of such title, 
        relating to coverage of, and payment for, a medical device that 
        is the subject of an investigational device exemption by the 
        Food and Drug Administration (except as may be necessary to 
        implement paragraph (1)).
          (3) Effective date.--This subsection shall apply to clinical 
        trials begun before, on, or after the date of the enactment of 
        this Act and to items and services furnished on or after such 
        date.
  (c) Issuance of Temporary National Codes.--Not later than January 1, 
2004, the Secretary shall implement revised procedures for the issuance 
of temporary national HCPCS codes under part B of title XVIII of the 
Social Security Act.

SEC. 734. TREATMENT OF CERTAIN PHYSICIAN PATHOLOGY SERVICES.

  (a) In General.--Section 1848(i) (42 U.S.C. 1395w-4(i)) is amended by 
adding at the end the following new paragraph:
          ``(4) Treatment of certain inpatient physician pathology 
        services.--
                  ``(A) In general.--With respect to services furnished 
                on or after January 1, 2001, and before January 1, 
                2006, if an independent laboratory furnishes the 
                technical component of a physician pathology service to 
                a fee-for-service medicare beneficiary who is an 
                inpatient or outpatient of a covered hospital, the 
                Secretary shall treat such component as a service for 
                which payment shall be made to the laboratory under 
                this section and not as an inpatient hospital service 
                for which payment is made to the hospital under section 
                1886(d) or as a hospital outpatient service for which 
                payment is made to the hospital under section 1833(t).
                  ``(B) Definitions.--In this paragraph:
                          ``(i) Covered hospital.--
                                  ``(I) In general.--The term `covered 
                                hospital' means, with respect to an 
                                inpatient or outpatient, a hospital 
                                that had an arrangement with an 
                                independent laboratory that was in 
                                effect as of July 22, 1999, under which 
                                a laboratory furnished the technical 
                                component of physician pathology 
                                services to fee-for-service medicare 
                                beneficiaries who were hospital 
                                inpatients or outpatients, 
                                respectively, and submitted claims for 
                                payment for such component to a carrier 
                                with a contract under section 1842 and 
                                not to the hospital.
                                  ``(II) Change in ownership does not 
                                affect determination.--A change in 
                                ownership with respect to a hospital on 
                                or after the date referred to in 
                                subclause (I) shall not affect the 
                                determination of whether such hospital 
                                is a covered hospital for purposes of 
                                such subclause.
                          ``(ii) Fee-for-service medicare 
                        beneficiary.--The term `fee-for-service 
                        medicare beneficiary' means an individual who 
                        is entitled to benefits under part A, or 
                        enrolled under this part, or both, but is not 
                        enrolled in any of the following:
                                  ``(I) A Medicare+Choice plan under 
                                part C.
                                  ``(II) A plan offered by an eligible 
                                organization under section 1876.
                                  ``(III) A program of all-inclusive 
                                care for the elderly (PACE) under 
                                section 1894.
                                  ``(IV) A social health maintenance 
                                organization (SHMO) demonstration 
                                project established under section 
                                4018(b) of the Omnibus Budget 
                                Reconciliation Act of 1987 (Public Law 
                                100-203).''.
  (b) Conforming Amendment.--Section 542 of the Medicare, Medicaid, and 
SCHIP Benefits Improvement and Protection Act of 2000 (114 Stat. 2763A-
550), as enacted into law by section 1(a)(6) of Public Law 106-554, is 
repealed.
  (c) Effective Dates.--The amendments made by this section shall take 
effect as if included in the enactment of the Medicare, Medicaid, and 
SCHIP Benefits Improvement and Protection Act of 2000 (Appendix F, 114 
Stat. 2763A-463), as enacted into law by section 1(a)(6) of Public Law 
106-554.

              TITLE VIII--MEDICARE BENEFITS ADMINISTRATION

SEC. 801. ESTABLISHMENT OF MEDICARE BENEFITS ADMINISTRATION.

  (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.), as amended by 
sections 105 and 721, is amended by inserting after 1808 the following 
new section:
                   ``medicare benefits administration
  ``Sec. 1809. (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 4 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. The 
                Administrator shall provide for the issuance of new 
                regulations to carry out parts C, D, and E.
                  ``(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 4 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, D, and E, including--
                          ``(i) negotiating, entering into, and 
                        enforcing, contracts with plans for the 
                        offering of Medicare Advantage plans under part 
                        C and EFFS plans under part E, 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, part D, or part 
                E, 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), 
                medicare cost contractors under section 1876(h), and 
                through a Medicare Advantage 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 Advantage 
                        organizations and EFFS 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, D, and E 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 3102 through 3108, 3110 through 3113, 
                3136m and 3151, 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, D, 
                        and E.
                          ``(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 Advantage plans under part C 
                and EFFS plans under part E.
                  ``(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 
                Advantage program under part C, the Voluntary 
                Prescription Drug Benefit Program under part D, and the 
                Enhanced Fee-for-Service program under part E.
  ``(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, D, and E, including 
        the review of payment policies under such parts.
          ``(2) Reports.--
                  ``(A) In general.--With respect to matters of the 
                administration of parts C, D, and E 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, D, and E 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, D, and E, 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 Advantage organizations offering 
                        Medicare Advantage plans (and the corresponding 
                        payment provisions under part E) that accounts 
                        for variations in per capita costs based on 
                        health status, geography, and other demographic 
                        factors.
                          ``(iv) Rural access.--Recommendations to 
                        improve competition and access to plans under 
                        parts C, D, and E 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) 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 parts C and E of such title for years 
        beginning or after January 1, 2006.
          (3) 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, 2004.

         TITLE IX--REGULATORY REDUCTION AND CONTRACTING REFORM

                     Subtitle A--Regulatory Reform

SEC. 901. CONSTRUCTION; DEFINITION OF SUPPLIER.

  (a) Construction.--Nothing in this title shall be construed--
          (1) to compromise or affect existing legal remedies for 
        addressing fraud or abuse, whether it be criminal prosecution, 
        civil enforcement, or administrative remedies, including under 
        sections 3729 through 3733 of title 31, United States Code 
        (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. 902. ISSUANCE OF REGULATIONS.

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

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

  (a) No Retroactive Application of Substantive Changes.--
          (1) In general.--Section 1871 (42 U.S.C. 1395hh), as amended 
        by section 902(a), is amended by adding at the end the 
        following new subsection:
  ``(e)(1)(A) A substantive change in regulations, manual instructions, 
interpretative rules, statements of policy, or guidelines of general 
applicability under this title shall not be applied (by extrapolation 
or otherwise) retroactively to items and services furnished before the 
effective date of the change, unless the Secretary determines that--
          ``(i) such retroactive application is necessary to comply 
        with statutory requirements; or
          ``(ii) failure to apply the change retroactively would be 
        contrary to the public interest.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to substantive changes issued on or after the date 
        of the enactment of this Act.
  (b) Timeline for Compliance With Substantive Changes After Notice.--
          (1) In general.--Section 1871(e)(1), as added by subsection 
        (a), is amended by adding at the end the following:
  ``(B)(i) Except as provided in clause (ii), a substantive change 
referred to in subparagraph (A) shall not become effective before the 
end of the 30-day period that begins on the date that the Secretary has 
issued or published, as the case may be, the substantive change.
  ``(ii) The Secretary may provide for such a substantive change to 
take effect on a date that precedes the end of the 30-day period under 
clause (i) if the Secretary finds that waiver of such 30-day period is 
necessary to comply with statutory requirements or that the application 
of such 30-day period is contrary to the public interest. If the 
Secretary provides for an earlier effective date pursuant to this 
clause, the Secretary shall include in the issuance or publication of 
the substantive change a finding described in the first sentence, and a 
brief statement of the reasons for such finding.
  ``(C) No action shall be taken against a provider of services or 
supplier with respect to noncompliance with such a substantive change 
for items and services furnished before the effective date of such a 
change.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to compliance actions undertaken on or after the 
        date of the enactment of this Act.
  (c) Reliance on Guidance.--
          (1) In general.--Section 1871(e), as added by subsection (a), 
        is further amended by adding at the end the following new 
        paragraph:
  ``(2)(A) If--
          ``(i) a provider of services or supplier follows the written 
        guidance (which may be transmitted electronically) provided by 
        the Secretary or by a medicare contractor (as defined in 
        section 1889(g)) acting within the scope of the contractor's 
        contract authority, with respect to the furnishing of items or 
        services and submission of a claim for benefits for such items 
        or services with respect to such provider or supplier;
          ``(ii) the Secretary determines that the provider of services 
        or supplier has accurately presented the circumstances relating 
        to such items, services, and claim to the contractor in 
        writing; and
          ``(iii) the guidance was in error;
the provider of services or supplier shall not be subject to any 
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. 904. REPORTS AND STUDIES RELATING TO REGULATORY REFORM.

  (a) GAO Study on Advisory Opinion Authority.--
          (1) Study.--The Comptroller General of the United States 
        shall conduct a study to determine the feasibility and 
        appropriateness of establishing in the Secretary authority to 
        provide legally binding advisory opinions on appropriate 
        interpretation and application of regulations to carry out the 
        medicare program under title XVIII of the Social Security Act. 
        Such study shall examine the appropriate timeframe for issuing 
        such advisory opinions, as well as the need for additional 
        staff and funding to provide such opinions.
          (2) Report.--The Comptroller General shall submit to Congress 
        a report on the study conducted under paragraph (1) by not 
        later than one year after the date of the enactment of this 
        Act.
  (b) Report on Legal and Regulatory Inconsistencies.--Section 1871 (42 
U.S.C. 1395hh), as amended by section 2(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. 911. INCREASED FLEXIBILITY IN MEDICARE ADMINISTRATION.

  (a) Consolidation and Flexibility in Medicare Administration.--
          (1) In general.--Title XVIII is amended by inserting after 
        section 1874 the following new section:
          ``contracts with medicare administrative contractors
  ``Sec. 1874A. (a) Authority.--
          ``(1) Authority to enter into contracts.--The Secretary may 
        enter into contracts with any eligible entity to serve as a 
        medicare administrative contractor with respect to the 
        performance of any or all of the functions described in 
        paragraph (4) or parts of those functions (or, to the extent 
        provided in a contract, to secure performance thereof by other 
        entities).
          ``(2) Eligibility of entities.--An entity is eligible to 
        enter into a contract with respect to the performance of a 
        particular function described in paragraph (4) only if--
                  ``(A) the entity has demonstrated capability to carry 
                out such function;
                  ``(B) the entity complies with such conflict of 
                interest standards as are generally applicable to 
                Federal acquisition and procurement;
                  ``(C) the entity has sufficient assets to financially 
                support the performance of such function; and
                  ``(D) the entity meets such other requirements as the 
                Secretary may impose.
          ``(3) Medicare administrative contractor defined.--For 
        purposes of this title and title XI--
                  ``(A) In general.--The term `medicare administrative 
                contractor' means an agency, organization, or other 
                person with a contract under this section.
                  ``(B) Appropriate medicare administrative 
                contractor.--With respect to the performance of a 
                particular function in relation to an individual 
                entitled to benefits under part A or enrolled under 
                part B, or both, a specific provider of services or 
                supplier (or class of such providers of services or 
                suppliers), the `appropriate' medicare administrative 
                contractor is the medicare administrative contractor 
                that has a contract under this section with respect to 
                the performance of that function in relation to that 
                individual, provider of services or supplier or class 
                of provider of services or supplier.
          ``(4) Functions described.--The functions referred to in 
        paragraphs (1) and (2) are payment functions, 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 the reckless disregard of the individual's 
        obligations or the intent by that individual to defraud the 
        United States, be liable with respect to any payments certified 
        by the individual under this section.
          ``(2) Disbursing officer.--No disbursing officer shall, in 
        the absence of the reckless disregard of the officer's 
        obligations or the intent by that officer to defraud the United 
        States, be liable with respect to any payment by such officer 
        under this section if it was based upon an authorization (which 
        meets the applicable requirements for such internal controls 
        established by the Comptroller General) of a certifying officer 
        designated as provided in paragraph (1) of this subsection.
          ``(3) Liability of medicare administrative contractor.--
          ``(A) In general.--No medicare administrative contractor 
        shall be liable to the United States for a payment by a 
        certifying or disbursing officer unless, in connection with 
        such payment, the medicare administrative contractor acted with 
        reckless disregard of its obligations under its medicare 
        administrative contract or with intent to defraud the United 
        States.
          ``(B) Relationship to false claims act.--Nothing in this 
        subsection shall be construed to limit liability for conduct 
        that would constitute a violation of sections 3729 through 3731 
        of title 31, United States Code (commonly known as the `False 
        Claims Act').
          ``(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, 2005, and the Secretary is 
                authorized to take such steps before such date as may 
                be necessary to implement such amendments on a timely 
                basis.
                  (B) Construction for current contracts.--Such 
                amendments shall not apply to contracts in effect 
                before the date specified under subparagraph (A) that 
                continue to retain the terms and conditions in effect 
                on such date (except as otherwise provided under this 
                Act, other than under this section) until such date as 
                the contract is let out for competitive bidding under 
                such amendments.
                  (C) Deadline for competitive bidding.--The Secretary 
                shall provide for the letting by competitive bidding of 
                all contracts for functions of medicare administrative 
                contractors for annual contract periods that begin on 
                or after October 1, 2010.
                  (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 a 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, 
        2004, the Secretary shall submit a report to Congress and the 
        Comptroller General of the United States that describes the 
        plan for implementation of the amendments made by this section. 
        The Comptroller General shall conduct an evaluation of such 
        plan and shall submit to Congress, not later than 6 months 
        after the date the report is received, a report on such 
        evaluation and shall include in such report such 
        recommendations as the Comptroller General deems appropriate.
          (2) Status of implementation.--The Secretary shall submit a 
        report to Congress not later than October 1, 2008, that 
        describes the status of implementation of such amendments and 
        that includes a description of the following:
                  (A) The number of contracts that have been 
                competitively bid as of such date.
                  (B) The distribution of functions among contracts and 
                contractors.
                  (C) A timeline for complete transition to full 
                competition.
                  (D) A detailed description of how the Secretary has 
                modified oversight and management of medicare 
                contractors to adapt to full competition.

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

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

                   Subtitle C--Education and Outreach

SEC. 921. PROVIDER EDUCATION AND TECHNICAL ASSISTANCE.

  (a) Coordination of Education Funding.--
          (1) In general.--Title XVIII is amended by inserting after 
        section 1888 the following new section:
             ``provider education and technical assistance
  ``Sec. 1889. (a) Coordination of Education Funding.--The Secretary 
shall coordinate the educational activities provided through medicare 
contractors (as defined in subsection (g), including under section 
1893) in order to maximize the effectiveness of Federal education 
efforts for providers of services and suppliers.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on the date of the enactment of this Act.
          (3) Report.--Not later than October 1, 2004, the Secretary 
        shall submit to Congress a report that includes a description 
        and evaluation of the steps taken to coordinate the funding of 
        provider education under section 1889(a) of the Social Security 
        Act, as added by paragraph (1).
  (b) Incentives To Improve Contractor Performance.--
          (1) In general.--Section 1874A, as added by section 911(a)(1) 
        and as amended by section 912(a), is amended by adding at the 
        end the following new subsection:
  ``(f) Incentives To Improve Contractor Performance in Provider 
Education and Outreach.--The Secretary shall use specific claims 
payment error rates or similar methodology of medicare administrative 
contractors in the processing or reviewing of medicare claims in order 
to give such contractors an incentive to implement effective education 
and outreach programs for providers of services and suppliers.''.
          (2) Application to fiscal intermediaries and carriers.--The 
        provisions of section 1874A(f) of the Social Security Act, as 
        added by paragraph (1), shall apply to each fiscal intermediary 
        under section 1816 of the Social Security Act (42 U.S.C. 1395h) 
        and each carrier under section 1842 of such Act (42 U.S.C. 
        1395u) in the same manner as they apply to medicare 
        administrative contractors under such provisions.
          (3) GAO report on adequacy of methodology.--Not later than 
        October 1, 2004, the Comptroller General of the United States 
        shall submit to Congress and to the Secretary a report on the 
        adequacy of the methodology under section 1874A(f) of the 
        Social Security Act, as added by paragraph (1), and shall 
        include in the report such recommendations as the Comptroller 
        General determines appropriate with respect to the methodology.
          (4) Report on use of methodology in assessing contractor 
        performance.--Not later than October 1, 2004, the Secretary 
        shall submit to Congress a report that describes how the 
        Secretary intends to use such methodology in assessing medicare 
        contractor performance in implementing effective education and 
        outreach programs, including whether to use such methodology as 
        a basis for performance bonuses. The report shall include an 
        analysis of the sources of identified errors and potential 
        changes in systems of contractors and rules of the Secretary 
        that could reduce claims error rates.
  (c) Provision of Access to and Prompt Responses From Medicare 
Administrative Contractors.--
          (1) In general.--Section 1874A, as added by section 911(a)(1) 
        and as amended by section 912(a) and subsection (b), is further 
        amended by adding at the end the following new subsection:
  ``(g) Communications with Beneficiaries, Providers of Services and 
Suppliers.--
          ``(1) Communication strategy.--The Secretary shall develop a 
        strategy for communications with individuals entitled to 
        benefits under part A or enrolled under part B, or both, and 
        with providers of services and suppliers under this title.
          ``(2) Response to written inquiries.--Each medicare 
        administrative contractor shall, for those providers of 
        services and suppliers which submit claims to the contractor 
        for claims processing and for those individuals entitled to 
        benefits under part A or enrolled under part B, or both, with 
        respect to whom claims are submitted for claims processing, 
        provide general written responses (which may be through 
        electronic transmission) in a clear, concise, and accurate 
        manner to inquiries of providers of services, suppliers and 
        individuals entitled to benefits under part A or enrolled under 
        part B, or both, concerning the programs under this title 
        within 45 business days of the date of receipt of such 
        inquiries.
          ``(3) Response to toll-free lines.--The Secretary shall 
        ensure that each medicare administrative contractor shall 
        provide, for those providers of services and suppliers which 
        submit claims to the contractor for claims processing and for 
        those individuals entitled to benefits under part A or enrolled 
        under part B, or both, with respect to whom claims are 
        submitted for claims processing, a toll-free telephone number 
        at which such individuals, providers of services and suppliers 
        may obtain information regarding billing, coding, claims, 
        coverage, and other appropriate information under this title.
          ``(4) Monitoring of contractor responses.--
                  ``(A) In general.--Each medicare administrative 
                contractor shall, consistent with standards developed 
                by the Secretary under subparagraph (B)--
                          ``(i) maintain a system for identifying who 
                        provides the information referred to in 
                        paragraphs (2) and (3); and
                          ``(ii) monitor the accuracy, consistency, and 
                        timeliness of the information so provided.
                  ``(B) Development of standards.--
                          ``(i) In general.--The Secretary shall 
                        establish and make public standards to monitor 
                        the accuracy, consistency, and timeliness of 
                        the information provided in response to written 
                        and telephone inquiries under this subsection. 
                        Such standards shall be consistent with the 
                        performance requirements established under 
                        subsection (b)(3).
                          ``(ii) Evaluation.--In conducting evaluations 
                        of individual medicare administrative 
                        contractors, the Secretary shall take into 
                        account the results of the monitoring conducted 
                        under subparagraph (A) taking into account as 
                        performance requirements the standards 
                        established under clause (i). The Secretary 
                        shall, in consultation with organizations 
                        representing providers of services, suppliers, 
                        and individuals entitled to benefits under part 
                        A or enrolled under part B, or both, establish 
                        standards relating to the accuracy, 
                        consistency, and timeliness of the information 
                        so provided.
                  ``(C) Direct monitoring.--Nothing in this paragraph 
                shall be construed as preventing the Secretary from 
                directly monitoring the accuracy, consistency, and 
                timeliness of the information so provided.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect October 1, 2004.
          (3) Application to fiscal intermediaries and carriers.--The 
        provisions of section 1874A(g) of the Social Security Act, as 
        added by paragraph (1), shall apply to each fiscal intermediary 
        under section 1816 of the Social Security Act (42 U.S.C. 1395h) 
        and each carrier under section 1842 of such Act (42 U.S.C. 
        1395u) in the same manner as they apply to medicare 
        administrative contractors under such provisions.
  (d) Improved Provider Education and Training.--
          (1) In general.--Section 1889, as added by subsection (a), is 
        amended by adding at the end the following new subsections:
  ``(b) Enhanced Education and Training.--
          ``(1) Additional resources.--There are authorized to be 
        appropriated to the Secretary (in appropriate part from the 
        Federal Hospital Insurance Trust Fund and the Federal 
        Supplementary Medical Insurance Trust Fund) $25,000,000 for 
        each of fiscal years 2005 and 2006 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, 2004.
  (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, 2004.
  (f) Additional Provider Education Provisions.--
          (1) In general.--Section 1889, as added by subsection (a) and 
        as amended by subsections (d) and (e), is further amended by 
        adding at the end the following new subsections:
  ``(e) Encouragement of Participation in Education Program 
Activities.--A medicare contractor may not use a record of attendance 
at (or failure to attend) educational activities or other information 
gathered during an educational program conducted under this section or 
otherwise by the Secretary to select or track providers of services or 
suppliers for the purpose of conducting any type of audit or prepayment 
review.
  ``(f) Construction.--Nothing in this section or section 1893(g) shall 
be construed as providing for disclosure by a medicare contractor of 
information that would compromise pending law enforcement activities or 
reveal findings of law enforcement-related audits.
  ``(g) Definitions.--For purposes of this section, the term `medicare 
contractor' includes the following:
          ``(1) A medicare administrative contractor with a contract 
        under section 1874A, including a fiscal intermediary with a 
        contract under section 1816 and a carrier with a contract under 
        section 1842.
          ``(2) An eligible entity with a contract under section 1893.
Such term does not include, with respect to activities of a specific 
provider of services or supplier an entity that has no authority under 
this title or title IX with respect to such activities and such 
provider of services or supplier.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on the date of the enactment of this Act.

SEC. 922. SMALL PROVIDER TECHNICAL ASSISTANCE DEMONSTRATION PROGRAM.

  (a) Establishment.--
          (1) In general.--The Secretary shall establish a 
        demonstration program (in this section referred to as the 
        ``demonstration program'') under which technical assistance 
        described in paragraph (2) is made available, upon request and 
        on a voluntary basis, to small providers of services or 
        suppliers in order to improve compliance with the applicable 
        requirements of the programs under medicare program under title 
        XVIII of the Social Security Act (including provisions of title 
        XI of such Act insofar as they relate to such title and are not 
        administered by the Office of the Inspector General of the 
        Department of Health and Human Services).
          (2) Forms of technical assistance.--The technical assistance 
        described in this paragraph is--
                  (A) evaluation and recommendations regarding billing 
                and related systems; and
                  (B) information and assistance regarding policies and 
                procedures under the medicare program, including coding 
                and reimbursement.
          (3) Small providers of services or suppliers.--In this 
        section, the term ``small providers of services or suppliers'' 
        means--
                  (A) a provider of services with fewer than 25 full-
                time-equivalent employees; or
                  (B) a supplier with fewer than 10 full-time-
                equivalent employees.
  (b) Qualification of Contractors.--In conducting the demonstration 
program, the Secretary shall enter into contracts with qualified 
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 2005, $1,000,000, and
          (2) for fiscal year 2006, $6,000,000.

SEC. 923. 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 previously 
amended, is amended by inserting after section 1809 the following new 
section:
                    ``medicare beneficiary ombudsman
  ``Sec. 1810. (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;
                  ``(B) assistance to such individuals with any 
                problems arising from disenrollment from a 
                Medicare+Choice plan under part C; and
                  ``(C) assistance to such individuals in presenting 
                information under section 1860D-2(b)(4)(D)(v); 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 1807 of such Act (relating to 
the Medicare Beneficiary Ombudsman), as added by subsection (b), such 
sums as are necessary for fiscal year 2004 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. 924. BENEFICIARY OUTREACH DEMONSTRATION PROGRAM.

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

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

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

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

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

                    Subtitle D--Appeals and Recovery

SEC. 931. TRANSFER OF RESPONSIBILITY FOR MEDICARE APPEALS.

  (a) Transition Plan.--
          (1) In general.--Not later than October 1, 2004, the 
        Commissioner of Social Security and the Secretary shall develop 
        and transmit to Congress and the Comptroller General of the 
        United States a plan under which the functions of 
        administrative law judges responsible for hearing cases under 
        title XVIII of the Social Security Act (and related provisions 
        in title XI of such Act) are transferred from the 
        responsibility of the Commissioner and the Social Security 
        Administration to the Secretary and the Department of Health 
        and Human Services.
          (2) GAO evaluation.--The Comptroller General of the United 
        States shall evaluate the plan and, not later than the date 
        that is 6 months after the date on which the plan is received 
        by the Comptroller General, shall submit to Congress a report 
        on such evaluation.
  (b) Transfer of Adjudication Authority.--
          (1) In general.--Not earlier than July 1, 2005, and not later 
        than October 1, 2005, the Commissioner of Social Security and 
        the Secretary shall implement the transition plan under 
        subsection (a) and transfer the administrative law judge 
        functions described in such subsection from the Social Security 
        Administration to the Secretary.
          (2) Assuring independence of judges.--The Secretary shall 
        assure the independence of administrative law judges performing 
        the administrative law judge functions transferred under 
        paragraph (1) from the Centers for Medicare & Medicaid Services 
        and its contractors. In order to assure such independence, the 
        Secretary shall place such judges in an administrative office 
        that is organizationally and functionally separate from such 
        Centers. Such judges shall report to, and be under the general 
        supervision of, the Secretary, but shall not report to, or be 
        subject to supervision by, another other officer of the 
        Department.
          (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 2005 and each 
subsequent fiscal year to--
          (1) increase the number of administrative law judges (and 
        their staffs) under subsection (b)(4);
          (2) improve education and training opportunities for 
        administrative law judges (and their staffs); and
          (3) increase the staff of the Departmental Appeals Board.
  (d) Conforming Amendment.--Section 1869(f)(2)(A)(i) (42 U.S.C. 
1395ff(f)(2)(A)(i)), as added by section 522(a) of BIPA (114 Stat. 
2763A-543), is amended by striking ``of the Social Security 
Administration''.

SEC. 932. 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, 2004.
  (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 2005 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. 933. REVISIONS TO MEDICARE APPEALS PROCESS.

  (a) Requiring Full and Early Presentation of Evidence.--
          (1) In general.--Section 1869(b) (42 U.S.C. 1395ff(b)), as 
        amended by BIPA and as amended by section 932(a), is further 
        amended by adding at the end the following new paragraph:
          ``(3) Requiring full and early presentation of evidence by 
        providers.--A provider of services or supplier may not 
        introduce evidence in any appeal under this section that was 
        not presented at the reconsideration conducted by the qualified 
        independent contractor under subsection (c), unless there is 
        good cause which precluded the introduction of such evidence at 
        or before that reconsideration.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on October 1, 2004.
  (b) Use of Patients' Medical Records.--Section 1869(c)(3)(B)(i) (42 
U.S.C. 1395ff(c)(3)(B)(i)), 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 paragraphs:
          ``(4) Requirements of notice of determinations.--With respect 
        to an initial determination insofar as it results in a denial 
        of a claim for benefits--
                  ``(A) the written notice on the determination shall 
                include--
                          ``(i) the reasons for the determination, 
                        including whether a local medical review policy 
                        or a local coverage determination was used;
                          ``(ii) the procedures for obtaining 
                        additional information concerning the 
                        determination, including the information 
                        described in subparagraph (B); and
                          ``(iii) notification of the right to seek a 
                        redetermination or otherwise appeal the 
                        determination and instructions on how to 
                        initiate such a redetermination under this 
                        section; and
                  ``(B) the person provided such notice may obtain, 
                upon request, the specific provision of the policy, 
                manual, or regulation used in making the determination.
          ``(5) Requirements of notice of redeterminations.--With 
        respect to a redetermination insofar as it results in a denial 
        of a claim for benefits--
                  ``(A) the written notice on the redetermination shall 
                include--
                          ``(i) the specific reasons for the 
                        redetermination;
                          ``(ii) as appropriate, a summary of the 
                        clinical or scientific evidence used in making 
                        the redetermination;
                          ``(iii) a description of the procedures for 
                        obtaining additional information concerning the 
                        redetermination; and
                          ``(iv) notification of the right to appeal 
                        the redetermination and instructions on how to 
                        initiate such an appeal under this section;
                  ``(B) such written notice shall be provided in 
                printed form and written in a manner calculated to be 
                understood by the individual entitled to benefits under 
                part A or enrolled under part B, or both; and
                  ``(C) the person provided such notice may obtain, 
                upon request, information on the specific provision of 
                the policy, manual, or regulation used in making the 
                redetermination.''.
          (2) Reconsiderations.--Section 1869(c)(3)(E) (42 U.S.C. 
        1395ff(c)(3)(E)), 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'), a reviewing 
                professional meets the qualifications described in 
                paragraph (4) and, where a claim is regarding the 
                furnishing of treatment by a physician (allopathic or 
                osteopathic) or the provision of items or services by a 
                physician (allopathic or osteopathic), a reviewing 
                professional shall be a physician (allopathic or 
                osteopathic).
          ``(2) Independence.--
                  ``(A) In general.--Subject to subparagraph (B), each 
                individual conducting a review in a case shall--
                          ``(i) not be a related party (as defined in 
                        paragraph (5));
                          ``(ii) not have a material familial, 
                        financial, or professional relationship with 
                        such a party in the case under review; and
                          ``(iii) not otherwise have a conflict of 
                        interest with such a party.
                  ``(B) Exception.--Nothing in subparagraph (A) shall 
                be construed to--
                          ``(i) prohibit an individual, solely on the 
                        basis of a participation agreement with a 
                        fiscal intermediary, carrier, or other 
                        contractor, from serving as a reviewing 
                        professional if--
                                  ``(I) the individual is not involved 
                                in the provision of items or services 
                                in the case under review;
                                  ``(II) the fact of such an agreement 
                                is disclosed to the Secretary and the 
                                individual entitled to benefits under 
                                part A or enrolled under part B, or 
                                both, (or authorized representative) 
                                and neither party objects; and
                                  ``(III) the individual is not an 
                                employee of the intermediary, carrier, 
                                or contractor and does not provide 
                                services exclusively or primarily to or 
                                on behalf of such intermediary, 
                                carrier, or contractor;
                          ``(ii) prohibit an individual who has staff 
                        privileges at the institution where the 
                        treatment involved takes place from serving as 
                        a reviewer merely on the basis of having such 
                        staff privileges if the existence of such 
                        privileges is disclosed to the Secretary and 
                        such individual (or authorized representative), 
                        and neither party objects; or
                          ``(iii) prohibit receipt of compensation by a 
                        reviewing professional from a contractor if the 
                        compensation is provided consistent with 
                        paragraph (3).
                For purposes of this paragraph, the term `participation 
                agreement' means an agreement relating to the provision 
                of health care services by the individual and does not 
                include the provision of services as a reviewer under 
                this subsection.
          ``(3) Limitations on reviewer compensation.--Compensation 
        provided by a qualified independent contractor to a reviewer in 
        connection with a review under this section shall not be 
        contingent on the decision rendered by the reviewer.
          ``(4) Licensure and expertise.--Each reviewing professional 
        shall be--
                  ``(A) a physician (allopathic or osteopathic) who is 
                appropriately credentialed or licensed in one or more 
                States to deliver health care services and has medical 
                expertise in the field of practice that is appropriate 
                for the items or services at issue; or
                  ``(B) a health care professional who is legally 
                authorized in one or more States (in accordance with 
                State law or the State regulatory mechanism provided by 
                State law) to furnish the health care items or services 
                at issue and has medical expertise in the field of 
                practice that is appropriate for such items or 
                services.
          ``(5) Related party defined.--For purposes of this section, 
        the term `related party' means, with respect to a case under 
        this title involving a specific individual entitled to benefits 
        under part A or enrolled under part B, or both, any of the 
        following:
                  ``(A) The Secretary, the medicare administrative 
                contractor involved, or any fiduciary, officer, 
                director, or employee of the Department of Health and 
                Human Services, or of such contractor.
                  ``(B) The individual (or authorized representative).
                  ``(C) The health care professional that provides the 
                items or services involved in the case.
                  ``(D) The institution at which the items or services 
                (or treatment) involved in the case are provided.
                  ``(E) The manufacturer of any drug or other item that 
                is included in the items or services involved in the 
                case.
                  ``(F) Any other party determined under any 
                regulations to have a substantial interest in the case 
                involved.''.
          (3) Reducing minimum number of qualified independent 
        contractors.--Section 1869(c)(4) (42 U.S.C. 1395ff(c)(4)) is 
        amended by striking ``not fewer than 12 qualified independent 
        contractors under this subsection'' and inserting ``with a 
        sufficient number of qualified independent contractors (but not 
        fewer than 4 such contractors) to conduct reconsiderations 
        consistent with the timeframes applicable under this 
        subsection''.
          (4) Effective date.--The amendments made by paragraphs (1) 
        and (2) shall be effective as if included in the enactment of 
        the respective provisions of subtitle C of title V of BIPA, 
        (114 Stat. 2763A-534).
          (5) Transition.--In applying section 1869(g) of the Social 
        Security Act (as added by paragraph (2)), any reference to a 
        medicare administrative contractor shall be deemed to include a 
        reference to a fiscal intermediary under section 1816 of the 
        Social Security Act (42 U.S.C. 1395h) and a carrier under 
        section 1842 of such Act (42 U.S.C. 1395u).

SEC. 934. PREPAYMENT REVIEW.

  (a) In General.--Section 1874A, as added by section 911(a)(1) and as 
amended by sections 912(b), 921(b)(1), and 921(c)(1), is further 
amended by adding at the end the following new subsection:
  ``(h) Conduct of Prepayment Review.--
          ``(1) Conduct of random prepayment review.--
                  ``(A) In general.--A medicare administrative 
                contractor may conduct random prepayment review only to 
                develop a contractor-wide or program-wide claims 
                payment error rates or under such additional 
                circumstances as may be provided under regulations, 
                developed in consultation with providers of services 
                and suppliers.
                  ``(B) Use of standard protocols when conducting 
                prepayment reviews.--When a medicare administrative 
                contractor conducts a random prepayment review, the 
                contractor may conduct such review only in accordance 
                with a standard protocol for random prepayment audits 
                developed by the Secretary.
                  ``(C) Construction.--Nothing in this paragraph shall 
                be construed as preventing the denial of payments for 
                claims actually reviewed under a random prepayment 
                review.
                  ``(D) Random prepayment review.--For purposes of this 
                subsection, the term `random prepayment review' means a 
                demand for the production of records or documentation 
                absent cause with respect to a claim.
          ``(2) Limitations on non-random prepayment review.--
                  ``(A) Limitations on initiation of non-random 
                prepayment review.--A medicare administrative 
                contractor may not initiate non-random prepayment 
                review of a provider of services or supplier based on 
                the initial identification by that provider of services 
                or supplier of an improper billing practice unless 
                there is a likelihood of sustained or high level of 
                payment error (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. 935. RECOVERY OF OVERPAYMENTS.

  (a) In General.--Section 1893 (42 U.S.C. 1395ddd) is amended by 
adding at the end the following new subsection:
  ``(f) Recovery of Overpayments.--
          ``(1) Use of repayment plans.--
                  ``(A) In general.--If the repayment, within 30 days 
                by a provider of services or supplier, of an 
                overpayment under this title would constitute a 
                hardship (as 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. 936. PROVIDER ENROLLMENT PROCESS; RIGHT OF APPEAL.

  (a) In General.--Section 1866 (42 U.S.C. 1395cc) is amended--
          (1) by adding at the end of the heading the following: ``; 
        enrollment processes''; and
          (2) by adding at the end the following new subsection:
  ``(j) Enrollment Process for Providers of Services and Suppliers.--
          ``(1) Enrollment process.--
                  ``(A) In general.--The Secretary shall establish by 
                regulation a process for the enrollment of providers of 
                services and suppliers under this title.
                  ``(B) Deadlines.--The Secretary shall establish by 
                regulation procedures under which there are deadlines 
                for actions on applications for enrollment (and, if 
                applicable, renewal of enrollment). The Secretary shall 
                monitor the performance of medicare administrative 
                contractors in meeting the deadlines established under 
                this subparagraph.
                  ``(C) Consultation before changing provider 
                enrollment forms.--The Secretary shall consult with 
                providers of services and suppliers before making 
                changes in the provider enrollment forms required of 
                such providers and suppliers to be eligible to submit 
                claims for which payment may be made under this title.
          ``(2) Hearing rights in cases of denial or non-renewal.--A 
        provider of services or supplier whose application to enroll 
        (or, if applicable, to renew enrollment) under this title is 
        denied may have a hearing and judicial review of such denial 
        under the procedures that apply under subsection (h)(1)(A) to a 
        provider of services that is dissatisfied with a determination 
        by the Secretary.''.
  (b) Effective Dates.--
          (1) Enrollment process.--The Secretary shall provide for the 
        establishment of the enrollment process under section 
        1866(j)(1) of the Social Security Act, as added by subsection 
        (a)(2), within 6 months after the date of the enactment of this 
        Act.
          (2) Consultation.--Section 1866(j)(1)(C) of the Social 
        Security Act, as added by subsection (a)(2), shall apply with 
        respect to changes in provider enrollment forms made on or 
        after January 1, 2004.
          (3) Hearing rights.--Section 1866(j)(2) of the Social 
        Security Act, as added by subsection (a)(2), shall apply to 
        denials occurring on or after such date (not later than 1 year 
        after the date of the enactment of this Act) as the Secretary 
        specifies.

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

  (a) Claims.--The Secretary shall develop, in consultation with 
appropriate medicare contractors (as defined in section 1889(g) of the 
Social Security Act, as inserted by section 301(a)(1)) and 
representatives of providers of services and suppliers, a process 
whereby, in the case of minor errors or omissions (as defined by the 
Secretary) that are detected in the submission of claims under the 
programs under title XVIII of such Act, a provider of services or 
supplier is given an opportunity to correct such an error or omission 
without the need to initiate an appeal. Such process shall include the 
ability to resubmit corrected claims.
  (b) Permitting Use of Corrected and Supplementary Data.--
          (1) In general.--Section 1886(d)(10)(D)(vi) (42 U.S.C. 
        1395ww(d)(10)(D)(vi)) is amended by adding after subclause (II) 
        at the end the following:
``Notwithstanding subclause (I), a hospital may submit, and the 
Secretary may accept upon verification, data that corrects or 
supplements the data described in such subclause without regard to 
whether the corrected or supplementary data relate to a cost report 
that has been settled.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to fiscal years beginning with fiscal year 2004.
          (3) Submittal and resubmittal of applications permitted for 
        fiscal year 2004.--
                  (A) In general.--Notwithstanding any other provision 
                of law, a hospital may submit (or resubmit) an 
                application for a change described in section 
                1886(d)(10)(C)(i)(II) of the Social Security Act for 
                fiscal year 2004 if the hospital demonstrates on a 
                timely basis to the satisfaction of the Secretary that 
                the use of corrected or supplementary data under the 
                amendment made by paragraph (1) would materially affect 
                the approval of such an application.
                  (B) Application of budget neutrality.--If one or more 
                hospital's applications are approved as a result of 
                paragraph (1) and subparagraph (A) for fiscal year 
                2004, the Secretary shall make a proportional 
                adjustment in the standardized amounts determined under 
                section 1886(d)(3) of the Social Security Act (42 
                U.S.C. 1395ww(d)(3)) for fiscal year 2004 to assure 
                that approval of such applications does not result in 
                aggregate payments under section 1886(d) of such Act 
                that are greater or less than those that would 
                otherwise be made if paragraph (1) and subparagraph (A) 
                did not apply.

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

  (a) In General.--Section 1869 (42 U.S.C. 1395ff(b)), as amended by 
sections 521 and 522 of BIPA and section 933(d)(2)(B), is further 
amended by adding at the end the following new subsection:
  ``(h) Prior Determination Process for Certain Items and Services.--
          ``(1) Establishment of process.--
                  ``(A) In general.--With respect to a medicare 
                administrative contractor that has a contract under 
                section 1874A that provides for making payments under 
                this title with respect to 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 (5)) has 
        been provided and on instances in which a beneficiary indicates 
        on such a notice that the beneficiary does not intend to seek 
        to have the item or service that is the subject of the notice 
        furnished.
          (2) Outreach and education.--The Secretary shall establish a 
        program of outreach and education for beneficiaries and 
        providers of services and other persons on the appropriate use 
        of advance beneficiary notices and coverage policies under the 
        medicare program.
          (3) GAO report 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 V--Miscellaneous Provisions

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

  (a) In General.--The Secretary may not implement any new 
documentation guidelines for, or clinical examples of, 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, 2005, 
        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, 2005, the Secretary shall submit a report to 
Congress on such study and shall include recommendations on how to code 
appropriately for such visits in a manner that takes into account the 
amount of time the physician spent with the patient.
  (f) Definitions.--In this section--
          (1) the term ``rural area'' has the meaning given that term 
        in section 1886(d)(2)(D) of the Social Security Act, 42 U.S.C. 
        1395ww(d)(2)(D); and
          (2) the term ``teaching settings'' are those settings 
        described in section 415.150 of title 42, Code of Federal 
        Regulations.

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

  (a) Council for Technology and Innovation.--Section 1868 (42 U.S.C. 
1395ee), as amended by section 921(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.''.
  (b) Methods for Determining Payment Basis For New Lab Tests.--Section 
1833(h) (42 U.S.C. 1395l(h)) is amended by adding at the end the 
following:
  ``(8)(A) The Secretary shall establish by regulation procedures for 
determining the basis for, and amount of, payment under this subsection 
for any clinical diagnostic laboratory test with respect to which a new 
or substantially revised HCPCS code is assigned on or after January 1, 
2005 (in this paragraph referred to as `new tests').
  ``(B) Determinations under subparagraph (A) shall be made only after 
the Secretary--
          ``(i) makes available to the public (through an Internet 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).''.
  (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, 2004, the 
        Comptroller General shall submit a report to Congress on the 
        study under paragraph (1).
  (d) Process for Adoption of ICD Codes as Data Standard.--Section 
1172(f) (42 U.S.C. 1320d-1(f)) is amended by inserting after the first 
sentence the following: ``Notwithstanding the preceding sentence, if 
the National Committee on Vital and Health Statistics has not made a 
recommendation to the Secretary before the date of the enactment of 
this sentence, with respect to the adoption of the International 
Classification of Diseases, 10th Revision, Procedure Coding System 
(`ICD-10-PCS') and the International Classification of Diseases, 10th 
Revision, Clinical Modification (`ICD-10-CM') as a standard under this 
part for the reporting of diagnoses, the Secretary may adopt ICD-10-PCS 
and ICD-10-CM as such a standard on or after 1 year after such date 
without receiving such a recommendation.''.

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

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

SEC. 944. EMTALA IMPROVEMENTS.

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

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

SEC. 946. AUTHORIZING USE OF ARRANGEMENTS TO PROVIDE CORE HOSPICE 
                    SERVICES IN CERTAIN CIRCUMSTANCES.

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

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

  (a) In General.--Section 1866 (42 U.S.C. 1395cc) 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, 2004.

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

  (a) Technical Amendments Relating to Advisory Committee under BIPA 
Section 522.--(1) Subsection (i) of section 1114 (42 U.S.C. 1314)--
          (A) is transferred to section 1862 and added at the end of 
        such section; and
          (B) is redesignated as subsection (j).
  (2) Section 1862 (42 U.S.C. 1395y) is amended--
          (A) in the last sentence of subsection (a), by striking 
        ``established under section 1114(f)''; and
          (B) in subsection (j), as so transferred and redesignated--
                  (i) by striking ``under subsection (f)''; and
                  (ii) by striking ``section 1862(a)(1)'' and inserting 
                ``subsection (a)(1)''.
  (b) Terminology Corrections.--(1) Section 1869(c)(3)(I)(ii) (42 
U.S.C. 1395ff(c)(3)(I)(ii)), 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. 949. CONFORMING AUTHORITY TO WAIVE A PROGRAM EXCLUSION.

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

SEC. 950. TREATMENT OF CERTAIN DENTAL CLAIMS.

  (a) In General.--Section 1862 (42 U.S.C. 1395y) is amended by adding 
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. 951. FURNISHING HOSPITALS WITH INFORMATION TO COMPUTE DSH FORMULA.

  Beginning not later than 1 year after the date of the enactment of 
this Act, the Secretary shall furnish to subsection (d) hospitals (as 
defined in section 1886(d)(1)(B) of the Social Security Act, 42 U.S.C. 
1395ww(d)(1)(B)) the data necessary for such hospitals to compute the 
number of patient days described in subclause (II) of section 
1886(d)(5)(F)(vi) of the Social Security Act (42 U.S.C. 
1395ww(d)(5)(F)(vi)) used in computing the disproportionate patient 
percentage under such section for that hospital. Such data shall also 
be furnished to other hospitals which would qualify for additional 
payments under part A of title XVIII of the Social Security Act on the 
basis of such data.

SEC. 952. REVISIONS TO REASSIGNMENT PROVISIONS.

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

SEC. 953. OTHER PROVISIONS.

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

SEC. 954. TEMPORARY SUSPENSION OF OASIS REQUIREMENT FOR COLLECTION OF 
                    DATA ON NON-MEDICARE AND NON-MEDICAID PATIENTS.

  (a) In General.--During the period described in subsection (b), the 
Secretary may not require, under section 4602(e) of the Balanced Budget 
Act of 1997 or otherwise under OASIS, a home health agency to gather or 
submit information that relates to an individual who is not eligible 
for benefits under either title XVIII or title XIX of the Social 
Security Act (such information in this section referred to as ``non-
medicare/medicaid OASIS information'').
  (b) Period of Suspension.--The period described in this subsection--
          (1) begins on the date of the enactment of this Act; and
          (2) ends on the last day of the 2nd month beginning after the 
        date as of which the Secretary has published final regulations 
        regarding the collection and use by the Centers for Medicare & 
        Medicaid Services of non-medicare/medicaid OASIS information 
        following the submission of the report required under 
        subsection (c).
  (c) Report.--
          (1) Study.--The Secretary shall conduct a study on how non-
        medicare/medicaid OASIS information is and can be used by large 
        home health agencies. Such study shall examine--
                  (A) whether there are unique benefits from the 
                analysis of such information that cannot be derived 
                from other information available to, or collected by, 
                such agencies; and
                  (B) the value of collecting such information by small 
                home health agencies compared to the administrative 
                burden related to such collection.
        In conducting the study the Secretary shall obtain 
        recommendations from quality assessment experts in the use of 
        such information and the necessity of small, as well as large, 
        home health agencies collecting such information.
          (2) Report.--The Secretary shall submit to Congress a report 
        on the study conducted under paragraph (1) by not later than 18 
        months after the date of the enactment of this Act.
  (d) Construction.--Nothing in this section shall be construed as 
preventing home health agencies from collecting non-medicare/medicaid 
OASIS information for their own use.

