[House Report 108-391]
[From the U.S. Government Publishing Office]




108th Congress                                                   Report
 1st Session            HOUSE OF REPRESENTATIVES                108-391
_______________________________________________________________________


 MEDICARE PRESCRIPTION DRUG, IMPROVEMENT, AND MODERNIZATION ACT OF 2003

                               __________

                           CONFERENCE REPORT

                              to accompany

                                 H.R. 1




November 21 (legislative day, November 20), 2003--Ordered to be printed


                                 ___________

                         U.S. GOVERNMENT PRINTING OFFICE
90-299                      WASHINGTON : 2003












108th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    108-391
======================================================================
 
MEDICARE PRESCRIPTION DRUG, IMPROVEMENT, AND MODERNIZATION ACT OF 2003

                                _______
                                

   November 21, (legislative day, November 20), 2003.--Ordered to be 
                                printed

                                _______
                                

 Mr. Thomas, from the committee of conference, submitted the following

                           CONFERENCE REPORT

                         [To accompany H.R. 1]

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

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

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

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

               TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

Sec. 101. Medicare prescription drug benefit.

          ``Part D--Voluntary Prescription Drug Benefit Program

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

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

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

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

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

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

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

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

          ``Subpart 5--Definitions and Miscellaneous Provisions

    ``Sec. 1860D-41. Definitions; treatment of references to provisions 
              in part C.
    ``Sec. 1860D-42. Miscellaneous provisions.
Sec. 102. Medicare Advantage conforming amendments.
Sec. 103. Medicaid amendments.
Sec. 104. Medigap amendments.
Sec. 105. Additional provisions relating to medicare prescription drug 
          discount card and transitional assistance program.
Sec. 106. State Pharmaceutical Assistance Transition Commission.
Sec. 107. Studies and reports.
Sec. 108. Grants to physicians to implement electronic prescription drug 
          programs.
Sec. 109. Expanding the work of medicare Quality Improvement 
          Organizations to include parts C and D.
Sec. 110. Conflict of interest study.
Sec. 111. Study on employment-based retiree health coverage.

                      TITLE II--MEDICARE ADVANTAGE

        Subtitle A--Implementation of Medicare Advantage Program

Sec. 201. Implementation of Medicare Advantage program.

                   Subtitle B--Immediate Improvements

Sec. 211. Immediate improvements.

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

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

                     Subtitle D--Additional Reforms

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

          Subtitle E--Comparative Cost Adjustment (CCA) Program

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

              TITLE III--COMBATTING WASTE, FRAUD, AND ABUSE

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

                       TITLE IV--RURAL PROVISIONS

             Subtitle A--Provisions Relating to Part A Only

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

             Subtitle B--Provisions Relating to Part B Only

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

            Subtitle C--Provisions Relating to Parts A and B

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

                      Subtitle D--Other Provisions

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

                 TITLE V--PROVISIONS RELATING TO PART A

                 Subtitle A--Inpatient Hospital Services

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

                      Subtitle B--Other Provisions

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

                 TITLE VI--PROVISIONS RELATING TO PART B

         Subtitle A--Provisions Relating to Physicians' Services

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

                     Subtitle B--Preventive Services

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

                      Subtitle C--Other Provisions

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

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

Sec. 641. Demonstration project for coverage of certain prescription 
          drugs and biologicals.
Sec. 642. Extension of coverage of Intravenous Immune Globulin (IVIG) 
          for the treatment of primary immune deficiency diseases in the 
          home.
Sec. 643. MedPAC study of coverage of surgical first assisting services 
          of certified registered nurse first assistants.
Sec. 644. MedPAC study of payment for cardio-thoracic surgeons.
Sec. 645. Studies relating to vision impairments.
Sec. 646. Medicare health care quality demonstration programs.
Sec. 647. MedPAC study on direct access to physical therapy services.
Sec. 648. Demonstration project for consumer-directed chronic outpatient 
          services.
Sec. 649. Medicare care management performance demonstration.
Sec. 650. GAO study and report on the propagation of concierge care.
Sec. 651. Demonstration of coverage of chiropractic services under 
          medicare.

             TITLE VII--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

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

                 Subtitle B--Graduate Medical Education

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

                  Subtitle C--Chronic Care Improvement

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

                      Subtitle D--Other Provisions

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

                      TITLE VIII--COST CONTAINMENT

                      Subtitle A--Cost Containment

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

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

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

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

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

                      Subtitle A--Regulatory Reform

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

                     Subtitle B--Contracting Reform

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

                   Subtitle C--Education and Outreach

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

                    Subtitle D--Appeals and Recovery

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

                  Subtitle E--Miscellaneous Provisions

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

             TITLE X--MEDICAID AND MISCELLANEOUS PROVISIONS

                     Subtitle A--Medicaid Provisions

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

                  Subtitle B--Miscellaneous Provisions

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

             TITLE XI--ACCESS TO AFFORDABLE PHARMACEUTICALS

            Subtitle A--Access to Affordable Pharmaceuticals

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

               Subtitle B--Federal Trade Commission Review

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

              Subtitle C--Importation of Prescription Drugs

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

      TITLE XII--TAX INCENTIVES FOR HEALTH AND RETIREMENT SECURITY

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

              TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

SEC. 101. MEDICARE PRESCRIPTION DRUG BENEFIT.

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

         ``Part D--Voluntary Prescription Drug Benefit Program

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

               ``ELIGIBILITY, ENROLLMENT, AND INFORMATION

    ``Sec. 1860D-1. (a) Provision of Qualified Prescription 
Drug Coverage Through Enrollment in Plans.--
            ``(1) In general.--Subject to the succeeding 
        provisions of this part, each part D eligible 
        individual (as defined in paragraph (3)(A)) is entitled 
        to obtain qualified prescription drug coverage 
        (described in section 1860D-2(a)) as follows:
                    ``(A) Fee-for-service enrollees may receive 
                coverage through a prescription drug plan.--A 
                part D eligible individual who is not enrolled 
                in an MA plan may obtain qualified prescription 
                drug coverage through enrollment in a 
                prescription drug plan (as defined in section 
                1860D-41(a)(14)).
                    ``(B) Medicare advantage enrollees.--
                            ``(i) Enrollees in a plan providing 
                        qualified prescription drug coverage 
                        receive coverage through the plan.--A 
                        part D eligible individual who is 
                        enrolled in an MA-PD plan obtains such 
                        coverage through such plan.
                            ``(ii) Limitation on enrollment of 
                        ma plan enrollees in prescription drug 
                        plans.--Except as provided in clauses 
                        (iii) and (iv), a part D eligible 
                        individual who is enrolled in an MA 
                        plan may not enroll in a prescription 
                        drug plan under this part.
                            ``(iii) Private fee-for-service 
                        enrollees in ma plans not providing 
                        qualified prescription drug coverage 
                        permitted to enroll in a prescription 
                        drug plan.--A part D eligible 
                        individual who is enrolled in an MA 
                        private fee-for-service plan (as 
                        defined in section 1859(b)(2)) that 
                        does not provide qualified prescription 
                        drug coverage may obtain qualified 
                        prescription drug coverage through 
                        enrollment in a prescription drug plan.
                            ``(iv) Enrollees in msa plans 
                        permitted to enroll in a prescription 
                        drug plan.--A part D eligible 
                        individual who is enrolled in an MSA 
                        plan (as defined in section 1859(b)(3)) 
                        may obtain qualified prescription drug 
                        coverage through enrollment in a 
                        prescription drug plan.
            ``(2) Coverage first effective january 1, 2006.--
        Coverage under prescription drug plans and MA-PD plans 
        shall first be effective on January 1, 2006.
            ``(3) Definitions.--For purposes of this part:
                    ``(A) Part d eligible individual.--The term 
                `part D eligible individual' means an 
                individual who is entitled to benefits under 
                part A or enrolled under part B.
                    ``(B) MA plan.--The term `MA plan' has the 
                meaning given such term in section 1859(b)(1).
                    ``(C) MA-PD plan.--The term `MA-PD plan' 
                means an MA plan that provides qualified 
                prescription drug coverage.
    ``(b) Enrollment Process for Prescription Drug Plans.--
            ``(1) Establishment of process.--
                    ``(A) In general.--The Secretary shall 
                establish a process for the enrollment, 
                disenrollment, termination, and change of 
                enrollment of part D eligible individuals in 
                prescription drug plans consistent with this 
                subsection.
                    ``(B) Application of ma rules.--In 
                establishing such process, the Secretary shall 
                use rules similar to (and coordinated with) the 
                rules for enrollment, disenrollment, 
                termination, and change of enrollment with an 
                MA-PD plan under the following provisions of 
                section 1851:
                            ``(i) Residence requirements.--
                        Section 1851(b)(1)(A), relating to 
                        residence requirements.
                            ``(ii) Exercise of choice.--Section 
                        1851(c) (other than paragraph (3)(A) of 
                        such section), relating to exercise of 
                        choice.
                            ``(iii) Coverage election 
                        periods.--Subject to paragraphs (2) and 
                        (3) of this subsection, section 1851(e) 
                        (other than subparagraphs (B) and (C) 
                        of paragraph (2) and the second 
                        sentence of paragraph (4) of such 
                        section), relating to coverage election 
                        periods, including initial periods, 
                        annual coordinated election periods, 
                        special election periods, and election 
                        periods for exceptional circumstances.
                            ``(iv) Coverage periods.--Section 
                        1851(f), relating to effectiveness of 
                        elections and changes of elections.
                            ``(v) Guaranteed issue and 
                        renewal.--Section 1851(g) (other than 
                        paragraph (2) of such section and 
                        clause (i) and the second sentence of 
                        clause (ii) of paragraph (3)(C) of such 
                        section), relating to guaranteed issue 
                        and renewal.
                            ``(vi) Marketing material and 
                        application forms.--Section 1851(h), 
                        relating to approval of marketing 
                        material and application forms.
                In applying clauses (ii), (iv), and (v) of this 
                subparagraph, any reference to section 1851(e) 
                shall be treated as a reference to such section 
                as applied pursuant to clause (iii) of this 
                subparagraph.
                    ``(C) Special rule.--The process 
                established under subparagraph (A) shall 
                include, in the case of a part D eligible 
                individual who is a full-benefit dual eligible 
                individual (as defined in section 1935(c)(6)) 
                who has failed to enroll in a prescription drug 
                plan or an MA-PD plan, for the enrollment in a 
                prescription drug plan that has a monthly 
                beneficiary premium that does not exceed the 
                premium assistance available under section 
                1860D-14(a)(1)(A)). If there is more than one 
                such plan available, the Secretary shall enroll 
                such an individual on a random basis among all 
                such plans in the PDP region. Nothing in the 
                previous sentence shall prevent such an 
                individual from declining or changing such 
                enrollment.
            ``(2) Initial enrollment period.--
                    ``(A) Program initiation.--In the case of 
                an individual who is a part D eligible 
                individual as of November 15, 2005, there shall 
                be an initial enrollment period that shall be 
                the same as the annual, coordinated open 
                election period described in section 
                1851(e)(3)(B)(iii), as applied under paragraph 
                (1)(B)(iii).
                    ``(B) Continuing periods.--In the case of 
                an individual who becomes a part D eligible 
                individual after November 15, 2005, there shall 
                be an initial enrollment period which is the 
                period under section 1851(e)(1), as applied 
                under paragraph (1)(B)(iii) of this section, as 
                if `entitled to benefits under part A or 
                enrolled under part B' were substituted for 
                `entitled to benefits under part A and enrolled 
                under part B', but in no case shall such period 
                end before the period described in subparagraph 
                (A).
            ``(3) Additional special enrollment periods.--The 
        Secretary shall establish special enrollment periods, 
        including the following:
                    ``(A) Involuntary loss of creditable 
                prescription drug coverage.--
                            ``(i) In general.--In the case of a 
                        part D eligible individual who 
                        involuntarily loses creditable 
                        prescription drug coverage (as defined 
                        in section 1860D-13(b)(4)).
                            ``(ii) Notice.--In establishing 
                        special enrollment periods under clause 
                        (i), the Secretary shalltake into 
account when the part D eligible individuals are provided notice of the 
loss of creditable prescription drug coverage.
                            ``(iii) Failure to pay premium.--
                        For purposes of clause (i), a loss of 
                        coverage shall be treated as voluntary 
                        if the coverage is terminated because 
                        of failure to pay a required 
                        beneficiary premium.
                            ``(iv) Reduction in coverage.--For 
                        purposes of clause (i), a reduction in 
                        coverage so that the coverage no longer 
                        meets the requirements under section 
                        1860D-13(b)(5) (relating to actuarial 
                        equivalence) shall be treated as an 
                        involuntary loss of coverage.
                    ``(B) Errors in enrollment.--In the case 
                described in section 1837(h) (relating to 
                errors in enrollment), in the same manner as 
                such section applies to part B.
                    ``(C) Exceptional circumstances.--In the 
                case of part D eligible individuals who meet 
                such exceptional conditions (in addition to 
                those conditions applied under paragraph 
                (1)(B)(iii)) as the Secretary may provide.
                    ``(D) Medicaid coverage.--In the case of an 
                individual (as determined by the Secretary) who 
                is a full-benefit dual eligible individual (as 
                defined in section 1935(c)(6)).
                    ``(E) Discontinuance of ma-pd election 
                during first year of eligibility.--In the case 
                of a part D eligible individual who 
                discontinues enrollment in an MA-PD plan under 
                the second sentence of section 1851(e)(4) at 
                the time of the election of coverage under such 
                sentence under the original medicare fee-for-
                service program.
            ``(4) Information to facilitate enrollment.--
                    ``(A) In general.--Notwithstanding any 
                other provision of law but subject to 
                subparagraph (B), the Secretary may provide to 
                each PDP sponsor and MA organization such 
                identifying information about part D eligible 
                individuals as the Secretary determines to be 
                necessary to facilitate efficient marketing of 
                prescription drug plans and MA-PD plans to such 
                individuals and enrollment of such individuals 
                in such plans.
                    ``(B) Limitation.--
                            ``(i) Provision of information.--
                        The Secretary may provide the 
                        information under subparagraph (A) only 
                        to the extent necessary to carry out 
                        such subparagraph.
                            ``(ii) Use of information.--Such 
                        information provided by the Secretary 
                        to a PDP sponsor or an MA organization 
                        may be used by such sponsor or 
                        organization only to facilitate 
                        marketing of, and enrollment of part D 
                        eligible individuals in, prescription 
                        drug plans and MA-PD plans.
            ``(5) Reference to enrollment procedures for ma-pd 
        plans.--For rules applicable to enrollment, 
        disenrollment, termination, and change of enrollment of 
        part D eligible individuals in MA-PD plans, see section 
        1851.
            ``(6) Reference to penalties for late enrollment.--
        Section 1860D-13(b) imposes a late enrollment penalty 
        for part D eligible individuals who--
                    ``(A) enroll in a prescription drug plan or 
                an MA-PD plan after the initial enrollment 
                period described in paragraph (2); and
                    ``(B) fail to maintain continuous 
                creditable prescription drug coverage during 
                the period of non-enrollment.
    ``(c) Providing Information to Beneficiaries.--
            ``(1) Activities.--The Secretary shall conduct 
        activities that are designed to broadly disseminate 
        information to part D eligible individuals (and 
        prospective part D eligible individuals) regarding the 
        coverage provided under this part. Such activities 
        shall ensure that such information is first made 
        available at least 30 days prior to the initial 
        enrollment period described in subsection (b)(2)(A).
            ``(2) Requirements.--The activities described in 
        paragraph (1) shall--
                    ``(A) be similar to the activities 
                performed by the Secretary under section 
                1851(d), including dissemination (including 
                through the toll-free telephone number 1-800-
                MEDICARE) of comparative information for 
                prescription drug plans and MA-PD plans; and
                    ``(B) be coordinated with the activities 
                performed by the Secretary under such section 
                and under section 1804.
            ``(3) Comparative information.--
                    ``(A) In general.--Subject to subparagraph 
                (B), the comparative information referred to in 
                paragraph (2)(A) shall include a comparison of 
                the following with respect to qualified 
                prescription drug coverage:
                            ``(i) Benefits.--The benefits 
                        provided under the plan.
                            ``(ii) Monthly beneficiary 
                        premium.--The monthly beneficiary 
                        premium under the plan.
                            ``(iii) Quality and performance.--
                        The quality and performance under the 
                        plan.
                            ``(iv) Beneficiary cost-sharing.--
                        The cost-sharing required of part D 
                        eligible individuals under the plan.
                            ``(v) Consumer satisfaction 
                        surveys.--The results of consumer 
                        satisfaction surveys regarding the plan 
                        conducted pursuant to section 1860D-
                        4(d).
                    ``(B) Exception for unavailability of 
                information.--The Secretary is not required to 
                provide comparative information under clauses 
                (iii) and (v) of subparagraph (A) with respect 
                to a plan--
                            ``(i) for the first plan year in 
                        which it is offered; and
                            ``(ii) for the next plan year if it 
                        is impracticable or the information is 
                        otherwise unavailable.
            ``(4) Information on late enrollment penalty.--The 
        information disseminated under paragraph (1) shall 
        include information concerning the methodology for 
        determining the late enrollment penalty under section 
        1860D-13(b).

                      ``PRESCRIPTION DRUG BENEFITS

    ``Sec. 1860D-2. (a) Requirements.--
            ``(1) In general.--For purposes of this part and 
        part C, the term `qualified prescription drug coverage' 
        means either of the following:
                    ``(A) Standard prescription drug coverage 
                with access to negotiated prices.--Standard 
                prescription drug coverage (as defined in 
                subsection (b)) and access to negotiated prices 
                under subsection (d).
                    ``(B) Alternative prescription drug 
                coverage with at least actuarially equivalent 
                benefits and access to negotiated prices.--
                Coverage of covered part D drugs which meets 
                the alternative prescription drug coverage 
                requirements of subsection (c) and access to 
                negotiated prices under subsection (d), but 
                only if the benefit design of such coverage is 
                approved by the Secretary, as provided under 
                subsection (c).
            ``(2) Permitting supplemental prescription drug 
        coverage.--
                    ``(A) In general.--Subject to subparagraph 
                (B), qualified prescription drug coverage may 
                include supplemental prescription drug coverage 
                consisting of either or both of the following:
                            ``(i) Certain reductions in cost-
                        sharing.--
                                    ``(I) In general.--A 
                                reduction in the annual 
                                deductible, a reduction in the 
                                coinsurance percentage, or an 
                                increase in the initial 
                                coverage limit with respect to 
                                covered part D drugs, or any 
                                combination thereof, insofar as 
                                such a reduction or increase 
                                increases the actuarial value 
                                of benefits above the actuarial 
                                value of basic prescription 
                                drug coverage.
                                    ``(II) Construction.--
                                Nothing in this paragraph shall 
                                be construed as affecting the 
                                application of subsection 
                                (c)(3).
                            ``(ii) Optional drugs.--Coverage of 
                        any product that would be a covered 
                        part D drug but for the application of 
                        subsection (e)(2)(A).
                    ``(B) Requirement.--A PDP sponsor may not 
                offer a prescription drug plan that provides 
                supplemental prescription drug coverage 
                pursuant to subparagraph (A) in an area unless 
                the sponsor also offers a prescription drug 
                plan in the area that only provides basic 
                prescription drug coverage.
            ``(3) Basic prescription drug coverage.--For 
        purposes of this part and part C, the term `basic 
        prescription drug coverage' means either of the 
        following:
                    ``(A) Coverage that meets the requirements 
                of paragraph (1)(A).
                    ``(B) Coverage that meets the requirements 
                of paragraph (1)(B) but does not have any 
                supplemental prescription drug coverage 
                described in paragraph (2)(A).
            ``(4) Application of secondary payor provisions.--
        The provisions of section 1852(a)(4) shall apply under 
        this part in the same manner as they apply under part 
        C.
            ``(5) Construction.--Nothing in this subsection 
        shall be construed as changing the computation of 
        incurred costs under subsection (b)(4).
    ``(b) Standard Prescription Drug Coverage.--For purposes of 
this part and part C, the term `standard prescription drug 
coverage' means coverage of covered part D drugs that meets the 
following requirements:
            ``(1) Deductible.--
                    ``(A) In general.--The coverage has an 
                annual deductible--
                            ``(i) for 2006, that is equal to 
                        $250; or
                            ``(ii) for a subsequent year, that 
                        is equal to the amount specified under 
                        this paragraph for the previous year 
                        increased by the percentage specified 
                        in paragraph (6) for the year involved.
                    ``(B) Rounding.--Any amount determined 
                under subparagraph (A)(ii) that is not a 
                multiple of $5 shall be rounded to the nearest 
                multiple of $5.
            ``(2) Benefit structure.--
                    ``(A) 25 percent coinsurance.--The coverage 
                has coinsurance (for costs above the annual 
                deductible specified in paragraph (1) and up to 
                the initial coverage limit under paragraph (3)) 
                that is--
                            ``(i) equal to 25 percent; or
                            ``(ii) actuarially equivalent 
                        (using processes and methods 
                        established under section 1860D-11(c)) 
                        to an average expected payment of 25 
                        percent of such costs.
                    ``(B) Use of tiers.--Nothing in this part 
                shall be construed as preventing a PDP sponsor 
                or an MA organization from applying tiered 
                copayments under a plan, so long as such tiered 
                copayments are consistent with subparagraph 
                (A)(ii).
            ``(3) Initial coverage limit.--
                    ``(A) In general.--Except as provided in 
                paragraph (4), the coverage has an initial 
                coverage limit on the maximum costs that may be 
                recognized for payment purposes (including the 
                annual deductible)--
                            ``(i) for 2006, that is equal to 
                        $2,250; or
                            ``(ii) for a subsequent year, that 
                        is equal to the amount specified in 
                        this paragraph for the previous year, 
                        increased by the annual percentage 
                        increase described in paragraph (6) for 
                        the year involved.
                    ``(B) Rounding.--Any amount determined 
                under subparagraph (A)(ii) that is not a 
                multiple of $10 shall be rounded to the nearest 
                multiple of $10.
            ``(4) Protection against high out-of-pocket 
        expenditures.--
                    ``(A) In general.--
                            ``(i) In general.--The coverage 
                        provides benefits, after the part D 
                        eligible individual has incurred costs 
                        (as described in subparagraph (C)) for 
                        covered part D drugs in a year equal to 
                        the annual out-of-pocket threshold 
                        specified in subparagraph (B), with 
                        cost-sharing that is equal to the 
                        greater of--
                                    ``(I) a copayment of $2 for 
                                a generic drug or a preferred 
                                drug that is a multiple source 
                                drug (as defined in section 
                                1927(k)(7)(A)(i)) and $5 for 
                                any other drug; or
                                    ``(II) coinsurance that is 
                                equal to 5 percent.
                            ``(ii) Adjustment of amount.--For a 
                        year after 2006, the dollar amounts 
                        specified in clause (i)(I) shall be 
                        equal to the dollar amounts specified 
                        in this subparagraph for the previous 
                        year, increased by the annual 
                        percentage increase described in 
                        paragraph (6) for the year involved. 
                        Any amount established under this 
                        clause that is not a multiple of a 5 
                        cents shall be rounded to the nearest 
                        multiple of 5 cents.
                    ``(B) Annual out-of-pocket threshold.--
                            ``(i) In general.--For purposes of 
                        this part, the `annual out-of-pocket 
                        threshold' specified in this 
                        subparagraph--
                                    ``(I) for 2006, is equal to 
                                $3,600; or
                                    ``(II) for a subsequent 
                                year, is equal to the amount 
                                specified in this subparagraph 
                                for the previous year, 
                                increased by the annual 
                                percentage increase described 
                                in paragraph (6) for the year 
                                involved.
                            ``(ii) Rounding.--Any amount 
                        determined under clause (i)(II) that is 
                        not a multiple of $50 shall be rounded 
                        to the nearest multiple of $50.
                    ``(C) Application.--In applying 
                subparagraph (A)--
                            ``(i) incurred costs shall only 
                        include costs incurred with respect to 
                        covered part D drugs for the annual 
                        deductible described in paragraph (1), 
                        for cost-sharing described in paragraph 
                        (2), and for amounts for which benefits 
                        are not provided because of the 
                        application of the initial coverage 
                        limit described in paragraph (3), but 
                        does not include any costs incurred for 
                        covered part D drugs which are not 
                        included (or treated as being included) 
                        in the plan's formulary; and
                            ``(ii) such costs shall be treated 
                        as incurred only if they are paid by 
                        the part D eligible individual (or by 
                        another person, such as a family 
                        member, on behalf of the individual), 
                        under section 1860D-14, or under a 
                        State Pharmaceutical Assistance Program 
                        and the part D eligible individual (or 
                        other person) is not reimbursed through 
                        insurance or otherwise, a group health 
                        plan, or other third-party payment 
                        arrangement (other than under such 
                        section or such a Program) for such 
                        costs.
                    ``(D) Information regarding third-party 
                reimbursement.--
                            ``(i) Procedures for exchanging 
                        information.--In order to accurately 
                        apply the requirements of subparagraph 
                        (C)(ii), the Secretary is authorized to 
                        establish procedures, in coordination 
                        with the Secretary of the Treasury and 
                        the Secretary of Labor--
                                    ``(I) for determining 
                                whether costs for part D 
                                eligible individuals are being 
                                reimbursed through insurance or 
                                otherwise, a group health plan, 
                                or other third-party payment 
                                arrangement; and
                                    ``(II) for alerting the PDP 
                                sponsors and MA organizations 
                                that offer the prescription 
                                drug plans and MA-PD plans in 
                                which such individuals are 
                                enrolled about such 
                                reimbursement arrangements.
                            ``(ii) Authority to request 
                        information from enrollees.--A PDP 
                        sponsor or an MA organization may 
                        periodically ask part D eligible 
                        individuals enrolled in a prescription 
                        drug plan or an MA-PD plan offered by 
                        the sponsor or organization whether 
                        such individuals have or expect to 
                        receive such third-party reimbursement. 
                        A material misrepresentation of the 
                        information described in the preceding 
                        sentence by an individual (as defined 
                        in standards set by the Secretary and 
                        determined through a process 
                        established by the Secretary) shall 
                        constitute grounds for termination of 
                        enrollment in any plan under section 
                        1851(g)(3)(B) (and as applied under 
                        this part under section 1860D-
                        1(b)(1)(B)(v)) for a period specified 
                        by the Secretary.
            ``(5) Construction.--Nothing in this part shall be 
        construed as preventing a PDP sponsor or an MA 
        organization offering an MA-PD plan from reducing to 0 
        the cost-sharing otherwise applicable to preferred or 
        generic drugs.
            ``(6) Annual percentage increase.--The annual 
        percentage increase specified in this paragraph for a 
        year is equal to the annual percentage increase in 
        average per capita aggregate expenditures for covered 
        part D drugs in the United States for part D eligible 
        individuals, as determined by the Secretary for the 12-
        month period ending in July of the previous year using 
        such methods as the Secretary shall specify.
    ``(c) Alternative Prescription Drug Coverage 
Requirements.--A prescription drug plan or an MA-PD plan may 
provide a different prescription drug benefit design from 
standard prescription drug coverage so long as the Secretary 
determines (consistent with section 1860D-11(c)) that the 
following requirements are met and the plan applies for, and 
receives, the approval of the Secretary for such benefit 
design:
            ``(1) Assuring at least actuarially equivalent 
        coverage.--
                    ``(A) Assuring equivalent value of total 
                coverage.--The actuarial value of the total 
                coverage is at least equal to the actuarial 
                value of standard prescription drug coverage.
                    ``(B) Assuring equivalent unsubsidized 
                value of coverage.--The unsubsidized value of 
                the coverage is at least equal to the 
                unsubsidized value of standard prescription 
                drug coverage. For purposes of this 
                subparagraph, the unsubsidized value of 
                coverage is the amount by which the actuarial 
                value of the coverage exceeds the actuarial 
                value of the subsidy payments under section 
                1860D-15 with respect to such coverage.
                    ``(C) Assuring standard payment for costs 
                at initial coverage limit.--The coverage is 
                designed, based upon an actuarially 
                representative pattern of utilization, to 
                provide for the payment, with respect to costs 
                incurred that are equal to the initial coverage 
                limit under subsection (b)(3) for the year, of 
                an amount equal to at least the product of--
                            ``(i) the amount by which the 
                        initial coverage limit described in 
                        subsection (b)(3) for the year exceeds 
                        the deductible described in subsection 
                        (b)(1) for the year; and
                            ``(ii) 100 percent minus the 
                        coinsurance percentage specified in 
                        subsection (b)(2)(A)(i).
            ``(2) Maximum required deductible.--The deductible 
        under the coverage shall not exceed the deductible 
        amount specified under subsection (b)(1) for the year.
            ``(3) Same protection against high out-of-pocket 
        expenditures.--The coverage provides the coverage 
        required under subsection (b)(4).
    ``(d) Access to Negotiated Prices.--
            ``(1) Access.--
                    ``(A) In general.--Under qualified 
                prescription drug coverage offered by a PDP 
                sponsor offering a prescription drug plan or an 
                MA organization offering an MA-PD plan, the 
                sponsor or organization shall provide enrollees 
                with access to negotiated prices used for 
                payment for covered part D drugs, regardless of 
                the fact that no benefits may be payable under 
                the coverage with respect to such drugs because 
                of the application of a deductible or other 
                cost-sharing or an initial coverage limit 
                (described in subsection (b)(3)).
                    ``(B) Negotiated prices.--For purposes of 
                this part, negotiated prices shall take into 
                account negotiated price concessions, such as 
                discounts, direct or indirect subsidies, 
                rebates, and direct or indirect remunerations, 
                for covered part D drugs, and include any 
                dispensing fees for such drugs.
                    ``(C) Medicaid-related provisions.--The 
                prices negotiated by a prescription drug plan, 
                by an MA-PD plan with respect to covered part D 
                drugs, or by a qualified retiree prescription 
                drug plan (as defined in section 1860D-
                22(a)(2)) with respect to such drugs on behalf 
                of part D eligible individuals, shall 
                (notwithstanding any other provision of law) 
                not be taken into account for the purposes of 
                establishing the best price under section 
                1927(c)(1)(C).
            ``(2) Disclosure.--A PDP sponsor offering a 
        prescription drug plan or an MA organization offering 
        an MA-PD plan shall disclose to the Secretary (in a 
        manner specified by the Secretary) the aggregate 
        negotiated price concessions described in paragraph 
        (1)(B) made available to the sponsor or organization by 
        a manufacturer which are passed through in the form of 
        lower subsidies, lower monthly beneficiary prescription 
        drug premiums, and lower prices through pharmacies and 
        other dispensers. The provisions of section 
        1927(b)(3)(D) apply to information disclosed to the 
        Secretary under this paragraph.
            ``(3) Audits.--To protect against fraud and abuse 
        and to ensure proper disclosures and accounting under 
        this part and in accordance with section 1857(d)(2)(B) 
        (as applied under section 1860D-12(b)(3)(C)), the 
        Secretary may conduct periodic audits, directly or 
        through contracts, of the financial statements and 
        records of PDP sponsors with respect to prescription 
        drug plans and MA organizations with respect to MA-PD 
        plans.
    ``(e) Covered Part D Drug Defined.--
            ``(1) In general.--Except as provided in this 
        subsection, for purposes of this part, the term 
        `covered part D drug' means--
                    ``(A) a drug that may be dispensed only 
                upon a prescription and that is described in 
                subparagraph (A)(i), (A)(ii), or (A)(iii) of 
                section 1927(k)(2); or
                    ``(B) a biological product described in 
                clauses (i) through (iii) of subparagraph (B) 
                of such section or insulin described in 
                subparagraph (C) of such section and medical 
                supplies associated with the injection of 
                insulin (as defined in regulations of the 
                Secretary),
        and such term includes a vaccine licensed under section 
        351 of the Public Health Service Act and any use of a 
        covered part D drug for a medically accepted indication 
        (as defined in section 1927(k)(6)).
            ``(2) Exclusions.--
                    ``(A) In general.--Such term does not 
                include drugs or classes of drugs, or their 
                medical uses, which may be excluded from 
                coverage or otherwise restricted under section 
                1927(d)(2), other than subparagraph (E) of such 
                section (relating to smoking cessation agents), 
                or under section 1927(d)(3).
                    ``(B) Medicare covered drugs.--A drug 
                prescribed for a part D eligible individual 
                that would otherwise be a covered part D drug 
                under this part shall not be so considered if 
                payment for such drug as so prescribed and 
                dispensed or administered with respect to that 
                individual is available (or would be available 
                but for the application of a deductible) under 
                part A or B for that individual.
            ``(3) Application of general exclusion 
        provisions.--A prescription drug plan or an MA-PD plan 
        may exclude from qualified prescription drug coverage 
        any covered part D drug--
                    ``(A) for which payment would not be made 
                if section 1862(a) applied to this part; or
                    ``(B) which is not prescribed in accordance 
                with the plan or this part.
        Such exclusions are determinations subject to 
        reconsideration and appeal pursuant to subsections (g) 
        and (h), respectively, of section 1860D-4.