                            I. INTRODUCTION


                      A. Purpose and Summary, and


                 B. Background and Need for Legislation

    Nearly four decades ago, Congress enacted the Medicare 
program to help provide health care to our nation's seniors. 
Medicare has improved and lengthened the lives of millions of 
people. In recent years, Congress has both successfully slowed 
Medicare's growth rate and added new preventive benefits to 
keep seniors healthier. Yet Medicare has still not met its true 
promise because it remains mired in a rigid administrative 
structure that can only change when Congress enacts a law.
    When Medicare was enacted, there were few prescription 
drugs, and most care was delivered in hospitals and physician 
offices. Consequently, Medicare did not cover prescription 
drugs. While about two-thirds of seniors have some prescription 
drug coverage through various sources, access to such coverage 
has been declining and oftentimes remains inadequate. Many 
other seniors lack prescription drug coverage, and therefore, 
they lack the bargaining power to reduce their drug costs.
    Prescription drugs are an integral part of health care 
today. They prevent and manage diseases and most often are less 
invasive and costly than alternative health care options (e.g. 
surgery, hospitalization, nursing home admission, etc.). Most 
private health plans have voluntarily integrated prescription 
drugs into their benefits. Nobody today with a blank sheet of 
paper would design a health care program for seniors that 
excluded prescription drugs. Yet, the absence of a prescription 
drug benefit epitomizes how Medicare has not kept pace with 
modern medicine. While a Medicare prescription drug benefit is 
long overdue, it is not the only problem afflicting a program 
so many cherish and want to strengthen.
    Irrational and unpredictable payments to physicians are 
just one example of what is wrong with Medicare's reimbursement 
policy. While health costs are escalating under the current 
Sustainable Growth Rate formula, payments to physicians under 
current law would be substantially reduced. Patients' access to 
physicians will suffer and the doctors beneficiaries rely on 
will only become more demoralized. Similarly, rural hospitals 
continue to struggle and are not paid equitably compared to 
large urban hospitals. In addition, numerous Medicare+Choice 
plans are withdrawing from the program and are substantially 
cutting benefits because government payments are not related to 
the actual cost of providing health care.
    At the same time, Medicare is overpaying on other counts, 
such as for durable medical equipment. The Office of Inspector 
General has documented that taxpayers and Medicare 
beneficiaries are paying millions more for durable medical 
equipment than other programs, such as the Federal Employees 
Health Benefit Program (FEHBP). Similarly, numerous studies by 
the General Accounting Office, Office of Inspector General and 
others have documented tremendous overpayments to oncologists 
and other physicians for currently covered prescription drugs. 
In some cases, the beneficiary copay exceeds the actual 
acquisition cost of the drug.
    In addition, the health care professionals serving Medicare 
beneficiaries are being crushed by more than 130,000 pages of 
overly burdensome regulations--four times more than those 
governing the Internal Revenue Code. This over-regulation 
hampers efforts to provide quality care to seniors, and it must 
be changed.
    Finally, and most importantly, Medicare's long-term 
viability is not on stable ground. When Medicare was enacted, 
there were more than six workers per beneficiary. Today, there 
are about four workers per beneficiary. After the baby-boom 
generation retires (which starts at the end of this decade), 
there will be about two workers per beneficiary. Absent any 
change in law, Medicare costs will nearly double over the next 
10 years. Medicare needs to become more efficient.
    This bill addresses all of these issues and more.
    First and foremost, the bill provides a voluntary, 
affordable prescription drug benefit as an entitlement to all 
beneficiaries. The proposal is within the $400 billion over 10 
years allocated under the budget resolution. Under the bill, 
Medicare beneficiaries would pay a $250 deductible and then 
receive 80 percent coverage of their annual drug costs up to 
$2,000. This 80-20 benefit looks like standard coverage offered 
by employer plans, and today nearly two-thirds of beneficiaries 
spend less than $2,000 on drugs annually. In addition, the bill 
provides catastrophic protection after an individual has 
incurred $3,500 in out-of-pocket costs. At that threshold, 100 
percent of costs will be covered. The Congressional Budget 
Office (CBO) estimates the average monthly beneficiary premium 
to be about $35.
    Additionally, the bill targets resources to those who need 
them most. For low-income seniors up to 135 percent of poverty, 
premiums would be fully subsidized and all cost-sharing, except 
for nominal copays, would be covered. Those with incomes 
between 135 and 150 percent would also receive assistance for 
their premiums. Seniors with incomes above $60,000 or couples 
with incomes above $120,000 would have a higher catastrophic 
threshold, but would receive the same front-end benefit. This 
higher threshold would affect only about five percent of 
individuals.
    The prescription drug benefit would be delivered through 
competing integrated health plans and private sector entities 
that already deliver pharmaceutical benefits for millions of 
people, including every Member of Congress. The bill permits 
and encourages these plans to utilize private sector tools to 
aggressively negotiate lower drug prices and provide better 
service for beneficiaries. By exempting prices negotiated for 
Medicare beneficiaries from the Medicaid ``best price'' 
provision, the bill encourages steep discounting by 
pharmaceutical manufacturers that would save taxpayers and 
beneficiaries billions of dollars. The private sector delivery 
of benefits is backed up by a government guarantee that all 
seniors in every area of the country must be covered. Indeed, 
the Congressional Budget Office and the Centers for Medicare 
and Medicaid Services (CMS) Office of the Actuary predicts that 
more than 95 percent of the seniors that lack coverage would 
voluntarily sign up for this benefit.
    The bill would provide seniors with more and better choices 
for the delivery of their health care. The Medicare+Choice 
program would be fundamentally reformed by re-linking payments 
to fee-for-service costs and permitting plans to bid their 
actual costs, beginning in2006. Plans would be paid what they 
bid and savings would be split 75 percent-25 percent between the 
beneficiary and government for plans that bid below the benchmark. The 
bill would also implement the President's ``enhanced fee-for-service'' 
program, which provides for regional, open-network plans offering 
better integrated care.
    In 2010, the bill would put Medicare on a more stable 
funding path by moving to a FEHBP-style of competition between 
plans. Nothing would change Medicare's entitlement to a defined 
set of benefits, but costs between fee-for-service and private 
plans would be directly compared. Beneficiaries would be 
rewarded for enrolling in more efficient plans, regardless of 
whether the plans are private or traditional fee-for-service. 
This program would only apply in areas with significant private 
plan penetration (at least equal to the national average market 
share), and the fee-for-service plan would have 
disproportionate influence in establishing the benchmark. This 
transition would be phased in over five years. This provision 
provides Medicare the best chance to bend its growth rate in 
the out-years by enabling beneficiaries to make efficient and 
rational choices, and by permitting the government to share in 
the savings when beneficiaries select cost-effective plans.
    More than 179 different patient groups, provider groups, 
and employers have endorsed this legislation because it 
provides a meaningful benefit, modernizes irrational 
reimbursements, and reduces burdensome regulatory structures 
that undermine the quality and accessibility of care. The bill 
reforms physician payments, addresses payment inequities for 
rural hospitals and home health providers, and makes 
responsible decisions on provider reimbursements based on the 
Medicare Payment Advisory Commission's recommendations. More 
importantly, the legislation sets Medicare on a path of more 
rational pricing--determined by the marketplace, rather than 
government edict--through moving durable medical equipment, 
currently covered drugs, and Medicare's contractors into a 
competitive system. In addition to creating a more rational 
system that saves money over time, these changes get Congress 
out of the business of micro-managing payments to providers 
across communities in America based on political decisions in 
Washington.
    The bill provides clear improvements for preventive 
benefits for beneficiaries. For the first time, in order to 
diagnose problems early and keep seniors healthy, Medicare 
would cover initial physicals and provide coverage for 
cholesterol screening. The bill would also provide better-
coordinated care for the numerous Medicare beneficiaries who 
suffer from multiple chronic illnesses.
    The bill also includes regulatory and contracting reforms--
reforms that passed the House twice in the 107th Congress--to 
reduce unnecessary regulation and modernize how Medicare 
selects its contractors.
    Finally, the bill also establishes a new Medicare Benefits 
Administration (MBA) to manage and oversee the Medicare 
Advantage and Enhanced Fee-for-Service Programs as well as the 
prescription drug benefit. Creating of the MBA eliminates the 
inherent conflict-of-interest in requiring a government-run 
fee-for-service plan to regulate competing private plans.

                         C. Legislative History


Legislative Hearings

    During the 107th and 108th Congresses, the Committee on 
Ways and Means, and its Subcommittee on Health, held 24 
hearings exploring how Medicare should be strengthened and 
modernized. These hearings, which examined all aspects of the 
Medicare program, included expert testimony from academic, 
beneficiary and provider representatives. The following lists 
the hearings in the 107th and 108th Congresses in reverse 
chronological order:

                             108TH CONGRESS

May 1, 2003: Medicare Cost-Sharing and Medigap Reform (Subcommittee on 
        Health)

Witnesses

    Glenn M. Hackbarth, Chairman, Medicare Payment Advisory 
Commission.
    Stephen W. Still, Esq., Maynard, Cooper & Gale, P.C., 
Birmingham, Alabama, on behalf of Torchmark Corporation, 
Birmingham, Alabama, and United American Insurance Company, 
McKinney, Texas.
    Richard White, Vice President, Individual Project 
Management, Southeast Region, Anthem Blue Cross and Blue 
Shield, Roanoke, Virginia.
    Patricia Neuman, Sc. D., Vice President and Director, 
Medicare Policy Project, Kaiser Medicare Policy Project, Henry 
J. Kaiser Family Foundation.

April 9, 2003: Hearing on Expanding Coverage of Prescription Drugs in 
        Medicare (Full Committee)

Witnesses

    Douglas Holtz-Eakin, Ph.D., Director, Congressional Budget 
Office.
    The Honorable David M. Walker, Comptroller General, U.S. 
General Accounting Office.
    Bruce Stewart, Ph.D., Director, Peter Lamy Center on Drug 
Therapy and Aging, University of Maryland, Baltimore, Maryland.
    Mark V. Pauly, Ph.D., Chairperson, Health Care Systems 
Department, The Wharton School, University of Pennsylvania, 
Philadelphia, Pennsylvania.
    Uwe Reinhardt, Ph.D., Professor, Economics and Public 
Affairs, Department of Economics, and Woodrow Wilson School of 
Public and International Affairs, Princeton University, 
Princeton, New Jersey

March 6, 2003: Hearing on the MedPAC Report on Medicare Payment 
        Policies (Subcommittee on Health)

Witnesses

    Glenn M. Hackbarth, Chairman, MedPAC.
    James Jaruzewicz, President and Chief Executive Officer, 
Visiting Nurses Association of Erie County, Erie, Pennsylvania, 
on behalf of the Visiting Nurses Association of America.
    Larry C. Buckelew, President and Chief Executive Officer, 
Gambro Healthcare U.S., and Chairman, Renal Leadership Council.
    William G. Plested, III, M.D., Chair-Elect, American 
Medical Association.
    Mary K. Ousley, Chairman, American Health Care Association.
    Dennis Barry, President and Chief Executive Officer, Moses 
Cone Health System, Greensboro, North Carolina, and Chairman, 
Board of Trustees, American Hospital Association.
    Betty Severyn, Member, Board of Directors, AARP.

February 25, 2003: Hearing on Eliminating Barriers to Chronic Care 
        Management in Medicare (Subcommittee on Health)

Witnesses

    Stuart Guterman, Director, Office of Research, Development 
and Information, Centers for Medicare and Medicaid Services.
    Jeff Lemieux, Senior Economist, Progressive Policy 
Institute.
    Ed Wagner, M.D., Director, MacColl Institute for Healthcare 
Innovation, Center for Health Studies, Group Health 
Cooperative, Seattle, Washington.
    George A. Taler, M.D., Director, Long Term Care, Department 
of Medicine, Washington Hospital Center, on behalf of the 
American Geriatric Society.
    Jan Berger, M.D., Senior Vice President, Clinical Quality 
and Support, Caremark Rx Incorporated, Northbrook, Illinois.

February 13, 2003: Hearing on Medicare Regulatory and Contracting 
        Reform (Subcommittee on Health)

Witnesses

    The Honorable Thomas A. Scully, Administrator, Centers for 
Medicare and Medicaid Services.
    Douglas L. Wood, M.D., Vice Chair, Department of Medicine, 
Mayo Clinic and Foundation, Rochester, Minnesota.
    Michael Luebke, President, Verizon Information Technologies 
Inc., Tampa, Florida.
    Tony Fay, Vice President, Government Affairs, Province 
Healthcare Company, Brentwood, Tennessee, on behalf of the 
American Hospital Association.
    J. Edward Hill, M.D., Chairman, Board of Trustees, American 
Medical Association.
    Janet B. Wolf, President, Munson Home Health, Traverse 
City, Michigan, and Past President, Board of Directors, 
Michigan Home Health Association, Okemos, Michigan, on behalf 
of the National Association for Home Care and Hospice.
    Judith A. Ryan, Ph.D., President and Chief Executive 
Officer, Evangelical Lutheran Good Samaritan Society, Sioux 
Falls, South Dakota, on behalf of the American Health Care 
Association.
    Michael Carius, M.D., Immediate Past President, American 
College of Emergency Physicians, Norwalk, Connecticut, and 
Founding Member, Alliance of Specialty Medicine.
    Vicki Gottlich, Attorney, Healthcare Rights Project, Center 
for Medicare Advocacy, Inc.

February 6, 2003: Hearing on the President's Fiscal Year 2004 Budget 
        with U.S. Department of Health and Human Services (Full 
        Committee)

Witness

    The Honorable Tommy G. Thompson, Secretary, U.S. Department 
of Health and Human Services.

                             107TH CONGRESS

October 3, 2002: Medicare Payments for Currently Covered 
        Prescription Drugs (Subcommittee on Health)
July 23, 2002: Medicare's Geographic Cost Adjusters 
        (Subcommittee on Health)
April 17, 2002: Integrating Prescription Drugs into Medicare 
        (Full Committee)
April 16, 2002: Promoting Disease Management in Medicare 
        (Subcommittee on Health)
March 14, 2002: Medicare Supplemental Insurance (Subcommittee 
        on Health)
March 7, 2002: Health Quality and Medical Errors (Subcommittee 
        on Health)
February 28, 2002: Reforming Physician Payments (Subcommittee 
        on Health)
December 4, 2001: Status of the Medicare+Choice Program 
        (Subcommittee on Health)
September 25, 2001: H.R. 2768, Medicare Regulatory and 
        Contracting Reform Act (Subcommittee on Health)
July 19, 2001: Administration's Principles to Strengthen and 
        Modernize Medicare (Full Committee)
June 12, 2001: Rural Health Care in Medicare (Subcommittee on 
        Health)
May 9, 2001: Strengthening Medicare: Modernizing Beneficiary 
        Cost-Sharing (Subcommittee on Health)
May 1, 2001: Medicare+Choice: Lessons for Reform (Subcommittee 
        on Health)
March 27, 2001: Laying the Groundwork for a Prescription Drug 
        Benefit (Subcommittee on Health)
March 20, 2001: Medicare Solvency (Full Committee)
March 15, 2001: Bringing Regulatory Relief to Beneficiaries and 
        Providers (Subcommittee on Health)
March 14, 2001: Administration's Health and Welfare Priorities 
        (Full Committee)
February 28, 2001: Perspectives on Medicare Reform 
        (Subcommittee on Health)

    On April 11, 2003, Congress agreed to the conference report 
for H. Con. Res. 95, ``Establishing the congressional budget 
for the United States Government for fiscal year 2004 and 
setting forth appropriate budgetary levels for fiscal years 
2003 and 2005 through 2013,'' which provided $400 billion over 
10 years for Medicare modernization and prescription drugs.
    On June 16, 2003, Committee on Ways and Means Chairman Bill 
Thomas and Committee on Energy and Commerce Chairman Billy 
Tauzin introduced H.R. 2473, the ``Medicare Prescription Drug 
and Modernization Act of 2003''. (Identical language in the 
form of a report was released publicly June 13, 2003.) On June 
17, 2003, H.R. 2473 was marked up by the full Committee on Ways 
and Means and ordered favorably reported by a vote of 25-15, 
after adopted amendments--including the Thomas amendment in the 
nature of a substitute--were accepted into the bill. The 
amendments that were accepted to the Thomas amendment in the 
nature of a substitute were: (1) an amendment offered by Mrs. 
Johnson to instruct the Secretary of the U.S. Department of 
Health and Human Services to promptly evaluate existing codes 
for physician services associated with the administration of 
covered outpatient drugs; and to use existing processes to 
establish relative values for such services; (2) an en bloc 
amendment offered by Mr. Collins to exempt MA private FFS plans 
from compliance with the drug utilization management program, 
negotiation of discounts from manufacturers, disclosure of fact 
that generic drug is available at a lower cost, and TRICARE 
standards for participation; and (3) an amendment offered by 
Mr. Nussle and Mr. Pomeroy to adjust the Medicare inpatient 
hospital prospective payments system wage index to revise the 
labor-related share of such index, and to provide a five 
percent bonus payment to physicians operating in physician 
scarcity areas.

                     II. EXPLANATION OF PROVISIONS


             A. Title I--Medicare Prescription Drug Benefit


Section 101. Establishment of a Medicare Prescription Drug Benefit

                              CURRENT LAW

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

                        EXPLANATION OF PROVISION

    The provision would establish a new voluntary prescription 
drug benefit program under a new Medicare Part D of Title XVIII 
of the Social Security Act. Effective January 1, 2006, a new 
voluntary benefit would be established. Beneficiaries could 
purchase either ``standard coverage'' or actuarially equivalent 
coverage approved by the Secretary of Health and Human 
Services. In 2006, ``standard coverage'' would have a $250 
deductible, 80 percent coverage for costs between $251 and 
$2,000, and all costs after the individual has borne $3,500 in 
out-of-pocket spending (a.k.a. the catastrophic threshold). The 
catastrophic threshold would be raised for individuals with 
income above $60,000 and couples with income above $120,000. 
Subsidies would be provided for persons with income below 150 
percent of poverty. Coverage would be provided through PDPs, 
Medicare Advantage (MA) plans (formerly known as 
Medicare+Choice plans), or Enhanced Fee-For-Service plans 
(EFFS). The program would rely on private plans to provide 
coverage and to bear some of the financial risk for drug costs. 
Federal subsidies would be provided to encourage participation. 
Plans would be expected to negotiate prices for drugs. A new 
Medicare Benefits Administration (MBA), within the Department 
of Health and Human Services (HHS), would contract with plans.
            New Section 1860D-1. Benefits; Eligibility; Enrollment; and 
                    Coverage Period
    The new Section 1860A would specify that each individual 
entitled to Medicare Part A or enrolled in Medicare Part B 
would be entitled to obtain qualified prescription drug 
coverage under Medicare. MA plans and EFFS plans (MA-EFFS 
plans) would be required to offer qualified prescription drug 
coverage. An individual enrolled in a MA-EFFS plan would obtain 
their drug coverage through the plan. An individual not 
enrolled in either a Medicare Advantage or EFFS plan could 
enroll in a new PDP. The provision would specify that an 
individual eligible to make an election to enroll in a PDP, or 
with a MA-EFFS plan, would do so in accordance with regulations 
issued by the Administrator of the new MBA. Enrollments and 
changes in enrollment could occur only during a specified 
election period. The election periods would generally be the 
same as those established for MA-EFFS programs including annual 
coordinated election periods and special election periods. An 
individual discontinuing a MA election during the first year of 
eligibility would be permitted to enroll in a PDP at the same 
time as the election of coverage under the original fee-for-
service plan (FFS).
    An initial six month election period, beginning on October 
1, 2005, would be established for persons entitled to Part A or 
enrolled under Part B on that date. For persons first entitled 
to Part A or enrolled in Part B after that date, an initial 
election period that would be the same as that for initial Part 
B enrollment, would be established. The MBA Administrator would 
be required to establish special election periods for persons 
in specific circumstances, such as having and then 
involuntarily losing prescription drug coverage; enrollment 
delays or non-enrollment attributable to government action; 
becoming eligible for Medicaid drug coverage; or any such 
exceptional circumstance specified by the MBA Administrator 
(including circumstances pertaining to MA enrollment).
    Guaranteed issue and community-rating protections would be 
established for beneficiaries. Individuals electing qualified 
prescription drug coverage under a PDP plan or MA-EFFS plan 
could not be denied enrollment based on health status or other 
factor. MA provisions relating to priority enrollment (where 
capacity limits have been reached) and limitations on 
terminations of elections would apply to PDP sponsors.
    The provision would specify that PDP sponsors and MA-EFFS 
organizations providing qualified prescription drug coverage 
could not deny, limit, or condition the coverage or provision 
of benefits or increase the premium based on any health-related 
status factor in the case of persons who maintained continuous 
prescription drug coverage since the date they first qualified 
to elect drug coverage under Part D. Individuals who did not 
maintain continuous coverage could be subject to an adjusted 
premium in a manner reflecting the additional actuarial risk 
involved. Such risk would be established through an appropriate 
actuarial opinion.
    An individual would be considered to have had continuous 
prescription drug coverage if the individual could establish 
that he or she had coverage under one of the following (and 
coverage in one plan occurred no more than 63 days after 
termination of coverage in anotherplan): (1) a qualified PDP or 
MA-EFFS plan, (2) Medicaid, (3) a group health plan, but only if 
benefits were at least equivalent to benefits under a qualified PDP, 
(4) a Medigap plan, but only if the policy was in effect on January 1, 
2006, and only if the benefits were at least equivalent to benefits 
under a qualified PDP, (5) a state pharmaceutical assistance program, 
but only if benefits were at least equivalent to benefits under a 
qualified PDP, or (6) a veteran's plan, but only if benefits were at 
least equivalent to benefits under a qualified PDP. Individuals could 
apply to the MBA Administrator to waive the requirement that such 
coverage be at least equivalent to benefits under a qualified PDP if 
they could establish that they were not adequately informed that the 
coverage did not provide such level of coverage.
    PDP sponsors would make drug coverage available to all 
eligible individuals residing in the area--without regard to 
their health, economic status, or place of residence.
    Elections would take effect at the same time that they do 
for MA plans; however, no election could take effect before 
January 1, 2006. The MBA Administrator would provide for the 
termination of an election in the case of termination of Part A 
and Part B coverage or termination of an election for cause 
(including failure to pay the required premium).
            New Section 1860D-2. Requirements for Qualified 
                    Prescription Drug Coverage
    The new Section 1860D-2 would specify the requirements for 
qualified prescription drug coverage. Qualified coverage would 
be defined as either ``standard coverage'' or actuarially 
equivalent coverage.
    For 2006, ``standard coverage'' would have a $250 
deductible, 80 percent coverage for costs between $251 and 
$2,000, and full coverage for all costs after the individual 
has borne $3,500 in out-of-pocket spending (a.k.a. the 
catastrophic threshold). Beneficiaries would have access to 
negotiated discounts even where there would be no insurance 
benefit (between $2,000 in spending and $3,500 in out-of-pocket 
spending). Beginning in 2007, standard coverage thresholds 
would be increased by the annual percent increase in average 
per capita expenditures for covered outpatient drugs for 
beneficiaries (for the 12-month period ending in July of the 
previous year).
    Plans would be permitted to substitute cost-sharing 
schedules for costs up to the initial coverage limit ($2,000) 
that are actuarially consistent with the average expected 20 
percent cost-sharing up to the initial coverage limit. They 
could also apply tiered coinsurance, provided such coinsurance 
was actuarially consistent with the average 20 percent cost-
sharing requirements.
    Costs that would count toward meeting the catastrophic 
limit would only be considered incurred if they were paid for 
the deductible, cost-sharing, or benefits not paid because of 
application to the initial coverage limit. Costs would be 
treated as incurred costs only if they are paid by the 
individual (or by another family member on behalf of the 
individual), paid on behalf of a low-income individual under 
the subsidy provisions, under the Medicaid program, or by a 
state pharmaceutical assistance program. Substantial new 
assistance would be provided to those states with 
pharmaceutical assistance programs through the catastrophic 
benefit by requiring Medicare to pay 80 percent of the costs 
above the catastrophic limit. Any costs for which the 
individual was reimbursed by insurance or otherwise would not 
count toward incurred costs.
    The provision would increase the annual out-of-pocket 
threshold for each enrollee whose adjusted gross income exceeds 
a specified income threshold. The portion of income exceeding 
this income threshold ($60,000 for individuals and $120,000 for 
couples in 2006), but below an income threshold limit ($200,000 
in 2006), would be considered in making this calculation. The 
increase would be calculated as follows: first, the ratio of 
the annual out-of-pocket limit to the income limit would be 
calculated and expressed as a percent; for 2006, this would be 
$3,500 divided by $60,000, equaling about 5.8 percent. This 
percentage would be multiplied by income over the income 
threshold, not exceeding $140,000. Thus, the catastrophic out-
of-pocket limit would be $5,820 for an enrollee with an income 
of $100,000 and $11,620 for persons with incomes at $200,000 or 
above. Beginning in 2007, the income threshold and income 
threshold limit would be increased by the percentage increase 
in the consumer product index (CPI) for all urban consumers, 
rounding to the nearest $100.
    The amount used for making the income determination would 
be adjusted gross income Individuals filing joint returns would 
be treated separately with each person considered to have an 
adjusted gross income equal to one-half of the total. The 
determination would be the most recent return information 
disclosed by the Secretary of the Treasury to the Secretary of 
HHS before the beginning of the year. The Secretary, in 
coordination with the Secretary of the Treasury, would provide 
a procedure under which an enrollee could elect to use more 
recent information, including information for a taxable year 
ending in the current calendar year. Through the 1-800 toll 
free Medicare beneficiary line, individuals would have 
assistance in appealing a determination from the Medicare 
Ombudsman. The process would require: (1) the enrollee to 
provide the Secretary with the relevant portion of the more 
recent return, (2) verification by the Secretary of the 
Treasury, and (3) payment by the Secretary to the enrollee 
equal to the benefit payments that would have been payable 
under the plan if more recent information had been used. If 
such payments were made, the PDP sponsor would pay the 
Secretary the requisite amount, less the applicable reinsurance 
that would have applied.
    The Secretary would be required to provide, through the 
annual Medicare handbook, general information on the 
calculation of catastrophic out-of-pocket thresholds. The 
Secretary would periodically transmit to the Secretary of the 
Treasury the names and Social Security Numbers (SSNs) of 
enrollees in PDPs or MA-EFFS plans and request that the 
Secretary of the Treasury disclose income information. The 
Secretary would disclose to entities offering the plan the 
amount of the out-of-pocket threshold that would apply to a 
specified taxpayer. New confidentiality protections and severe 
criminal and civil penalties would apply to any unauthorized 
disclosure of information.
    The provision would permit a PDP or MA-EFFS sponsor to 
offer, subject to approval by the MBA Administrator, 
alternative coverage providing certain requirements were met. 
The actuarial value of total coverage would have to be at least 
equal to the actuarial value of standard coverage. The 
unsubsidized value of the coverage (i.e. the value of the 
coverage exceeding subsidy payments) would have to be equal to 
the unsubsidized value of standard coverage. The coverage would 
be designed (based on actuarially representative patterns of 
utilization) toprovide for payment of incurred costs up to the 
initial coverage limit of at least the same percentage of costs 
provided under standard coverage. Further, catastrophic protection 
would have to be the same as that under standard coverage. It could not 
vary.
    Both standard coverage and actuarially equivalent coverage 
would offer access to negotiated prices, including applicable 
discounts. Access would be provided even when no benefits were 
payable because of the application of cost-sharing or initial 
coverage limits. Insofar as a State elected to use these 
negotiated prices for its Medicaid program, the Medicaid drug 
payment provisions would not apply. Further, the negotiated 
prices would not be taken into account in making ``best price'' 
determinations under Medicaid. Under the current Medicaid best 
price policy, the largest discount a pharmaceutical 
manufacturer negotiates in the private market must be passed 
along to the Medicaid program as well. Since manufacturers can 
only influence market share and volume in the private sector, 
not Medicaid, the ``best price'' policy has led to less 
discounting by manufacturers. As a result, arbitrary price 
floors are created and consumers pay the price as competing 
manufacturers have had less incentive to steeply discount their 
prices. This provision saves Medicare billions of dollars by 
encouraging pharmaceutical manufacturers to offer the same 
discounts that private plans currently receive. For 
transparency reasons, the PDP or MA-EFFS sponsor would be 
required to disclose to the MBA Administrator the extent to 
which manufacturer discounts or rebates or other remunerations 
or price concessions are made available to the sponsor or 
organization and passed through to enrollees through 
pharmacies. Manufacturers would be required to disclose pricing 
information to the MBA Administrator under the same conditions 
currently required for Medicaid. Transparency in pricing and 
rebate arrangements is a key factor in ensuring beneficiaries 
and taxpayers are receiving the best value for their resources.
    Qualified prescription drug coverage could include coverage 
exceeding that specified for standard coverage or actuarially 
equivalent coverage. However, any additional coverage would be 
limited to covered outpatient drugs. The MBA Administrator 
could terminate a contract with a PDP or MA-EFFS sponsor if a 
determination was made that the sponsor or organizations 
engaged in activities intended to discourage enrollment of 
classes of eligible Medicare beneficiaries obtaining coverage 
through the plan on the basis of their higher likelihood of 
utilizing prescription drug coverage.
    Covered outpatient drugs would be defined to include: (1) a 
drug which may only be dispensed subject to a prescription and 
which is described in subparagraph (A)(i) or (A)(ii) of Section 
1927(k)(2) of the Social Security Act (relating to drugs 
covered under Medicaid), (2) a biological product described in 
paragraph B of such subsection, (3) insulin described in 
subparagraph C of such section, and (4) vaccines licensed under 
Section 351 of the Public Health Service Act. Drugs excluded 
from Medicaid coverage would be excluded from the definition 
except for smoking cessation drugs. The definition includes any 
use of a covered outpatient drug for a medically accepted 
indication. Drugs paid for under Medicare Part B would not be 
covered under Part D. A plan could elect to exclude a drug that 
would otherwise be covered, if the drug was excluded under the 
formulary and the exclusion was not successfully appealed under 
the new Section 1860D-3. In addition, a PDP or MA-EFFS sponsor 
could exclude from coverage, subject to reconsideration and 
appeals provisions, any drug that either does not meet 
Medicare's definition of medical necessity or is not prescribed 
in accordance with the plan or Part D. Beneficiaries could 
appeal the placement of a drug in a higher coinsurance tier to 
an external, independent entity.
            New Section 1860D-3. Beneficiary Protections for Qualified 
                    Prescription Drug Coverage
    The new Section 1860D-3 would specify required beneficiary 
protections. Plans would have to comply with guaranteed issue 
and community-rated premium requirements specified in the new 
Section 1860D-1, access to negotiated prices as specified in 
the new Section 1860D-2, and the non-discrimination provisions 
specified in the new Section 1860D-6.
    The PDP sponsors would be required to disclose to each 
enrolling beneficiary information about the plan's benefit 
structure, including information on: (1) access to covered 
drugs, including access through pharmacy networks, (2) how any 
formulary used by the sponsor functioned, (3) copayment and 
deductible requirements (including any applicable tiered 
copayment requirements), and (4) grievance and appeals 
procedures. In addition, beneficiaries would have the right to 
obtain more detailed plan information. The sponsor would be 
required to make available, through an Internet site and, on 
request, in writing, information regarding the basis for 
exclusion of any drug from the formulary. Plans must notify 
enrollees when a change has been made in the preferred status 
of a drug or biological, or if there has been a change in a 
beneficiary's coinsurance. Plans would be required to furnish 
to enrollees a detailed explanation of benefits, including 
information on benefits compared to the initial coverage limit 
and the applicable out-of-pocket threshold.
    PDP and MA-EFFs sponsors would be required to permit the 
participation of any pharmacy that met the plan's terms and 
conditions. Beneficiaries would be ensured access to any 
convenient local pharmacy that chose to participate in the 
plan. PDP and MA-EFFS sponsors could reduce coinsurance for 
their enrolled beneficiaries below the otherwise applicable 
level for drugs dispensed through in-network pharmacies; in no 
case could the reduction result in an increase in subsidy 
payments made by the MBA Administrator to the plan. Sponsors 
would be required to secure participation in its network of a 
sufficient number of pharmacies that dispense drugs directly to 
patients to assure convenient access. Mail order only pharmacy 
would be prohibited so that beneficiaries have access to a 
convenient bricks and mortar pharmacy. The MBA Administrator 
would establish convenient access rules that were no less 
favorable to enrollees than rules for convenient access 
established by the Secretary of Defense on June 1, 2003, for 
the TRICARE Retail Pharmacy program. The TRICARE standard 
specifies that, in an urban area, 90 percent of beneficiaries 
must be within two miles of a participating pharmacy; in a 
suburban area, 90 percent of beneficiaries must be within five 
miles of a participating pharmacy; and in rural areas, 70 
percent of beneficiaries must be within fifteen miles of a 
participating pharmacy. According to the Department of Defense, 
the TRICARE Retail Pharmacy program receives minimal access 
complaints each year, and problems and disputes related to 
access are resolved quickly. The rules would include adequate 
emergency access for enrolled beneficiaries. Sponsors would 
permit enrollees to receive benefits through a community 
pharmacy, rather than through mail-order, with any differential 
in cost paid by enrollees. Pharmacies could not be required to 
accept insurance risk as a condition of participation. It is 
important that pharmacies are not put at risk for events they 
cannot control, such as volume and frequency of prescriptions.
    PDP and MA-EFFS sponsors would be required to issue (and 
reissue as appropriate) a card or other technology that could 
be used by an enrolled beneficiary to assure access to 
negotiated prices for drugs when coverage is not otherwise 
provided under the plan. The MBA Administrator would provide 
for the development of uniform standards relating to a 
standardized format for the card or other technology. These 
standards would be compatible with the administrative 
simplification requirements of Title XI of the Social Security 
Act.
    There is no requirement to use a formulary, however, if a 
PDP or MA-EFFS sponsor uses a formulary, it would have to meet 
certain requirements. It would be required to establish an 
independent pharmaceutical and therapeutic committee free of 
conflict with the plan to develop and review the formulary. The 
committee would include at least one physician and one 
pharmacist with expertise in the care of elderly or disabled 
persons, and the majority of members would be physicians or 
pharmacists. The committee would be required, when developing 
and reviewing the formulary, to base clinical decisions on the 
strength of scientific evidence and standards of practice, 
including assessing peer-reviewed medical literature, such as 
randomized clinical trials, pharmacoeconomic studies, outcomes 
research data, and such other information the committee 
determined appropriate. Arbitrary determinations to exclude 
products from the formulary would not be permitted.
    The P&T committee would also take into account whether 
including a particular covered drug had therapeutic advantages 
in terms of safety and efficacy. In addition, the formulary 
would have to include at least two drugs within each 
therapeutic category and class of covered outpatient drugs, 
although not necessarily all drugs within such categories or 
classes. When establishing such classes, the committee would 
take into account the standards published in the United States 
Pharmacopoeia Drug Information. It would be required to make 
available to plan enrollees, through the Internet or otherwise, 
the clinical basis for the coverage of any drug on the 
formulary. The committee would be required to establish 
policies and procedures to educate and inform health care 
providers concerning the formulary. Any removal of a drug from 
the formulary could not occur until appropriate notice had been 
provided to beneficiaries and physicians. The plan would 
provide for periodic evaluation and analysis of treatment 
protocols and procedures. Further, the PDP or MA-EFFS sponsor 
would be required to provide for, as part of its overall 
appeals process, appeals of coverage denials regarding 
application of the formulary.
    Each PDP or MA-EFFS sponsor would ensure that each pharmacy 
or other dispenser informed enrolled beneficiaries at the time 
of purchase, of any price differential between their prescribed 
drug and the price of the lowest cost generic drug covered 
under the plan that was therapeutically equivalent and 
bioequivalent.
    The PDP or MA-EFFS sponsor would be required to have 
(directly, or indirectly through arrangements): (1) an 
effective cost and drug utilization management program, (2) 
quality assurance measures including a medication therapy 
management program, (3) for years beginning with 2007, an 
electronic prescription drug program, and (4) a program to 
control waste, fraud, and abuse. Utilization management 
programs would be required to include medically appropriate 
incentives to use generic drugs and therapeutic interchange 
where appropriate. Medication therapy management programs would 
be designed to assure, for beneficiaries at risk for potential 
medication problems such as beneficiaries with complex or 
chronic diseases (such as diabetes, asthma, hypertension, and 
congestive heart failure) or multiple prescriptions, that drugs 
under the plan were appropriately used to optimize therapeutic 
outcomes through improved medication use and to reduce the risk 
of adverse events, including adverse drug interactions. The 
program would be developed in cooperation with licensed 
pharmacists and physicians. The PDP sponsor would be required, 
when establishing fees for pharmacists and other providers, to 
take into account the resources and time associated with the 
medication therapy management program. MA private fee-for-
service plans would not be required to comply with the drug 
utilization management program, negotiate discounts from 
manufacturers, meet the TRICARE standards for participation, or 
disclose the fact that a lower priced generic drug is available 
at the time of purchase.
    The electronic prescription drug program would have to be 
consistent with national standards developed by the MBA 
Administrator. The program would be required to provide for 
electronic transmittal of prescriptions (except in emergencies 
and exceptional cases) and for provision of information to the 
prescribing health professional. To the extent feasible, the 
program would permit the prescribing health professional to 
provide, and be provided, information on an interactive real-
time basis. The electronic prescribing program would permit 
health professionals to access information on the different 
medications a senior may be taking--making it easier to prevent 
adverse drug interactions and side effects. In addition, 
electronic prescribing would cut down on both the costs and 
hassle that pharmacists incur trying to decipher a handwritten 
script. These systems will increase drug compliance and 
properly monitor drug utilization.
    The MBA Administrator would be required to provide for the 
development of national standards relating to the electronic 
prescription drug program. The standards would be compatible 
with those established for the administrative simplification 
program established under title XI of the Social Security Act. 
The MBA Administrator would establish an advisory task force 
that included representatives of physicians, hospitals, 
pharmacies, beneficiaries, pharmacy benefit managers, 
technology experts, and pharmacy benefit experts of the 
Department of Veterans Affairs, Defense and other appropriate 
Federal agencies. The task force would provide recommendations 
to the MBA Administrator on standards including recommendations 
relating to: (1) range of available computerized prescribing 
software and hardware and their costs to develop and implement, 
(2) extent to which such standards and systems reduce 
medication errors and can be readily implemented by physicians, 
pharmacies, and hospitals, (3) efforts to develop uniform 
standards and a common software platform for the secure 
electronic transmission of medication history, eligibility, 
benefit and prescription information, (4) efforts to develop 
and promote universal connectivity and interoperability for the 
secure exchange of information, (5) cost of implementing such 
systems in hospital and physician office settings and 
pharmacies, and (6) implementation issues as they relate to 
administrative simplification requirements and current Federal 
and State prescribing laws and regulations and their impact on 
implementation of computerized prescribing. The MBA 
Administrator would be required to establish the task force by 
April 1, 2004. The task force would be required to submit 
recommendations to the MBA Administrator by January 1, 2005. 
The MBA Administrator would be required to promulgate national 
standards by January 1, 2006. Given current available 
technology, the committee supports the timely development of 
standards to facilitate a secure electronic prescription 
information program between prescribing health care 
professionals,pharmacists, and pharmacy benefit managers (PBMs) 
to reduce dangerous drug interactions as well as errors due to poor 
handwriting and transcribing errors. To this end, the committee 
believes that it would be to the benefit of the patient for prescribing 
professionals to have real-time, ``up-front'' access to the patient's 
medication history, eligibility for benefits, drug formulary (if 
applicable), and coverage, when making prescribing decisions.
    Each PDP sponsor would be required to have meaningful 
procedures for the hearing and resolving of any grievances 
between the organization (including any entity or individual 
through which the organization provides covered benefits) and 
enrollees. Enrollees would be afforded access to expedited 
determinations and reconsiderations, in the same manner 
afforded under MA. A beneficiary in a plan that provided for 
tiered cost-sharing could request coverage of a non-preferred 
drug on the same conditions applicable to preferred drugs if 
the prescribing physician determines that the preferred drug 
for the treatment of the same condition was not as effective 
for the enrollee or could have adverse effects for the 
enrollee. Such decisions could also be appealed under the MA 
appeals structure.
    In general, PDP sponsors would be required to meet for 
independent review standards for coverage denials and appeals 
in the same manner that such standards apply to MA 
organizations. An individual enrolled in a PDP could appeal to 
obtain coverage for a drug not on the formulary or in a 
different cost sharing tier if the prescribing physician 
determined that the formulary drug for treatment of the same 
condition was not as effective for the individual or had 
adverse effects for the individual. The PDP sponsor would be 
required to meet requirements related to confidentiality and 
accuracy of enrollee records in the same manner that such 
requirements apply to MA organizations.
            New Section 1860D-4. Requirements for and Contracts With 
                    Prescription Drug Plan (PDP) Sponsors
    New Section 1860D-4 would specify organizational plan 
requirements for entities seeking to become PDP sponsors. In 
general, the section would require a PDP sponsor to be licensed 
under state law as a risk-bearing entity eligible to offer 
health insurance or health benefits coverage in each state in 
which it offers a prescription drug plan. Alternatively it 
could meet solvency standards established by the MBA 
Administrator for entities not licensed by the state. Plans 
would be required to assume full financial risk on a 
prospective basis for covered benefits except: (1) as covered 
by federal subsidy payments and reinsurance payments for high-
cost enrollees, or (2) as covered by federal incentive payments 
to encourage plans to expand service areas for existing plans 
or establish new plans. The entity could obtain insurance or 
make other arrangements for the cost of coverage provided to 
enrollees.
    PDP sponsors would be required to enter into a contract 
with the MBA Administrator under which the sponsor agrees to 
comply both with the applicable requirements and standards and 
the terms and conditions of payment. The contract could cover 
more than one plan. The MBA Administrator would have the same 
authority to negotiate the terms and conditions of the plans as 
the Director of the Office of Personnel Management has with 
respect to FEHB plans. The MBA Administrator would be required 
to take into account subsidy payments for covered benefits in 
negotiating the terms and conditions regarding premiums. The 
MBA Administrator would designate at least 10 service areas 
consistent with the areas established for EFFS plans.
    The new section would incorporate, by reference, many of 
the contract requirements applicable to MA plans, including 
minimum enrollment, contract periods, allowable audits to 
protect against fraud and abuse, intermediate sanctions, and 
contract terminations. Pro rated user fees could be established 
to help finance enrollment activities; in no case could the 
amount of the fee exceed 20 percent of the maximum fee 
permitted for a MA plan.
    The new Section would permit the MBA Administrator to waive 
the state licensure requirement under circumstances similar to 
those permitted under Part C for provider-sponsored 
organizations. In such cases, plans would be required to meet 
financial solvency and capital adequacy standards established 
by the MBA Administrator. The MBA Administrator would establish 
such standards by regulation by October 1, 2004.
    The standards established under Part D would supersede any 
state law or regulation (other than state licensing laws or 
laws relating to plan solvency). In addition, states would be 
prohibited from imposing premium taxes or similar taxes with 
respect to premiums paid to PDP sponsors or payments made to 
such sponsors by the MBA Administrator.
            New Section 1860D-5. Process for Beneficiaries To Select 
                    Qualified Prescription Drug Coverage
    The new Section 1860D-5 would require the MBA Administrator 
to establish a process for the selection of a PDP or MA-EFFS 
sponsor that provided qualified prescription drug coverage. The 
process would include the conduct of annual coordinated 
election periods under which individuals could change the 
qualifying plans through which they obtained coverage. The 
process would also include the active dissemination of 
information to promote an informed selection among qualifying 
plans (based on price, quality, and other features) in a manner 
consistent with and in coordination with the dissemination of 
information under MA. Further, the process would provide for 
the coordination of elections through filing with a PDP or MA-
EFFS sponsor in a manner consistent with that provided under 
MA. The plan would have to inform each enrollee at the 
beginning of the year of the enrollee's annual out-of-pocket 
threshold.
    The section would specify that an EFFS enrollee could only 
elect to receive drug coverage through the plan.
    The MBA Administrator would assure that all eligible 
individuals residing in the United States would have a choice 
of enrollment in at least two qualifying plan options, at least 
one of which is a PDP, in their area of residence. The 
requirement would not be satisfied if only one PDP or MA-EFFS 
sponsor offers all the qualifying plans in the area. If 
necessary to ensure such access, the MBA Administrator would be 
authorized to provide partial underwriting of risk for a PDP 
sponsor to expand its service area under an existing 
prescription drug plan to adjoining or additional areas, or to 
establish such a plan, including offering such plan on a 
regional or nationwide basis. The assistance would be available 
only so long as, and to the extent necessary,to assure the 
guaranteed access. However, the MBA Administrator could never provide 
for the full underwriting of financial risk for any PDP sponsor. 
Additionally, the MBA Administrator would be directed to seek to 
maximize the assumption of financial risk by PDP sponsors and entities 
offering MA-EFFS plans. The MBA Administrator would be required to 
report to Congress annually on the exercise of this authority and 
recommendations to minimize the exercise of such authority.
            New Section 1860D-6. Submission of Bids
    The new Section 1860D-6 would require each PDP sponsor to 
submit to the MBA Administrator specified information in the 
same manner MA organizations submit information. The submitted 
information would be the qualified drug coverage to be 
provided, the actuarial value of the coverage, and details of 
the bid and coverage premium. The PDP sponsor would include: 
(1) actuarial certification of the bid and premium, (2) the 
portion of the bid and premium attributable to benefits in 
excess of the standard coverage, (3) the reduction in the 
premium resulting from reinsurance subsidies, (4) the reduction 
in the bid resulting from direct and reinsurance subsidy 
payments, and (5) such other information required by the MBA 
Administrator.
    The MBA Administrator would review the submitted 
information for purposes of conducting negotiations with the 
plan. The MBA Administrator would approve the premium only if 
it accurately reflected the actuarial value of the benefits and 
the 73 percent average subsidy provided for under the new 
Section 1860D-8. The MBA Administrator would apply actuarial 
principles to approval of a premium in a manner similar to that 
used for establishing the monthly Part B premium. These 
requirements would not apply to MA plans.
    The bid and premium for a PDP could not vary among 
individuals enrolled in the plan in the same service area, 
provided they were not subject to late enrollment penalties. A 
PDP sponsor would permit each enrollee to have their premiums 
withheld from their Social Security checks in the same manner 
as is currently done for Part B premiums and transferred to the 
plan in which they are enrolled. Beneficiaries could also make 
payment of the premium through an electronic funds transfer 
mechanism. The amount would be credited to the Medicare 
Prescription Drug Trust Fund. Reductions in Part B premiums 
attributable to enrollment in MA plans could be used to reduce 
the premium otherwise applicable.
    Under certain conditions, PDP or MA-EFFS sponsors in an 
area would be required to accept, for an individual eligible 
for a low-income premium subsidy, the reference premium amount 
(premium for standard coverage) as payment in full for the 
premium for qualified prescription coverage. This requirement 
would apply if there was no standard coverage available in the 
area.
            New Section 1860D-7. Premium and Cost-Sharing Subsidies for 
                    Low-Income Individuals
    The new Section 1860D-7 would provide subsidies for low-
income individuals. Low-income persons would receive a premium 
subsidy (based on the value of standard coverage). Individuals 
with incomes below 135 percent of poverty (and assets below 
$4,000) would have a subsidy equal to 100 percent of the value 
of standard drug coverage provided under the plan. For 
individuals between 135 percent and 150 percent of poverty, 
there would be a sliding scale premium subsidy ranging from 100 
percent of such value at 135 percent of poverty to zero percent 
of such value at 150 percent of poverty. The asset test for 
this part is twice the asset test used for determining 
Supplemental Security Income (SSI) eligibility, indexed to 
inflation. (Note: the asset test has not previously been 
indexed.) Not all resources are counted. Excluded resources 
include: a home (with no limit on its value) if the individual 
lives in it; household goods and personal effects up to $2,000; 
one car used to provide necessary transportation regardless of 
value or if not used to provide transportation, excluded up to 
$4,500 in value; the value of a burial space; other property 
essential for self support of the individual; life insurance up 
to $1,500; the value of a trust, but trusts must meet very 
specific criteria; and other exclusions. Sponsors and entities 
could not charge individuals receiving cost-sharing subsidies 
more than five dollars per prescription. Sponsors and entities 
could reduce the cost-sharing to zero, which would otherwise be 
applicable for generic drugs.
    State Medicaid programs or the Social Security 
Administration (SSA) would determine whether an individual 
would be eligible for a low-income subsidy, as well as the 
amount of the subsidy. SSA would be appropriated the necessary 
funds. The Congressional Budget Office (CBO) estimates that 
152,000 seniors who would otherwise not enroll in the low-
income subsidy program would participate since the enrollment 
process through SSA avoids the stigma of signing up at a 
welfare office. Individuals not in the 50 States or the 
District of Columbia could not be subsidy eligible individuals 
but could be eligible for financial assistance with drug costs 
under new Section 1935(e) added by Section 103.
    Whether offered by a PDP or MA-EFFS sponsor, the premium 
subsidy amount would be defined as the benchmark premium amount 
for the qualified prescription drug coverage chosen by the 
beneficiary. The benchmark premium amount for a plan means the 
premium amount for enrollment under the plan (without regard to 
any subsidies or late enrollment penalties) for standard 
coverage (or alternative coverage if the actuarial value is 
equivalent). If a plan provides alternative coverage with a 
higher actuarial value than that for standard coverage, the 
benchmark amount would bear the same ratio to the total premium 
as the actuarial value of standard coverage was to the 
actuarial value of alternative coverage.
    The MBA Administrator would provide a process whereby the 
PDP or MA-EFFS sponsor would notify an individual that he or 
she is eligible for a subsidy as well as the amount of the 
subsidy. The sponsor would reduce the individual's premium or 
cost-sharing otherwise imposed by the amount of the subsidy. 
The MBA Administrator would periodically, and on a timely 
basis, reimburse the sponsor or entity for the amount of such 
reductions.
    Part D benefits would be primary to any coverage available 
under Medicaid. The MBA Administrator would be required to 
develop and implement a plan for the coordination of Part D 
benefits and Medicaid benefits. Particular attention would be 
given to coordination of payments and preventing fraud and 
abuse. The MBA Administrator would be required to involve the 
Secretary, the States, the data processing industry, 
pharmacists, pharmaceutical manufacturers, and other experts in 
the development and administration of the plan.
            New Section 1860D-8. Subsidies for All Medicare 
                    Beneficiaries for Qualified Prescription Drug 
                    Coverage
    New Section 1860D-8 would provide for subsidy payments to 
qualifying entities. The payments would reduce premiums for all 
enrolled beneficiaries consistent with an overall subsidy level 
of 73 percent, reduce adverse selection among plans, and 
promote the participation of PDP sponsors. Such payments would 
be made as direct subsidies and through reinsurance. The 
section would constitute budget authority in advance of 
appropriations and represent the obligation of the MBA 
Administrator to provide for subsidy payments specified under 
the section.
    Direct subsidies would be made for individuals enrolled in 
a PDP or MA-EFFS plan, equal to 43 percent of the national 
weighted average monthly bid amount. Each year, the MBA 
Administrator would compute a national average monthly bid 
amount equal to the average of the benchmark bid amounts for 
each drug plan (not including those offered by private plans) 
adjusted to add back in the value of reinsurance subsidies. The 
benchmark bid amount would be defined as the portion of the bid 
attributable to standard coverage or actuarial equivalent 
coverage. The bid amount would be a weighted average with the 
weight for each plan equal to the average number of 
beneficiaries enrolled in the plan for the previous year. (The 
MBA Administrator would establish a procedure for determining 
the weighted average for 2005).
    Reinsurance payments would be made for specified costs 
incurred in providing prescription drug coverage for 
individuals enrolled in either a PDP or MA-EFFS plan. The MBA 
Administrator would provide for reinsurance payments to PDP 
sponsors, and entities offering MA or EFFS plans. Reinsurance 
payments would be provided for 30 percent of an individual's 
allowable drug costs over the initial reinsurance threshold 
($1,000 in 2006) but not over the initial coverage limit 
($2,000 in 2006). Reinsurance of 80 percent would also be 
provided for allowable costs over the out-of-pocket threshold 
($3,500 in 2006). These reinsurance payments would provide 
additional assistance to those plans that enroll beneficiaries 
who have multiple or very expensive prescription drug regimens. 
In the aggregate, reinsurance payments would equal 30 percent 
of total payments made by qualifying entities for standard 
coverage.
    For purposes of calculating reinsurance payments, allowable 
costs would be defined as the portion of gross covered 
prescription drug costs that were actually paid by the plan, 
but in no case more than the part of such costs that would have 
been paid by the plan if the drug coverage under the plan were 
standard coverage. Gross covered drug costs would be defined as 
costs (including administrative costs) incurred under the plan 
for covered prescription drugs dispensed during the year, 
including costs related to the deductible, whether paid by the 
enrollee or the plan, regardless of whether coverage under the 
plan exceeded standard coverage and regardless of when the 
payment for the drugs was made.
    The MBA Administrator would be required to estimate the 
total reinsurance subsidy payments that would be made during 
the year (including those made to qualified retiree plans) and 
total benefit payments to be made by qualifying entities for 
standard coverage during the year. The MBA Administrator would 
proportionately adjust payments such that total subsidy 
payments during the year were equal to 30 percent of total 
payments made by qualifying plans for standard coverage during 
the year. The MBA Administrator could adjust direct subsidy 
payments in order to avoid risk selection. The MBA 
Administrator would determine the payment method and could use 
an interim payment system based on estimates. Payments would be 
made from the Medicare Prescription Drug Trust Fund.
    Special subsidy payments would be made to a qualified 
retiree prescription drug plan. A qualified plan would be 
defined as employment-based retiree health coverage (including 
coverage offered pursuant to one or more collective bargaining 
agreements) meeting certain requirements. The MBA Administrator 
would approve coverage with at least the same actuarial value 
as standard coverage. The sponsor (and the plan) would be 
required to maintain and provide access to records needed to 
ensure the adequacy of coverage and the accuracy of payments 
made. Further, the sponsor would be required to provide 
certifications of coverage. Payment could not be made for an 
individual unless the individual was covered under the retiree 
plan and entitled to enroll under a PDP or MA-EFFS plan but 
elected not to. Subsidy payments would equal 28 percent of 
allowable costs between $250 and $5,000. (The dollar amounts 
would be adjusted annually by the percentage increase in 
Medicare per capita prescription drug costs.)
    About one-third of Medicare beneficiaries receive retiree 
coverage from their former employers. While most of these 
people are satisfied with their coverage, employers are under 
increasing pressure to drop or reduce prescription drug 
coverage. This subsidy provides employers and union plans with 
maximum flexibility, encouraging them to maintain or expand 
their retiree plans. Thus, Medicare would reap significant 
savings from subsidizing employer plans at two-thirds of the 
cost of other Medicare prescription drug plans.
            New Section 1860D-9. Medicare Prescription Drug Trust Fund
    New Section 1860D-9 would create a Medicare Prescription 
Drug Trust Fund. Requirements applicable to the Part B trust 
fund would apply in the same manner to the Drug Trust Fund as 
they apply to the Part B Trust Fund. The Managing Trustee would 
pay from the account, from time to time, low-income subsidy 
payments, subsidy payments, and payments for administrative 
expenses. The Managing Trustee would transfer, from time to 
time, to the Medicaid account amounts attributable to allowable 
increases in administrative costs associated with identifying 
and qualifying beneficiaries eligible for low-income subsidies. 
Amounts deposited into the Trust Fund would include the federal 
amount which would otherwise be payable by Medicaid except for 
the fact that Medicaid becomes the secondary payer of drug 
benefits for the dual-eligibles. The provision would authorize 
appropriations to the Trust Fund an amount equal to the amount 
of payments from the Trust Fund reduced by the amount 
transferred to the Trust Fund.
    The provision would specify that any provision of law 
relating to the solvency of the Trust Fund would take into 
account the amounts received by, or payable from, the Trust 
Fund.