      ``ACCESS TO A CHOICE OF QUALIFIED PRESCRIPTION DRUG COVERAGE

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

   ``BENEFICIARY PROTECTIONS FOR QUALIFIED PRESCRIPTION DRUG COVERAGE

    ``Sec. 1860D-4. (a) Dissemination of Information.--
            ``(1) General information.--
                    ``(A) Application of ma information.--A PDP 
                sponsor shall disclose, in a clear, accurate, 
                and standardized form to each enrollee with a 
                prescription drug plan offered by the sponsor 
                under this part at the time of enrollment and 
                at least annually thereafter, the information 
                described in section 1852(c)(1) relating to 
                such plan, insofar as the Secretary determines 
                appropriate with respect to benefits provided 
                under this part, and including the information 
                described in subparagraph (B).
                    ``(B) Drug specific information.--The 
                information described in this subparagraph is 
                information concerning the following:
                            ``(i) Access to specific covered 
                        part D drugs, including access through 
                        pharmacy networks.
                            ``(ii) How any formulary (including 
                        any tiered formulary structure) used by 
                        the sponsor functions, including a 
                        description of how a part D eligible 
                        individual may obtain information on 
                        the formulary consistent with paragraph 
                        (3).
                            ``(iii) Beneficiary cost-sharing 
                        requirements and how a part D eligible 
                        individual may obtain information on 
                        such requirements, including tiered or 
                        other copayment level applicable to 
                        each drug (or class of drugs), 
                        consistent with paragraph (3).
                            ``(iv) The medication therapy 
                        management program required under 
                        subsection (c).
            ``(2) Disclosure upon request of general coverage, 
        utilization, and grievance information.--Upon request 
        of a part D eligible individual who is eligible to 
        enroll in a prescription drug plan, the PDP sponsor 
        offering such plan shall provide information similar 
        (as determined by the Secretary) to the information 
        described in subparagraphs (A), (B), and (C) of section 
        1852(c)(2) to such individual.
            ``(3) Provision of specific information.--
                    ``(A) Response to beneficiary questions.--
                Each PDP sponsor offering a prescription drug 
                plan shall have a mechanism for providing 
                specific information on a timely basis to 
                enrollees upon request. Such mechanism shall 
                include access to information through the use 
                of a toll-free telephone number and, upon 
                request, the provision of such information in 
                writing.
                    ``(B) Availability of information on 
                changes in formulary through the internet.--A 
                PDP sponsor offering a prescription drug plan 
                shall make available on a timely basis through 
                an Internet website information on specific 
                changes in the formulary under the plan 
                (including changes to tiered or preferred 
                status of covered part D drugs).
            ``(4) Claims information.--A PDP sponsor offering a 
        prescription drug plan must furnish to each enrollee in 
        a form easily understandable to such enrollees--
                    ``(A) an explanation of benefits (in 
                accordance with section 1806(a) or in a 
                comparable manner); and
                    ``(B) when prescription drug benefits are 
                provided under this part, a notice of the 
                benefits in relation to--
                            ``(i) the initial coverage limit 
                        for the current year; and
                            ``(ii) the annual out-of-pocket 
                        threshold for the current year.
                Notices under subparagraph (B) need not be 
                provided more often than as specified by the 
                Secretary and notices under subparagraph 
                (B)(ii) shall take into account the application 
                of section 1860D-2(b)(4)(C) to the extent 
                practicable, as specified by the Secretary.
    ``(b) Access to Covered Part D Drugs.--
            ``(1) Assuring pharmacy access.--
                    ``(A) Participation of any willing 
                pharmacy.--A prescription drug plan shall 
                permit the participation of any pharmacy that 
                meets the terms and conditions under the plan.
                    ``(B) Discounts allowed for network 
                pharmacies.--For covered part D drugs dispensed 
                through in-network pharmacies, a prescription 
                drug plan may, notwithstanding subparagraph 
                (A), reduce coinsurance or copayments for part 
                D eligible individuals enrolled in the plan 
                below the level otherwise required. In no case 
                shall such a reduction result in an increase in 
                payments made by the Secretary under section 
                1860D-15 to a plan.
                    ``(C) Convenient access for network 
                pharmacies.--
                            ``(i) In general.--The PDP sponsor 
                        of the prescription drug plan shall 
                        secure the participation in its network 
                        of a sufficient number of pharmacies 
                        that dispense (other than by mail 
                        order) drugs directly to patients to 
                        ensure convenient access (consistent 
                        with rules established by the 
                        Secretary).
                            ``(ii) Application of tricare 
                        standards.--The Secretary shall 
                        establish rules for convenient access 
                        to in-network pharmacies under this 
                        subparagraph that are no less favorable 
                        to enrollees than the rules for 
                        convenient access to pharmacies 
                        included in the statement of work of 
                        solicitation (#MDA906-03-R-0002) of the 
                        Department of Defense under the TRICARE 
                        Retail Pharmacy (TRRx) as of March 13, 
                        2003.
                            ``(iii) Adequate emergency 
                        access.--Such rules shall include 
                        adequate emergency access for 
                        enrollees.
                            ``(iv) Convenient access in long-
                        term care facilities.--Such rules may 
                        include standards with respect to 
                        access for enrollees who are residing 
                        in long-term care facilities and for 
                        pharmacies operated by the Indian 
                        Health Service, Indian tribes and 
                        tribal organizations, and urban Indian 
                        organizations (as defined in section 4 
                        of the Indian Health Care Improvement 
                        Act).
                    ``(D) Level playing field.--Such a sponsor 
                shall permit enrollees to receive benefits 
                (which may include a 90-day supply of drugs or 
                biologicals) through a pharmacy (other than a 
                mail order pharmacy), with any differential in 
                charge paid by such enrollees.
                    ``(E)  Not required to accept insurance 
                risk.--The terms and conditions under 
                subparagraph (A) may not require participating 
                pharmacies to accept insurance risk as a 
                condition of participation.
            ``(2) Use of standardized technology.--
                    ``(A) In general.--The PDP sponsor of a 
                prescription drug plan shall issue (and 
                reissue, as appropriate) such a card (or other 
                technology) that may be used by an enrollee to 
                assure access to negotiated prices under 
                section 1860D-2(d).
                    ``(B) Standards.--
                            ``(i) In general.--The Secretary 
                        shall provide for the development, 
                        adoption, or recognition of standards 
                        relating to a standardized format for 
                        the card or other technology required 
                        under subparagraph (A). Such standards 
                        shall be compatible with part C of 
                        title XI and may be based on standards 
                        developed by an appropriate standard 
                        setting organization.
                            ``(ii) Consultation.--In developing 
                        the standards under clause (i), the 
                        Secretary shall consult with the 
                        National Council for Prescription Drug 
                        Programs and other standard setting 
                        organizations determined appropriate by 
                        the Secretary.
                            ``(iii) Implementation.--The 
                        Secretary shall develop, adopt, or 
                        recognize the standards under clause 
                        (i) by such date as the Secretary 
                        determines shall be sufficient to 
                        ensure that PDP sponsors utilize such 
                        standards beginning January 1, 2006.
            ``(3) Requirements on development and application 
        of formularies.--If a PDP sponsor of a prescription 
        drug plan uses a formulary (including the use of tiered 
        cost-sharing), the following requirements must be met:
                    ``(A) Development and revision by a 
                pharmacy and therapeutic (p&t) committee.--
                            ``(i) In general.--The formulary 
                        must be developed and reviewed by a 
                        pharmacy and therapeutic committee. A 
                        majority of the members of such 
                        committee shall consist of individuals 
                        who are practicing physicians or 
                        practicing pharmacists (or both).
                            ``(ii) Inclusion of independent 
                        experts.--Such committee shall include 
                        at least one practicing physician and 
                        at least one practicing pharmacist, 
                        each of whom--
                                    ``(I) is independent and 
                                free of conflict with respect 
                                to the sponsor and plan; and
                                    ``(II) has expertise in the 
                                care of elderly or disabled 
                                persons.
                    ``(B) Formulary development.--In developing 
                and reviewing the formulary, the committee 
                shall--
                            ``(i) base clinical decisions on 
                        the strength of scientific evidence and 
                        standards of practice, including 
                        assessing peer-reviewed medical 
                        literature, such as randomized clinical 
                        trials, pharmacoeconomic studies, 
                        outcomes research data, and on such 
                        other information as the committee 
                        determines to be appropriate; and
                            ``(ii) take into account whether 
                        including in the formulary (or in a 
                        tier in such formulary) particular 
                        covered part D drugs has therapeutic 
                        advantages in terms of safety and 
                        efficacy.
                    ``(C) Inclusion of drugs in all therapeutic 
                categories and classes.--
                            ``(i) In general.--The formulary 
                        must include drugs within each 
                        therapeutic category and class of 
                        covered part D drugs, although not 
                        necessarily all drugs within such 
                        categories and classes.
                            ``(ii) Model guidelines.--The 
                        Secretary shall request the United 
                        States Pharmacopeia to develop, in 
                        consultation with pharmaceutical 
                        benefit managers and other interested 
                        parties, a list of categories and 
                        classes that may be used by 
                        prescription drug plans under this 
                        paragraph and to revise such 
                        classification from time to time to 
                        reflect changes in therapeutic uses of 
                        covered part D drugs and the additions 
                        of new covered part D drugs.
                            ``(iii) Limitation on changes in 
                        therapeutic classification.--The PDP 
                        sponsor of a prescription drug plan may 
                        not change the therapeutic categories 
                        and classes in a formulary other than 
                        at the beginning of each plan year 
                        except as the Secretary may permit to 
                        take into account new therapeutic uses 
                        and newly approved covered part D 
                        drugs.
                    ``(D) Provider and patient education.--The 
                PDP sponsor shall establish policies and 
                procedures to educate and inform health care 
                providers and enrollees concerning the 
                formulary.
                    ``(E) Notice before removing drug from 
                formulary or changing preferred or tier status 
                of drug.--Any removal of a covered part D drug 
                from a formulary and any change in the 
                preferred or tiered cost-sharing status of such 
                a drug shall take effect only after appropriate 
                notice is made available (such as under 
                subsection (a)(3)) to the Secretary, affected 
                enrollees, physicians, pharmacies, and 
                pharmacists.
                    ``(F) Periodic evaluation of protocols.--In 
                connection with the formulary, the sponsor of a 
                prescription drug plan shall provide for the 
                periodic evaluation and analysis of treatment 
                protocols and procedures.
        The requirements of this paragraph may be met by a PDP 
        sponsor directly or through arrangements with another 
        entity.
    ``(c) Cost and Utilization Management; Quality Assurance; 
Medication Therapy Management Program.--
            ``(1) In general.--The PDP sponsor shall have in 
        place, directly or through appropriate arrangements, 
        with respect to covered part D drugs, the following:
                    ``(A) A cost-effective drug utilization 
                management program, including incentives to 
                reduce costs when medically appropriate, such 
                as through the use of multiple source drugs (as 
                defined in section 1927(k)(7)(A)(i)).
                    ``(B) Quality assurance measures and 
                systems to reduce medication errors and adverse 
                drug interactions and improve medication use.
                    ``(C) A medication therapy management 
                program described in paragraph (2).
                    ``(D) A program to control fraud, abuse, 
                and waste.
        Nothing in this section shall be construed as impairing 
        a PDP sponsor from utilizing cost management tools 
        (including differential payments) under all methods of 
        operation.
            ``(2) Medication therapy management program.--
                    ``(A) Description.--
                            ``(i) In general.--A medication 
                        therapy management program described in 
                        this paragraph is a program of drug 
                        therapy management that may be 
                        furnished by a pharmacist and that is 
                        designed to assure, with respect to 
                        targeted beneficiaries described in 
                        clause (ii), that covered part D drugs 
                        under the prescription drug plan are 
                        appropriately used to optimize 
                        therapeutic outcomes through improved 
                        medication use, and to reduce the risk 
                        of adverse events, including adverse 
                        drug interactions. Such a program may 
                        distinguish between services in 
                        ambulatory and institutional settings.
                            ``(ii) Targeted beneficiaries 
                        described.--Targeted beneficiaries 
                        described in this clause are part D 
                        eligible individuals who--
                                    ``(I) have multiple chronic 
                                diseases (such as diabetes, 
                                asthma, hypertension, 
                                hyperlipidemia, and congestive 
                                heart failure);
                                    ``(II) are taking multiple 
                                covered part D drugs; and
                                    ``(III) are identified as 
                                likely to incur annual costs 
                                for covered part D drugs that 
                                exceed a level specified by the 
                                Secretary.
                    ``(B) Elements.--Such program may include 
                elements that promote--
                            ``(i) enhanced enrollee 
                        understanding to promote the 
                        appropriate use of medications by 
                        enrollees and to reduce the risk of 
                        potential adverse events associated 
                        with medications, through beneficiary 
                        education, counseling, and other 
                        appropriate means;
                            ``(ii) increased enrollee adherence 
                        with prescription medication regimens 
                        through medication refill reminders, 
                        special packaging, and other compliance 
                        programs and other appropriate means; 
                        and
                            ``(iii) detection of adverse drug 
                        events and patterns of overuse and 
                        underuse of prescription drugs.
                    ``(C) Development of program in cooperation 
                with licensed pharmacists.--Such program shall 
                be developed in cooperation with licensed and 
                practicing pharmacists and physicians.
                    ``(D) Coordination with care management 
                plans.--The Secretary shall establish 
                guidelines for the coordination of any 
                medication therapy management program under 
                this paragraph with respect to a targeted 
                beneficiary with any care management plan 
                established with respect to such beneficiary 
                under a chronic care improvement program under 
                section 1807.
                    ``(E) Considerations in pharmacy fees.--The 
                PDP sponsor of a prescription drug plan shall 
                take into account, in establishing fees for 
                pharmacists and others providing services under 
                such plan, the resources used, and time 
                required to, implement the medication therapy 
                management program under this paragraph. Each 
                such sponsor shall disclose to the Secretary 
                upon request the amount of any such management 
                or dispensing fees. The provisions of section 
                1927(b)(3)(D) apply to information disclosed 
                under this subparagraph.
    ``(d) Consumer Satisfaction Surveys.--In order to provide 
for comparative information under section 1860D-1(c)(3)(A)(v), 
the Secretary shall conduct consumer satisfaction surveys with 
respect to PDP sponsors and prescription drug plans in a manner 
similar to the manner such surveys are conducted for MA 
organizations and MA plans under part C.
    ``(e) Electronic Prescription Program.--
            ``(1) Application of standards.--As of such date as 
        the Secretary may specify, but not later than 1 year 
        after the date of promulgation of final standards under 
        paragraph (4)(D), prescriptions and other information 
        described in paragraph (2)(A) for covered part D drugs 
        prescribed for part D eligible individuals that are 
        transmitted electronically shall be transmitted only in 
        accordance with such standards under an electronic 
        prescription drug program that meets the requirements 
        of paragraph (2).
            ``(2) Program requirements.--Consistent with 
        uniform standards established under paragraph (3)--
                    ``(A) Provision of information to 
                prescribing health care professional and 
                dispensing pharmacies and pharmacists.--An 
                electronic prescription drug program shall 
                provide for the electronic transmittal to the 
                prescribing health care professional and to the 
                dispensing pharmacy and pharmacist of the 
                prescription and information on eligibility and 
                benefits (including the drugs included in the 
                applicable formulary, any tiered formulary 
                structure, and any requirements for prior 
                authorization) and of the following information 
                with respect to the prescribing and dispensing 
                of a covered part D drug:
                            ``(i) Information on the drug being 
                        prescribed or dispensed and other drugs 
                        listed on the medication history, 
                        including information on drug-drug 
                        interactions, warnings or cautions, 
                        and, when indicated, dosage 
                        adjustments.
                            ``(ii) Information on the 
                        availability of lower cost, 
                        therapeutically appropriate 
                        alternatives (if any) for the drug 
                        prescribed.
                    ``(B) Application to medical history 
                information.--Effective on and after such date 
                as the Secretary specifies and after the 
                establishment of appropriate standards to carry 
                out this subparagraph, the program shall 
                provide for the electronic transmittal in a 
                manner similar to the manner under subparagraph 
                (A) of information that relates to the medical 
                history concerning the individual and related 
                to a covered part D drug being prescribed or 
                dispensed, upon request of the professional or 
                pharmacist involved.
                    ``(C) Limitations.--Information shall only 
                be disclosed under subparagraph (A) or (B) if 
                the disclosure of such information is permitted 
                under the Federal regulations (concerning the 
                privacy of individually identifiable health 
                information) promulgated under section 264(c) 
                of the Health Insurance Portability and 
                Accountability Act of 1996.
                    ``(D) Timing.--To the extent feasible, the 
                information exchanged under this paragraph 
                shall be on an interactive, real-time basis.
            ``(3) Standards.--
                    ``(A) In general.--The Secretary shall 
                provide consistent with this subsection for the 
                promulgation of uniform standards relating to 
                the requirements for electronic prescription 
                drug programs under paragraph (2).
                    ``(B) Objectives.--Such standards shall be 
                consistent with the objectives of improving--
                            ``(i) patient safety;
                            ``(ii) the quality of care provided 
                        to patients; and
                            ``(iii) efficiencies, including 
                        cost savings, in the delivery of care.
                    ``(C) Design criteria.--Such standards 
                shall--
                            ``(i) be designed so that, to the 
                        extent practicable, the standards do 
                        not impose an undue administrative 
                        burden on prescribing health care 
                        professionals and dispensing pharmacies 
                        and pharmacists;
                            ``(ii) be compatible with standards 
                        established under part C of title XI, 
                        standards established under subsection 
                        (b)(2)(B)(i), and with general health 
                        information technology standards; and
                            ``(iii) be designed so that they 
                        permit electronic exchange of drug 
                        labeling and drug listing information 
                        maintained by the Food and Drug 
                        Administration and the National Library 
                        of Medicine.
                    ``(D) Permitting use of appropriate 
                messaging.--Such standards shall allow for the 
                messaging of information only if it relates to 
                the appropriate prescribing of drugs, including 
                quality assurance measures and systems referred 
                to in subsection (c)(1)(B).
                    ``(E) Permitting patient designation of 
                dispensing pharmacy.--
                            ``(i) In general.--Consistent with 
                        clause (ii), such standards shall 
                        permit a part D eligible individual to 
                        designate a particular pharmacy to 
                        dispense a prescribed drug.
                            ``(ii) No change in benefits.--
                        Clause (i) shall not be construed as 
                        affecting--
                                    ``(I) the access required 
                                to be provided to pharmacies by 
                                a prescription drug plan; or
                                    ``(II) the application of 
                                any differences in benefits or 
                                payments under such a plan 
                                based on the pharmacy 
                                dispensing a covered part D 
                                drug.
            ``(4) Development, promulgation, and modification 
        of standards.--
                    ``(A) Initial standards.--Not later than 
                September 1, 2005, the Secretary shall develop, 
                adopt, recognize, or modify initial uniform 
                standards relating to the requirements for 
                electronic prescription drug programs described 
                in paragraph (2) taking into consideration the 
                recommendations (if any) from the National 
                Committee on Vital and Health Statistics (as 
                established under section 306(k) of the Public 
                Health Service Act (42 U.S.C. 242k(k))) under 
                subparagraph (B).
                    ``(B) Role of ncvhs.--The National 
                Committee on Vital and Health Statistics shall 
                develop recommendations for uniform standards 
                relating to such requirements in consultation 
                with the following:
                            ``(i) Standard setting 
                        organizations (as defined in section 
                        1171(8))
                            ``(ii) Practicing physicians.
                            ``(iii) Hospitals.
                            ``(iv) Pharmacies.
                            ``(v) Practicing pharmacists.
                            ``(vi) Pharmacy benefit managers.
                            ``(vii) State boards of pharmacy.
                            ``(viii) State boards of medicine.
                            ``(ix) Experts on electronic 
                        prescribing.
                            ``(x) Other appropriate Federal 
                        agencies.
                    ``(C) Pilot project to test initial 
                standards.--
                            ``(i) In general.--During the 1-
                        year period that begins on January 1, 
                        2006, the Secretary shall conduct a 
                        pilot project to test the initial 
                        standards developed under subparagraph 
                        (A) prior to the promulgation of the 
                        final uniform standards under 
                        subparagraph (D) in order to provide 
                        for the efficient implementation of the 
                        requirements described in paragraph 
                        (2).
                            ``(ii) Exception.--Pilot testing of 
                        standards is not required under clause 
                        (i) where there already is adequate 
                        industry experience with such 
                        standards, as determined by the 
                        Secretary after consultation with 
                        effected standard setting organizations 
                        and industry users.
                            ``(iii) Voluntary participation of 
                        physicians and pharmacies.--In order to 
                        conduct the pilot project under clause 
                        (i), the Secretary shall enter into 
                        agreements with physicians, physician 
                        groups, pharmacies, hospitals, PDP 
                        sponsors, MA organizations, and other 
                        appropriate entities under which health 
                        care professionals electronically 
                        transmit prescriptions to dispensing 
                        pharmacies and pharmacists in 
                        accordance with such standards.
                            ``(iv) Evaluation and report.--
                                    ``(I) Evaluation.--The 
                                Secretary shall conduct an 
                                evaluation of the pilot project 
                                conducted under clause (i).
                                    ``(II) Report to 
                                congress.--Not later than April 
                                1, 2007, the Secretary shall 
                                submit to Congress a report on 
                                the evaluation conducted under 
                                subclause (I).
                    ``(D) Final standards.--Based upon the 
                evaluation of the pilot project under 
                subparagraph (C)(iv)(I) and not later than 
                April 1, 2008, the Secretary shall promulgate 
                uniform standards relating to the requirements 
                described in paragraph (2).
            ``(5) Relation to state laws.--The standards 
        promulgated under this subsection shall supersede any 
        State law or regulation that--
                    ``(A) is contrary to the standards or 
                restricts the ability to carry out this part; 
                and
                    ``(B) pertains to the electronic 
                transmission of medication history and of 
                information on eligibility, benefits, and 
                prescriptions with respect to covered part D 
                drugs under this part.
            ``(6) Establishment of safe harbor.--The Secretary, 
        in consultation with the Attorney General, shall 
        promulgate regulations that provide for a safe harbor 
        from sanctions under paragraphs (1) and (2) of section 
        1128B(b) and an exception to the prohibition under 
        subsection (a)(1) of section 1877 with respect to the 
        provision of nonmonetary remuneration (in the form of 
        hardware, software, or information technology and 
        training services) necessary and used solely to receive 
        and transmit electronic prescription information in 
        accordance with the standards promulgated under this 
        subsection--
                    ``(A) in the case of a hospital, by the 
                hospital to members of its medical staff;
                    ``(B) in the case of a group practice (as 
                defined in section 1877(h)(4)), by the practice 
                to prescribing health care professionals who 
                are members of such practice; and
                    ``(C) in the case of a PDP sponsor or MA 
                organization, by the sponsor or organization to 
                pharmacists and pharmacies participating in the 
                network of such sponsor or organization, and to 
                prescribing health care professionals.
    ``(f) Grievance Mechanism.--Each PDP sponsor shall provide 
meaningful procedures for hearing and resolving grievances 
between the sponsor (including any entity or individual through 
which the sponsor provides covered benefits) and enrollees with 
prescription drug plans of the sponsor under this part in 
accordance with section 1852(f).
    ``(g) Coverage Determinations and Reconsiderations.--
            ``(1) Application of coverage determination and 
        reconsideration provisions.--A PDP sponsor shall meet 
        the requirements of paragraphs (1) through (3) of 
        section 1852(g) with respect to covered benefits under 
        the prescription drug plan it offers under this part in 
        the same manner as such requirements apply to an MA 
        organization with respect to benefits it offers under 
        an MA plan under part C.
            ``(2) Request for a determination for the treatment 
        of tiered formulary drug.--In the case of a 
        prescription drug plan offered by a PDP sponsor that 
        provides for tiered cost-sharing for drugs included 
        within a formulary and provides lower cost-sharing for 
        preferred drugs included within the formulary, a part D 
        eligible individual who is enrolled in the plan may 
        request an exception to the tiered cost-sharing 
        structure. Under such an exception, a nonpreferred drug 
        could be covered under the terms applicable for 
        preferred drugs if the prescribing physician determines 
        that the preferred drug for treatment of the same 
        condition either would not be as effective for the 
        individual or would have adverse effects for the 
        individual or both. A PDP sponsor shall have an 
        exceptions process under this paragraph consistent with 
        guidelines established by the Secretary for making a 
        determination with respect to such a request. Denial of 
        such an exception shall be treated as a coverage denial 
        for purposes of applying subsection (h).
    ``(h) Appeals.--
            ``(1) In general.--Subject to paragraph (2), a PDP 
        sponsor shall meet the requirements of paragraphs (4) 
        and (5) of section 1852(g) with respect to benefits 
        (including a determination related to the application 
        of tiered cost-sharing described in subsection (g)(2)) 
        in a manner similar (as determined by the Secretary) to 
        the manner such requirements apply to an MA 
        organization with respect to benefits under the 
        original medicare fee-for-service program option it 
        offers under an MA plan under part C. In applying this 
        paragraph only the part D eligible individual shall be 
        entitled to bring such an appeal.
            ``(2) Limitation in cases on nonformulary 
        determinations.--A part D eligible individual who is 
        enrolled in a prescription drug plan offered by a PDP 
        sponsor may appeal under paragraph (1) a determination 
        not to provide for coverage of a covered part D drug 
        that is not on the formulary under the plan only if the 
        prescribing physician determines that all covered part 
        D drugs on any tier of the formulary for treatment of 
        the same condition would not be as effective for the 
        individual as the nonformulary drug, would have adverse 
        effects for the individual, or both.
            ``(3) Treatment of nonformulary determinations.--If 
        a PDP sponsor determines that a plan provides coverage 
        for a covered part D drug that is not on the formulary 
        of the plan, the drug shall be treated as being 
        included on the formulary for purposes of section 
        1860D-2(b)(4)(C)(i).
    ``(i) Privacy, Confidentiality, and Accuracy of Enrollee 
Records.--The provisions of section 1852(h) shall apply to a 
PDP sponsor and prescription drug plan in the same manner as it 
applies to an MA organization and an MA plan.
    ``(j) Treatment of Accreditation.--Subparagraph (A) of 
section 1852(e)(4) (relating to treatment of accreditation) 
shall apply to a PDP sponsor under this part with respect to 
the following requirements, in the same manner as it applies to 
an MA organization with respect to the requirements in 
subparagraph (B) (other than clause (vii) thereof) of such 
section:
            ``(1) Subsection (b) of this section (relating to 
        access to covered part D drugs).
            ``(2) Subsection (c) of this section (including 
        quality assurance and medication therapy management).
            ``(3) Subsection (i) of this section (relating to 
        confidentiality and accuracy of enrollee records).
    ``(k) Public Disclosure of Pharmaceutical Prices for 
Equivalent Drugs.--
            ``(1) In general.--A PDP sponsor offering a 
        prescription drug plan shall provide that each pharmacy 
        that dispenses a covered part D drug shall inform an 
        enrollee of any differential between the price of the 
        drug to the enrollee and the price of the lowest priced 
        generic covered part D drug under the plan that is 
        therapeutically equivalent and bioequivalent and 
        available at such pharmacy.
            ``(2) Timing of notice.--
                    ``(A) In general.--Subject to subparagraph 
                (B), the information under paragraph (1) shall 
                be provided at the time of purchase of the drug 
                involved, or, in the case of dispensing by mail 
                order, at the time of delivery of such drug.
                    ``(B) Waiver.--The Secretary may waive 
                subparagraph (A) in such circumstances as the 
                Secretary may specify.

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

            ``PDP REGIONS; SUBMISSION OF BIDS; PLAN APPROVAL

    ``Sec. 1860D-11. (a) Establishment of PDP Regions; Service 
Areas.--
            ``(1) Coverage of entire pdp region.--The service 
        area for a prescription drug plan shall consist of an 
        entire PDP region established under paragraph (2).
            ``(2) Establishment of pdp regions.--
                    ``(A) In general.--The Secretary shall 
                establish, and may revise, PDP regions in a 
                manner that is consistent with the requirements 
                for the establishment and revision of MA 
                regions under subparagraphs (B) and (C) of 
                section 1858(a)(2).
                    ``(B) Relation to ma regions.--To the 
                extent practicable, PDP regions shall be the 
                same as MA regions under section 1858(a)(2). 
                The Secretary may establish PDP regions which 
                are not the same as MA regions if the Secretary 
                determines that the establishment of different 
                regions under this part would improve access to 
                benefits under this part.
                    ``(C) Authority for territories.--The 
                Secretary shall establish, and may revise, PDP 
                regions for areas in States that are not within 
                the 50 States or the District of Columbia.
            ``(3) National plan.--Nothing in this subsection 
        shall be construed as preventing a prescription drug 
        plan from being offered in more than one PDP region 
        (including all PDP regions).
    ``(b) Submission of Bids, Premiums, and Related 
Information.--
            ``(1) In general.--A PDP sponsor shall submit to 
        the Secretary information described in paragraph (2) 
        with respect to each prescription drug plan it offers. 
        Such information shall be submitted at the same time 
        and in a similar manner to the manner in which 
        information described in paragraph (6) of section 
        1854(a) is submitted by an MA organization under 
        paragraph (1) of such section.
            ``(2) Information described.--The information 
        described in this paragraph is information on the 
        following:
                    ``(A) Coverage provided.--The prescription 
                drug coverage provided under the plan, 
                including the deductible and other cost-
                sharing.
                    ``(B) Actuarial value.--The actuarial value 
                of the qualified prescription drug coverage in 
                the region for a part D eligible individual 
                with a national average risk profile for the 
                factors described in section 1860D-15(c)(1)(A) 
                (as specified by the Secretary).
                    ``(C) Bid.--Information on the bid, 
                including an actuarial certification of--
                            ``(i) the basis for the actuarial 
                        value described in subparagraph (B) 
                        assumed in such bid;
                            ``(ii) the portion of such bid 
                        attributable to basic prescription drug 
                        coverage and, if applicable, the 
                        portion of such bid attributable to 
                        supplemental benefits;
                            ``(iii) assumptions regarding the 
                        reinsurance subsidy payments provided 
                        under section 1860D-15(b) subtracted 
                        from the actuarial value to produce 
                        such bid; and
                            ``(iv) administrative expenses 
                        assumed in the bid.
                    ``(D) Service area.--The service area for 
                the plan.
                    ``(E) Level of risk assumed.--
                            ``(i) In general.--Whether the PDP 
                        sponsor requires a modification of risk 
                        level under clause (ii) and, if so, the 
                        extent of such modification. Any such 
                        modification shall apply with respect 
                        to all prescription drug plans offered 
                        by a PDP sponsor in a PDP region. This 
                        subparagraph shall not apply to an MA-
                        PD plan.
                            ``(ii) Risk levels described.--A 
                        modification of risk level under this 
                        clause may consist of one or more of 
                        the following:
                                    ``(I) Increase in federal 
                                percentage assumed in initial 
                                risk corridor.--An equal 
                                percentage point increase in 
                                the percents applied under 
                                subparagraphs (B)(i), 
                                (B)(ii)(I), (C)(i), and 
                                (C)(ii)(I) of section 1860D-
                                15(e)(2). In no case shall the 
                                application of previous 
                                sentence prevent the 
                                application of a higher 
                                percentage under section 1869D-
                                15(e)(2)(B)(iii).
                                    ``(II) Increase in federal 
                                percentage assumed in second 
                                risk corridor.--An equal 
                                percentage point increase in 
                                the percents applied under 
                                subparagraphs (B)(ii)(II) and 
                                (C)(ii)(II) of section 1860D-
                                15(e)(2).
                                    ``(III) Decrease in size of 
                                risk corridors.--A decrease in 
                                the threshold risk percentages 
                                specified in section 1860D-
                                15(e)(3)(C).
                    ``(F) Additional information.--Such other 
                information as the Secretary may require to 
                carry out this part.
            ``(3) Paperwork reduction for offering of 
        prescription drug plans nationally or in multi-region 
        areas.--The Secretary shall establish requirements for 
        information submission under this subsection in a 
        manner that promotes the offering of such plans in more 
        than one PDP region (including all regions) through the 
        filing of consolidated information.
    ``(c) Actuarial Valuation.--
            ``(1) Processes.--For purposes of this part, the 
        Secretary shall establish processes and methods for 
        determining the actuarial valuation of prescription 
        drug coverage, including--
                    ``(A) an actuarial valuation of standard 
                prescription drug coverage under section 1860D-
                2(b);
                    ``(B) actuarial valuations relating to 
                alternative prescription drug coverage under 
                section 1860D-2(c)(1);
                    ``(C) an actuarial valuation of the 
                reinsurance subsidy payments under section 
                1860D-15(b);
                    ``(D) the use of generally accepted 
                actuarial principles and methodologies; and
                    ``(E) applying the same methodology for 
                determinations of actuarial valuations under 
                subparagraphs (A) and (B).
            ``(2) Accounting for drug utilization.--Such 
        processes and methods for determining actuarial 
        valuation shall take into account the effect that 
        providing alternative prescription drug coverage 
        (rather than standard prescription drug coverage) has 
        on drug utilization.
            ``(3) Responsibilities.--
                    ``(A) Plan responsibilities.--PDP sponsors 
                and MA organizations are responsible for the 
                preparation and submission of actuarial 
                valuations required under this part for 
                prescription drug plans and MA-PD plans they 
                offer.
                    ``(B) Use of outside actuaries.--Under the 
                processes and methods established under 
                paragraph (1), PDP sponsors offering 
                prescription drug plans and MA organizations 
                offering MA-PD plans may use actuarial opinions 
                certified by independent, qualified actuaries 
                to establish actuarial values.
    ``(d) Review of Information and Negotiation.--
            ``(1) Review of information.--The Secretary shall 
        review the information filed under subsection (b) for 
        the purpose of conducting negotiations under paragraph 
        (2).
            ``(2) Negotiation regarding terms and conditions.--
        Subject to subsection (i), in exercising the authority 
        under paragraph (1), the Secretary--
                    ``(A) has the authority to negotiate the 
                terms and conditions of the proposed bid 
                submitted and other terms and conditions of a 
                proposed plan; and
                    ``(B) has authority similar to the 
                authority of the Director of the Office of 
                Personnel Management with respect to health 
                benefits plans under chapter 89 of title 5, 
                United States Code.
    ``(e) Approval of Proposed Plans.--
            ``(1) In general.--After review and negotiation 
        under subsection (d), the Secretary shall approve or 
        disapprove the prescription drug plan.
            ``(2) Requirements for approval.--The Secretary may 
        approve a prescription drug plan only if the following 
        requirements are met:
                    ``(A) Compliance with requirements.--The 
                plan and the PDP sponsor offering the plan 
                comply with the requirements under this part, 
                including the provision of qualified 
                prescription drug coverage.
                    ``(B) Actuarial determinations.--The 
                Secretary determines that the plan and PDP 
                sponsor meet the requirements under this part 
                relating to actuarial determinations, including 
                such requirements under section 1860D-2(c).
                    ``(C) Application of fehbp standard.--
                            ``(i) In general.--The Secretary 
                        determines that the portion of the bid 
                        submitted under subsection (b) that is 
                        attributable to basic prescription drug 
                        coverage is supported by the actuarial 
                        bases provided under such subsection 
                        and reasonably and equitably reflects 
                        the revenue requirements (as used for 
                        purposes of section 1302(8)(C) of the 
                        Public Health Service Act) for benefits 
                        provided under that plan, less the sum 
                        (determined on a monthly per capita 
                        basis) of the actuarial value of the 
                        reinsurance payments under section 
                        1860D-15(b).
                            ``(ii) Supplemental coverage.--The 
                        Secretary determines that the portion 
                        of the bid submitted under subsection 
                        (b) that is attributable to 
                        supplemental prescription drug coverage 
                        pursuant to section 1860D-2(a)(2) is 
                        supported by the actuarial bases 
                        provided under such subsection and 
                        reasonably and equitably reflects the 
                        revenue requirements (as used for 
                        purposes of section 1302(8)(C) of the 
                        Public Health Service Act) for such 
                        coverage under the plan.
                    ``(D) Plan design.--
                            ``(i) In general.--The Secretary 
                        does not find that the design of the 
                        plan and its benefits (including any 
                        formulary and tiered formulary 
                        structure) are likely to substantially 
                        discourage enrollment by certain part D 
                        eligible individuals under the plan.
                            ``(ii) Use of categories and 
                        classes in formularies.--The Secretary 
                        may not find that the design of 
                        categories and classes within a 
                        formulary violates clause (i) if such 
                        categories and classes are consistent 
                        with guidelines (if any) for such 
                        categories and classes established by 
                        the United States Pharmacopeia.
    ``(f) Application of Limited Risk Plans.--
            ``(1) Conditions for approval of limited risk 
        plans.--The Secretary may only approve a limited risk 
        plan (as defined in paragraph (4)(A)) for a PDP region 
        if the access requirements under section 1860D-3(a) 
        would not be met for the region but for the approval of 
        such a plan (or a fallback prescription drug plan under 
        subsection (g)).
            ``(2) Rules.--The following rules shall apply with 
        respect to the approval of a limited risk plan in a PDP 
        region:
                    ``(A) Limited exercise of authority.--Only 
                the minimum number of such plans may be 
                approved in order to meet the access 
                requirements under section 1860D-3(a).
                    ``(B) Maximizing assumption of risk.--The 
                Secretary shall provide priority in approval 
                for those plans bearing the highest level of 
                risk (as computed by the Secretary), but the 
                Secretary may take into account the level of 
                the bids submitted by such plans.
                    ``(C) No full underwriting for limited risk 
                plans.--In no case may the Secretary approve a 
                limited risk plan under which the modification 
                of risk level provides for no (or a de minimis) 
                level of financial risk.
            ``(3) Acceptance of all full risk contracts.--There 
        shall be no limit on the number of full risk plans that 
        are approved under subsection (e).
            ``(4) Risk-plans defined.--For purposes of this 
        subsection:
                    ``(A) Limited risk plan.--The term `limited 
                risk plan' means a prescription drug plan that 
                provides basic prescription drug coverage and 
                for which the PDP sponsor includes a 
                modification of risk level described in 
                subparagraph (E) of subsection (b)(2) in its 
                bid submitted for the plan under such 
                subsection. Such term does not include a 
                fallback prescription drug plan.
                    ``(B) Full risk plan.--The term `full risk 
                plan' means a prescription drug plan that is 
                not a limited risk plan or a fallback 
                prescription drug plan.
    ``(g) Guaranteeing Access to Coverage.--
            ``(1) Solicitation of bids.--
                    ``(A) In general.--Separate from the 
                bidding process under subsection (b), the 
                Secretary shall provide for a process for the 
                solicitation of bids from eligible fallback 
                entities (as defined in paragraph (2)) for the 
                offering in all fallback service areas (as 
                defined in paragraph (3)) in one or more PDP 
                regions of a fallback prescription drug plan 
                (as defined in paragraph (4)) during the 
                contract period specified in paragraph (5)).
                    ``(B) Acceptance of bids.--
                            ``(i) In general.--Except as 
                        provided in this subparagraph, the 
                        provisions of subsection (e) shall 
                        apply with respect to the approval or 
                        disapproval of fallback prescription 
                        drug plans. The Secretary shall enter 
                        into contracts under this subsection 
                        with eligible fallback entities for the 
                        offering of fallback prescription drug 
                        plans so approved in fallback service 
                        areas.
                            ``(ii) Limitation of 1 plan for all 
                        fallback service areas in a pdp 
                        region.--With respect to all fallback 
                        service areas in any PDP region for a 
                        contract period, the Secretary shall 
                        approve the offering of only 1 fallback 
                        prescription drug plan.
                            ``(iii) Competitive procedures.--
                        Competitive procedures (as defined in 
                        section 4(5) of the Office of Federal 
                        Procurement Policy Act (41 U.S.C. 
                        403(5))) shall be used to enter into a 
                        contract under this subsection. The 
                        provisions of subsection (d) of section 
                        1874A shall apply to a contract under 
                        this section in the same manner as they 
                        apply to a contract under such section.
                            ``(iv) Timing.--The Secretary shall 
                        approve a fallback prescription drug 
                        plan for a PDP region in a manner so 
                        that, if there are any fallback service 
                        areas in the region for a year, the 
                        fallback prescription drug plan is 
                        offered at the same time as 
                        prescription drug plans would otherwise 
                        be offered.
                            ``(v) No national fallback plan.--
                        The Secretary shall not enter into a 
                        contract with a single fallback entity 
                        for the offering of fallback plans 
                        throughout the United States.
            ``(2) Eligible fallback entity.--For purposes of 
        this section, the term `eligible fallback entity' 
        means, with respect to all fallback service areas in a 
        PDP region for a contract period, an entity that--
                    ``(A) meets the requirements to be a PDP 
                sponsor (or would meet such requirements but 
                for the fact that the entity is not a risk-
                bearing entity); and
                    ``(B) does not submit a bid under section 
                1860D-11(b) for any prescription drug plan for 
                any PDP region for the first year of such 
                contract period.
        For purposes of subparagraph (B), an entity shall be 
        treated as submitting a bid with respect to a 
        prescription drug plan if the entity is acting as a 
        subcontractor of a PDP sponsor that is offering such a 
        plan. The previous sentence shall not apply to entities 
        that are subcontractors of an MA organization except 
        insofar as such organization is acting as a PDP sponsor 
        with respect to a prescription drug plan.
            ``(3) Fallback service area.--For purposes of this 
        subsection, the term `fallback service area' means, for 
        a PDP region with respect to a year, any area within 
        such region for which the Secretary determines before 
        the beginning of the year that the access requirements 
        of the first sentence of section 1860D-3(a) will not be 
        met for part D eligible individuals residing in the 
        area for the year.
            ``(4) Fallback prescription drug plan.--For 
        purposes of this part, the term `fallback prescription 
        drug plan' means a prescription drug plan that--
                    ``(A) only offers the standard prescription 
                drug coverage and access to negotiated prices 
                described in section 1860D-2(a)(1)(A) and does 
                not include any supplemental prescription drug 
                coverage; and
                    ``(B) meets such other requirements as the 
                Secretary may specify.
            ``(5) Payments under the contract.--
                    ``(A) In general.--A contract entered into 
                under this subsection shall provide for--
                            ``(i) payment for the actual costs 
                        (taking into account negotiated price 
                        concessions described in section 1860D-
                        2(d)(1)(B)) of covered part D drugs 
                        provided to part D eligible individuals 
                        enrolled in a fallback prescription 
                        drug plan offered by the entity; and
                            ``(ii) payment of management fees 
                        that are tied to performance measures 
                        established by the Secretary for the 
                        management, administration, and 
                        delivery of the benefits under the 
                        contract.
                    ``(B) Performance measures.--The 
                performance measures established by the 
                Secretary pursuant to subparagraph (A)(ii) 
                shall include at least measures for each of the 
                following:
                            ``(i) Costs.--The entity contains 
                        costs to the Medicare Prescription Drug 
                        Account and to part D eligible 
                        individuals enrolled in a fallback 
                        prescription drug plan offered by the 
                        entity through mechanisms such as 
                        generic substitution and price 
                        discounts.
                            ``(ii) Quality programs.--The 
                        entity provides such enrollees with 
                        quality programs that avoid adverse 
                        drug reactions and overutilization and 
                        reduce medical errors.
                            ``(iii) Customer service.--The 
                        entity provides timely and accurate 
                        delivery of services and pharmacy and 
                        beneficiary support services.
                            ``(iv) Benefit administration and 
                        claims adjudication.--The entity 
                        provides efficient and effective 
                        benefit administration and claims 
                        adjudication.
            ``(6) Monthly beneficiary premium.--Except as 
        provided in section 1860D-13(b) (relating to late 
        enrollment penalty) and subject to section 1860D-14 
        (relating to low-income assistance), the monthly 
        beneficiary premium to be charged under a fallback 
        prescription drug plan offered in all fallback service 
        areas in a PDP region shall be uniform and shall be 
        equal to 25.5 percent of an amount equal to the 
        Secretary's estimate of the average monthly per capita 
        actuarial cost, including administrative expenses, 
        under the fallback prescription drug plan of providing 
        coverage in the region, as calculated by the Chief 
        Actuary of the Centers for Medicare & Medicaid 
        Services. In calculating such administrative expenses, 
        the Chief Actuary shall use a factor that is based on 
        similar expenses of prescription drug plans that are 
        not fallback prescription drug plans.
            ``(7) General contract terms and conditions.--
                    ``(A) In general.--Except as may be 
                appropriate to carry out this section, the 
                terms and conditions of contracts with eligible 
                fallback entities offering fallback 
                prescription drug plans under this subsection 
                shall be the same as the terms and conditions 
                of contracts under this part for prescription 
                drug plans.
                    ``(B) Period of contract.--
                            ``(i) In general.--Subject to 
                        clause (ii), a contract approved for a 
                        fallback prescription drug plan for 
                        fallback service areas for a PDP region 
                        under this section shall be for a 
                        period of 3 years (except as may be 
                        renewed after a subsequent bidding 
                        process).
                            ``(ii) Limitation.--A fallback 
                        prescription drug plan may be offered 
                        under a contract in an area for a year 
                        only if that area is a fallback service 
                        area for that year.
                    ``(C) Entity not permitted to market or 
                brand fallback prescription drug plans.--An 
                eligible fallback entity with a contract under 
                this subsection may not engage in any marketing 
                or branding of a fallback prescription drug 
                plan.
    ``(h) Annual Report on Use of Limited Risk Plans and 
Fallback Plans.--The Secretary shall submit to Congress an 
annual report that describes instances in which limited risk 
plans and fallback prescription drug plans were offered under 
subsections (f) and (g). The Secretary shall include in such 
report such recommendations as may be appropriate to limit the 
need for the provision of such plans and to maximize the 
assumption of financial risk under subsection (f).
    ``(i) Noninterference.--In order to promote competition 
under this part and in carrying out this part, the Secretary--
            ``(1) may not interfere with the negotiations 
        between drug manufacturers and pharmacies and PDP 
        sponsors; and
            ``(2) may not require a particular formulary or 
        institute a price structure for the reimbursement of 
        covered part D drugs.
    ``(j) Coordination of Benefits.--A PDP sponsor offering a 
prescription drug plan shall permit State Pharmaceutical 
Assistance Programs and Rx plans under sections 1860D-23 and 
1860D-24 to coordinate benefits with the plan and, in 
connection with such coordination with such a Program, not to 
impose fees that are unrelated to the cost of coordination.

  ``REQUIREMENTS FOR AND CONTRACTS WITH PRESCRIPTION DRUG PLAN (PDP) 
                                SPONSORS

    ``Sec. 1860D-12. (a) General Requirements.--Each PDP 
sponsor of a prescription drug plan shall meet the following 
requirements:
            ``(1) Licensure.--Subject to subsection (c), the 
        sponsor is organized and licensed under State law as a 
        risk-bearing entity eligible to offer health insurance 
        or health benefits coverage in each State in which it 
        offers a prescription drug plan.
            ``(2) Assumption of financial risk for unsubsidized 
        coverage.--
                    ``(A) In general.--Subject to subparagraph 
                (B), to the extent that the entity is at risk 
                the entity assumes financial risk on a 
                prospective basis for benefits that it offers 
                under a prescription drug plan and that is not 
                covered under section 1860D-15(b).
                    ``(B) Reinsurance permitted.--The plan 
                sponsor may obtain insurance or make other 
                arrangements for the cost of coverage provided 
                to any enrollee to the extent that the sponsor 
                is at risk for providing such coverage.
            ``(3) Solvency for unlicensed sponsors.--In the 
        case of a PDP sponsor that is not described in 
        paragraph (1) and for which a waiver has been approved 
        under subsection (c), such sponsor shall meet solvency 
        standards established by the Secretary under subsection 
        (d).
    ``(b) Contract Requirements.--
            ``(1) In general.--The Secretary shall not permit 
        the enrollment under section 1860D-1 in a prescription 
        drug plan offered by a PDP sponsor under this part, and 
        the sponsor shall not be eligible for payments under 
        section 1860D-14 or 1860D-15, unless the Secretary has 
        entered into a contract under this subsection with the 
        sponsor with respect to the offering of such plan. Such 
        a contract with a sponsor may cover more than one 
        prescription drug plan. Such contract shall provide 
        that the sponsor agrees to comply with the applicable 
        requirements and standards of this part and the terms 
        and conditions of payment as provided for in this part.
            ``(2) Limitation on entities offering fallback 
        prescription drug plans.--The Secretary shall not enter 
        into a contract with a PDP sponsor for the offering of 
        a prescription drug plan (other than a fallback 
        prescription drug plan) in a PDP region for a year if 
        the sponsor--
                    ``(A) submitted a bid under section 1860D-
                11(g) for such year (as the first year of a 
                contract period under such section) to offer a 
                fallback prescription drug plan in any PDP 
                region;
                    ``(B) offers a fallback prescription drug 
                plan in any PDP region during the year; or
                    ``(C) offered a fallback prescription drug 
                plan in that PDP region during the previous 
                year.
        For purposes of this paragraph, an entity shall be 
        treated as submitting a bid with respect to a 
        prescription drug plan or offering a fallback 
        prescription drug plan if the entity is acting as a 
        subcontractor of a PDP sponsor that is offering such a 
        plan. The previous sentence shall not apply to entities 
        that are subcontractors of an MA organization except 
        insofar as such organization is acting as a PDP sponsor 
        with respect to a prescription drug plan.
            ``(3) Incorporation of certain medicare advantage 
        contract requirements.--Except as otherwise provided, 
        the following provisions of section 1857 shall apply to 
        contracts under this section in the same manner as they 
        apply to contracts under section 1857(a):
                    ``(A) Minimum enrollment.--Paragraphs (1) 
                and (3) of section 1857(b), except that--
                            ``(i) the Secretary may increase 
                        the minimum number of enrollees 
                        required under such paragraph (1) as 
                        the Secretary determines appropriate; 
                        and
                            ``(ii) the requirement of such 
                        paragraph (1) shall be waived during 
                        the first contract year with respect to 
                        an organization in a region.
                    ``(B) Contract period and effectiveness.--
                Section 1857(c), except that in applying 
                paragraph (4)(B) of such section any reference 
                to payment amounts under section 1853 shall be 
                deemed payment amounts under section 1860D-15.
                    ``(C) Protections against fraud and 
                beneficiary protections.--Section 1857(d).
                    ``(D) Additional contract terms.--Section 
                1857(e); except that section 1857(e)(2) shall 
                apply as specified to PDP sponsors and payments 
                under this part to an MA-PD plan shall be 
                treated as expenditures made under part D.
                    ``(E) Intermediate sanctions.--Section 
                1857(g) (other than paragraph (1)(F) of such 
                section), except that in applying such section 
                the reference in section 1857(g)(1)(B) to 
                section 1854 is deemed a reference to this 
                part.
                    ``(F) Procedures for termination.--Section 
                1857(h).
    ``(c) Waiver of Certain Requirements To Expand Choice.--
            ``(1) Authorizing waiver.--
                    ``(A) In general.--In the case of an entity 
                that seeks to offer a prescription drug plan in 
                a State, the Secretary shall waive the 
                requirement of subsection (a)(1) that the 
                entity be licensed in that State if the 
                Secretary determines, based on the application 
                and other evidence presented to the Secretary, 
                that any of the grounds for approval of the 
                application described in paragraph (2) have 
                been met.
                    ``(B) Application of regional plan waiver 
                rule.--In addition to the waiver available 
                under subparagraph (A), the provisions of 
                section 1858(d) shall apply to PDP sponsors 
                under this part in a manner similar to the 
                manner in which such provisions apply to MA 
                organizations under part C, except that no 
                application shall be required under paragraph 
                (1)(B) of such section in the case of a State 
                that does not provide a licensing process for 
                such a sponsor.
            ``(2) Grounds for approval.--
                    ``(A) In general.--The grounds for approval 
                under this paragraph are--
                            ``(i) subject to subparagraph (B), 
                        the grounds for approval described in 
                        subparagraphs (B), (C), and (D) of 
                        section 1855(a)(2); and
                            ``(ii) the application by a State 
                        of any grounds other than those 
                        required under Federal law.
                    ``(B) Special rules.--In applying 
                subparagraph (A)(i)--
                            ``(i) the ground of approval 
                        described in section 1855(a)(2)(B) is 
                        deemed to have been met if the State 
                        does not have a licensing process in 
                        effect with respect to the PDP sponsor; 
                        and
                            ``(ii) for plan years beginning 
                        before January 1, 2008, if the State 
                        does have such a licensing process in 
                        effect, such ground for approval 
                        described in such section is deemed to 
                        have been met upon submission of an 
                        application described in such section.
            ``(3) Application of waiver procedures.--With 
        respect to an application for a waiver (or a waiver 
        granted) under paragraph (1)(A) of this subsection, the 
        provisions of subparagraphs (E), (F), and (G) of 
        section 1855(a)(2) shall apply, except that clauses (i) 
        and (ii) of such subparagraph (E) shall not apply in 
        the case of a State that does not have a licensing 
        process described in paragraph (2)(B)(i) in effect.
            ``(4) References to certain provisions.--In 
        applying provisions of section 1855(a)(2) under 
        paragraphs (2) and (3) of this subsection to 
        prescription drug plans and PDP sponsors--
                    ``(A) any reference to a waiver application 
                under section 1855 shall be treated as a 
                reference to a waiver application under 
                paragraph (1)(A) of this subsection; and
                    ``(B) any reference to solvency standards 
                shall be treated as a reference to solvency 
                standards established under subsection (d) of 
                this section.
    ``(d) Solvency Standards for Non-Licensed Entities.--
            ``(1) Establishment and publication.--The 
        Secretary, in consultation with the National 
        Association of Insurance Commissioners, shall establish 
        and publish, by not later than January 1, 2005, 
        financial solvency and capital adequacy standards for 
        entities described in paragraph (2).
            ``(2) Compliance with standards.--A PDP sponsor 
        that is not licensed by a State under subsection (a)(1) 
        and for which a waiver application has been approved 
        under subsection (c) shall meet solvency and capital 
        adequacy standards established under paragraph (1). The 
        Secretary shall establish certification procedures for 
        such sponsors with respect to such solvency standards 
        in the manner described in section 1855(c)(2).
    ``(e) Licensure Does Not Substitute for or Constitute 
Certification.--The fact that a PDP sponsor is licensed in 
accordance with subsection (a)(1) or has a waiver application 
approved under subsection (c) does not deem the sponsor to meet 
other requirements imposed under this part for a sponsor.
    ``(f) Periodic Review and Revision of Standards.--
            ``(1) In general.--Subject to paragraph (2), the 
        Secretary may periodically review the standards 
        established under this section and, based on such 
        review, may revise such standards if the Secretary 
        determines such revision to be appropriate.
            ``(2) Prohibition of midyear implementation of 
        significant new regulatory requirements.--The Secretary 
        may not implement, other than at the beginning of a 
        calendar year, regulations under this section that 
        impose new, significant regulatory requirements on a 
        PDP sponsor or a prescription drug plan.
    ``(g) Prohibition of State Imposition of Premium Taxes; 
Relation to State Laws.--The provisions of sections 1854(g) and 
1856(b)(3) shall apply with respect to PDP sponsors and 
prescription drug plans under this part in the same manner as 
such sections apply to MA organizations and MA plans under part 
C.

                  ``PREMIUMS; LATE ENROLLMENT PENALTY

    ``Sec. 1860D-13. (a) Monthly Beneficiary Premium.--
            ``(1) Computation.--
                    ``(A) In general.--The monthly beneficiary 
                premium for a prescription drug plan is the 
                base beneficiary premium computed under 
                paragraph (2) as adjusted under this paragraph.
                    ``(B) Adjustment to reflect difference 
                between bid and national average bid.--
                            ``(i) Above average bid.--If for a 
                        month the amount of the standardized 
                        bid amount (as defined in paragraph 
                        (5)) exceeds the amount of the adjusted 
                        national average monthly bid amount (as 
                        defined in clause (iii)), the base 
                        beneficiary premium for the month shall 
                        be increased by the amount of such 
                        excess.
                            ``(ii) Below average bid.--If for a 
                        month the amount of the adjusted 
                        national average monthly bid amount for 
                        the month exceeds the standardized bid 
                        amount, the base beneficiary premium 
                        for the month shall be decreased by the 
                        amount of such excess.
                            ``(iii) Adjusted national average 
                        monthly bid amount defined.--For 
                        purposes of this subparagraph, the term 
                        `adjusted national average monthly bid 
                        amount' means the national average 
                        monthly bid amount computed under 
                        paragraph (4), as adjusted under 
                        section 1860D-15(c)(2).
                    ``(C) Increase for supplemental 
                prescription drug benefits.--The base 
                beneficiary premium shall be increased by the 
                portion of the PDP approved bid that is 
                attributable to supplemental prescription drug 
                benefits.
                    ``(D) Increase for late enrollment 
                penalty.--The base beneficiary premium shall be 
                increased by the amount of any late enrollment 
                penalty under subsection (b).
                    ``(E) Decrease for low-income assistance.--
                The monthly beneficiary premium is subject to 
                decrease in the case of a subsidy eligible 
                individual under section 1860D-14.
                    ``(F) Uniform premium.--Except as provided 
                in subparagraphs (D) and (E), the monthly 
                beneficiary premium for a prescription drug 
                plan in a PDP region is the same for all part D 
                eligible individuals enrolled in the plan.
            ``(2) Base beneficiary premium.--The base 
        beneficiary premium under this paragraph for a 
        prescription drug plan for a month is equal to the 
        product--
                    ``(A) the beneficiary premium percentage 
                (as specified in paragraph (3)); and
                    ``(B) the national average monthly bid 
                amount (computed under paragraph (4)) for the 
                month.
            ``(3) Beneficiary premium percentage.--For purposes 
        of this subsection, the beneficiary premium percentage 
        for any year is the percentage equal to a fraction--
                    ``(A) the numerator of which is 25.5 
                percent; and
                    ``(B) the denominator of which is 100 
                percent minus a percentage equal to--
                            ``(i) the total reinsurance 
                        payments which the Secretary estimates 
                        are payable under section 1860D-15(b) 
                        with respect to the coverage year; 
                        divided by
                            ``(ii) the sum of--
                                    ``(I) the amount estimated 
                                under clause (i) for the year; 
                                and
                                    ``(II) the total payments 
                                which the Secretary estimates 
                                will be paid to prescription 
                                drug plans and MA-PD plans that 
                                are attributable to the 
                                standardized bid amount during 
                                the year, taking into account 
                                amounts paid by the Secretary 
                                and enrollees.
            ``(4) Computation of national average monthly bid 
        amount.--
                    ``(A) In general.--For each year (beginning 
                with 2006) the Secretary shall compute a 
                national average monthly bid amount equal to 
                the average of the standardized bid amounts (as 
                defined in paragraph (5)) for each prescription 
                drug plan and for each MA-PD plan described in 
                section 1851(a)(2)(A)(i). Such average does not 
                take into account the bids submitted for MSA 
                plans, MA private fee-for-service plan, and 
                specialized MA plans for special needs 
                individuals, PACE programs under section 1894 
                (pursuant to section 1860D-21(f)), and under 
                reasonable cost reimbursement contracts under 
                section 1876(h) (pursuant to section 1860D-
                21(e)).
                    ``(B) Weighted average.--
                            ``(i) In general.--The monthly 
                        national average monthly bid amount 
                        computed under subparagraph (A) for a 
                        year shall be a weighted average, with 
                        the weight for each plan being equal to 
                        the average number of part D eligible 
                        individuals enrolled in such plan in 
                        the reference month (as defined in 
                        section 1858(f)(4)).
                            ``(ii) Special rule for 2006.--For 
                        purposes of applying this paragraph for 
                        2006, the Secretary shall establish 
                        procedures for determining the weighted 
                        average under clause (i) for 2005.
            ``(5) Standardized bid amount defined.--For 
        purposes of this subsection, the term `standardized bid 
        amount' means the following:
                    ``(A) Prescription drug plans.--
                            ``(i) Basic coverage.--In the case 
                        of a prescription drug plan that 
                        provides basic prescription drug 
                        coverage, the PDP approved bid (as 
                        defined in paragraph (6)).
                            ``(ii) Supplemental coverage.--In 
                        the case of a prescription drug plan 
                        that provides supplemental prescription 
                        drug coverage, the portion of the PDP 
                        approved bid that is attributable to 
                        basic prescription drug coverage.
                    ``(B) MA-PD plans.--In the case of an MA-PD 
                plan, the portion of the accepted bid amount 
                that is attributable to basic prescription drug 
                coverage.
            ``(6) PDP approved bid defined.--For purposes of 
        this part, the term `PDP approved bid' means, with 
        respect to a prescription drug plan, the bid amount 
        approved for the plan under this part.
    ``(b) Late Enrollment Penalty.--
            ``(1) In general.--Subject to the succeeding 
        provisions of this subsection, in the case of a part D 
        eligible individual described in paragraph (2) with 
        respect to a continuous period of eligibility, there 
        shall be an increase in the monthly beneficiary premium 
        established under subsection (a) in an amount 
        determined under paragraph (3).
            ``(2) Individuals subject to penalty.--A part D 
        eligible individual described in this paragraph is, 
        with respect to a continuous period of eligibility, an 
        individual for whom there is a continuous period of 63 
        days or longer (all of which in such continuous period 
        of eligibility) beginning on the day after the last 
        date of the individual's initial enrollment period 
        under section 1860D-1(b)(2) and ending on the date of 
        enrollment under a prescription drug plan or MA-PD plan 
        during all of which the individual was not covered 
        under any creditable prescription drug coverage.
            ``(3) Amount of penalty.--
                    ``(A) In general.--The amount determined 
                under this paragraph for a part D eligible 
                individual for a continuous period of 
                eligibility is the greater of--
                            ``(i) an amount that the Secretary 
                        determines is actuarially sound for 
                        each uncovered month (as defined in 
                        subparagraph (B)) in the same 
                        continuous period of eligibility; or
                            ``(ii) 1 percent of the base 
                        beneficiary premium (computed under 
                        subsection (a)(2)) for each such 
                        uncovered month in such period.
                    ``(B) Uncovered month defined.--For 
                purposes of this subsection, the term 
                `uncovered month' means, with respect to a part 
                D eligible individual, any month beginning 
                after the end of the initial enrollment period 
                under section 1860D-1(b)(2) unless the 
                individual can demonstrate that the individual 
                had creditable prescription drug coverage (as 
                defined in paragraph (4)) for any portion of 
                such month.
            ``(4) Creditable prescription drug coverage 
        defined.--For purposes of this part, the term 
        `creditable prescription drug coverage' means any of 
        the following coverage, but only if the coverage meets 
        the requirement of paragraph (5):
                    ``(A) Coverage under prescription drug plan 
                or ma-pd plan.--Coverage under a prescription 
                drug plan or under an MA-PD plan.
                    ``(B) Medicaid.--Coverage under a medicaid 
                plan under title XIX or under a waiver under 
                section 1115.
                    ``(C) Group health plan.--Coverage under a 
                group health plan, including a health benefits 
                plan under chapter 89 of title 5, United States 
                Code (commonly known as the Federal employees 
                health benefits program), and a qualified 
                retiree prescription drug plan (as defined in 
                section 1860D-22(a)(2)).
                    ``(D) State pharmaceutical assistance 
                program.--Coverage under a State pharmaceutical 
                assistance program described in section 1860D-
                23(b)(1).
                    ``(E) Veterans' coverage of prescription 
                drugs.--Coverage for veterans, and survivors 
                and dependents of veterans, under chapter 17 of 
                title 38, United States Code.
                    ``(F) Prescription drug coverage under 
                medigap policies.--Coverage under a medicare 
                supplemental policy under section 1882 that 
                provides benefits for prescription drugs 
                (whether or not such coverage conforms to the 
                standards for packages of benefits under 
                section 1882(p)(1)).
                    ``(G) Military coverage (including 
                tricare).--Coverage under chapter 55 of title 
                10, United States Code.
                    ``(H) Other coverage.--Such other coverage 
                as the Secretary determines appropriate.
            ``(5) Actuarial equivalence requirement.--Coverage 
        meets the requirement of this paragraph only if the 
        coverage is determined (in a manner specified by the 
        Secretary) to provide coverage of the cost of 
        prescription drugs the actuarial value of which (as 
        defined by the Secretary) to the individual equals or 
        exceeds the actuarial value of standard prescription 
        drug coverage (as determined under section 1860D-
        11(c)).
            ``(6) Procedures to document creditable 
        prescription drug coverage.--
                    ``(A) In general.--The Secretary shall 
                establish procedures (including the form, 
                manner, and time) for the documentation of 
                creditable prescription drug coverage, 
                including procedures to assist in determining 
                whether coverage meets the requirement of 
                paragraph (5).
                    ``(B) Disclosure by entities offering 
                creditable prescription drug coverage.--
                            ``(i) In general.--Each entity that 
                        offers prescription drug coverage of 
                        the type described in subparagraphs (B) 
                        through (H) of paragraph (4) shall 
                        provide for disclosure, in a form, 
                        manner, and time consistent with 
                        standards established by the Secretary, 
                        to the Secretary and part D eligible 
                        individuals of whether the coverage 
                        meets the requirement of paragraph (5) 
                        or whether such coverage is changed so 
                        it no longer meets such requirement.
                            ``(ii) Disclosure of non-creditable 
                        coverage.--In the case of such coverage 
                        that does not meet such requirement, 
                        the disclosure to part D eligible 
                        individuals under this subparagraph 
                        shall include information regarding the 
                        fact that because such coverage does 
                        not meet such requirement there are 
                        limitations on the periods in a year in 
                        which the individuals may enroll under 
                        a prescription drug plan or an MA-PD 
                        plan and that any such enrollment is 
                        subject to a late enrollment penalty 
                        under this subsection.
                    ``(C) Waiver of requirement.--In the case 
                of a part D eligible individual who was 
                enrolled in prescription drug coverage of the 
                type described in subparagraphs (B) through (H) 
                of paragraph (4) which is not creditable 
                prescription drug coverage because it does not 
                meet the requirement of paragraph (5), the 
                individual may apply to the Secretary to have 
                such coverage treated as creditable 
                prescription drug coverage if the individual 
                establishes that the individual was not 
                adequately informed that such coverage did not 
                meet such requirement.
            ``(7) Continuous period of eligibility.--
                    ``(A) In general.--Subject to subparagraph 
                (B), for purposes of this subsection, the term 
                `continuous period of eligibility' means, with 
                respect to a part D eligible individual, the 
                period that begins with the first day on which 
                the individual is eligible to enroll in a 
                prescription drug plan under this part and ends 
                with the individual's death.
                    ``(B) Separate period.--Any period during 
                all of which a part D eligible individual is 
                entitled to hospital insurance benefits under 
                part A and--
                            ``(i) which terminated in or before 
                        the month preceding the month in which 
                        the individual attained age 65; or
                            ``(ii) for which the basis for 
                        eligibility for such entitlement 
                        changed between section 226(b) and 
                        section 226(a), between 226(b) and 
                        section 226A, or between section 226A 
                        and section 226(a),
                shall be a separate continuous period of 
                eligibility with respect to the individual (and 
                each such period which terminates shall be 
                deemed not to have existed for purposes of 
                subsequently applying this paragraph).
    ``(c) Collection of Monthly Beneficiary Premiums.--
            ``(1) In general.--Subject to paragraphs (2) and 
        (3), the provisions of section 1854(d) shall apply to 
        PDP sponsors and premiums (and any late enrollment 
        penalty) under this part in the same manner as they 
        apply to MA organizations and beneficiary premiums 
        under part C, except that any reference to a Trust Fund 
        is deemed for this purpose a reference to the Medicare 
        Prescription Drug Account.
            ``(2) Crediting of late enrollment penalty.--
                    ``(A) Portion attributable to increased 
                actuarial costs.--With respect to late 
                enrollment penalties imposed under subsection 
                (b), the Secretary shall specify the portion of 
                such a penalty that the Secretary estimates is 
                attributable to increased actuarial costs 
                assumed by the PDP sponsor or MA organization 
                (and not taken into account through risk 
                adjustment provided under section 1860D-
                15(c)(1) or through reinsurance payments under 
                section 1860D-15(b)) as a result of such late 
                enrollment.
                    ``(B) Collection through withholding.--In 
                the case of a late enrollment penalty that is 
                collected from a part D eligible individual in 
                the manner described in section 1854(d)(2)(A), 
                the Secretary shall provide that only the 
                portion of such penalty estimated under 
                subparagraph (A) shall be paid to the PDP 
                sponsor or MA organization offering the part D 
                plan in which the individual is enrolled.
                    ``(C) Collection by plan.--In the case of a 
                late enrollment penalty that is collected from 
                a part D eligible individual in a manner other 
                than the manner described in section 
                1854(d)(2)(A), the Secretary shall establish 
                procedures for reducing payments otherwise made 
                to the PDP sponsor or MA organization by an 
                amount equal to the amount of such penalty less 
                the portion of such penalty estimated under 
                subparagraph (A).
            ``(3) Fallback plans.--In applying this subsection 
        in the case of a fallback prescription drug plan, 
        paragraph (2) shall not apply and the monthly 
        beneficiary premium shall be collected in the manner 
        specified in section 1854(d)(2)(A) (or such other 
        manner as may be provided under section 1840 in the 
        case of monthly premiums under section 1839).