                             EFFECTIVE DATE

    Upon enactment.
            New Section 1860D-10. Definitions; Treatment of References 
                    to Provisions in Part C
    New section 1860D-10 would include definitions of terms and 
specify how cross-references to Part C would be applied. It 
would further provide that any reduction or waiver of cost-
sharing would not be in violation of kickback and similar 
prohibitions. The section would further require the Secretary 
to submit a report to Congress within 6 months of enactment 
that makes recommendations regarding providing benefits under 
Part D.
    Also within six months of enactment, the Secretary would be 
required to review the current standards of practice for 
pharmacy services provided to patients in nursing facilities. 
Specifically, the Secretary would assess: (1) the current 
standards of practice, clinical services, and other service 
requirements generally utilized for such pharmacy services, (2) 
evaluate the impact of those standards with respect to patient 
safety, reduction of medication errors, and quality of care, 
and (3) recommend necessary actions.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    Prescription drugs are just as important to modern health 
care as hospitals and physician services were when Medicare was 
enacted in nearly 40 years ago. Prescription drugs are more 
often than not, the health care solution of choice. Most often, 
they prevent, treat or manage diseases more effectively and 
less invasively than hospitals and nursing homes. The typical 
senior now takes more than 20 prescriptions a year to improve 
their health or manage their diseases. While seniors are taking 
more drugs than any other demographic group, they are often 
paying the highest prices because more than one-third of 
seniors have no prescription drug coverage. Similarly, low-
income beneficiaries must often make unacceptable choices 
between life-savings medicines and other essentials.
    The addition of a prescription drug benefit to Medicare, 
while providing seniors additional choices in how they receive 
their health services, is a critical modernization of the 
program. In designing how these benefits are delivered, the 
Committee believes competition among plans will lead to the 
most efficient allocation of resources and will create 
opportunities to increase the availability of certain drugs, to 
reduce the cost of drugs, and the cost of the program to 
taxpayers.
    Importantly, guaranteeing issuance of policies, providing 
uniform plan premiums, ensuring two plans in each area and 
providing a worst case fall back ensure beneficiaries have the 
coverage to which they are entitled. Important new beneficiary 
protections, such as allowing any willing pharmacy to 
participate, ensuring convenient access to bricks and mortar 
pharmacies, creating a level playing field for mail order and 
retail pharmacy, and prohibiting plans from pushing insurance 
risk onto pharmacists ensure seniors can get the drugs at the 
pharmacy of their choice. Establishing new appeal rights for 
coverage denials or tiered cost sharing problems helps 
beneficiaries access the drugs most appropriate to their 
medical condition.
    In addition, by providing new tools to improve health, such 
as electronic prescribing, medication therapy management, and 
utilization review, the provision would greatly improve the 
quality of services provided to beneficiaries.
    In combination, these provisions will provide important new 
benefits where Medicare is lacking, create new choices for 
seniors, and create new protections to achieve the goals of 
reduced costs and improved health.

Section 102. Offering of Qualified Prescription Drug Coverage Under the 
        Medicare Advantage and Enhanced Fee-For-Service Program

                              CURRENT LAW

    Under current law, Medicare+Choice plans may elect to offer 
prescription drug coverage under Part C. The extent of these 
benefits varies and is not subject to any explicit 
standardization requirements. However, as with all 
Medicare+Choice benefit specifics, the financing and design of 
such benefits must meet the approval of the Secretary under the 
adjusted community rate (ACR) approval process. Generally, 
plans offering drugs must either finance such benefits from the 
differences between the applicable county payment rate and 
their costs in providing Medicare's basic benefits, or by 
assessing beneficiaries who enroll in the plan supplemental 
premiums.

                        EXPLANATION OF PROVISION

    The provision would specify that, beginning January 1, 
2006, a MA organization could not offer a coordinated care MA 
plan unless either that plan or another plan offered by the 
organization in the area included qualified drug coverage. It 
could not offer drug coverage (other than that already required 
under Medicare) unless the coverage was at least qualified 
prescription drug coverage. An individual not electing 
qualified prescription drug coverage under Part D would be 
treated as ineligible to enroll in a MA plan offering such 
coverage.
    The organization would be required to meet beneficiary 
protections outlined in the new Section 1860D-3, including 
requirements relating to information dissemination and 
grievance and appeals. The organization would also be required 
to submit the same information required of PDP sponsors when 
submitting a bid. The MBA Administrator could waive such 
requirements to the extent the MBA Administrator determined 
they were duplicative of requirements otherwise applicable to 
the organization or plan. MA organizations providing qualified 
drug coverage would receive low-income subsidy payments, and 
direct and reinsurance subsidies. A single premium would be 
established for drug and non-drug coverage.
    The same requirements would be applicable to an EFFS 
organization.

                             EFFECTIVE DATE

    Applies to coverage provided on or after January 1, 2006

                           REASON FOR CHANGE

    Ensures MA-EFFS plans offer qualified prescription drug 
coverage if they offer coverage, consistent with Section 101.

Section 103. Medicaid Amendments

                              CURRENT LAW

    Some low-income aged and disabled Medicare beneficiaries 
are also eligible for full or partial coverage under Medicaid. 
Within broad federal guidelines, each state sets its own 
eligibility criteria, including income eligibility standards. 
Persons meeting the state standards are entitled to full 
coverage under Medicaid. Persons entitled to full Medicaid 
protection generally have all of their health care expenses met 
by a combination of Medicare and Medicaid. For these ``dual-
eligibles'' Medicare pays first for services both programs 
cover. Medicaid picks up Medicare cost-sharing charges and 
provides protection against the costs of services generally not 
covered by Medicare, including prescription drugs. State 
Medicaid programs have the option to include prescription drugs 
in their Medicaid benefit packages. All states include drugs 
for at least some of their Medicaid beneficiaries and many 
offer it to all program recipients entitled to full Medicaid 
benefits.
    Federal law specifies several population groups that are 
entitled to more limited Medicaid protection. These are 
qualified Medicare beneficiaries (QMBs), specified low-income 
Medicare beneficiaries (SLMBs), and certain qualifying 
individuals. QMBs are aged or disabled persons with incomes at 
or below the federal poverty level and assets below $4,000 for 
an individual and $6,000 for a couple. QMBs are entitled to 
have their Medicare cost-sharing charges, including the Part B 
premium, paid by the federal-state Medicaid program. SLMBs are 
persons who meet the QMB criteria, except that their income is 
over the QMB limit; the SLMB limit is 120 percent of the 
federal poverty level. Medicaid protection for SLMBs is limited 
to payment of the Medicare Part B premium. QMBs and SLMBs are 
not entitled to Medicaid's prescription drug benefit unless 
they are also entitled to full Medicaid coverage under their 
state's Medicaid program.
    Qualifying individuals (QIs) are never entitled to Medicaid 
drug coverage (because, by definition, they are not eligible 
for full Medicaid benefits). QI-1s are persons who meet the QMB 
criteria, except that their income is between 120 percent and 
135 percent of poverty. Medicaid protection for QI-1s is 
limited to payment of the monthly Medicare Part B premium. QI-
2s are persons who meet the QMB criteria, except that their 
income is between 135 percent and 175 percent of poverty. 
Medicaid protection for QI-2s is limited to payment of that 
portion of the Part B premium attributable to the gradual 
transfer of some home health visits from Medicare Part A to 
Medicare Part B. Expenditures under the QI-1 and QI-2 programs 
are paid for 100 percent by the Federal government (from the 
Part B Trust Fund) up to the state's allocation level. A state 
is only required to cover the number of persons which would 
bring its spending on these population groups in a year up to 
its allocation level. Any expenditure beyond that level would 
be paid by the state. Assistance under the QI-1 and QI-2 
programs is available for the period January 1, 1998 to 
December 31, 2002.

                        EXPLANATION OF PROVISION

    Section 103 would add a new Section 1935 to the Social 
Security Act entitled ``Special Provisions Relating to Medicare 
Prescription Drug Benefit.'' The provision requires states, as 
a condition of receiving Federal Medicaid assistance, to make 
eligibility determinations for low-income premium and cost-
sharing subsidies, inform the MBA Administrator of cases where 
eligibility has been established, and otherwise provide the MBA 
Administrator with information that may be needed to carry out 
Part D. In 2005, the federal matching rate would be increased 
to 100 percent over 15 years. Beginning in 2020 the, the 
federal matching rate would be 100 percent. The states would be 
required to provide the MBA Administrator with the appropriate 
information needed to properly allocate administrative 
expenditures that could be made for similar eligibility 
determinations.
    The provision would provide for the Federal phase-in of the 
costs of premiums and cost-sharing subsidies for dual-eligibles 
(i.e. persons eligible for Medicare and full Medicaid benefits, 
including drugs). Over the 2006-2020 period, the Federal 
matching rate for these costs would be increased to cover 100 
percent of what would otherwise be state costs. States would be 
required to maintain Medicaid benefits as a wrap-around to 
Medicare benefits for dual-eligibles; states could require that 
these persons elect Part D drug coverage.
    Residents of territories would not be eligible for regular 
low-income subsidies. However, territories would be able to get 
additional Medicaid funds, beginning at $25 million in 2006 and 
increasing in subsequent years by the annual percentage 
increase in prescription drug costs for Medicare beneficiaries. 
In order to obtain these funds, territories would be required 
to formulate a plan on how they would dedicate the funds to 
assist low-income Medicare beneficiaries in obtaining covered 
outpatient prescription drugs. The MBA Administrator would be 
required to report to Congress on the application of the law in 
the territories.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    Seniors should be treated as seniors first and low-income 
second. The patchwork of state Medicaid programs that can vary 
from state to state is confusing and demoralizing for many 
seniors. By federalizing the drug costs of the dual eligibles, 
we ensure beneficiaries have access to a uniform, Medicare 
benefit.

Section 104. Medigap Transition

                              CURRENT LAW

    Most beneficiaries have some health insurance coverage in 
addition to basic Medicare benefits. Some individuals obtain 
private supplemental coverage through an individually purchased 
policy, commonly referred to as a ``Medigap'' policy. 
Beneficiaries with Medigap insurance typically have coverage 
for Medicare's deductibles and coinsurance; they may also have 
coverage for some items and services not covered by Medicare. 
Individuals generally select from one of ten standardized 
plans, though not all ten plans are offered in all states. The 
plans are known as Plans A through plan J. Plan A covers a 
basic package of benefits. Each of the other nine plans 
includes the basic benefits plus a different combination of 
additional benefits. Plan J is the most comprehensive. Plans H, 
I, and J offer some drug coverage.
    The law provided for the development by the National 
Association of Insurance Commissioners (NAIC) of standardized 
benefit packages. It also provides for modifications of such 
packages when Medicare benefit changes are enacted.
    All insurers offering Medigap policies are required to 
offer open enrollment for 6 months from the date a person first 
enrolls in Medicare Part B (generally when the enrollee turns 
65). The law also guarantees issuance of specified Medigap 
policies for certain persons whose previous supplemental 
coverage was terminated. Guaranteed issue also applies to 
certain persons who elect to try out a managed care option 
under the Medicare+Choice plan program.

                        EXPLANATION OF PROVISION

    The provision would prohibit, effective January 1, 2006, 
the issuance of new Medigap policies with prescription drug 
coverage. The prohibition would not apply to policies replacing 
another policy with drug coverage. Further, it would not apply 
to policies meeting new standards, or pre-standards, as 
outlined below. Beneficiaries could keep their existing H, I, 
and J plans.
    The provision would guarantee issuance of a substitute 
Medigap policy for persons, enrolling in Part D, who at the 
time of such enrollment were enrolled in and terminated 
enrollment in a Medigap H, I, or J plan. The guaranteed 
enrollment would be for any of the Plans A through Plan G. The 
guarantee would apply for enrollments occurring in the new 
Medigap plan within 63 days of termination of enrollment in a 
Medigap H, I, or J plan. The insurer could not impose an 
exclusion based on a pre-existing condition for such 
individuals. Further, the insurer would be prohibited from 
discriminating in the pricing of such policy on the basis of 
the individual's health status, claims experience, receipt of 
health care or medical condition.
    The provision would provide for the development by the NAIC 
of two new standardized Medigap plans and would outline the 
standards for these policies. The first new policy would have 
the following benefits (notwithstanding other provisions of law 
relating to core benefits): (1) coverage of 50 percent of the 
cost-sharing otherwise applicable (except coverage of 100 
percent cost-sharing applicable for preventive benefits), (2) 
no coverage of the Part B deductible, (3) coverage of all 
hospital coinsurance for long stays (as in current core 
package), and (4) a limitation on annual out-of-pocket costs 
for Part A and Part B beneficiaries of $4,000 in 2005 
(increased in future years by an appropriate inflation 
adjustment as specified by the Secretary). The second new 
policy would have the same benefit structure as the first new 
policy, except that: (1) coverage would be provided for 75 
percent, rather than 50 percent, of cost-sharing otherwise 
applicable, and (2) the limitation on out-of-pocket costs would 
be $2,000, rather than $4,000. Both policies could provide for 
coverage of Part D cost-sharing; however, neither policy could 
cover the Part D deductible.
    The NAIC would make recommendations to Congress on 
modernizing the Medigap market.
    It is the Committee's intent that the offering of these new 
Medigap policies would be voluntary on the part of insurers, as 
is the case for all other Medigap standardized policies beyond 
plan type A, basic Medigap coverage.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    The two new Medigap policies would provide additional cost 
sharing for beneficiaries without first dollar coverage. This 
ensures beneficiaries have additional access to cover cost 
sharing for the new prescription drug benefit if they so 
choose.

Section 105. Medicare Prescription Drug Discount Card Endorsement 
        Program

                              CURRENT LAW

    On July 12, 2001, the President announced a new national 
drug discount card program for Medicare beneficiaries. Under 
this program, CMS would endorse drug card programs that meet 
certain requirements. This program was intended to be an 
interim step until a legislative reform package, including both 
a drug benefit and other Medicare reforms, is enacted. 
Implementation of the drug discount card program was suspended 
by court action.

                        explanation of provision

    The provision would require the Secretary or Administrator 
to establish a program to: (1) endorse prescription drug 
discount card programs that meet certain requirements, and (2) 
make available information on such programs to beneficiaries. 
The Secretary would begin operating the program within 90 days 
of enactment. The Secretary would provide for an appropriate 
transition and discontinuation at the time a drug benefit first 
becomes available under Part D.
    Programs endorsed by the Secretary must meet certain 
requirements. Programs shall pass negotiated discounts on drugs 
to enrollees. Programs could not be limited to mail order drugs 
and must provide support services to educate patients and 
prevent adverse events. Programs must also provide, through the 
Internet or otherwise, information to enrollees that the 
Secretary deems necessary for beneficiaries to make informed 
choices among all endorsed programs. This information would 
include information on enrollment fees, prices charged to 
beneficiaries, and services offered under the program. Program 
sponsors would be required to demonstrate experience and 
expertise in operating such a program. The sponsor would also 
be required to have in place adequate procedures for quality 
assurance. The annual enrollment fee could not exceed $30 
(which could be paid in whole or in part by states). Further, 
the program would be required to meet additional requirements 
identified by the Secretary to protect and promote the interest 
of Medicare beneficiaries, including requirements that assure 
that beneficiaries were not charged more than the lower of the 
negotiated retail price or the usual and customary price.
    The Secretary would provide for the dissemination of 
information that compared the costs and benefits of available 
programs. This activity would be coordinated with the 
dissemination of educational information on MA plans. The 
Secretary would also oversee the endorsed programs' compliance 
with the requirements of this section, including verification 
of discounts, and services provided, the amount of dispensing 
fees, and audits. The Secretary would be required to provide, 
through the use of the Medicare toll-free number, for the 
receipt and response to inquiries and complaints. The Secretary 
would be required to revoke the endorsement of any program that 
no longer meets requirements or engages in false or misleading 
marketing practices. The provision would specify that a 
beneficiary could only be enrolled in one endorsed program at a 
time. A beneficiary could change enrollment after he or she has 
been enrolled in a plan for a minimum period specified by the 
Secretary.
    The provision creates a two-year, temporary, transitional 
low-income assistance program. Medicare beneficiaries with 
incomes below 150 percent of poverty would be eligible for 
assistance in 2004 and 2005. The program provides additional 
funds in conjunction with the discount card to help low-income 
seniors purchase prescription drugs prior to the implementation 
of the drug benefit in 2006. The bill provides for $2 billion 
in 2004 and $3 billion in 2005.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    Immediate help for those without prescription drug coverage 
will provide a transition into the new Part D drug benefit 
while ensuring those who cannot afford prescription drugs 
receive assistance. In addition, drug discount cards can be up 
and running within 90 days, which will provide savings to 
seniors at retail between 10 and 20 percent, according to HHS. 
Discounts must be provided by both manufacturers and pharmacies 
and must be passed on to beneficiaries.

Section 106. Disclosure of Return Information for Purpose of Carrying 
        Out Medicare Catastrophic Prescription Drug Program

                              CURRENT LAW

    Current law authorizes, under specified circumstances, the 
Secretary of the Treasury to disclose returns and return 
information for purposes other than tax administration.

                        EXPLANATION OF PROVISION

    The provision would permit the Secretary of the Treasury, 
upon written request from the Secretary of the Department of 
Health and Human Services (HHS), to disclose to officers and 
employees of HHS specific information with respect to a 
specified taxpayer for a specific tax year. Information that 
could be disclosed would be taxpayer identification information 
and adjusted gross income, or, simply the income threshold 
limit specified under the new Part D ($200,000 in 2006). A 
specified taxpayer would be either: (1) an individual who had 
adjusted gross income for the year in question in excess of the 
income threshold specified in the new Part D ($60,000 per 
individual), or (2) an individual who elected to use more 
recent income information as permitted under Part D. 
Individuals filing joint returns would be treated separately, 
each considered to have an adjusted gross income equal to one-
half of the total.
    Officers and employees of HHS would be authorized to use 
tax return information only for administering the prescription 
drug benefit. HHS could disclose a beneficiary's determined 
annual out-of-pocket threshold to a beneficiary's PDP sponsor. 
The sponsor could use such information only for the purposes of 
administering the benefit.

                             EFFECTIVE DATE

    Upon enactment.

Section 107. State Pharmaceutical Assistance Transition Commission

                              CURRENT LAW

    A number of states currently have programs to provide low-
income persons, not qualifying for Medicaid, with financial 
assistance in meeting their drug costs. The state programs 
differ substantially in both design and coverage.

                        EXPLANATION OF PROVISION

    The provision would establish a State Pharmaceutical 
Assistance Transition Commission to develop a proposal for 
dealing with the transitional issues facing state programs and 
participants due to implementation of the new Part D 
prescription drug program. The Commission, to be established on 
the first day of the third month following enactment, would 
include: (1) a representative of each governor from each state 
with a program that the Secretary identifies as having a 
benefit package comparable to or more generous than the new 
Part D,(2) representatives from other states that have 
pharmaceutical assistance programs, as appointed by the Secretary, (3) 
representatives (not exceeding the total under (1) or (2) above) of 
organizations that represent interests of participants, appointed by 
the Secretary, (4) representatives of Medicare Advantage organizations; 
and (5) the Secretary or the Secretary's designee and other members 
specified by the Secretary. The Commission would develop the proposal 
in accordance with specified principles, namely: (1) protection of the 
interests of program participants in the least disruptive manner, (2) 
protection of the financial and flexibility interests of states so they 
are not financially worse off, and (3) principles of Medicare 
modernization outlined in Title II of the Act. It is the intent of the 
Committee that Medicare beneficiaries use one prescription drug card 
for their benefit. The Committee believes presenting beneficiaries with 
more than one card would be confusing and administratively inefficient.
    The Commission would report to the President and Congress 
by January 1, 2005. The report would contain specific proposals 
including specific legislative or administrative 
recommendations, if any. The Commission would terminate 30 days 
later.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    States, especially those with comprehensive pharmaceutical 
assistance programs, would benefit significantly. States would 
receive billions of dollars in assistance under the proposal, 
with the most help going to those states that have already 
provided pharmaceutical drug assistance to seniors. Since some 
states have initiated pharmaceutical assistance for low-income 
seniors, these states would reap the most savings, as Medicare 
would become the primary insurer for these beneficiaries. 
States have several options in relation to the new benefit. 
First, they could design their pharmacy programs to ``wrap 
around'' the Medicare drug benefit. Second, their pharmacy 
program could subsidize low-income individuals with costs 
between $2,000 and the $3,500 catastrophic benefit. This 
spending would count toward the catastrophic cap. Further, 
state pharmacy assistance programs could use money saved from 
the Medicare drug benefit to extend their assistance to persons 
with incomes above 150 percent of poverty. Finally, state 
pharmacy programs could work to encourage low-income 
individuals to enroll in a PDP, thereby creating a seamless 
transition from the perspective of the individual. Their cost-
sharing still could not exceed $5 per prescription, and they 
could get the prescription drugs they need at a convenient 
pharmacy. From the beneficiary's perspective nothing will have 
changed.
    It is difficult to foresee every issue that may impact 
states that have already provided substantial assistance to 
seniors. A State Pharmaceutical Assistance Transition 
Commission would be established under the bill. This commission 
would develop a proposal to address the unique transition 
issues facing these states.

 B. Title II--Medicare Enhanced Fee-for-Service and Medicare Advantage 
                     Programs; Medicare Competition


Section 200. Medicare Modernization and Revitalization

                              CURRENT LAW

    Health Maintenance Organizations (HMOs) and other types of 
managed care plans have been allowed to participate in the 
Medicare program, beginning with private health plan contracts 
in the 1970s and the Medicare risk contract program in the 
1980s. BBA 97 replaced the risk contract program with the 
Medicare+Choice (M+C) program.

                        EXPLANATION OF PROVISION

    This title would establish the Medicare Enhanced Fee-for-
Service (EFFS) program, under which Medicare beneficiaries 
would be provided access to a range of EFFS plans that may 
include preferred provider networks. It would establish a 
Medicare Advantage (MA) program to offer improved managed care 
plans with coordinated care. It would also use competitive 
bidding, in the same style as FEHBP for certain areas, 
beginning in 2010, to promote greater efficiency and 
responsiveness to Medicare beneficiaries.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    This title modernizes and revitalizes private plans under 
Medicare. BBA 97 altered payments for private plans and 
expanded the types of plans that could be offered under 
Medicare. Since payment rate changes were implemented, 
enrollment in private plans has fallen from 6.2 million 
beneficiaries in 1998 to 4.6 million beneficiaries in May 2003, 
and the number of plans has decreased from 346 risk plans in 
1998 to 153 (149 coordinated care plans and 4 private FFS 
plans) in May 2003. This disruption has been due, in part, to 
unpredictable and insufficient payments. BBA 97 fundamentally 
de-linked payments to plans from FFS payment growth.
    To increase beneficiary choice, Title II reforms the 
payment system in 2004. All plans would be paid at a rate at 
least as high as the rate for traditional FFS Medicare, as 
recommended by the Medicare Payment Advisory Commission 
(MedPAC). After 2004, private plans' capitation rates would 
grow at the same rate as FFS Medicare. To increase beneficiary 
choice in more rural areas, Title II would establish the 
Enhanced Fee-for-Service (EFFS) program, which would encourage 
private plans to serve Medicare beneficiaries in larger 
regions, beginning in 2006. Private plans in both Medicare 
Advantage (MA) and EFFS plans would bid competitively against a 
benchmark beginning in 2006.
    Once private plans became established, and enrollment in 
private plans increased, plans in certain areas would enter a 
FEHBP-style competitive bidding program, beginning in 2010. 
Plan bids from private plans and rates for traditional FFS 
Medicare would be averaged to create a benchmark for 
competitive bidding. The competitive program would encourage 
beneficiaries to enroll in the most efficient plan, producing 
savings for both beneficiaries, through reduced premiums, and 
for taxpayers, through relatively lower Medicare costs.

         Subtitle A--Medicare Enhanced Fee-for-Service Program


Section 201. Establishment of Enhanced Fee-for-Service (EFFS) Program 
        under Medicare

                              CURRENT LAW

    Payment. Under current law, Medicare+Choice (M+C) plans are 
paid an administered monthly payment, called the M+C payment 
rate, for each enrollee. The per capita rate for a payment area 
is set at the highest one of three amounts, calculated 
according to formulas established in statute and updated by 
law. The three amounts are:
           A minimum payment (or floor) rate,
           A rate calculated as a blend of an area-
        specific (local) rate and a national rate, or
           A rate reflecting a minimum increase from 
        the previous year's rate.
    After preliminary M+C payment rates are determined for each 
payment area (typically a county), a budget neutrality 
adjustment is required by law to determine final payment rates. 
This adjustment is made so that estimated total M+C payments in 
a given year would be equal to the total payments that would be 
made if payments were based solely on area-specific rates. The 
budget neutrality adjustment may only be applied to the blended 
rates because rates cannot be reduced below the floor or 
minimum increase amounts. The blend payment is also adjusted to 
remove the costs of direct and indirect graduate medical 
education. The blend payment amount is based on a weighted 
average of local and national rates for all Medicare 
beneficiaries. Blend payments have been made only once since 
1998 (in the year 2000) because of the budget neutrality 
provision.
    Each year, the three payment amounts are updated by 
formulas set in statute. Both the floor and the blend are 
updated each year by a measure of growth in program spending 
per capita, the national growth percentage. The minimum 
increase provides an additional two percent over the previous 
year's amount.
    Eligibility: Medicare beneficiaries who are entitled to 
Medicare Part A and are enrolled in Part B may receive benefits 
through traditional FFS or they may enroll in a M+C plan.

                        EXPLANATION OF PROVISION

    Beginning January 1, 2006 the MBA Administrator would 
establish an EFFS program to offer EFFS plans to EFFS-eligible 
individuals in one of not less than 10 regions established by 
the MBA Administrator. Before establishing regions, the MBA 
Administrator must conduct a market survey and analysis to 
determine how regions should be established.
    The EFFS plans would be required to provide open network 
plans--either Fee-for-Service (FFS) or preferred provider 
coverage. Under FFS coverage, plans would: (1) reimburse 
hospitals, physicians and other providers at a rate determined 
by the plan on a FFS basis, without placing providers at 
financial risk, (2) not vary rates based on utilization related 
to the provider, and (3) not restrict the selection of 
providers from among those who are lawfully authorized to 
provide covered services and agree to accept the plan's terms 
and conditions. Preferred Provider Organization (PPO) coverage 
plans would: (1) require a network of providers who agreed to a 
contractually specified reimbursement for covered benefits with 
the organization, and (2) provide for reimbursement for all 
covered benefits regardless of whether they were provided 
within the network.
    The EFFS-eligible individuals would be those individuals 
who were entitled to Medicare Part A and enrolled in Part B. 
EFFS plans could only be offered in a region, if the plan was: 
(1) available to all EFFS beneficiaries in an entire region, 
(2) complied with statutory access requirements, (3) uniformly 
provided all required Parts A and B benefits, and other 
benefits as may be required, (4) included a single deductible 
for benefits under Parts A and B, and a catastrophic limit on 
out-of-pocket expenses, and (5) provided prescription drug 
coverage for each enrollee electing Part D drug coverage. The 
MBA Administrator would not approve an EFFS plan if benefits 
were designed to substantially discourage enrollment by certain 
eligible individuals.
    Each year, beginning in 2006, an EFFS organization would 
submit a monthly bid amount for each plan in each region, 
referred to as the ``EFFS monthly bid amount''. The bid could 
not vary among EFFS eligible individuals in the EFFS region 
involved. The EFFS organization would be required to provide 
the following information: (1) the bid amount for the provision 
of all required items and services, based on average costs for 
a typical enrollee residing in the region and the actuarial 
basis for determining such amount, (2) the proportion of the 
bid attributed to the provision of statutory non-drug benefits 
(the ``unadjusted EFFS statutory non-drug monthly bid 
amount''), statutory prescription drug benefits, and non-
statutory benefits, (3) the actuarial basis for determining 
these proportions, and (4) additional information as the MBA 
Administrator may require. The MBA Administrator would have the 
negotiation authority that the Director of the Office of 
Personnel Management has with regard to FEHBP to negotiate the 
bid amount and could also reject a bid amount or proportion, if 
it was not supported by the actuarial basis. The MBA 
Administrator could enter into contract for up to three EFFS 
plans in any region.
    Certain plans, based in part on their monthly bid amount, 
may be able to provide beneficiary savings. The EFFS plan would 
provide the enrollee a monthly rebate equal to 75 percent of 
the average per capita savings, if any. (Calculation of average 
per capita savings isdiscussed below.) The rebate could be in 
the form of a credit towards the EFFS monthly prescription drug premium 
or the EFFS monthly supplemental beneficiary premium, a direct monthly 
payment, or other means approved by the MBA Administrator.
    The MBA Administrator would determine, at the same time 
payment rates were announced (beginning in 2006), the average 
of the risk adjustment factors, by region. For plans offered in 
the previous year, the MBA Administrator could compute the 
average based on a previous year's risk adjustment factors. For 
plans entering a region, in which no plan was offered in the 
previous year, the MBA Administrator would estimate the 
average, and could use factors applied in comparable regions or 
on a national basis.
    For each EFFS plan, the MBA Administrator would adjust the 
EFFS region-specific non-drug monthly benchmark amount and the 
unadjusted EFFS statutory non-drug monthly bid amount by the 
applicable average risk adjustment factor. The average per 
capita monthly savings would equal the amount by which the 
risk-adjusted benchmark exceeds the risk-adjusted bid. The EFFS 
region-specific non-drug monthly benchmark amount would be an 
amount equal to 1/12 of the average (weighted by the number of 
EFFS-eligible individuals in each payment area) of the annual 
capitation rate calculated for that area.
    The MBA Administrator would pay plans as follows. For plans 
with bids below the benchmark (for which there were average per 
capita monthly savings), the payment would equal the unadjusted 
EFFS statutory non-drug monthly bid amount, with three 
adjustments. Payment would be adjusted for demographics factors 
including age, disability, gender, institutional status, health 
status, and other factors; intra-regional geographic 
variations; and the amount of the monthly rebate for the plan 
and year. For plans with bids at or above the benchmark (for 
which there were no average per capita monthly savings), the 
payment amount would equal the EFFS region-specific non-drug 
monthly benchmark amount, with the demographic, health status 
and geographic adjustments. Additionally, for an EFFS enrollee 
who enrolls in Part D and elects qualified prescription drug 
coverage through the plan, the plan would receive reimbursement 
for prescription drugs. This reimbursement would include a 
direct subsidy payment, a reinsurance subsidy payment and 
reimbursement for premiums and cost-sharing reductions for 
certain low-income individuals.
    Beneficiary EFFS premiums are defined as follows. In the 
case where a plan provides a rebate, the EFFS monthly basic 
beneficiary premium would be zero. In the case where a plan 
does not provide a rebate (the plan's unadjusted EFFS statutory 
non-drug bid is above the EFFS region specific non-drug 
benchmark), the EFFS monthly basic beneficiary premium would be 
the difference between the bid and the benchmark amount. The 
EFFS monthly prescription drug beneficiary premium would be the 
portion of the plan's total monthly bid that the statutory drug 
benefit represents. The EFFS monthly supplemental beneficiary 
premium would be the portion of the plan's total monthly bid 
that is attributable to the supplemental non-statutory 
benefits.
    Most of the statutory requirements concerning payment rules 
(other than the requirements for rates, service areas and MSA 
payments), organization and financial requirements, the 
establishment of standards, and contracts, would apply to EFFS 
plans. However, unlike current law, EFFS plans would not be 
permitted to segment a region. No Medicare supplemental policy 
could provide coverage of the single deductible or more than 50 
percent of the other cost-sharing imposed under an EFFS plan 
under Part E.

                             EFFECTIVE DATE

    On or after January 1, 2006.

                           REASON FOR CHANGE

    The EFFS program would encourage the development of 
regional plans, by requiring EFFS plans to serve all 
beneficiaries throughout the region. Because enrollees in an 
EFFS plan must have the same benefits, cost-sharing 
obligations, and premiums, EFFS would decrease the variation in 
private plan offerings in the M+C program today. EFFS plans 
would also encourage plans to enter rural areas, where few M+C 
plans currently exist.
    In carrying out these programs, the Committee believes the 
existing experience of the Medicare Quality Improvement 
Organizations (QIOs) would be employed to offer assistance to 
beneficiaries, providers and plans operating in Parts C, D and 
E, particularly as it relates to quality improvement. QIOs are 
currently required to offer assistance with clinical 
improvement under Parts A and B in hospitals, physicians' 
offices, nursing homes and home health agencies and to all MA 
organizations under part C. Expanding the QIOs' work to include 
the new entities and benefits created in this legislation will 
help improve the quality of care for Medicare beneficiaries.

                 Subtitle B--Medicare Advantage Program


                  CHAPTER 1--IMPLEMENTATION OF PROGRAM


Section 211. Implementation of Medicare Advantage Program

                              CURRENT LAW

    Health Maintenance Organizations (HMOs) and other types of 
managed care plans have been allowed to participate in the 
Medicare program, beginning with private health plan contracts 
in the 1970s and the Medicare risk contract program in the 
1980s. BBA 97 replaced the risk contract program with the 
Medicare+Choice (M+C) program.

                        EXPLANATION OF PROVISION

    This provision would establish the Medicare Advantage (MA) 
program under Part C of Medicare, replacing the Medicare+Choice 
provision.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    Medicare Advantage would reform Medicare+Choice to increase 
beneficiary choice.

Section 212. Medicare Advantage Improvements

                              CURRENT LAW

    Payment. Under current law, Medicare+Choice (M+C) plans are 
paid an administered monthly payment, called the M+C payment 
rate, for each enrollee. The per capita rate for a payment area 
is set at the highest one of three amounts, calculated 
according to formulas established in statute and updated by 
law. The three amounts are:
           A minimum payment (or floor) rate,
           A rate calculated as a blend of an area-
        specific (local) rate and a national rate, or
           A rate reflecting a minimum increase from 
        the previous year's rate.
    After preliminary M+C payment rates are determined for each 
payment area (typically a county), a budget neutrality 
adjustment is required by law to determine final payment rates. 
This adjustment is made so that estimated total M+C payments in 
a given year would be equal to the total payments that would be 
made if payments were based solely on area-specific rates. The 
budget neutrality adjustment may only be applied to the blended 
rates because rates cannot be reduced below the floor or 
minimum increase amounts. The blend payment is also adjusted to 
remove the costs of direct and indirect graduate medical 
education. The blend payment amount is based on a weighted 
average of local and national rates for all Medicare 
beneficiaries. Blend payments have been made only once since 
1998 (in the year 2000) because of the budget neutrality 
provision.
    Each year, the three payment amounts are updated by 
formulas set in statute. Both the floor and the blend are 
updated each year by a measure of growth in program spending 
per capita, the national growth percentage. The minimum 
increase provides an additional two percent over the previous 
year's amount.
    Eligibility. Medicare beneficiaries who are entitled to 
Medicare Part A and are enrolled in Part B may receive benefits 
through the traditional FFS program or they may enroll in a M+C 
plan.

                        EXPLANATION OF PROVISION

    This provision would change payments for MA plans. A fourth 
payment option would be added: 100 percent of the adjusted FFS 
rate for the area (the Adjusted Average Per Capita Cost (AAPCC) 
for the year, for the MA payment area for services covered 
under Parts A and B for individuals entitled to benefits under 
Part A, enrolled under Part B, and who are not enrolled in a MA 
plan). The AAPCC would be adjusted to include the additional 
payments that would have been made if Medicare beneficiaries 
had not received services from facilities of the Department of 
Veterans Affairs (VA) and the Department of Defense (DoD), and 
would include payments for indirect medical education costs. 
The minimum payment (floor) would be increased as under current 
law. The minimum percentage increase amount would also be 
changed. For 2004 and beyond, the minimum percent increase 
would be the greater of: (1) a two percent increase over the 
previous year, as under current law, or (2) the annual MA 
capitation rate for the area for the previous year, increased 
by the national per capita growth percentage increase. There 
would be no adjustment to the national growth percentage for 
prior years' errors before 2004, for purposes of calculating 
the minimum percentage increase in 2004. For 2005, the annual 
rate would equal the previous year's rate increased by the 
greater of two percent or the national per capita growth 
percentage.
    No later than 18 months after enactment of this 
legislation, the Medicare Payment Advisory Commission would 
report to Congress providing an assessment of the method used 
for determining the adjusted average per capita cost (AAPCC). 
The report would examine: (1) the variation in costs between 
different areas, including differences in input prices, 
utilization and practice patterns, (2) the appropriate 
geographic area for payment, and (3) the accuracy of the risk 
adjustment methods in reflecting differences in the cost of 
providing care.
    No later than July 1, 2006, the MBA Administrator would 
submit a report to Congress that describes the impact of 
additional financing provided under this Act and other Acts, 
including the Balanced Budget Refinement Act of 1999 (BBRA) and 
the Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000 (BIPA) on the availability of MA plans 
in different areas and its impact on lowering premiums and 
increasing benefits under such plans.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    In some M+C payment areas, the M+C payment rate is lower 
than the costs of providing FFS care to enrollees in 
traditional Medicare. Many private plans have seen their 
Medicare payment rates rise much less rapidly than the costs of 
FFS Medicare, as they have been held to increases of two 
percent annually every year since 1998, except for 2001 when a 
three percent increase was paid due to the BIPA. Health costs 
in general are running much higher than the two percent payment 
increases that most plans are receiving in the areas where most 
of the beneficiaries are enrolled in Medicare+Choice. Plans 
find it difficult--if not impossible--to contract with 
providers if FFS Medicare can reimburse providers at higher 
rates than private plans may offer, given their Medicare 
payments. If paid less than FFS Medicare, private plans may be 
forced to increase enrollee premiums or cost-sharing, or 
decrease supplemental benefits, such as prescription drug 
coverage. Since 1998, the number of plans participating in M+C 
has declined from 346 to 153. To level the playing field 
between traditional Medicare and private plans, under this 
provision all private plans would be paid at a minimum of the 
FFS rate. In addition, private plan rates would increase at the 
same rate as growth in FFS Medicare. The goal is to increase 
beneficiary choice, by increasing private plan participation in 
Medicare.

            CHAPTER 2--IMPLEMENTATION OF COMPETITION PROGRAM


Section 221. Competition Program Beginning in 2006

                              CURRENT LAW

    See Section 200. Medicare Modernization and Revitalization 
and Section 201. Establishment of Enhanced Fee-For-Service 
(EFFS) Program under Medicare.

                        EXPLANATION OF PROVISION

    Each year, beginning in 2006, an MA organization would be 
required to provide the following information: (1) the bid 
amount for the provision of all required items and services, 
based on average costs for a typical enrollee residing in the 
area and the actuarial basis for determining such amount, (2) 
the proportion of the bid attributed to the provision of 
statutory non-drug benefits (the ``unadjusted MA statutory non-
drug monthly bid amount''), statutory prescription drug 
benefits, and non-statutory benefits, (3) the actuarial basis 
for determining these proportions, and (4) additional 
information as the MBA Administrator may require. The MBA 
Administrator would have the negotiation authority that the 
Director of the Office of Personnel Management has with regard 
to the FEHBP to negotiate the bid amount and could also reject 
a bid amount or proportion, if it was not supported by the 
actuarial basis. Private fee-for-service (PFFS) plans would be 
exempt from this negotiation and rejection.
    Certain plans, based in part on their monthly bid amount, 
may be able to provide beneficiary savings. The MA plan would 
provide the enrollee a monthly rebate equal to 75 percent of 
the average per capita savings, if any, as discussed below. The 
rebate could be in the form of a credit towards the MA monthly 
supplemental beneficiary premium or the MA monthly prescription 
drug premium, a direct monthly payment, or other means approved 
by the MBA Administrator.
    The MBA Administrator would determine, at the same time 
payment rates were announced (beginning in 2006), the average 
of the risk adjustment factors, by state, or on a basis other 
than the state. For plans offered in the previous year, the MBA 
Administrator could compute the average based on the previous 
year's risk adjustment factors. For plans entering a state, in 
which no plan was offered in the previous year, the MBA 
Administrator would estimate the average, and could use factors 
applied in comparable states or on a national basis.
    For each MA plan, the MBA Administrator would adjust the 
FFS area-specific non-drug monthly benchmark amount and the 
unadjusted MA statutory non-drug monthly bid amount by the 
applicable average risk adjustment factor. The average per 
capita monthly savings would equal the amount by which the 
risk-adjusted benchmark exceeds the risk-adjusted bid. The FFS 
area-specific non-drug monthly benchmark amount would be an 
amount equal to 1/12 of the annual MA capitation rate 
calculated for that area.
    Beginning in 2006, the MBA Administrator would pay plans as 
follows. For plans below the benchmark (for which there were 
average per capita monthly savings), the payment would equal 
the unadjusted MA statutory non-drug monthly bid amount, with 
two adjustments. Payment would be adjusted for demographic 
factors including age, disability, gender, health status, and 
other factors, and the amount of the monthly rebate for the 
plan and year. For plans with bids at or above the benchmark 
(for which there were no average per capita monthly savings), 
the payment amount would equal the FFS area-specific non-drug 
monthly benchmark amount, with the demographic and health 
status adjustments. Additionally, for an MA enrollee who 
enrolls in Part D and elects qualified prescription drug 
coverage through the plan, the plan would receive reimbursement 
for prescription drugs. This reimbursement would include a 
direct subsidy payment, a reinsurance subsidy payment and 
reimbursement for premiums and cost-sharing reductions for 
certain low-income individuals.
    The MBA Administrator would not approve a plan if benefits 
were designed to discourage enrollment by certain MA-eligible 
individuals. The MA monthly bid amount, the MA monthly basic 
and supplemental beneficiary premium and the MA monthly MSA 
premium, would not vary among individuals enrolled in the plan.

                             EFFECTIVE DATE

    On or after January 1, 2006.

                           REASON FOR CHANGE

    Competitive bidding against a benchmark would encourage 
plans to become more efficient, in order to lower their bids 
and gain market share. Beneficiaries, because they would 
benefit from enrolling in plans with lower bids by receiving 75 
percent of the difference between the plan's bid and the 
benchmark, would be encouraged to enroll in more efficient 
plans. Plan efficiency and beneficiary enrollment in more 
efficient plans would reduce the costs of Medicare, easing the 
threat to insolvency of the Medicare Part A Trust Fund and 
easing the taxpayers' burden. Indeed, the Congressional Budget 
Office has estimated that the increased benchmarks are fully 
paid for through the 25 percent savings to the government. The 
government would share in the savings as beneficiaries make 
rational and efficient choices.

                     CHAPTER 3--ADDITIONAL REFORMS


Section 231. Making Permanent Change in Medicare Advantage Reporting 
        Deadlines and Annual, Coordinated Election Period

                              CURRENT LAW

    The Public Health Security and Bioterrorism Preparedness 
and Response Act of 2002 (P.L. 107-188) made temporary changes 
to reporting dates and deadlines: (1) the plan deadline for 
submitting adjusted community rates (ACRs) and other 
information moved from no later than July 1 to no later than 
the second Monday in September for 2002, 2003, and 2004, (2) 
the annual coordinated election period moved from the month of 
November to November 15 through December 31 for 2002, 2003, and 
2004, and (3) the M+C payment rate announcement movedfrom no 
later than March 1 to no later than the second Monday in May for 2003 
and 2004. The Secretary is required to mail information to enrollees at 
least 15 days before each annual open season, including a list of plan 
and plan options.

                        EXPLANATION OF PROVISION

    This provision would permanently: (1) move the plan 
deadline for submitting information to the second Monday in 
September; (2) change the annual coordinated election period to 
November 15 through December 31, and (3) move the annual 
payment rate announcement to no later than the second Monday in 
May. The requirement for providing information comparing plan 
options would be amended to require that the information would 
be provided to the extent possible at the time of preparation 
of material for mailing.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    The deadlines for reporting and election periods were moved 
to allow for more accurate information from both CMS and plans. 
As these dates were shifted to later in the year, consistent 
changes were made to allow for the annual open season for 
beneficiary enrollment in private plans. A provision was added 
to limit CMS' responsibility for mailing to only those 
materials available at the time of the mailing.

Section 232. Avoiding Duplicative State Regulations

                              CURRENT LAW

    Medicare law currently preempts State law or regulation 
from applying to M+C plans to the extent that they are 
inconsistent with Federal requirements imposed on M+C plans, 
and specifically, relating to benefit requirements, the 
inclusion or treatment of providers, and coverage 
determinations (including related appeals and grievance 
processes).

                        EXPLANATION OF PROVISION

    This provision would stipulate that Federal standards 
established by this legislation would supersede any state law 
or regulation (other than state licensing laws or state laws 
relating to plan solvency), with respect to MA plans offered by 
MA organizations.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    This clarifies that the MA program is a Federal program 
operated under Federal rules. State laws, do not, and should 
not apply, with the exception of state licensing laws or state 
laws related to plan solvency. There has been some confusion in 
recent court cases. This provision would apply prospectively; 
thus, it would not affect previous and ongoing litigation.

Section 233. Specialized Medicare Advantage Plans for Special Needs 
        Beneficiaries

                              CURRENT LAW

    One model for providing a specialized M+C plan, EverCare, 
operates as a demonstration program. EverCare is designed to 
study the effectiveness of managing acute-care needs of nursing 
home residents by pairing physicians and geriatric nurse 
practitioners. EverCare receives a fixed capitated payment, 
based on a percentage of the adjusted average per capita costs 
(AAPCC), for all nursing home resident Medicare enrollees.

                        EXPLANATION OF PROVISION

    This provision would establish a new MA option--specialized 
MA plans for special needs beneficiaries (such as the EverCare 
demonstration). Special needs beneficiaries are defined as 
those MA-eligible individuals who are institutionalized, 
entitled to Medicaid, or meet requirements determined by the 
Secretary. Enrollment in specialized MA plans could be limited 
to special needs beneficiaries until January 1, 2007. No later 
than December 31, 2005 the MBA Administrator would be required 
to submit a report to Congress that assesses the impact of 
specialized MA plans for special needs beneficiaries on the 
cost and quality of services provided. No later than 6 months 
after enactment of this Act, the Secretary would be required to 
issue final regulations to establish requirements for special 
needs beneficiaries.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    Specialized MA plans for special needs beneficiaries are 
designed to serve beneficiaries with certain needs, thus these 
plans are not meant to handle beneficiaries without special 
needs. This provision allows these plans to serve beneficiaries 
for whom their programs were designed.

Section 234. Medicare MSAs

                              CURRENT LAW

    BBA 97 authorized a demonstration to test the feasibility 
of medical savings accounts (MSA) for the Medicare population. 
This M+C option is a combination of a health insurance plan 
with a large deductible and an M+C MSA. Contributions to an M+C 
MSA may be made annually from the enrollee's capitation rate 
after the plan's insurance premium has been paid. These 
contributions, as well as account earnings, are exempt from 
taxes. Withdrawals used to pay unreimbursed enrollee medical 
expenses are exempt from taxes if they would be deductible 
under the Internal Revenue Code. New enrollment is not allowed 
after 2003, or after the number of enrollees reaches 390,000, 
if earlier.

                        EXPLANATION OF PROVISION

    This provision would permanently extend Medicare MSAs and 
remove the enrollment cap. It would eliminate the requirement 
that Medicare MSA plans report on enrollee encounters since 
MSAs are not plans but bank accounts. Non-contract providers 
furnishing services to enrollees of MSAs would be subject to 
the same balanced billing limitations as non-contract providers 
furnishing services to enrollees of coordinated care plans.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    Medicare MSAs are not being offered in the Medicare program 
today, despite the legislative authority granted in 1997 and 
despite the fact that non-Medicare MSAs are being offered. By 
eliminating the cap on enrollment, the time constraint, and the 
reporting requirements, the Committee hopes to encourage this 
additional choice for seniors.

Section 235. Extension of Reasonable Cost Contracts

                              CURRENT LAW

    Medicare reimburses cost-based plans for the actual cost of 
furnishing covered services, less the estimated value of 
beneficiary cost-sharing. The Secretary may not extend or renew 
a reasonable cost reimbursement contract for any period beyond 
December 31, 2004.

                        EXPLANATION OF PROVISION

    This provision would allow reasonable cost contracts to be 
extended or renewed indefinitely, with an exception that would 
begin January 1, 2008. These contracts could not be extended or 
renewed for a service area, if during the entire previous year, 
the area had 2 or more coordinated care MA plans or 2 or more 
EFFS plans which met the following minimum enrollment 
requirements: (1) at least 5,000 enrollees for the portion of 
the area within a metropolitan statistical area with a 
population of more than 250,000 and counties contiguous to such 
a metropolitan statistical area, and (2) at least 1,500 
enrollees for any other portion of such area.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    The uncertainty about the continuation of cost contracts 
would be removed, allowing these plans to operate indefinitely, 
unless two other plans of the same type (i.e., either 2 MA or 
2(c) EFFS plans) enter the cost contract's service area. If 
other plans are willing to enter the cost contract's service 
area, then the cost contract would be required to operate under 
the same provisions as these other private plans.

Section 236. Extension of Municipal Health Service Demonstration 
        Projects

                              CURRENT LAW

    The Municipal Health Services Demonstration Project 
operates in four cities. These cities use their existing public 
health programs as the nucleus of a coordinated system to 
provide community-based health care for the underserved urban 
poor. The project provides comprehensive health services, 
including a prescription drug benefit and dental services.
    BBA 97 extended the program through 2000. The BBRA extended 
it through 2002, and the BIPA extended it through December 31, 
2004.

                        EXPLANATION OF PROVISION

    This provision would extend the program until December 31, 
2009, and permit the programs to enroll up to the number of 
individuals who were enrolled as of January 1, 1996.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    BBA 97 required demonstration participants to become M+C 
enrollees. In Baltimore, no M+C plans, and in the other, 
smaller sites, private sector options for Medicare 
beneficiaries are also limited. This provision also closed the 
program to new enrollees. The programs need acertain number of 
enrollees to remain viable; opening enrollment with a cap at levels 
from 1996 would permit these programs to reach the enrollment levels 
they need to operate efficiently.

       Subtitle C--Application of FEHBP-Style Competitive Reforms


Section 241. Application of FEHBP-Style Competitive Reform Beginning in 
        2010

                              CURRENT LAW

    See Section 200. Medicare Modernization and Revitalization 
and Section 201. Establishment of Enhanced Fee-For-Service 
(EFFS) Program under Medicare.

                        explanation of provision

    Beginning in 2010, FEHBP-style competition would begin 
nationwide in competitive areas. Competitive areas are defined 
as areas in which Medicare beneficiaries have access to two 
private plans--either two MA or two EFFS plans--along with 
traditional FFS Medicare. Private plan enrollment in the area 
must be at least as great as private plan enrollment 
nationwide, or at least 20 percent. For example, if private 
plan enrollment nationwide is 15 percent, the area must have 
private plan enrollment of at least 15 percent to become a 
competitive area. If private plan enrollment nationwide is 40 
percent, the area must have private plan enrollment of at least 
20 percent to trigger competition. In addition, competitive MA 
(CMA) areas would be limited to metropolitan statistical areas, 
or areas with substantial numbers of MA enrollees. The two 
private plans must be offered during the open season by 
different organizations, and each must meet minimum enrollment 
requirements as of March of the previous year.
    In competitive areas, private plans would submit bids and 
the MBA Administrator would calculate FFS amounts, based on the 
adjusted average per capita cost (AAPCC) in the area or region. 
The AAPCC would be adjusted to remove costs associated with 
direct graduate medical education, and to include costs of 
services provided to Medicare beneficiaries by VA and DoD 
military facilities. In addition, payments would be adjusted 
for health and other demographic factors.
    The competitive benchmark would be set at the weighted 
average of the private plan bids and the FFS amount in the 
competitive area. In order to provide traditional FFS 
disproportionate influence in competitive areas, the weight of 
the benchmark for FFS would equal the nationwide proportion of 
Medicare beneficiaries enrolled in FFS, or the competitive 
area's proportion, if higher. The weights for all other private 
plans would equal the national proportion of beneficiaries 
enrolled in private plans, or the regional proportion if lower.
    For the first 5 years of competition, the benchmarks for 
private plans would be a blend of the competitive benchmark and 
the older, pre-2010 benchmark. For the first year of 
competition, the private plan benchmark would be based 80 
percent on the older benchmark and 20 percent on the newer 
benchmark. For the second year, the private plan benchmark 
would be based 60 percent on the older benchmark and 40 percent 
on the new benchmark. By the fifth year, the private plan's 
benchmark would be fully phased in, and equal the new 
competitive benchmark. This phase-in allows for a transition to 
a more competitive system based on the new competitive 
benchmark.
    Premium adjustments for beneficiaries remaining in 
traditional FFS in competitive areas would also be phased-in 
over the first 5 years as a competitive area. The FFS amount 
would be compared to the new competitive benchmark. During the 
first year of competition, 20 percent of the change in 
beneficiary premiums would occur. During the second year of 
competition, 40 percent of the change would be implemented, and 
so forth, until 100 percent of the premium change would be 
implemented during the fifth year of competition.
    Beneficiaries enrolling in plans with bids or FFS amounts 
below the competitive benchmark would receive 75 percent of the 
difference between the benchmark and bid/FFS amount, and the 
government would receive 25 percent of the difference. 
Beneficiaries enrolling in plans with bids/FFS amounts above 
the benchmark would pay the excess. Premium adjustments would 
be moderated over a 5-year period for beneficiaries remaining 
in traditional FFS in competitive areas. The traditional FFS 
beneficiary premium would be unaffected in non-competitive 
areas or regions.
    Beginning in 2010, the MBA Administrator would announce the 
MA area-specific non-drug benchmark yearly. If applicable, the 
MBA Administrator would also announce, for the year and CMA 
area: the competitive MA non-drug benchmark; the national FFS 
market share percentage; the demographic, end-stage renal 
disease, and health status adjustment factors; the MA area-wide 
non-drug benchmark amount; the FFS area-specific non-drug 
amount; and MA enrollment.
    To carry out this section, the MBA Administrator would 
transmit the name, social security number, and adjustment 
amount to the Commissioner of SSA at the beginning of each year 
and at periodic times throughout the year.

                             EFFECTIVE DATE

    On or after January 1, 2010.

                           REASON FOR CHANGE

    Market-oriented policymakers have maintained that the best 
way to reform Medicare is to provide beneficiaries with a 
choice of plans, similar to the choice available to members of 
Congress under the Federal Employees Health Benefits Program 
(FEHBP). The Bipartisan Commission on the Future of Medicare 
came to the same conclusion.
    Medicare must be transformed to bend the growth curve in 
expenditures to put the program on a sound financial footing. 
To reduce program growth, true competition, including both 
traditional fee-for-service and private plans, would begin in 
2010 in certain competitive areas.
    As areas of the country show increased enrollment in 
private plans, a more competitive system, based on the 
structure of the FEHBP, would provide for greater beneficiary 
savings and reductions in government costs. Allowing for 
competition for enrollees, between private plans and 
traditional FFS Medicare, would level the playing field between 
all options available to Medicare beneficiaries.
    If traditional FFS Medicare is able to provide benefits at 
a lower cost than some or all private plans in a competitive 
area, then beneficiaries remaining in traditional FFS would see 
their premiums decline. In this case, beneficiaries enrolling 
in higher-cost private plans would be required to pay the extra 
price stemming from that decision. Likewise, if a private plan 
is able to offer Medicare beneficiaries coverage at a lower 
cost, then beneficiaries would be encouraged to enroll in the 
private plan by lowering the beneficiaries' costs of coverage 
under the private plan. In any case, beneficiaries would be 
entitled to the same defined benefit package and payments to 
plans would be fully adjusted for health and other demographic 
factors. If the traditional FFS plan disproportionately enrolls 
beneficiaries with poor risk, the beneficiary premium would be 
adjusted to compensate.
    This reform is the only provision in the bill that has the 
potential to produce the savings needed for long-term solvency. 
Although the bill provides for bidding against a benchmark 
prior to 2010, the benchmarks prior to 2010 increase each year, 
by the rate of growth in Medicare. Without this stage of 
competition, private plans would not be able to influence the 
benchmark and would have an incentive to shadow price their 
benchmarks. A floating benchmark rewards more efficient plans, 
and it allows these more efficient plans to lower the benchmark 
and government outlays in future years, as their market share 
rises.
    Several features were added in the Chairman's amendment in 
the nature of a substitute to allow for a smooth transition to 
a more competitive system in 2010 in competitive areas/regions, 
and to prevent shock to the current system. The competitive 
benchmark, based on private plan bids and traditional FFS 
rates, would be calculated based on the relative enrollment in 
FFS versus private plans nationwide (or the area/region if FFS 
enrollment is a larger proportion in the area/region). This 
feature ensures that the competitive benchmark is closer to the 
traditional FFS rate than would otherwise occur. Premium 
changes for beneficiaries remaining in traditional FFS in 
competitive areas would be phased-in over five years to prevent 
oscillations. In addition, the competitive benchmark would be 
phased-in over a 5-year period for private plans. This would 
allow for a more gradual change from the benchmarks under the 
pre-2010 system to the new competitive benchmark for private 
plans in competitive areas.

            C. Title III--Combatting Waste, Fraud, and Abuse


Section 301. Medicare Secondary Payer (MSP) Provisions

                              CURRENT LAW

    In certain instances, Medicare is prohibited from making 
payment for a health care claim if payment is expected to be 
made promptly under a worker's compensation law or plan, under 
automobile or liability insurance (including a self-insured 
plan), or under no-fault insurance on behalf of a beneficiary. 
Medicare is permitted to make a conditional payment in certain 
circumstances including if Medicare could reasonably expect 
payment to be made under a workers' compensation plan or no-
fault insurance claim and Medicare determines that the payment 
will not be made promptly, as determined in accordance with 
regulations.

                        EXPLANATION OF PROVISION

    The Secretary would be able to make a Medicare payment if a 
worker's compensation law or plan, an automobile or liability 
insurance policy or plan (including a self-insured plan), or a 
no-fault insurance plan, has not been made or cannot reasonably 
be expected to be made promptly (as determined in accordance 
with regulations). This payment would be contingent on 
reimbursement by the primary plan to the Medicare Trust Funds.
    The list of primary plans for which conditional payment 
could be made would be expanded; an entity engaging in a 
business, trade, or profession would be deemed as having a 
self-insured plan if it carries its own risk. Failure to obtain 
insurance would be required as evidence of carrying risk. A 
primary plan, as well as an entity that receives payment from a 
primary plan, would be required to reimburse the Medicare Trust 
Funds for any payment made by the Secretary if the primary plan 
was obligated to make payment. The Secretary's authority to 
recover payment from any and all responsible entities and bring 
action, including the collection of double damages, to recover 
payment under the Medicare Secondary Payer provisions also 
would be clarified.

                             effective date

    Subsection (a) would be effective as if included in the 
enactment of Title III of the Medicare and Medicaid Budget 
Reconciliation Amendments of 1984 (P.L. 98-369). Subsection (b) 
would be effective upon enactment.

                           REASON FOR CHANGE

    Recent court decisions such as Thompson v. Goetzmann 
resulted in a narrow interpretation of the statutory reference 
to ``promptly.'' Liability insurers would have been able to 
draw out their settlements and avoid repaying Medicare for 
payment of medical expenses. Moreover, firms that self-insure 
for product liability would have been able to avoid paying 
Medicare for past medical payments related to the claim. This 
provision guards the Medicare trust fund and saves nearly nine-
billion dollars over 10 years.

Section 302. Competitive Acquisition of Certain Items and Services

                              CURRENT LAW

    In general, durable medical equipment (DME) is paid for 
under a set of local (or state) fee schedules subject to 
certain floors and ceilings as well as limited to the lower of 
the actual charge for the equipment or the fee schedule amount. 
Fee schedule amounts received an update of the full consumer 
price index for urban consumers (CPI-U) in 2003.
    BBA 97 authorized the Secretary to conduct up to five 
demonstration projects to test competitive bidding as a way for 
Medicare to price and pay for Part B services other than 
physician services. The Secretary was required to establish up 
to three competitive acquisition areas for this purpose. Three 
competitive bidding demonstrations for durable medical 
equipment, prosthetics, orthotics, and supplies were 
successfully implemented: two in Polk County, Florida and one 
in the San Antonio, Texas area.

                        EXPLANATION OF PROVISION

    The Secretary would be required to establish and implement 
competitive acquisition programs for durable medical equipment, 
medical supplies, items used in infusion, drugs and supplies 
used in conjunction with durable medical equipment, parenteral 
nutrition, and off-the-shelf orthotics (requiring minimal self-
adjustment for appropriate use) that would replace the Medicare 
fee schedule payments. Class III devices--devices that sustain 
or support life, are implanted, or present potential 
unreasonable risk (e.g. implantable infusion pumps and heart 
valve replacements)--are subject to premarket approval by the 
Food and Drug Administration and would not be covered by the 
competitive bidding system.
    In starting the competitive bidding programs, the Secretary 
would be required to establish competitive acquisition areas, 
but would be able to exempt rural areas and areas with low 
population density within urban areas that are not competitive, 
unless a significant national market exists through mail order 
for a particular item or service. The programs would be phased-
in over three years with one-third of the areas implemented 
each year. High-cost and high-volume items and services would 
be required to be phased-in first. The Secretary would be able 
to exempt items and services for which competitive acquisition 
would not likely result in significant savings. The Secretary 
would be required to establish a process where existing rental 
agreements for covered DME items entered into contract before 
implementation of this program would not be affected. The 
supplier would be required to provide for appropriate servicing 
and replacement of these rental items.
    Certain requirements for the competitive acquisition 
program would be established. Specifically, the Secretary would 
be allowed to award contracts in an area only when the 
following conditions were met: entities met quality and 
financial standards specified by the Secretary or the Program 
Advisory and Oversight Committee; total amounts paid under the 
contracts would be expected to be less than would be paid 
otherwise; and beneficiary access to multiple suppliers would 
be maintained. Beneficiary liability would be reduced to 20 
percent of the applicable contract award price.
    Contracts would be required to be re-competed at least 
every three years. The Secretary would be required to award 
contracts to multiple entities submitting bids in each area for 
an item or service and would also have the authority to limit 
the number of contractors in a competitive acquisition area to 
the number needed to meet projected demand for covered items 
and services. The Secretary would be permitted to waive certain 
provisions of the Federal Acquisition Regulation that are 
necessary for the efficient implementation of this program, 
other than those relating to confidentiality of information. 
The Secretary would be required to report to Congress annually 
on savings, reductions in cost-sharing, access to items and 
services, and beneficiary satisfaction under the competitive 
acquisition program.
    A Program Advisory and Oversight Committee with members 
appointed by the Secretary would be established. The Committee 
would be required to provide advice and technical assistance to 
the Secretary regarding the implementation of the program, data 
collection requirements, proposals for efficient interaction 
among manufacturers and distributors of the items and services, 
providers, and beneficiaries, and other functions specified by 
the Secretary. The provisions of the Federal Advisory Committee 
Act would not apply to this Committee.
    The Secretary would be required to conduct a demonstration 
program on using competitive acquisition for clinical 
laboratory tests that are furnished without a face-to-face 
encounter between the individual and the hospital personnel or 
physician performing the tests. The same quality and financial 
conditions specified for the DME competitive acquisition 
program would apply for clinical laboratory test competitive 
acquisition. An initial report to Congress would be required of 
the Secretary and must be submitted by December 31, 2005 with 
progress and final reports, as the Secretary would determine 
appropriate. The General Accounting Office (GAO) would be 
required to report to Congress on the differences in 
reimbursement between public and private payors of clinical 
diagnostic services. The Secretary would be required to study 
whether suppliers of DME are soliciting physicians to prescribe 
certain brands or modes of delivery of covered items based on 
profitability.
    The covered items and services included in the competitive 
acquisition program would be paid as determined under this 
program. The Secretary would be able to use this payment 
information to adjust the payment amounts for DME not located 
in a competitive acquisition area. In this instance, the 
inherent reasonableness rule would not be applied. Orthotics 
included in a competitive acquisition program would also be 
paid the amounts determined by this program. The Secretary 
would be able to use this payment information to adjust the 
payment amounts for such items. In this instance, the regular 
payment rules established by regulation, including the inherent 
reasonableness rule, would not be applied.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    Numerous studies conducted by the HHS Office of the 
Inspector General (OIG) as well as GAO have found the 
government-determined fee schedule for durable medical 
equipment (DME) too high for certain items. For example, the 
OIG found that Medicare's reasonable payment methodology paid 
too much for parenteral nutrition. The OIG also found that 
Medicare payments for hospital beds were substantially higher 
than rates paid by other payors. Further, the OIG discovered 
that payments for albuterol were six times the catalog price 
for the drug.
    The DME competitive bidding demonstration has been a 
success. The taxpayers and beneficiaries saved significantly 
and quality standards were higher under the demonstration.More, 
that three-quarters of the DME winners were small businesses and 
beneficiary satisfaction remained high.

Section 303. Competitive Acquisition of Covered Outpatient Drugs and 
        Biologicals

            (a) Adjustment to the Physician Fee Schedule

                              CURRENT LAW

    The relative value associated with a particular physician 
service is the sum of three components: physician work, 
practice expense, and malpractice expense. Practice expense 
includes both direct costs (such as clinical staff time and 
medical supplies used to provide a specific service to an 
individual patient) as well as indirect costs such as rent, 
utilities, and business costs associated with running a 
practice. When the physician fee schedule was implemented, 
reimbursement for practice expenses was based on historic 
charges. The Social Security Act Amendments of 1994 (PL. 103-
432) required the Secretary to develop a methodology for a 
resource-based system for calculating practice expenses for use 
in CY1998. BBA 97 delayed the implementation of the methodology 
until CY1999 and established a transition period with full 
implementation by CY2002. BBRA required the Secretary to 
establish a data collection process and data standards for 
determining practice expense relative values. Under this survey 
process, the Secretary was required to use data collected or 
developed outside HHS, to the maximum extent practicable, 
consistent with sound data collection practices.
    The Secretary is required to periodically review and adjust 
the relative values affecting physician payment to account for 
changes in medical practice, coding changes, new data on 
relative value components, or the addition of new procedures. 
Under the budget-neutrality requirement, changes in these 
factors cannot cause expenditures to differ by more than $20 
million from what would have been spent if such adjustments had 
not been made.

                        EXPLANATION OF PROVISION

    As part of the annual process of establishing the physician 
fee schedule, the Secretary would be required to increase the 
practice expense relative values using supplemental survey data 
provided by entities and organizations. This survey data must 
meet the Secretary's criteria for acceptance and include 
expenses for the administration of drugs and biologicals.
    The Secretary would be directed to cooperate with 
representatives of physician specialties affected by reform of 
the Average Wholesale Price (AWP) method of reimbursement for 
outpatient prescription drugs. The Secretary would be required 
to expedite consideration of the Current Procedural Terminology 
(CPT) codes used to bill for the costs associated with the 
administration of outpatient drugs affected by AWP reform. In 
addition, the Secretary would be required to consult with 
representatives of advisory physician groups, such as the 
Practice Expense Advisory Committee, when reviewing CPT codes.
    Increases in practice expenses resulting from the use of 
new survey data submitted by the date of enactment, or 
consideration of CPT codes for drug administration services for 
drugs affected by AWP reform would not be subject to the budget 
neutrality. The Secretary would not be prevented from adjusting 
the practice expense relative values in subsequent years. The 
Secretary would be required to consult with GAO and groups 
representing the affected physician specialties before 
publishing the notice of proposed rulemaking.
    The resulting adjustments in practice expense relative 
value units would not be subject to administrative or judicial 
review. They would be considered as a change in law and 
regulation for purposes of determining the sustainable growth 
rate, used to set the payment update for physician services.
    The Secretary would be required to adjust the non-physician 
work pool methodology so that practice expense relative values 
for these services are not disproportionately reduced as a 
result of the above changes.
    Any physician specialty would be permitted to submit survey 
data related to practice expenses through December 31, 2004. 
Budget neutrality would not be waived.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    Physicians would be paid appropriate amounts for the 
administration of outpatient drugs covered by Medicare. It is 
the Committee's intent that the Secretary should use the survey 
data submitted by the American Society of Clinical Oncologists 
(ASCO) since the data meets all requirements for inclusion. The 
Committee directs the Secretary to depart from typical 
procedures and not average new ASCO survey data on practice 
expenses with older survey data from the American Medical 
Associations' socioeconomic monitoring system data. The 
Committee also directs the Secretary not to alter the ASCO 
survey data by removing any responses, including outliers. The 
Committee intends that the Secretary use the new ASCO survey 
data in the Secretary's normal methodology for determining 
practice expenses.
    Furthermore, it is the Committee's intent that the 
Secretary use current procedures for consideration of CPT codes 
and modifications to those codes. The provision directs the 
Secretary to work with specialties affected by AWP reform to 
ensure that CPT codes, which would permit appropriate payment 
for drug administration, are in place before AWP reform occurs.
            (b) Payment Based on Competition

                              CURRENT LAW

    Although Medicare does not currently provide an outpatient 
prescription drug benefit, coverage of certain outpatient drugs 
is specifically authorized by statute. Specifically, under 
Medicare Part B, outpatient prescription drugs and biologicals 
are covered if they are usually not self-administered and are 
provided incident to a physician's services. Drugs and 
biologicals are also covered if they are necessary for the 
effective use of covered durable medical equipment, including 
those that must be put directly into equipment. In addition, 
Medicare will pay for certain self-administered oral cancer and 
anti-nausea drugs, erythropoietin (used to treat anemia), 
immunosuppressive drugs after covered Medicare organ 
transplants and hemophilia clotting factors. Vaccines for 
diseases like influenza, pneumonia, and hepatitis B are 
considered drugs and are covered by Medicare. Payments for 
covered outpatient drugs are made under Medicare Part B and are 
based on 95 percent of AWP. The term ``AWP'' is not defined in 
statute or regulation, but generally, AWP is intended to 
represent the average price used by wholesalers to sell drugs 
to their customers. It has been based on reported prices as 
published in industry reference publications or drug price 
compendia. There are no uniform criteria for reporting these 
numbers. Moreover, these reported prices do not reflect the 
discounts that manufacturers and wholesalers customarily offer 
to providers and physicians. To differing degrees, the 
published prices on which Medicare payment's are based are 
higher than the amounts actually paid to acquire a given 
prescription drug.
    Since covered outpatient prescription drugs are Part B 
services, Medicare pays 80 percent of the recognized amount and 
the beneficiary is liable for the remaining 20 percent 
coinsurance amount, except in the case of vaccines where no 
beneficiary cost-sharing is imposed. Also, beneficiaries cannot 
be charged for any amounts in excess of the recognized payment 
amount.

                        EXPLANATION OF PROVISION

    New sections 1847A and 1847B in Title XVIII of the Social 
Security Act would be established to provide physicians in the 
Medicare program with an annual choice between two payment and 
delivery systems: (1) a contractor who would deliver drugs to 
the physician and would be reimbursed on prices established 
through a competitive bidding process, or (2) the physician 
would be reimbursed for covered drugs at the Average Sales 
Price (ASP).
    Under Section 1847A, the Secretary would be required to 
establish a competitive acquisition program to acquire and pay 
for covered outpatient drugs. Under this program, at least two 
contractors would be established in each competitive 
acquisition area (which would be defined as an appropriate 
geographic region) throughout the United States. Each year, a 
physician would be required to select contractors who would 
deliver covered drugs and biologicals to the physician. There 
would be two categories of drugs under this program: the 
oncology category (which would include drugs determined by the 
Secretary as typically primarily billed by oncologists or are 
otherwise used to treat cancer) that would be implemented 
beginning in 2005, and the non-oncology category that would be 
implemented beginning in 2006. In this case, covered drugs 
means certain drugs currently covered under Section 1842(o) of 
the Social Security Act which are not covered as part of the 
competitive acquisition for durable medical equipment. Blood 
clotting factors, erythropoetin furnished as treatment for end-
stage renal disease (ESRD), and radiopharmaceuticals would not 
be considered covered drugs under the competitive acquisition 
program. Nothing in the section would affect the carrier 
invoice pricing method used to pay for radiopharmaceuticals. 
The Secretary would also be able to exclude other drugs and 
biologicals or classes of drugs and biologicals that are not 
appropriate for competitive bidding or would not produce 
savings.
    Certain contractor selection and contracting requirements 
for the competitive acquisition program would be established. 
Specifically, the Secretary would be required to establish an 
annual selection process for contractors in each area for each 
of the two categories of drugs. The Secretary may not award the 
two-year contract to any entity that does not have the capacity 
to supply covered outpatient drugs within the applicable 
category, or does not meet quality, service, or financial 
performance and solvency standards established by the 
Secretary. Specifically the contractor would be required to 
have: (1) arrangements to ship covered drugs at least 5 days of 
the week and on an emergency basis, (2) procedures for the 
prompt response and resolution of physician and beneficiary 
complaints and inquiries, and (3) grievance resolution 
procedures, including review by the Medicare Provider Ombudsman 
established in this legislation. At the Secretary's discretion, 
the Secretary could refuse to contract with an entity that has 
had its license for distributing drugs (including controlled 
substances) suspended or revoked by the Federal or a State 
government or that has been excluded from Medicare program 
participation. A contractor would be required to comply with a 
specified code of conduct, including conflict of interest 
provisions and all applicable provisions relating to the 
prevention of fraud and abuse. A contract would include 
specifications to ensure secure facilities, safe and 
appropriate storage of covered drugs, maintain record keeping, 
provide written policies and procedures to ensure drug safety, 
and retain compliance personnel. Either the Secretary or the 
entity could terminate contracts with appropriate advance 
notice. The Secretary would make the list of the available 
contractors accessible to physicians on an ongoing basis, 
through a directory posted on the Internet and provided by 
request.
    The Secretary would be able to limit the number of 
qualified entities in each category and area, but not below 
two. The Secretary would be required to base selection on bid 
prices for covered drugs, bid prices for distribution of those 
drugs, ability to ensure product integrity, customer service, 
past experience with drug distribution, and other factors. 
Drugs dispensed under this program would be acquired directly 
from the manufacturer or from a distributor directly from the 
manufacturer. Contractors may be required to comply with 
additional product integrity safeguards for drugs susceptible 
to counterfeiting or diversion. The bid prices in an area would 
be effective for that area throughout the two-year contract 
period, but the contract would allow for appropriate price 
adjustments to reflect significant increases or decreases in a 
contractor's reasonable, net acquisition costs as disclosed to 
the Secretary. The Secretary would not be able to accept a 
contract for an area if its aggregate average prices exceed 120 
percent of the Average Sales Price established under 1847B. 
Under the program, the Secretary would be required to compute 
an area average of the submitted bid prices. For drugs and 
biologicals for which an average bid price has not been 
established due to its establishment as a new Medicare covered 
product, the payment rate would be the payment rate established 
under 1847B. The Secretary would be able to establish average 
sales price as the reimbursement amount in otherexceptional 
cases. Beneficiary liability would be limited to 20 percent of the 
payment basis for the covered drug or biological, and would be 
collected by the contractor upon drug administration.
    The Secretary would be permitted to waive certain 
provisions of the Federal Acquisition Regulation that are 
necessary for the efficient implementation of this program, 
other than those relating to confidentiality of information. 
The contractor supplying the physician in the area would submit 
the claim for the drug and would collect the cost-sharing 
amount from the beneficiary after administration of the drug. 
Both program payment and beneficiary cost sharing amounts would 
only be made to the contractor; would only be made upon the 
administration of the drug; and would be based on the average 
bid of prices for the drug and biological in the area. The 
Secretary would be required to establish a process for recovery 
of payments billed at the time of dispensing for drugs that 
were not actually administered.
    The appropriate contractor, as selected by the physician, 
would supply covered drugs directly to the physician, except 
under the circumstances when a beneficiary is able to receive a 
drug at home. The Secretary would be able to specify other non-
physician office settings where a beneficiary would be able to 
receive a covered drug directly. However, the contractor would 
not be able to deliver drugs to a physician without first 
receiving a prescription as well as other necessary information 
specified by the Secretary. A physician would not be required 
to submit a prescription for each individual treatment. The 
Secretary would establish requirements, including adequate 
safeguards against fraud and abuse and consistent with safe 
drug practices, in order for a physician to maintain an 
inventory of drugs in cases where: the drugs or biologicals are 
immediately required, where the physician could not have 
reasonably anticipated the immediate requirement, where the 
contractor could not deliver the product in a timely manner, 
and in emergency situations related to the patient's health. No 
applicable State requirements relating to the licensing of 
pharmacies would be waived.
    Current rules related to physician assignment and 
beneficiary appeal rights in cases of medical necessity denial 
would remain unchanged. New physician appeal rights would be 
established similar to those provided to physicians who 
prescribe durable medical equipment or laboratory tests.
    The Secretary would be required to establish an advisory 
committee to assist in the implementation of this program. The 
Secretary would be required to report to Congress on savings, 
reductions in cost-sharing, access to items and services, the 
availability of contractors as well as beneficiary and provider 
satisfaction under the competitive acquisition program. These 
reports would be due each year from 2005 through 2007.
    The new section 1847B would establish an alternative choice 
for physician reimbursement for covered Part B drugs based on 
an Average Sales Price methodology (ASP). ASP is calculated for 
multiple source drugs based on the average of all sales net of 
volume discounts, prompt pay discounts, cash discounts, free 
goods to physicians, charge backs and rebates other than 
Medicaid rebates. For single source products, ASP is calculated 
using the above methodology or the Wholesale Acquisition Cost, 
which ever is lower. In an initial period for which sales data 
is not available, the Secretary may determine the amount 
payable under the section without regard to the manufacturer's 
average sales price. In response to a public health emergency, 
the Secretary may use the wholesale acquisition cost instead of 
the average sales price until the price and availability of the 
drug has stabilized. Prices would be reported to the Secretary 
on a quarterly and confidential basis.
    The Secretary would submit an annual report to the Congress 
on trends in average sales prices, administrative costs 
associated with compliance with this section, the total value 
of payments made under this section, and a comparison of the 
average manufacturer price reported under Medicaid with the 
average sales price. GAO would be required to assess the impact 
of this program on the delivery of services, particularly with 
respect to beneficiary access to drugs and the site of 
delivery. MedPAC would be required to submit to Congress 
specific recommendations with respect to payment for blood 
clotting factors in its 2004 annual report.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    The Balanced Budget Act of 1997 (BBA 97, P.L. 105-33) 
specified that Medicare payment for covered outpatient 
prescription drugs would equal 95 percent of AWP. Law or 
regulation does not define AWP. Publishing organizations report 
AWPs provided by drug manufacturers. Medicare carriers use the 
published data to payment for Medicare covered drugs, but AWPs 
are not grounded in any real market transaction, and do not 
reflect the actual price paid by purchasers. Congress has long 
recognized AWP is a list price and not a measure of actual 
prices. Congress is now able to adopt an alternative basis for 
payment that will more accurately reflect actual acquisition 
costs for physicians. This will ensure that Medicare no longer 
bases its payments on prices that do not reflect prices 
otherwise available through market incentives and transactions.
    AWP for a product is often far greater than the acquisition 
cost paid by suppliers and physicians. Some drug manufacturers 
use AWP to inflate payments made for drugs. As a result of 
abuses in the current system, beneficiaries are paying hundreds 
of millions of dollars in inflated co-payments every year. 
Medicare also pays upwards of one billion dollars in excess 
payments every year.
    Some physicians assert that the overpayment for drugs 
covers underpayment for practice expenses. They contend that 
Medicare does not adequately reimburse them for the practice 
expenses associated with providing care in outpatient settings. 
This section reduces the overpayment for drugs and biologics, 
while increasing physician practice expenses.
    Over the past 6 years, the OIG has issued a number of 
reports, all of which have reached the conclusion that Medicare 
and its beneficiaries pay too much for prescription drugs. The 
OIG studied the prices for 24 Medicare covered drugs that 
accounted for $3.1 billion of the $3.9 billion in Medicare drug 
expenditures in 1999. The OIG compared Medicare reimbursement 
to prices available to the physician/supplier community, the 
Department of Veterans Affairs, andMedicaid. They found that 
Medicare and its beneficiaries would have saved substantial amounts of 
money on their coinsurance. The savings would have been $761 million a 
year by paying the actual wholesale prices available to physicians and 
suppliers. For each drug, Medicare paid more than the wholesale price 
available to physicians and suppliers.
    Subsequently, the findings of the report were updated with 
more current drug pricing information and estimated that, of 
the $3.7 billion Medicare spent for 24 drugs in 2000, had 
Medicare paid the actual wholesale prices available to 
physicians and suppliers for these 24 drugs, the program and 
its beneficiaries would save $887 million a year. If Medicare 
had paid for these drugs based on catalog prices, according to 
the OIG, beneficiaries would have paid over $175 million less 
in coinsurance.
    GAO's September 2001 report found that physicians can 
obtain Medicare-covered drugs at prices below current Medicare 
payments. In fact, wholesalers' and Group Purchasing 
Organizations' (GPO) prices are less than the AWP currently 
used to establish Medicare reimbursement for covered drugs. GAO 
found that the average discount from AWP ranged from 13 percent 
to 34 percent, and that two drugs had discounts of 65 percent 
and 86 percent.
    In its recommendations to the Congress, the GAO urged CMS 
to take steps to begin reimbursing providers for part B-covered 
drugs and related services at levels reflecting providers' 
acquisition costs using information about actual market 
transaction prices. CMS should also evaluate expanding 
competitive bidding approaches to setting payment levels, 
according to the GAO, and that CMS should monitor beneficiary 
access to covered drugs in light of any changes to 
reimbursement.
    The GAO also debunked some common myths generally held by 
many in the health care community. Specifically, the GAO found 
that despite concerns that the discounts available to large 
purchasers would not be available to physicians with a small 
number of drug claims, physicians with low volumes reported 
that their purchase prices were the same or less than the 
widely available prices GAO documented. GAO also believes that 
Medicare should pay for each service appropriately and not rely 
on overpayments for some services to offset inadequate payments 
for complementary services. The Committee shares this view, and 
believes the legislation achieves this goal.

Section 304. Demonstration Project for Use of Recovery Audit 
        Contractors

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    The Secretary would be required to conduct a demonstration 
project for up to three years on the use of recovery audit 
contractors under the Medicare Integrity Program. The recovery 
audit contractors would identify underpayments and overpayments 
in the Medicare program and would recoup overpayments made to 
providers. Payment would be made to these contractors by 
providing incentives for good performance. The Secretary would 
be able to waive Medicare statutory provisions to pay for the 
services of the recovery audit contractors. The Secretary would 
be required to examine the efficacy of using these contractors 
with respect to duplicative payments, accuracy of coding, and 
other payment policies in which inaccurate payments arise. The 
demonstration project would be required to cover at least two 
states among the states with the highest per-capita utilization 
rates of Medicare services and have at least three contractors.
    Recovery of an overpayment through this project would not 
prohibit the Secretary or the Attorney General from 
investigating and prosecuting appropriate allegations of fraud 
and abuse. Fiscal intermediaries, carriers, and Medicare 
Administrative Contractors would not be eligible to participate 
as a recovery audit contractor. The Secretary would be required 
to show preference to contracting with entities that have 
demonstrated more than three years direct management experience 
and a proficiency in recovery audits. Within six months of 
completion, the Secretary would be required to report to 
Congress on the project's savings to the Medicare program, 
including recommendations on the cost-effectiveness of 
extending or expanding the program.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    This is a common approach used in the private sector 
including physicians and hospitals to recover payments from 
insurers. It provides a useful check on whether the other CMS 
contractors are paying accurately and identifying potential 
fraud problems.

              D. Title IV--Rural Health Care Improvements


Section 401. Enhanced Disproportionate Share Hospital (DSH) Treatment 
        for Rural Hospitals and Urban Hospitals With Fewer Than 100 
        Beds

                              CURRENT LAW

    Medicare makes additional payments to certain acute 
hospitals that serve a large number of low-income Medicare and 
Medicaid patients as part of its inpatient prospective payment 
system (PPS). As specified by BIPA, starting with discharges 
occurring on or after April 1, 2001, all hospitals are eligible 
to receive Medicare disproportionate share hospital (DSH) 
payments when their DSH percentage or threshold amount exceeds 
fifteen.
    Different formulas are used to establish a hospital's DSH 
payment, depending upon the hospital's location, number of beds 
and status as a rural referral center (RRC) or sole community 
hospital (SCH). The DSH adjustment that a small urban or rural 
hospital can receive is limited to 5.25 percent of total 
Medicare inpatient payments.

                        EXPLANATION OF PROVISION

    For discharges after October 1, 2003, a small rural or 
urban hospital that qualifies for a DSH adjustment would 
potentially receive an increase in DSH payments. The DSH 
adjustment for these hospitals, except for rural referral 
centers, would be almost doubled but not to exceed a maximum of 
10 percent.

                             EFFECTIVE DATE

    The provision would apply to discharges occurring on or 
after October 1, 2003.

                           REASON FOR CHANGE

    MedPAC, an independent advisory committee that advises 
Congress, recommended this policy in its March 2003 report. 
MedPAC believes this change would mitigate the effects of 
uncompensated care for many rural hospitals and thereby protect 
Medicare beneficiaries' access to care in rural communities. 
Historically, rural and small urban hospitals have been treated 
unfairly with respect to DSH payments.

Section 402. Immediate Establishment of Uniform Standardized Amount in 
        Rural and Small Urban Areas

                              CURRENT LAW

    Medicare pays for inpatient services in acute hospitals in 
large urban areas using a standardized amount that is 1.6 
percent larger than the standardized amount used to reimburse 
hospitals in other areas (both rural areas and smaller urban 
areas). The Consolidated Appropriations Act of 2003 (P.L. 108-
7) provided for a temporary payment increase to rural and small 
urban hospitals; all Medicare discharges from April 1, 2003, to 
September 30, 2003, would be paid on the basis of the large 
urban area amount.

                        EXPLANATION OF PROVISION

    Beginning for discharges in FY2004, the standardized amount 
for hospitals located in areas other than large urban areas 
would be equal to the amount used to pay hospitals located in 
large urban areas. Technical conforming amendments would also 
be adopted.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    MedPAC recommends eliminating this differential in payment. 
MedPAC found no statistically significant difference in costs 
between the cost of hospitals in large urban areas (over one 
million) and other hospitals, after removing the effect of 
geographic differences in wages, teaching and other Medicare 
adjustments.

Section 403. Establishment of Essential Rural Hospital Classification

                              CURRENT LAW

    No provision in current law.

                        EXPLANATION OF PROVISION

    An Essential Rural Hospital would be a new designation for 
the purposes of Medicare reimbursement. To be eligible for the 
Essential Rural Hospital designation, the hospital must have 
more than 25 beds and must be located in a rural area. The 
Secretary must then determine that the closure of the hospital 
would significantly diminish the ability of beneficiaries to 
obtain essential health care services based on certain 
criteria. Specifically, the Secretary must determine that (1) a 
high proportion of Medicare beneficiaries residing in the 
hospital's service area receive basic inpatient care from the 
hospital, and (2) there exists, in the service area, a hospital 
with more than 200 licensed beds that provides specialized 
surgical care to a high percentage of beneficiaries. Regardless 
of the size of the hospital, almost all physicians in the area 
must have admitting privileges and provide their inpatient 
services primarily at the hospital. Also, the Secretary must 
determine that the closure of the hospital would have a 
significant adverse impact on the availability of health care 
service in the absence of the hospital.
    In making such determination, the Secretary may also 
consider: (1) whether ambulatory care providers in the 
hospital's service area are insufficient to handle the 
outpatient care of the hospital, (2) whether beneficiaries 
would have difficulty accessing care, and (3) whether the 
hospital has a commitment to provide graduate medical education 
in a rural area. The essential rural hospital would have to 
have a quality of care score above the median state scores.
    A hospital classified as an essential rural hospital would 
not be able to change such classification. An essential rural 
hospital would not be able to be treated as a sole community 
hospital, Medicare dependent hospital, or rural referral 
center. A hospital that is classified as an essential rural 
hospital for a cost reporting period beginning on or after 
October 1, 2004 would be reimbursed 102 percent of its 
reasonable Medicare costs for inpatient and outpatient 
services. Beneficiary cost-sharing amounts would not be 
affected and required billing for such services would not be 
waived.

                             EFFECTIVE DATE

    The provision would apply to cost reporting periods 
beginning on or after October 1, 2004.

                           REASON FOR CHANGE

    The purpose of this provision is to recognize the impact of 
certain hospitals whose existence is essential in the health 
care delivery system of the community. Some rural hospitals 
have high fixed costs because of the necessity for providing 
the capacity for essential services in a community. There are 
also problems with the definition and payment for some 
communitiesand rural referral hospitals. This would provide a 
new crosscutting designation field for hospitals that can meet the 
criteria.

Section 404. More Frequent Update in Weights Used in Hospital Market 
        Basket

                              CURRENT LAW

    Medicare's standardized amounts, which serve as the basis 
for its payment per discharge from acute hospitals, are 
increased annually using an update factor which is determined 
in part by the projected increase in the hospital market 
basket. The market basket is a fixed-weight hospital input 
price index, which measures the average change in the price of 
goods and services hospitals purchased in order to furnish 
inpatient care. CMS revises the cost category weights, 
reevaluates the price proxies for such categories, and rebases 
(or changes the base period) for the market basket every five 
years. CMS implemented a revised and rebased market basket 
using 1997 cost data for use in the FY2003 Medicare hospital 
payment rates.

                        EXPLANATION OF PROVISION

    The Secretary would be required to revise the market basket 
cost weights including the labor share to reflect the most 
currently available data and to establish a schedule for 
revising the cost weights more often than once every five 
years. The Secretary would be required to submit a report to 
Congress by October 1, 2004 on the reasons for and the options 
considered in establishing such a schedule.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    At the current time the hospital market basket is only 
updated every ten years using five-year-old data for the 
weights including the labor share. Statisticians at the 
Department of Labor and other experts believe the measures of 
inflation should be updated on a more regular basis to correct 
consistent inaccuracies over time.

Section 405. Improvements to the Critical Access Hospital (CAH) Program

            (a) Increase in Payment Amounts

                              CURRENT LAW

    Generally, a critical access hospital (CAH) receives 
reasonable, cost-based reimbursement for care rendered to 
Medicare beneficiaries. CAHs may elect either a cost-based 
hospital outpatient service payment or an all-inclusive rate, 
which is equal to a reasonable cost payment for facility 
services plus 115 percent of the fee schedule payment for 
professional services. Ambulance services that are owned and 
operated by CAHs are reimbursed on a reasonable cost basis if 
these ambulance services are 35 miles from another ambulance 
system.

                        EXPLANATION OF PROVISION

    Inpatient, outpatient, and covered skilled nursing facility 
services provided by a CAH would be reimbursed at 102 percent 
of reasonable costs of services furnished to Medicare 
beneficiaries.

                             EFFECTIVE DATE

    This provision would apply to cost reporting periods 
beginning on or after October 1, 2003.

                           REASON FOR CHANGE

    Small hospitals need the ability to build up reserves and 
to finance new capital expenditures. This provides a margin for 
these hospitals under the Medicare program, often their most 
important payor.
            (b) Coverage of Costs for Certain Emergency Room On-Call 
                    Providers

                              CURRENT LAW

    BIPA required the Secretary to include the costs of 
compensation (and related costs) of on-call emergency room 
physicians who are not present on the premises of a CAH, are 
not otherwise furnishing services, and are not on-call at any 
other provider or facility when determining the allowable, 
reasonable cost of outpatient CAH services.

                        EXPLANATION OF PROVISION

    Reimbursement of on-call emergency room providers would be 
expanded to include the costs associated with physician 
assistants, nurse practitioners, and clinical nurse specialists 
as well as emergency room physicians for covered Medicare 
services.

                             EFFECTIVE DATE

    This provision would apply to costs for services provided 
on or after January 1, 2004.

                           REASON FOR CHANGE

    In sparsely populated areas, it is often the physician 
assistant or nurse practitioner employed by a physician 
practice or operating independently who is providing the on 
call services for the emergency room. This recognizes the 
bonuses that hospitals pay for their services.
            (c) Modification of the Isolation Test for Cost-Based CAH 
                    Ambulance Services

                              CURRENT LAW

    Ambulance services provided by a CAH or provided by an 
entity that is owned or operated by a CAH is paid on a 
reasonable cost basis and not the ambulance fee schedule, if 
the CAH or entity is the only provider or supplier of ambulance 
services that is located within a 35-mile drive of the CAH.

                        EXPLANATION OF PROVISION

    The 35-mile requirement would not apply to the ambulance 
services that are furnished by a provider or supplier of 
ambulance services who is determined by the Secretary to be a 
first responder to emergencies.

                             EFFECTIVE DATE

    This provision would apply to ambulance services furnished 
on or after the first cost reporting period that begins after 
the date of enactment.

                           REASON FOR CHANGE

    CAHs may not be eligible for cost-based reimbursement 
because other ambulances may come into the area to transport 
patients between hospitals or to transfer patients to/from 
nursing homes. This would ensure that CAHs owned-and-operated 
ambulances would be paid cost when they are the first 
responders to an emergency.
            (d) Reinstatement of Periodic Interim Payment (PIP)

                              CURRENT LAW

    Eligible hospitals, skilled nursing facilities, and 
hospices, which meet certain requirements, receive Medicare 
periodic interim payments (PIP) every two weeks; these payments 
are based on estimated annual costs without regard to the 
submission of individual claims. At the end of the year, a 
settlement is made to account for any difference between the 
estimated PIP payment and the actual amount owed. A CAH is not 
eligible for PIP payments.

                        EXPLANATION OF PROVISION

    An eligible CAH would be able to receive payments made on a 
PIP basis for its inpatient services. The Secretary would be 
required to develop alternative methods based on the 
expenditures of the hospital for these PIP payments.

                             EFFECTIVE DATE

    This provision would apply to payments made on or after 
January 1, 2004.

                           REASON FOR CHANGE

    Small rural hospitals often have significant changes in 
volume due to the season or just on a day-to-day basis. This 
provision averages payments over time to aid the hospital's 
financial stability.
            (e) Condition for Application of Special Physician Payment 
                    Adjustment

                              CURRENT LAW

    As specified by BBRA, CAHs can elect to be paid for 
outpatient services using cost-based reimbursement for its 
facility fee and at 115 percent of the fee schedule for 
professional services otherwise included within its outpatient 
critical access hospital services for cost reporting periods 
starting on or after October 1, 2000.

                        EXPLANATION OF PROVISION

    The Secretary would not be able to require that all 
physicians providing services in a CAH assign their billing 
rights to the entity in order for the CAH to be able to be paid 
on the basis of 115 percent of the fee schedule for the 
professional services provided by the physicians. However, a 
CAH would not receive payment based on 115 percent of the fee 
schedule for any individual physician who did not assign 
billing rights to the CAH.

                             EFFECTIVE DATE

    This provision would be effective as if it had been 
included as part of BBRA.

                           REASON FOR CHANGE

    This provision ensures that the intent of Congress is for 
CMS to provide these payments in order to attract physicians to 
CAHs.
            (f) Flexibility in Bed Limitation for Hospitals

                              CURRENT LAW

    A CAH is a limited service facility that must provide 24-
hour emergency services and operate a limited number of 
inpatient beds in which hospital stays can average no more than 
96 hours. A CAH cannot operate more than 15 acute-care beds at 
one time, but can have an additional 10 swing beds that are set 
up for skilled nursing facility (SNF) level care. SNF beds in a 
unit of the facility that is licensed as a distinct-part 
skilled nursing facility at the time of the facility's 
application for CAH designation are not counted toward these 
bed limits.

                        EXPLANATION OF PROVISION

    The Secretary would be required to specify standards for 
determining whether a CAH has seasonal variations in patient 
admissions that would justify a 5-bed increase in the number of 
beds it can maintain (and still retain its classification as a 
CAH). CAHs that operate swing beds would be able to use up to 
25 beds for acute care services as long as no more than 10 beds 
at any time are used for non-acute services. Those CAHs with 
swing beds that made this election would not be eligible for 
the 5-bed seasonal adjustment. A CAH with swing beds that 
elects to operate only 15 of its 25 beds as acute care beds 
would be eligible for the 5-bed seasonal adjustment.

                             EFFECTIVE DATE

    These provisions would only apply to CAH designations made 
before, on or after January 1, 2004.