    ``PREMIUM AND COST-SHARING SUBSIDIES FOR LOW-INCOME INDIVIDUALS

    ``Sec. 1860D-14. (a) Income-Related Subsidies for 
Individuals With Income Up to 150 Percent of Poverty Line.--
            ``(1) Individuals with income below 135 percent of 
        poverty line.--In the case of a subsidy eligible 
        individual (as defined in paragraph (3)) who is 
        determined to have income that is below 135 percent of 
        the poverty line applicable to a family of the size 
        involved and who meets the resources requirement 
        described in paragraph (3)(D) or who is covered under 
        this paragraph under paragraph (3)(B)(i), the 
        individual is entitled under this section to the 
        following:
                    ``(A) Full premium subsidy.--An income-
                related premium subsidy equal to--
                            ``(i) 100 percent of the amount 
                        described in subsection (b)(1), but not 
                        to exceed the premium amount specified 
                        in subsection (b)(2)(B); plus
                            ``(ii) 80 percent of any late 
                        enrollment penalties imposed under 
                        section 1860D-13(b) for the first 60 
                        months in which such penalties are 
                        imposed for that individual, and 100 
                        percent of any such penalties for any 
                        subsequent month.
                    ``(B) Elimination of deductible.--A 
                reduction in the annual deductible applicable 
                under section 1860D-2(b)(1) to $0.
                    ``(C) Continuation of coverage above the 
                initial coverage limit.--The continuation of 
                coverage from the initial coverage limit (under 
                paragraph (3) of section 1860D-2(b)) for 
                expenditures incurred through the total amount 
                of expenditures at which benefits are available 
                under paragraph (4) of such section, subject to 
                the reduced cost-sharing described in 
                subparagraph (D).
                    ``(D) Reduction in cost-sharing below out-
                of-pocket threshold.--
                            ``(i) Institutionalized 
                        individuals.--In the case of an 
                        individual who is a full-benefit dual 
                        eligible individual and who is an 
                        institutionalized individual or couple 
                        (as defined in section 1902(q)(1)(B)), 
                        the elimination of any beneficiary 
                        coinsurance described in section 1860D-
                        2(b)(2) (for all amounts through the 
                        total amount of expenditures at which 
                        benefits are available under section 
                        1860D-2(b)(4)).
                            ``(ii) Lowest income dual eligible 
                        individuals.--In the case of an 
                        individual not described in clause (i) 
                        who is a full-benefit dual eligible 
                        individual and whose income does not 
                        exceed 100 percent of the poverty line 
                        applicable to a family of the size 
                        involved, the substitution for the 
                        beneficiary coinsurance described in 
                        section 1860D-2(b)(2) (for all amounts 
                        through the total amount of 
                        expenditures at which benefits are 
                        available under section 1860D-2(b)(4)) 
                        of a copayment amount that does not 
                        exceed $1 for a generic drug or a 
                        preferred drug that is a multiple 
                        source drug (as defined in section 
                        1927(k)(7)(A)(i)) and $3 for any other 
                        drug, or, if less, the copayment amount 
                        applicable to an individual under 
                        clause (iii).
                            ``(iii) Other individuals.--In the 
                        case of an individual not described in 
                        clause (i) or (ii), the substitution 
                        for the beneficiary coinsurance 
                        described in section 1860D-2(b)(2) (for 
                        all amounts through the total amount of 
                        expenditures at which benefits are 
                        available under section 1860D-2(b)(4)) 
                        of a copayment amount that does not 
                        exceed the copayment amount specified 
                        under section 1860D-2(b)(4)(A)(i)(I) 
                        for the drug and year involved.
                    ``(E) Elimination of cost-sharing above 
                annual out-of-pocket threshold.--The 
                elimination of any cost-sharing imposed under 
                section 1860D-2(b)(4)(A).
            ``(2) Other individuals with income below 150 
        percent of poverty line.--In the case of a subsidy 
        eligible individual who is not described in paragraph 
        (1), the individual is entitled under this section to 
        the following:
                    ``(A) Sliding scale premium subsidy.--An 
                income-related premium subsidy determined on a 
                linear sliding scale ranging from 100 percent 
                of the amount described in paragraph (1)(A) for 
                individuals with incomes at or below 135 
                percent of such level to 0 percent of such 
                amount for individuals with incomes at 150 
                percent of such level.
                    ``(B) Reduction of deductible.--A reduction 
                in the annual deductible applicable under 
                section 1860D-2(b)(1) to $50.
                    ``(C) Continuation of coverage above the 
                initial coverage limit.--The continuation of 
                coverage from the initial coverage limit (under 
                paragraph (3) of section 1860D-2(b)) for 
                expenditures incurred through the total amount 
                of expenditures at which benefits are available 
                under paragraph (4) of such section, subject to 
                the reduced coinsurance described in 
                subparagraph (D).
                    ``(D) Reduction in cost-sharing below out-
                of-pocket threshold.--The substitution for the 
                beneficiary coinsurance described in section 
                1860D-2(b)(2) (for all amounts above the 
                deductible under subparagraph (B) through the 
                total amount of expenditures at which benefits 
                are available under section 1860D-2(b)(4)) of 
                coinsurance of `15 percent' instead of 
                coinsurance of `25 percent' in section 1860D-
                2(b)(2).
                    ``(E) Reduction of cost-sharing above 
                annual out-of-pocket threshold.--Subject to 
                subsection (c), the substitution for the cost-
                sharing imposed under section 1860D-2(b)(4)(A) 
                of a copayment or coinsurance not to exceed the 
                copayment or coinsurance amount specified under 
                section 1860D-2(b)(4)(A)(i)(I) for the drug and 
                year involved.
            ``(3) Determination of eligibility.--
                    ``(A) Subsidy eligible individual 
                defined.--For purposes of this part, subject to 
                subparagraph (F), the term `subsidy eligible 
                individual' means a part D eligible individual 
                who--
                            ``(i) is enrolled in a prescription 
                        drug plan or MA-PD plan;
                            ``(ii) has income below 150 percent 
                        of the poverty line applicable to a 
                        family of the size involved; and
                            ``(iii) meets the resources 
                        requirement described in subparagraph 
                        (D) or (E).
                    ``(B) Determinations.--
                            ``(i) In general.--The 
                        determination of whether a part D 
                        eligible individual residing in a State 
                        is a subsidy eligible individual and 
                        whether the individual is described in 
                        paragraph (1) shall be determined under 
                        the State plan under title XIX for the 
                        State under section 1935(a) or by the 
                        Commissioner of Social Security. There 
                        are authorized to be appropriated to 
                        the Social Security Administration such 
                        sums as may be necessary for the 
                        determination of eligibility under this 
                        subparagraph.
                            ``(ii) Effective period.--
                        Determinations under this subparagraph 
                        shall be effective beginning with the 
                        month in which the individual applies 
                        for a determination that the individual 
                        is a subsidy eligible individual and 
                        shall remain in effect for a period 
                        specified by the Secretary, but not to 
                        exceed 1 year.
                            ``(iii) Redeterminations and 
                        appeals through medicaid.--
                        Redeterminations and appeals, with 
                        respect to eligibility determinations 
                        under clause (i) made under a State 
                        plan under title XIX, shall be made in 
                        accordance with the frequency of, and 
                        manner in which, redeterminations and 
                        appeals of eligibility are made under 
                        such plan for purposes of medical 
                        assistance under such title.
                            ``(iv) Redeterminations and appeals 
                        through commissioner.--With respect to 
                        eligibility determinations under clause 
                        (i) made by the Commissioner of Social 
                        Security--
                                    ``(I) redeterminations 
                                shall be made at such time or 
                                times as may be provided by the 
                                Commissioner; and
                                    ``(II) the Commissioner 
                                shall establish procedures for 
                                appeals of such determinations 
                                that are similar to the 
                                procedures described in the 
                                third sentence of section 
                                1631(c)(1)(A).
                            ``(v) Treatment of medicaid 
                        beneficiaries.--Subject to subparagraph 
                        (F), the Secretary--
                                    ``(I) shall provide that 
                                part D eligible individuals who 
                                are full-benefit dual eligible 
                                individuals (as defined in 
                                section 1935(c)(6)) or who are 
                                recipients of supplemental 
                                security income benefits under 
                                title XVI shall be treated as 
                                subsidy eligible individuals 
                                described in paragraph (1); and
                                    ``(II) may provide that 
                                part D eligible individuals not 
                                described in subclause (I) who 
                                are determined for purposes of 
                                the State plan under title XIX 
                                to be eligible for medical 
                                assistance under clause (i), 
                                (iii), or (iv) of section 
                                1902(a)(10)(E) are treated as 
                                being determined to be subsidy 
                                eligible individuals described 
                                in paragraph (1).
                        Insofar as the Secretary determines 
                        that the eligibility requirements under 
                        the State plan for medical assistance 
                        referred to in subclause (II) are 
                        substantially the same as the 
                        requirements for being treated as a 
                        subsidy eligible individual described 
                        in paragraph (1), the Secretary shall 
                        provide for the treatment described in 
                        such subclause.
                    ``(C) Income determinations.--For purposes 
                of applying this section--
                            ``(i) in the case of a part D 
                        eligible individual who is not treated 
                        as a subsidy eligible individual under 
                        subparagraph (B)(v), income shall be 
                        determined in the manner described in 
                        section 1905(p)(1)(B), without regard 
                        to the application of section 
                        1902(r)(2); and
                            ``(ii) the term `poverty line' has 
                        the meaning given such term in section 
                        673(2) of the Community Services Block 
                        Grant Act (42 U.S.C. 9902(2)), 
                        including any revision required by such 
                        section.
                Nothing in clause (i) shall be construed to 
                affect the application of section 1902(r)(2) 
                for the determination of eligibility for 
                medical assistance under title XIX.
                    ``(D) Resource standard applied to full 
                low-income subsidy to be based on three times 
                ssi resource standard.--The resources 
                requirement of this subparagraph is that an 
                individual's resources (as determined under 
                section 1613 for purposes of the supplemental 
                security income program) do not exceed--
                            ``(i) for 2006 three times the 
                        maximum amount of resources that an 
                        individual may have and obtain benefits 
                        under that program; and
                            ``(ii) for a subsequent year the 
                        resource limitation established under 
                        this clause for the previous year 
                        increased by the annual percentage 
                        increase in the consumer price index 
                        (all items; U.S. city average) as of 
                        September of such previous year.
                Any resource limitation established under 
                clause (ii) that is not a multiple of $10 shall 
                be rounded to the nearest multiple of $10.
                    ``(E) Alternative resource standard.--
                            ``(i) In general.--The resources 
                        requirement of this subparagraph is 
                        that an individual's resources (as 
                        determined under section 1613 for 
                        purposes of the supplemental security 
                        income program) do not exceed--
                                    ``(I) for 2006, $10,000 (or 
                                $20,000 in the case of the 
                                combined value of the 
                                individual's assets or 
                                resources and the assets or 
                                resources of the individual's 
                                spouse); and
                                    ``(II) for a subsequent 
                                year the dollar amounts 
                                specified in this subclause (or 
                                subclause (I)) for the previous 
                                year increased by the annual 
                                percentage increase in the 
                                consumer price index (all 
                                items; U.S. city average) as of 
                                September of such previous 
                                year.
                        Any dollar amount established under 
                        subclause (II) that is not a multiple 
                        of $10 shall be rounded to the nearest 
                        multiple of $10.
                            ``(ii) Use of simplified 
                        application form and process.--The 
                        Secretary, jointly with the 
                        Commissioner of Social Security, 
                        shall--
                                    ``(I) develop a model, 
                                simplified application form and 
                                process consistent with clause 
                                (iii) for the determination and 
                                verification of a part D 
                                eligible individual's assets or 
                                resources under this 
                                subparagraph; and
                                    ``(II) provide such form to 
                                States.
                            ``(iii) Documentation and 
                        safeguards.--Under such process--
                                    ``(I) the application form 
                                shall consist of an attestation 
                                under penalty of perjury 
                                regarding the level of assets 
                                or resources (or combined 
                                assets and resources in the 
                                case of a married part D 
                                eligible individual) and 
                                valuations of general classes 
                                of assets or resources;
                                    ``(II) such form shall be 
                                accompanied by copies of recent 
                                statements (if any) from 
                                financial institutions in 
                                support of the application; and
                                    ``(III) matters attested to 
                                in the application shall be 
                                subject to appropriate methods 
                                of verification.
                            ``(iv) Methodology flexibility.--
                        The Secretary may permit a State in 
                        making eligibility determinations for 
                        premium and cost-sharing subsidies 
                        under this section to use the same 
                        asset or resource methodologies that 
                        are used with respect to eligibility 
                        for medical assistance for medicare 
                        cost-sharing described in section 
                        1905(p) so long as the Secretary 
                        determines that the use of such 
                        methodologies will not result in any 
                        significant differences in the number 
                        of individuals determined to be subsidy 
                        eligible individuals.
                    ``(F) Treatment of territorial residents.--
                In the case of a part D eligible individual who 
                is not a resident of the 50 States or the 
                District of Columbia, the individual is not 
                eligible to be a subsidy eligible individual 
                under this section but may be eligible for 
                financial assistance with prescription drug 
                expenses under section 1935(e).
            ``(4) Indexing dollar amounts.--
                    ``(A) Copayment for lowest income dual 
                eligible individuals.--The dollar amounts 
                applied under paragraph (1)(D)(ii)--
                            ``(i) for 2007 shall be the dollar 
                        amounts specified in such paragraph 
                        increased by the annual percentage 
                        increase in the consumer price index 
                        (all items; U.S. city average) as of 
                        September of such previous year; or
                            ``(ii) for a subsequent year shall 
                        be the dollar amounts specified in this 
                        clause (or clause (i)) for the previous 
                        year increased by the annual percentage 
                        increase in the consumer price index 
                        (all items; U.S. city average) as of 
                        September of such previous year.
                Any amount established under clause (i) or 
                (ii), that is based on an increase of $1 or $3, 
                that is not a multiple of 5 cents or 10 cents, 
                respectively, shall be rounded to the nearest 
                multiple of 5 cents or 10 cents, respectively.
                    ``(B) Reduced deductible.--The dollar 
                amount applied under paragraph (2)(B)--
                            ``(i) for 2007 shall be the dollar 
                        amount specified in such paragraph 
                        increased by the annual percentage 
                        increase described in section 1860D-
                        2(b)(6) for 2007; or
                            ``(ii) for a subsequent year shall 
                        be the dollar amount specified in this 
                        clause (or clause (i)) for the previous 
                        year increased by the annual percentage 
                        increase described in section 1860D-
                        2(b)(6) for the year involved.
                Any amount established under clause (i) or (ii) 
                that is not a multiple of $1 shall be rounded 
                to the nearest multiple of $1.
    ``(b) Premium Subsidy Amount.--
            ``(1) In general.--The premium subsidy amount 
        described in this subsection for a subsidy eligible 
        individual residing in a PDP region and enrolled in a 
        prescription drug plan or MA-PD plan is the low-income 
        benchmark premium amount (as defined in paragraph (2)) 
        for the PDP region in which the individual resides or, 
        if greater, the amount specified in paragraph (3).
            ``(2) Low-income benchmark premium amount 
        defined.--
                    ``(A) In general.--For purposes of this 
                subsection, the term `low-income benchmark 
                premium amount' means, with respect to a PDP 
                region in which--
                            ``(i) all prescription drug plans 
                        are offered by the same PDP sponsor, 
                        the weighted average of the amounts 
                        described in subparagraph (B)(i) for 
                        such plans; or
                            ``(ii) there are prescription drug 
                        plans offered by more than one PDP 
                        sponsor, the weighted average of 
                        amounts described in subparagraph (B) 
                        for prescription drug plans and MA-PD 
                        plans described in section 
                        1851(a)(2)(A)(i) offered in such 
                        region.
                    ``(B) Premium amounts described.--The 
                premium amounts described in this subparagraph 
                are, in the case of--
                            ``(i) a prescription drug plan that 
                        is a basic prescription drug plan, the 
                        monthly beneficiary premium for such 
                        plan;
                            ``(ii) a prescription drug plan 
                        that provides alternative prescription 
                        drug coverage the actuarial value of 
                        which is greater than that of standard 
                        prescription drug coverage, the portion 
                        of the monthly beneficiary premium that 
                        is attributable to basic prescription 
                        drug coverage; and
                            ``(iii) an MA-PD plan, the portion 
                        of the MA monthly prescription drug 
                        beneficiary premium that is 
                        attributable to basic prescription drug 
                        benefits (described in section 
                        1852(a)(6)(B)(ii)).
                The premium amounts described in this 
                subparagraph do not include any amounts 
                attributable to late enrollment penalties under 
                section 1860D-13(b).
            ``(3) Access to 0 premium plan.--In no case shall 
        the premium subsidy amount under this subsection for a 
        PDP region be less than the lowest monthly beneficiary 
        premium for a prescription drug plan that offers basic 
        prescription drug coverage in the region.
    ``(c) Administration of Subsidy Program.--
            ``(1) In general.--The Secretary shall provide a 
        process whereby, in the case of a part D eligible 
        individual who is determined to be a subsidy eligible 
        individual and who is enrolled in a prescription drug 
        plan or is enrolled in an MA-PD plan--
                    ``(A) the Secretary provides for a 
                notification of the PDP sponsor or the MA 
                organization offering the plan involved that 
                the individual is eligible for a subsidy and 
                the amount of the subsidy under subsection (a);
                    ``(B) the sponsor or organization involved 
                reduces the premiums or cost-sharing otherwise 
                imposed by the amount of the applicable subsidy 
                and submits to the Secretary information on the 
                amount of such reduction;
                    ``(C) the Secretary periodically and on a 
                timely basis reimburses the sponsor or 
                organization for the amount of such reductions; 
                and
                    ``(D) the Secretary ensures the 
                confidentiality of individually identifiable 
                information.
        In applying subparagraph (C), the Secretary shall 
        compute reductions based upon imposition under 
        subsections (a)(1)(D) and (a)(2)(E) of unreduced 
        copayment amounts applied under such subsections.
            ``(2) Use of capitated form of payment.--The 
        reimbursement under this section with respect to cost-
        sharing subsidies may be computed on a capitated basis, 
        taking into account the actuarial value of the 
        subsidies and with appropriate adjustments to reflect 
        differences in the risks actually involved.
    ``(d) Relation to Medicaid Program.--For special provisions 
under the medicaid program relating to medicare prescription 
drug benefits, see section 1935.

``SUBSIDIES FOR PART D ELIGIBLE INDIVIDUALS FOR QUALIFIED PRESCRIPTION 
                             DRUG COVERAGE

    ``Sec. 1860D-15. (a) Subsidy Payment.--In order to reduce 
premium levels applicable to qualified prescription drug 
coverage for part D eligible individuals consistent with an 
overall subsidy level of 74.5 percent for basic prescription 
drug coverage, to reduce adverse selection among prescription 
drug plans and MA-PD plans, and to promote the participation of 
PDP sponsors under this part and MA organizations under part C, 
the Secretary shall provide for payment to a PDP sponsor that 
offers a prescription drug plan and an MA organization that 
offers an MA-PD plan of the following subsidies in accordance 
with this section:
            ``(1) Direct subsidy.--A direct subsidy for each 
        part D eligible individual enrolled in a prescription 
        drug plan or MA-PD plan for a month equal to--
                    ``(A) the amount of the plan's standardized 
                bid amount (as defined in section 1860D-
                13(a)(5)), adjusted under subsection (c)(1), 
                reduced by
                    ``(B) the base beneficiary premium (as 
                computed under paragraph (2) of section 1860D-
                13(a) and as adjusted under paragraph (1)(B) of 
                such section).
            ``(2) Subsidy through reinsurance.--The reinsurance 
        payment amount (as defined in subsection (b)).
This section constitutes budget authority in advance of 
appropriations Acts and represents the obligation of the 
Secretary to provide for the payment of amounts provided under 
this section.
    ``(b) Reinsurance Payment Amount.--
            ``(1) In general.--The reinsurance payment amount 
        under this subsection for a part D eligible individual 
        enrolled in a prescription drug plan or MA-PD plan for 
        a coverage year is an amount equal to 80 percent of the 
        allowable reinsurance costs (as specified in paragraph 
        (2)) attributable to that portion of gross covered 
        prescription drug costs as specified in paragraph (3) 
        incurred in the coverage year after such individual has 
        incurred costs that exceed the annual out-of-pocket 
        threshold specified in section 1860D-2(b)(4)(B).
            ``(2) Allowable reinsurance costs.--For purposes of 
        this section, the term `allowable reinsurance costs' 
        means, with respect to gross covered prescription drug 
        costs under a prescription drug plan offered by a PDP 
        sponsor or an MA-PD plan offered by an MA organization, 
        the part of such costs that are actually paid (net of 
        discounts, chargebacks, and average percentage rebates) 
        by the sponsor or organization or by (or on behalf of) 
        an enrollee under the plan, but in no case more than 
        the part of such costs that would have been paid under 
        the plan if the prescription drug coverage under the 
        plan were basic prescription drug coverage, or, in the 
        case of a plan providing supplemental prescription drug 
        coverage, if such coverage were standard prescription 
        drug coverage.
            ``(3) Gross covered prescription drug costs.--For 
        purposes of this section, the term `gross covered 
        prescription drug costs' means, with respect to a part 
        D eligible individual enrolled in a prescription drug 
        plan or MA-PD plan during a coverage year, the costs 
        incurred under the plan, not including administrative 
        costs, but including costs directly related to the 
        dispensing of covered part D drugs during the year and 
        costs relating to the deductible. Such costs shall be 
        determined whether they are paid by the individual or 
        under the plan, regardless of whether the coverage 
        under the plan exceeds basic prescription drug 
        coverage.
            ``(4) Coverage year defined.--For purposes of this 
        section, the term `coverage year' means a calendar year 
        in which covered part D drugs are dispensed if the 
        claim for such drugs (and payment on such claim) is 
        made not later than such period after the end of such 
        year as the Secretary specifies.
    ``(c) Adjustments Relating to Bids.--
            ``(1) Health status risk adjustment.--
                    ``(A) Establishment of risk adjustors.--The 
                Secretary shall establish an appropriate 
                methodology for adjusting the standardized bid 
                amount under subsection (a)(1)(A) to take into 
                account variation in costs for basic 
                prescription drug coverage among prescription 
                drug plans and MA-PD plans based on the 
                differences in actuarial risk of different 
                enrollees being served. Any such risk 
                adjustment shall be designed in a manner so as 
                not to result in a change in the aggregate 
                amounts payable to such plans under subsection 
                (a)(1) and through that portion of the monthly 
                beneficiary prescription drug premiums 
                described in subsection (a)(1)(B) and MA 
                monthly prescription drug beneficiary premiums.
                    ``(B) Considerations.--In establishing the 
                methodology under subparagraph (A), the 
                Secretary may take into account the similar 
                methodologies used under section 1853(a)(3) to 
                adjust payments to MA organizations for 
                benefits under the original medicare fee-for-
                service program option.
                    ``(C) Data collection.--In order to carry 
                out this paragraph, the Secretary shall 
                require--
                            ``(i) PDP sponsors to submit data 
                        regarding drug claims that can be 
                        linked at the individual level to part 
                        A and part B data and such other 
                        information as the Secretary determines 
                        necessary; and
                            ``(ii) MA organizations that offer 
                        MA-PD plans to submit data regarding 
                        drug claims that can be linked at the 
                        individual level to other data that 
                        such organizations are required to 
                        submit to the Secretary and such other 
                        information as the Secretary determines 
                        necessary.
                    ``(D) Publication.--At the time of 
                publication of risk adjustment factors under 
                section 1853(b)(1)(B)(i)(II), the Secretary 
                shall publish the risk adjusters established 
                under this paragraph for the succeeding year.
            ``(2) Geographic adjustment.--
                    ``(A) In general.--Subject to subparagraph 
                (B), for purposes of section 1860D-
                13(a)(1)(B)(iii), the Secretary shall establish 
                an appropriate methodology for adjusting the 
                national average monthly bid amount (computed 
                under section 1860D-13(a)(4)) to take into 
                account differences in prices for covered part 
                D drugs among PDP regions.
                    ``(B) De minimis rule.--If the Secretary 
                determines that the price variations described 
                in subparagraph (A) among PDP regions are de 
                minimis, the Secretary shall not provide for 
                adjustment under this paragraph.
                    ``(C) Budget neutral adjustment.--Any 
                adjustment under this paragraph shall be 
                applied in a manner so as to not result in a 
                change in the aggregate payments made under 
                this part that would have been made if the 
                Secretary had not applied such adjustment.
    ``(d) Payment Methods.--
            ``(1) In general.--Payments under this section 
        shall be based on such a method as the Secretary 
        determines. The Secretary may establish a payment 
        method by which interim payments of amounts under this 
        section are made during a year based on the Secretary's 
        best estimate of amounts that will be payable after 
        obtaining all of the information.
            ``(2) Requirement for provision of information.--
                    ``(A) Requirement.--Payments under this 
                section to a PDP sponsor or MA organization are 
                conditioned upon the furnishing to the 
                Secretary, in a form and manner specified by 
                the Secretary, of such information as may be 
                required to carry out this section.
                    ``(B) Restriction on use of information.--
                Information disclosed or obtained pursuant to 
                subparagraph (A) may be used by officers, 
                employees, and contractors of the Department of 
                Health and Human Services only for the purposes 
                of, and to the extent necessary in, carrying 
                out this section.
            ``(3) Source of payments.--Payments under this 
        section shall be made from the Medicare Prescription 
        Drug Account.
            ``(4) Application of enrollee adjustment.--The 
        provisions of section 1853(a)(2) shall apply to 
        payments to PDP sponsors under this section in the same 
        manner as they apply to payments to MA organizations 
        under section 1853(a).
    ``(e) Portion of Total Payments to a Sponsor or 
Organization Subject to Risk (Application of Risk Corridors).--
            ``(1) Computation of adjusted allowable risk 
        corridor costs.--
                    ``(A) In general.--For purposes of this 
                subsection, the term `adjusted allowable risk 
                corridor costs' means, for a plan for a 
                coverage year (as defined in subsection 
                (b)(4))--
                            ``(i) the allowable risk corridor 
                        costs (as defined in subparagraph (B)) 
                        for the plan for the year, reduced by
                            ``(ii) the sum of (I) the total 
                        reinsurance payments made under 
                        subsection (b) to the sponsor of the 
                        plan for the year, and (II) the total 
                        subsidy payments made under section 
                        1860D-14 to the sponsor of the plan for 
                        the year.
                    ``(B) Allowable risk corridor costs.--For 
                purposes of this subsection, the term 
                `allowable risk corridor costs' means, with 
                respect to a prescription drug plan offered by 
                a PDP sponsor or an MA-PD plan offered by an MA 
                organization, the part of costs (not including 
                administrative costs, but including costs 
                directly related to the dispensing of covered 
                part D drugs during the year) incurred by the 
                sponsor or organization under the plan that are 
                actually paid (net of discounts, chargebacks, 
                and average percentage rebates) by the sponsor 
                or organization under the plan, but in no case 
                more than the part of such costs that would 
                have been paid under the plan if the 
                prescription drug coverage under the plan were 
                basic prescription drug coverage, or, in the 
                case of a plan providing supplemental 
                prescription drug coverage, if such coverage 
                were basic prescription drug coverage taking 
                into account the adjustment under section 
                1860D-11(c)(2). In computing allowable costs 
                under this paragraph, the Secretary shall 
                compute such costs based upon imposition under 
                paragraphs (1)(D) and (2)(E) of section 1860D-
                14(a) of the maximum amount of copayments 
                permitted under such paragraphs.
            ``(2) Adjustment of payment.--
                    ``(A) No adjustment if adjusted allowable 
                risk corridor costs within risk corridor.--If 
                the adjusted allowable risk corridor costs (as 
                defined in paragraph (1)) for the plan for the 
                year are at least equal to the first threshold 
                lower limit of the risk corridor (specified in 
                paragraph (3)(A)(i)), but not greater than the 
                first threshold upper limit of the risk 
                corridor (specified in paragraph (3)(A)(iii)) 
                for the plan for the year, then no payment 
                adjustment shall be made under this subsection.
                    ``(B) Increase in payment if adjusted 
                allowable risk corridor costs above upper limit 
                of risk corridor.--
                            ``(i) Costs between first and 
                        second threshold upper limits.--If the 
                        adjusted allowable risk corridor costs 
                        for the plan for the year are greater 
                        than the first threshold upper limit, 
                        but not greater than the second 
                        threshold upper limit, of the risk 
                        corridor for the plan for the year, the 
                        Secretary shall increase the total of 
                        the payments made to the sponsor or 
                        organization offering the plan for the 
                        year under this section by an amount 
                        equal to 50 percent (or, for 2006 and 
                        2007, 75 percent or 90 percent if the 
                        conditions described in clause (iii) 
                        are met for the year) of the difference 
                        between such adjusted allowable risk 
                        corridor costs and the first threshold 
                        upper limit of the risk corridor.
                            ``(ii) Costs above second threshold 
                        upper limits.--If the adjusted 
                        allowable risk corridor costs for the 
                        plan for the year are greater than the 
                        second threshold upper limit of the 
                        risk corridor for the plan for the 
                        year, the Secretary shall increase the 
                        total of the payments made to the 
                        sponsor or organization offering the 
                        plan for the year under this section by 
                        an amount equal to the sum of--
                                    ``(I) 50 percent (or, for 
                                2006 and 2007, 75 percent or 90 
                                percent if the conditions 
                                described in clause (iii) are 
                                met for the year) of the 
                                difference between the second 
                                threshold upper limit and the 
                                first threshold upper limit; 
                                and
                                    ``(II) 80 percent of the 
                                difference between such 
                                adjusted allowable risk 
                                corridor costs and the second 
                                threshold upper limit of the 
                                risk corridor.
                            ``(iii) Conditions for application 
                        of higher percentage for 2006 and 
                        2007.--The conditions described in this 
                        clause are met for 2006 or 2007 if the 
                        Secretary determines with respect to 
                        such year that--
                                    ``(I) at least 60 percent 
                                of prescription drug plans and 
                                MA-PD plans to which this 
                                subsection applies have 
                                adjusted allowable risk 
                                corridor costs for the plan for 
                                the year that are more than the 
                                first threshold upper limit of 
                                the risk corridor for the plan 
                                for the year; and
                                    ``(II) such plans represent 
                                at least 60 percent of part D 
                                eligible individuals enrolled 
                                in any prescription drug plan 
                                or MA-PD plan.
                    ``(C) Reduction in payment if adjusted 
                allowable risk corridor costs below lower limit 
                of risk corridor.--
                            ``(i) Costs between first and 
                        second threshold lower limits.--If the 
                        adjusted allowable risk corridor costs 
                        for the plan for the year are less than 
                        the first threshold lower limit, but 
                        not less than the second threshold 
                        lower limit, of the risk corridor for 
                        the plan for the year, the Secretary 
                        shall reduce the total of the payments 
                        made to the sponsor or organization 
                        offering the plan for the year under 
                        this section by an amount (or otherwise 
                        recover from the sponsor or 
                        organization an amount) equal to 50 
                        percent (or, for 2006 and 2007, 75 
                        percent) of the difference between the 
                        first threshold lower limit of the risk 
                        corridor and such adjusted allowable 
                        risk corridor costs.
                            ``(ii) Costs below second threshold 
                        lower limit.--If the adjusted allowable 
                        risk corridor costs for the plan for 
                        the year are less the second threshold 
                        lower limit of the risk corridor for 
                        the plan for the year, the Secretary 
                        shall reduce the total of the payments 
                        made to the sponsor or organization 
                        offering the plan for the year under 
                        this section by an amount (or otherwise 
                        recover from the sponsor or 
                        organization an amount) equal to the 
                        sum of--
                                    ``(I) 50 percent (or, for 
                                2006 and 2007, 75 percent) of 
                                the difference between the 
                                first threshold lower limit and 
                                the second threshold lower 
                                limit; and
                                    ``(II) 80 percent of the 
                                difference between the second 
                                threshold upper limit of the 
                                risk corridor and such adjusted 
                                allowable risk corridor costs.
            ``(3) Establishment of risk corridors.--
                    ``(A) In general.--For each plan year the 
                Secretary shall establish a risk corridor for 
                each prescription drug plan and each MA-PD 
                plan. The risk corridor for a plan for a year 
                shall be equal to a range as follows:
                            ``(i) First threshold lower 
                        limit.--The first threshold lower limit 
                        of such corridor shall be equal to--
                                    ``(I) the target amount 
                                described in subparagraph (B) 
                                for the plan; minus
                                    ``(II) an amount equal to 
                                the first threshold risk 
                                percentage for the plan (as 
                                determined under subparagraph 
                                (C)(i)) of such target amount.
                            ``(ii) Second threshold lower 
                        limit.--The second threshold lower 
                        limit of such corridor shall be equal 
                        to--
                                    ``(I) the target amount 
                                described in subparagraph (B) 
                                for the plan; minus
                                    ``(II) an amount equal to 
                                the second threshold risk 
                                percentage for the plan (as 
                                determined under subparagraph 
                                (C)(ii)) of such target amount.
                            ``(iii) First threshold upper 
                        limit.--The first threshold upper limit 
                        of such corridor shall be equal to the 
                        sum of--
                                    ``(I) such target amount; 
                                and
                                    ``(II) the amount described 
                                in clause (i)(II).
                            ``(iv) Second threshold upper 
                        limit.--The second threshold upper 
                        limit of such corridor shall be equal 
                        to the sum of--
                                    ``(I) such target amount; 
                                and
                                    ``(II) the amount described 
                                in clause (ii)(II).
                    ``(B) Target amount described.--The target 
                amount described in this paragraph is, with 
                respect to a prescription drug plan or an MA-PD 
                plan in a year, the total amount of payments 
                paid to the PDP sponsor or MA-PD organization 
                for the plan for the year, taking into account 
                amounts paid by the Secretary and enrollees, 
                based upon the standardized bid amount (as 
                defined in section 1860D-13(a)(5) and as risk 
                adjusted under subsection (c)(1)), reduced by 
                the total amount of administrative expenses for 
                the year assumed in such standardized bid.
                    ``(C) First and second threshold risk 
                percentage defined.--
                            ``(i) First threshold risk 
                        percentage.--Subject to clause (iii), 
                        for purposes of this section, the first 
                        threshold risk percentage is--
                                    ``(I) for 2006 and 2007, 
                                and 2.5 percent;
                                    ``(II) for 2008 through 
                                2011, 5 percent; and
                                    ``(III) for 2012 and 
                                subsequent years, a percentage 
                                established by the Secretary, 
                                but in no case less than 5 
                                percent.
                            ``(ii) Second threshold risk 
                        percentage.--Subject to clause (iii), 
                        for purposes of this section, the 
                        second threshold risk percentage is--
                                    ``(I) for 2006 and 2007, 5 
                                percent;
                                    ``(II) for 2008 through 
                                2011, 10 percent; and
                                    ``(III) for 2012 and 
                                subsequent years, a percentage 
                                established by the Secretary 
                                that is greater than the 
                                percent established for the 
                                year under clause (i)(III), but 
                                in no case less than 10 
                                percent.
                            ``(iii) Reduction of risk 
                        percentage to ensure 2 plans in an 
                        area.--Pursuant to section 1860D-
                        11(b)(2)(E)(ii), a PDP sponsor may 
                        submit a bid that requests a decrease 
                        in the applicable first or second 
                        threshold risk percentages or an 
                        increase in the percents applied under 
                        paragraph (2).
            ``(4) Plans at risk for entire amount of 
        supplemental prescription drug coverage.--A PDP sponsor 
        and MA organization that offers a plan that provides 
        supplemental prescription drug benefits shall be at 
        full financial risk for the provision of such 
        supplemental benefits.
            ``(5) No effect on monthly premium.--No adjustment 
        in payments made by reason of this subsection shall 
        affect the monthly beneficiary premium or the MA 
        monthly prescription drug beneficiary premium.
    ``(f) Disclosure of Information.--
            ``(1) In general.--Each contract under this part 
        and under part C shall provide that--
                    ``(A) the PDP sponsor offering a 
                prescription drug plan or an MA organization 
                offering an MA-PD plan shall provide the 
                Secretary with such information as the 
                Secretary determines is necessary to carry out 
                this section; and
                    ``(B) the Secretary shall have the right in 
                accordance with section 1857(d)(2)(B) (as 
                applied under section 1860D-12(b)(3)(C)) to 
                inspect and audit any books and records of a 
                PDP sponsor or MA organization that pertain to 
                the information regarding costs provided to the 
                Secretary under subparagraph (A).
            ``(2) Restriction on use of information.--
        Information disclosed or obtained pursuant to the 
        provisions of this section may be used by officers, 
        employees, and contractors of the Department of Health 
        and Human Services only for the purposes of, and to the 
        extent necessary in, carrying out this section.
    ``(g) Payment for Fallback Prescription Drug Plans.--In 
lieu of the amounts otherwise payable under this section to a 
PDP sponsor offering a fallback prescription drug plan (as 
defined in section 1860D-3(c)(4)), the amount payable shall be 
the amounts determined under the contract for such plan 
pursuant to section 1860D-11(g)(5).