                           REASON FOR CHANGE

    These provisions allow some needed flexibility in the CAH 
program designation to ensure that if there is a flu epidemic 
or major accident that the hospital would have the capacity to 
treat those patients.
            (g) Additional 5-Year Period of Funding for Grant Program

                              CURRENT LAW

    The Secretary is able to make grants for specified purposes 
to States or eligible small rural hospitals that apply for such 
awards. The authorization to award the grants expired in 
FY2002.

                        EXPLANATION OF PROVISION

    The authorization to award grants would be established from 
FY2004 through FY2008 from the Federal Hospital Insurance Trust 
Fund at amounts of up $25 million each year.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    This would continue the planning and monitoring aspects of 
the states for the CAH program. The Committee expects that the 
states would work in cooperation with the critical access 
hospitals in determining the best use of the funds.

Section 406. Redistribution of Unused Resident Positions

                              CURRENT LAW

    Medicare has different resident limits for counting 
residents, its indirect medical education (IME) adjustment and 
for reimbursement for a teaching hospital's direct graduate 
medical education (DGME) costs. Generally, a hospital's IME 
adjustment depends on a hospital's teaching intensity as 
measured by the ratio of the number of interns and residents 
per bed. Prior to BBA 97, the number of residents that could be 
counted for IME purposes included only those in the hospital 
inpatient and outpatient departments. Effective October 1, 
1997, under certain circumstances a hospital may now count 
residents in non-hospital sites for the purposes of IME. 
Medicare's DGME payment to teaching hospital is based on its 
updated cost per resident (subject to a locality adjustment and 
certain payment corridors), the weighted number of approved 
full-time-equivalent (FTE) residents, and Medicare's share of 
inpatient days in the hospital. Generally, the resident counts 
of both IME and DGME payments are based on the number of 
residents in approved allopathic and osteopathic teaching 
programs that were reported by the hospital for the cost 
reporting period ending in calendar year 1996. The DGME 
resident limit is based on the unweighted resident counts. 
Hospitals that established new training programs before August 
5, 1997 are partially exempt from the cap. Other exceptions 
apply to certain hospitals including those with new programs 
established after that date. Hospitals in rural areas (and non-
rural hospitals operating training programs in rural areas) can 
be reimbursed for 130 percent of the number of residents 
allowed by their cap. Under certain conditions, an affiliated 
group of hospitals under a specific arrangement may combine 
their resident limits into an aggregate limit. Subject to these 
resident limits, a teaching hospital's IME and DGME payments 
are based on a three-year rolling average of resident counts, 
that is, the resident count will be based on the average of the 
resident count in the current year and the two preceding years. 
The rolling average calculation includes podiatry and dental 
residents.

                        EXPLANATION OF PROVISION

    A teaching hospital's total number of potentially Medicare-
reimbursed resident positions would be reduced for cost 
reporting periods, starting January 1, 2004, if the resident 
reference level is less than its applicable resident limit. If 
so, the reduction would equal to 75 percent of the difference 
between the hospital's limit and its resident reference level. 
The resident reference level would be the highest number of 
allopathic and osteopathic resident positions (before the 
application of any weighting factors) for the hospital during 
the reference period. A hospital's reference period would be 
the 3 most recent consecutive cost reporting periods for which 
a hospital's cost reports have been settled (or in the absence 
of such settled cost reports, submitted reports) on or before 
September 30, 2002. The Secretary would be able to adjust a 
hospital's resident reference level, upon the timely request 
for such an adjustment, for the cost reporting period that 
includes July 1, 2003.
    The Secretary would be authorized to increase the 
applicable resident limits for other hospitals by an aggregate 
number that does not exceed the overall reduction in such 
limits. No increase would be permitted for any portion of cost 
reporting period that occurs before July 1,2003 or before the 
date of a hospital's application for such an increase. No increase 
would be permitted unless the hospital has applied for such an increase 
by December 1, 2005.
    The Secretary would consider the need for an increase in 
the physician specialty and the location involved. The 
Secretary would first distribute the increased resident count 
to programs in hospitals located in rural areas and hospitals 
that are not in large urban areas on a first-come-first-serve 
basis. The hospital would have to demonstrate that the resident 
positions would be filled; not more than 25 positions would be 
given to any one hospital. These hospitals would be reimbursed 
for DGME for the increase in resident positions at the locality 
adjusted national average per resident amount. Changes in a 
hospital's resident count established under this section would 
increase a hospital's IME payments. These provisions would not 
apply to reductions in residency programs that occurred as part 
of the voluntary reduction program or would affect the ability 
of certain hospitals to establish a new medical residency 
training programs. The Secretary would be required to submit a 
report, including recommendations, on whether to extend the 
application deadline for increases in resident limits no later 
than July 1, 2005.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    An unintended effect of the resident cap was to lock in a 
maldistribution of DGME and IME resident training positions in 
the country. Due to the strong link between the location of a 
resident's training and their eventual practice, it is critical 
to get more residents into training programs in rural areas and 
small urban cities. This provision redistributes unused 
residency slots, over a five-year period, to hospitals that 
have either reached their cap or have been providing DGME 
residencies without Medicare funding.

Section 407. Two-Year Extension of Hold Harmless Provisions for Small 
        Rural Hospitals and Sole Community Hospitals Under Prospective 
        Payment System for Hospital Outpatient Department Services

                              CURRENT LAW

    The PPS for hospital outpatient departments (HOPDs) was 
implemented in August 2000 for most acute care hospitals. Under 
the HOPD PPS, Medicare pays for covered services using a fee 
schedule based on ambulatory payment classifications (APCs). 
Rural hospitals with no more than 100 beds are paid no less 
under this PPS system than they would have received under the 
prior reimbursement system for covered HOPD services because of 
hold harmless provisions. The hold harmless provisions apply to 
services provided before January 1, 2004.

                        EXPLANATION OF PROVISION

    The hold harmless provisions governing HOPD reimbursement 
for small rural hospitals would be extended to January 1, 2006. 
The hold harmless provisions would be extended to sole 
community hospitals located in a rural area starting for 
services furnished on or after January 1, 2004 until January 1, 
2006. The Secretary would be required to conduct a study to 
determine if the costs by APC groups incurred by rural 
providers exceed such costs incurred by urban providers. If 
appropriate, the Secretary would provide a payment adjustment 
to reflect the higher costs of rural providers by January 1, 
2005.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    During the proposed rule for the start of the HOPD PPS, CMS 
found that rural hospital costs were higher than other 
hospitals. CMS did not recommend adjusting payments due to the 
poor quality of the data. This continues the hold harmless from 
any negative effect from the PPS for small rural hospitals and 
extends it to sole community hospitals until the Secretary 
reexamines this issue.

Section 408. Exclusion of Certain Rural Health Clinic and Federally 
        Qualified Health Center Services from the Prospective Payment 
        System for Skilled Nursing Facilities

                              CURRENT LAW

    Under the PPS, skilled nursing facilities (SNFs) are paid a 
predetermined amount to cover all services provided in a day, 
including the costs associated with room and board, nursing, 
therapy, and drugs; the daily payment would vary depending upon 
a patient's therapy, nursing and special care needs as 
established by one of 44 resource utilization groups (RUGs). 
Certain services and items provided a SNF resident, such as 
physicians' services, specified ambulance services, 
chemotherapy items and services, and certain outpatient 
services from a Medicare-participating hospital or critical 
access hospital, are excluded from the SNF PPS and paid 
separately under Part B.

                        EXPLANATION OF PROVISION

    Services provided by a rural health clinic (RHCs) and a 
federally qualified health center (FQHC) after January 1, 2004 
would be excluded from SNF PPS, if such services were excluded 
if furnished by an physician or practitioner who was not 
affiliated with a RHC or FQHC.

                             EFFECTIVE DATE

    The provision would apply to services furnished on or after 
January 1, 2004.

                           REASON FOR CHANGE

    In some rural areas, local physicians may be employed in a 
rural health clinic or federally qualified health clinic. This 
would allow them to get paid for their professional services to 
skilled nursing patients like other physicians.

Section 409. Recognition of Attending Nurse Practitioners as Attending 
        Physicians To Serve Hospice Patients

                              CURRENT LAW

    Medicare covers hospice services to care for the terminal 
illnesses of the beneficiary. In general, beneficiaries who 
elect the hospice benefit give up other Medicare services that 
seek to treat the terminal illness or that duplicate services 
provided by the hospice. Services are provided primarily in the 
patient's home by a Medicare-approved hospice. Reasonable and 
necessary medical and support services for the management of 
the terminal illness are furnished under a written plan-of-care 
established and periodically reviewed by the patient's 
attending physician and the hospice. To be eligible for 
Medicare's hospice care, a beneficiary must be certified as 
terminally ill by an attending physician and the medical 
director or other physician at the hospice and elect hospice 
treatment. An attending physician who may be an employee of the 
hospice is identified by the patient as having the most 
significant role in the determination and delivery of his or 
her medical care when the patient makes an election to receive 
hospice care.

                        EXPLANATION OF PROVISION

    A beneficiary would be able to identify a nurse 
practitioner (who is not employed by the hospice) as an 
attending physician. The nurse practitioner would not be able 
to certify the beneficiary as terminally ill.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    In rural areas, the independent nurse practitioner provides 
a significant amount of the care to patients up to and during 
their terminal illness. This allows them to continue in their 
clinical role with the patient.

Section 410. Improvement in Payments To Retain Emergency Capacity for 
        Ambulance Services in Rural Areas

                              CURRENT LAW

    Traditionally, Medicare has paid suppliers of ambulance 
services on a reasonable charge basis and paid provider-based 
ambulances on a reasonable cost basis. BBA 97 provided for the 
establishment of a national fee schedule, which was to be 
implemented in phases. The required fee schedule became 
effective April 1, 2002 with full implementation by January 
2006. In the transition period, a gradually decreasing portion 
of the payment is to be based on the prior payment methodology 
(either reasonable costs or reasonable charges which were 
subject to national limitation amounts).
    The fee schedule payment amount equals the base rate for 
the level of service plus payment for mileage and specified 
adjustment factors. Additional mileage payments are made in 
rural areas. BIPA increased payment for rural ambulance mileage 
for distances greater than 17 miles and up to 50 miles for 
services provided before January 1, 2004. The amount of the 
increase was at least one-half of the payment per mile 
established in the fee schedule for the first 17 miles of 
transport.

                        EXPLANATION OF PROVISION

    The Secretary would be required to increase the base rate 
of the fee schedule for ground ambulance services that 
originate in a qualified rural area to account for the higher 
average costs incurred by providers furnishing a low volume of 
services. A qualified rural area is a county that has not been 
assigned to a metropolitan statistical area (MSA) with a 
population density of Medicare beneficiaries in the lowest 
quartile of all rural county populations.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    The current adjustment may overpay rural ambulances in more 
populated areas and underpays them in less populated areas. 
Recent analyses by the General Accounting Office suggest that 
it is fixed costs--represented by the base rate--not mileage 
that are the significant factor for increased costs in rural 
areas. In particular, the ambulances in the lowest 25 percent 
of rural counties may have less than one trip per day.

Section 411. Two-Year Increase for Home Health Services Furnished in a 
        Rural Area

                              CURRENT LAW

    The Medicare home health PPS, implemented on October 1, 
2000, provides a standardized payment for a 60-day episode of 
care furnished to a Medicare beneficiary. Medicare's payment is 
adjusted to reflect the type and intensity of care furnished 
and area wages as measured by the hospital wage index. BIPA 
increased PPS payments by 10 percent for home health services 
furnished in the home of beneficiaries living in rural areas 
during the two-year period beginning April 1, 2001, through 
March 31, 2003, without regard to certain budget-neutrality 
provisions applying to home health PPS. The temporary 
additional payment is not included in the base for 
determination of payment updates.

                        EXPLANATION OF PROVISION

    The provision would extend a five percent additional 
payment for home health care services furnished in a rural area 
during FY 2004 and 2005 without regard to certain budget-
neutrality requirements.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    MedPAC recommends extending the five percent add-on for 
one-year while further analysis is done on rural agency home 
health margins. The two-year extension is to provide Congress 
with time to evaluate that information and decide what action 
is needed, if any.

Section 412. Providing Safe Harbor for Certain Collaborative Efforts 
        that Benefit Medically Underserved Populations

                              CURRENT LAW

    People who knowingly and willfully offer or pay a kickback, 
a bribe, or rebate to directly or indirectly induce referrals 
or the provision of services under a Federal program may be 
subject to financial penalties and imprisonment. Certain 
exceptions or safe harbors that are not considered violations 
of the anti-kickback statute have been established.

                        EXPLANATION OF PROVISION

    Remuneration in the form of a contract, lease, grant, loan 
or other agreement between a public or non-profit private 
health center and an individual or entity providing goods or 
services to the health center would not be a violation of the 
anti-kickback statute if such an agreement would contribute to 
the ability of the health center to maintain or increase the 
availability or quality of services provided to a medically 
underserved population. The Secretary would be required to 
establish standards, on an expedited basis, related to this 
safe harbor that would consider whether the arrangement: (1) 
results in savings of Federal grant funds or increased revenues 
to the health center, (2) expands or limits a patient's freedom 
of choice, and (3) protects a health care professional's 
independence regarding the provision of medically appropriate 
treatment. The Secretary would also be able to include other 
standards that are consistent with Congressional intent in 
enacting this exception. The Secretary would be required to 
publish an interim final rule in the Federal Register no later 
than 180 days from enactment that would establish these 
standards. The rule would be effective immediately, subject to 
change after a public comment period of not more than 60 days.

                             EFFECTIVE DATE

    Upon enactment

                           REASON FOR CHANGE

    This would finalize policy under development at the 
Department of Health and Human Services.

Section 413. GAO Study of Geographic Differences

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    GAO would be required to study geographic differences in 
payment amounts in the physician fee schedule including: (1) an 
assessment of the validity of each component of the geographic 
adjustment factors; (2) an evaluation of the measures and the 
frequency with which they are revised; and (3) an evaluation of 
the methods used to establish the costs of professional 
liability insurance including the variation between physician 
specialties and among different states, the update to the 
geographic cost of practice index, and the relative weights for 
the malpractice component. The study, including recommendations 
concerning use of more current data and use of cost data rather 
than price proxies, would be due to Congress within 1 year of 
enactment.

                             EFFECTIVE DATE

    Upon enactment.

Section 414. Treatment of Missing Cost Reporting Periods for Sole 
        Community Hospitals

                              CURRENT LAW

    Sole community hospitals (SCHs) are hospitals that, because 
of factors such as isolated location, weather conditions, 
travel conditions, or absence of other hospitals, are the sole 
source of inpatient services reasonably available in a 
geographic area, or are located more than 35 road miles from 
another hospital. The primary advantage of an SCH 
classification is that these hospitals receive Medicare 
payments based on the current national PPS national standardize 
amount or on hospital-specific per discharge costs from either 
FY 1982, FY1987 or FY1996 updated to the current year, whatever 
amount would provide the highest Medicare reimbursement. The 
FY1996 base year option became effective for discharges on or 
after FY2001 on a phased in basis and would be fully 
implemented for SCH discharges on or after FY2004.

                        EXPLANATION OF PROVISION

    A hospital would not be able to be denied treatment as a 
SCH or receive payment as a SCH because data are unavailable 
for any cost reporting period due to changes in ownership, 
changes in fiscal intermediaries, or other extraordinary 
circumstances, so long as data from at least one applicable 
base cost reporting period is available.

                             EFFECTIVE DATE

    The provision would apply to cost reporting periods 
beginning on or after January 1, 2004.

                           REASON FOR CHANGE

    During changes in fiscal intermediaries or in a change of 
ownership, historical information on a provider can be lost or 
misplaced. The purpose of the sole community hospital program 
is to provide for additional payment to protect access, which 
should not be stymied due to human error. Since sole community 
hospitals are paid the higher of any of the base years or the 
Federal rate, this does not result in preferential payments for 
these hospitals compared to other sole community hospitals.

Section 415. Extension of Telemedicine Demonstration Project

                              CURRENT LAW

    BBA 97 authorized a telemedicine demonstration project for 
beneficiaries with diabetes mellitus in medically underserved 
rural or inner-city areas. BBRA required the Secretary to award 
the demonstration to the best technical proposal as of the 
bill's enactment date, no later than three months after 
enactment without additional review. BBRA also clarified that 
qualified medically underserved rural or urban inner-city areas 
are federally designated medically underserved areas or Health 
Provider Shortage Areas (HPSAs) at the time of enrollment in 
the project. Furthermore, it made changes in the project's data 
requirements, and limited beneficiary cost-sharing. The 
demonstration would expire in February 2004.

                        EXPLANATION OF PROVISION

    This provision would extend the demonstration for an 
additional four years.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    Difficulty finding appropriate participants delayed the 
demonstration's start. This extension would provide additional 
time to fully evaluate the clinical effectiveness of the 
program, and to determine the long-term effectiveness of the 
approach. It would also provide more time to collect clinical 
data to evaluate the project's cost-effectiveness.

Section 416. Adjustment to the Medicare Inpatient Hospital PPS Wage 
        Index to Revise the Labor-Related Share of Such Index

                              CURRENT LAW

    Hospitals' DRG payments are adjusted by the hospital wage 
index. The adjusted portion of the payment is determined by the 
labor share. The labor share has three components: wages (50.7 
percent), fringe benefits (11 percent), and rest is the so-
called labor related costs.

                        EXPLANATION OF PROVISION

    It reduces the labor share down to 62 percent of wages and 
fringe benefits for those areas with wage index values under 
1.0. All other areas are held harmless from the change in the 
labor share.

                             EFFECTIVE DATE

    October 1, 2003.

                           REASON FOR CHANGE

    MedPAC and others have questioned whether some or all of 
the labor related costs in the labor share should be included. 
This eliminates these costs from the labor share for the areas 
that benefit from such a change.

Section 417. Medicare Incentive Payment Program Improvements for 
        Physician Scarcity

                              CURRENT LAW

    Under the Medicare Incentive Program, physicians receive a 
10 percent bonus payment for services provided in health 
professional shortage areas. Physicians are responsible for 
indicating their eligibility for this bonus on their billing 
forms.

                        EXPLANATION OF PROVISION

    This provision would establish a new five percent bonus 
payment program for physicians providing care to Medicare 
beneficiaries in physician scarcity areas. The Secretary would 
calculate two measures of scarcity. A primary care scarcity 
area would be determined based on the number of primary care 
physicians per Medicare beneficiary--the primary care ratio. A 
specialty care scarcity area would be based on the number of 
specialty care physicians per Medicare beneficiary--the 
specialty care ratio. The number of physicians would be based 
on physicians who actively practice medicine or osteopathy, and 
would exclude physicians whose practice is exclusively for the 
Federal Government, physicians who are retired, or physicians 
who only provide administrative services.
    The Secretary would rank each county or area based on its 
primary care ratio. Primary care scarcity counties or areas 
would be those counties or areas with the lowest primary care 
ratios, such that 20 percent of Medicare beneficiaries reside 
in these counties, when each county or area is weighted by the 
number of Medicare beneficiaries in the county or area. 
Specialty care scarcity counties or areas would be identified 
in the same manner, using the specialty care ratio. There would 
be no administrative or judicial review of the identification 
of counties or areas, or of a specialty of any physician.
    To the extent feasible, the Secretary would treat a rural 
census tract of a metropolitan statistical area, as determined 
under the most recent modification of the Goldsmith 
Modification, as an equivalent area for purposes of qualifying 
as a primary care scarcity area or specialty care scarcity 
area.
    The Secretary would be required to publish a list of all 
areas which would qualify as primary care scarcity counties or 
specialty care scarcity counties as part of the proposed and 
final rules to implement the physician fee schedule.
    The provision would also include improvement to the 
Medicare Incentive Payment Program, which provides a 10 percent 
bonus to physicians in shortage areas. The Secretary would be 
required to establish procedures under which the Secretary, and 
not the physician furnishing the service, would be responsible 
for determining when a bonus payment should be made. As part of 
the physician proposed and final rule for the physician fee 
schedule, the Secretary would be required to include a list of 
all areas which would qualify as a health professional shortage 
area for the upcoming year.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    The new five percent bonus for physicians in either primary 
care scarcity counties or specialty care scarcity counties 
would increase financial incentives for physicians to provide 
care to Medicare beneficiaries in these areas with a shortage 
of physicians. This bonus payment would make it easier to 
recruit and retain physicians in these scarcity areas.
    Improvements to the Medicare Incentive Program would shift 
responsibility for identifying eligibility for the 10 percent 
bonus from physicians to the Secretary.

               E. Title V--Provisions Relating to Part A


                Subtitle A--Inpatient Hospital Services


Section 501. Revision of Acute Hospital Payment Updates

                              CURRENT LAW

    Each year, Medicare's operating payments to hospitals are 
increased or updated by a factor that is determined in part by 
the projected annual change in the hospital market basket. 
Congress establishes the update for Medicare's inpatient PPS 
for operating costs, often several years in advance.

                        EXPLANATION OF PROVISION

    Acute hospitals would receive a market basket update minus 
0.4 percent for three years. This results in an average 3.1 
percent update for FY2004 through FY2006, equivalent to market 
basket minus 0.4 percent. The Secretary is also directed to 
compile and clarify the procedures and policies for billing for 
blood and blood costs in the hospital outpatient setting as 
well as the operation of the collection of the blood 
deductible.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    MedPAC unanimously recommended that Congress increase 
payments by 3.1 percent instead of the scheduled 3.5 percent. 
This results in a $3 billion increase in hospital payments for 
FY 2004. This is 0.4 percent less than current law due to 
expected increases in productivity.According to MedPAC, the 
modest expected productivity increase for hospitals is lower than would 
be considered to be sufficient for many private industries.
    There is little precedent for hospitals to receive a full 
market basket increase. Congress has only given hospitals the 
full inflationary increase twice since the start of the 
hospital prospective payment system. Congress has legislated 
multiple-year changes in every Medicare bill except in the 
Omnibus Budget Reconciliation Act of 1989. Finally, this is a 
comparatively generous provision since Congress has typically 
reduced the inflationary offset by 1.2 percent--three times 
greater than the 0.4 percent recommended by MedPAC and 
presented in the bill.
    The proposal replaces a historical saw tooth pattern of 
updates ranging from zero to full market basket to put 
hospitals' Medicare payments on a predictable stable funding 
path.

Section 502. Recognition of New Medical Technologies Under Inpatient 
        Hospital PPS

                              CURRENT LAW

    BIPA established that Medicare's inpatient hospital payment 
system should include a mechanism to recognize the costs of new 
medical services and technologies for discharges beginning on 
or after October 1, 2001. The additional hospital payments can 
be made by means of new technology groups, an add-on payment, a 
payment adjustment, or other mechanism, but cannot be a 
separate fee schedule and must be budget-neutral. A medical 
service or technology will be considered to be new if it meets 
criteria established by the Secretary after notice and the 
opportunity for public comment. CMS published the final 
regulation implementing these provisions on September 7, 2001. 
This regulation changed the meeting schedule for decisions on 
the creation and implementation of new billing codes (ICD-9-CM 
codes). The regulation also established that technology 
providing a substantial improvement to existing treatments 
would qualify for additional payments. The add-on payment for 
eligible new technology would occur when the standard 
diagnosis-related group (DRG) payment was inadequate; this 
threshold was established as one standard deviation above the 
mean standardized DRG. In these cases, the add-on payment for 
new technology would be the lesser of (a) 50 percent of the 
costs of the new technology, or (b) 50 percent of the amount by 
which the costs exceeded the standard DRG payment; however, if 
the new technology payments are estimated to exceed the 
budgeted target amount of one percent of the total operating 
inpatient payments, the add-on payments are reduced 
prospectively.
    Medicare pays hospitals additional amounts for atypical 
cases that have extraordinarily high costs compared to most 
discharges classified in the same DRG. The additional payment 
amount is equal to 80 percent of the difference between the 
hospital's entire cost for the stay and the threshold amount.

                        EXPLANATION OF PROVISION

    The Secretary would be required to add new diagnosis and 
procedure codes in April 1 of each year that would not be 
required to affect Medicare's payment or DRG classification 
until the fiscal year that begins after that date. The 
Secretary would not be able to deny a service or technology 
treatment as a new technology because the service (or 
technology) has been in use prior to the 2-to-3 year period 
before it was issued a billing code and a sample of specific 
discharges where the service has been used can be identified. 
When establishing whether DRG payments are inadequate, the 
Secretary would be required to apply a threshold that is 75 
percent of one standard deviation for the DRG involved.
    The Secretary would be required to provide additional 
clarification in regulating the criteria used to determine 
whether a new service represents an advance in technology that 
substantially improves the existing diagnosis or treatment. The 
Secretary would be required to deem that a technology provides 
a substantial improvement on an existing treatment if the 
technology in question: (1) is a drug or a biological that is 
designated under section 506 of the Federal Food, Drug, and 
Cosmetic Act, approved under section 314.510 or 601.41 of Title 
21, Code of Federal Regulations, designated for priority review 
when the marketing application was filed, or (2) is a medical 
device for which an exemption has been granted under section 
520(m) of such Act, or for which priority or expedited review 
has been provided under section 515(d)(5). For other 
technologies that may be substantial improvements, the 
Secretary would be required to: (1) maintain and update a 
public list of pending applications for specific services and 
technologies to be evaluated for eligibility for additional 
payment; (2) accept comments, recommendations, and data from 
the public regarding whether a service or technology represents 
a substantial improvement; and (3) provide for a meeting at 
which organizations representing physicians, beneficiaries, 
manufacturers or other interested parties may present comments, 
recommendations, and data to the clinical staff of CMS 
regarding whether a service or technology represents a 
substantial improvement. These actions would occur prior to the 
publication of the proposed regulation.
    Before establishing an add-on payment as the appropriate 
reimbursement mechanism, the Secretary would be directed to 
identify one or more DRGs and assign the technology to that 
DRG, taking into account similar clinical or anatomical 
characteristics and the relative cost of the technology. The 
Secretary would assign an eligible technology into a DRG where 
the average cost of care most closely approximates the cost of 
the new technology. In such a case, no add-on payment would be 
made; the application of the budget-neutrality requirement with 
respect to annual DRG reclassifications and recalculation of 
associated DRG weights would not be affected. The Secretary 
would be required to increase the percentage associated with 
add-on payments from 50 percent to the marginal rate or the 
percentage that Medicare reimburses inpatient outlier cases.
    The Secretary would be directed to automatically reconsider 
an application as a new technology that was denied for FY2003 
as a FY2004 application under these new provisions. If such an 
application were granted, the maximum time period otherwise 
permitted for such classification as a new technology would be 
extended by 12 months.

                             EFFECTIVE DATE

    These provisions would be effective for classifications 
beginning in FY2004.

                           REASON FOR CHANGE

    CMS has only approved one new technology since these 
provisions were passed. This provision would allow more 
technologies to be covered and recognizes that the breakthrough 
technologies are new costs to the system.

Section 503. Increase in Federal Rate for Hospitals in Puerto Rico

                              CURRENT LAW

    Under Medicare's prospective payment system for inpatient 
services, a separate standardized amount is used to establish 
payments for discharges from short-term general hospitals in 
Puerto Rico. BBA 97 provides for an adjustment of the Puerto 
Rico rate from a blended amount based on 25 percent of the 
federal national amount and 75 percent of the local amount to a 
blended amount based on a 50/50 split between national and 
local amounts.

                        EXPLANATION OF PROVISION

    Hospitals in Puerto Rico would receive Medicare payments 
based on a 50/50 split between federal and local amounts before 
October 1, 2003. From FY2004-FY2007, an increasing amount of 
the payment rate would be based on federal national rates as 
follows: during FY2004, payment would be 59 percent national 
and 41 percent local; this would change to 67 percent national 
and 33 percent local during FY2005 and 75 percent national and 
25 percent local during FY2006 and subsequent years.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    Puerto Ricans pay the full Hospital Insurance payroll tax 
but they are not afforded equal Medicare payments to their 
hospitals. This partially redresses the inequality between the 
rates, and is consistent with the MedPAC recommendation.

Section 504. Wage Index Adjustment Reclassification Reform

                              CURRENT LAW

    Acute hospitals may apply to the Medicare Geographic 
Classification Review Board (MGCRB) for a change in 
classification from a rural area to an urban area, or 
reassignment from one urban area to another urban area, based 
on the level of wages. The MGCRB was created to determine 
whether a hospital should be redesignated to an area of close 
proximity for purposes of using that area's standardized 
amount, wage index, or both. If the MGCRB grants 
reclassification, the new wage index would be used to calculate 
Medicare's payment for inpatient and outpatient services. 
Generally, hospitals must demonstrate a close proximity to the 
areas where they seek to be reclassified. A hospital can meet 
this criteria if one of two conditions are met: (1) an urban 
hospital is no more than 15 miles and a rural hospital is no 
more than 35 miles from the area where it wants to be 
reclassified, or (2) at least 50 percent of the hospital's 
employees are residents of the area. A rural referral center 
(RRC) or a sole community hospital (SCH) or a hospital that is 
both a RRC and a SCH does not have to meet the proximity 
criteria. After establishing appropriate proximity, a hospital 
may qualify for the payment rate of another area if it proves 
that its incurred costs are comparable to those of hospitals in 
that area under established criteria. To use an area's wage 
index, a rural hospital must demonstrate that its average 
hourly wage is equal to at least 82 percent of the average 
hourly wage of hospitals in the area to which it seeks 
redesignation; an urban hospital must demonstrate that its 
average hourly wage is at least 84 percent of such an area. In 
addition, an urban hospital cannot be reclassified unless its 
average hourly wage is at least 108 percent of the average 
hourly wage of the area in which it is located. This standard 
is 106 percent for rural hospitals seeking reclassification to 
another area.
    For redesignations starting in FY2003, the average hourly 
wage comparisons used to determine whether a hospital can use 
another area's wage index are based on 3 years worth of lagged 
data submitted by hospitals as part of their cost report. For 
instance, FY2003 wage index reclassifications were based on 
weighted three-year averages of average hourly wages using data 
from FY1997, FY1998, and FY1999 cost reports. Wage index 
reclassifications are effective for 3 years unless the hospital 
notifies the MCGRB and withdraws or terminates its 
reclassification.

                        EXPLANATION OF PROVISION

    The Secretary would be required to establish an application 
process and payment adjustment to recognize the commuting 
patterns of hospital employees. A hospital that qualified for 
such a payment adjustment would have average hourly wages that 
exceed the average wages of the area in which it is located and 
have at least ten percent of its employees living in one or 
more areas that have higher wage index values. This qualifying 
hospital would have its wage index value increased by the 
average difference in wage index values between the higher 
areas and its own, weighted by the percentage of its employees 
who live in these areas. The process would be based on the 
MGCRB reclassification process and schedule with respect to 
data submitted. Such an adjustment would be effective for three 
years unless a hospital withdraws or terminates its payment. A 
hospital that receives a commuting wage adjustment would not 
beeligible for reclassification into another area by the MCGRB for the 
purposes of using its wage index or standardized amount. These 
commuting wage adjustments would not affect the computation of the wage 
index of the area in which the hospital is located or any other area. 
It would also be exempt from certain budget neutrality requirements.

                             ENACTMENT DATE

    Upon enactment.

                           REASON FOR CHANGE

    Labor market areas may differ from the distance 
requirements in the regulations on reclassification. Thus, 
using commuting patterns of employees more clearly reflects the 
underlying labor market that hospitals confront. This policy 
will have the effect of blurring the current hard line of 
payment adjustments between two adjacent MSAs.

Section 505. MedPAC Report on Specialty Hospitals

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    MedPAC would be required to conduct a study of specialty 
hospitals compared with other similar general acute hospitals 
including the number and extent of patients referred by 
physicians with an investment interest in the facility, the 
quality of care furnished, the impact of the specialty hospital 
on the acute general hospital, and the differences in the scope 
of services, Medicaid utilization and the amount of 
uncompensated care that is furnished. The report, including 
recommendations, would be due to Congress no later than 1 year 
from enactment.

                             ENACTMENT DATE

    Upon enactment.

                       Subtitle B--Other Services


Section 511. Payment for Covered Skilled Nursing Facility Services

                              CURRENT LAW

    Medicare uses a system of daily rates to pay for care in a 
skilled nursing facility (SNF). There are 44 daily rate 
categories, known as resource utilization groups (RUGs), and 
each group reflects a different case mix and intensity of 
services, such as skilled nursing care and/or various therapies 
and other services.

                        EXPLANATION OF PROVISION

    The per diem RUG payment for a SNF resident with acquired 
immune deficiency syndrome (AIDS) would be increased by 128 
percent. This payment increase would not apply after the date 
when the Secretary certifies that the SNF case mix adjustment 
adequately compensates for the facility's increased costs 
associated with caring for a resident with AIDS.

                             ENACTMENT DATE

    The provision would be effective for services on or after 
October 1, 2003.

                           REASON FOR CHANGE

    According to prior work by the Urban Institute, AIDS 
patients have much higher costs than other patients in the same 
resource utilization groups in skilled nursing facilities. The 
adjustment is based on that data analysis.

Section 512. Coverage of Hospice Consultation Services

                              CURRENT LAW

    Current law authorized coverage of hospice services, in 
lieu of certain other Medicare benefits, for terminally ill 
beneficiaries who elect such coverage.

                        EXPLANATION OF PROVISION

    Coverage of certain physicians' services for certain 
terminally ill individuals would be authorized. Persons 
entitled to these services would be individuals who have not 
elected the hospice benefit and have not previously received 
these physicians' services. Covered services would be those 
furnished by a physician who is the medical director or 
employee of a hospice program. Services would include 
evaluating the individual's need for pain and symptom 
management, counseling the individual with respect to end-of-
life issues and care options, and advising the individual 
regarding advanced care planning. Payment for such services 
would equal the amount established for similar services under 
the physician fee schedule, excluding the practice expense 
component.

                             EFFECTIVE DATE

    The provision would apply to consultation services provided 
by a hospice program on or after January 1, 2004.

                           REASON FOR CHANGE

    Many patients, especially those with congestive heart 
failure, are not educated about the option of receiving hospice 
services to alleviate their pain and suffering. Moreover, 
hospice lengths of stay keep dropping, suggesting that patients 
are referred too late in their illness. This provision would 
encourage physicians to talk more with patients about hospice.

               F. Title VI--Provisions Relating to Part B


                    Subtitle A--Physicians' Services


Section 601. Revision of Updates for Physicians' Services

                              CURRENT LAW

    Medicare pays for services of physicians and certain non-
physician practitioners on the basis of a fee schedule. The fee 
schedule, in place since 1992, is intended to relate payments 
for a given service to the actual resources used in providing 
that service. The fee schedule assigns relative values to 
services. These relative values reflect physician work (i.e., 
the time, skill, and intensity it takes to provide the 
service), practice expenses, and malpractice costs. The 
relative values are adjusted for geographic variations in 
costs. The adjusted relative values are then converted into a 
dollar payment amount by a conversion factor.
    The law provides a specific formula for calculating the 
annual update to the conversion factor. The intent of the 
formula is to place a restraint on overall increases in 
spending for physicians' services. Several factors enter into 
the calculation of the formula. These include: (1) the 
sustainable growth rate (SGR), which is essentially a target 
for Medicare spending growth for physicians' services, (2) the 
Medicare economic index (MEI), which measures inflation in the 
inputs needed to produce physicians' services, and (3) an 
adjustment that modifies the update, which would otherwise be 
allowed by the MEI, to bring spending in line with the SGR 
target. The SGR target is not a limit on expenditures. Rather, 
the fee schedule update reflects the success or failure in 
meeting the target. If expenditures exceed the target, the 
update for a future year is reduced.
    The annual percentage update to the conversion factor 
equals the MEI, subject to an adjustment (known as the update 
adjustment factor) to match target spending for physicians' 
services under the SGR system. (During a transition period, 
2001-2005, an additional adjustment is made to achieve budget 
neutrality.) The update adjustment sets the conversion factor 
at a level so that projected spending for the year would meet 
allowed spending by the end of the year. Allowed spending for 
the year is calculated using the SGR. However, in no case can 
the update adjustment factor be less than minus seven percent 
or more than plus three percent.
    The update adjustment factor is the sum of: (1) the prior 
year adjustment component, and (2) the cumulative adjustment 
component. The prior year adjustment component is determined 
by: (1) computing the difference between allowed expenditures 
for physicians' services for the prior year and the amount of 
actual expenditures for that year, (2) dividing this amount by 
the actual expenditures for that year, and (3) multiplying that 
amount by 0.75. The cumulative adjustment component is 
determined by: (1) computing the difference between allowed 
expenditures for physicians' services from April 1, 1996 
through the end of the prior year and the amount of actual 
expenditures during such period, (2) dividing that difference 
by actual expenditures for the prior year as increased by the 
SGR for the year for which the update adjustment factor is to 
be determined, and (3) multiplying that amount by 0.33.
    The law also specifies a formula for calculating the SGR 
that is based on changes in four factors: (1) the estimated 
change in fees, (2) the estimated change in average number of 
Part B enrollees (excluding Medicare+Choice beneficiaries), (3) 
the estimated projected growth in real gross domestic product 
(GDP) per capita, and (4) the estimated change in expenditure 
due to changes in law or regulations. This formula is designed 
to adjust for how well actual expenditures meet SGR target 
expenditures.
    Provisions in the Consolidated Appropriations Resolution of 
2003 (P.L. 108-7) permitted redeterminations of SGR for prior 
years to correct for faulty data for the number of FFS 
beneficiaries in 1998 and 1999. As a result, the conversion 
factor for 2003 was increased 1.6 percent over the 2002 level. 
Other aspects of the formula for the annual payment rate were 
not addressed.
    CMS estimates an update of -4.2 percent for 2004, followed 
by a smaller negative update in 2005.

                        EXPLANATION OF PROVISION

    The update to the conversion factor for 2004 and 2005 would 
be not less than 1.5 percent.
    The formula for calculating the sustainable growth rate 
would be modified. Starting in 2003, the GDP factor would be 
based on the annual average change over the preceding 10 years 
(a 10-year rolling average.) The current GDP factor measures 
the 1-year change from the preceding year.

                             EFFECTIVE DATE

    Upon enactment. The 10-year rolling average calculation of 
the GDP would apply to computations of the SGR starting in 
2003.

                           REASON FOR CHANGE

    CMS actuaries project a -4.2 percent update for 2004 and a 
smaller negative update for 2005. This provision would prevent 
those negative updates from occurring, and provide for modest 
increases in physician payment rates. These modest increases 
would ensure continuing access to physician services for 
Medicare beneficiaries.
    The provision also includes a 10-year rolling average 
calculation of GDP as a modest change to the update formula. 
This change would promote stability in the physician updates 
over time by limiting the volatility of the SGR payments, which 
now oscillate dramatically based on year-to-year changes in 
economic performance.

Section 602. Studies on Access to Physicians Services

                              CURRENT LAW

    Periodic analyses by the Physician Payment Review 
Commission, MedPAC, and CMS showed that access to physicians' 
services remained generally adequate for most beneficiaries 
through 1999. Detailed data is not available for a subsequent 
period; however, several recent surveys show a decline in the 
percentage of physicians accepting new Medicare patients.

                        EXPLANATION OF PROVISION

    GAO would be required to conduct a study on access of 
Medicare beneficiaries to physicians' services under Medicare. 
The study would include an assessment of beneficiaries' use of 
services through an analysis of claims data. It would also 
examine changes in use of physicians' services over time. 
Further, it would examine the extent to which physicians are 
not accepting new Medicare beneficiaries as patients. GAO would 
be required to submit a report to Congress on this study within 
18 months of enactment. The report would include a 
determination whether data from claims submitted by physicians 
indicate potential access problems for beneficiaries in certain 
geographic areas. The report would also include a determination 
whether access by beneficiaries to physicians' services has 
improved, remained constant, or deteriorated over time.
    The Secretary would be required to request the Institute of 
Medicine to conduct a study on the adequacy of the supply of 
physicians (including specialists) in the country and the 
factors that affect supply. The Secretary would be required to 
submit the results of the study in a report to Congress no 
later than 2 years of the date of enactment.

                             EFFECTIVE DATE

    Upon enactment.

Section 603. MedPAC Report on Payment for Physicians' Services

                              CURRENT LAW

    Medicare pays for physicians' services on the basis of a 
fee schedule. The fee schedule assigns relative values to 
services. These relative values reflect physician work, 
practice expenses and malpractice expenses. Resource-based 
practice expense relative values were phased-in beginning in 
1999. Beginning in 2002, the values were totally resource-
based.
    Certain services have a professional component and a 
technical component. The technical component does not include a 
relative value for physician work. A global value includes both 
the professional and technical components. The physician must 
bill for the global value if the physician furnishes both the 
professional component and the technical component.

                        EXPLANATION OF PROVISION

    MedPAC would be required to report to Congress on the 
effects of refinements to the practice expense component in the 
case of services for which there are no physician work relative 
value units. The report is to examine the following by 
specialty: (1) the effects of refinements on payments for 
physicians services, (2) interaction of the practice expense 
component with other components of and adjustments to payment 
for physicians' services, (3) appropriateness of the amount of 
compensation by reason of such refinements, (4) effect of such 
refinements on access to care by Medicare beneficiaries to 
physicians' services, and (5) effect of such refinements on 
physician participation under the Medicare program. The report 
would be due within one year of enactment.

                             EFFECTIVE DATE

    Upon enactment.

                    Subtitle B--Preventive Services


Section 611. Coverage of an Initial Preventive Physical Examination

                              CURRENT LAW

    Medicare covers a number of preventive services. However, 
it does not cover routine physical examinations.

                        EXPLANATION OF PROVISION

    Medicare would cover an initial free preventive physical 
examination. The physical examination would be defined as 
physicians' services consisting of a physical examination with 
the goal of health promotion and disease detection. It would 
include items and services (excluding clinical laboratory 
tests) consistent with the recommendations of the United States 
Preventive Services Task Force as determined by the Secretary. 
A covered initial preventive physical examination would be one 
performed no later than six months after the individual's 
initial coverage date under Part B. Initial preventive physical 
exams would be included in the definition of physicians' 
services for purposes of the physician fee schedule. The Part B 
deductible and coinsurance would be waived for initial 
preventive physical exams.

                             EFFECTIVE DATE

    The provision would apply to services furnished on or after 
January 1, 2004 for those individuals whose coverage begins on 
or after such date.

                           REASON FOR CHANGE

    The US Preventive Services Task Force has recommended 
coverage of a preventive physical exam. An initial physical 
exam for new Medicare beneficiaries would permit identification 
of any health problems and allow for initiation of appropriate 
treatment, thereby reducing more acute and expensive 
interactions with the health care system in the future.

Section 612. Coverage of Cholesterol and Blood Lipid Screening

                              CURRENT LAW

    Medicare covers a number of preventive services. However, 
it does not cover cholesterol and blood lipid screening.

                        EXPLANATION OF PROVISION

    Medicare coverage of cholesterol and blood lipid screening 
would be authorized. The screening would be defined as 
diagnostic testing of cholesterol and other lipid levels of the 
blood for the purpose of early detection of abnormal 
cholesterol and other lipid levels. The Secretary would be 
required to establish standards regarding the frequency and 
type of these screening tests, but not more often than once 
every two years.

                             EFFECTIVE DATE

    The provision would apply to services furnished on or after 
January 1, 2005.

                           REASON FOR CHANGE

    The US Preventive Services Task Force has recommended 
coverage of cholesterol and blood lipid screening for the 
elderly. This preventive care benefit would allow for early 
detection and treatment of health problems.

Section 613. Waiver of Deductible for Colorectal Cancer Screening Tests

                              CURRENT LAW

    Covered colorectal screening tests for prevention purposes 
include: (1) an annual fecal-occult blood test for individuals 
age 50 and older, (2) flexible sigmoidoscopy every four years 
for individuals age 50 and older, (3) colonoscopy for high-risk 
individuals every two years and for other individuals every 10 
years, and (4) screening barium enemas every four years for 
individuals age 50 and older who are not at high risk of 
developing colorectal cancer or every two years for high risk 
individuals. Payment is made according to the applicable 
payment system for the provider performing the test.
    Colorectal cancer screening tests are subject to 
beneficiary cost sharing amounts, including an annual 
deductible and coinsurance amount.

                        EXPLANATION OF PROVISION

    The Part B deductibles would be waived for colorectal 
cancer screening tests.

                             EFFECTIVE DATE

    The provision would apply to items and services furnished 
on or after January 1, 2004.

                           REASON FOR CHANGE

    Beneficiaries have not availed themselves of preventive 
colorectal cancer screening tests to the extent anticipated 
after Medicare coverage of these tests became available under 
BBA 97. This provision would waive the deductible to increase 
beneficiary use of these important screening tests.

Section 614. Improved Payment for Certain Mammography Services

                              CURRENT LAW

    Screening mammography coverage includes the radiological 
procedure as well as the physician's interpretation of the 
results of the procedure. The usual Part B deductible is waived 
for tests. Payment is made under the physician fee schedule.
    Certain services paid under fee schedules or other payment 
systems including ambulance services, services for patients 
with end-stage renal disease paid under the ESRD composite 
rate, professional services of physicians and non-physician 
practitioners paid under the physician fee schedule, and 
laboratory services paid under the clinical diagnostic 
laboratory fee schedule are excluded from Medicare's HOPD PPS.

                        EXPLANATION OF PROVISION

    Unilateral and bilateral diagnostic mammography as well as 
screening mammography services would be excluded from the HOPD 
PPS. The Secretary would be required to provide an appropriate 
adjustment to the physician fee schedule for the technical 
component of the diagnostic mammography based on the most 
recent cost data available. This adjustment would be applied to 
services provided on or after January 1, 2004.

                             EFFECTIVE DATE

    The provision would apply to mammography performed on or 
after January 1, 2004.

                           REASON FOR CHANGE

    Mammography services are paid at a much lower rate under 
the HOPD PPS than in the physician office. This establishes a 
level playing field across sites of service, thereby increasing 
beneficiary access to important preventive services.

                       Subtitle C--Other Services


Section 621. Hospital Outpatient Department (HOPD) Payment Reform

            (a) Payment for Drugs

                              CURRENT LAW

    Under the HOPD PPS, the unit of payment is the individual 
service or procedure as assigned to one of about 570 ambulatory 
payment classifications (APCs) groups. Services are classified 
into APCs based on their Health Care Common Procedure Coding 
System (HCPCS), a standardized coding system used to identify 
products, supplies, and services for claims processing and 
payment purposes. To the extent possible, integral services and 
items including drugs are bundled or packaged within each APC. 
For instance, an APC for a surgical procedure would include 
operating and recovery room services, anesthesia and surgical 
supplies. Medicare's payment for HOPD services is calculated by 
multiplying the relative weight associated with an APC by a 
geographically adjusted conversion factor. The conversion 
factor is updated on a calendar year schedule and the annual 
updates are based on the hospital market basket (MB). 
Currently, the CY 2004 HOPD update would equal the projected 
change in the MB.
    Medicare pays for covered outpatient drugs in one of three 
ways: (1) as a transitional pass-through, (2) as a separate 
APC, or (3) packaged into an APC with other services.
    Transitional pass-through payments are supplemental 
payments to cover the incremental cost associated with certain 
medical devices, drugs and biologicals that are inputs to an 
existing service. The additional payment for a given item is 
established for two or three years and then the costs are 
incorporated into the APC relative weights. BBRA specified that 
pass-through payments would be made for current orphan drugs, 
as designated under section 526 of the Federal Food, Drug, and 
Cosmetic Act; current cancer therapy drugs, biologicals, and 
brachytherapy; current radiophamaceutical drugs and biological 
products; and new drugs and biological agents.
    Generally, CMS has established that a pass-through payment 
for an eligible drug is based on the difference between 95 
percent of its average wholesale price and the portion of the 
otherwise applicable APC payment rate attributable to the 
existing drug, subject to a budget neutrality provision. The 
pass-through amount for new drugs with a substitute drug 
recognized in a separate drug APC payment is the difference 
between 95 percent of new drug AWP and the payment rate for the 
comparable dose of the associated drug APC.
    Hospital costs for these drugs are used to establish the 
beneficiary copayment amounts as well as to project the amount 
of pass-through spending to calculate the uniform reduction to 
payments under the budget neutrality constraint. These hospital 
costs are imputed by multiplying the drug's AWP by the 
applicable cost to charge ratio, which varies by the class of 
drug. Although transitional pass-through payments are subject 
to a budget neutrality requirement, the applicable budget 
neutrality requirement (2.5 percent through CY2003) was not 
effective until April 2002.
    Current drugs and biologicals that have been in 
transitional pass-through status on or prior to January 1, 
2000, were removed from that payment status effective January 
1, 2003. CMS established separate APC payments for certain 
drugs, including orphan drugs, blood and blood products, and 
selected higher cost drugs in CY2003. CMS established a 
threshold of $150 for a drug to qualify for a separate APC 
payment as a higher-cost drug. Other drugs that had qualified 
for a transitional pass-through payment were packaged in to 
procedural APCs. For example, in some instances, brachytherapy 
seeds (radioactive isotopes used in cancer treatments) were 
packaged into payments for brachytherapy procedures. 
Essentially, the payment rates for these drug-related APCs are 
based on a relative weight calculated in the same way as 
procedural APCs are calculated.
    Temporary HCPCS codes are used exclusively to bill pass-
through payments for new technology items paid under the HOPD 
PPS. These codes cannot be used to bill other Medicare payment 
systems. These codes are added, changed or deleted on a 
quarterly basis to expedite the processing of requests for 
pass-through status.