   ``MEDICARE PRESCRIPTION DRUG ACCOUNT IN THE FEDERAL SUPPLEMENTARY 
                      MEDICAL INSURANCE TRUST FUND

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

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

 ``APPLICATION TO MEDICARE ADVANTAGE PROGRAM AND RELATED MANAGED CARE 
                                PROGRAMS

    ``Sec. 1860D-21. (a) Special Rules Relating to Offering of 
Qualified Prescription Drug Coverage.--
            ``(1) In general.--An MA organization on and after 
        January 1, 2006--
                    ``(A) may not offer an MA plan described in 
                section 1851(a)(2)(A) in an area unless either 
                that plan (or another MA plan offered by the 
                organization in that same service area) 
                includes required prescription drug coverage 
                (as defined in paragraph (2)); and
                    ``(B) may not offer prescription drug 
                coverage (other than that required under parts 
                A and B) to an enrollee--
                            ``(i) under an MSA plan; or
                            ``(ii) under another MA plan unless 
                        such drug coverage under such other 
                        plan provides qualified prescription 
                        drug coverage and unless the 
                        requirements of this section with 
                        respect to such coverage are met.
            ``(2) Qualifying coverage.--For purposes of 
        paragraph (1)(A), the term `required coverage' means 
        with respect to an MA-PD plan--
                    ``(A) basic prescription drug coverage; or
                    ``(B) qualified prescription drug coverage 
                that provides supplemental prescription drug 
                coverage, so long as there is no MA monthly 
                supplemental beneficiary premium applied under 
                the plan (due to the application of a credit 
                against such premium of a rebate under section 
                1854(b)(1)(C)).
    ``(b) Application of Default Enrollment Rules.--
            ``(1) Seamless continuation.--In applying section 
        1851(c)(3)(A)(ii), an individual who is enrolled in a 
        health benefits plan shall not be considered to have 
        been deemed to make an election into an MA-PD plan 
        unless such health benefits plan provides any 
        prescription drug coverage.
            ``(2) MA continuation.--In applying section 
        1851(c)(3)(B), an individual who is enrolled in an MA 
        plan shall not be considered to have been deemed to 
        make an election into an MA-PD plan unless--
                    ``(A) for purposes of the election as of 
                January 1, 2006, the MA plan provided as of 
                December 31, 2005, any prescription drug 
                coverage; or
                    ``(B) for periods after January 1, 2006, 
                such MA plan is an MA-PD plan.
            ``(3) Discontinuance of ma-pd election during first 
        year of eligibility.--In applying the second sentence 
        of section 1851(e)(4) in the case of an individual who 
        is electing to discontinue enrollment in an MA-PD plan, 
        the individual shall be permitted to enroll in a 
        prescription drug plan under part D at the time of the 
        election of coverage under the original medicare fee-
        for-service program.
            ``(4) Rules regarding enrollees in ma plans not 
        providing qualified prescription drug coverage.--In the 
        case of an individual who is enrolled in an MA plan 
        (other than an MSA plan) that does not provide 
        qualified prescription drug coverage, if the 
        organization offering such coverage discontinues the 
        offering with respect to the individual of all MA plans 
        that do not provide such coverage--
                            ``(i) the individual is deemed to 
                        have elected the original medicare fee-
                        for-service program option, unless the 
                        individual affirmatively elects to 
                        enroll in an MA-PD plan; and
                            ``(ii) in the case of such a deemed 
                        election, the disenrollment shall be 
                        treated as an involuntary termination 
                        of the MA plan described in 
                        subparagraph (B)(ii) of section 
                        1882(s)(3) for purposes of applying 
                        such section.
        The information disclosed under section 1852(c)(1) for 
        individuals who are enrolled in such an MA plan shall 
        include information regarding such rules.
    ``(c) Application of Part D Rules for Prescription Drug 
Coverage.--With respect to the offering of qualified 
prescription drug coverage by an MA organization under this 
part on and after January 1, 2006--
            ``(1) In general.--Except as otherwise provided, 
        the provisions of this part shall apply under part C 
        with respect to prescription drug coverage provided 
        under MA-PD plans in lieu of the other provisions of 
        part C that would apply to such coverage under such 
        plans.
            ``(2) Waiver.--The Secretary shall waive the 
        provisions referred to in paragraph (1) to the extent 
        the Secretary determines that such provisions 
        duplicate, or are in conflict with, provisions 
        otherwise applicable to the organization or plan under 
        part C or as may be necessary in order to improve 
        coordination of this part with the benefits under this 
        part.
            ``(3) Treatment of ma owned and operated 
        pharmacies.--The Secretary may waive the requirement of 
        section 1860D-4(b)(1)(C) in the case of an MA-PD plan 
        that provides access (other than mail order) to 
        qualified prescription drug coverage through pharmacies 
        owned and operated by the MA organization, if the 
        Secretary determines that the organization's pharmacy 
        network is sufficient to provide comparable access for 
        enrollees under the plan.
    ``(d) Special Rules for Private Fee-for-Service Plans That 
Offer Prescription Drug Coverage.--With respect to an MA plan 
described in section 1851(a)(2)(C) that offers qualified 
prescription drug coverage, on and after January 1, 2006, the 
following rules apply:
            ``(1) Requirements regarding negotiated prices.--
        Subsections (a)(1) and (d)(1) of section 1860D-2 and 
        section 1860D-4(b)(2)(A) shall not be construed to 
        require the plan to provide negotiated prices 
        (described in subsection (d)(1)(B) of such section), 
        but shall apply to the extent the plan does so.
            ``(2) Modification of pharmacy access standard and 
        disclosure requirement.--If the plan provides coverage 
        for drugs purchased from all pharmacies, without 
        charging additional cost-sharing, and without regard to 
        whether they are participating pharmacies in a network 
        or have entered into contracts or agreements with 
        pharmacies to provide drugs to enrollees covered by the 
        plan, subsections (b)(1)(C) and (k) of section 1860D-4 
        shall not apply to the plan.
            ``(3) Drug utilization management program and 
        medication therapy management program not required.--
        The requirements of subparagraphs (A) and (C) of 
        section 1860D-4(c)(1) shall not apply to the plan.
            ``(4) Application of reinsurance.--The Secretary 
        shall determine the amount of reinsurance payments 
        under section 1860D-15(b) using a methodology that--
                    ``(A) bases such amount on the Secretary's 
                estimate of the amount of such payments that 
                would be payable if the plan were an MA-PD plan 
                described in section 1851(a)(2)(A)(i) and the 
                previous provisions of this subsection did not 
                apply; and
                    ``(B) takes into account the average 
                reinsurance payments made under section 1860D-
                15(b) for populations of similar risk under MA-
                PD plans described in such section.
            ``(5) Exemption from risk corridor provisions.--The 
        provisions of section 1860D-15(e) shall not apply.
            ``(6) Exemption from negotiations.--Subsections (d) 
        and (e)(2)(C) of section 1860D-11 shall not apply and 
        the provisions of section 1854(a)(5)(B) prohibiting the 
        review, approval, or disapproval of amounts described 
        in such section shall apply to the proposed bid and 
        terms and conditions described in section 1860D-11(d).
            ``(7) Treatment of incurred costs without regard to 
        formulary.--The exclusion of costs incurred for covered 
        part D drugs which are not included (or treated as 
        being included) in a plan's formulary under section 
        1860D-2(b)(4)(B)(i) shall not apply insofar as the plan 
        does not utilize a formulary.
    ``(e) Application to Reasonable Cost Reimbursement 
Contractors.--
            ``(1) In general.--Subject to paragraphs (2) and 
        (3) and rules established by the Secretary, in the case 
        of an organization that is providing benefits under a 
        reasonable cost reimbursement contract under section 
        1876(h) and that elects to provide qualified 
        prescription drug coverage to a part D eligible 
        individual who is enrolled under such a contract, the 
        provisions of this part (and related provisions of part 
        C) shall apply to the provision of such coverage to 
        such enrollee in the same manner as such provisions 
        apply to the provision of such coverage under an MA-PD 
        local plan described in section 1851(a)(2)(A)(i) and 
        coverage under such a contract that so provides 
        qualified prescription drug coverage shall be deemed to 
        be an MA-PD local plan.
            ``(2) Limitation on enrollment.--In applying 
        paragraph (1), the organization may not enroll part D 
        eligible individuals who are not enrolled under the 
        reasonable cost reimbursement contract involved.
            ``(3) Bids not included in determining national 
        average monthly bid amount.--The bid of an organization 
        offering prescription drug coverage under this 
        subsection shall not be taken into account in computing 
        the national average monthly bid amount and low-income 
        benchmark premium amount under this part.
    ``(f) Application to PACE.--
            ``(1) In general.--Subject to paragraphs (2) and 
        (3) and rules established by the Secretary, in the case 
        of a PACE program under section 1894 that elects to 
        provide qualified prescription drug coverage to a part 
        D eligible individual who is enrolled under such 
        program, the provisions of this part (and related 
        provisions of part C) shall apply to the provision of 
        such coverage to such enrollee in a manner that is 
        similar to the manner in which such provisions apply to 
        the provision of such coverage under an MA-PD local 
        plan described in section 1851(a)(2)(A)(ii) and a PACE 
        program that so provides such coverage may be deemed to 
        be an MA-PD local plan.
            ``(2) Limitation on enrollment.--In applying 
        paragraph (1), the organization may not enroll part D 
        eligible individuals who are not enrolled under the 
        PACE program involved.
            ``(3) Bids not included in determining standardized 
        bid amount.--The bid of an organization offering 
        prescription drug coverage under this subsection is not 
        be taken into account in computing any average 
        benchmark bid amount and low-income benchmark premium 
        amount under this part.

            ``SPECIAL RULES FOR EMPLOYER-SPONSORED PROGRAMS

    ``Sec. 1860D-22. (a) Subsidy Payment.--
            ``(1) In general.--The Secretary shall provide in 
        accordance with this subsection for payment to the 
        sponsor of a qualified retiree prescription drug plan 
        (as defined in paragraph (2)) of a special subsidy 
        payment equal to the amount specified in paragraph (3) 
        for each qualified covered retiree under the plan (as 
        defined in paragraph (4)). This subsection constitutes 
        budget authority in advance of appropriations Acts and 
        represents the obligation of the Secretary to provide 
        for the payment of amounts provided under this section.
            ``(2) Qualified retiree prescription drug plan 
        defined.--For purposes of this subsection, the term 
        `qualified retiree prescription drug plan' means 
        employment-based retiree health coverage (as defined in 
        subsection (c)(1)) if, with respect to a part D 
        eligible individual who is a participant or beneficiary 
        under such coverage, the following requirements are 
        met:
                    ``(A) Attestation of actuarial equivalence 
                to standard coverage.--The sponsor of the plan 
                provides the Secretary, annually or at such 
                other time as the Secretary may require, with 
                an attestation that the actuarial value of 
                prescription drug coverage under the plan (as 
                determined using the processes and methods 
                described in section 1860D-11(c)) is at least 
                equal to the actuarial value of standard 
                prescription drug coverage.
                    ``(B) Audits.--The sponsor of the plan, or 
                an administrator of the plan designated by the 
                sponsor, shall maintain (and afford the 
                Secretary access to) such records as the 
                Secretary may require for purposes of audits 
                and other oversight activities necessary to 
                ensure the adequacy of prescription drug 
                coverage and the accuracy of payments made 
                under this section. The provisions of section 
                1860D-2(d)(3) shall apply to such information 
                under this section (including such actuarial 
                value and attestation) in a manner similar to 
                the manner in which they apply to financial 
                records of PDP sponsors and MA organizations.
                    ``(C) Provision of disclosure regarding 
                prescription drug coverage.--The sponsor of the 
                plan shall provide for disclosure of 
                information regarding prescription drug 
                coverage in accordance with section 1860D-
                13(b)(6)(B).
            ``(3) Employer and union special subsidy amounts.--
                    ``(A) In general.--For purposes of this 
                subsection, the special subsidy payment amount 
                under this paragraph for a qualifying covered 
                retiree for a coverage year enrolled with the 
                sponsor of a qualified retiree prescription 
                drug plan is, for the portion of the retiree's 
                gross covered retiree plan-related prescription 
                drug costs (as defined in subparagraph (C)(ii)) 
                for such year that exceeds the cost threshold 
                amount specified in subparagraph (B) and does 
                not exceed the cost limit under such 
                subparagraph, an amount equal to 28 percent of 
                the allowable retiree costs (as defined in 
                subparagraph (C)(i)) attributable to such gross 
                covered prescription drug costs.
                    ``(B) Cost threshold and cost limit 
                applicable.--
                            ``(i) In general.--Subject to 
                        clause (ii)--
                                    ``(I) the cost threshold 
                                under this subparagraph is 
                                equal to $250 for plan years 
                                that end in 2006; and
                                    ``(II) the cost limit under 
                                this subparagraph is equal to 
                                $5,000 for plan years that end 
                                in 2006.
                            ``(ii) Indexing.--The cost 
                        threshold and cost limit amounts 
                        specified in subclauses (I) and (II) of 
                        clause (i) for a plan year that ends 
                        after 2006 shall be adjusted in the 
                        same manner as the annual deductible 
                        and the annual out-of-pocket threshold, 
                        respectively, are annually adjusted 
                        under paragraphs (1) and (4)(B) of 
                        section 1860D-2(b).
                    ``(C) Definitions.--For purposes of this 
                paragraph:
                            ``(i) Allowable retiree costs.--The 
                        term `allowable retiree costs' means, 
                        with respect to gross covered 
                        prescription drug costs under a 
                        qualified retiree prescription drug 
                        plan by a plan sponsor, the part of 
                        such costs that are actually paid (net 
                        of discounts, chargebacks, and average 
                        percentage rebates) by the sponsor or 
                        by or on behalf of a qualifying covered 
                        retiree under the plan.
                            ``(ii) Gross covered retiree plan-
                        related prescription drug costs.--For 
                        purposes of this section, the term 
                        `gross covered retiree plan-related 
                        prescription drug costs' means, with 
                        respect to a qualifying covered retiree 
                        enrolled in a qualified retiree 
                        prescription drug plan during a 
                        coverage year, the costs incurred under 
                        the plan, not including administrative 
                        costs, but including costs directly 
                        related to the dispensing of covered 
                        part D drugs during the year. Such 
                        costs shall be determined whether they 
                        are paid by the retiree or under the 
                        plan.
                    ``(iii) Coverage year.--The term `coverage 
                year' has the meaning given such term in 
                section 1860D-15(b)(4).
            ``(4) Qualifying covered retiree defined.--For 
        purposes of this subsection, the term `qualifying 
        covered retiree' means a part D eligible individual who 
        is not enrolled in a prescription drug plan or an MA-PD 
        plan but is covered under a qualified retiree 
        prescription drug plan.
            ``(5) Payment methods, including provision of 
        necessary information.--The provisions of section 
        1860D-15(d) (including paragraph (2), relating to 
        requirement for provision of information) shall apply 
        to payments under this subsection in a manner similar 
        to the manner in which they apply to payment under 
        section 1860D-15(b).
            ``(6) Construction.--Nothing in this subsection 
        shall be construed as--
                    ``(A) precluding a part D eligible 
                individual who is covered under employment-
                based retiree health coverage from enrolling in 
                a prescription drug plan or in an MA-PD plan;
                    ``(B) precluding such employment-based 
                retiree health coverage or an employer or other 
                person from paying all or any portion of any 
                premium required for coverage under a 
                prescription drug plan or MA-PD plan on behalf 
                of such an individual;
                    ``(C) preventing such employment-based 
                retiree health coverage from providing 
                coverage--
                            ``(i) that is better than standard 
                        prescription drug coverage to retirees 
                        who are covered under a qualified 
                        retiree prescription drug plan; or
                            ``(ii) that is supplemental to the 
                        benefits provided under a prescription 
                        drug plan or an MA-PD plan, including 
                        benefits to retirees who are not 
                        covered under a qualified retiree 
                        prescription drug plan but who are 
                        enrolled in such a prescription drug 
                        plan or MA-PD plan; or
                    ``(D) preventing employers to provide for 
                flexibility in benefit design and pharmacy 
                access provisions, without regard to the 
                requirements for basic prescription drug 
                coverage, so long as the actuarial equivalence 
                requirement of paragraph (2)(A) is met.
    ``(b) Application of MA Waiver Authority.--The provisions 
of section 1857(i) shall apply with respect to prescription 
drug plans in relation to employment-based retiree health 
coverage in a manner similar to the manner in which they apply 
to an MA plan in relation to employers, including authorizing 
the establishment of separate premium amounts for enrollees in 
a prescription drug plan by reason of such coverage and 
limitations on enrollment to part D eligible individuals 
enrolled under such coverage.
    ``(c) Definitions.--For purposes of this section:
            ``(1) Employment-based retiree health coverage.--
        The term `employment-based retiree health coverage' 
        means health insurance or other coverage of health care 
        costs (whether provided by voluntary insurance coverage 
        or pursuant to statutory or contractual obligation) for 
        part D eligible individuals (or for such individuals 
        and their spouses and dependents) under a group health 
        plan based on their status as retired participants in 
        such plan.
            ``(2) Sponsor.--The term `sponsor' means a plan 
        sponsor, as defined in section 3(16)(B) of the Employee 
        Retirement Income Security Act of 1974, in relation to 
        a group health plan, except that, in the case of a plan 
        maintained jointly by one employer and an employee 
        organization and with respect to which the employer is 
        the primary source of financing, such term means such 
        employer.
            ``(3) Group health plan.--The term `group health 
        plan' includes such a plan as defined in section 607(1) 
        of the Employee Retirement Income Security Act of 1974 
        and also includes the following:
                    ``(A) Federal and state governmental 
                plans.--Such a plan established or maintained 
                for its employees by the Government of the 
                United States, by the government of any State 
                or political subdivision thereof, or by any 
                agency or instrumentality of any of the 
                foregoing, including a health benefits plan 
                offered under chapter 89 of title 5, United 
                States Code.
                    ``(B) Collectively bargained plans.--Such a 
                plan established or maintained under or 
                pursuant to one or more collective bargaining 
                agreements.
                    ``(C) Church plans.--Such a plan 
                established and maintained for its employees 
                (or their beneficiaries) by a church or by a 
                convention or association of churches which is 
                exempt from tax under section 501 of the 
                Internal Revenue Code of 1986.

               ``STATE PHARMACEUTICAL ASSISTANCE PROGRAMS

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

   ``COORDINATION REQUIREMENTS FOR PLANS PROVIDING PRESCRIPTION DRUG 
                                COVERAGE

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

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

``MEDICARE PRESCRIPTION DRUG DISCOUNT CARD AND TRANSITIONAL ASSISTANCE 
                                PROGRAM

    ``Sec. 1860D-31. (a) Establishment of Program.--
            ``(1) In general.--The Secretary shall establish a 
        program under this section--
                    ``(A) to endorse prescription drug discount 
                card programs that meet the requirements of 
                this section in order to provide access to 
                prescription drug discounts through 
                prescription drug card sponsors for discount 
                card eligible individuals throughout the United 
                States; and
                    ``(B) to provide for transitional 
                assistance for transitional assistance eligible 
                individuals enrolled in such endorsed programs.
            ``(2) Period of operation.--
                    ``(A) Implementation deadline.--The 
                Secretary shall implement the program under 
                this section so that discount cards and 
                transitional assistance are first available by 
                not later than 6 months after the date of the 
                enactment of this section.
                    ``(B) Expediting implementation.--The 
                Secretary shall promulgate regulations to carry 
                out the program under this section which may be 
                effective and final immediately on an interim 
                basis as of the date of publication of the 
                interim final regulation. If the Secretary 
                provides for an interim final regulation, the 
                Secretary shall provide for a period of public 
                comments on such regulation after the date of 
                publication. The Secretary may change or revise 
                such regulation after completion of the period 
                of public comment.
                    ``(C) Termination and transition.--
                            ``(i) In general.--Subject to 
                        clause (ii)--
                                    ``(I) the program under 
                                this section shall not apply to 
                                covered discount card drugs 
                                dispensed after December 31, 
                                2005; and
                                    ``(II) transitional 
                                assistance shall be available 
                                after such date to the extent 
                                the assistance relates to drugs 
                                dispensed on or before such 
                                date.
                            ``(ii) Transition.--In the case of 
                        an individual who is enrolled in an 
                        endorsed discount card program as of 
                        December 31, 2005, during the 
                        individual's transition period (if any) 
                        under clause (iii), in accordance with 
                        transition rules specified by the 
                        Secretary--
                                    ``(I) such endorsed program 
                                may continue to apply to 
                                covered discount card drugs 
                                dispensed to the individual 
                                under the program during such 
                                transition period;
                                    ``(II) no annual enrollment 
                                fee shall be applicable during 
                                the transition period;
                                    ``(III) during such period 
                                the individual may not change 
                                the endorsed program plan in 
                                which the individual is 
                                enrolled; and
                                    ``(IV) the balance of any 
                                transitional assistance 
                                remaining on January 1, 2006, 
                                shall remain available for 
                                drugs dispensed during the 
                                individual's transition period.
                            ``(iii) Transition period.--The 
                        transition period under this clause for 
                        an individual is the period beginning 
                        on January 1, 2006, and ending in the 
                        case of an individual who--
                                    ``(I) is enrolled in a 
                                prescription drug plan or an 
                                MA-PD plan before the last date 
                                of the initial enrollment 
                                period under section 1860D-
                                1(b)(2)(A), on the effective 
                                date of the individual's 
                                coverage under such part; or
                                    ``(II) is not so enrolled, 
                                on the last day of such initial 
                                period.
            ``(3) Voluntary nature of program.--Nothing in this 
        section shall be construed as requiring a discount card 
        eligible individual to enroll in an endorsed discount 
        card program under this section.
            ``(4) Glossary and definitions of terms.--For 
        purposes of this section:
                    ``(A) Covered discount card drug.--The term 
                `covered discount card drug' has the meaning 
                given the term `covered part D drug' in section 
                1860D-2(e).
                    ``(B) Discount card eligible individual.--
                The term `discount card eligible individual' is 
                defined in subsection (b)(1)(A).
                    ``(C) Endorsed discount card program; 
                endorsed program.--The terms `endorsed discount 
                card program' and `endorsed program' mean a 
                prescription drug discount card program that is 
                endorsed (and for which the sponsor has a 
                contract with the Secretary) under this 
                section.
                    ``(D) Negotiated price.--Negotiated prices 
                are described in subsection (e)(1)(A)(ii).
                    ``(E) Prescription drug card sponsor; 
                sponsor.--The terms `prescription drug card 
                sponsor' and `sponsor' are defined in 
                subsection (h)(1)(A).
                    ``(F) State.--The term `State' has the 
                meaning given such term for purposes of title 
                XIX.
                    ``(G) Transitional assistance eligible 
                individual.--The term `transitional assistance 
                eligible individual' is defined in subsection 
                (b)(2).
    ``(b) Eligibility for Discount Card and for Transitional 
Assistance.--For purposes of this section:
            ``(1) Discount card eligible individual.--
                    ``(A) In general.--The term `discount card 
                eligible individual' means an individual who--
                            ``(i) is entitled to benefits, or 
                        enrolled, under part A or enrolled 
                        under part B; and
                            ``(ii) subject to paragraph (4), is 
                        not an individual described in 
                        subparagraph (B).
                    ``(B) Individual described.--An individual 
                described in this subparagraph is an individual 
                described in subparagraph (A)(i) who is 
                enrolled under title XIX (or under a waiver 
                under section 1115 of the requirements of such 
                title) and is entitled to any medical 
                assistance for outpatient prescribed drugs 
                described in section 1905(a)(12).
            ``(2) Transitional assistance eligible 
        individual.--
                    ``(A) In general.--Subject to subparagraph 
                (B), the term `transitional assistance eligible 
                individual' means a discount card eligible 
                individual who resides in one of the 50 States 
                or the District of Columbia and whose income 
                (as determined under subsection (f)(1)(B)) is 
                not more than 135 percent of the poverty line 
                (as defined in section 673(2) of the Community 
                Services Block Grant Act, 42 U.S.C. 9902(2), 
                including any revision required by such 
                section) applicable to the family size involved 
                (as determined under subsection (f)(1)(B)).
                    ``(B) Exclusion of individuals with certain 
                prescription drug coverage.--Such term does not 
                include an individual who has coverage of, or 
                assistance for, covered discount card drugs 
                under any of the following:
                            ``(i) A group health plan or health 
                        insurance coverage (as such terms are 
                        defined in section 2791 of the Public 
                        Health Service Act), other than 
                        coverage under a plan under part C and 
                        other than coverage consisting only of 
                        excepted benefits (as defined in such 
                        section).
                            ``(ii) Chapter 55 of title 10, 
                        United States Code (relating to medical 
                        and dental care for members of the 
                        uniformed services).
                            ``(iii) A plan under chapter 89 of 
                        title 5, United States Code (relating 
                        to the Federal employees' health 
                        benefits program).
            ``(3) Special transitional assistance eligible 
        individual.--The term `special transitional assistance 
        eligible individual' means a transitional assistance 
        eligible individual whose income (as determined under 
        subsection (f)(1)(B)) is not more than 100 percent of 
        the poverty line (as defined in section 673(2) of the 
        Community Services Block Grant Act, 42 U.S.C. 9902(2), 
        including any revision required by such section) 
        applicable to the family size involved (as determined 
        under subsection (f)(1)(B)).
            ``(4) Treatment of medicaid medically needy.--For 
        purposes of this section, the Secretary shall provide 
        for appropriate rules for the treatment of medically 
        needy individuals described in section 1902(a)(10)(C) 
        as discount card eligible individuals and as 
        transitional assistance eligible individuals.
    ``(c) Enrollment and Enrollment Fees.--
            ``(1) Enrollment process.--The Secretary shall 
        establish a process through which a discount card 
        eligible individual is enrolled and disenrolled in an 
        endorsed discount card program under this section 
        consistent with the following:
                    ``(A) Continuous open enrollment.--Subject 
                to the succeeding provisions of this paragraph 
                and subsection (h)(9), a discount card eligible 
                individual who is not enrolled in an endorsed 
                discount card program and is residing in a 
                State may enroll in any such endorsed program--
                            ``(i) that serves residents of the 
                        State; and
                            ``(ii) at any time beginning on the 
                        initial enrollment date, specified by 
                        the Secretary, and before January 1, 
                        2006.
                    ``(B) Use of standard enrollment form.--An 
                enrollment in an endorsed program shall only be 
                effected through completion of a standard 
                enrollment form specified by the Secretary. 
                Each sponsor of an endorsed program shall 
                transmit to the Secretary (in a form and manner 
                specified by the Secretary) information on 
                individuals who complete such enrollment forms 
                and, to the extent provided under subsection 
                (f), information regarding certification as a 
                transitional assistance eligible individual.
                    ``(C) Enrollment only in one program.--
                            ``(i) In general.--Subject to 
                        clauses (ii) and (iii), a discount card 
                        eligible individual may be enrolled in 
                        only one endorsed discount card program 
                        under this section.
                            ``(ii) Change in endorsed program 
                        permitted for 2005.--The Secretary 
                        shall establish a process, similar to 
                        (and coordinated with) the process for 
                        annual, coordinated elections under 
                        section 1851(e)(3) during 2004, under 
                        which an individual enrolled in an 
                        endorsed discount card program may 
                        change the endorsed program in which 
                        the individual is enrolled for 2005.
                            ``(iii) Additional exceptions.--The 
                        Secretary shall permit an individual to 
                        change the endorsed discount card 
                        program in which the individual is 
                        enrolled in the case of an individual 
                        who changes residence to be outside the 
                        service area of such program and in 
                        such other exceptional cases as the 
                        Secretary may provide (taking into 
                        account the circumstances for special 
                        election periods under section 
                        1851(e)(4)). Under the previous 
                        sentence, the Secretary may consider a 
                        change in residential setting (such as 
                        placement in a nursing facility) or 
                        enrollment in or disenrollment from a 
                        plan under part C through which the 
                        individual was enrolled in an endorsed 
                        program to be an exceptional 
                        circumstance.
                    ``(D) Disenrollment.--
                            ``(i) Voluntary.--An individual may 
                        voluntarily disenroll from an endorsed 
                        discount card program at any time. In 
                        the case of such a voluntary 
                        disenrollment, the individual may not 
                        enroll in another endorsed program, 
                        except under such exceptional 
                        circumstances as the Secretary may 
                        recognize under subparagraph (C)(iii) 
                        or during the annual coordinated 
                        enrollment period provided under 
                        subparagraph (C)(ii).
                            ``(ii) Involuntary.--An individual 
                        who is enrolled in an endorsed discount 
                        card program and not a transitional 
                        assistance eligible individual may be 
                        disenrolled by the sponsor of the 
                        program if the individual fails to pay 
                        any annual enrollment fee required 
                        under the program.
                    ``(E) Application to certain enrollees.--In 
                the case of a discount card eligible individual 
                who is enrolled in a plan described in section 
                1851(a)(2)(A) or under a reasonable cost 
                reimbursement contract under section 1876(h) 
                that is offered by an organization that also is 
                a prescription discount card sponsor that 
                offers an endorsed discount card program under 
                which the individual may be enrolled and that 
                has made an election to apply the special rules 
                under subsection (h)(9)(B) for such an endorsed 
                program, the individual may only enroll in such 
                an endorsed discount card program offered by 
                that sponsor.
            ``(2) Enrollment fees.--
                    ``(A) In general.--Subject to the 
                succeeding provisions of this paragraph, a 
                prescription drug card sponsor may charge an 
                annual enrollment fee for each discount card 
                eligible individual enrolled in an endorsed 
                discount card program offered by such sponsor. 
                The annual enrollment fee for either 2004 or 
                2005 shall not be prorated for portions of a 
                year. There shall be no annual enrollment fee 
                for a year after 2005.
                    ``(B) Amount.--No annual enrollment fee 
                charged under subparagraph (A) may exceed $30.
                    ``(C) Uniform enrollment fee.--A 
                prescription drug card sponsor shall ensure 
                that the annual enrollment fee (if any) for an 
                endorsed discount card program is the same for 
                all discount card eligible individuals enrolled 
                in the program and residing in the State.
                    ``(D) Collection.--The annual enrollment 
                fee (if any) charged for enrollment in an 
                endorsed program shall be collected by the 
                sponsor of the program.
                    ``(E) Payment of fee for transitional 
                assistance eligible individuals.--Under 
                subsection (g)(1)(A), the annual enrollment fee 
                (if any) otherwise charged under this paragraph 
                with respect to a transitional assistance 
                eligible individual shall be paid by the 
                Secretary on behalf of such individual.
                    ``(F) Optional payment of fee by state.--
                            ``(i) In general.--The Secretary 
                        shall establish an arrangement under 
                        which a State may provide for payment 
                        of some or all of the enrollment fee 
                        for some or all enrollees who are not 
                        transitional assistance eligible 
                        individuals in the State, as specified 
                        by the State under the arrangement. 
                        Insofar as such a payment arrangement 
                        is made with respect to an enrollee, 
                        the amount of the enrollment fee shall 
                        be paid directly by the State to the 
                        sponsor.
                            ``(ii) No federal matching 
                        available under medicaid or schip.--
                        Expenditures made by a State for 
                        enrollment fees described in clause (i) 
                        shall not be treated as State 
                        expenditures for purposes of Federal 
                        matching payments under title XIX or 
                        XXI.
                    ``(G) Rules in case of changes in program 
                enrollment during a year.--The Secretary shall 
                provide special rules in the case of payment of 
                an annual enrollment fee for a discount card 
                eligible individual who changes the endorsed 
                program in which the individual is enrolled 
                during a year.
            ``(3) Issuance of discount card.--Each prescription 
        drug card sponsor of an endorsed discount card program 
        shall issue, in a standard format specified by the 
        Secretary, to each discount card eligible individual 
        enrolled in such program a card that establishes proof 
        of enrollment and that can be used in a coordinated 
        manner to identify the sponsor, program, and individual 
        for purposes of the program under this section.
            ``(4) Period of access.--In the case of a discount 
        card eligible individual who enrolls in an endorsed 
        program, access to negotiated prices and transitional 
        assistance, if any, under such endorsed program shall 
        take effect on such date as the Secretary shall 
        specify.
    ``(d) Provision of Information on Enrollment and Program 
Features.--
            ``(1) Secretarial responsibilities.--
                    ``(A) In general.--The Secretary shall 
                provide for activities under this subsection to 
                broadly disseminate information to discount 
                card eligible individuals (and prospective 
                eligible individuals) regarding--
                            ``(i) enrollment in endorsed 
                        discount card programs; and
                            ``(ii) the features of the program 
                        under this section, including the 
                        availability of transitional 
                        assistance.
                    ``(B) Promotion of informed choice.--In 
                order to promote informed choice among endorsed 
                prescription drug discount card programs, the 
                Secretary shall provide for the dissemination 
                of information which--
                            ``(i) compares the annual 
                        enrollment fee and other features of 
                        such programs, which may include 
                        comparative prices for covered discount 
                        card drugs; and
                            ``(ii) includes educational 
                        materials on the variability of 
                        discounts on prices of covered discount 
                        card drugs under an endorsed program.
                The dissemination of information under clause 
                (i) shall, to the extent practicable, be 
                coordinated with the dissemination of 
                educational information on other medicare 
                options.
                    ``(C) Special rule for initial enrollment 
                date under the program.--To the extent 
                practicable, the Secretary shall ensure, 
                through the activities described in 
                subparagraphs (A) and (B), that discount card 
                eligible individuals are provided with such 
                information at least 30 days prior to the 
                initial enrollment date specified under 
                subsection (c)(1)(A)(ii).
                    ``(D) Use of medicare toll-free number.--
                The Secretary shall provide through the toll-
                free telephone number 1-800-MEDICARE for the 
                receipt and response to inquiries and 
                complaints concerning the program under this 
                section and endorsed programs.
            ``(2) Prescription drug card sponsor 
        responsibilities.--
                    ``(A) In general.--Each prescription drug 
                card sponsor that offers an endorsed discount 
                card program shall make available to discount 
                card eligible individuals (through the Internet 
                and otherwise) information that the Secretary 
                identifies as being necessary to promote 
                informed choice among endorsed discount card 
                programs by such individuals, including 
                information on enrollment fees and negotiated 
                prices for covered discount card drugs charged 
                to such individuals.
                    ``(B) Response to enrollee questions.--Each 
                sponsor offering an endorsed discount card 
                program shall have a mechanism (including a 
                toll-free telephone number) for providing upon 
                request specific information (such as 
                negotiated prices and the amount of 
                transitional assistance remaining available 
                through the program) to discount card eligible 
                individuals enrolled in the program. The 
                sponsor shall inform transitional assistance 
                eligible individuals enrolled in the program of 
                the availability of such toll-free telephone 
                number to provide information on the amount of 
                available transitional assistance.
                    ``(C) Information on balance of 
                transitional assistance available at point-of-
                sale.--Each sponsor offering an endorsed 
                discount card program shall have a mechanism so 
                that information on the amount of transitional 
                assistance remaining under subsection (g)(1)(B) 
                is available (electronically or by telephone) 
                at the point-of-sale of covered discount card 
                drugs.
            ``(3) Public disclosure of pharmaceutical prices 
        for equivalent drugs.--
                    ``(A) In general.--A prescription drug card 
                sponsor offering an endorsed discount card 
                program shall provide that each pharmacy that 
                dispenses a covered discount card drug shall 
                inform a discount card eligible individual 
                enrolled in the program of any differential 
                between the price of the drug to the enrollee 
                and the price of the lowest priced generic 
                covered discount card drug under the program 
                that is therapeutically equivalent and 
                bioequivalent and available at such pharmacy.
                    ``(B) Timing of notice.--
                            ``(i) In general.--Subject to 
                        clause (ii), the information under 
                        subparagraph (A) shall be provided at 
                        the time of purchase of the drug 
                        involved, or, in the case of dispensing 
                        by mail order, at the time of delivery 
                        of such drug.
                            ``(ii) Waiver.--The Secretary may 
                        waive clause (i) in such circumstances 
                        as the Secretary may specify.
    ``(e) Discount Card Features.--
            ``(1) Savings to enrollees through negotiated 
        prices.--
                    ``(A) Access to negotiated prices.--
                            ``(i) In general.--Each 
                        prescription drug card sponsor that 
                        offers an endorsed discount card 
                        program shall provide each discount 
                        card eligible individual enrolled in 
                        the program with access to negotiated 
                        prices.
                            ``(ii) Negotiated prices.--For 
                        purposes of this section, negotiated 
                        prices shall take into account 
                        negotiated price concessions, such as 
                        discounts, direct or indirect 
                        subsidies, rebates, and direct or 
                        indirect remunerations, for covered 
                        discount card drugs, and include any 
                        dispensing fees for such drugs.
                    ``(B) Ensuring pharmacy access.--Each 
                prescription drug card sponsor offering an 
                endorsed discount card program shall secure the 
                participation in its network of a sufficient 
                number of pharmacies that dispense (other than 
                solely by mail order) drugs directly to 
                enrollees to ensure convenient access to 
                covered discount card drugs at negotiated 
                prices (consistent with rules established by 
                the Secretary). The Secretary shall establish 
                convenient access rules under this clause that 
                are no less favorable to enrollees than the 
                standards for convenient access to pharmacies 
                included in the statement of work of 
                solicitation (#MDA906-03-R-0002) of the 
                Department of Defense under the TRICARE Retail 
                Pharmacy (TRRx) as of March 13, 2003.
                    ``(C) Prohibition on charges for required 
                services.--
                            ``(i) In general.--Subject to 
                        clause (ii), a prescription drug card 
                        sponsor (and any pharmacy contracting 
                        with such sponsor for the provision of 
                        covered discount card drugs to 
                        individuals enrolled in such sponsor's 
                        endorsed discount card program) may not 
                        charge an enrollee any amount for any 
                        items and services required to be 
                        provided by the sponsor under this 
                        section.
                            ``(ii) Construction.--Nothing in 
                        clause (i) shall be construed to 
                        prevent--
                                    ``(I) the sponsor from 
                                charging the annual enrollment 
                                fee (except in the case of a 
                                transitional assistance 
                                eligible individual); and
                                    ``(II) the pharmacy 
                                dispensing the covered discount 
                                card drug, from imposing a 
                                charge (consistent with the 
                                negotiated price) for the 
                                covered discount card drug 
                                dispensed, reduced by the 
                                amount of any transitional 
                                assistance made available.
                    ``(D) Inapplicability of medicaid best 
                price rules.--The prices negotiated from drug 
                manufacturers for covered discount card drugs 
                under an endorsed discount card program under 
                this section shall (notwithstanding any other 
                provision of law) not be taken into account for 
                the purposes of establishing the best price 
                under section 1927(c)(1)(C).
            ``(2) Reduction of medication errors and adverse 
        drug interactions.--Each endorsed discount card program 
        shall implement a system to reduce the likelihood of 
        medication errors and adverse drug interactions and to 
        improve medication use.
    ``(f) Eligibility Procedures for Endorsed Programs and 
Transitional Assistance.--
            ``(1) Determinations.--
                    ``(A) Procedures.--The determination of 
                whether an individual is a discount card 
                eligible individual or a transitional 
                assistance eligible individual or a special 
                transitional assistance eligible individual (as 
                defined in subsection (b)) shall be determined 
                under procedures specified by the Secretary 
                consistent with this subsection.
                    ``(B) Income and family size 
                determinations.--For purposes of this section, 
                the Secretary shall define the terms `income' 
                and `family size' and shall specify the methods 
                and period for which they are determined. If 
                under such methods income or family size is 
                determined based on the income or family size 
                for prior periods of time, the Secretary shall 
                permit (whether through a process of 
                reconsideration or otherwise) an individual 
                whose income or family size has changed to 
                elect to have eligibility for transitional 
                assistance determined based on income or family 
                size for a more recent period.
            ``(2) Use of self-certification for transitional 
        assistance.--
                    ``(A) In general.--Under the procedures 
                specified under paragraph (1)(A) an individual 
                who wishes to be treated as a transitional 
                assistance eligible individual or a special 
                transitional assistance eligible individual 
                under this section (or another qualified person 
                on such individual's behalf) shall certify on 
                the enrollment form under subsection (c)(1)(B) 
                (or similar form specified by the Secretary), 
                through a simplified means specified by the 
                Secretary and under penalty of perjury or 
                similar sanction for false statements, as to 
                the amount of the individual's income, family 
                size, and individual's prescription drug 
                coverage (if any) insofar as they relate to 
                eligibility to be a transitional assistance 
                eligible individual or a special transitional 
                assistance eligible individual. Such 
                certification shall be deemed as consent to 
                verification of respective eligibility under 
                paragraph (3). A certification under this 
                paragraph may be provided before, on, or after 
                the time of enrollment under an endorsed 
                program.
                    ``(B) Treatment of self-certification.--The 
                Secretary shall treat a certification under 
                subparagraph (A) that is verified under 
                paragraph (3) as a determination that the 
                individual involved is a transitional 
                assistance eligible individual or special 
                transitional assistance eligible individual (as 
                the case may be) for the entire period of the 
                enrollment of the individual in any endorsed 
                program.
            ``(3) Verification.--
                    ``(A) In general.--The Secretary shall 
                establish methods (which may include the use of 
                sampling and the use of information described 
                in subparagraph (B)) to verify eligibility for 
                individuals who seek to enroll in an endorsed 
                program and for individuals who provide a 
                certification under paragraph (2).
                    ``(B) Information described.--The 
                information described in this subparagraph is 
                as follows:
                            ``(i) Medicaid-related 
                        information.--Information on 
                        eligibility under title XIX and 
                        provided to the Secretary under 
                        arrangements between the Secretary and 
                        States in order to verify the 
                        eligibility of individuals who seek to 
                        enroll in an endorsed program and of 
                        individuals who provide certification 
                        under paragraph (2).
                            ``(ii) Social security 
                        information.--Financial information 
                        made available to the Secretary under 
                        arrangements between the Secretary and 
                        the Commissioner of Social Security in 
                        order to verify the eligibility of 
                        individuals who provide such 
                        certification.
                            ``(iii) Information from secretary 
                        of the treasury.--Financial information 
                        made available to the Secretary under 
                        section 6103(l)(19) of the Internal 
                        Revenue Code of 1986 in order to verify 
                        the eligibility of individuals who 
                        provide such certification.
                    ``(C) Verification in cases of medicaid 
                enrollees.--
                            ``(i) In general.--Nothing in this 
                        section shall be construed as 
                        preventing the Secretary from finding 
                        that a discount card eligible 
                        individual meets the income 
                        requirements under subsection (b)(2)(A) 
                        if the individual is within a category 
                        of discount card eligible individuals 
                        who are enrolled under title XIX (such 
                        as qualified medicare beneficiaries 
                        (QMBs), specified low-income medicare 
                        beneficiaries (SLMBs), and certain 
                        qualified individuals (QI-1s)).
                            ``(ii) Availability of information 
                        for verification purposes.--As a 
                        condition of provision of Federal 
                        financial participation to a State that 
                        is one of the 50 States or the District 
                        of Columbia under title XIX, for 
                        purposes of carrying out this section, 
                        the State shall provide the information 
                        it submits to the Secretary relating to 
                        such title in a manner specified by the 
                        Secretary that permits the Secretary to 
                        identify individuals who are described 
                        in subsection (b)(1)(B) or are 
                        transitional assistance eligible 
                        individuals or special transitional 
                        assistance eligible individuals.
            ``(4) Reconsideration.--
                    ``(A) In general.--The Secretary shall 
                establish a process under which a discount card 
                eligible individual, who is determined through 
                the certification and verification methods 
                under paragraphs (2) and (3) not to be a 
                transitional assistance eligible individual or 
                a special transitional assistance eligible 
                individual, may request a reconsideration of 
                the determination.
                    ``(B) Contract authority.--The Secretary 
                may enter into a contract to perform the 
                reconsiderations requested under subparagraph 
                (A).
                    ``(C) Communication of results.--Under the 
                process under subparagraph (A) the results of 
                such reconsideration shall be communicated to 
                the individual and the prescription drug card 
                sponsor involved.
    ``(g) Transitional Assistance.--
            ``(1) Provision of transitional assistance.--An 
        individual who is a transitional assistance eligible 
        individual (as determined under this section) and who 
        is enrolled with an endorsed program is entitled--
                    ``(A) to have payment made of any annual 
                enrollment fee charged under subsection (c)(2) 
                for enrollment under the program; and
                    ``(B) to have payment made, up to the 
                amount specified in paragraph (2), under such 
                endorsed program of 90 percent (or 95 percent 
                in the case of a special transitional 
                assistance eligible individual) of the costs 
                incurred for covered discount card drugs 
                obtained through the program taking into 
                account the negotiated price (if any) for the 
                drug under the program.
            ``(2) Limitation on dollar amount.--
                    ``(A) In general.--Subject to subparagraph 
                (B), the amount specified in this paragraph for 
                a transitional assistance eligible individual--
                            ``(i) for costs incurred during 
                        2004, is $600; or
                            ``(ii) for costs incurred during 
                        2005, is--
                                    ``(I) $600, plus
                                    ``(II) except as provided 
                                in subparagraph (E), the amount 
                                by which the amount available 
                                under this paragraph for 2004 
                                for that individual exceeds the 
                                amount of payment made under 
                                paragraph (1)(B) for that 
                                individual for costs incurred 
                                during 2004.
                    ``(B) Proration.--
                            ``(i) In general.--In the case of 
                        an individual not described in clause 
                        (ii) with respect to a year, the 
                        Secretary may prorate the amount 
                        specified in subparagraph (A) for the 
                        balance of the year involved in a 
                        manner specified by the Secretary.
                            ``(ii) Individual described.--An 
                        individual described in this clause is 
                        a transitional assistance eligible 
                        individual who--
                                    ``(I) with respect to 2004, 
                                enrolls in an endorsed program, 
                                and provides a certification 
                                under subsection (f)(2), before 
                                the initial implementation date 
                                of the program under this 
                                section; and
                                    ``(II) with respect to 
                                2005, is enrolled in an 
                                endorsed program, and has 
                                provided such a certification, 
                                before February 1, 2005.
                    ``(C) Accounting for available balances in 
                cases of changes in program enrollment.--In the 
                case of a transitional assistance eligible 
                individual who changes the endorsed discount 
                card program in which the individual is 
                enrolled under this section, the Secretary 
                shall provide a process under which the 
                Secretary provides to the sponsor of the 
                endorsed program in which the individual 
                enrolls information concerning the balance of 
                amounts available on behalf of the individual 
                under this paragraph.
                    ``(D) Limitation on use of funds.--Pursuant 
                to subsection (a)(2)(C), no assistance shall be 
                provided under paragraph (1)(B) with respect to 
                covered discount card drugs dispensed after 
                December 31, 2005.
                    ``(E) No rollover permitted in case of 
                voluntary disenrollment.--Except in such 
                exceptional cases as the Secretary may provide, 
                in the case of a transitional assistance 
                eligible individual who voluntarily disenrolls 
                from an endorsed plan, the provisions of 
                subclause (II) of subparagraph (A)(ii) shall 
                not apply.
            ``(3) Payment.--The Secretary shall provide a 
        method for the reimbursement of prescription drug card 
        sponsors for assistance provided under this subsection.
            ``(4) Coverage of coinsurance.--
                    ``(A) Waiver permitted by pharmacy.--
                Nothing in this section shall be construed as 
                precluding a pharmacy from reducing or waiving 
                the application of coinsurance imposed under 
                paragraph (1)(B) in accordance with section 
                1128B(b)(3)(G).
                    ``(B) Optional payment of coinsurance by 
                state.--
                            ``(i) In general.--The Secretary 
                        shall establish an arrangement under 
                        which a State may provide for payment 
                        of some or all of the coinsurance under 
                        paragraph (1)(B) for some or all 
                        enrollees in the State, as specified by 
                        the State under the arrangement. 
                        Insofar as such a payment arrangement 
                        is made with respect to an enrollee, 
                        the amount of the coinsurance shall be 
                        paid directly by the State to the 
                        pharmacy involved.
                            ``(ii) No federal matching 
                        available under medicaid or schip.--
                        Expenditures made by a State for 
                        coinsurance described in clause (i) 
                        shall not be treated as State 
                        expenditures for purposes of Federal 
                        matching payments under title XIX or 
                        XXI.
                            ``(iii) Not treated as medicare 
                        cost-sharing.--Coinsurance described in 
                        paragraph (1)(B) shall not be treated 
                        as coinsurance under this title for 
                        purposes of section 1905(p)(3)(B).
                    ``(C) Treatment of coinsurance.--The amount 
                of any coinsurance imposed under paragraph 
                (1)(B), whether paid or waived under this 
                paragraph, shall not be taken into account in 
                applying the limitation in dollar amount under 
                paragraph (2).
            ``(5) Ensuring access to transitional assistance 
        for qualified residents of long-term care facilities 
        and american indians.--
                    ``(A) Residents of long-term care 
                facilities.--The Secretary shall establish 
                procedures and may waive requirements of this 
                section as necessary to negotiate arrangements 
                with sponsors to provide arrangements with 
                pharmacies that support long-term care 
                facilities in order to ensure access to 
                transitional assistance for transitional 
                assistance eligible individuals who reside in 
                long-term care facilities.
                    ``(B) American indians.--The Secretary 
                shall establish procedures and may waive 
                requirements of this section to ensure that, 
                for purposes of providing transitional 
                assistance, pharmacies operated by the Indian 
                Health Service, Indian tribes and tribal 
                organizations, and urban Indian organizations 
                (as defined in section 4 of the Indian Health 
                Care Improvement Act) have the opportunity to 
                participate in the pharmacy networks of at 
                least two endorsed programs in each of the 50 
                States and the District of Columbia where such 
                a pharmacy operates.
            ``(6) No impact on benefits under other programs.--
        The availability of negotiated prices or transitional 
        assistance under this section shall not be treated as 
        benefits or otherwise taken into account in determining 
        an individual's eligibility for, or the amount of 
        benefits under, any other Federal program.
            ``(7) Disregard for purposes of part c.--
        Nonuniformity of benefits resulting from the 
        implementation of this section (including the provision 
        or nonprovision of transitional assistance and the 
        payment or waiver of any enrollment fee under this 
        section) shall not be taken into account in applying 
        section 1854(f).
    ``(h) Qualification of Prescription Drug Card Sponsors and 
Endorsement of Discount Card Programs; Beneficiary 
Protections.--
            ``(1) Prescription drug card sponsor and 
        qualifications.--
                    ``(A) Prescription drug card sponsor and 
                sponsor defined.--For purposes of this section, 
                the terms `prescription drug card sponsor' and 
                `sponsor' mean any nongovernmental entity that 
                the Secretary determines to be appropriate to 
                offer an endorsed discount card program under 
                this section, which may include--
                            ``(i) a pharmaceutical benefit 
                        management company;
                            ``(ii) a wholesale or retail 
                        pharmacy delivery system;
                            ``(iii) an insurer (including an 
                        insurer that offers medicare 
                        supplemental policies under section 
                        1882);
                            ``(iv) an organization offering a 
                        plan under part C; or
                            ``(v) any combination of the 
                        entities described in clauses (i) 
                        through (iv).
                    ``(B) Administrative qualifications.--Each 
                endorsed discount card program shall be 
                operated directly, or through arrangements with 
                an affiliated organization (or organizations), 
                by one or more entities that have demonstrated 
                experience and expertise in operating such a 
                program or a similar program and that meets 
                such business stability and integrity 
                requirements as the Secretary may specify.
                    ``(C) Accounting for transitional 
                assistance.--The sponsor of an endorsed 
                discount card program shall have arrangements 
                satisfactory to the Secretary to account for 
                the assistance provided under subsection (g) on 
                behalf of transitional assistance eligible 
                individuals.
            ``(2) Applications for program endorsement.--
                    ``(A) Submission.--Each prescription drug 
                card sponsor that seeks endorsement of a 
                prescription drug discount card program under 
                this section shall submit to the Secretary, at 
                such time and in such manner as the Secretary 
                may specify, an application containing such 
                information as the Secretary may require.
                    ``(B) Approval; compliance with applicable 
                requirements.--The Secretary shall review the 
                application submitted under subparagraph (A) 
                and shall determine whether to endorse the 
                prescription drug discount card program. The 
                Secretary may not endorse such a program 
                unless--
                            ``(i) the program and prescription 
                        drug card sponsor offering the program 
                        comply with the applicable requirements 
                        under this section; and
                            ``(ii) the sponsor has entered into 
                        a contract with the Secretary to carry 
                        out such requirements.
                    ``(C) Termination of endorsement and 
                contracts.--An endorsement of an endorsed 
                program and a contract under subparagraph (B) 
                shall be for the duration of the program under 
                this section (including any transition 
                applicable under subsection (a)(2)(C)(ii)), 
                except that the Secretary may, with notice and 
                for cause (as defined by the Secretary), 
                terminate such endorsement and contract.
                    ``(D) Ensuring choice of programs.--
                            ``(i) In general.--The Secretary 
                        shall ensure that there is available to 
                        each discount card eligible individual 
                        a choice of at least 2 endorsed 
                        programs (each offered by a different 
                        sponsor).
                            ``(ii) Limitation on number.--The 
                        Secretary may limit (but not below 2) 
                        the number of sponsors in a State that 
                        are awarded contracts under this 
                        paragraph.
            ``(3) Service area encompassing entire states.--
        Except as provided in paragraph (9), if a prescription 
        drug card sponsor that offers an endorsed program 
        enrolls in the program individuals residing in any part 
        of a State, the sponsor must permit any discount card 
        eligible individual residing in any portion of the 
        State to enroll in the program.
            ``(4) Savings to medicare beneficiaries.--Each 
        prescription drug card sponsor that offers an endorsed 
        discount card program shall pass on to discount card 
        eligible individuals enrolled in the program negotiated 
        prices on covered discount card drugs, including 
        discounts negotiated with pharmacies and manufacturers, 
        to the extent disclosed under subsection (i)(1).
            ``(5) Grievance mechanism.--Each prescription drug 
        card sponsor shall provide meaningful procedures for 
        hearing and resolving grievances between the sponsor 
        (including any entity or individual through which the 
        sponsor carries out the endorsed discount card program) 
        and enrollees in endorsed discount card programs of the 
        sponsor under this section in a manner similar to that 
        required under section 1852(f).
            ``(6) Confidentiality of enrollee records.--
                    ``(A) In general.--For purposes of the 
                program under this section, the operations of 
                an endorsed program are covered functions and a 
                prescription drug card sponsor is a covered 
                entity for purposes of applying part C of title 
                XI and all regulatory provisions promulgated 
                thereunder, including regulations (relating to 
                privacy) adopted pursuant to the authority of 
                the Secretary under section 264(c) of the 
                Health Insurance Portability and Accountability 
                Act of 1996 (42 U.S.C. 1320d-2 note).
                    ``(B) Waiver authority.--In order to 
                promote participation of sponsors in the 
                program under this section, the Secretary may 
                waive such relevant portions of regulations 
                relating to privacy referred to in subparagraph 
                (A), for such appropriate, limited period of 
                time, as the Secretary specifies.
            ``(7) Limitation on provision and marketing of 
        products and services.--The sponsor of an endorsed 
        discount card program--
                    ``(A) may provide under the program--
                            ``(i) a product or service only if 
                        the product or service is directly 
                        related to a covered discount card 
                        drug; or
                            ``(ii) a discount price for 
                        nonprescription drugs; and
                    ``(B) may, to the extent otherwise 
                permitted under paragraph (6) (relating to 
                application of HIPAA requirements), market a 
                product or service under the program only if 
                the product or service is directly related to--
                            ``(i) a covered discount card drug; 
                        or
                            ``(ii) a drug described in 
                        subparagraph (A)(ii) and the marketing 
                        consists of information on the 
                        discounted price made available for the 
                        drug involved.
            ``(8) Additional protections.--Each endorsed 
        discount card program shall meet such additional 
        requirements as the Secretary identifies to protect and 
        promote the interest of discount card eligible 
        individuals, including requirements that ensure that 
        discount card eligible individuals enrolled in endorsed 
        discount card programs are not charged more than the 
        lower of the price based on negotiated prices or the 
        usual and customary price.
            ``(9) Special rules for certain organizations.--
                    ``(A) In general.--In the case of an 
                organization that is offering a plan under part 
                C or enrollment under a reasonable cost 
                reimbursement contract under section 1876(h) 
                that is seeking to be a prescription drug card 
                sponsor under this section, the organization 
                may elect to apply the special rules under 
                subparagraph (B) with respect to enrollees in 
                any plan described in section 1851(a)(2)(A) 
                that it offers or under such contract and an 
                endorsed discount card program it offers, but 
                only if it limits enrollment under such program 
                to individuals enrolled in such plan or under 
                such contract.
                    ``(B) Special rules.--The special rules 
                under this subparagraph are as follows:
                            ``(i) Limitation on enrollment.--
                        The sponsor limits enrollment under 
                        this section under the endorsed 
                        discount card program to discount card 
                        eligible individuals who are enrolled 
                        in the part C plan involved or under 
                        the reasonable cost reimbursement 
                        contract involved and is not required 
                        nor permitted to enroll other 
                        individuals under such program.
                            ``(ii) Pharmacy access.--Pharmacy 
                        access requirements under subsection 
                        (e)(1)(B) are deemed to be met if the 
                        access is made available through a 
                        pharmacy network (and not only through 
                        mail order) and the network used by the 
                        sponsor is approved by the Secretary.
                            ``(iii) Sponsor requirements.--The 
                        Secretary may waive the application of 
                        such requirements for a sponsor as the 
                        Secretary determines to be duplicative 
                        or to conflict with a requirement of 
                        the organization under part C or 
                        section 1876 (as the case may be) or to 
                        be necessary in order to improve 
                        coordination of this section with the 
                        benefits under such part or section.
    ``(i) Disclosure and Oversight.--
            ``(1) Disclosure.--Each prescription drug card 
        sponsor offering an endorsed discount card program 
        shall disclose to the Secretary (in a manner specified 
        by the Secretary) information relating to program 
        performance, use of prescription drugs by discount card 
        eligible individuals enrolled in the program, the 
        extent to which negotiated price concessions described 
        in subsection (e)(1)(A)(ii) made available to the 
        entity by a manufacturer are passed through to 
        enrollees through pharmacies or otherwise, and such 
        other information as the Secretary may specify. The 
        provisions of section 1927(b)(3)(D) shall apply to drug 
        pricing data reported under the previous sentence 
        (other than data in aggregate form).
            ``(2) Oversight; audit and inspection authority.--
        The Secretary shall provide appropriate oversight to 
        ensure compliance of endorsed discount card programs 
        and their sponsors with the requirements of this 
        section. The Secretary shall have the right to audit 
        and inspect any books and records of a prescription 
        discount card sponsor (and of any affiliated 
        organization referred to in subsection (h)(1)(B)) that 
        pertain to the endorsed discount card program under 
        this section, including amounts payable to the sponsor 
        under this section.
            ``(3) Sanctions for abusive practices.--The 
        Secretary may implement intermediate sanctions or may 
        revoke the endorsement of a program offered by a 
        sponsor under this section if the Secretary determines 
        that the sponsor or the program no longer meets the 
        applicable requirements of this section or that the 
        sponsor has engaged in false or misleading marketing 
        practices. The Secretary may impose a civil money 
        penalty in an amount not to exceed $10,000 for conduct 
        that a party knows or should know is a violation of 
        this section. The provisions of section 1128A (other 
        than subsections (a) and (b) and the second sentence of 
        subsection (f)) shall apply to a civil money penalty 
        under the previous sentence in the same manner as such 
        provisions apply to a penalty or proceeding under 
        section 1128A(a).
    ``(j) Treatment of Territories.--
            ``(1) In general.--The Secretary may waive any 
        provision of this section (including subsection 
        (h)(2)(D)) in the case of a resident of a State (other 
        than the 50 States and the District of Columbia) 
        insofar as the Secretary determines it is necessary to 
        secure access to negotiated prices for discount card 
        eligible individuals (or, at the option of the 
        Secretary, individuals described in subsection 
        (b)(1)(A)(i)).
            ``(2) Transitional assistance.--
                    ``(A) In general.--In the case of a State, 
                other than the 50 States and the District of 
                Columbia, if the State establishes a plan 
                described in subparagraph (B) (for providing 
                transitional assistance with respect to the 
                provision of prescription drugs to some or all 
                individuals residing in the State who are 
                described in subparagraph (B)(i)), the 
                Secretary shall pay to the State for the entire 
                period of the operation of this section an 
                amount equal to the amount allotted to the 
                State under subparagraph (C).
                    ``(B) Plan.--The plan described in this 
                subparagraph is a plan that--
                            ``(i) provides transitional 
                        assistance with respect to the 
                        provision of covered discount card 
                        drugs to some or all individuals who 
                        are entitled to benefits under part A 
                        or enrolled under part B, who reside in 
                        the State, and who have income below 
                        135 percent of the poverty line; and
                            ``(ii) assures that amounts 
                        received by the State under this 
                        paragraph are used only for such 
                        assistance.
                    ``(C) Allotment limit.--The amount 
                described in this subparagraph for a State is 
                equal to $35,000,000 multiplied by the ratio 
                (as estimated by the Secretary) of--
                            ``(i) the number of individuals who 
                        are entitled to benefits under part A 
                        or enrolled under part B and who reside 
                        in the State (as determined by the 
                        Secretary as of July 1, 2003), to
                            ``(ii) the sum of such numbers for 
                        all States to which this paragraph 
                        applies.
                    ``(D) Continued availability of funds.--
                Amounts made available to a State under this 
                paragraph which are not used under this 
                paragraph shall be added to the amount 
                available to that State for purposes of 
                carrying out section 1935(e).
    ``(k) Funding.--
            ``(1) Establishment of transitional assistance 
        account.--
                    ``(A) In general.--There is created within 
                the Federal Supplementary Medical Insurance 
                Trust Fund established by section 1841 an 
                account to be known as the `Transitional 
                Assistance Account' (in this subsection 
                referred to as the `Account').
                    ``(B) Funds.--The Account shall consist of 
                such gifts and bequests as may be made as 
                provided in section 201(i)(1), accrued interest 
                on balances in the Account, and such amounts as 
                may be deposited in, or appropriated to, the 
                Account as provided in this subsection.
                    ``(C) Separate from rest of trust fund.--
                Funds provided under this subsection to the 
                Account shall be kept separate from all other 
                funds within the Federal Supplementary Medical 
                Insurance Trust Fund, but shall be invested, 
                and such investments redeemed, in the same 
                manner as all other funds and investments 
                within such Trust Fund.
            ``(2) Payments from account.--
                    ``(A) In general.--The Managing Trustee 
                shall pay from time to time from the Account 
                such amounts as the Secretary certifies are 
                necessary to make payments for transitional 
                assistance provided under subsections (g) and 
                (j)(2).
                    ``(B) Treatment in relation to part b 
                premium.--Amounts payable from the Account 
                shall not be taken into account in computing 
                actuarial rates or premium amounts under 
                section 1839.
            ``(3) Appropriations to cover benefits.--There are 
        appropriated to the Account in a fiscal year, out of 
        any moneys in the Treasury not otherwise appropriated, 
        an amount equal to the payments made from the Account 
        in the year.
            ``(4) For administrative expenses.--There are 
        authorized to be appropriated to the Secretary such 
        sums as may be necessary to carry out the Secretary's 
        responsibilities under this section.
            ``(5) Transfer of any remaining balance to medicare 
        prescription drug account.--Any balance remaining in 
        the Account after the Secretary determines that funds 
        in the Account are no longer necessary to carry out the 
        program under this section shall be transferred and 
        deposited into the Medicare Prescription Drug Account 
        under section 1860D-16.
            ``(6) Construction.--Nothing in this section shall 
        be construed as authorizing the Secretary to provide 
        for payment (other than payment of an enrollment fee on 
        behalf of a transitional assistance eligible individual 
        under subsection (g)(1)(A)) to a sponsor for 
        administrative expenses incurred by the sponsor in 
        carrying out this section (including in administering 
        the transitional assistance provisions of subsections 
        (f) and (g)).

         ``Subpart 5--Definitions and Miscellaneous Provisions

        ``DEFINITIONS; TREATMENT OF REFERENCES TO PROVISIONS IN 
                                 PART C

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

                       ``MISCELLANEOUS PROVISIONS

    ``Sec. 1860D-42. (a) Access to Coverage in Territories.--
The Secretary may waive such requirements of this part, 
including section 1860D-3(a)(1), insofar as the Secretary 
determines it is necessary to secure access to qualified 
prescription drug coverage for part D eligible individuals 
residing in a State (other than the 50 States and the District 
of Columbia).
    ``(b) Application of Demonstration Authority.--The 
provisions of section 402 of the Social Security Amendments of 
1967 (Public Law 90-248) shall apply with respect to this part 
and part C in the same manner it applies with respect to parts 
A and B, except that any reference with respect to a Trust Fund 
in relation to an experiment or demonstration project relating 
to prescription drug coverage under this part shall be deemed a 
reference to the Medicare Prescription Drug Account within the 
Federal Supplementary Medical Insurance Trust Fund.''.
    (b) Submission of Legislative Proposal.--Not later than 6 
months after the date of the enactment of this Act, the 
Secretary shall submit to the appropriate committees of 
Congress a legislative proposal providing for such technical 
and conforming amendments in the law as are required by the 
provisions of this title and title II.
    (c) Study on Transitioning Part B Prescription Drug 
Coverage.--Not later than January 1, 2005, the Secretary shall 
submit a report to Congress that makes recommendations 
regarding methods for providing benefits under subpart 1 of 
part D of title XVIII of the Social Security Act for outpatient 
prescription drugs for which benefits are provided under part B 
of such title.
    (d) Report on Progress in Implementation of Prescription 
Drug Benefit.--Not later than March 1, 2005, the Secretary 
shall submit a report to Congress on the progress that has been 
made in implementing the prescription drug benefit under this 
title. The Secretary shall include in the report specific steps 
that have been taken, and that need to be taken, to ensure a 
timely start of the program on January 1, 2006. The report 
shall include recommendations regarding an appropriate 
transition from the program under section 1860D-31 of the 
Social Security Act to prescription drug benefits under subpart 
1 of part D of title XVIII of such Act.
    (e) Additional Conforming Changes.--
            (1) Conforming references to previous part d.--Any 
        reference in law (in effect before the date of the 
        enactment of this Act) to part D of title XVIII of the 
        Social Security Act is deemed a reference to part E of 
        such title (as in effect after such date).
            (2) Conforming amendment permitting waiver of cost-
        sharing.--Section 1128B(b)(3) (42 U.S.C. 1320a-
        7b(b)(3)) is amended--
                    (A) by striking ``and'' at the end of 
                subparagraph (E);
                    (B) by striking the period at the end of 
                subparagraph (F) and inserting ``; and''; and
                    (C) by adding at the end the following new 
                subparagraph:
            ``(G) the waiver or reduction by pharmacies 
        (including pharmacies of the Indian Health Service, 
        Indian tribes, tribal organizations, and urban Indian 
        organizations) of any cost-sharing imposed under part D 
        of title XVIII, if the conditions described in clauses 
        (i) through (iii) of section 1128A(i)(6)(A) are met 
        with respect to the waiver or reduction (except that, 
        in the case of such a waiver or reduction on behalf of 
        a subsidy eligible individual (as defined in section 
        1860D-14(a)(3)), section 1128A(i)(6)(A) shall be 
        applied without regard to clauses (ii) and (iii) of 
        that section).''.
            (3) Medicare prescription drug account.--
                    (A) Section 201(g) (42 U.S.C. 401(g)) is 
                amended--
                            (i) in paragraph (1)(B)(i)(V), by 
                        inserting ``(and, of such portion, the 
                        portion of such costs which should have 
                        been borne by the Medicare Prescription 
                        Drug Account in such Trust Fund)'' 
                        after ``Trust Fund''; and
                            (ii) in paragraph (1)(B)(ii)(III), 
                        by inserting ``(and, of such portion, 
                        the portion of such costs which should 
                        have been borne by the Medicare 
                        Prescription Drug Account in such Trust 
                        Fund)'' after ``Trust Fund''.
                    (B) Section 201(i)(1) (42 U.S.C. 401(i)(1)) 
                is amended by inserting ``(and for the Medicare 
                Prescription Drug Account and the Transitional 
                Assistance Account in such Trust Fund)'' after 
                ``Federal Supplementary Medical Insurance Trust 
                Fund''.
                    (C) Section 1841 (42 U.S.C. 1395t) is 
                amended--
                            (i) in the last sentence of 
                        subsection (a)--
                                    (I) by striking ``and'' 
                                before ``such amounts''; and
                                    (II) by inserting before 
                                the period the following: ``, 
                                and such amounts as may be 
                                deposited in, or appropriated 
                                to, the Medicare Prescription 
                                Drug Account established by 
                                section 1860D-16'';
                            (ii) in subsection (g), by adding 
                        at the end the following: ``The 
                        payments provided for under part D, 
                        other than under section 1860D-
                        31(k)(2), shall be made from the 
                        Medicare Prescription Drug Account in 
                        the Trust Fund.'';
                            (iii) in subsection (h), by 
                        inserting ``or pursuant to section 
                        1860D-13(c)(1) or 1854(d)(2)(A) (in 
                        which case payments shall be made in 
                        appropriate part from the Medicare 
                        Prescription Drug Account in the Trust 
                        Fund)'' after ``1840(d)''; and
                            (iv) in subsection (i), by 
                        inserting after ``and section 1842(g)'' 
                        the following: ``and pursuant to 
                        sections 1860D-13(c)(1) and 
                        1854(d)(2)(A) (in which case payments 
                        shall be made in appropriate part from 
                        the Medicare Prescription Drug Account 
                        in the Trust Fund)''.
                    (D) Section 1853(f) (42 U.S.C. 1395w-23(f)) 
                is amended--
                            (i) in the heading by striking 
                        ``Trust Fund'' and inserting ``Trust 
                        Funds''; and
                            (ii) by inserting after the first 
                        sentence the following: ``Payments to 
                        MA organizations for statutory drug 
                        benefits provided under this title are 
                        made from the Medicare Prescription 
                        Drug Account in the Federal 
                        Supplementary Medical Insurance Trust 
                        Fund.''.
            (4) Application of confidentiality for drug pricing 
        data.--Section 1927(b)(3)(D) (42 U.S.C. 1396r-
        8(b)(3)(D)) is amended by adding after and below clause 
        (iii) the following:
                ``The previous sentence shall also apply to 
                information disclosed under section 1860D-
                2(d)(2) or 1860D-4(c)(2)(E).''.
            (5) Clarification of treatment of part a 
        enrollees.--Section 1818(a) (42 U.S.C. 1395i-2(a)) is 
        amended by adding at the end the following: ``Except as 
        otherwise provided, any reference to an individual 
        entitled to benefits under this part includes an 
        individual entitled to benefits under this part 
        pursuant to an enrollment under this section or section 
        1818A.''.
            (6) Disclosure.--Section 6103(l)(7)(D)(ii) of the 
        Internal Revenue Code of 1986 is amended by inserting 
        ``or subsidies provided under section 1860D-14 of such 
        Act'' after ``Social Security Act''.
            (7) Extension of study authority.--Section 1875(b) 
        (42 U.S.C. 1395ll(b)) is amended by striking ``the 
        insurance programs under parts A and B'' and inserting 
        ``this title''.
            (8) Conforming amendments relating to facilitation 
        of electronic prescribing.--
                    (A) Section 1128B(b)(3)(C) (42 U.S.C. 
                1320a-7b(b)(3)(C)) is amended by inserting ``or 
                in regulations under section 1860D-3(e)(6)'' 
                after ``1987''.
                    (B) Section 1877(b) (42 U.S.C. 1395nn(b)) 
                is amended by adding at the end the following 
                new paragraph:
            ``(5) Electronic prescribing.--An exception 
        established by regulation under section 1860D-
        3(e)(6).''.
            (9) Other changes.--Section 1927(g)(1)(B)(i) (42 
        U.S.C. 1396r-8(g)(1)(B)(i)) is amended--
                    (A) by adding ``and'' at the end of 
                subclause (II); and
                    (B) by striking subclause (IV).

SEC. 102. MEDICARE ADVANTAGE CONFORMING AMENDMENTS.

    (a) Conforming Amendments to Enrollment Process.--
            (1) Extending open enrollment periods.--Section 
        1851(e) (42 U.S.C. 1395w-21(e)) is amended--
                    (A) in paragraph (2), by striking ``2004'' 
                and ``2005'' and inserting ``2005'' and 
                ``2006'' each place it appears; and
                    (B) in paragraph (4), by striking ``2005'' 
                and inserting ``2006'' each place it appears.
            (2) Establishment of special annual, coordinated 
        election period for 6 months beginning november 15, 
        2005.--Section 1851(e)(3)(B) (42 U.S.C. 1395w-
        21(e)(3)(B)) is amended to read as follows:
                    ``(B) Annual, coordinated election 
                period.--For purposes of this section, the term 
                `annual, coordinated election period' means--
                            ``(i) with respect to a year before 
                        2002, the month of November before such 
                        year;
                            ``(ii) with respect to 2002, 2003, 
                        2004, and 2005, the period beginning on 
                        November 15 and ending on December 31 
                        of the year before such year;
                            ``(iii) with respect to 2006, the 
                        period beginning on November 15, 2005, 
                        and ending on May 15, 2006; and
                            ``(iv) with respect to 2007 and 
                        succeeding years, the period beginning 
                        on November 15 and ending on December 
                        31 of the year before such year.''.
            (3) Special information campaign.--Section 
        1851(e)(3) (42 U.S.C. 1395w-21(e)(3)) is amended--
                    (A) in subparagraph (C), by inserting ``and 
                during the period described in subparagraph 
                (B)(iii)'' after ``(beginning with 1999)''; and
                    (B) in subparagraph (D)--
                            (i) in the heading by striking 
                        ``campaign in 1998'' and inserting 
                        ``campaigns''; and
                            (ii) by adding at the end the 
                        following: ``During the period 
                        described in subparagraph (B)(iii), the 
                        Secretary shall provide for an 
                        educational and publicity campaign to 
                        inform MA eligible individuals about 
                        the availability of MA plans (including 
                        MA-PD plans) offered in different areas 
                        and the election process provided under 
                        this section.''.
            (4) Coordinating initial enrollment periods.--
        Section 1851(e)(1) (42 U.S.C. 1395w-21(e)(1)) is 
        amended by adding at the end the following new 
        sentence: ``If any portion of an individual's initial 
        enrollment period under part B occurs after the end of 
        the annual, coordinated election period described in 
        paragraph (3)(B)(iii), the initial enrollment period 
        under this part shall further extend through the end of 
        the individual's initial enrollment period under part 
        B.''.
            (5) Coordination of effectiveness of elections 
        during annual coordinated election period for 2006.--
        Section 1851(f)(3) (42 U.S.C. 1395w-21(f)(3)) is 
        amended by inserting ``, other than the period 
        described in clause (iii) of such subsection'' after 
        ``subsection (e)(3)(B)''.
            (6) Limitation on one-change rule to same type of 
        plan.--Section 1851(e)(2) (42 U.S.C. 1395w-21(e)(2)) is 
        amended--
                    (A) in subparagraph (B)(i), by inserting 
                ``, subparagraph (C)(iii),'' after ``clause 
                (ii)'';
                    (B) in subparagraph (C)(i), by striking 
                ``clause (ii)'' and inserting ``clauses (ii) 
                and (iii)''; and
                    (C) by adding at the end of subparagraph 
                (C) the following new clause:
                            ``(iii) Limitation on exercise of 
                        right with respect to prescription drug 
                        coverage.--Effective for plan years 
                        beginning on or after January 1, 2006, 
                        in applying clause (i) (and clause (i) 
                        of subparagraph (B)) in the case of an 
                        individual who--
                                    ``(I) is enrolled in an MA 
                                plan that does provide 
                                qualified prescription drug 
                                coverage, the individual may 
                                exercise the right under such 
                                clause only with respect to 
                                coverage under the original 
                                fee-for-service plan or 
                                coverage under another MA plan 
                                that does not provide such 
                                coverage and may not exercise 
                                such right to obtain coverage 
                                under an MA-PD plan or under a 
                                prescription drug plan under 
                                part D; or
                                    ``(II) is enrolled in an 
                                MA-PD plan, the individual may 
                                exercise the right under such 
                                clause only with respect to 
                                coverage under another MA-PD 
                                plan (and not an MA plan that 
                                does not provide qualified 
                                prescription drug coverage) or 
                                under the original fee-for-
                                service plan and coverage under 
                                a prescription drug plan under 
                                part D.''.
    (b) Promotion of E-Prescribing by MA Plans.--Section 
1852(j) (42 U.S.C. 1395w-22(j)) is amended by adding at the end 
the following new paragraph:
            ``(7) Promotion of E-Prescribing by MA Plans.--
                    ``(A) In general.--An MA-PD plan may 
                provide for a separate payment or otherwise 
                provide for a differential payment for a 
                participating physician that prescribes covered 
                part D drugs in accordance with an electronic 
                prescription drug program that meets standards 
                established under section 1860D-4(e).
                    ``(B) Considerations.--Such payment may 
                take into consideration the costs of the 
                physician in implementing such a program and 
                may also be increased for those participating 
                physicians who significantly increase--
                            ``(i) formulary compliance;
                            ``(ii) lower cost, therapeutically 
                        equivalent alternatives;
                            ``(iii) reductions in adverse drug 
                        interactions; and
                            ``(iv) efficiencies in filing 
                        prescriptions through reduced 
                        administrative costs.
                    ``(C) Structure.--Additional or increased 
                payments under this subsection may be 
                structured in the same manner as medication 
                therapy management fees are structured under 
                section 1860D-4(c)(2)(E).''.
    (c) Other Conforming Amendments.--
            (1) Section 1851(a)(1) (42 U.S.C. 1395w-21(a)(1)) 
        is amended--
                    (A) by inserting ``(other than qualified 
                prescription drug benefits)'' after 
                ``benefits'';
                    (B) by striking the period at the end of 
                subparagraph (B) and inserting a comma; and
                    (C) by adding after and below subparagraph 
                (B) the following:
        ``and may elect qualified prescription drug coverage in 
        accordance with section 1860D-1.''.
            (2) Effective date.--The amendments made by this 
        subsection shall apply on and after January 1, 2006.