                        EXPLANATION OF PROVISION

    Starting for services furnished on or after January 1, 
2004, certain covered HOPD drugs would be paid no more than 95 
percent of AWP or less than the transition percentage of the 
AWP from CY2004 through CY2006. In subsequent years, payment 
would be equal to average price for the drug in the area and 
year established by the competitive acquisition program under 
1847A. The covered HOPD drugs affected by this provision are 
radiopharmaceuticals and outpatient drugs that were paid on a 
pass-through basis on or before December 31, 2002. These would 
not include drugs for which pass-through payments are first 
made on or after January 1, 2003, or those drugs for which a 
temporary HCPCS code has not been assigned. Drugs for which a 
temporary HCPCS code has not been assigned would be reimbursed 
at 95 percent of AWP.
    The transition percentage to AWP for sole-source drugs 
manufactured by one entity is 83 percent in CY2004, 77 percent 
in CY2005, and 71 percent in CY2006. The transition percentage 
to AWP for innovator multiple source drugs is 81.5 percent in 
CY2004, 75 percent in CY2005, and 68 percent in CY2006. The 
transition percentage to AWP for multiple source drugs with 
generic drug competitors is no more than 46 percent in CY2004 
through CY2006. Generally, a multiple source drug is a covered 
drug for which there are two or more therapeutically equivalent 
drug products. An innovator multiple source drug is a multiple 
source drug that was originally marketed under an original new 
drug application approved by the Food and Drug Administration 
(FDA). A sole source drug is not a multiple source drug. The 
additional expenditures resulting from these provisions would 
not be subject to the budget neutrality requirement.
    Starting in CY2004, the Secretary would be required to 
lower the threshold for establishing a separate APC group for 
higher cost drugs from $150 to $50. These separate drug APC 
groups would not be eligible for outlier payments because their 
payment already increases when the dose increases.
    Starting in CY2004, Medicare's transitional pass-through 
payments for drugs and biologicals covered under a competitive 
acquisition contract would reflect the amount paid under that 
contract, not 95 percent of AWP.

                           REASON FOR CHANGE

    A GAO study found significant problems with the 
reimbursement for drugs and biologicals under the hospital 
outpatient system. Some drugs were reimbursed a small amount of 
AWP while others were paid far in excess of AWP. Hospital 
charges were not designed to specifically capture the resource 
costs for specific items. Some hospitals charge a flat markup 
on all drugs; some hospitals charge a lower markup on low cost 
drugs compared to high cost drugs while others do the opposite. 
As a result, the APC drug prices ranged from paying 0.2 percent 
of AWP to 29,000 percent of 95 percent AWP, and paid the median 
generic drugs more than sole source drugs. This provision 
establishes a glide path to the hospital acquisition cost 
numbers from the Kathpol survey undertaken by CMS. Thereafter, 
a level playing field with drug prices across sites of service 
would be established. CMS is asked to collect data from 
hospitals on their acquisition to be used to adjust the rates 
if necessary.
            (b) Special Payment for Brachytherapy

                              CURRENT LAW

    Current drugs and biologicals that have been in 
transitional pass-through status on or prior to January 1, 2000 
were removed from that payment status effective January 1, 
2003. CMS established separate APC payments for certain drugs, 
including orphan drugs, blood and blood products, and selected 
higher cost drugs in CY2003. CMS established a threshold of 
$150 per claim for a drug to qualify for a separate APC payment 
as a higher-cost drug. Other drugs that had qualified for a 
transitional pass-through payment were packaged into procedural 
APCs. For example, in some instances, brachytherapy seeds 
(radioactive isotopes used in cancer treatments) were packaged 
into payments for brachytherapy procedures. Essentially, the 
payment rates for these drug-related APCs are based on a 
relative weight calculated in the same way as procedural APCs 
are calculated.

                        EXPLANATION OF PROVISION

    From January 1, 2004 through December 31, 2006, Medicare's 
payments for brachytherapy devices would equal the hospital's 
charges adjusted to costs. The Secretary would be required to 
create separate APCs to pay for these devices that reflect to 
the number, isotope, and radioactive intensity of such devices. 
This would include separate groups for palladium-103 and 
iodine-125 devices. GAO would be required to study the 
appropriateness of payments for brachytherapy devices and 
submit a report including recommendations to Congress no later 
than January 1, 2005.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    The amount of seeds necessary to treat the patient can vary 
significantly. This changes the payment methodology to reflect 
differences in clinical resources.
            (c) Functional Equivalence

                              CURRENT LAW

    In the November 1, 2002, Federal Register final rule, CMS 
decided that a new anemia treatment for cancer patients was no 
longer eligible for pass-though payments because it was 
functionally equivalent (although not structurally identical or 
therapeutically equivalent) to an existing treatment. The 
transitional pass-through rate for the drug was reduced to zero 
starting for services in 2003.

                        EXPLANATION OF PROVISION

    The Secretary would be prohibited from applying a 
functional equivalence standard or any similar standard that 
deems a particular drug or biological to be similar or 
identical to another drug (and therefore ineligible for pass-
through payment status) without first developing these 
standards by regulation. Such regulation would be required to: 
(1) be published after a public comment period, (2) contain 
criteria that provides for coordination with the Food and Drug 
Administration, and (3) be based on scientific studies that 
demonstrate the clinical relationship between the drugs in 
question. This provision would apply to the application of a 
functional equivalent determination on or after the date of 
enactment. The provision prohibits the application of this 
standard to a drug or biological prior to June 13, 2003.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    The concept of functional equivalence is new to the 
Medicare program and should be open to comment by Congress and 
the public through proposed rulemaking. The FDA should be 
involved since these are scientific issues for which CMS lacks 
expertise.
            (d) Hospital Acquisition Cost Study

                              CURRENT LAW

    CMS estimates hospital costs to establish beneficiary 
copayment amounts as well as to project the amount of pass-
through spending to calculate the uniform reduction to payments 
under the budget neutrality constraint. These hospital costs 
are imputed by multiplying AWP for the drug by the applicable 
cost to charge ratio, which varies by the class of drug.

                        EXPLANATION OF PROVISION

    The Secretary would be required to study the hospital 
acquisition costs related to covered outpatient drugs that cost 
$50 and more that are reimbursed under the HOPD PPS. The study 
would encompass a representative sample of urban and rural 
hospitals. The report should include recommendations on the 
usefulness of the cost data and frequency of subsequent data 
collection and would be due to Congress no later than January 
1, 2006. The report should also discuss whether the data is 
appropriate for making adjustments to payments made under the 
competitive acquisition contract established by section 1847A 
and whether separate estimates should be made for overhead 
costs (i.e. handling and administering drugs).

                             EFFECTIVE DATE

    Upon enactment.

Section 622. Payment for Ambulance Services

                              CURRENT LAW

    Traditionally, Medicare has paid suppliers of ambulance 
services on a reasonable charge basis and paid provider-based 
ambulances on a reasonable cost basis. BBA 97 provided for the 
establishment of a national fee schedule, which was to 
implemented in phases, in an efficient and fair manner. The 
required fee schedule became effective April 1, 2002, with full 
implementation by January 2006. In the transition period, a 
gradually decreasing portion of the payment is to be based on 
the prior payment methodology (either reasonable costs or 
reasonable charges).
    The fee schedule payment amount equals the base rate for 
the level of service plus payment for mileage and specified 
adjustment factors. Additional mileage payments are made in 
rural areas. BIPA increased payment for rural ambulance mileage 
for distances greater than 17 miles and up to 50 miles for 
services provided before January 1, 2004. The amount of the 
increase was at least one-half of the payment per mile 
established in the fee schedule for the first 17 miles of 
transport.

                        EXPLANATION OF PROVISION

    The phase-in methodology and schedule for full 
implementation of the ambulance fee schedule would be modified. 
The calculation of ambulance fees in the phase-in period would 
incorporate a decreasing portion of the payment based on 
regional fee schedules calculated for each of nine census 
regions for those regions that lose financially under the fee 
schedule. Generally, the regional fee schedules would be based 
on the same methodology and data used to construct the national 
fee schedule. For services provided in 2004, the blended rate 
would be based on 20 percent of the national fee schedule and 
80 percent of the regional fee schedule; in 2005 blended rate 
would be based on a 40 percent national and 60 percent regional 
split; in 2006, the blended rate would be based on a 60 percent 
national and 40 percent regional split; from 2007-2009, the 
blended rate would be based on an 80 percent national and 20 
percent regional split; and in 2010 and subsequently, the 
ambulance fee schedule would be based on the national fee 
schedule.
    Medicare's payments for ground ambulance services would be 
increased by one quarter of the amount otherwise established 
for trips longer than 50 miles occurring on or after January 1, 
2004 and before January 1 2009. The payment increase would 
apply regardless of where the transportation originated. GAO 
would be required to submit an initial report to Congress on 
the access and supply of ambulance services in regions and 
states where ambulance payments are reduced by December 31, 
2005. GAO would be required to submit a final report to 
Congress by January 1, 2004.

                             EFFECTIVE DATE

    The provision would apply to ambulance services furnished 
on or after January 1, 2004.

                           REASON FOR CHANGE

    New PPS systems cannot capture all the reasons for past 
regional differences in cost. This proposal is modeled on the 
transition of the hospital inpatient PPS and acts to slow down 
the losses in regions that lose significantly under the new fee 
schedule.

Section 623. Renal Dialysis Services

            (a) Demonstration of Alternative Delivery Models

                              CURRENT LAW

    The Secretary announced a demonstration project 
establishing a disease-management program that would allow 
organizations experienced with treating end-stage renal disease 
(ESRD) patients to develop financing and delivery approaches to 
better meet the needs of beneficiaries with ESRD. CMS is 
soliciting a variety of types of organizations to coordinate 
care to patients with ESRD, encourage the provision of disease-
management services for these patients, collect clinical 
performance data and provide incentives for more effective 
care.

                        EXPLANATION OF PROVISION

    The provision would require the Secretary to establish an 
advisory board for the ESRD disease management demonstration. 
The advisory board would be comprised of representativespatient 
organizations, clinicians, MedPAC, the National Kidney Foundation, the 
National Institute of Diabetes and Digestive and Kidney Diseases of the 
National Institutes of Health, ESRD networks, Medicare contractors to 
monitor quality of care, providers of services and renal dialysis 
facilities furnishing end-stage renal disease services, economists, and 
researchers.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    This provision would allow more patient oversight of the 
demonstration of changes to the payments system for such a 
frail population.
            (b) Restoring Composite Rate Exceptions for Pediatric 
                    Facilities

                              CURRENT LAW

    Prior to BIPA, an increase in the composite rate would 
trigger an opportunity for facilities to request an exception 
to the composite rate in order to receive higher payments. BIPA 
prohibited the Secretary from granting new exceptions to the 
composite rate from applications received after July 1, 2001.

                        EXPLANATION OF PROVISION

    The prohibition on exceptions would not apply to pediatric 
ESRD facilities as of October 1, 2002. Pediatric facilities 
would be defined as a renal facility with 50 percent of its 
patients under 18 years old.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    Pediatric patients require more nursing oversight and more 
time to receive dialysis treatment. This would recognize the 
higher costs of facilities that treat these patients.
            (c) Increase in Renal Dialysis Composite Rate for Services 
                    Furnished in 2004

                              CURRENT LAW

    Dialysis facilities providing care to beneficiaries with 
end-stage renal disease (ESRD) receive a fixed prospectively 
determined payment amount (the composite rate) for each 
dialysis treatment. BBRA increased the composite rates by 1.2 
percent for dialysis services furnished in both 2000 and 2001. 
BIPA subsequently increased the mandated 2001 update to 2.4 
percent, an increase that was to be implemented on the 
following schedule in order to avoid a disruption in claims 
processing: for services furnished from January through March, 
2001, the 1.2 percent increase specified by BBRA applied; for 
the remainder of 2001, a transition increase of 2.79 percent 
applied. Effective January 1, 2002, the composite rates 
reflected the 2.4 percent increase. There is no rate increase 
scheduled for ESRD composite payment rate in 2004.

                        EXPLANATION OF PROVISION

    The provision would increase the ESRD composite payment 
rate by 1.6 percent for 2004.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    The Medicare Payment Advisory Commission recommended this 
increase in the composite rate for 2004.

Section 624. One-Year Moratorium on Therapy Caps; Provisions Relating 
        to Reports

                              CURRENT LAW

    BBA 97 established annual payment limits per beneficiary 
for all outpatient therapy services provided by non-hospital 
providers. The limits applied to services provided by 
independent therapists as well as to those provided by 
comprehensive outpatient rehabilitation facilities (CORFs) and 
other rehabilitation agencies. There are two beneficiary 
limits. The first is a $1,500 per beneficiary annual cap for 
all outpatient physical therapy services and speech language 
pathology services. The second is a $1,500 per beneficiary 
annual cap for all outpatient occupational therapy services. 
Beginning in 2002, the amount increases by the Medicare 
Economic Index (MEI), rounded to the nearest multiple of $10. 
The limits do not apply to outpatient services provided by 
hospitals. BBRA 99 percent suspended application of the therapy 
limits in 2000 and 2001. BIPA extended the suspension through 
2002. Although the therapy caps were scheduled for 
implementation in January 2003, they are not yet being 
enforced. CMS has scheduled implementation for July 2003.
    Therapy patients must be under the care of a physician. The 
physician or therapist must develop a treatment plan, and the 
physician must review the plan periodically.
    BBA 97 required the Secretary to report to Congress by 
January 1, 2001, on recommendations for a revised coverage 
policy of outpatient physical therapy and occupational therapy 
services based on a classification of individuals by diagnostic 
category and prior use of services, in both inpatient and 
outpatient settings, in place of uniform dollar limitations. 
BIPA required the Secretary to conduct a study on the 
implications of eliminating Medicare's in-room supervision 
requirement for physical therapy assistants supervised by 
physical therapists itsimplication on the physical therapy cap. 
A report on the study was due within 18 months of enactment.

                        EXPLANATION OF PROVISION

    Application of the therapy caps would be suspended during 
CY 2004. The Secretary would be required to submit the reports 
required by BBA 97 and BIPA by December 31, 2003. The Secretary 
would be required to request the Institute of Medicine to 
identify conditions or diseases that should justify conducting 
an assessment of the need to waive the therapy caps. The 
Secretary would be required to submit to Congress a preliminary 
report on the conditions and diseases identified by July 1, 
2004. A final report, including recommendations, would be due 
by October 1, 2004.
    GAO would be required to conduct a study on access to 
physical therapist services in states authorizing access to 
such services without a physician referral compared to states 
that require such a physician referral. The study would: (1) 
examine the use of and referral patterns for physical therapist 
services for patients age 50 and older in states that authorize 
such services without a physician referral and in states that 
require such a referral, (2) examine the use of and referral 
patterns for physical therapist services for patients who are 
Medicare beneficiaries, (3) examine the physical therapist 
services within the facilities of the Department of Defense, 
and (4) analyze the potential impact on beneficiaries and on 
Medicare expenditures of eliminating the need for a physician 
referral for physical therapist services under the Medicare 
program. GAO would be required to submit a report to Congress 
on the study within one year of enactment.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    The Secretary has not provided a recommendation to Congress 
of criteria, with respect to conditions and diseases, under 
which a waiver of therapy caps would apply for individual 
Medicare beneficiaries. The implementation of therapy caps 
would be waived for 2004 because the Secretary has failed to 
provide a recommendation. The Secretary would have until 
October 1, 2004 to provide a recommendation to Congress.

Section 625. Adjustment to Payments for Services Furnished in 
        Ambulatory Surgical Centers

                              CURRENT LAW

    Medicare uses a fee schedule to pay for the facility 
services related to a surgery provided in an ACS. The 
associated physician services (surgery and anesthesia) are 
reimbursed under the physician fee schedule. CMS maintains the 
list of approved ASC procedures that is required to be updated 
every 2 years. The Secretary is required to update ASC rates 
based on a survey of the actual audited costs incurred by a 
representative sample of ASCs every 5 years beginning no later 
than January 1, 1995. Between revisions, the rates are to be 
updated annually on a calendar year schedule using the CPI-U. 
From FY1998 through FY2002, the update was established as the 
CPI-U minus 2.0 percentage points, but not less than zero.

                        EXPLANATION OF PROVISION

    The update would be reduced two percentage points for five 
years. ASCs would get an increase calculated as the CPI-U minus 
2.0 percentage points (but not less than zero) in each of the 
fiscal years from 2004 through 2008.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    MedPAC made three recommendations regarding ASCs, including 
a freeze on payments for 2004. This update would allow ASCs a 
small increase in payments while a more permanent solution is 
developed. The Committee urges CMS and ASCs to complete the 
collection of recent ASC charge and cost data, so that the ASC 
payment system can be analyzed and revised. Furthermore, the 
Committee recognizes the inconsistency in payments to ASCs and 
HOPD PPS rates for the same procedures. ASCs are urged to 
cooperate with CMS in providing recent charge and cost data to 
prevent changes to ASC payments that might not be supported if 
full data were available.

Section 626. Payment for Certain Shoes and Inserts under the Fee 
        Schedule for Orthotics and Prosthetics

                              CURRENT LAW

    Subject to specified limits and under certain 
circumstances, Medicare would pay for extra-depth shoes with 
inserts or custom molded shoes with inserts for an individual 
with severe diabetic foot disease. Coverage is limited to one 
of the following within a calendar year: (1) one pair of 
custom-molded shoes (including inserts provided with such 
shoes) and two additional pairs of inserts, or (2) one pair of 
extra-depth shoes (not including inserts provided with such 
shoes) and three pairs of inserts. An individual may substitute 
modifications of custom-molded or extra-depth shoes instead of 
obtaining one pair of inserts, other than the initial pair of 
inserts. Footwear must be fitted and furnished by a podiatrist 
or other qualified individual such as a pedorthist, orthotist, 
or prosthetist. The certifying physician may not furnish the 
therapeutic shoe unless the physician is the only qualified 
individual in the area.
    Payment is made on a reasonable charge basis, subject to 
upper limits established by the Secretary. These limits are 
based on 1988 amounts that were set forth in Section 1833(o) of 
the Act and then adjusted by the same percentage increases 
allowed for DME fees except that if the updated limit is not a 
multiple of $1, it is rounded to the nearest multiple of $1. 
The Secretary ora carrier may establish lower payment limits 
than established by statute if shoes and inserts of an appropriate 
quality are readily available at lower amounts.
    Although updates in payment for diabetic shoes is related 
to that used to increase the DME fee schedule, the shoes are 
not subject to DME coverage rules or the DME fee schedule. In 
addition, diabetic shoes are neither considered DME nor 
orthotics, but a separate category of coverage under Medicare 
Part B.

                        EXPLANATION OF PROVISION

    Payment for diabetic shoes would be limited by the amount 
that would be paid if they were considered to be a prosthetic 
or orthotic device. The Secretary or a carrier would be able to 
establish lower payment limits than these amounts if shoes and 
inserts of an appropriate quality are readily available at 
lower amounts. The Secretary would be required to establish a 
payment amount for an individual substituting modifications to 
the covered shoe that would assure that there is no net 
increase in Medicare expenditures.

                             EFFECTIVE DATE

    The provision would apply to items furnished on or after 
January 1, 2004.

                           REASON FOR CHANGE

    The payment for shoes was determined based on an arbitrary 
amount set in the statute. The amount exceeded the retail price 
for some comparable items. This treats diabetic shoes the same 
as all other durable medical equipment.

Section 627. Waiver of Part B Late Enrollment Penalty for Certain 
        Military Retirees; Special Enrollment Period

                              CURRENT LAW

    A late enrollment penalty is imposed on beneficiaries who 
do not enroll in Medicare Part B upon becoming eligible for 
Medicare.

                        EXPLANATION OF PROVISION

    Congress enacted TRICARE for Life, which re-established 
TRICARE health care coverage as a wraparound to Medicare for 
military retirees, age 65 and older. To take advantage of the 
TRICARE for Life program, military retirees must be enrolled in 
Medicare Part B. There is a late enrollment penalty for 
military retirees who do not enroll in Medicare Part B upon 
becoming eligible for Medicare. This provision would waive the 
late enrollment penalty for military retirees, 65 and older, 
who enroll(ed) in the TRICARE for Life program from 2001-2004.
    The Secretary would also be required to provide a special 
enrollment period for these military retirees beginning as soon 
as possible after enactment and ending December 31, 2004. For 
the individual who enrolls during the special enrollment 
period, coverage would begin on the first day of the month, 
following the month in which the individual enrolled.

                             EFFECTIVE DATE

    The provision would apply to premiums for months beginning 
with January 2004. A method would be established to provide 
rebates of premium penalties paid for by military retirees for 
months on or after January 2004.

                           REASON FOR CHANGE

    The Floyd A. Spence National Defense Authorization Act for 
FY 2001 opened TRICARE to Medicare-eligible military retirees 
for the first time, allowing them to keep their military health 
benefits past the age of 65. This benefit became available for 
the first time on January 1, 2001.
    This provision would eliminate two barriers prevent many 
retirees from accessing these benefits. First, many retirees 
who received military care in military health facilities on a 
space-available basis did not purchase Part B coverage when 
initially eligible. Upon late enrollment, they must pay a 10 
percent penalty for each year that enrollment was delayed. 
Second, because Medicare enrollment is only available during an 
annual open enrollment season, from January 1 to March 31 each 
year, many retirees would have to wait until 2004 to secure 
coverage.
    The waiver of the late-enrollment penalty and provision for 
a special enrollment period would remove these barriers.

Section 628. Part B Deductible

                              CURRENT LAW

    Under Part B, Medicare generally pays 80 percent of the 
approved amount for covered services after the beneficiary pays 
an annual deductible of $100. The Part B deductible has set at 
$100 since 1991.

                        EXPLANATION OF PROVISION

    The Medicare Part B deductible would rise from $100 in 2003 
to $104 in 2004, and grow with Medicare inflation thereafter. 
As a result, the Part B deductible would grow at the same rate 
as expenditures per capita for Part B services. The amount 
would be rounded to the nearest dollar.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    In 1966, Medicare's $50 Part B deductible equaled about 45 
percent of Part B charges. Today's $100 deductible equals about 
three percent of such charges. Indexing the Part B deductible 
to grow at the same rate as total Part B spending per 
beneficiary would maintain the deductible at 3 percent of such 
charges over time.
    An unchanged Part B deductible is a benefit increase over 
time, as costs of medical care rise. Beneficiaries pay about 25 
percent of this benefit increase, through increased Part B 
premiums; taxpayers finance the remaining 75 percent. The Part 
B deductible has increased only three times since the beginning 
of Medicare, when it was $50. The deductible has since been 
increased to $60 in 1973, $75 in 1982, and $100 in 1991. About 
one-half of beneficiaries are insulated from Part B deductibles 
through Medigap, Medicaid, or employer-sponsored supplemental 
insurance that covers the Part B deductible.

Section 629. Extension of Coverage of Intravenous Immune Globulin 
        (IVIG) for the Treatment of Primary Immune Deficiency Diseases 
        in the Home

                              CURRENT LAW

    Currently, Medicare provides reimbursement under Part B for 
the infusion of IVIG in a hospital outpatient or physician 
office setting.

                         EXPLANATION OF CHANGE

    The proposal would permit patients with primary immune 
deficiency to receive IVIG at home instead of in the currently 
covered settings. Unlike the other settings, however, home 
coverage would include only the cost of the drug; patients 
would be responsible for the cost of a nurse or other health 
care professional to administer the infusion.

                             EFFECTIVE DATE

    Applies to items furnished on or after January 1, 2004.

                           REASON FOR CHANGE

    Primary immune deficiency diseases are inherited disorders 
in which parts of the body's immune system are missing or do 
not function properly. These disorders affect more than 50,000 
Americans. In order to maintain their health, most primary 
immune deficiency patients require monthly infusions of a 
plasma derivative known as intravenous immune globulin (IVIG). 
Without this life saving therapy, primary immune deficient 
patients would be subject to serious infection, illness and 
premature death.
    Given their compromised immune systems, these patients are 
particularly vulnerable to the many infections to which 
individuals in a hospital or other health care facility are 
exposed. Home coverage of these infusions for appropriate 
patients would reduce this health risk and be significantly 
more convenient.
    The Balanced Budget Refinement Act directed the Department 
of Health and Human Services to study the feasibility of 
allowing the existing covered drug to be reimbursed when 
delivered in the home. The study, conducted by the Lewin Group, 
examined issues such as cost, safety, access to care, and the 
practices of private insurers. The study concluded home 
coverage of IVIG is appropriate.

           G. Title VII--Provisions Relating to Parts A and B


                    Subtitle A--Home Health Services


Section 701. Update in Home Health Services

                              CURRENT LAW

    Home health service payments are increased on a federal 
fiscal year basis that begins in October. The FY 2004 statutory 
update would be the full increase in the market basket index.

                        EXPLANATION OF PROVISION

    This provision would increase home health agency payments 
by the home health market basket percentage increase minus 0.4 
percentage points for 2004 through 2006. The update for 
subsequent years would be the full market basket percentage 
increase. The provision would also change the time frame for 
the update from the federal fiscal year to a calendar year 
basis. The home health prospective payment rates would not 
increase for the October 1 through December 31, 2003, period.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    The Medicare Payment Advisory Commission recommended that 
Congress should eliminate the update to payment rates for home 
health services for fiscal year 2004. The Medicare margins for 
all agencies are 23.3 percent, even given the October 1, 2003 
reduction. The mb-0.4 provides substantial payment increases 
for home heath agencies. However, they would be lower than 
current law and would provide stability.

Section 702. Establishment of Reduced Copayment for a Home Health 
        Service Episode of Care for Certain Beneficiaries

                              CURRENT LAW

    The home health benefit does not have any cost sharing 
requirement.

                        EXPLANATION OF PROVISION

    This provision would establish a beneficiary copayment for 
each 60-day episode of care beginning January 1, 2004. The 
amount of the copayment would be 1.5 percent of the national 
average payment per episode in a calendar year, as projected by 
the Secretary before the beginning of the year. The copayment 
amount would be rounded to the nearest multiple of five 
dollars. For 2004, the copayment would be $40 unless the 
Secretary provides the results of the statutory formula in a 
timely manner. Medicare payment for each episode would be 
reduced to reflect the copayment amount. Qualified Medicare 
beneficiaries (low-income beneficiaries for whom Medicaid pays 
Medicare premiums, deductibles, and coinsurance), beneficiaries 
dually eligible for Medicare and Medicaid, and beneficiaries 
receiving five or fewer home health visits per episode of care 
would not face any cost-sharing requirements. Administrative 
and judicial review of the calculated copayment amounts would 
be prohibited.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    Unlike almost all Part B services, the Medicare home health 
benefit does not have a copayment. The typical beneficiary 
receives about $3,000 worth of free home health care (CBO 
estimate). At the same time, home health spending is increasing 
rapidly rising almost 13 percent a year between 2004 and 2012 
(CBO). In fact, the Congressional Budget Office estimates home 
health spending will have almost tripled in size in that same 
period. When spending increases, so do beneficiary premiums 
because they are tied to program's costs.
    Part of the reason for the spending increases it because it 
is difficult to determine if the beneficiary really needs home 
health (GAO and CMS). Requiring even nominal copays encourages 
beneficiaries to use care more prudently.
    For the 90 percent of beneficiaries that have supplemental 
policies or other coverage, the Medicare program collects the 
copayments by automatically crossing over the claim to their 
insurance companies. Thus, the copayments generate little 
administrative cost for an agency.

Section 703. MedPAC Study of Medicare Margins of Home Health Agencies

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    The provision would require MedPAC to study payment margins 
of home health agencies paid under the Medicare prospective 
payment system. The study would examine whether systematic 
differences in payment margins were related to differences in 
case mix, as measured by home health resource groups (HHRGs). 
MedPAC would be required to submit a report to Congress on the 
study within two years of enactment.

                             EFFECTIVE DATE

    Upon enactment.

             Subtitle B--Direct Graduate Medical Education


Section 711. Extension of Update Limitation on High Cost Programs

                              CURRENT LAW

    Medicare pays hospitals for its share of direct graduate 
medical education (DGME) costs in approved programs using a 
count of the hospitals number of full-time equivalent residents 
and a hospital-specific historic cost per resident, updated for 
inflation. BBRA changed Medicare's methodology for calculating 
DGME payments to teaching hospitals to incorporate a new 
benchmark set at the national average amount based on FY1997 
hospital specific per resident amounts. Starting in FY2001, 
hospitals received no less than 70 percent of a geographically 
adjusted national average amount. BIPA increased this floor to 
85 percent of the locality adjusted, updated, and weighted 
national per resident amounts starting for cost report periods 
beginning during FY2002. Hospitals with per resident amounts 
above 140 percent of the geographically adjusted national 
average amount had payments frozen at current levels for FY2001 
and FY2002, and in FY2003-FY2005 would receive an update equal 
to the Consumer Price Index (CPI) increase minus two percentage 
points. Currently, hospitals with per resident amounts between 
85 percent and 140 percent of the geographically adjusted 
national average would continue to receive payments based on 
their hospital-specific per resident amounts updated for 
inflation.

                        EXPLANATION OF PROVISION

    The hospitals with per resident amounts above 140 percent 
of the geographically adjusted national average amount would 
not get an update from FY2004 through FY2013.

                             EFFECTIVE DATE

    Upon enactment

                           REASON FOR CHANGE

    The DGME amounts in these high cost hospitals are far 
higher that can be explained by the cost of living and 
legitimate difference in overhead. High quality medical 
training is delivered in most facilities for a fraction of the 
cost of high-cost institutions. The Medicare payments to these 
institutions have nothing to do with actual costs of training 
these physicians.

                  Subtitle C--Chronic Care Improvement


Section 721. Voluntary Chronic Care Improvement Under Traditional Fee-
        for-Service

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    The Secretary would be required to establish a process for 
providing chronic care improvement programs for Medicare 
beneficiaries in FFS Medicare (Parts A and B) who have certain 
chronic conditions such as congestive heart failure, diabetes, 
chronic obstructive pulmonary disease, stroke or other diseases 
as identified by the Secretary. The Secretary would establish 
administrative regions, Chronic Care Improvement Administrative 
regions (CCIAs) within the United States for chronic care 
improvement programs. Within each CCIA, the Secretary would 
select at least two contractors under a competitive bidding 
process on the basis of the ability of each bidder to achieve 
improved health outcomes of the participating beneficiaries and 
improved financial outcomes of the Medicare program. A 
contractor would be a disease improvement organization, health 
insurer, provider organization, group of physicians, or any 
other legal entity that the Secretary determines appropriate. 
Contractors would be required to meet certain clinical, quality 
improvement, financial, and other requirements specified by the 
Secretary either directly or indirectly through the use of 
subcontractors. The Secretary would be able to phase-in 
implementation of the program beginning one-year after 
enactment.
    Each program would be required to have a method for 
identifying targeted Medicare beneficiaries who would be 
offered participation in the program. The Secretary would be 
required to assist the program in identifying beneficiaries. 
Each beneficiary would be assigned to only one contractor that 
would be responsible for guiding beneficiaries in managing 
their health including all co-morbidities. Initial contact with 
a Medicare beneficiary would be from the Secretary who would 
provide information about the program, including a description 
of advantages in participating. The Secretary would inform the 
beneficiary that the contractor would contact the beneficiary 
directly concerning participation, the voluntary nature of 
program participation, and a means of declining to participate 
or decline being contacted by the program. Each program would 
be required to develop an individualized, goal-oriented chronic 
care improvement plan with the beneficiary. The chronic care 
improvement plan would be required to contain: a single point 
of contact to coordinate care; self-improvement education for 
the individual and support education for health care providers, 
primary caregivers, and family members; coordination between 
prescription drug benefits, home health, and other health care 
services; collaboration with physicians and other providers to 
enhance communication of relevant clinical information; the use 
of monitoring technologies, where appropriate; and information 
about hospice care, pain and palliative care, and end-of-life 
care, as appropriate. In developing the chronic care 
improvement plan, programs would be required to use decision 
support tools such as evidence-based practice guidelines and a 
clinical information database to track and monitor each 
beneficiary across care settings and evaluate outcomes. The 
program would be required to meet any additional requirements 
that the Secretary finds appropriate. Programs would be 
accredited by qualified organizations to be deemed to have met 
such requirements as specified by the Secretary.
    Contractor payments for each chronic care improvement 
program would be required to result in Medicare program outlays 
that would otherwise have been incurred in the absence of the 
program for the three-year contract period. The Secretary would 
be required to assure that there would be no net aggregate 
increase in Medicare payments, in entering into a contract for 
the program over the three-year period. Contracts for chronic 
care improvement programs would be treated as a risk-sharing 
arrangement. In addition, payment to contractors would be 
subject to the contractor meeting clinical and financial 
performance standards established by the Secretary.
    Program contractors would be required to report to the 
Secretary on the quality of care and efficacy of the program in 
terms of process measures (such as reductions in errors and re-
hospitalization rates), beneficiary and provider satisfaction, 
health outcomes, and financial outcomes. The Secretary would be 
required to submit to Congress annual reports on the program 
including information on progress made toward national 
coverage, common delivery models, and information on 
improvements in health outcomes, as well as financial 
efficiencies resulting from the program. The Secretary would 
also be required to conduct a randomized clinical trial to 
assess the potential for cost reductions under Medicare by 
comparing costs of beneficiaries enrolled in chronic care 
improvement programs and beneficiaries who are eligible to 
participate but are not enrolled.
    Appropriations of such sums as necessary to provide for 
contracts with chronic care improvement programs would be 
authorized from the Medicare Trust Funds.

                             EFFECTIVE DATE

    The provision would be effective upon enactment and the 
Secretary would be required to begin implementing the chronic 
care improvement programs no later than one-year after 
enactment.

                           REASON FOR CHANGE

    Under current law, FFS Medicare does not offer coordinated 
care programs for the chronically ill. Chronic care management 
is an important issue, because 84 percent of seniors have one 
or more chronic conditions. In addition, individuals with 
chronic conditions account for 80 percent of all health care 
spending, with two-thirds of Medicare spending being spent on 
seniors with five or more chronic conditions. CMS has run 
demonstration programs in the Medicare program, particularly 
for high cost or especially frail adults. CMS is currently 
managing more than a dozen demonstration programs on disease 
and case management. A permanent program should be established 
within FFS Medicare that offers chronic care management to 
high-cost chronically ill seniors.

Section 722. Chronic Care Improvement Under Medicare Advantage and 
        Enhanced Fee-for-Service Programs

                              CURRENT LAW

    Under the Medicare+Choice program, organizations are 
required to have quality assurance programs that include 
measuring outcomes, monitoring and evaluating high volume and 
high risk services and the care of acute and chronic 
conditions, and evaluating the effectiveness of the efforts.

                        EXPLANATION OF PROVISION

    Each Medicare Advantage plan offered would be required to 
have a chronic care improvement program for enrollees with 
multiple or sufficiently severe chronic conditions such as 
congestive heart failure, diabetes, chronic obstructive 
pulmonary disease, stroke or other disease as identified by the 
Secretary. The program would be required to have a method for 
monitoring and identifying enrollees with multiple or 
sufficiently severe chronic conditions and to develop with an 
enrollee's consent an individualized, goal-oriented chronic 
care improvement plan.
    The chronic care improvement plan would be required to 
include: a single point of contact to coordinate care; self-
improvement education for the individual and support education 
for health care providers, primary caregivers, and family 
members; coordination between prescription drug benefits, home 
health, and other health care services; collaboration with 
physicians and other providers to enhance communication of 
relevant clinical information; the use of monitoring 
technologies, where appropriate; and information about hospice 
care, pain and palliative care, and end-of-life care, as 
appropriate. In developing the chronic care improvement plan, 
programs would be required to use decision support tools such 
as evidence-based practice guidelines and a clinical 
information database to track and monitor each beneficiary 
across care settings and evaluate health outcomes. The program 
would be required to meet any additional requirements that the 
Secretary finds appropriate. Programs that have been accredited 
by qualified organizations would be deemed to have met such 
requirements as specified by the Secretary.
    Each Medicare Advantage organization would be required to 
report to the Secretary on the quality of care and efficacy of 
the chronic care improvement program.

                             EFFECTIVE DATE

    The provision would apply for contract years beginning on 
or after one year after enactment.

                           REASON FOR CHANGE

    Many Medicare Health Maintenance Organizations (HMOs) 
already provide chronic care management programs. These 
programs target high-cost beneficiaries suffering from one or 
more chronic conditions and coordinate their care within plan. 
This requirement for private plans would continue the chronic 
care/disease management programs most Medicare HMOs already 
have in place.

Section 723. Institute of Medicine Report

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    The Secretary would be required to contract with the 
Institute of Medicine of the National Academy of Sciences to 
study the barriers to effective integrated chronic care 
improvement for Medicare beneficiaries with multiple or severe 
chronic conditions across settings and over time. The study 
would examine the statutory and regulatory barriers to 
coordinating care across settings for Medicare beneficiaries in 
transition from one setting to another. The Institute of 
Medicine would be required to submit the report of the study to 
the Secretary and Congress no later than 18 months after 
enactment.

                             EFFECTIVE DATE

    Upon enactment.

Section 724. MedPAC Report

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    MedPAC would be required to evaluate the chronic care 
improvement program. The evaluation would include a description 
of the status concerning implementation of the program, the 
quality of health care services provided to individuals 
participating in the program, and the cost savings attributed 
to implementation. The report of the evaluation would be 
submitted to Congress not later than two years after 
implementation of the program.

                             EFFECTIVE DATE

    Upon enactment.

                      Subtitle D--Other Provisions


Section 731. Modifications to MedPAC

                              CURRENT LAW

    The Medicare Payment Advisory Commission is a 17-member 
body that reports and makes recommendations to Congress 
regarding Medicare payment policies. The Comptroller General is 
required to establish a public disclosure system for 
Commissioners to disclose financial and other potential 
conflicts of interest.

                        EXPLANATION OF PROVISION

    MedPAC would be required to examine the budgetary 
consequences of a recommendation before making the 
recommendation and to review the factors affecting the 
efficient provision of expenditures for services in different 
health care sectors under FFS Medicare. MedPAC would be 
required to submit two additional reports no later than June 1, 
2003. The first report would study the need for current data, 
and the sources of current data available, to determine the 
solvency and financial circumstances of hospitals and other 
Medicare providers. MedPAC would be required to examine data on 
uncompensated care, as well as the share of uncompensated care 
accounted for by the expenses for treating illegal aliens. The 
second report would address investments and capital financing 
of hospitals participating under Medicare and access to capital 
financing for private and not-for-profit hospitals. The 
provision would also require that members of the Commission be 
treated as employees of Congress for purposes of financial 
disclosure requirements.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    Congress needs to ensure that the Commission remains the 
objective impartial agency that it is today. Moreover, the 
Commission cannot be removed from the same constraints that 
Congress itself must face through considerations of the budget.

Section 732. Demonstration Project for Medical Adult Day Care Services

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    Subject to earlier provisions, the Secretary would be 
required to establish a demonstration project under which a 
home health agency, directly or under arrangement with a 
medical adult day care facility, provide medical adult day care 
services as a substitute for a portion of home health services 
otherwise provided in a beneficiary's home. Such services would 
have to be provided as part of a plan for an episode of care 
for home health services established for a beneficiary. Payment 
for the episode would equal 95 percent of the amount that would 
otherwise apply. In no case would the agency or facility be 
able to charge the beneficiary separately for the medical adult 
day care services. The Secretary would reduce payments made 
under the home health prospective payment system to offset any 
amounts spent on the demonstration project. The three-year 
demonstration project would be conducted at not more than five 
sites, selected by the Secretary, in states that license or 
certify providers of medical adult day care services. 
Participation of up to 15,000 Medicare beneficiaries would be 
on a voluntary basis.
    When selecting participants, the Secretary would give 
preference to home health agencies that are currently licensed 
to furnish medical adult day care services and have furnished 
such services to Medicare beneficiaries on a continuous basis 
for a prior two-year period. A medical adult day care facility 
would: (1) have been licensed or certified by a State to 
furnish medical adult day care services for a continuous two-
year period, (2) have been engaged in providing skilled nursing 
services or other therapeutic services directly or under 
arrangement with a home health agency, and (3) would meet 
quality standards and other requirements as established by the 
Secretary. The Secretary would be able to waive necessary 
Medicare requirements except that beneficiaries must be 
homebound in order to be eligible for home health services.
    The Secretary would be required to evaluate the project's 
clinical and cost effectiveness and submit a report to Congress 
no later than 30 months after its commencement. The report 
would include: (1) an analysis of patient outcomes and 
comparative costs relative to beneficiaries who receive only 
home health services for the same health conditions, and (2) 
recommendations concerning the extension, expansion, or 
termination of the project.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    This demonstration would test the delivery of home health 
services in a group setting. While many of these patients are 
very frail, social interaction may prove to have a clinical 
benefit. At the same time, the current quality standards remain 
for delivering home health care.

Section 733. Improvements in National and Local Coverage Determination 
        Process To Respond to Changes in Technology

            (a) National and Local Coverage Determination Process

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    Subsection (a) would require the Secretary to make 
available to the public the general guidelines used in making 
national coverage determinations under Medicare. These 
determinations would be required to include the way in which 
the Secretary considers evidence to assess whether a procedure 
or device is reasonable or necessary. The provision would 
establish a time frame for decisions regarding national 
coverage determinations of six months after a request when a 
technology assessment is not required and 12 months when a 
technology assessment is required and in which a clinical trial 
is not requested. Following the six- or 12-month period, the 
Secretary would be required to make a draft of the proposed 
decision available in the HHS website or by other means; to 
provide a 30-day public comment period; to make a final 
decision on the request with 60 days following the conclusion 
of the public comment period; and make the clinical evidence 
and data used in making the decision available to the public. 
In instances where the Medicare Coverage Advisory Committee 
does not review a request for a national coverage 
determination, the Secretary would be required to consult with 
appropriate outside clinical experts.
    The Secretary would also be required to develop a plan to 
evaluate new local coverage determinations to decide which 
local decisions should be adopted nationally and to decide to 
what extent greater consistency can be achieved among local 
coverage decisions, to require the Medicare contractors within 
an area to consult on new local coverage policies, and to 
disseminate information on local coverage determination among 
Medicare contractors to reduce duplication of effort.

                             EFFECTIVE DATE

    The provision would be effective for determinations as of 
January 1, 2004.

                           REASON FOR CHANGE

    The General Accounting Office reported in April 2003 
problems with both the national coverage and local coverage 
process. Even though CMS assigned a 90-day process for coverage 
decisions, the average time was seven months with several 
taking over a year. GAO recommended establishing new time 
frames and a public process. GAO also found the local coverage 
process resulted in inequities for beneficiaries and wasteful 
duplication of administrative costs.
            (b) Medicare Coverage of Routine Costs Associated With 
                    Certain Clinical Trials

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    Subsection (b) would provide for the coverage of the 
routine costs of care for Medicare beneficiaries participating 
in clinical trials that are conducted in accordance with an 
investigational device exemption approved under section 530(g) 
of the Federal Food, Drug, and Cosmetic Act.

                             EFFECTIVE DATE

    The provision would be effective for clinical trials begun 
before, on, or after the date of enactment and to items and 
services furnished on or after enactment.

                           REASON FOR CHANGE

    There is a discontinuity between the coverage of clinical 
trials using breakthrough devices and the coverage afforded 
other routine clinical trials. This provision would resolve 
this problem.
            (c) Issuance of Temporary National Codes

                              CURRENT LAW

    The Secretary issues temporary national Health Care Common 
Procedure Coding System (HCPCS) codes under Medicare Part B 
that are used until permanent codes are established.

                        EXPLANATION OF PROVISION

    Subsection (c) would require that the Secretary implement 
revised procedures for the issuance of temporary national HCPCS 
codes.

                             EFFECTIVE DATE

    The provision would be effective not later than one year 
after enactment.

                           REASON FOR CHANGE

    Coding for HCPCs under Part B is a patchwork with temporary 
codes allowed for some services and not for others. This would 
create national uniformity.

Section 734. Extension of Treatment for Certain Physician Pathology 
        Services Under Medicare

                              CURRENT LAW

    In general, independent laboratories cannot directly bill 
for the technical component of pathology services provided to 
Medicare beneficiaries who are inpatients or outpatients of 
acute care hospitals. BIPA permitted independent laboratories 
with existing arrangements with acute hospitals to bill 
Medicare separately for the technical component of pathology 
services provided to the hospitals' inpatients and outpatients. 
The arrangement between the hospital and the independent 
laboratory had to be in effect as of July 22, 1999. The direct 
payments for these services apply to services furnished during 
a two-year period starting on January 1, 2001 and ending 
December 31, 2002.

                        EXPLANATION OF PROVISION

    Medicare would make direct payments for the technical 
component for these pathology services. A change in hospital 
ownership would not affect these direct billing arrangements.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    Many hospitals do not have on-site pathology services and 
this provision would continue the prior arrangements.

            H. Title VIII--Medicare Benefits Administration


Section 801. Establishment of Medicare Benefits Administration

                              CURRENT LAW

    The authority for administering the Medicare program 
resides with the Secretary of Health and Human Services. The 
Secretary originally created the agency that administers the 
Medicare and Medicaid programs in 1977 under his administrative 
authority. Regulations regarding Medicare are required to be 
promulgated by the Secretary. The Medicare statute requires the 
President to appoint the Administrator of CMS (formerly known 
as the Health Care Financing Administration) with the advice 
and consent of the Senate. Title V of the U.S. Codes sets the 
MBA Administrator's salary at level IV of the Executive 
Schedule. The Medicare statute requires the CMS Administrator 
to appoint a Chief Actuary who reports directly to such 
Administrator and receives pay at the highest rate of basic pay 
for the Senior Executive Service.

                        EXPLANATION OF PROVISION

    The section would amend Title XVIII to add a new Section 
1809 that, under subsection (a), would establish a new Medicare 
Benefits Administration (MBA) within the Department of Health 
and Human Services.
    Subsection (b) would provide for an Administrator and 
Deputy Administrator of the MBA. The President with the advice 
and consent of the Senate would appoint both for 4-year terms. 
If a successor did not take office at the end of the term, the 
Administrator would continue in office until the successor 
enters the office. In that event, the confirmed successor's 
term would be the balance of the 4-year period. The 
Administrator would be paid at level III of the Executive 
Schedule and the Deputy Administrator at level IV of the 
Executive Schedule. The Administrator would be responsible for 
the exercise of all powers and the discharge of duties of the 
MBA and has authority and control over all personnel. The 
provision would permit the Administrator to prescribe such 
rules and regulations as the Administrator determined necessary 
or appropriate to carry out the functions of MBA, subject to 
the Administrative Procedure Act. The Administrator would be 
able to establish different organizational units within the MBA 
except for any unit, component, or provision specifically 
provided for by section 1809. The Administrator may assign 
duties, delegate, or authorize re-delegations of authority to 
MBA officers and employees as needed. The Secretary shall 
ensure appropriate coordination between the Administrators of 
MBA and CMS to administer the Medicare program. The provision 
also would establish a position of Chief Actuary within the MBA 
who would be appointed by the Administrator and paid at the 
highest rate of basic pay for the Senior Executive Service. The 
Chief Actuary would exercise such duties as are appropriate for 
the office of Chief Actuary and in accordance with professional 
standards of actuarial independence.
    Subsection (c) would prescribe the duties of the 
Administrator and administrative provisions relating to the 
MBA. In administering parts C, D, and E of Medicare, the 
Administrator would be required to negotiate, enter into, and 
enforce contracts with PDP and MA-EFFS sponsors. The 
Administrator would be required to carry out any duty provided 
for under Part C, D, or E, including implementation of the 
prescription drug discount card program and demonstration 
programs (carried out in whole or in part under Part C, D, or 
E). The provision specifically prohibits the Administrator from 
requiring a particular formulary or instituting a price 
structure for the reimbursement of covered drugs; from 
interfering in any way with negotiations between PDP and MA-
EFFS sponsors, drug manufacturers, wholesalers, or other 
suppliers of covered drugs; and from otherwise interfering with 
the competitive nature of providing prescription drug coverage. 
The Administrator would be required to submit a report to 
Congress and the President on the administration of parts C, D, 
and E during the previous year by not later than March 31 of 
each year.
    The Administrator, with the approval of the Secretary, 
would be permitted to hire staff to administer the activities 
of MBA without regard to chapter 31 of title 5 of the U.S. Code 
B other than sections 3110, the prohibition against officials 
hiring relatives, and 3112, the hiring preferences given to 
veterans. The Administrator would be required to employ staff 
with appropriate and necessary experience in negotiating 
contracts in the private sector. The staff of MBA would be paid 
without regard to chapter 51 (other than section 5101 requiring 
classification of positions according to certain principles) 
and chapter 53 (other than section 5301 relating to the 
principles of pay systems) of title 5 of the U.S. Code. The 
rate of compensation for staff of MBA would not be able to 
exceed level IV of the Executive Schedule. The Administrator 
would be limited in the number of full-time-equivalent (FTEs) 
employees for the MBA to the number of FTEs within CMS 
performing the functions being transferred at the time of 
enactment. The Secretary, the Administrator of MBA, and the 
Administrator of CMS would be required to establish an 
appropriate transition of responsibility to re-delegate the 
administration of Medicare part C from CMS to MBA. The 
provision requires the Secretary to ensure that the 
Administrator of CMS transfers such information and data as the 
Administrator of MBA requires to carry out the duties of MBA.
    Subsection (d) would require the Secretary to establish an 
Office of Beneficiary Assistance within MBA to coordinate 
Medicare beneficiary outreach and education activities, and 
provide Medicare benefit and appeals information to Medicare 
beneficiaries under parts C, D, and E.
    Subsection (e) would establish the Medicare Policy Advisory 
Board (the Board) within the MBA to advise, consult with, and 
make recommendations to the Administrator regarding the 
administration and payment policies of parts C, D, and E. The 
Board would be required to report to Congress and to the 
Administrator of MBA such reports as the Board determines 
appropriate and may contain recommendations that the Board 
considers appropriate regarding legislative or administrative 
changes to improve the administration of parts C, D, and E 
including: increasing competition under part C, D, or E for 
services furnished to beneficiaries; improving efforts to 
provide beneficiaries information and education about Medicare, 
parts C, D, and E, and Medicare enrollment; evaluating 
implementation of risk adjustment under parts C and E; and 
improving competition and access to plans under parts C, D, and 
E. The reports would be required to be published in the Federal 
Register. The reports would be submitted directly to Congress 
and no officer or agency of the government would be allowed to 
require the Board to submit a report for approval, comments, or 
review prior to submission to Congress. Not later than 90 days 
after a report is submitted to the Administrator, the 
Administrator would be required to submit to Congress and the 
President an analysis of the recommendations made by the Board. 
The analysis would be required to be published in the Federal 
Register.
    The Board would be made up of 7 members serving three-year 
terms, with three members appointed by the President, two 
appointed by the Speaker of the House of Representatives, and 
two appointed by the President pro tempore of the Senate. Board 
members may be reappointed but may not serve for more than 8 
years. The Board shall elect the Chair to serve for three 
years. The Board is required to meet at least three times a 
year and at the call of the Chair.
    The Board is required to have a director who, with the 
approval of the Board, may appoint staff without regard to 
certain sections of chapter 31 of title 5 of the United States 
Code (which addresses authority for employment). In addition, 
the director and staff may be paid without regard to certain 
provisions of chapter 51 and 53 of title 5 which are related to 
classification and pay rates and pay systems B although the 
rate of compensation is capped at level IV of the Executive 
Schedule. The Board may contract with and compensate government 
and private agencies or persons to carry out its duties without 
regard to section 3709 of the Revised Statutes (41 U.S.C. (5).
    Subsection (f) authorizes an appropriation of such sums as 
are necessary from the Federal Hospital Insurance Trust Fund 
and from the Federal Supplementary Medical Insurance Trust Fund 
(including the Prescription Drug Account) to carry out section 
1808.