SEC. 103. MEDICAID AMENDMENTS.

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

  ``SPECIAL PROVISIONS RELATING TO MEDICARE PRESCRIPTION DRUG BENEFIT

    ``Sec. 1935. (a) Requirements Relating to Medicare 
Prescription Drug Low-Income Subsidies and Medicare 
Transitional Prescription Drug Assistance.--As a condition of 
its State plan under this title under section 1902(a)(66) and 
receipt of any Federal financial assistance under section 
1903(a), a State shall do the following:
            ``(1) Information for transitional prescription 
        drug assistance verification.--The State shall provide 
        the Secretary with information to carry out section 
        1860D-31(f)(3)(B)(i).
            ``(2) Eligibility determinations for low-income 
        subsidies.--The State shall--
                    ``(A) make determinations of eligibility 
                for premium and cost-sharing subsidies under 
                and in accordance with section 1860D-14;
                    ``(B) inform the Secretary of such 
                determinations in cases in which such 
                eligibility is established; and
                    ``(C) otherwise provide the Secretary with 
                such information as may be required to carry 
                out part D, other than subpart 4, of title 
                XVIII (including section 1860D-14).
            ``(3) Screening for eligibility, and enrollment of, 
        beneficiaries for medicare cost-sharing.--As part of 
        making an eligibility determination required under 
        paragraph (2) for an individual, the State shall make a 
        determination of the individual's eligibility for 
        medical assistance for any medicare cost-sharing 
        described in section 1905(p)(3) and, if the individual 
        is eligible for any such medicare cost-sharing, offer 
        enrollment to the individual under the State plan (or 
        under a waiver of such plan).
    ``(b) Regular Federal Subsidy of Administrative Costs.--The 
amounts expended by a State in carrying out subsection (a) are 
expenditures reimbursable under the appropriate paragraph of 
section 1903(a).
    (b) Phased-In Federal Assumption of Medicaid Responsibility 
for Premium and Cost-Sharing Subsidies for Dually Eligible 
Individuals.--Section 1935, as inserted by subsection (a)(2), 
is amended by adding at the end the following new subsection:
    ``(c) Federal Assumption of Medicaid Prescription Drug 
Costs for Dually Eligible Individuals.--
            ``(1) Phased-down state contribution.--
                    ``(A) In general.--Each of the 50 States 
                and the District of Columbia for each month 
                beginning with January 2006 shall provide for 
                payment under this subsection to the Secretary 
                of the product of--
                            ``(i) the amount computed under 
                        paragraph (2)(A) for the State and 
                        month;
                            ``(ii) the total number of full-
                        benefit dual eligible individuals (as 
                        defined in paragraph (6)) for such 
                        State and month; and
                            ``(iii) the factor for the month 
                        specified in paragraph (5).
                    ``(B) Form and manner of payment.--Payment 
                under subparagraph (A) shall be made in a 
                manner specified by the Secretary that is 
                similar to the manner in which State payments 
                are made under an agreement entered into under 
                section 1843, except that all such payments 
                shall be deposited into the Medicare 
                Prescription Drug Account in the Federal 
                Supplementary Medical Insurance Trust Fund.
                    ``(C) Compliance.--If a State fails to pay 
                to the Secretary an amount required under 
                subparagraph (A), interest shall accrue on such 
                amount at the rate provided under section 
                1903(d)(5). The amount so owed and applicable 
                interest shall be immediately offset against 
                amounts otherwise payable to the State under 
                section 1903(a), in accordance with the Federal 
                Claims Collection Act of 1996 and applicable 
                regulations.
                    ``(D) Data match.--The Secretary shall 
                perform such periodic data matches as may be 
                necessary to identify and compute the number of 
                full-benefit dual eligible individuals for 
                purposes of computing the amount under 
                subparagraph (A).
            ``(2) Amount.--
                    ``(A) In general.--The amount computed 
                under this paragraph for a State described in 
                paragraph (1) and for a month in a year is 
                equal to--
                            ``(i) \1/12\ of the product of--
                                    ``(I) the base year state 
                                medicaid per capita 
                                expenditures for covered part D 
                                drugs for full-benefit dual 
                                eligible individuals (as 
                                computed under paragraph (3)); 
                                and
                                    ``(II) a proportion equal 
                                to 100 percent minus the 
                                Federal medical assistance 
                                percentage (as defined in 
                                section 1905(b)) applicable to 
                                the State for the fiscal year 
                                in which the month occurs; and
                            ``(ii) increased for each year 
                        (beginning with 2004 up to and 
                        including the year involved) by the 
                        applicable growth factor specified in 
                        paragraph (4) for that year.
                    ``(B) Notice.--The Secretary shall notify 
                each State described in paragraph (1) not later 
                than October 15 before the beginning of each 
                year (beginning with 2006) of the amount 
                computed under subparagraph (A) for the State 
                for that year.
            ``(3) Base year state medicaid per capita 
        expenditures for covered part D drugs for full-benefit 
        dual eligible individuals.--
                    ``(A) In general.--For purposes of 
                paragraph (2)(A), the `base year State medicaid 
                per capita expenditures for covered part D 
                drugs for full-benefit dual eligible 
                individuals' for a State is equal to the 
                weighted average (as weighted under 
                subparagraph (C)) of--
                            ``(i) the gross per capita medicaid 
                        expenditures for prescription drugs for 
                        2003, determined under subparagraph 
                        (B); and
                            ``(ii) the estimated actuarial 
                        value of prescription drug benefits 
                        provided under a capitated managed care 
                        plan per full-benefit dual eligible 
                        individual for 2003, as determined 
                        using such data as the Secretary 
                        determines appropriate.
                    ``(B) Gross per capita medicaid 
                expenditures for prescription drugs.--
                            ``(i) In general.--The gross per 
                        capita medicaid expenditures for 
                        prescription drugs for 2003 under this 
                        subparagraph is equal to the 
                        expenditures, including dispensing 
                        fees, for the State under this title 
                        during 2003 for covered outpatient 
                        drugs, determined per full-benefit-
                        dual-eligible-individual for such 
                        individuals not receiving medical 
                        assistance for such drugs through a 
                        medicaid managed care plan.
                            ``(ii) Determination.--In 
                        determining the amount under clause 
                        (i), the Secretary shall--
                                    ``(I) use data from the 
                                Medicaid Statistical 
                                Information System (MSIS) and 
                                other available data;
                                    ``(II) exclude expenditures 
                                attributable to covered 
                                outpatient prescription drugs 
                                that are not covered part D 
                                drugs (as defined in section 
                                1860D-2(e)); and
                                    ``(III) reduce such 
                                expenditures by the product of 
                                such portion and the adjustment 
                                factor (described in clause 
                                (iii)).
                            ``(iii) Adjustment factor.--The 
                        adjustment factor described in this 
                        clause for a State is equal to the 
                        ratio for the State for 2003 of--
                                    ``(I) aggregate payments 
                                under agreements under section 
                                1927; to
                                    ``(II) the gross 
                                expenditures under this title 
                                for covered outpatient drugs 
                                referred to in clause (i).
                        Such factor shall be determined based 
                        on information reported by the State in 
                        the medicaid financial management 
                        reports (form CMS-64) for the 4 
                        quarters of calendar year 2003 and such 
                        other data as the Secretary may 
                        require.
                    ``(C) Weighted average.--The weighted 
                average under subparagraph (A) shall be 
                determined taking into account--
                            ``(i) with respect to subparagraph 
                        (A)(i), the average number of full-
                        benefit dual eligible individuals in 
                        2003 who are not described in clause 
                        (ii); and
                            ``(ii) with respect to subparagraph 
                        (A)(ii), the average number of full-
                        benefit dual eligible individuals in 
                        such year who received in 2003 medical 
                        assistance for covered outpatient drugs 
                        through a medicaid managed care plan.
            ``(4) Applicable growth factor.--The applicable 
        growth factor under this paragraph for--
                    ``(A) each of 2004, 2005, and 2006, is the 
                average annual percent change (to that year 
                from the previous year) of the per capita 
                amount of prescription drug expenditures (as 
                determined based on the most recent National 
                Health Expenditure projections for the years 
                involved); and
                    ``(B) a succeeding year, is the annual 
                percentage increase specified in section 1860D-
                2(b)(6) for the year.
            ``(5) Factor.--The factor under this paragraph for 
        a month--
                    ``(A) in 2006 is 90 percent;
                    ``(B) in 2007 is 88-\1/3\ percent;
                    ``(C) in 2008 is 86-\2/3\ percent;
                    ``(D) in 2009 is 85 percent;
                    ``(E) in 2010 is 83-\1/3\ percent;
                    ``(F) in 2011 is 81-\2/3\ percent;
                    ``(G) in 2012 is 80 percent;
                    ``(H) in 2013 is 78-\1/3\ percent;
                    ``(I) in 2014 is 76-\2/3\ percent; or
                    ``(J) after December 2014, is 75 percent.
            ``(6) Full-benefit dual eligible individual 
        defined.--
                    ``(A) In general.--For purposes of this 
                section, the term `full-benefit dual eligible 
                individual' means for a State for a month an 
                individual who--
                            ``(i) has coverage for the month 
                        for covered part D drugs under a 
                        prescription drug plan under part D of 
                        title XVIII, or under an MA-PD plan 
                        under part C of such title; and
                            ``(ii) is determined eligible by 
                        the State for medical assistance for 
                        full benefits under this title for such 
                        month under section 1902(a)(10)(A) or 
                        1902(a)(10)(C), by reason of section 
                        1902(f), or under any other category of 
                        eligibility for medical assistance for 
                        full benefits under this title, as 
                        determined by the Secretary.
                    ``(B) Treatment of medically needy and 
                other individuals required to spend down.--In 
                applying subparagraph (A) in the case of an 
                individual determined to be eligible by the 
                State for medical assistance under section 
                1902(a)(10)(C) or by reason of section 1902(f), 
                the individual shall be treated as meeting the 
                requirement of subparagraph (A)(ii) for any 
                month if such medical assistance is provided 
                for in any part of the month.''.
    (c) Medicaid Coordination With Medicare Prescription Drug 
Benefits.--Section 1935, as so inserted and amended, is further 
amended by adding at the end the following new subsection:
    ``(d) Coordination of Prescription Drug Benefits.--
            ``(1) Medicare as primary payor.--In the case of a 
        part D eligible individual (as defined in section 
        1860D-1(a)(3)(A)) who is described in subsection 
        (c)(6)(A)(ii), notwithstanding any other provision of 
        this title, medical assistance is not available under 
        this title for such drugs (or for any cost-sharing 
        respecting such drugs), and the rules under this title 
        relating to the provision of medical assistance for 
        such drugs shall not apply. The provision of benefits 
        with respect to such drugs shall not be considered as 
        the provision of care or services under the plan under 
        this title. No payment may be made under section 
        1903(a) for prescribed drugs for which medical 
        assistance is not available pursuant to this paragraph.
            ``(2) Coverage of certain excludable drugs.--In the 
        case of medical assistance under this title with 
        respect to a covered outpatient drug (other than a 
        covered part D drug) furnished to an individual who is 
        enrolled in a prescription drug plan under part D of 
        title XVIII or an MA-PD plan under part C of such 
        title, the State may elect to provide such medical 
        assistance in the manner otherwise provided in the case 
        of individuals who are not full-benefit dual eligible 
        individuals or through an arrangement with such 
        plan.''.
    (d) Treatment of Territories.--
            (1) In general.--Section 1935, as so inserted and 
        amended, is further amended--
                    (A) in subsection (a) in the matter 
                preceding paragraph (1), by inserting ``subject 
                to subsection (e)'' after ``section 1903(a)'';
                    (B) in subsection (c)(1), by inserting 
                ``subject to subsection (e)'' after 
                ``1903(a)(1)''; and
                    (C) by adding at the end the following new 
                subsection:
    ``(e) Treatment of Territories.--
            ``(1) In general.--In the case of a State, other 
        than the 50 States and the District of Columbia--
                    ``(A) the previous provisions of this 
                section shall not apply to residents of such 
                State; and
                    ``(B) if the State establishes and submits 
                to the Secretary a plan described in paragraph 
                (2) (for providing medical assistance with 
                respect to the provision of prescription drugs 
                to part D eligible individuals), the amount 
                otherwise determined under section 1108(f) (as 
                increased under section 1108(g)) for the State 
                shall be increased by the amount for the fiscal 
                period specified in paragraph (3).
            ``(2) Plan.--The Secretary shall determine that a 
        plan is described in this paragraph if the plan--
                    ``(A) provides medical assistance with 
                respect to the provision of covered part D 
                drugs (as defined in section 1860D-2(e)) to 
                low-income part D eligible individuals;
                    ``(B) provides assurances that additional 
                amounts received by the State that are 
                attributable to the operation of this 
                subsection shall be used only for such 
                assistance and related administrative expenses 
                and that no more than 10 percent of the amount 
                specified in paragraph (3)(A) for the State for 
                any fiscal period shall be used for such 
                administrative expenses; and
                    ``(C) meets such other criteria as the 
                Secretary may establish.
            ``(3) Increased amount.--
                    ``(A) In general.--The amount specified in 
                this paragraph for a State for a year is equal 
                to the product of--
                            ``(i) the aggregate amount 
                        specified in subparagraph (B); and
                            ``(ii) the ratio (as estimated by 
                        the Secretary) of--
                                    ``(I) the number of 
                                individuals who are entitled to 
                                benefits under part A or 
                                enrolled under part B and who 
                                reside in the State (as 
                                determined by the Secretary 
                                based on the most recent 
                                available data before the 
                                beginning of the year); to
                                    ``(II) the sum of such 
                                numbers for all States that 
                                submit a plan described in 
                                paragraph (2).
                    ``(B) Aggregate amount.--The aggregate 
                amount specified in this subparagraph for--
                            ``(i) the last 3 quarters of fiscal 
                        year 2006, is equal to $28,125,000;
                            ``(ii) fiscal year 2007, is equal 
                        to $37,500,000; or
                            ``(iii) a subsequent year, is equal 
                        to the aggregate amount specified in 
                        this subparagraph for the previous year 
                        increased by annual percentage increase 
                        specified in section 1860D-2(b)(6) for 
                        the year involved.
            ``(4) Report.--The Secretary shall submit to 
        Congress a report on the application of this subsection 
        and may include in the report such recommendations as 
        the Secretary deems appropriate.''.
            (2) Conforming amendment.--Section 1108(f) (42 
        U.S.C. 1308(f)) is amended by inserting ``and section 
        1935(e)(1)(B)'' after ``Subject to subsection (g)''.
    (e) Amendment to Best Price.--
            (1) In general.--Section 1927(c)(1)(C)(i) (42 
        U.S.C. 1396r-8(c)(1)(C)(i)) is amended--
                    (A) by striking ``and'' at the end of 
                subclause (III);
                    (B) by striking the period at the end of 
                subclause (IV) and inserting a semicolon; and
                    (C) by adding at the end the following new 
                subclauses:
                                    ``(V) the prices negotiated 
                                from drug manufacturers for 
                                covered discount card drugs 
                                under an endorsed discount card 
                                program under section 1860D-31; 
                                and
                                    ``(VI) any prices charged 
                                which are negotiated by a 
                                prescription drug plan under 
                                part D of title XVIII, by an 
                                MA-PD plan under part C of such 
                                title with respect to covered 
                                part D drugs or by a qualified 
                                retiree prescription drug plan 
                                (as defined in section 1860D-
                                22(a)(2)) with respect to such 
                                drugs on behalf of individuals 
                                entitled to benefits under part 
                                A or enrolled under part B of 
                                such title.''.
            (2) In general.--Section 1927(c)(1)(C)(i)(VI) of 
        the Social Security Act, as added by paragraph (1), 
        shall apply to prices charged for drugs dispensed on or 
        after January 1, 2006.
    (f) Extension of Medicare Cost-Sharing for Part B Premium 
for Qualifying Individuals Through September 2004.--
            (1) In general.--Section 1902(a)(10)(E)(iv) (42 
        U.S.C. 1396a(a)(10)(E)(iv)), as amended by section 
        401(a) of Public Law 108-89, is amended by striking 
        ``ending with March 2004'' and inserting ``ending with 
        September 2004''.
            (2) Total amount available for allocation.--Section 
        1933(g) (42 U.S.C. 1396u-3(g)), as added by section 
        401(c) of Public Law 108-89, is amended--
                    (A) in the matter preceding paragraph (1), 
                by striking ``March 31, 2004'' and inserting 
                ``September 30, 2004''; and
                    (B) in paragraph (2), by striking 
                ``$100,000,000'' and inserting 
                ``$300,000,000''.
            (3) Effective date.--The amendments made by this 
        subsection shall apply to calendar quarters beginning 
        on or after April 1, 2004.
    (g) Outreach by the Commissioner of Social Security.--
Section 1144 (42 U.S.C. 1320b-14) is amended--
            (1) in the section heading, by inserting ``and 
        subsidies for low-income individuals under title 
        xviii'' after ``cost-sharing'';
            (2) in subsection (a)--
                    (A) in paragraph (1)--
                            (i) in subparagraph (A), by 
                        inserting ``for the transitional 
                        assistance under section 1860D-31(f), 
                        or for premium and cost-sharing 
                        subsidies under section 1860D-14'' 
                        before the semicolon; and
                            (ii) in subparagraph (B), by 
                        inserting ``, program, and subsidies'' 
                        after ``medical assistance''; and
                    (B) in paragraph (2)--
                            (i) in the matter preceding 
                        subparagraph (A), by inserting ``, the 
                        transitional assistance under section 
                        1860D-31(f), or premium and cost-
                        sharing subsidies under section 1860D-
                        14'' after ``assistance''; and
                            (ii) in subparagraph (A), by 
                        striking ``such eligibility'' and 
                        inserting ``eligibility for medicare 
                        cost-sharing under the medicaid 
                        program''; and
            (3) in subsection (b)--
                    (A) in paragraph (1)(A), by inserting ``, 
                for transitional assistance under section 
                1860D-31(f), or for premium and cost-sharing 
                subsidies for low-income individuals under 
                section 1860D-14'' after ``1933''; and
                    (B) in paragraph (2), by inserting ``, 
                program, and subsidies'' after ``medical 
                assistance''.

SEC. 104. MEDIGAP AMENDMENTS.

    (a) Rules Relating to Medigap Policies That Provide 
Prescription Drug Coverage.--
            (1) In general.--Section 1882 (42 U.S.C. 1395ss) is 
        amended by adding at the end the following new 
        subsection:
    ``(v) Rules Relating to Medigap Policies That Provide 
Prescription Drug Coverage.--
            ``(1) Prohibition on sale, issuance, and renewal of 
        new policies that provide prescription drug coverage.--
                    ``(A) In general.--Notwithstanding any 
                other provision of law, on or after January 1, 
                2006, a medigap Rx policy (as defined in 
                paragraph (6)(A)) may not be sold, issued, or 
                renewed under this section--
                            ``(i) to an individual who is a 
                        part D enrollee (as defined in 
                        paragraph (6)(B)); or
                            ``(ii) except as provided in 
                        subparagraph (B), to an individual who 
                        is not a part D enrollee.
                    ``(B) Continuation permitted for non-part d 
                enrollees.--Subparagraph (A)(ii) shall not 
                apply to the renewal of a medigap Rx policy 
                that was issued before January 1, 2006.
                    ``(C) Construction.--Nothing in this 
                subsection shall be construed as preventing the 
                offering on and after January 1, 2006, of `H', 
                `I', and `J' policies described in paragraph 
                (2)(D)(i) if the benefit packages are modified 
                in accordance with paragraph (2)(C).
            ``(2) Elimination of duplicative coverage upon part 
        d enrollment.--
                    ``(A) In general.--In the case of an 
                individual who is covered under a medigap Rx 
                policy and enrolls under a part D plan--
                            ``(i) before the end of the initial 
                        part D enrollment period, the 
                        individual may--
                                    ``(I) enroll in a medicare 
                                supplemental policy without 
                                prescription drug coverage 
                                under paragraph (3); or
                                    ``(II) continue the policy 
                                in effect subject to the 
                                modification described in 
                                subparagraph (C)(i); or
                            ``(ii) after the end of such 
                        period, the individual may continue the 
                        policy in effect subject to such 
                        modification.
                    ``(B) Notice required to be provided to 
                current policyholders with medigap rx policy.--
                No medicare supplemental policy of an issuer 
                shall be deemed to meet the standards in 
                subsection (c) unless the issuer provides 
                written notice (in accordance with standards of 
                the Secretary established in consultation with 
                the National Association of Insurance 
                Commissioners) during the 60-day period 
                immediately preceding the initial part D 
                enrollment period, to each individual who is a 
                policyholder or certificate holder of a medigap 
                Rx policy (at the most recent available address 
                of that individual) of the following:
                            ``(i) If the individual enrolls in 
                        a plan under part D during the initial 
                        enrollment period under section 1860D-
                        1(b)(2)(A), the individual has the 
                        option of--
                                    ``(I) continuing enrollment 
                                in the individual's current 
                                plan, but the plan's coverage 
                                of prescription drugs will be 
                                modified under subparagraph 
                                (C)(i); or
                                    ``(II) enrolling in another 
                                medicare supplemental policy 
                                pursuant to paragraph (3).
                            ``(ii) If the individual does not 
                        enroll in a plan under part D during 
                        such period, the individual may 
                        continue enrollment in the individual's 
                        current plan without change, but--
                                    ``(I) the individual will 
                                not be guaranteed the option of 
                                enrollment in another medicare 
                                supplemental policy pursuant to 
                                paragraph (3); and
                                    ``(II) if the current plan 
                                does not provide creditable 
                                prescription drug coverage (as 
                                defined in section 1860D-
                                13(b)(4)), notice of such fact 
                                and that there are limitations 
                                on the periods in a year in 
                                which the individual may enroll 
                                under a part D plan and any 
                                such enrollment is subject to a 
                                late enrollment penalty.
                            ``(iii) Such other information as 
                        the Secretary may specify (in 
                        consultation with the National 
                        Association of Insurance 
                        Commissioners), including the potential 
                        impact of such election on premiums for 
                        medicare supplemental policies.
                    ``(C) Modification.--
                            ``(i) In general.--The policy 
                        modification described in this 
                        subparagraph is the elimination of 
                        prescription coverage for expenses of 
                        prescription drugs incurred after the 
                        effective date of the individual's 
                        coverage under a part D plan and the 
                        appropriate adjustment of premiums to 
                        reflect such elimination of coverage.
                            ``(ii) Continuation of renewability 
                        and application of modification.--No 
                        medicare supplemental policy of an 
                        issuer shall be deemed to meet the 
                        standards in subsection (c) unless the 
                        issuer--
                                    ``(I) continues 
                                renewability of medigap Rx 
                                policies that it has issued, 
                                subject to subclause (II); and
                                    ``(II) applies the policy 
                                modification described in 
                                clause (i) in the cases 
                                described in clauses (i)(II) 
                                and (ii) of subparagraph (A).
                    ``(D) References to rx policies.--
                            ``(i) H, i, and j policies.--Any 
                        reference to a benefit package 
                        classified as `H', `I', or `J' 
                        (including the benefit package 
                        classified as `J' with a high 
                        deductible feature, as described in 
                        subsection (p)(11)) under the standards 
                        established under subsection (p)(2) 
                        shall be construed as including a 
                        reference to such a package as modified 
                        under subparagraph (C) and such 
                        packages as modified shall not be 
                        counted as a separate benefit package 
                        under such subsection.
                            ``(ii) Application in waivered 
                        states.--Except for the modification 
                        provided under subparagraph (C), the 
                        waivers previously in effect under 
                        subsection (p)(2) shall continue in 
                        effect.
            ``(3) Availability of substitute policies with 
        guaranteed issue.--
                    ``(A) In general.--The issuer of a medicare 
                supplemental policy--
                            ``(i) may not deny or condition the 
                        issuance or effectiveness of a medicare 
                        supplemental policy that has a benefit 
                        package classified as `A', `B', `C', or 
                        `F' (including the benefit package 
                        classified as `F' with a high 
                        deductible feature, as described in 
                        subsection (p)(11)), under the 
                        standards established under subsection 
                        (p)(2), or a benefit package described 
                        in subparagraph (A) or (B) of 
                        subsection (w)(2) and that is offered 
                        and is available for issuance to new 
                        enrollees by such issuer;
                            ``(ii) may not discriminate in the 
                        pricing of such policy, because of 
                        health status, claims experience, 
                        receipt of health care, or medical 
                        condition; and
                            ``(iii) may not impose an exclusion 
                        of benefits based on a pre-existing 
                        condition under such policy, in the 
                        case of an individual described in 
                        subparagraph (B) who seeks to enroll 
                        under the policy not later than 63 days 
                        after the effective date of the 
                        individual's coverage under a part D 
                        plan.
                    ``(B) Individual covered.--An individual 
                described in this subparagraph with respect to 
                the issuer of a medicare supplemental policy is 
                an individual who--
                            ``(i) enrolls in a part D plan 
                        during the initial part D enrollment 
                        period;
                            ``(ii) at the time of such 
                        enrollment was enrolled in a medigap Rx 
                        policy issued by such issuer; and
                            ``(iii) terminates enrollment in 
                        such policy and submits evidence of 
                        such termination along with the 
                        application for the policy under 
                        subparagraph (A).
                    ``(C) Special rule for waivered states.--
                For purposes of applying this paragraph in the 
                case of a State that provides for offering of 
                benefit packages other than under the 
                classification referred to in subparagraph 
                (A)(i), the references to benefit packages in 
                such subparagraph are deemed references to 
                comparable benefit packages offered in such 
                State.
            ``(4) Enforcement.--
                    ``(A) Penalties for duplication.--The 
                penalties described in subsection (d)(3)(A)(ii) 
                shall apply with respect to a violation of 
                paragraph (1)(A).
                    ``(B) Guaranteed issue.--The provisions of 
                paragraph (4) of subsection (s) shall apply 
                with respect to the requirements of paragraph 
                (3) in the same manner as they apply to the 
                requirements of such subsection.
            ``(5) Construction.--Any provision in this section 
        or in a medicare supplemental policy relating to 
        guaranteed renewability of coverage shall be deemed to 
        have been met with respect to a part D enrollee through 
        the continuation of the policy subject to modification 
        under paragraph (2)(C) or the offering of a substitute 
        policy under paragraph (3). The previous sentence shall 
        not be construed to affect the guaranteed renewability 
        of such a modified or substitute policy.
            ``(6) Definitions.--For purposes of this 
        subsection:
                    ``(A) Medigap rx policy.--The term `medigap 
                Rx policy' means a medicare supplemental 
                policy--
                            ``(i) which has a benefit package 
                        classified as `H', `I', or `J' 
                        (including the benefit package 
                        classified as `J' with a high 
                        deductible feature, as described in 
                        subsection (p)(11)) under the standards 
                        established under subsection (p)(2), 
                        without regard to this subsection; and
                            ``(ii) to which such standards do 
                        not apply (or to which such standards 
                        have been waived under subsection 
                        (p)(6)) but which provides benefits for 
                        prescription drugs.
                Such term does not include a policy with a 
                benefit package as classified under clause (i) 
                which has been modified under paragraph 
                (2)(C)(i).
                    ``(B) Part d enrollee.--The term `part D 
                enrollee' means an individual who is enrolled 
                in a part D plan.
                    ``(C) Part d plan.--The term `part D plan' 
                means a prescription drug plan or an MA-PD plan 
                (as defined for purposes of part D).
                    ``(D) Initial part d enrollment period.--
                The term `initial part D enrollment period' 
                means the initial enrollment period described 
                in section 1860D-1(b)(2)(A).''.
    (2) Conforming current guaranteed issue provisions.--
                    (A) Extending guaranteed issue policy for 
                individuals enrolled in medigap rx policies who 
                try medicare advantage.--Subsection 
                (s)(3)(C)(ii) of such section is amended--
                            (i) by striking ``(ii) Only'' and 
                        inserting ``(ii)(I) Subject to 
                        subclause (II), only''; and
                            (ii) by adding at the end the 
                        following new subclause:
    ``(II) If the medicare supplemental policy referred to in 
subparagraph (B)(v) was a medigap Rx policy (as defined in 
subsection (v)(6)(A)), a medicare supplemental policy described 
in this subparagraph is such policy in which the individual was 
most recently enrolled as modified under subsection 
(v)(2)(C)(i) or, at the election of the individual, a policy 
referred to in subsection (v)(3)(A)(i).''.
                    (B) Conforming amendment.--Section 
                1882(s)(3)(C)(iii) is amended by inserting 
                ``and subject to subsection (v)(1)'' after 
                ``subparagraph (B)(vi)''.
    (b) Development of New Standards for Medigap Policies.--
            (1) In general.--Section 1882 (42 U.S.C. 1395ss) is 
        further amended by adding at the end the following new 
        subsection:
    ``(w) Development of New Standards for Medicare 
Supplemental Policies.--
            ``(1) In general.--The Secretary shall request the 
        National Association of Insurance Commissioners to 
        review and revise the standards for benefit packages 
        under subsection (p)(1), taking into account the 
        changes in benefits resulting from enactment of the 
        Medicare Prescription Drug, Improvement, and 
        Modernization Act of 2003 and to otherwise update 
        standards to reflect other changes in law included in 
        such Act. Such revision shall incorporate the inclusion 
        of the 2 benefit packages described in paragraph (2). 
        Such revisions shall be made consistent with the rules 
        applicable under subsection (p)(1)(E) with the 
        reference to the `1991 NAIC Model Regulation' deemed a 
        reference to the NAIC Model Regulation as published in 
        the Federal Register on December 4, 1998, and as 
        subsequently updated by the National Association of 
        Insurance Commissioners to reflect previous changes in 
        law (and subsection (v)) and the reference to `date of 
        enactment of this subsection' deemed a reference to the 
        date of enactment of the Medicare Prescription Drug, 
        Improvement, and Modernization Act of 2003. To the 
        extent practicable, such revision shall provide for the 
        implementation of revised standards for benefit 
        packages as of January 1, 2006.
            ``(2) New benefit packages.--The benefit packages 
        described in this paragraph are the following 
        (notwithstanding any other provision of this section 
        relating to a core benefit package):
                    ``(A) First new benefit package.--A benefit 
                package consisting of the following:
                            ``(i) Subject to clause (ii), 
                        coverage of 50 percent of the cost-
                        sharing otherwise applicable under 
                        parts A and B, except there shall be no 
                        coverage of the part B deductible and 
                        coverage of 100 percent of any cost-
                        sharing otherwise applicable for 
                        preventive benefits.
                            ``(ii) Coverage for all hospital 
                        inpatient coinsurance and 365 extra 
                        lifetime days of coverage of inpatient 
                        hospital services (as in the current 
                        core benefit package).
                            ``(iii) A limitation on annual out-
                        of-pocket expenditures under parts A 
                        and B to $4,000 in 2006 (or, in a 
                        subsequent year, to such limitation for 
                        the previous year increased by an 
                        appropriate inflation adjustment 
                        specified by the Secretary).
                    ``(B) Second new benefit package.--A 
                benefit package consisting of the benefit 
                package described in subparagraph (A), except 
                as follows:
                            ``(i) Substitute `75 percent' for 
                        `50 percent' in clause (i) of such 
                        subparagraph.
                            ``(ii) Substitute `$2,000' for 
                        `$4,000' in clause (iii) of such 
                        subparagraph.''.
            (2) Conforming amendments.--Section 1882 (42 U.S.C. 
        1395ss) is amended--
                    (A) in subsection (g)(1), by inserting ``a 
                prescription drug plan under part D or'' after 
                ``but does not include''; and
                    (B) in subsection (o)(1), by striking 
                ``subsection (p)'' and inserting ``subsections 
                (p), (v), and (w)''.
    (c) Rule of Construction.--
            (1) In general.--Nothing in this Act shall be 
        construed to require an issuer of a medicare 
        supplemental policy under section 1882 of the Social 
        Security Act (42 U.S.C. 1395rr) to participate as a PDP 
        sponsor under part D of title XVIII of such Act, as 
        added by section 101, as a condition for issuing such 
        policy.
            (2) Prohibition on state requirement.--A State may 
        not require an issuer of a medicare supplemental policy 
        under section 1882 of the Social Security Act (42 
        U.S.C. 1395rr) to participate as a PDP sponsor under 
        such part D as a condition for issuing such policy.