                             EFFECTIVE DATE

    The provision would be effective upon enactment; however, 
the enrollment and eligibility functions and implementation of 
parts C and E would be effective January 1, 2006.

                           REASON FOR CHANGE

    A new agency, the Medicare Benefits Administration, would 
provide a more flexible and contemporary structure that is 
citizen-centered, results-oriented, and market-based. The 
administration of Parts C, D, and E would be separated from the 
administration of other parts of Medicare to ensure appropriate 
conduct of those parts of Medicare involving contracts with 
private organizations.
    Implementing the M+C program in the past, CMS's decisions 
have made it difficult for private plans to participate in the 
program. Indeed, CMS has an inherent conflict of interest in 
administering traditional FFS while regulating the private 
plans. Placing the administration of Parts C, D, and E under a 
new MBA would create an agency whose main responsibility is the 
implementation and operation of successful private plan 
programs that enhance beneficiary choice.
    The MBA would reshape the federal bureaucracy to better 
coordinate health plans and the prescription drug benefit, and 
replace a current system that is inefficient and outdated.
    Civil service law reforms would permit the MBA to hire the 
best possible staff, with private sector experience in 
negotiating with plans. The MBA would have the ability to 
create a modern workforce by paying for performance, 
disciplining bad workers without lengthy appeals, and hiring 
employees more quickly. These changes would promote general 
government efficiency.
            (c) Miscellaneous Administrative Provisions

                              CURRENT LAW

    The Board of Trustees of the Medicare Trust Funds is 
composed of the Commissioner of Social Security, the Secretary 
of the Treasury, the Secretary of Labor, and the Secretary of 
Health and Human Services and two members of the public. The 
Administrator of the Centers for Medicare & Medicaid Services 
serves as the Secretary of the Board of Trustees.
    Title 5 of the U.S. Code sets the Administrator's salary at 
level IV of the Executive Schedule.

                        EXPLANATION OF PROVISION

    Paragraph (1) would add the Administrator of MBA as an ex 
officio member of the Board of Trustees of the Medicare Trust 
Funds.
    Paragraph (2) would increase the pay level for the 
Administrator of CMS from level IV of the Executive Schedule to 
level III.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    The Administrator of the MBA should be a member of the 
Board of Trustees to represent that part of Medicare involving 
contracts with private entities. The Administrator of CMS 
should be paid at the same level as the Administrator of the 
MBA.

                     I. Title IX--Regulatory Relief


                     Subtitle A--Regulatory Reform


Section 901. Construction; Definition of Supplier

                              CURRENT LAW

    Section 1861 of the Social Security Act contains 
definitions of services, institutions, and so forth under 
Medicare. Supplier is not explicitly defined.

                        EXPLANATION OF PROVISION

    Nothing in this title would be construed as compromising or 
affecting existing legal remedies for addressing fraud or 
abuse, whether it be criminal prosecution, civil enforcement or 
administrative remedies (including the False Claims Act) or to 
prevent or impede HHS from its efforts to eliminate waste, 
fraud, or abuse in Medicare. The provision also would clarify 
that consolidation of the Medicare administrative contractors 
does not consolidate the Federal Hospital Insurance Trust Fund 
and the Federal Supplementary Medical Insurance Trust Fund. The 
provision would also clarify that term. A supplier means a 
physician or other practitioner, a facility or other entity 
(other than a provider of services) furnishing items or 
services under Medicare.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    The Committees are committed to extending needed regulatory 
relief to providers and suppliers while at the same time 
protecting taxpayers from waste, fraud and abuse.

Section 902. Issuance of Regulations

                              CURRENT LAW

    The Secretary must publish a list of all manual 
instructions, interpretative rules, statements of policy, and 
guidelines that are promulgated to carry out Medicare law in 
the Federal Register no less frequently than every three 
months.
    There is no explicit statutory instruction on logical 
outgrowth. The courts have repeatedly held that new matter in 
final regulations must be a logical outgrowth of the proposed 
rule and is an inherent aspect of notice and comment 
rulemaking.

                        EXPLANATION OF PROVISION

    The provision would require the Secretary, in consultation 
with the Director of the Office of Management and Budget, to 
establish and publish a regular timeline for the publication of 
final regulations based on the previous publication of a 
proposed rule or an interim final regulation. The timeframe 
established would not be permitted to be longer than three 
years, except under extraordinary circumstances. If the 
Secretary were to vary the timeline he established, the 
provision would require him to publish a notice in the Federal 
Register the new timeline and an explanation of the variation. 
In the case of interim final regulations, the provision would 
require that if the Secretary did not meet his established 
timeframe, then the interim final regulation would not be able 
to continue in effect unless the Secretary published a notice 
of continuation of the regulation that included an explanation 
of why the regular timeline had not been complied with.
    The provision also would require that a provision of a 
final regulation that is not a logical outgrowth of the 
proposed regulation or interim final regulation would be 
treated as a proposed regulation. The provision would not be 
able to take effect until public comment occurred and the 
provision published as a final regulation.

                             EFFECTIVE DATE

    The provision regarding the establishment of regulatory 
timeframes would be effective upon enactment and would require 
the Secretary to provide for an appropriate transition to take 
into account the backlog of previously published interim final 
regulation. The provision regarding logical outgrowth would be 
effective for final regulations published on or after 
enactment.

                           REASON FOR CHANGE

    The volume of Medicare regulations issued by CMS can be 
difficult for health care providers and suppliers, particularly 
small providers and suppliers, to monitor. By requiring 
regulations to be released on a certain date, providers and 
suppliers would be better able to keep informed of program 
changes. The Secretary may stagger the notice and comment 
periods of regulations issued on the same day, so that the 
comment deadlines for these regulations do not occur 
simultaneously, in order to ensure that interested parties have 
the opportunity to comment on multiple regulations.
    The collective impact provision ensures that the Department 
would consider the overall impact of any changes it is making 
on categories of providers and suppliers. If the Department 
determines that many changes affecting a particular category of 
providers or suppliers are underway, the Department should 
consult with representatives of that category to determine 
whether providers and suppliers would be better able to make 
the systems changes needed to accommodate those changes if all 
the new regulations were released simultaneously or staggered. 
Because of the burden implementing multiple regulations 
simultaneously can cause, the Secretary needs to coordinate new 
regulations based on an analysis of the collective impact the 
regulatory changes will have on any given category of provider 
or supplier.

Section 903. Compliance With Changes in Regulations and Policies

                              CURRENT LAW

    No explicit statutory instruction. As a result of case law, 
there is a strong presumption against retroactive rulemaking. 
In Bowen v. Georgetown University Hospital, the Supreme Court 
ruled that there must be explicit statutory authority to engage 
in retroactive rulemaking.

                        EXPLANATION OF PROVISION

    The provision would bar retroactive application of any 
substantive changes in regulation, manual instructions, 
interpretative rules, statements of policy, or guidelines 
unless the Secretary determines retroactive application is 
needed to comply with the statute or is in the public interest. 
No substantive change would go into effect until 30 days after 
the change is issued or published unless it would be needed to 
comply with statutory changes or was in the public interest. 
Compliance actions would be able to be taken for items and 
services furnished only on or after the effective date of the 
change. If a provider or supplier follows written guidance 
provided by the Secretary or a Medicare contractor when 
furnishing items or services or submitting a claim and the 
guidance is inaccurate, the provider or supplier would not be 
subject to sanction or repayment of overpayment (unless the 
inaccurate information was due to a clerical or technical 
operational error).

                             EFFECTIVE DATE

    The prohibition of retroactive application of substantive 
changes would apply to changes issued on or after the date of 
enactment. The provisions affecting compliance with substantive 
changes would apply to compliance actions undertaken on or 
after the date of enactment. The reliance on guidance would 
take effect upon enactment but would not apply to any sanction 
for which notice was provided on or before the date of 
enactment.

                           REASON FOR CHANGE

    This provision would ensure that Medicare's rules are not 
generally applied retroactively. It would also ensure providers 
and suppliers have sufficient time to make any changes to 
systems needed to comply with changes in regulations. This 
provision would ensure that providers and suppliers, who, in 
good faith, based on the information received from contractors, 
would not be vulnerable to recovery if it turns out that the 
contractor was in error. Providers should be able to rely on 
the directions or guidance provided by their Medicare 
contractors.

Section 904. Reports and Studies Relating to Regulatory Reform

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    The GAO would be required to study the feasibility and 
appropriateness of the Secretary providing legally binding 
advisory opinions on appropriate interpretation and application 
of Medicare regulations. The report would be due to Congress 
one year after enactment.
    The Secretary would be required to report to Congress every 
two years on the administration of Medicare and areas of 
inconsistency or conflict among various provisions under law 
and regulation. The report would include recommendations for 
legislation or administrative action that the Secretary 
determines appropriate to further reduce such inconsistency or 
conflicts. The first report would be due to Congress two years 
after enactment.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    The Committees are interested in receiving additional 
information regarding both advisory opinions and 
inconsistencies in Medicare regulations.

                     Subtitle B--Contracting Reform


Section 911. Increased Flexibility in Medicare Administration

                              CURRENT LAW

    The Secretary is authorized to enter into agreements with 
fiscal intermediaries nominated by different provider 
associations to make Medicare payments for health care services 
furnished by institutional providers. For Medicare part B 
claims, the Secretary is authorized to enter into contracts 
only with health insurers (or carriers) to make Medicare 
payments to physicians, practitioners and other health care 
suppliers. Section 1834(a)(12) of the Act authorizes separate 
regional carriers for the payment of durable medical equipment 
(DME) claims. The Secretary is also authorized to contract for 
certain program safeguard activities under the Medicare 
Integrity Program (MIP).
    Certain terms and conditions of the contracting agreements 
for fiscal intermediaries (FIs) and carriers are specified in 
the Medicare statute. Medicare regulations coupled with long-
standing agency practices have further limited the way that 
contracts for claims administration services can be 
established.
    Certain functions and responsibilities of the fiscal 
intermediaries and carriers are specified in the statute as 
well. The Secretary may not require that carriers or 
intermediaries match data obtained in its other activities with 
Medicare data in order to identify beneficiaries who have other 
insurance coverage as part of the Medicare Secondary Payer 
(MSP) program. With the exception of prior authorization of DME 
claims, an entity may not perform activities (or receive 
related payments) under a claims processing contract to the 
extent that the activities are carried out pursuant to a MIP 
contract. Performance standards with respect to the timeliness 
of reviews, fair hearings, reconsiderations and exemption 
decisions are established as well.
    A Medicare contract with an intermediary or carrier may 
require any of its employees certifying or making payments 
provide a surety bond to the United States in an amount 
established by the Secretary. Neither the contractor nor the 
contractor's employee who certifies the amount of Medicare 
payments is liable for erroneous payments in the absence of 
gross negligence or intent to defraud the United States. 
Neither the contractor nor the contractor's employee who 
disburses payments is liable for erroneous payments in the 
absence of gross negligence or intent to defraud the United 
States, if such payments are based upon a voucher signed by the 
certifying employee.

                        EXPLANATION OF PROVISION

    This provision would add Section 1874A to the Social 
Security Act and would permit the Secretary to competitively 
contract with any eligible entity to serve as a Medicare 
contractor. The provision would eliminate the distinction 
between Part A contractors (fiscal intermediaries) and Part B 
contractors (carriers) and take the separate authorities for 
fiscal intermediaries and carriers and merge them into a single 
authority for the new contractor. These new contractors would 
be called Medicare Administrative Contractors (MACs) and would 
assume all the functions of the current fiscal intermediaries 
and carriers: determining the amount of Medicare payments 
required to be made to providers and suppliers, making the 
payments, providing education and outreach to beneficiaries, 
providers and suppliers, communicating with providers and 
suppliers, and additional functions as are necessary.
    The Secretary would be permitted to renew the MAC contracts 
annually for up to 5 years. All contracts would be required to 
be re-competed at least every 5 years using competitive 
processes. Federal Acquisition Regulations (FAR) would apply to 
these contracts except to the extent any provisions are 
inconsistent with a specific Medicare requirement, including 
incentive contracts. The contracts would be required to contain 
performance requirements that would be developed by the 
Secretary who could consult with beneficiary, provider, and 
supplier organizations, would be consistent with written 
statements of work and would be used for evaluating contractor 
performance. MAC would be required to furnish the Secretary 
such timely information as he may require and to maintain and 
provide access to records the Secretary finds necessary. The 
Secretary could require a surety bond from the MAC or certain 
officers or employees as the Secretary finds appropriate. The 
Secretary would be prohibited from requiring that the MAC match 
data from other activities for Medicare secondary payer 
purposes.
    The provision would limit liability of certifying and 
disbursing officers and the Medicare Administrative Contractors 
except in cases of reckless disregard or the intent to defraud 
the United States. This limitation on liability would not limit 
liability under the False Claims Act. The provision also 
establishes circumstances where contractors and their employees 
would be indemnified, both in the contract and as the Secretary 
determines appropriate.
    The provision would make numerous conforming amendments as 
the authorities for the fiscal intermediaries and carriers are 
stricken.
    The Secretary would be required to submit a report to 
Congress and the GAO by no later than October 1, 2004, that 
describes the plan for implementing these provisions. The GAO 
is required to evaluate the Secretary's plan and, within six 
months of receiving the plan, report on the evaluation to 
Congress and make any recommendations the Comptroller General 
believes appropriate. The Secretary is also required to report 
to Congress by October 1, 2008 on the status of implementing 
the contracting reform provisions including the number of 
contracts that have been competitively bid, the distribution of 
functions among contracts and contractors, a timeline for 
complete transition to full competition, and a detailed 
description of how the Secretary has modified oversight and 
management of Medicare contractors to adapt to full 
competition.
    Competitive bidding for the MACs would be required to begin 
for annual contract periods that begin on or after October 1, 
2011.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    Medicare's current contracting represents an antiquated, 
inefficient, and closed system based on cozy relationships 
between the government, contractors and providers.
    Medicare contracting is antiquated because contractors may 
not provide service for the entire Medicare program, or 
particular functions within the program; rather Fiscal 
Intermediaries administer claims for facilities and carriers 
administer claims for all other providers. It has failed to 
keep pace with integrated claims administration practices in 
the private sector.
    Medicare contracting is inefficient because Medicare does 
not award contracts through competitive procedures, but rather 
on provider nomination.
    Medicare contracting is closed. All but one of the 
contractors today have been with Medicare since the program's 
inception 36 years ago, and only insurers can provide 
contracting services.
    This provision permits greater flexibility in contracting 
for administrative services between the Secretary and the 
Medicare contractors (entities that process claims under part A 
and part B of the Medicare program), including the flexibility 
to separately contract for all or parts of the contractor 
functions. The Secretary also may contract with a wider range 
of entities, so that the most efficient and effective 
contractor can be selected.
    These amendments require the Secretary to contract 
competitively at least once every five years for the 
administration of benefits under parts A and B. In conjunction 
with the elimination of cost contracts, it is intended to 
create incentives for improved service to beneficiaries and to 
providers of services and suppliers.
    These amendments provide a basis for a unified contracting 
system for the administration of parts A and B, identical to 
the recent Congressionally mandated structure of the Medicare 
Integrity Program contractors. Consolidation of contracting 
duties as set forth in this legislation does not constitute 
consolidation of the Hospital Insurance and Medical 
Supplementary Insurance Trust Funds, or reflect any position on 
that issue. In addition, the elimination of provider 
nomination, which hospitals have rarely been allowed to 
exercise in recent years, is essential for bringing full and 
open competition into the contracting functions of the Medicare 
program.
    The provision establishes a basis for a unified contracting 
system, identical to the structure implemented for the Medicare 
Integrity Program contractors. It is important to note, 
however, that consolidation of contracting duties as set forth 
in this legislation does not constitute consolidation of the 
Hospital Insurance and Medical Supplementary Insurance Trust 
Funds, or reflect any position on that issue. In addition, the 
Secretary would have the flexibility to choose the best 
contractor(s) to provide telephone information on suppliers, 
which is intended to reduce administrative costs and improve 
quality. Since the carrier fair hearing requirement was 
eliminated in previous legislation, the requirements for the 
hearing are eliminated in order to conform to existing law.

Section 912. Requirements for Information Security for Medicare 
        Administrative Contractors

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    Medicare administrative contractors (as well as fiscal 
intermediaries and carriers until the MACs are established) 
would be required to implement a contractor-wide information 
security program to provide information security for the 
operation and assets of the contractor for Medicare functions. 
The information security program would be required to meet 
certain requirements for information security programs imposed 
on Federal agencies under title 44 of the United States Code. 
Medicare administrative contractors would be required to 
undergo an annual independent evaluation of their information 
security programs. Existing contractors would be required to 
undergo the first independent evaluation within one year after 
the date the contractor begins implementing the information 
security program and new contractors would be required to have 
such a program in place before beginning the claim 
determination and payment activities. The results of the 
independent evaluations would be submitted to the Secretary and 
the HHS Inspector General. The Inspector General of HHS would 
be required to report to Congress annually on the results of 
the evaluations. The Secretary would be required to address the 
results of the evaluations in required management reports.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    The increased reliance by the Federal government on the 
Internet and related telecommunications technologies has 
resulted in enhanced inter-connectivity and interdependencies 
associated with Federal computer systems and between federal 
and private computer systems. Over the past several years, this 
inter-connectivity or networking has resulted in increased 
security vulnerabilities that have put at greater risk computer 
systems and data that are critical to ensuring national and 
economic security and public health and welfare, including 
sensitive, non-public information that is collected and 
maintained by CMS and its business partners.
    On May 23, 2001, the Committee on Energy and Commerce held 
a hearing to investigate the extent to which sensitive, non-
public information related to collecting and processing 
Medicare claims was adequately secure on the computer networks 
operated by CMS and its business partners, including Medicare 
contractors. That investigation revealed significant 
weaknesses, which the agency has been working to address. Some 
of the computer security concerns identified include weak 
password management, inadequate access controls, excessive user 
privileges, improper network configurations, and inadequate 
testing of critical systems. In addition, the OIG conducted 
assessments of financial controls--including electronic data 
processing controls--at CMS and its major Medicare contractors; 
in every year since 1997, the OIG has identified computer 
security controls as a material weakness at CMS and its 
contractors.
    Section 812 is intended to assist CMS in identifying and 
working with contractors to address potential security 
deficiencies in order to ensure that sensitive, non-public 
information related to the processing of Medicare claims is 
adequately secure from unauthorized access, misuse, or 
destruction.

                   Subtitle C--Education and Outreach


Section 921. Provider Education and Technical Assistance

            (a) Coordination of Education Funding

                              CURRENT LAW

    Medicare provider education activities are funded through 
the program management appropriation and through Education and 
Training component of the Medicare Integrity Program (MIP). 
Both claims processing contractors (fiscal intermediaries and 
carriers) and MIP contractors may undertake provider education 
activities.

                       EXPLANATION OF PROVISIONS

    The provision would add Section 1889 to the Social Security 
Act, which would require the Secretary to coordinate the 
educational activities through the Medicare contractors to 
maximize the effectiveness of education efforts for providers 
and suppliers and to report to Congress with a description and 
evaluation of the steps taken to coordinate provider education 
funding.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    This provision is intended to ensure that federal spending 
on provider education is coordinated and used as efficiently as 
possible to maximize the value obtained from the investment. It 
is not intended to change the proportion of Medicare Integrity 
Program funds spent on provider education.
            (b) Incentives To Improve Contractor Performance

                              CURRENT LAW

    No specific statutory provision. Since FY1996, as part of 
the audit required by the Chief Financial Officers Act, an 
annual estimate of improper payments under FFS has been 
established. As a recent initiative, CMS is implementing a 
comprehensive error rate-testing program to produce national, 
contractor specific, benefit category specific and provider 
specific paid claim error rates.

                       EXPLANATION OF PROVISIONS

    The Secretary would be required to use specific claims 
payment error rates (or similar methodology) to provide 
incentives for contractors to implement effective education and 
outreach programs for providers and suppliers and would require 
the Comptroller General to study the adequacy of the 
methodology and make recommendations to the Secretary and the 
Secretary to report to Congress regarding how he intends to 
used the methodology in assessing Medicare contractor 
performance.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    This provision would ensure that the Department monitors 
contractor performance for claims payment error rates, and it 
would identify best practices for provider education--all with 
the goal of reducing payment errors and helping providers and 
suppliers better comply with program requirements. It is the 
Committees' intent that, in consultation with representatives 
of providers and suppliers, the Secretary shall identify and 
encourage best practices developed by contractors for educating 
providers and suppliers.
            (c) Provision of Access to and Prompt Responses From 
                    Medicare Administrative Contractors

                              CURRENT LAW

    No specific statutory provision. Statutory provisions 
generally instruct carriers to assist providers and others who 
furnish services in developing procedures relating to 
utilizationpractices and to serve as a channel of communication 
relating information on program administration. Fiscal intermediaries 
are generally instructed to: (1) provide consultative services to 
institutions and other agencies to enable them to establish and 
maintain fiscal records necessary for program participation and 
payment, and (2) serve as a center for any information as well as a 
channel for communication with providers.

                       EXPLANATION OF PROVISIONS

    The Secretary would be required to develop a strategy for 
communicating with beneficiaries, providers and suppliers. 
Medicare contractors would be required to provide responses to 
written inquiries that are clear, concise and accurate within 
45 business days of the receipt of the inquiry. The Secretary 
would be required to ensure that Medicare contractors have a 
toll-free telephone number where beneficiaries, providers and 
suppliers may obtain information regarding billing, coding, 
claims, coverage, and other appropriate Medicare information. 
Medicare contractors would be required to maintain a system for 
identifying the person supplying information to beneficiaries, 
providers and supplier and to monitor the accuracy, 
consistency, and timeliness of the information provided. The 
Secretary would be required to establish and make public 
standards to monitor the accuracy, consistency, and timeliness 
of written and telephone responses of Medicare contractors as 
well as to evaluate the contractors against these standards.

                             EFFECTIVE DATE

    The provision would be effective October 1, 2004.

                           REASON FOR CHANGE

    This provision is intended to improve contractor 
accountability to make contractors more responsive to providers 
and suppliers, and to increase the accuracy and reliability of 
the information provided in response to the questions received.
            (d) Improved Provider Education and Training

                              CURRENT LAW

    In FY2003, approximately $122 million was budget by CMS for 
provider education and training.

                        EXPLANATION OF PROVISION

    The provision would authorize $25 million to be 
appropriated from the Medicare Trust Funds for fiscal years 
2005 and 2006, and such sums as necessary for succeeding fiscal 
years for Medicare contractors to increase education and 
training activities for providers and suppliers. Medicare 
contractors would be required to tailor education and training 
activities to meet the special needs of small providers or 
suppliers. The provision defines a small provider as an 
institution with fewer than 25 full-time equivalents (FTEs) and 
a small supplier as one with fewer than 10 FTEs.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    This provision acknowledges that contractors are being 
instructed to significantly improve their provider education 
and training efforts, and accordingly authorizes new funds to 
be available for those purposes.
            (e) Requirement To Maintain Internet Sites

                              CURRENT LAW

    No statutory provision. CMS and Medicare contractors 
currently maintain Internet sites.

                        EXPLANATION OF PROVISION

    The provision would require that the Secretary and the 
Medicare contractors maintain Internet sites to answer 
frequently asked questions and provide published materials of 
the contractors beginning October 1, 2004.

                             EFFECTIVE DATE

    The provision would be effective October 1, 2004.

                           REASON FOR CHANGE

    This provision would facilitate greater ease of provider 
and supplier access to information provided by Medicare's 
contractors.
            (f) Additional Provider Education Provisions

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    The provision would bar Medicare contractors from using a 
record of attendance (or non-attendance) at educational 
activities to select or track providers or suppliers in 
conducting any type of audit or prepayment review.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    This provision addresses a concern raised by providers and 
suppliers that their participation in educational forums has 
been used to trigger audits. Participation in educational 
forums should be encouraged not discouraged.
    Nothing in this section or section 1893(g) shall be 
construed as preventing the disclosure by a Medicare contractor 
of information on attendance at education activities for law 
enforcement purposes. Nothing in this section or section 
1893(g) shall be construed as providing for the disclosure by a 
Medicare contractor of the claims processing screens or 
computer edits used for identifying claims that would be 
subject to review.

Section 922. Small Provider Technical Assistance Demonstration Program

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    The Secretary would be required to establish a 
demonstration program to provide technical assistance to small 
providers and suppliers, when they have requested the 
assistance, to improve compliance with Medicare requirements. 
If errors are found, the Secretary would be barred from 
recovering any overpayments barring evidence of fraud and if 
the problem that is the subject of the compliance review has 
been satisfactorily corrected within 30 days and the problem 
remains corrected. A GAO study is required not later than two 
years after the demonstration program begins. Appropriations 
would be authorized for $1 million for FY 2005 and $6 million 
for FY 2006 to carry out the demonstration.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    Many large providers and suppliers have contracts with 
private consulting firms to help them navigate their 
interactions with the Medicare program. This type of assistance 
can be prohibitively expensive for small providers and 
suppliers--but they too are required to comply with complex 
program rules and regulations. This provision creates a new 
demonstration program to facilitate small provider and supplier 
access to expert technical assistance. The demonstration would 
also test whether encouraging technical assistance on the 
front-end (to help providers and suppliers play by the rules) 
could save the program money in the long-term by promoting 
greater program compliance.

Section 923. Medicare Provider Ombudsman; Medicare Beneficiary 
        Ombudsman

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    A Medicare Provider Ombudsman would be required to be 
appointed by the Secretary and located within the Department of 
Health and Human Services. The Provider Ombudsman would be 
required to provide confidential assistance to providers and 
suppliers regarding complaints, grievances, requests for 
information, and resolution of unclear or conflicting guidance 
about Medicare. The Ombudsman would submit recommendations to 
the Secretary regarding improving the administration of 
Medicare, addressing recurring patterns of confusion under 
Medicare, and ways to provide for an appropriate and consistent 
response in cases of self-identified overpayments by providers 
and suppliers. Such sums as necessary would be authorized to be 
appropriated for FY2004 and subsequent years.
    A Medicare Beneficiary Ombudsman would be required to be 
appointed by the Secretary and located within HHS. The 
Beneficiary Ombudsman would be required to have expertise and 
experience in health care, education of, and assistance to 
Medicare beneficiaries. The Beneficiary Ombudsman would be 
required to receive complaints, grievances, and requests for 
information submitted by Medicare beneficiaries. The 
Beneficiary Ombudsman would also be required to assist 
beneficiaries in collecting relevant information to seek an 
appeal of a decision or determination made by the Secretary, a 
Medicare contractor, or a Medicare+Choice organization and 
assisting a beneficiary with any problems arising from un-
enrolling in a Medicare+Choice plan. The Beneficiary Ombudsman 
would be required to work with state health insurance 
counseling programs.
    Appropriations would be authorized to be appropriated in 
such sums, as are necessary for fiscal year 2004 and each 
succeeding fiscal year to carry out the ombudsmen provisions.
    This provision would also require the use of 1-800-Medicare 
for all individuals seeking information about, or assistance 
with Medicare. Rather than listing individual telephone numbers 
for Medicare contractors in the Medicare handbook, only 1-800-
Medicare would be shown. The Comptroller General would be 
required to study the accuracy and consistency of information 
provided by the 1-800-Medicare line and to assess whether the 
information sufficiently answers the questions of 
beneficiaries. The report on the study would be required to be 
submitted to Congress no later than one year after enactment.

                             EFFECTIVE DATE

    The Secretary would be required to appoint both ombudsmen 
no later than one year from the date of enactment.

                           REASON FOR CHANGE

    Providers are currently confronted with a morass of 
bureaucracy and regulation, with no clear individual to assist 
them. The new ombudsman would help providers navigate 
Medicare's complicated rules and regulations.
    Medicare Provider Ombudsman shall make recommendations to 
the Secretary concerning how to respond to recurring patterns 
of confusion in the Medicare program. Such a recommendation may 
include calling for the suspension of the imposition of 
provider sanctions (except those sanctions relating to the 
quality of care) or where there is widespread confusion in 
program administration. Nothing in this section shall be 
construed as allowing for the suspension of provider sanctions 
relating to the quality of care, regardless of whether 
widespread confusion in the Medicare program exists.
    Beneficiaries confront a morass of bureaucracy and 
regulation, with no clear individual to assist them. This new 
ombudsman would help beneficiaries navigate Medicare's 
complicated rules and regulations.
    The Committees acknowledge that implementing these new 
functions would have a cost and have accordingly authorized 
necessary appropriations.
    The beneficiary handbook currently provides a multitude of 
phone numbers, which is very confusing for beneficiaries, 
rather than a single number that can triage and transfer 
beneficiaries to the appropriate person or entity. This 
provision would promote better access to information for 
beneficiaries.

Section 924. Beneficiary Outreach Demonstration Program

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    Subsection (a) would require the Secretary to conduct a 
three-year demonstration program where Medicare specialists 
would provide assistance to beneficiaries in at least six local 
Social Security offices (two would be located in rural areas) 
that have a high volume of visits by Medicare beneficiaries. 
The Secretary would be required to evaluate the results of the 
demonstration regarding the feasibility and cost-effectiveness 
of permanently out-stationing Medicare specialists at local 
Social Security offices and report to Congress.
    Subsection (b) would require that the Secretary establish a 
demonstration project to test the administrative feasibility of 
providing a process for Medicare beneficiaries, providers, 
suppliers and other individuals or entities furnishing items or 
services under Medicare to request and receive a determination 
as to whether the item or service is covered under Medicare by 
reasons of medical necessity, before the item or service 
involved is furnished to the beneficiary. The Secretary would 
be required to evaluate the demonstration and report to 
Congress by January 1, 2006.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    This provision makes Medicare experts available in six 
Social Security Administration offices to assist beneficiaries 
and answer their questions. The demonstration would test 
whether such outsourced Medicare specialists improve 
beneficiary utilization, understanding of the program, and 
beneficiary satisfaction.

Section 925. Inclusion of Additional Information in Notices to 
        Beneficiaries About Skilled Nursing Facility Benefits

                              CURRENT LAW

    Although the statute requires that beneficiaries receive a 
statement listing the items and services for which payment has 
been made, there is no explicit statutory instruction that 
requires the notice to include information about the number of 
days of coverage remaining in either the hospital or skilled 
nursing facility (SNF) benefit or the spell of illness.

                        EXPLANATION OF PROVISION

    The Secretary would be required to provide information 
about the number of days of coverage remaining under the SNF 
benefit and the spell of illness involved in the explanation of 
Medicare benefits.

                             EFFECTIVE DATE

    The provision would apply to notices provided on and after 
the calendar quarter beginning more than six months after 
enactment.

Section 926. Information on Medicare-Certified Skilled Nursing 
        Facilities in Hospital Discharge Plans

                              CURRENT LAW

    The hospital discharge planning process requires evaluation 
of a patient's likely need for post-hospital services including 
hospice and home care.

                        EXPLANATION OF PROVISION

    The Secretary would be required to make information 
publicly available regarding whether SNFs are participating in 
the Medicare program. Hospital discharge planning would be 
required to evaluate a patient's need for SNF care.

                             EFFECTIVE DATE

    The provision would apply to discharge plans made on or 
after the date specified by the Secretary, but no later than 
six months after the Secretary provides information regarding 
SNFs that participate in the Medicare program.

                    Subtitle D--Appeals and Recovery


Section 931. Transfer of Responsibility for Medicare Appeals

                              CURRENT LAW

    Denials of claims for Medicare payment may be appealed by 
beneficiaries (or providers who are representing the 
beneficiary) or in certain circumstances, providers or 
suppliers directly. The third level of appeal is to an 
Administrative Law Judge (ALJ). The Social Security 
Administration employs ALJs that hear Medicare cases, a legacy 
from the inception of the Medicare program, when Medicare was 
part of Social Security.

                        EXPLANATION OF PROVISION

    The Commissioner of SSA and the Secretary would be required 
to develop a plan to transfer the functions of the ALJs who are 
responsible for hearing Medicare cases from SSA to HHS. This 
plan would be due to Congress no later than October 1, 2004. A 
GAO evaluation of the plan would be due within six months of 
the plan's submission. ALJ functions would be transferred no 
earlier than July 1, 2005 and no later than October 1, 2005.
    The Secretary would be required to place the ALJs in an 
administrative office that is organizationally and functionally 
separate from the Centers for Medicare & Medicaid Services and 
the ALJs would be required to report to, and be under the 
general supervision of the Secretary. No other official within 
the Department would be permitted to supervise the ALJs. The 
Secretary would be required to provide for appropriate 
geographic distribution of ALJs, would have the authority to 
hire ALJs and support staff, and would be required to enter 
into arrangements with the Commissioner, as appropriate, to 
share office space, support staff and other resources with 
appropriate reimbursement.
    Such sums are authorized to be appropriated as are 
necessary for FY2005 and each subsequent fiscal year to 
increase the number of ALJs, improve education and training of 
ALJs and to increase the staff of the Departmental Appeals 
Board (the final level of appeal).

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    The Office of Inspector General has identified moving the 
functions of the Medicare Administrative Law Judges to the 
Department of Health and Human Services as an important 
priority in improving the appeals system. This provision makes 
that transition and increases the emphasis on providing 
training Administrative Law Judges and their staffs to increase 
their expertise in Medicare's rules and regulations. The 
Commissioner of SSA and the Secretary are instructed to work 
together on the transition plans in order to assure that the 
transition does not adversely affect the SSA ALJ appeals 
system.
    The transition plan shall include information on the 
following:
          Workload--The number of such administrative 
        law judges and support staff required now and in the 
        future to hear and decide such cases in a timely 
        manner, taking into account the current and anticipated 
        claims volume, appeals, number of beneficiaries, and 
        statutory changes;
          Cost Projections--Funding levels required 
        under this subsection to hear such cases in a timely 
        manner;
          Transition Timetable--A timetable for the 
        transition;
          Regulations--The establishment of specific 
        regulations to govern the appeals process;
          Case Tracking--The development of a unified 
        case tracking system that will facilitate the 
        maintenance and transfer of case-specific data across 
        both the fee-for-service and managed care components of 
        the Medicare program;
          Feasibility of Precedential Authority--The 
        feasibility of developing a process to give binding, 
        precedential authority to decisions of the Departmental 
        Appeals Board in the Department of Health and Human 
        Services that address broad legal issues; and
          Access to Administrative Law Judges--The 
        feasibility of filing appeals with administrative law 
        judges electronically, and the feasibility of 
        conducting hearings using tele- or videoconference 
        technologies.

Section 932. Process for Expedited Access to Review

                              CURRENT LAW

    In general, administrative appeals must be exhausted prior 
to judicial review.

                        EXPLANATION OF PROVISION

    The Secretary would be required to establish a process 
where a provider, supplier, or a beneficiary may obtain access 
to judicial review when a 3-member review panel (composed of 
ALJs, members of the Departmental Appeals Board, or qualified 
individuals from qualified independent contractors designated 
by the Secretary) determines, within 60 days of a complete 
written request, that it does not have the authority to decide 
the question of law or regulation and where material facts are 
not in dispute. The decision would not be subject to review by 
the Secretary. Interest would be assessed on any amount in 
controversy and would be awarded by the reviewing court in 
favor of the prevailing party. This expedited access to 
judicial review would also be permitted for cases where the 
Secretary does not enter into or renew provider agreements.
    Expedited review would also be established for certain 
remedies imposed against SNFs including denied payments and 
imposition of temporary management. The Secretary would be 
required to develop a process for reinstating approval of nurse 
aide training programs that have been terminated (before the 
end of the mandatory two-year disapproval period). The 
appropriation of such sums as needed for FY2005 and subsequent 
years would be authorized to reduce by 50 percent the average 
time for administrative determinations, to increase the number 
of ALJs and appellate staff at the DAB, and to educate these 
judges and their staffs on long-term care issues.

                             EFFECTIVE DATE

    This provision would be effective for appeals filed on or 
after October 1, 2004.

                           REASON FOR CHANGE.

    The provisions in 402 (a-c) on expedited access to judicial 
review ensure that if a review board certifies that there are 
no material facts in dispute and that the appeals process does 
not have authority to resolve the question at issue, the 
provider, supplier, or beneficiary may take their case to court 
in an expedited manner. This would facilitate more prompt 
resolution of challenges to the underlying validity of CMS 
regulations and determinations. To the extent that any part of 
an appeal poses a factual dispute that is being adjudicated 
before an administrative tribunal, this provision would not 
authorize the severance of the legal issues from the underlying 
factual dispute.

Section 933. Revisions to Medicare Appeals Process

            (a) Requiring Full and Early Presentation of Evidence

                              CURRENT LAW

    No provision. New evidence can be presented at any stage of 
the appeals process.

                        EXPLANATION OF PROVISION

    The provision would require providers and suppliers to 
present all evidence at the reconsideration that is conducted 
by a QIC unless good cause precludes the introduction of the 
evidence.

                             EFFECTIVE DATE

    October 1, 2004.

                           REASON FOR CHANGE

    The Office of Inspector General identified this change as a 
priority to promote more expeditious resolution of appeals of 
denied claims. This provision requires prompt introduction of 
evidence relevant to a provider appeal. When deciding whether 
there is good cause to introduce new evidence, the adjudicator 
should ensure, after consideration of the totality of the 
circumstances that disallowing the introduction of such new 
evidence would unfairly prejudice the case. The totality of the 
circumstances may include, but is not limited to, the 
following: evidence is not yet available; the appellant was not 
represented at a lower level of appeal; the appellant was not 
aware of her rights; or the appellant did not understand the 
proceeding.
            (b) Use of Patients' Medical Records

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    The provision would provide for the use of beneficiaries' 
medical records in qualified independent contractors 
reconsiderations.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    In the determination of whether an item or service is 
reasonable and necessary for an individual, a beneficiary's 
medical records should be considered with other relevant 
information.
            (c) Notice Requirements for Medicare Appeals

                              CURRENT LAW

    No statutory provision. Determinations and denials of 
appeals currently include the policy, regulatory, or statutory 
reason for the denial and information on how to appeal the 
denial. The Benefits Improvement and Protection Act (BIPA) of 
2000 changed the appeals process and created a new independent 
review (the qualified independent contractors or QICs), which 
has not yet been implemented.

                        EXPLANATION OF PROVISION

    The provision would require that notice of and decisions 
from determinations, redeterminations, reconsiderations, ALJ 
appeals, and DAB appeals be written in a manner understandable 
to a beneficiary and that includes, as appropriate, reasons for 
the determination or decision and notice of the right to appeal 
decisions and the process for further appeal. The initial 
determination of a claim would also be specifically required to 
include: the reasons for the determination, including whether a 
local review policy or coverage determination was used and the 
procedures for obtaining additional information (including, 
upon request, the specific provision of the policy manual, or 
regulation used in making the determination). Redeterminations, 
the first level of appeal, would also specifically be required 
to include: the specific reasons for the decision; as 
appropriate a summary of the clinical or scientific evidence 
used in making the redetermination; and a description of the 
procedures for obtaining additional information concerning the 
redetermination (including, upon request, the specific 
provision of the policy manual, or regulation used in making 
the determination).

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    Currently, Medicare only provides beneficiaries with a 
brief statement about the initial determination of her claim on 
the Medicare Summary Notice. This provision provides additional 
information to beneficiaries (or providers who appeal on their 
behalf) about Medicare's denial of their claim for benefits; 
the reasons for the denial, and the rights to further appeal so 
that beneficiaries can have a clear and concise understanding 
of decisions affecting their medical care.
            (d) Qualified Independent Contractors

                              CURRENT LAW

    BIPA established a new and independent second level of 
appeal called the qualified independent contractors. BIPA 
called for at least 12 QICs. The QICs have not yet been 
implemented.

                        EXPLANATION OF PROVISION

    The provision would clarify eligibility requirements for 
qualified independent contractors and their reviewer employees 
including medical and legal expertise, independence 
requirements, and the prohibition on compensation being linked 
to decisions rendered. The required number of qualified 
independent contractors would be reduced from not fewer than 
twelve to not fewer than four.

                             EFFECTIVE DATE

    The provisions regarding the eligibility requirements of 
QICs and QIC reviews would be effective as if included in the 
enactment of BIPA.

                           REASON FOR CHANGE

    The BIPA 2000 law laid out broad provisions for revision of 
the Medicare appeals process. These provisions strengthen the 
appeals process by enhancing the criteria related to the 
independence and expertise of the reviewers and review 
entities.

Section 934. Prepayment Review

                              CURRENT LAW

    No explicit statutory instruction. Under administrative 
authorities, CMS has instructed the contractors to use random 
prepayment reviews to develop contractor-wide and program-wide 
error rates. Non-random payment reviews are permitted in 
certain circumstances laid out in instructions to the 
contractors.

                        EXPLANATION OF PROVISION

    Medicare contractors would be permitted to conduct random 
prepayment reviews only to develop a contractor-wide or 
program-wide error rate or such additional circumstances as the 
Secretary provides for in regulations that were developed in 
consultation with providers and suppliers. Random prepayment 
review would only be permitted in accordance with standard 
protocol developed by the Secretary. Nonrandom payment reviews 
would be permitted only when there was a likelihood of 
sustained or high level of payment error. The Secretary would 
be required to issue regulations regarding the termination and 
termination dates of non-randomprepayment review. Variation in 
termination dates would be permitted depending upon the differences in 
the circumstances triggering prepayment review.

                             EFFECTIVE DATE

    The Secretary would be required to issue the required 
regulations not later than one year after enactment. The 
provision regarding the use of standard protocols when 
conducting prepayment reviews would apply to random prepayment 
reviews conducted on or after the date specified by the 
Secretary (but not later than one year after enactment). The 
remaining provisions would be effective one year after 
enactment.

                           REASON FOR CHANGE

    These provisions build greater consistency and 
predictability into Medicare's rules for prepayment review, 
while protecting program integrity.

Section 935. Recovery of Overpayments

                              CURRENT LAW

    No explicit statutory instruction. Under administrative 
authorities, CMS negotiates extended repayment plans with 
providers that need additional time to repay Medicare 
overpayments.

                        EXPLANATION OF PROVISION

    In situations where repaying an Medicare overpayment within 
30 days would be a hardship for a provider or supplier, the 
Secretary would be required to enter into an extended repayment 
plan of at least six months duration. The repayment plan would 
not be permitted to go beyond three years (or five years in the 
case of extreme hardship, as determined by the Secretary). 
Interest would be required to accrue on the balance through the 
repayment period. Hardship would be defined if, for providers 
that file cost reports, the aggregate amount of the overpayment 
exceeded 10 percent of the amount paid by Medicare to the 
provider for the time period covered by the most recently 
submitted cost report. In the case of a provider or supplier 
that is not required to file a cost report, hardship would be 
defined if the aggregate amount of the overpayment exceeded 10 
percent of the amount paid under Medicare for the previous 
calendar year. The Secretary would be required to develop rules 
for the case of a provider or supplier that was not paid under 
Medicare during the previous year or for only a portion of the 
year. Any other repayment plans that a provider or supplier has 
with the Secretary, would not be taken into account by the 
Secretary in calculating hardship. If the Secretary has reason 
to suspect that the provider or supplier may file for 
bankruptcy or otherwise cease to do business or discontinue 
participation in Medicare or there is an indication of fraud or 
abuse, the Secretary would not be obligated to enter into an 
extended repayment plan with the provider or supplier. If a 
provider or supplier fails to make a payment according to the 
repayment plan, the Secretary would be permitted to immediately 
seek to offset or recover the total outstanding balance of the 
repayment plan, including interest.
    The Secretary would be prohibited from recouping any 
overpayments until a reconsideration-level appeal (or a 
redetermination by the fiscal intermediary or carrier if the 
QICs are not yet in place) was decided, if a reconsideration 
was requested. Interest would be required to be paid to the 
provider if the appeal was successful (beginning from the time 
the overpayment is recouped) or that interest would be required 
to be paid to the Secretary if the appeal was unsuccessful (and 
if the overpayment was not paid to the Secretary).
    Extrapolation would be limited to those circumstances where 
there is a sustained or high level of payment error, as defined 
by the Secretary in regulation, or document educational 
intervention has failed to correct the payment error.
    Medicare contractors would be permitted to request the 
periodic production of records or supporting documentation for 
a limited sample of submitted claims to ensure that the 
previous practice is not continuing in the case of a provider 
or supplier with prior overpayments.
    The Secretary would be able to use consent settlements to 
settle projected overpayments under certain conditions. 
Specifically the Secretary would be required to communicate 
with the provider or supplier that medical record review has 
indicated an overpayment exists, the nature of the problems 
identified, the steps needed to address the problems, and 
afford the provider or supplier 45 days to furnish additional 
information regarding the medical records for the claims 
reviewed. If, after reviewing the additional information an 
overpayment continues to exist, the Secretary would be required 
to provide notice and an explanation of the determination and 
then may offer the provider two mechanisms to resolve the 
overpayment: either an opportunity for a statistically valid 
random sample or a consent settlement (without waiving any 
appeal rights).
    The Secretary would be required to establish a process to 
provide notice to certain providers and suppliers in cases 
where billing codes were over-utilized by members of that class 
in certain areas, in consultation with organizations that 
represent the affected provider or supplier class.
    If post-payment audits were conducted, the Medicare 
contractor would be required to provide the provider or 
supplier with written notice of the intent to conduct the 
audit. The contractor would further be required to give the 
provider or supplier a full and understandable explanation of 
the findings of the audit and permit the development of an 
appropriate corrective action plan, inform the provider or 
supplier of appeal rights and consent settlement options, and 
give the provider or supplier the opportunity to provide 
additional information to the contractor, unless notice or 
findings would compromise any law enforcement activities.
    The Secretary would be required to establish a standard 
methodology for Medicare contractors to use in selecting a 
sample of claims for review in cases of abnormal billing 
patterns.

                             EFFECTIVE DATE

    In general, the provisions would be effective upon 
enactment. The limitation on extrapolation would apply to 
samples initiated after the date that is one year after the 
date of enactment. The Secretary would be required to establish 
the process for notice of over-utilization of billing codes not 
later than one year after enactment. The Secretary would be 
required to establish a standard methodology for selecting 
sample claims for abnormal billing patterns not later than one 
year after enactment.

                           REASON FOR CHANGE

    These provisions build greater consistency and 
predictability into Medicare's rules for recovery of 
overpayments, while protecting program integrity.

Section 936. Provider Enrollment Process; Right of Appeal

                              CURRENT LAW

    No explicit statutory instruction. Under administrative 
authorities, CMS has established provider enrollment processes 
in instructions to the contractors.

                        EXPLANATION OF PROVISION

    The Secretary would be required to establish in regulation 
a provider enrollment process with hearing rights in the case 
of a denial or non-renewal. The process would be required to 
include deadlines for actions on applications for enrollment 
and enrollment renewals. The Secretary would be required to 
monitor the performance of the Medicare contractors in meeting 
the deadlines he establishes. Before changing provider 
enrollment forms, the Secretary would be required to consult 
with providers and suppliers. The provision would also 
establish hearing rights in cases where the applications have 
been denied.

                             EFFECTIVE DATE

    The enrollment process would be required to be established 
within six months of enactment. The consultation process on 
provider enrollment forms would be required for changes in the 
form beginning January 1, 2004. The provision of hearing rights 
would apply to denials that occur one year after enactment or 
an earlier date specified by the Secretary.

                           REASON FOR CHANGE

    This provision gives providers and suppliers an opportunity 
to appeal denials of their applications to participate in the 
Medicare program.

Section 937. Process for Correction of Minor Errors and Omissions on 
        Claims without Pursuing Appeals Process

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    This provision would require the Secretary to establish a 
process so providers and suppliers could correct minor errors 
in claims that were submitted for payment.

                             EFFECTIVE DATE

    The proposal would require that the process be developed 
not later than one year after enactment.

                           REASON FOR CHANGE

    Many of the providers and suppliers who testified before 
the Subcommittee or contacted members directly emphasized the 
need to create a process in which they could correct claims 
that were denied because they were incomplete or contained 
minor errors without having to pursue a formal appeal. This 
provision instructs the Secretary to create such a process, 
which will alleviate pressure on the appeals system. The 
Committees would be concerned, however, if this process were to 
become an incentive for providers to knowingly or negligently 
submit incomplete information.
    The Committees intend that the process for correction of 
minor errors and omissions on claims cover both the submission 
of prepayment and post-payment review claims. For example, if 
in the case of a home health claim, the physician has signed 
the plan of care and/or physician's order but has not dated it, 
the claim shall be returned to the home health agency and may 
be resubmitted by the home health agency with any incomplete or 
missing information without having to appeal the claim.

Section 938. Prior Determination Process for Certain Items and 
        Services; Advance Beneficiary Notices

                              CURRENT LAW

    Medicare law prohibits payment for items and services that 
are not medically reasonable and necessary for the diagnosis or 
treatment of an illness or an injury. Under certain 
circumstances, however, Medicare will pay for non-covered 
services that have been provided if both the beneficiary and 
the provider of the services did not know and could not have 
reasonably been expected to know that Medicare payment would 
not be made for these services.
    A provider may be held liable for providing uncovered 
services, if, for example, specific requirements are published 
by the Medicare contractor or the provider has received a 
denial or reduction of payment on the same or similar service. 
In cases where the provider believes that the service may not 
be covered as reasonable and necessary, an acceptable advance 
notice of Medicare's possible denial of payment must be given 
to the patient if the provider does not want to accept 
financial responsibility for the service. The notice must be 
given in writing, in advance of providing the service; include 
the patient's name, date and description of service as well as 
reasons why the service would not be covered; and must be 
signed and dated by the patient to indicate that the 
beneficiary will assume financial liability for the service if 
Medicare payment is denied or reduced.

                        EXPLANATION OF PROVISION

    The Secretary would be required to establish a process 
through regulation where physicians and beneficiaries can 
establish whether Medicare covers certain categories of items 
and services before such services are provided. An eligible 
requestor would be a physician, but only in case of items and 
services for which the physician is paid directly and a 
Medicare beneficiary who receives an advance beneficiary notice 
from a physician would receive direct payment for that service. 
The provisions would establish that: (1) such prior 
determinations would be binding on the Medicare contractor, 
absent fraud or misrepresentation of facts, (2) the right to 
redetermination in the case of a denial, (3) the applicability 
of existing deadlines with respect to those redeterminations, 
(4) that contractors' advance determinations (and 
redeterminations) are not subject to further administrative or 
judicial review, and (5) an individual retains all rights to 
usual administrative or judicial review after receiving the 
service or receiving a determination that a service would not 
be covered. These provisions would not affect a Medicare 
beneficiary's right not to seek an advance determination. The 
prior determination process would be established in time to 
address such requests that are filed by 18 months of enactment. 
The Secretary would be required to collect data on the advance 
determinations and to establish a beneficiary outreach and 
education program. GAO is required to report on the use of the 
advance beneficiary notice and prior determination process 
within 18 months of its implementation.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    The Committees believe that when there is a question of 
whether Medicare will cover certain care for a beneficiary, the 
beneficiary should have the right to find out what would be 
covered before getting the service and risking financial 
liability. Doctors also should be able to make such a request 
on behalf of a particular patient. This provision is 
particularly important for seniors and disabled individuals who 
tend to be risk adverse and live on fixed incomes.

                       Subtitle V--Miscellaneous


Section 941. Policy Development Regarding Evaluation and Management 
        (E&M) Documentation Guidelines

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    The Secretary would not be permitted to implement any new 
documentation guidelines for, or clinical examples of, 
evaluation and management (E&M) physician services unless the 
Secretary: (1) developed the guidelines in collaboration with 
practicing physicians (both generalists and specialists) and 
provided for an assessment of the proposed guidelines by the 
physician community, (2) established a plan containing specific 
goals, including a schedule, for improving the use of the 
guidelines, (3) conducted pilot projects to test modifications 
to the guidelines, (4) finds the guidelines have met 
established objectives, and (5) established and implemented an 
education program on the use of the guidelines with appropriate 
outreach. The Secretary would make changes to existing E&M 
guidelines to reduce paperwork burdens on physicians. The 
provision establishes objectives for modifications of the E&M 
guidelines: (1) identify clinically relevant documentation 
needed to code accurately and assess coding levels accurately, 
(2) decrease the non-clinically pertinent documentation in the 
medical record, (3) increase reviewers accuracy, and (4) 
educate physicians and reviewers.
    The pilot projects would be required to be conducted on a 
voluntary basis in consultation with practicing physicians 
(both generalists and specialists) and be of sufficient length 
to educate physicians and contractors on E&M guidelines. A 
range of different projects would be established and include at 
least one project: using a physician peer review method, using 
an alternative method based on face-to-face encounter time with 
the patient, in a rural area, outside a rural area, and where 
physicians bill under physician services in a teaching setting 
and non-teaching setting. The projects would examine the effect 
of modified E&M guidelines on different types of physician 
practices in terms of the cost of compliance. Data collected 
under these projects would not be the basis for overpayment 
demands or post-payment audits. This protection would apply to 
claims filed as part of the project, would last the duration of 
the project, and would last for as long as the provider 
participated in the project. Each pilot conducted would examine 
the effect of the new E&M documentation guidelines on different 
types of physician practices (including those with fewer than 
10 full-time equivalent employees) and the costs of physician 
compliance including education implementation, auditing, and 
monitoring. The Secretary would be required to submit periodic 
reports to Congress on these pilot projects.
    The provision would require a study of an alternative 
system for documenting physician claims. Specifically the 
Secretary would be required to study developing a simpler 
system for documenting claims for evaluation and management 
services and to consider systems other than current coding and 
documentation requirements. The Secretary would be required to 
consultwith practicing physicians in designing and carrying out 
the study. This study would be due to Congress no later than October 1, 
2005. MedPAC would be required to analyze the results of the study and 
report to Congress. The Secretary would also be required to study the 
appropriateness of coding in cases of extended office visits in which 
no diagnosis is made and report to Congress no later than October 1, 
2005. The Secretary would be required to include in the report 
recommendations on how to code appropriately for these visits in a 
manner that takes into account the amount of time the physician spent 
with the patient.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    This provision is designed to promote greater consultation 
with practicing physicians with regard to the complicated 
evaluation and management and coding requirements governing 
Medicare payment for physician services.

Section 942. Improvement in Oversight of Technology and Coverage

            (a) Council for Technology and Innovation

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    The Secretary would be required to establish a Council for 
Technology and Innovation within CMS. The council would be 
composed of senior CMS staff and clinicians with a chairperson 
designated by the Secretary who reports to the CMS 
Administrator. The Chairperson would serve as the Executive 
Coordinator for Technology and Innovation would be the single 
point of contact for outside groups and entities regarding 
Medicare coverage, coding, and payment processes. The Council 
would coordinate Medicare's coverage, coding, and payment 
processes as well as information exchange with other entities 
with respect to new technologies and procedures, including drug 
therapies.
    If the National Committee on Vital and Health Statistics 
has not made a recommendation to the Secretary by enactment 
regarding implementation of the ICD-10 coding system for 
diagnosis and procedures, the Secretary may adopt such 
standards one year after the date of enactment.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    After the FDA pre-market approval, the Medicare program 
does a second evaluation of breakthrough technologies to 
determine effectiveness and cost of those technologies compared 
to existing technologies. The review is necessary and 
appropriate, but it can take months between FDA approval and 
the availability of new technology for Medicare beneficiaries. 
By coordinating FDA and CMS approval of breakthrough medical 
devices, where feasible, this provision is intended to 
facilitate a more efficient process for the coverage of certain 
new technology by the Medicare program.
    The ICD-9 coding system was adopted in 1979, and remains in 
effect for diagnosis and procedure coding in hospital inpatient 
and outpatient settings. ICD-9 has ``run out'' of codes for 
certain new procedures. For example, no code was available for 
the anthrax attack in 2001. NCVHS began investigating adoption 
of an updated coding system--ICD-10--in 1990. ICD-10 is more 
clinically accurate, and has available codes for new 
technologies and procedures. In 1996, as part of the Health 
Insurance Portability and Accountability Act (HIPAA) of 1996, 
Congress required NCVHS to make a recommendation on adoption 
prior to Secretarial approval. To date, NCVHS still has not 
issued a recommendation.
    ICD-9 has run out of codes for new technologies and 
procedures. ICD-10 has room for those procedures, which would 
improve accuracy in claims processing. Every developed country 
in the world except the US and Israel has adopted ICD-10 as the 
standard coding system because it is superior to ICD-9. Some 
hospitals are eager to adopt ICD-10 because ultimately they 
believe it would improve efficiency. The Committee agrees, 
although nothing in this provision requires the Secretary to 
adopt the ICD-10 in any health care setting.
            (b) Methods for Determining Payment Basis for New Lab Tests

                              CURRENT LAW

    Outpatient clinical diagnostic laboratory tests are paid on 
the basis of area wide fee schedules. The law establishes cap 
on the payment amounts, which is currently set at 74 percent of 
the median for all fee schedules for that test. The cap is set 
at 100 percent of the median for tests performed after January 
1, 2001 that the Secretary determines are new tests for which 
no limitation amount has previously been established.

                        EXPLANATION OF PROVISION

    The Secretary would be required to establish procedures (by 
regulation) for determining the basis for and amount of 
payments for new clinical diagnostic laboratory tests. New 
laboratory tests would be defined as those assigned a new, or 
substantially revised Health Care Procedure Coding System 
(HCPCS) code on or after January 1, 2005. The Secretary, as 
part of this procedure, would be required to: (1) provide a 
list (on an Internet site or other appropriate venue) of tests 
for which payments are being established in that year, (2) 
publish a notice of a meeting in the Federal Register on the 
day the list becomes available, (3) hold the public meeting no 
earlier than 30 days after the notice to receive public 
comments andrecommendations, (4) take into account the 
comments, recommendations and accompanying data in both proposed and 
final payment determinations. The Secretary would set forth the 
criteria for making these determinations; make public the available 
data considered in making such determinations; and could convene other 
public meetings as necessary.

                             EFFECTIVE DATE

    Effective for codes assigned on or after January 1, 2005.
            (c) GAO Study on Improvements in External Data Collection 
                    for Use in the Medicare Inpatient Payment System

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    GAO would be required to study which external data could be 
collected by CMS in a shorter time frame for use in calculating 
payments for inpatient hospital services. GAO could evaluate 
feasibility and appropriateness of using quarterly samples or 
special surveys and would include an analysis of whether other 
executive agencies would be better suited to collect this 
information. The report would be due to Congress no later than 
October 1, 2004.

                             EFFECTIVE DATE

    Upon enactment.

Section 943. Treatment of Hospitals for Certain Services Under Medicare 
        Secondary Payer (MSP) Provisions

                              CURRENT LAW

    In certain instances when a beneficiary has other insurance 
coverage, Medicare becomes the secondary insurance. Medicare 
Secondary Payer is the Medicare program's coordination of 
benefits with other insurers. Section 1862(b)(6) of the Social 
Security Act requires an entity furnishing a Part B service to 
obtain information from the beneficiary on whether other 
insurance coverage is available.

                        EXPLANATION OF PROVISION

    The Secretary would not require a hospital or a critical 
access hospital to ask questions or obtain information relating 
to the Medicare secondary payer provisions in the case of 
reference laboratory services if the same requirements are not 
imposed upon those provided by an independent laboratory. 
Reference laboratory services would be those clinical 
laboratory diagnostic tests and interpretations of it that are 
furnished without a face-to-face encounter between the 
beneficiary and the hospital where the hospital submits a claim 
for the services.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    Hospitals would not have to directly contact each 
beneficiary on their retirement date, black lung status and 
other insurance information for reference laboratory services. 
While current law provisions for a claim containing valid 
insurance information are maintained, this provision is 
intended to reduce the amount of paperwork and regulatory 
burden related to the provision of these reference laboratory 
services by hospital-based entities.

Section 944. EMTALA Improvements

                              CURRENT LAW

    Medicare requires participating hospitals that operate an 
emergency room to provide necessary screening and stabilization 
services to a patient in order to determine whether an 
emergency medical situation exists prior to asking about 
insurance status of the patient.
    Hospitals that are found to be in violation of Emergency 
Medical Treatment and Active Labor Act (EMTALA) requirements 
may face civil monetary penalties and termination of their 
provider agreement. Prior to imposing a civil monetary penalty, 
the Secretary is required to request a peer review organization 
(PRO), currently called quality improvement organizations 
(QIOs), to assess whether the involved beneficiary had an 
emergency condition, which had not been stabilized and provide 
a report on its findings. Except in the case where a delay 
would jeopardize the health or safety, the Secretary provides a 
60-day period for the requested PRO review.
    EMTALA is enforced by general guidelines issued by CMS. 
Patients who present to the emergency room and request services 
(or another person does so on their behalf) are required to be 
screened and stabilized.

                       EXPLANATION OF PROVISIONS

    Emergency room services provided to screen and stabilize a 
Medicare beneficiary furnished after January 1, 2004, would be 
evaluated as reasonable and necessary on the basis of the 
information available to the treating physician or practitioner 
at the time the services were ordered; this would include the 
patient's presenting symptoms or complaint and not the 
patient's principal diagnosis. The Secretary would not be able 
to consider the frequency with which the item or service was 
provided to the patient before or after the time of admission 
or visit.
    The Secretary would be required to establish a procedure to 
notify hospitals and physicians when an EMTALA investigation is 
closed.
    Except in the case where a delay would jeopardize the 
health and safety of individuals, the Secretary would be 
required to request a PRO review before making a compliance 
determination that would terminate a hospital's Medicare 
participation because of EMTALA violations and provide a period 
of 5 business days for such review. The PRO shall provide a 
copy of the report on its findings to the hospital or physician 
that is consistent with existing confidentiality requirements. 
This provision would apply to terminations initiated on or 
after enactment.
    The provision also clarifies the responsibility of the 
hospital when the individual does not request examination or 
treatment for an emergency condition.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    Providers have reported that some Medicare contractors are 
looking at final diagnoses (not presenting symptoms) in 
applying local medical review policies (LMRPs) that match 
particular tests to particular diagnoses--if a test does not 
match a listed diagnosis, payment is denied. Other claims are 
reportedly being denied based on LMRPs that set frequency 
limits for certain tests--if the test's use in the emergency 
room exceeds a frequency limit, payment is denied. In its 
January 2001 report entitled The Emergency Medical Treatment 
and Labor Act: The Enforcement Process, at the OIG recommended 
that CMS ensure that peer review occurs before a provider is 
terminated from the Medicare program for an EMTALA violation. 
This section implements that recommendation, making the current 
discretionary PRO review process mandatory in cases that 
involve a question of medical judgment. Finally, it clarifies 
CMS guidelines for persons or individuals who arrive at the 
emergency room for non-emergency services.

Section 945. Emergency Medical Treatment and Active Labor (EMTALA) Task 
        Force

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    The Secretary would be required to establish a 17-member 
technical advisory group under specified requirements to review 
issues related to EMTALA. The advisory group would be comprised 
of: the CMS Administrator; the OIG; four hospital 
representatives who have EMTALA experience, (including 1 person 
from a public hospital and two of whom have not experienced 
EMTALA violations); five practicing physicians with EMTALA 
experience; two patient representatives; two regional CMS staff 
involved in EMTALA investigations; one representative from a 
state survey organization and one from a PRO. The Secretary 
would select qualified individuals who are nominated by 
organizations representing providers and patients.
    The advisory group would be required to: (1) elect a member 
to as chairperson, (2) schedule its first meeting at the 
direction of the Secretary and meet at least twice a year 
subsequently, (3) terminate 30 months after the date of its 
first meeting, and (4) be exempt from the Federal Advisory 
Committee Act. The advisory group would review EMTALA 
regulations; provide advice and recommendations to the 
Secretary; solicit public comments from interested parties; and 
disseminate information on the application of the EMTALA 
regulations.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    In its January 2001 report entitled The Emergency Medical 
Treatment and Labor Act: The Enforcement Process, the OIG 
recommended that CMS establish an EMTALA technical advisory 
group that includes all EMTALA stakeholders to help the agency 
resolve any emerging issues related to implementation of the 
law. Some of these current issues include specialists who 
refuse to service on call panels and inconsistencies between 
Stat and Federal law governing emergency medical services. In 
its June 2001 report entitled Emergency Care: EMTALA 
Implementations and Enforcement Issues, the GAO also concluded 
that the establishment of a technical advisory group could help 
CMS work with hospitals and physicians to achieve the goals of 
EMTALA and avoid creating unnecessary burdens for providers. 
This section implements the OIG recommendation, establishing a 
19-member technical advisory group within HHS.

Section 946. Authorizing Use of Arrangements To Provide Core Hospice 
        Services in Certain Circumstances

                              CURRENT LAW

    A hospice is a public agency or private organization, which 
is primarily engaged in providing and making available certain 
care to a terminally ill Medicare beneficiary under a written 
plan.

                       EXPLANATION OF PROVISIONS

    A hospice would be permitted to: (1) enter into 
arrangements with another hospice program to provide care in 
extraordinary, exigent or other non-routine circumstances, such 
as unanticipated high patient loads, staffing shortages due to 
illness, or temporary travel by a patient outside the hospice's 
service area, and (2) bill and be paid for the hospice care 
provided under these arrangements.

                             EFFECTIVE DATE

    For hospice care provided on or after enactment.

                           REASON FOR CHANGE

    Hospice programs would be allowed to use personnel from 
other hospice programs to provide services to hospice patients. 
The program is given the flexibility so that a hospice program 
could continue to serve a patient if he or she was temporarily 
out of the area due to travel. Otherwise, the provision of the 
care to the patient might be delayed by the paperwork and 
requirements in starting up a new service at another agency. It 
is the intent of Congress that the originating hospice 
maintains control over the billing and quality of care.

Section 947. Application of OSHA Bloodborne Pathogens Standards to 
        Certain Hospitals

                              CURRENT LAW

    Section 1866 establishes certain conditions of 
participation that providers must meet in order to participate 
in Medicare.

                        EXPLANATION OF PROVISION

    Public hospitals that are not otherwise subject to the 
Occupational Safety and Health Act of 1970 would be required to 
comply with the Bloodborne Pathogens standard under section 
1910.1030 of title 29 of the Code of Federal Regulations. A 
hospital that fails to comply with the requirement would be 
subject to a civil monetary penalty, but would not be 
terminated from participating in Medicare.

                             EFFECTIVE DATE

    The provision would apply to hospitals as of July 1, 2004.

                           REASON FOR CHANGE

    Last year, Congress enacted legislation that requires 
hospitals to utilize safe needles. However, that legislation 
only applies to non-government hospitals. Twenty-four states 
have similar requirements on public hospitals. This provision 
would protect the health and safety of health care workers in 
those facilities by requiring public hospitals in the other 26 
states and the District of Columbia to comply with this 
important standard.

Section 948. BIPA-Related Technical Amendments and Corrections

                              CURRENT LAW

    BIPA established an advisory process for national coverage 
determinations where panels of experts formed by advisory 
committees could forward their recommendations directly to the 
Secretary without prior approval of the advisory committee or 
the Executive Committee.

                        EXPLANATION OF PROVISION

    The statutory reference in BIPA would be changed from the 
Social Security Act to the Public Health Service Act. Other 
BIPA references would be changed from a policy to a 
determinations.

                             EFFECTIVE DATE

    The provision would be effective as if included in BIPA.

Section 949. Conforming Authority To Waive A Program Exclusion

                              CURRENT LAW

    The Secretary is required to exclude individuals and 
entities from participation in Federal Health Programs that are 
(1) convicted of a criminal offense related to health care 
delivery under Medicare or under State health programs, (2) 
convicted of a criminal offense related to patient abuse or 
neglect under Federal or State law, (3) convicted of a felony 
relating to fraud, theft, or financial misconduct relating to a 
health care finance program or operated by the Federal, State 
or local government, or (4) convicted of a felony related to a 
controlled substance.

                       EXPLANATION OF PROVISIONS

    The Administrator of a Federal health program would be 
permitted to waive certain 5-year exclusions if the exclusion 
of a sole community physician or source of specialized services 
in a community would impose a hardship. The mandatory 
exclusions that could be waived would be those related to 
convictions associated with program-related crimes, health care 
fraud and controlled substances.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    The Office of Inspector General requested this technical 
correction.

Section 950. Treatment of Certain Dental Claims

                              CURRENT LAW

    The Medicare benefit does not include most dental services. 
Some insurers may require a claim denial from Medicare before 
accepting the dental claim for payment review, even if Medicare 
does not cover the service.

                        EXPLANATION OF PROVISION

    A group health plan providing supplemental or secondary 
coverage to Medicare beneficiaries would not be able to require 
dentists to obtain a claim denial from Medicare for non-covered 
dental services before paying the claim.

                             EFFECTIVE DATE

    The provision would be effective 60 days after enactment.

                           REASON FOR CHANGE

    The Committees are concerned about private insurers 
requiring dentists to submit claims to Medicare for non-covered 
services before making a determination for coverage under the 
group health plan. Because of this requirement, dentists have 
been forced to enroll in the Medicare program to submit claims 
for services that are categorically excluded from Medicare 
coverage. Dentists view Medicare's enrollment application 
process as overly burdensome, particularly in light of the fact 
that Medicare does not cover most dental services. This 
provision would alleviate the enrollment burden placed on 
dentists providing services clearly excluded from Medicare 
coverage, consistent with the overarching goal of this 
legislation to reduce regulatory burdens.

Section 951. Furnishing Hospitals With Information To Compute DSH 
        Formula

                              CURRENT LAW

    Disproportionate share hospital (DSH) payments under 
Medicare are calculated using a formula that includes the 
number of patient days for patients eligible for Medicaid.

                        EXPLANATION OF PROVISION

    The provision would require the Secretary to arrange for 
the information such as number of paid or unpaid Medicaid days, 
and the number of dual eligibles that hospitals need to 
calculate the Medicare DSH payment formula.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    Hospitals find it difficult to compute certain critical 
numbers for the purposes of Medicare DSH such as unpaid days 
used by Medicaid eligibles or Medicare dual eligibles. This 
helps ensure accuracy for hospitals and for the Trust Fund.

Section 952. Revisions to Reassignment Provisions

                              CURRENT LAW

    Under certain circumstances, a person or entity other than 
the individual providing the service may receive Medicare 
payments.

                        EXPLANATION OF PROVISION

    Entities, as defined by the Secretary, could receive 
Medicare payments for services provided by a physician or other 
person if the service was provided under a contractual 
arrangement and if the arrangement included joint and several 
liability (liability for several parties) for overpayment and 
the entities meet program integrity specifications determined 
by the Secretary.

                             EFFECTIVE DATE

    The provision would be effective for payments made on or 
after one year after the date of enactment.

Section 953. Other Provisions

                              CURRENT LAW

    No provisions.

                        EXPLANATION OF PROVISION

    GAO Report on Physician Compensation. No later than six 
months from enactment, GAO would be required to report to 
Congress on the appropriateness of the updates in the 
conversion factor including the appropriateness of the 
sustainable growth rate (SGR) formula for 2002 and 
subsequently. The report would examine the stability and the 
predictability of the updates and rate as well as the 
alternatives for use of the SGR in the updates. No later than 
12 months from enactment, GAO would be required to report to 
Congress on all aspects of physician compensation for Medicare 
services. The report would review the alternatives for the 
physician fee schedule.
    Annual Publication of List of National Coverage 
Determinations. The Secretary would be required to publish an 
annual list of national coverage determinations made under 
Medicare in the previous year. Included would be information on 
how to get more information about the determinations. The list 
would be published in an appropriate annual publication that is 
publicly available.
    GAO Report on Flexibility in Applying Home Health 
Conditions of Participation to Patients Who Are Not Medicare 
Beneficiaries. The GAO would be required to report to Congress 
on the implications if the Medicare conditions of participation 
for home health agencies were applied flexibly with respect to 
groups or types of patients who are not Medicare beneficiaries. 
The report would include an analysis of the potential impact of 
this flexibility on clinical operations and the recipients of 
such services and an analysis of methods for monitoring the 
quality of care provided to these recipients. The report would 
be due no later than six month after enactment.
    OIG Report on Notices Relating to Use of Hospital Lifetime 
Reserve Days. The Inspector General of HHS would be required to 
report to Congress on the extent to which hospitals provide 
notice to Medicare beneficiaries, in accordance with applicable 
requirements, before they use the 60 lifetime reserve days 
under the hospital benefit. The report would also include the 
appropriateness and feasibility of hospitals providing a notice 
to beneficiaries before they exhaust the lifetime reserve days. 
The report would be due no later than one year after enactment.

                             EFFECTIVE DATE

    Upon enactment.

Section 954. Temporary Suspension of OASIS Requirement for Collection 
        of Data on Non-Medicare and Non-Medicaid Claims

                              CURRENT LAW

    Under the Conditions of Participation, home health agencies 
are required to complete the OASIS form on all patients.

                        EXPLANATION OF PROVISION

    The OASIS data collected on non-Medicare or non-Medicaid 
patients is not collected or used by the Federal government. 
This provision suspends collection until the Secretary has 
published final regulations regarding the collection and use of 
this data. Moreover it requires a study of how the data is used 
by the agencies as well as recommendations from quality 
assessment experts. Agencies may continue collecting the data 
during the suspension.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    Data mandates on the collection of data on non-Medicare and 
non-Medicaid patients by the Federal government should be 
carefully reviewed for privacy issues by the agency.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the votes of the Committee on Ways and Means in its 
consideration of the bill, H.R. 2473.

                       MOTION TO REPORT THE BILL

    The bill, H.R. 2473, as amended, was ordered favorably 
reported by a rollcall vote of 25 yeas to 15 nays (with a 
quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................        X   ........  .........  Mr. Rangel.......  ........        X   .........
Mr. Crane......................        X   ........  .........  Mr. Stark........  ........        X   .........
Mr. Shaw.......................        X   ........  .........  Mr. Matsui.......  ........        X   .........
Mrs. Johnson...................        X   ........  .........  Mr. Levin........  ........        X   .........
Mr. Houghton...................        X   ........  .........  Mr. Cardin.......  ........        X   .........
Mr. Herger.....................        X   ........  .........  Mr. McDermott....  ........        X   .........
Mr. McCrery....................        X   ........  .........  Mr. Kleczka......  ........        X   .........
Mr. Camp.......................        X   ........  .........  Mr. Lewis (GA)...  ........        X   .........
Mr. Ramstad....................        X   ........  .........  Mr. Neal.........  ........        X   .........
Mr. Nussle.....................        X   ........  .........  Mr. McNulty......  ........        X   .........
Mr. Johnson....................        X   ........  .........  Mr. Jefferson....  ........        X   .........
Ms. Dunn.......................        X   ........  .........  Mr. Tanner.......  ........        X   .........
Mr. Collins....................        X   ........  .........  Mr. Becerra......  ........        X   .........
Mr. Portman....................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. English....................        X   ........  .........  Mr. Pomeroy......        X   ........  .........
Mr. Hayworth...................        X   ........  .........  Mr. Sandlin......  ........  ........  .........
Mr. Weller.....................        X   ........  .........  Ms. Tubbs Jones..  ........        X   .........
Mr. Hulshof....................        X   ........  .........
Mr. McInnis....................        X   ........  .........
Mr. Lewis (KY).................        X   ........  .........
Mr. Foley......................        X   ........  .........
Mr. Brady......................        X   ........  .........
Mr. Ryan.......................        X   ........  .........
Mr. Cantor.....................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                          VOTES ON AMENDMENTS

    An amendment in the nature of a substitute by Chairman 
Thomas was agreed to by a rollcall vote of 25 yeas to 15 nays. 
The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................        X   ........  .........  Mr. Rangel.......  ........        X   .........
Mr. Crane......................        X   ........  .........  Mr. Stark........  ........        X   .........
Mr. Shaw.......................        X   ........  .........  Mr. Matsui.......  ........        X   .........
Mrs. Johnson...................        X   ........  .........  Mr. Levin........  ........        X   .........
Mr. Houghton...................        X   ........  .........  Mr. Cardin.......  ........        X   .........
Mr. Herger.....................        X   ........  .........  Mr. McDermott....  ........        X   .........
Mr. McCrery....................        X   ........  .........  Mr. Kleczka......  ........        X   .........
Mr. Camp.......................        X   ........  .........  Mr. Lewis (GA)...  ........        X   .........
Mr. Ramstad....................        X   ........  .........  Mr. Neal.........  ........        X   .........
Mr. Nussle.....................        X   ........  .........  Mr. McNulty......  ........        X   .........
Mr. Johnson....................        X   ........  .........  Mr. Jefferson....  ........        X   .........
Ms. Dunn.......................        X   ........  .........  Mr. Tanner.......  ........        X   .........
Mr. Collins....................        X   ........  .........  Mr. Becerra......  ........        X   .........
Mr. Portman....................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. English....................        X   ........  .........  Mr. Pomeroy......        X   ........  .........
Mr. Hayworth...................        X   ........  .........  Mr. Sandlin......  ........  ........  .........
Mr. Weller.....................        X   ........  .........  Ms. Tubbs Jones..  ........        X   .........
Mr. Hulshof....................        X   ........  .........
Mr. McInnis....................        X   ........  .........
Mr. Lewis (KY).................        X   ........  .........
Mr. Foley......................        X   ........  .........
Mr. Brady......................        X   ........  .........
Mr. Ryan.......................        X   ........  .........
Mr. Cantor.....................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

    A rollcall vote was conducted on the following amendments 
to the Chairman's amendment in the nature of a substitute.
    An amendment by Mr. Cardin, which would amend section 
1860D-5(d) of the Social Security Act as proposed to be 
inserted by section 101, to require the U.S. Department of 
Health and Human Services to takes such steps as may be 
necessary to qualify and serve as a prescription drug plan 
sponsor and to offer a prescription drug plan that offers 
standard coverage throughout the United States, was defeated by 
a rollcall vote of 15 yeas to 23 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........  ........  .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....  ........  ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. English....................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Sandlin......  ........  ........  .........
Mr. Weller.....................  ........        X   .........  Ms. Tubbs Jones..        X   ........  .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
Mr. Cantor.....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. McDermott, to strike Subtitle C of 
Title II, eliminating the privatization of plans, was defeated 
by a rollcall vote of 14 yeas to 23 nays. The vote was as 
follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........  ........  .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....  ........  ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. English....................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Sandlin......  ........  ........  .........
Mr. Weller.....................  ........        X   .........  Ms. Tubbs Jones..  ........  ........  .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
Mr. Cantor.....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mrs. Johnson, which would amend section 
1848(c)(2)(H) of the Social Security Act, as proposed to be 
added by section 303(a)(1)(B), to direct the Secretary of 
Health and Human Services to expedite the process for adjusting 
existing CPT codes for costs associated with the administration 
of covered drugs, was agreed to by a rollcall vote of 32 yeas 
to 5 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................        X   ........  .........  Mr. Rangel.......  ........        X   .........
Mr. Crane......................        X   ........  .........  Mr. Stark........  ........        X   .........
Mr. Shaw.......................  ........  ........  .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................        X   ........  .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................        X   ........  .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................        X   ........  .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................        X   ........  .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................        X   ........  .........  Mr. Lewis (GA)...  ........        X   .........
Mr. Ramstad....................        X   ........  .........  Mr. Neal.........  ........        X   .........
Mr. Nussle.....................        X   ........  .........  Mr. McNulty......  ........        X   .........
Mr. Johnson....................        X   ........  .........  Mr. Jefferson....  ........  ........  .........
Ms. Dunn.......................        X   ........  .........  Mr. Tanner.......        X   ........  .........
Mr. Collins....................        X   ........  .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................        X   ........  .........  Mr. Doggett......        X   ........  .........
Mr. English....................        X   ........  .........  Mr. Pomeroy......        X   ........  .........
Mr. Hayworth...................        X   ........  .........  Mr. Sandlin......  ........  ........  .........
Mr. Weller.....................        X   ........  .........  Ms. Tubbs Jones..  ........  ........  .........
Mr. Hulshof....................        X   ........  .........
Mr. McInnis....................        X   ........  .........
Mr. Lewis (KY).................        X   ........  .........
Mr. Foley......................        X   ........  .........
Mr. Brady......................        X   ........  .........
Mr. Ryan.......................        X   ........  .........
Mr. Cantor.....................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Doggett, which would amend section 
1860D-3(c) of the Social Security Act as proposed to be 
inserted by section 101, to require each participating 
manufacturer of a covered outpatient drug to enter into 
arrangements with prescription drug plan sponsors or entities 
offering an MA-EFF prescription plan, was defeated by a 
rollcall vote of 12 yeas to 23 nays The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........  ........  .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....  ........  ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......  ........  ........  .........
Mr. Collins....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. English....................  ........        X   .........  Mr. Pomeroy......  ........        X   .........
Mr. Hayworth...................  ........        X   .........  Mr. Sandlin......  ........  ........  .........
Mr. Weller.....................  ........  ........  .........  Ms. Tubbs Jones..  ........  ........  .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
Mr. Cantor.....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An en bloc amendment by Mr. Collins, which would add at the 
end of section 1851(j) of the Social Security Act, as added by 
section 102(a), to apply fee-for-service Medicare+Choice rules 
to prescription drug benefits; and as added by section 221(d), 
to provide the same treatment for premiums for MA private fee-
for-service plans, was agreed to by a rollcall vote of 24 yeas 
to 12 nays, with 2 voting present. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................        X   ........  .........  Mr. Rangel.......  ........        X   .........
Mr. Crane......................        X   ........  .........  Mr. Stark........  ........        X   .........
Mr. Shaw.......................        X   ........  .........  Mr. Matsui.......  ........        X   .........
Mrs. Johnson...................        X   ........  .........  Mr. Levin........  ........        X   .........
Mr. Houghton...................        X   ........  .........  Mr. Cardin.......  ........        X   .........
Mr. Herger.....................        X   ........  .........  Mr. McDermott....  ........        X   .........
Mr. McCrery....................        X   ........  .........  Mr. Kleczka......  ........  ........         X
Mr. Camp.......................        X   ........  .........  Mr. Lewis (GA)...  ........        X   .........
Mr. Ramstad....................        X   ........  .........  Mr. Neal.........  ........        X   .........
Mr. Nussle.....................        X   ........  .........  Mr. McNulty......  ........        X   .........
Mr. Johnson....................        X   ........  .........  Mr. Jefferson....  ........  ........  .........
Ms. Dunn.......................        X   ........  .........  Mr. Tanner.......  ........  ........  .........
Mr. Collins....................        X   ........  .........  Mr. Becerra......  ........  ........         X
Mr. Portman....................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. English....................        X   ........  .........  Mr. Pomeroy......  ........        X   .........
Mr. Hayworth...................        X   ........  .........  Mr. Sandlin......  ........  ........  .........
Mr. Weller.....................        X   ........  .........  Ms. Tubbs Jones..  ........        X   .........
Mr. Hulshof....................        X   ........  .........
Mr. McInnis....................        X   ........  .........
Mr. Lewis (KY).................        X   ........  .........
Mr. Foley......................        X   ........  .........
Mr. Brady......................        X   ........  .........
Mr. Ryan.......................        X   ........  .........
Mr. Cantor.....................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Messrs. Nussle and Pomeroy, which would add 
the following new sections at the end of Title IV: Sec. 416--
Adjustment to the Medicare Inpatient Hospital PPS Wage Index to 
Revise the Labor-Related Share of Such Index; and Sec. 417--
Medicare Incentive Payment Program Improvements for Physician 
Scarcity, was agreed to by a rollcall vote of 39 yeas to 0 
nays, with 1 voting present. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................        X   ........  .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................        X   ........  .........  Mr. Stark........  ........  ........         X
Mr. Shaw.......................        X   ........  .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................        X   ........  .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................        X   ........  .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................        X   ........  .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................        X   ........  .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................        X   ........  .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Ramstad....................        X   ........  .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................        X   ........  .........  Mr. McNulty......        X   ........  .........
Mr. Johnson....................        X   ........  .........  Mr. Jefferson....        X   ........  .........
Ms. Dunn.......................        X   ........  .........  Mr. Tanner.......        X   ........  .........
Mr. Collins....................        X   ........  .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................        X   ........  .........  Mr. Doggett......        X   ........  .........
Mr. English....................        X   ........  .........  Mr. Pomeroy......        X   ........  .........
Mr. Hayworth...................        X   ........  .........  Mr. Sandlin......  ........  ........  .........
Mr. Weller.....................        X   ........  .........  Ms. Tubbs Jones..        X   ........  .........
Mr. Hulshof....................        X   ........  .........
Mr. McInnis....................        X   ........  .........
Mr. Lewis (KY).................        X   ........  .........
Mr. Foley......................        X   ........  .........
Mr. Brady......................        X   ........  .........
Mr. Ryan.......................        X   ........  .........
Mr. Cantor.....................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

    A substitute amendment by Mr. Stark was defeated by a 
rollcall vote of 14 yeas to 26 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......  ........        X   .........
Mr. Collins....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. English....................  ........        X   .........  Mr. Pomeroy......  ........        X   .........
Mr. Hayworth...................  ........        X   .........  Mr. Sandlin......  ........  ........  .........
Mr. Weller.....................  ........        X   .........  Ms. Tubbs Jones..        X   ........  .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
Mr. Cantor.....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL

    The Congressional Budget Office has not submitted a final 
score of the legislation at the time of the filing of this 
report (July 15, 2003).

      V. OTHER MATTERS REQUIRED TO BE DISCUSSED UNDER HOUSE RULES


          A. Committee Oversight Findings and Recommendations

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the Committee reports that the 
need for this legislation was confirmed by the oversight 
hearings of the Subcommittee on Health. The hearings were as 
follows:
    The Subcommittee on Health held a series of hearings on 
Medicare Reform during the 108th Congress to examine the 
implications of different proposals aimed at helping seniors 
gain more affordable access to prescription drugs. A list of 
these hearings may be found in this report in Section I. 
Introduction, Part C. Legislative History (Page xx).

         B. Summary of General Performance Goals and Objectives

    In compliance with clause 3(c)(4) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
primary purpose of H.R. 2473 is to create a prescription drug 
benefit into the Medicare program while modernizing other 
aspects of the program.

                 C. Constitutional Authority Statement

    In compliance with clause 3(d)(1) of rule XIII of the Rules 
of the House of Representatives, relating to constitutional 
Authority, the Committee states that the Committee's action in 
reporting the bill is derived from Article I of the 
Constitution, Section 8 (``The Congress shall have power to lay 
and collect taxes, duties, imposts, and excises, to pay the 
debts and to provide for * * * the General Welfare of the 
United States * * *'').

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    Legislative Counsel has not prepared a Ramseyer at the time 
of the filing of this report (July 15, 2003).

                         VII. DISSENTING VIEWS

    We oppose the Republican Medicare bill reported by the 
Committee on Ways and Means. This is not a bill designed to 
ensure that seniors and people with disabilities get a long 
overdue Medicare prescription drug benefit that is available 
and affordable to all. Instead, it is an effort by the 
Republican Majority to complete their ideological mission to 
have Medicare ``wither on the vine''.
    Despite the legislation's paltry benefit and fundamentally 
flawed structure, our committee could have reported a bill 
supported by a strong bipartisan majority with only two simple 
changes that we offered as amendments. But Republicans rejected 
our efforts to find a compromise. This absolute refusal to 
negotiate reinforces our firm belief that privatizing Medicare 
is their real goal in this so-called reform effort.
Prescription drug coverage
    This legislation has a grossly inadequate drug benefit that 
was designed to fit into the Republican budget, not the budget 
of America's elderly and disabled citizens. If the majority 
hadn't squandered trillions on tax breaks for the wealthy, we 
would have had more resources to improve this benefit.
    Unlike Medicare Part B, where every beneficiary pays the 
same premium, the premium for prescription drug coverage would 
not be set in the statute. Although Republicans claim that the 
premium for this coverage will be $35 per person per month, 
that is merely a guesstimate. Premiums could be much higher and 
will vary in different areas of the country and even among 
plans in the same area. Private insurance premiums in the 
commercial market are rising at double-digit percentages each 
year, with most insurers citing prescription drugs as the 
primary driver. Unstable premiums translate into an unreliable 
benefit for senior citizens and other Medicare beneficiaries 
who are living on fixed incomes.
    In addition, after the initial coverage limit of $2,000, 
beneficiaries are forced to pay 100 percent of the cost until 
total drug spending reaches $4,900, after which the plan will 
pick up the costs. This patchwork quilt of coverage doesn't 
exist today in any other public or private plan. Almost half of 
all beneficiaries--48 percent--will fall into this gap and only 
10 percent will have drug needs high enough to get the 
catastrophic coverage on the other side of the gap. This means 
that a senior citizen with average drug spending in 2006 would 
find themselves with coverage for their medications until 
August, after which they would receive no coverage for the rest 
of the year while still paying a sizeable premium.
    This legislation also would tie the level of benefits to 
income. The point at which catastrophic coverage would begin 
would be based on a beneficiary's income. People in the highest 
category would have no coverage from $2,000 to $13,200 in drug 
spending. If they needed more than $13,200 worth of drugs, 
coverage would begin again. Given that wealthier beneficiaries 
have already paid more through the payroll taxes during their 
working years, this double taxation of Medicare benefits should 
be rejected. Even worse, however, is that this misguided policy 
would require the IRS and the Department of Health and Human 
Services (HHS) to share sensitive income data on beneficiaries 
for the first time. HHS would then have to give information to 
the plan to indicate the level of the benefit for each 
beneficiary, a de facto disclosure of income. It appears that 
beneficiaries who refuse to authorize the sharing of this 
information might be excluded from the drug coverage. It's an 
offensive invasion of privacy that undermines the social 
insurance nature of Medicare and it ought to be rejected.
    While Republicans purport to protect those on the lower-
ends of the income scale, even those provisions fall far short. 
Help for even the poorest seniors--those with incomes below 
$8,980--is contingent on meeting an assets test. This means 
that they will not get the extra help if they have even modest 
savings ($4,000 or more). Data suggest that more than one-third 
of otherwise eligible low-income beneficiaries would be 
excluded as a result of this hidden hatchet.
    Republican Members of the Ways and Means Committee and the 
President of the United States are fond of saying that Medicare 
beneficiaries should get the same choices as Members of 
Congress do with respect to prescription drug coverage. They 
like to say that as a rhetorical point, but their rhetoric 
doesn't match the reality of this bill. As Members of Congress, 
we get our health insurance through the Federal Employees 
Health Benefits Plan like all federal employees. There isn't a 
single plan option in FEHBP as bad as the one they're promoting 
for seniors in Medicare.
    We're also very concerned that the Republican Medicare bill 
will cause employers to drop retiree prescription drug 
coverage. The CongressionalBudget Office informed us at the 
mark-up that those concerns are real. They estimate that 32% of 
employers who are currently providing retiree prescription drug 
benefits will drop that coverage if this bill becomes law as written. 
That needs to be fixed in this bill as well. We should be using this 
opportunity to reinforce the better coverage that is out there, not 
erode it.
    While there are many other problems in this legislation, we 
are also particularly troubled by the fact that it does nothing 
to guarantee lower prices. In fact, it includes language that 
actually prohibits the Secretary of Health and Human Services 
from ``interfering'' in negotiations between private plans and 
drug companies. This is an extraordinary prohibition that 
affects Medicare beneficiaries and taxpayers alike. It is 
fiscally irresponsible.

Fundamental flaws

    All of these are very serious concerns, but we would still 
be willing to accept this bill as a good faith effort to add a 
prescription drug benefit to Medicare if Republicans would 
accept two changes. First, the bill must be amended to include 
a uniform, defined prescription drug benefit that is 
universally available through Medicare. Second, the bill must 
reject proposals to privatize the program. These two changes 
are critical.

No real Medicare drug benefit

    The lack of a uniform nationally available, defined 
prescription drug benefit in Medicare in the Republican bill is 
a fundamental flaw. The bill relies solely on private plans to 
provide the new prescription drug benefit. Unlike every other 
benefit in Medicare--doctor's visits, hospitalizations, and 
physical therapy as examples--a beneficiary would not have 
coverage through Medicare for prescription drugs. Instead, a 
Medicare enrollee would be ``entitled'' to purchase a private 
prescription drug plan at varying prices around the country, 
provided one was even available--and affordable--in their 
community. That is not an entitlement at all.
    On top of that, we're concerned the bill won't work. 
Beneficiaries who want to remain in traditional Medicare would 
theoretically purchase new private drug-only plans; all others 
would get their prescription drugs through HMOs, PPOs and other 
managed care plans. The bill would divide the country into 
regions and would require that beneficiaries have the choice of 
two private drug plans (only one of which need be a drug-only 
plan) in each of those regions. But, there is no provision in 
the bill to account for the possibility that two plans simply 
won't appear in each region! It may be that no plans appear. As 
President Bush's Medicare Administrator, Tom Scully, has said, 
these drug-only plans ``don't exist in nature and won't work in 
practice.'' We have yet to see any proof from the Republican 
authors of this program or insurance companies that these plans 
will materialize. In fact, Wall Street analysts, insurance 
companies and pharmaceutical benefit managers have cast 
considerable doubt on this scheme. The legislation would allow 
the government to try to bribe the plans to participate, but if 
they turned down that offer, there is no backup plan and 
beneficiaries would have no place to buy coverage.
    Even worse, if two plans do appear, but the HMO offers a 
more affordable benefit than the drug-only plan, beneficiaries 
in traditional Medicare may be left with no option but to give 
up Medicare and enroll in an HMO to get prescription drug 
coverage. That's wrong. We repeatedly inquired about what would 
happen in such a situation, but failed to get any suitable 
answer from the Republicans.

Democratic amendments

    Add a guaranteed Medicare benefit. The first key change 
necessary for us to support the Republican Medicare bill is to 
provide a guaranteed drug benefit managed by Medicare in the 
same way that we manage Medicare Part A (hospital services) and 
Medicare Part B (physician services). We can accept that 
private plans be allowed to compete to provide Medicare 
benefits, but only if beneficiaries in traditional Medicare are 
not disadvantaged as a result. All our amendment would do is 
add a stable, defined drug benefit in Medicare that is 
available everywhere in the country. The Republican private 
plans could still operate as envisioned under this program, but 
a Medicare option with a national, defined benefit would also 
be in place in every community, regardless of how many private 
plans were offering coverage in the area. That's the promise of 
Medicare today with respect to health services and it should 
hold true for medications as well.
    Republicans shouldn't be threatened by this amendment. If 
the private sector truly is more efficient and able to offer 
better options than government-run Medicare, people will leave 
the traditional Medicare plan and join the private sector 
options developed in this Republican bill.
    This is a sensible amendment that does nothing more than 
maintain the promise of Medicare since its inception in 1965 
and carry that promise into the future. However, Republicans 
opposed this amendment on a strictly party linebasis.
    Eliminate privatization of Medicare. The second fundamental 
concern we have with the Republican bill is its goal to 
privatize Medicare. Make no mistake about it. The ultimate goal 
of this bill is to end Medicare's entitlement to defined 
benefits. Providing a drug benefit to seniors is simply the 
window dressing. It includes a whole scheme starting in 2010 
that will end Medicare as a defined benefit universally 
available at a uniform price for all of America's seniors and 
people with disabilities. Instead, seniors' ability to get the 
health care they need would depend upon their ability to afford 
a plan that meets their needs. Beneficiaries who need or want 
to stay in traditional Medicare will have to pay more to do so.
    Remember, Medicare was created because the private health 
care system would not provide affordable health insurance 
coverage for seniors. We shouldn't be turning back the clock to 
those times. But that's exactly what the Republican bill--as 
written--will do.
    The Bipartisan Commission on the Future of Medicare already 
rejected this proposal. At that time, the Medicare Actuary 
estimated that converting Medicare to a competitive model of 
this nature would result in premium increases in traditional 
Medicare of 47%.
    Increasing Medicare premiums at that rate would absolutely 
force seniors to leave the program--they wouldn't be able to 
afford to stay. They would have to go into the ``competitive'' 
side of the program and join HMOs, PPOs or other similar 
private plans. These private options restrict choice of 
physicians, hospitals and other providers and enforce 
limitations that don't exist in traditional Medicare. America's 
seniors don't want to be forced into private health plans that 
don't meet their needs and, more importantly, limit their 
choice of physician and doctor. We won't support any bill that 
takes away the security of Medicare. This section needs to go. 
Again, we offered an amendment to eliminate it. We were 
defeated on a party line vote.
    Eliminate sweetheart deal for drug companies. This bill 
creates a new bureaucracy to work with the private plans. 
Embedded in the section establishing this new agency is a 
provision that actually prohibits the Secretary of Health and 
Human Services from ``interfering'' in negotiations between 
private plans and drug companies. This is an unprecedented 
restriction of authority for a government program of this 
magnitude. With hundreds of billions of federal dollars at 
stake, Republicans put their friends in the pharmaceutical 
industry ahead of taxpayers.
    During the anthrax crisis, Secretary Thompson negotiated 
with the manufacturer of the antibiotic Cipro and cut prices by 
more than half. The VA negotiates directly for prescription 
drugs it purchases on behalf of veterans. Even the office that 
is responsible for the Federal Employees Health Benefits plan 
does not have its hands tied in this fashion. This is an 
extraordinary prohibition that affects Medicare beneficiaries 
and taxpayers alike. We offered an amendment to delete it. But 
this, too, was defeated on a largely party-line vote.

The Republican bill fails senior citizens

    Democrats have supported Medicare from day one--and have 
consistently worked to improve it. We want a prescription drug 
benefit added to the program. But, we won't go along with 
allowing the promise of a drug benefit become the Trojan Horse 
that ends Medicare as we know it. We are willing to work with 
House Republicans on a more limited benefit than we know is 
needed, but they have to be willing to protect the promise of 
Medicare. The bill reported out of our Committee fails that 
test, and is a bad deal for America's senior citizens and the 
individuals with disabilities who depend on Medicare.

                                   C. B. Rangel.
                                   Robert T. Matsui.
                                   Jim McDermott.
                                   William J. Jefferson.
                                   Stephanie Tubbs Jones.
                                   Sander Levin.
                                   Ben Cardin.
                                   Max Sandlin.
                                   Pete Stark.
                                   Mike McNulty.
                                   John Tanner.
                                   Xavier Becerra.
                                   Richard E. Neal.
                                   Jerry Kleczka.
                                   John Lewis.

                                
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