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

    (a) Exclusion of Costs From Determination of Part B Monthly 
Premium.--Section 1839(g) (42 U.S.C. 1395r(g)) is amended--
            (1) by striking ``attributable to the application 
        of section'' and inserting ``attributable to--
            ``(1) the application of section'';
            (2) by striking the period and inserting ``; and''; 
        and
            (3) by adding at the end the following new 
        paragraph:
            ``(2) the medicare prescription drug discount card 
        and transitional assistance program under section 
        1860D-31.''.
    (b) Application of Confidentiality for Drug Pricing Data.--
The last sentence of section 1927(b)(3)(D) (42 U.S.C. 1396r-
8(b)(3)(D)), as added by section 101(e)(4), is amended by 
inserting ``and drug pricing data reported under the first 
sentence of section 1860D-31(i)(1)'' after ``section 1860D-
4(c)(2)(E)''.
    (c) Rules for Implementation.--The following rules shall 
apply to the medicare prescription drug discount card and 
transitional assistance program under section 1860D-31 of the 
Social Security Act, as added by section 101(a):
            (1) In promulgating regulations pursuant to 
        subsection (a)(2)(B) of such section 1860D-31--
                    (A) section 1871(a)(3) of the Social 
                Security Act (42 U.S.C. 1395hh(a)(3)), as added 
                by section 902(a)(1), shall not apply;
                    (B) chapter 35 of title 44, United States 
                Code, shall not apply; and
                    (C) sections 553(d) and 801(a)(3)(A) of 
                title 5, United States Code, shall not apply.
            (2) Section 1857(c)(5) of the Social Security Act 
        (42 U.S.C. 1395w-27(c)(5)) shall apply with respect to 
        section 1860D-31 of such Act, as added by section 
        101(a), in the same manner as it applies to part C of 
        title XVIII of such Act.
            (3) The administration of such program shall be 
        made without regard to chapter 35 of title 44, United 
        States Code.
            (4)(A) There shall be no judicial review of a 
        determination not to endorse, or enter into a contract, 
        with a prescription drug card sponsor under section 
        1860D-31 of the Social Security Act.
            (B) In the case of any order issued to enjoin any 
        provision of section 1860D-31 of the Social Security 
        Act (or of any provision of this section), such order 
        shall not affect any other provision of such section 
        (or of this section) and all such provisions shall be 
        treated as severable.
    (d) Conforming Amendments to Federal SMI Trust Fund for 
Transitional Assistance Account.--Section 1841 (42 U.S.C. 
1395t), as amended by section 101(e)(3)(C), is amended--
            (1) in the last sentence of subsection (a), by 
        inserting after ``section 1860D-16'' the following: 
        ``or the Transitional Assistance Account established by 
        section 1860D-31(k)(1)''; and
            (2) in subsection (g), by adding at the end the 
        following: ``The payments provided for under section 
        1860D-31(k)(2) shall be made from the Transitional 
        Assistance Account in the Trust Fund.''.
    (e) Disclosure of Return Information for Purposes of 
Providing Transitional Assistance Under Medicare Discount Card 
Program.--
            (1) In general.--Subsection (l) of section 6103 of 
        the Internal Revenue Code of 1986 (relating to 
        disclosure of returns and return information for 
        purposes other than tax administration) is amended by 
        adding at the end the following new paragraph:
            ``(19) Disclosure of return information for 
        purposes of providing transitional assistance under 
        medicare discount card program.--
                    ``(A) In general.--The Secretary, upon 
                written request from the Secretary of Health 
                and Human Services pursuant to carrying out 
                section 1860D-31 of the Social Security Act, 
                shall disclose to officers, employees, and 
                contractors of the Department of Health and 
                Human Services with respect to a taxpayer for 
                the applicable year--
                            ``(i)(I) whether the adjusted gross 
                        income, as modified in accordance with 
                        specifications of the Secretary of 
                        Health and Human Services for purposes 
                        of carrying out such section, of such 
                        taxpayer and, if applicable, such 
                        taxpayer's spouse, for the applicable 
                        year, exceeds the amounts specified by 
                        the Secretary of Health and Human 
                        Services in order to apply the 100 and 
                        135 percent of the poverty lines under 
                        such section, (II) whether the return 
                        was a joint return, and (III) the 
                        applicable year, or
                            ``(ii) if applicable, the fact that 
                        there is no return filed for such 
                        taxpayer for the applicable year.
                    ``(B) Definition of applicable year.--For 
                the purposes of this subsection, the term 
                `applicable year' means the most recent taxable 
                year for which information is available in the 
                Internal Revenue Service's taxpayer data 
                information systems, or, if there is no return 
                filed for such taxpayer for such year, the 
                prior taxable year.
                    ``(C) Restriction on use of disclosed 
                information.--Return information disclosed 
                under this paragraph may be used only for the 
                purposes of determining eligibility for and 
                administering transitional assistance under 
                section 1860D-31 of the Social Security Act.''
            (2) Confidentiality.--Paragraph (3) of section 
        6103(a) of such Code is amended by striking ``or (16)'' 
        and inserting ``(16), or (19)''.
            (3) Procedures and recordkeeping related to 
        disclosures.--Subsection (p)(4) of section 6103 of such 
        Code is amended by striking ``(l)(16) or (17)'' each 
        place it appears and inserting ``(l)(16), (17), or 
        (19)''.
            (4) Unauthorized disclosure or inspection.--
        Paragraph (2) of section 7213(a) of such Code is 
        amended by striking ``or (16)'' and inserting ``(16), 
        or (19)''.

SEC. 106. STATE PHARMACEUTICAL ASSISTANCE TRANSITION COMMISSION.

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

SEC. 107. STUDIES AND REPORTS.

    (a) Study Regarding Regional Variations in Prescription 
Drug Spending.--
            (1) In general.--The Secretary shall conduct a 
        study that examines variations in per capita spending 
        for covered part D drugs under part D of title XVIII of 
        the Social Security Act among PDP regions and, with 
        respect to such spending, the amount of such variation 
        that is attributable to--
                    (A) price variations (described in section 
                1860D-15(c)(2) of such Act); and
                    (B) differences in per capita utilization 
                that is not taken into account in the health 
                status risk adjustment provided under section 
                1860D-15(c)(1) of such Act.
            (2) Report and recommendations.--Not later than 
        January 1, 2009, the Secretary shall submit to Congress 
        a report on the study conducted under paragraph (1). 
        Such report shall include--
                    (A) information regarding the extent of 
                geographic variation described in paragraph 
                (1)(B);
                    (B) an analysis of the impact on direct 
                subsidies under section 1860D-15(a)(1) of the 
                Social Security Act in different PDP regions if 
                such subsidies were adjusted to take into 
                account the variation described in subparagraph 
                (A); and
                    (C) recommendations regarding the 
                appropriateness of applying an additional 
                geographic adjustment factor under section 
                1860D-15(c)(2) that reflects some or all of the 
                variation described in subparagraph (A).
    (b) Review and Report on Current Standards of Practice for 
Pharmacy Services Provided to Patients in Nursing Facilities.--
            (1) Review.--
                    (A) In general.--Not later than 12 months 
                after the date of the enactment of this Act, 
                the Secretary shall conduct a thorough review 
                of the current standards of practice for 
                pharmacy services provided to patients in 
                nursing facilities
                    (B) Specific matters reviewed.--In 
                conducting the review under subparagraph (A), 
                the Secretary shall--
                            (i) assess the current standards of 
                        practice, clinical services, and other 
                        service requirements generally used for 
                        pharmacy services in long-term care 
                        settings; and
                            (ii) evaluate the impact of those 
                        standards with respect to patient 
                        safety, reduction of medication errors 
                        and quality of care.
            (2) Report.--
                    (A) In general.--Not later than the date 
                that is 18 months after the date of the 
                enactment of this Act, the Secretary shall 
                submit a report to Congress on the study 
                conducted under paragraph (1)(A).
                    (B) Contents.--The report submitted under 
                subparagraph (A) shall contain--
                            (i) a description of the plans of 
                        the Secretary to implement the 
                        provisions of this Act in a manner 
                        consistent with applicable State and 
                        Federal laws designed to protect the 
                        safety and quality of care of nursing 
                        facility patients; and
                            (ii) recommendations regarding 
                        necessary actions and appropriate 
                        reimbursement to ensure the provision 
                        of prescription drugs to medicare 
                        beneficiaries residing in nursing 
                        facilities in a manner consistent with 
                        existing patient safety and quality of 
                        care standards under applicable State 
                        and Federal laws.
    (c) IOM Study on Drug Safety and Quality.--
            (1) In general.--The Secretary shall enter into a 
        contract with the Institutes of Medicine of the 
        National Academies of Science (such Institutes referred 
        to in this subsection as the ``IOM'') to carry out a 
        comprehensive study (in this subsection referred to as 
        the ``study'') of drug safety and quality issues in 
        order to provide a blueprint for system-wide change.
            (2) Objectives.--
                    (A) The study shall develop a full 
                understanding of drug safety and quality issues 
                through an evidence-based review of literature, 
                case studies, and analysis. This review will 
                consider the nature and causes of medication 
                errors, their impact on patients, the 
                differences in causation, impact, and 
                prevention across multiple dimensions of health 
                care delivery-including patient populations, 
                care settings, clinicians, and institutional 
                cultures.
                    (B) The study shall attempt to develop 
                credible estimates of the incidence, severity, 
                costs of medication errors that can be useful 
                in prioritizing resources for national quality 
                improvement efforts and influencing national 
                health care policy.
                    (C) The study shall evaluate alternative 
                approaches to reducing medication errors in 
                terms of their efficacy, cost-effectiveness, 
                appropriateness in different settings and 
                circumstances, feasibility, institutional 
                barriers to implementation, associated risks, 
                and the quality of evidence supporting the 
                approach.
                    (D) The study shall provide guidance to 
                consumers, providers, payers, and other key 
                stakeholders on high-priority strategies to 
                achieve both short-term and long-term drug 
                safety goals, to elucidate the goals and 
                expected results of such initiatives and 
                support the business case for them, and to 
                identify critical success factors and key 
                levers for achieving success.
                    (E) The study shall assess the 
                opportunities and key impediments to broad 
                nationwide implementation of medication error 
                reductions, and to provide guidance to policy-
                makers and government agencies (including the 
                Food and Drug Administration, the Centers for 
                Medicare & Medicaid Services, and the National 
                Institutes of Health) in promoting a national 
                agenda for medication error reduction.
                    (F) The study shall develop an applied 
                research agenda to evaluate the health and cost 
                impacts of alternative interventions, and to 
                assess collaborative public and private 
                strategies for implementing the research agenda 
                through AHRQ and other government agencies.
            (3) Conduct of study.--
                    (A) Expert committee.--In conducting the 
                study, the IOM shall convene a committee of 
                leading experts and key stakeholders in 
                pharmaceutical management and drug safety, 
                including clinicians, health services 
                researchers, pharmacists, system 
                administrators, payer representatives, and 
                others.
                    (B) Completion.--The study shall be 
                completed within an 18-month period.
            (4) Report.--A report on the study shall be 
        submitted to Congress upon the completion of the study.
            (5) Authorization of appropriations.--There are 
        authorized to be appropriated to carry out this section 
        such sums as may be necessary.
    (d) Study of Multi-year Contracts.--
            (1) In general.--The Secretary shall provide for a 
        study on the feasibility and advisability of providing 
        for contracting with PDP sponsors and MA organizations 
        under parts C and D of title XVIII on a multi-year 
        basis.
            (2) Report.--Not later than January 1, 2007, the 
        Secretary shall submit to Congress a report on the 
        study under paragraph (1). The report shall include 
        such recommendations as the Secretary deems 
        appropriate.
    (e) GAO Study Regarding Impact of Assets Test for Subsidy 
Eligible Individuals.--
            (1) Study.--The Comptroller General of the United 
        States shall conduct a study to determine the extent to 
        which drug utilization and access to covered part D 
        drugs under part D of title XVIII of the Social 
        Security Act by subsidy eligible individuals differs 
        from such utilization and access for individuals who 
        would qualify as such subsidy eligible individuals but 
        for the application of section 1860D-14(a)(3)(A)(iii) 
        of such Act.
            (2) Report.--Not later than September 30, 2007, the 
        Comptroller General shall submit a report to Congress 
        on the study conducted under paragraph (1) that 
        includes such recommendations for legislation as the 
        Comptroller General determines are appropriate.
    (f) Study on Making Prescription Pharmaceutical Information 
Accessible for Blind and Visually-Impaired Individuals.--
            (1) Study.--
                    (A) In general.--The Secretary shall 
                undertake a study of how to make prescription 
                pharmaceutical information, including drug 
                labels and usage instructions, accessible to 
                blind and visually-impaired individuals.
                    (B) Study to include existing and emerging 
                technologies.--The study under subparagraph (A) 
                shall include a review of existing and emerging 
                technologies, including assistive technology, 
                that makes essential information on the content 
                and prescribed use of pharmaceutical medicines 
                available in a usable format for blind and 
                visually-impaired individuals.
            (2) Report.--
                    (A) In general.--Not later than 18 months 
                after the date of the enactment of this Act, 
                the Secretary shall submit a report to Congress 
                on the study required under paragraph (1).
                    (B) Contents of report.--The report 
                required under paragraph (1) shall include 
                recommendations for the implementation of 
                usable formats for making prescription 
                pharmaceutical information available to blind 
                and visually-impaired individuals and an 
                estimate of the costs associated with the 
                implementation of each format.

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

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

SEC. 109. EXPANDING THE WORK OF MEDICARE QUALITY IMPROVEMENT 
                    ORGANIZATIONS TO INCLUDE PARTS C AND D.

    (a) Application to Medicare Managed Care and Prescription 
Drug Coverage.--Section 1154(a)(1) (42 U.S.C. 1320c-3(a)(1)) is 
amended by inserting ``, to Medicare Advantage organizations 
pursuant to contracts under part C, and to prescription drug 
sponsors pursuant to contracts under part D'' after ``under 
section 1876''.
    (b) Prescription Drug Therapy Quality Improvement.--Section 
1154(a) (42 U.S.C. 1320c-3(a)) is amended by adding at the end 
the following new paragraph:
            ``(17) The organization shall execute its 
        responsibilities under subparagraphs (A) and (B) of 
        paragraph (1) by offering to providers, practitioners, 
        Medicare Advantage organizations offering Medicare 
        Advantage plans under part C, and prescription drug 
        sponsors offering prescription drug plans under part D 
        quality improvement assistance pertaining to 
        prescription drug therapy. For purposes of this part 
        and title XVIII, the functions described in this 
        paragraph shall be treated as a review function.''.
    (c) Effective Date.--The amendments made by this section 
shall apply on and after January 1, 2004.
    (d) IOM Study of QIOs.--
            (1) In general.--The Secretary shall request the 
        Institute of Medicine of the National Academy of 
        Sciences to conduct an evaluation of the program under 
        part B of title XI of the Social Security Act. The 
        study shall include a review of the following:
                    (A) An overview of the program under such 
                part.
                    (B) The duties of organizations with 
                contracts with the Secretary under such part.
                    (C) The extent to which quality improvement 
                organizations improve the quality of care for 
                medicare beneficiaries.
                    (D) The extent to which other entities 
                could perform such quality improvement 
                functions as well as, or better than, quality 
                improvement organizations.
                    (E) The effectiveness of reviews and other 
                actions conducted by such organizations in 
                carrying out those duties.
                    (F) The source and amount of funding for 
                such organizations.
                    (G) The conduct of oversight of such 
                organizations.
            (2) Report to congress.--Not later than June 1, 
        2006, the Secretary shall submit to Congress a report 
        on the results of the study described in paragraph (1), 
        including any recommendations for legislation.
            (3) Increased competition.--If the Secretary finds 
        based on the study conducted under paragraph (1) that 
        other entities could improve quality in the medicare 
        program as well as, or better than, the current quality 
        improvement organizations, then the Secretary shall 
        provide for such increased competition through the 
        addition of new types of entities which may perform 
        quality improvement functions.

SEC. 110. CONFLICT OF INTEREST STUDY.

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

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

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

                      TITLE II--MEDICARE ADVANTAGE

        Subtitle A--Implementation of Medicare Advantage Program

SEC. 201. IMPLEMENTATION OF MEDICARE ADVANTAGE PROGRAM.

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

                   Subtitle B--Immediate Improvements

SEC. 211. IMMEDIATE IMPROVEMENTS.

    (a) Equalizing Payments With Fee-for-Service.--
            (1) In general.--Section 1853(c)(1) (42 U.S.C. 
        1395w-23(c)(1)) is amended by adding at the end the 
        following:
                    ``(D) 100 percent of fee-for-service 
                costs.--
                            ``(i) In general.--For each year 
                        specified in clause (ii), the adjusted 
                        average per capita cost for the year 
                        involved, determined under section 
                        1876(a)(4) and adjusted as appropriate 
                        for the purpose of risk adjustment, for 
                        the MA payment area for individuals who 
                        are not enrolled in an MA plan under 
                        this part for the year, but adjusted to 
                        exclude costs attributable to payments 
                        under section 1886(h).
                            ``(ii) Periodic rebasing.--The 
                        provisions of clause (i) shall apply 
                        for 2004 and for subsequent years as 
                        the Secretary shall specify (but not 
                        less than once every 3 years).
                            ``(iii) Inclusion of costs of va 
                        and dod military facility services to 
                        medicare-eligible beneficiaries.--In 
                        determining the adjusted average per 
                        capita cost under clause (i) for a 
                        year, such cost shall be adjusted to 
                        include the Secretary's estimate, on a 
                        per capita basis, of the amount of 
                        additional payments that would have 
                        been made in the area involved under 
                        this title if individuals entitled to 
                        benefits under this title had not 
                        received services from facilities of 
                        the Department of Defense or the 
                        Department of Veterans Affairs.''.
            (2) Conforming amendment.--Such section is further 
        amended, in the matter before subparagraph (A), by 
        striking ``or (C)'' and inserting ``(C), or (D)''.
    (b) Change in Budget Neutrality for Blend.--Section 1853(c) 
(42 U.S.C. 1395w-23(c)) is amended--
            (1) in paragraph (1)(A), by inserting ``(for a year 
        other than 2004)'' after ``multiplied''; and
            (2) in paragraph (5), by inserting ``(other than 
        2004)'' after ``for each year''.
    (c) Increasing Minimum Percentage Increase to National 
Growth Rate.--
            (1) In general.--Section 1853(c)(1) (42 U.S.C. 
        1395w-23(c)(1)) is amended--
                    (A) in subparagraph (A), by striking ``The 
                sum'' and inserting ``For a year before 2005, 
                the sum'';
                    (B) in subparagraph (B)(iv), by striking 
                ``and each succeeding year'' and inserting ``, 
                2003, and 2004'';
                    (C) in subparagraph (C)(iv), by striking 
                ``and each succeeding year'' and inserting 
                ``and 2003''; and
                    (D) by adding at the end of subparagraph 
                (C) the following new clause:
                            ``(v) For 2004 and each succeeding 
                        year, the greater of--
                                    ``(I) 102 percent of the 
                                annual MA capitation rate under 
                                this paragraph for the area for 
                                the previous year; or
                                    ``(II) the annual MA 
                                capitation rate under this 
                                paragraph for the area for the 
                                previous year increased by the 
                                national per capita MA growth 
                                percentage, described in 
                                paragraph (6) for that 
                                succeeding year, but not taking 
                                into account any adjustment 
                                under paragraph (6)(C) for a 
                                year before 2004.''.
            (2) Conforming amendment.--Section 1853(c)(6)(C) 
        (42 U.S.C. 1395w-23(c)(6)(C)) is amended by inserting 
        before the period at the end the following: ``, except 
        that for purposes of paragraph (1)(C)(v)(II), no such 
        adjustment shall be made for a year before 2004''.
    (d) Inclusion of Costs of DOD and VA Military Facility 
Services to Medicare-Eligible Beneficiaries in Calculation of 
Payment Rates.--Section 1853(c)(3) (42 U.S.C. 1395w-23(c)(3)) 
is amended--
            (1) in subparagraph (A), by striking ``subparagraph 
        (B)'' and inserting ``subparagraphs (B) and (E)''; and
            (2) by adding at the end the following new 
        subparagraph:
                    ``(E) Inclusion of costs of dod and va 
                military facility services to medicare-eligible 
                beneficiaries.--In determining the area-
                specific MA capitation rate under subparagraph 
                (A) for a year (beginning with 2004), the 
                annual per capita rate of payment for 1997 
                determined under section 1876(a)(1)(C) shall be 
                adjusted to include in the rate the Secretary's 
                estimate, on a per capita basis, of the amount 
                of additional payments that would have been 
                made in the area involved under this title if 
                individuals entitled to benefits under this 
                title had not received services from facilities 
                of the Department of Defense or the Department 
                of Veterans Affairs.''.
    (e) Extending Special Rule for Certain Inpatient Hospital 
Stays to Rehabilitation Hospitals and Long-Term Care 
Hospitals.--
            (1) In general.--Section 1853(g) (42 U.S.C. 1395w-
        23(g)) is amended--
                    (A) in the matter preceding paragraph (1), 
                by inserting ``, a rehabilitation hospital 
                described in section 1886(d)(1)(B)(ii) or a 
                distinct part rehabilitation unit described in 
                the matter following clause (v) of section 
                1886(d)(1)(B), or a long-term care hospital 
                (described in section 1886(d)(1)(B)(iv))'' 
                after ``1886(d)(1)(B))''; and
                    (B) in paragraph (2)(B), by inserting ``or 
                other payment provision under this title for 
                inpatient services for the type of facility, 
                hospital, or unit involved, described in the 
                matter preceding paragraph (1), as the case may 
                be,'' after ``1886(d)''.
            (2) Effective date.--The amendments made by 
        paragraph (1) shall apply to contract years beginning 
        on or after January 1, 2004.
    (f) MedPAC Study of AAPCC.--
            (1) Study.--The Medicare Payment Advisory 
        Commission shall conduct a study that assesses the 
        method used for determining the adjusted average per 
        capita cost (AAPCC) under section 1876(a)(4) of the 
        Social Security Act (42 U.S.C. 1395mm(a)(4)) as applied 
        under section 1853(c)(1)(A) of such Act (as amended by 
        subsection (a)). Such study shall include an 
        examination of--
                    (A) the bases for variation in such costs 
                between different areas, including differences 
                in input prices, utilization, and practice 
                patterns;
                    (B) the appropriate geographic area for 
                payment of MA local plans under the Medicare 
                Advantage program under part C of title XVIII 
                of such Act; and
                    (C) the accuracy of risk adjustment methods 
                in reflecting differences in costs of providing 
                care to different groups of beneficiaries 
                served under such program.
            (2) Report.--Not later than 18 months after the 
        date of the enactment of this Act, the Commission shall 
        submit to Congress a report on the study conducted 
        under paragraph (1).
    (g) Report on Impact of Increased Financial Assistance to 
Medicare Advantage Plans.--Not later than July 1, 2006, the 
Secretary shall submit to Congress a report that describes the 
impact of additional financing provided under this Act and 
other Acts (including the Medicare, Medicaid, and SCHIP 
Balanced Budget Refinement Act of 1999 and BIPA) on the 
availability of Medicare Advantage plans in different areas and 
its impact on lowering premiums and increasing benefits under 
such plans.
    (h) MedPAC Study and Report on Clarification of Authority 
Regarding Disapproval of Unreasonable Beneficiary Cost-
Sharing.--
            (1) Study.--The Medicare Payment Advisory 
        Commission, in consultation with beneficiaries, 
        consumer groups, employers, and organizations offering 
        plans under part C of title XVIII of the Social 
        Security Act, shall conduct a study to determine the 
        extent to which the cost-sharing structures under such 
        plans affect access to covered services or select 
        enrollees based on the health status of eligible 
        individuals described in section 1851(a)(3) of the 
        Social Security Act (42 U.S.C. 1395w-21(a)(3)).
            (2) Report.--Not later than December 31, 2004, the 
        Commission shall submit a report to Congress on the 
        study conducted under paragraph (1) together with 
        recommendations for such legislation and administrative 
        actions as the Commission considers appropriate.
    (i) Implementation of Provisions.--
            (1) Announcement of revised medicare advantage 
        payment rates.--Within 6 weeks after the date of the 
        enactment of this Act, the Secretary shall determine, 
        and shall announce (in a manner intended to provide 
        notice to interested parties) MA capitation rates under 
        section 1853 of the Social Security Act (42 U.S.C. 
        1395w-23) for 2004, revised in accordance with the 
        provisions of this section.
            (2) Transition to revised payment rates.--The 
        provisions of section 604 of BIPA (114 Stat. 2763A-555) 
        (other than subsection (a)) shall apply to the 
        provisions of subsections (a) through (d) of this 
        section for 2004 in the same manner as the provisions 
        of such section 604 applied to the provisions of BIPA 
        for 2001.
            (3) Special rule for payment rates in 2004.--
                    (A) January and february.--Notwithstanding 
                the amendments made by subsections (a) through 
                (d), for purposes of making payments under 
                section 1853 of the Social Security Act (42 
                U.S.C. 1395w-23) for January and February 2004, 
                the annual capitation rate for a payment area 
                shall be calculated and the excess amount under 
                section 1854(f)(1)(B) of such Act (42 U.S.C. 
                1395w-24(f)(1)(B)) shall be determined as if 
                such amendments had not been enacted.
                    (B) March through december.--
                Notwithstanding the amendments made by 
                subsections (a) through (d), for purposes of 
                making payments under section 1853 of the 
                Social Security Act (42 U.S.C. 1395w-23) for 
                March through December 2004, the annual 
                capitation rate for a payment area shall be 
                calculated and the excess amount under section 
                1854(f)(1)(B) of such Act (42 U.S.C. 1395w-
                24(f)(1)(B)) shall be determined, in such 
                manner as the Secretary estimates will ensure 
                that the total of such payments with respect to 
                2004 is the same as the amounts that would have 
                been if subparagraph (A) had not been enacted.
                    (C) Construction.--Subparagraphs (A) and 
                (B) shall not be taken into account in 
                computing such capitation rate for 2005 and 
                subsequent years.
            (4) Plans required to provide notice of changes in 
        plan benefits.--In the case of an organization offering 
        a plan under part C of title XVIII of the Social 
        Security Act that revises its submission of the 
        information described in section 1854(a)(1) of such Act 
        (42 U.S.C. 1395w-23(a)(1)) for a plan pursuant to the 
        application of paragraph (2), if such revision results 
        in changes in beneficiary premiums, beneficiary cost-
        sharing, or benefits under the plan, then by not later 
        than 3 weeks after the date the Secretary approves such 
        submission, the organization offering the plan shall 
        provide each beneficiary enrolled in the plan with 
        written notice of such changes.
            (5) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869 or 
        section 1878 of the Social Security Act (42 U.S.C. 
        1395ff and 1395oo), or otherwise of any determination 
        made by the Secretary under this subsection or the 
        application of the payment rates determined pursuant to 
        this subsection.
    (j) Additional Amendments.--Section 1852(d)(4) (42 U.S.C. 
1395w-22(d)(4)) is amended--
            (1) in subparagraph (B), by inserting ``(other than 
        deemed contracts or agreements under subsection 
        (j)(6))'' after ``the plan has contracts or 
        agreements''; and
            (2) in the last sentence, by inserting before the 
        period at the end the following: ``, except that, if a 
        plan entirely meets such requirement with respect to a 
        category of health care professional or provider on the 
        basis of subparagraph (B), it may provide for a higher 
        beneficiary copayment in the case of health care 
        professionals and providers of that category who do not 
        have contracts or agreements (other than deemed 
        contracts or agreements under subsection (j)(6)) to 
        provide covered services under the terms of the plan''.

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

SEC. 221. ESTABLISHMENT OF MA REGIONAL PLANS.

    (a) Offering of MA Regional Plans.--
            (1) In general.--Section 1851(a)(2)(A) is amended--
                    (A) by striking ``Coordinated care plans.--
                Coordinated'' and inserting the following: 
                ``Coordinated care plans (including regional 
                plans).--
                            ``(i) In general.--Coordinated'';
                    (B) by inserting ``regional or local'' 
                before ``preferred provider organization 
                plans''; and
                    (C) by inserting `` (including MA regional 
                plans)'' after ``preferred provider 
                organization plans''.
            (2) Moratorium on new local preferred provider 
        organization plans.--The Secretary shall not permit the 
        offering of a local preferred provider organization 
        plan under part C of title XVIII of the Social Security 
        Act during 2006 or 2007 in a service area unless such 
        plan was offered under such part (including under a 
        demonstration project under such part) in such area as 
        of December 31, 2005.
    (b) Definition of MA Regional Plan; MA Local Plan.--
            (1) In general.--Section 1859(b) (42 U.S.C. 1395w-
        29(b)) is amended by adding at the end the following 
        new paragraphs:
            ``(4) MA regional plan.--The term `MA regional 
        plan' means an MA plan described in section 
        1851(a)(2)(A)(i)--
                    ``(A) that has a network of providers that 
                have agreed to a contractually specified 
                reimbursement for covered benefits with the 
                organization offering the plan;
                    ``(B) that provides for reimbursement for 
                all covered benefits regardless of whether such 
                benefits are provided within such network of 
                providers; and
                    ``(C) the service area of which is one or 
                more entire MA regions.
            ``(5) MA local plan.--The term `MA local plan' 
        means an MA plan that is not an MA regional plan.''.
            (2) Construction.--Nothing in part C of title XVIII 
        of the Social Security Act shall be construed as 
        preventing an MSA plan or MA private fee-for-service 
        plan from having a service area that covers one or more 
        MA regions or the entire nation.
    (c) Rules for MA Regional Plans.--Part C of title XVIII (42 
U.S.C. 1395w-21 et seq.) is amended by inserting after section 
1857 the following new section:

                 ``SPECIAL RULES FOR MA REGIONAL PLANS

    ``Sec. 1858. (a) Regional Service Area; Establishment of MA 
Regions.--
            ``(1) Coverage of entire ma region.--The service 
        area for an MA regional plan shall consist of an entire 
        MA region established under paragraph (2) and the 
        provisions of section 1854(h) shall not apply to such a 
        plan.
            ``(2) Establishment of ma regions.--
                    ``(A) MA region.--For purposes of this 
                title, the term `MA region' means such a region 
                within the 50 States and the District of 
                Columbia as established by the Secretary under 
                this paragraph.
                    ``(B) Establishment.--
                            ``(i) Initial establishment.--Not 
                        later than January 1, 2005, the 
                        Secretary shall first establish and 
                        publish MA regions.
                            ``(ii) Periodic review and revision 
                        of service areas.--The Secretary may 
                        periodically review MA regions under 
                        this paragraph and, based on such 
                        review, may revise such regions if the 
                        Secretary determines such revision to 
                        be appropriate.
                    ``(C) Requirements for ma regions.--The 
                Secretary shall establish, and may revise, MA 
                regions under this paragraph in a manner 
                consistent with the following:
                            ``(i) Number of regions.--There 
                        shall be no fewer than 10 regions, and 
                        no more than 50 regions.
                            ``(ii) Maximizing availability of 
                        plans.--The regions shall maximize the 
                        availability of MA regional plans to 
                        all MA eligible individuals without 
                        regard to health status, especially 
                        those residing in rural areas.
                    ``(D) Market survey and analysis.--Before 
                establishing MA regions, the Secretary shall 
                conduct a market survey and analysis, including 
                an examination of current insurance markets, to 
                determine how the regions should be 
                established.
            ``(3) National plan.--Nothing in this subsection 
        shall be construed as preventing an MA regional plan 
        from being offered in more than one MA region 
        (including all regions).
    ``(b) Application of Single Deductible and Catastrophic 
Limit on Out-of-Pocket Expenses.--An MA regional plan shall 
include the following:
            ``(1) Single deductible.--Any deductible for 
        benefits under the original medicare fee-for-service 
        program option shall be a single deductible (instead of 
        a separate inpatient hospital deductible and a part B 
        deductible) and may be applied differentially for in-
        network services and may be waived for preventive or 
        other items and services.
            ``(2) Catastrophic limit.--
                    ``(A) In-network.--A catastrophic limit on 
                out-of-pocket expenditures for in-network 
                benefits under the original medicare fee-for-
                service program option.
                    ``(B) Total.--A catastrophic limit on out-
                of-pocket expenditures for all benefits under 
                the original medicare fee-for-service program 
                option.
    ``(c) Portion of Total Payments to an Organization Subject 
to Risk for 2006 and 2007.--
            ``(1) Application of risk corridors.--
                    ``(A) In general.--This subsection shall 
                only apply to MA regional plans offered during 
                2006 or 2007.
                    ``(B) Notification of allowable costs under 
                the plan.--In the case of an MA organization 
                that offers an MA regional plan in an MA region 
                in 2006 or 2007, the organization shall notify 
                the Secretary, before such date in the 
                succeeding year as the Secretary specifies, 
                of--
                            ``(i) its total amount of costs 
                        that the organization incurred in 
                        providing benefits covered under the 
                        original medicare fee-for-service 
                        program option for all enrollees under 
                        the plan in the region in the year and 
                        the portion of such costs that is 
                        attributable to administrative expenses 
                        described in subparagraph (C); and
                            ``(ii) its total amount of costs 
                        that the organization incurred in 
                        providing rebatable integrated benefits 
                        (as defined in subparagraph (D)) and 
                        with respect to such benefits the 
                        portion of such costs that is 
                        attributable to administrative expenses 
                        described in subparagraph (C) and not 
                        described in clause (i) of this 
                        subparagraph.
                    ``(C) Allowable costs defined.--For 
                purposes of this subsection, the term 
                `allowable costs' means, with respect to an MA 
                regional plan for a year, the total amount of 
                costs described in subparagraph (B) for the 
                plan and year, reduced by the portion of such 
                costs attributable to administrative expenses 
                incurred in providing the benefits described in 
                such subparagraph.
                    ``(D) Rebatable integrated benefits.--For 
                purposes of this subsection, the term 
                `rebatable integrated benefits' means such non-
                drug supplemental benefits under subclause (I) 
                of section 1854(b)(1)(C)(ii) pursuant to a 
                rebate under such section that the Secretary 
                determines are integrated with the benefits 
                described in subparagraph (B)(i).
            ``(2) Adjustment of payment.--
                    ``(A) No adjustment if allowable costs 
                within 3 percent of target amount.--If the 
                allowable costs for the plan for the year are 
                at least 97 percent, but do not exceed 103 
                percent, of the target amount for the plan and 
                year, there shall be no payment adjustment 
                under this subsection for the plan and year.
                    ``(B) Increase in payment if allowable 
                costs above 103 percent of target amount.--
                            ``(i) Costs between 103 and 108 
                        percent of target amount.--If the 
                        allowable costs for the plan for the 
                        year are greater than 103 percent, but 
                        not greater than 108 percent, of the 
                        target amount for the plan and year, 
                        the Secretary shall increase the total 
                        of the monthly payments made to the 
                        organization offering the plan for the 
                        year under section 1853(a) by an amount 
                        equal to 50 percent of the difference 
                        between such allowable costs and 103 
                        percent of such target amount.
                            ``(ii) Costs above 108 percent of 
                        target amount.--If the allowable costs 
                        for the plan for the year are greater 
                        than 108 percent of the target amount 
                        for the plan and year, the Secretary 
                        shall increase the total of the monthly 
                        payments made to the organization 
                        offering the plan for the year under 
                        section 1853(a) by an amount equal to 
                        the sum of--
                                    ``(I) 2.5 percent of such 
                                target amount; and
                                    ``(II) 80 percent of the 
                                difference between such 
                                allowable costs and 108 percent 
                                of such target amount.
                    ``(C) Reduction in payment if allowable 
                costs below 97 percent of target amount.--
                            ``(i) Costs between 92 and 97 
                        percent of target amount.--If the 
                        allowable costs for the plan for the 
                        year are less than 97 percent, but 
                        greater than or equal to 92 percent, of 
                        the target amount for the plan and 
                        year, the Secretary shall reduce the 
                        total of the monthly payments made to 
                        the organization offering the plan for 
                        the year under section 1853(a) by an 
                        amount (or otherwise recover from the 
                        plan an amount) equal to 50 percent of 
                        the difference between 97 percent of 
                        the target amount and such allowable 
                        costs.
                            ``(ii) Costs below 92 percent of 
                        target amount.--If the allowable costs 
                        for the plan for the year are less than 
                        92 percent of the target amount for the 
                        plan and year, the Secretary shall 
                        reduce the total of the monthly 
                        payments made to the organization 
                        offering the plan for the year under 
                        section 1853(a) by an amount (or 
                        otherwise recover from the plan an 
                        amount) equal to the sum of--
                                    ``(I) 2.5 percent of such 
                                target amount; and
                                    ``(II) 80 percent of the 
                                difference between 92 percent 
                                of such target amount and such 
                                allowable costs.
                    ``(D) Target amount described.--For 
                purposes of this paragraph, the term `target 
                amount' means, with respect to an MA regional 
                plan offered by an organization in a year, an 
                amount equal to--
                            ``(i) the sum of--
                                    ``(I) the total monthly 
                                payments made to the 
                                organization for enrollees in 
                                the plan for the year that are 
                                attributable to benefits under 
                                the original medicare fee-for-
                                service program option (as 
                                defined in section 
                                1852(a)(1)(B));
                                    ``(II) the total of the MA 
                                monthly basic beneficiary 
                                premium collectable for such 
                                enrollees for the year; and
                                    ``(III) the total amount of 
                                the rebates under section 
                                1854(b)(1)(C)(ii) that are 
                                attributable to rebatable 
                                integrated benefits; reduced by
                            ``(ii) the amount of administrative 
                        expenses assumed in the bid insofar as 
                        the bid is attributable to benefits 
                        described in clause (i)(I) or (i)(III).
            ``(3) Disclosure of information.--
                    ``(A) In general.--Each contract under this 
                part shall provide--
                            ``(i) that an MA organization 
                        offering an MA regional plan shall 
                        provide the Secretary with such 
                        information as the Secretary determines 
                        is necessary to carry out this 
                        subsection; and
                            ``(ii) that, pursuant to section 
                        1857(d)(2)(B), the Secretary has the 
                        right to inspect and audit any books 
                        and records of the organization that 
                        pertain to the information regarding 
                        costs provided to the Secretary under 
                        paragraph (1)(B).
                    ``(B) Restriction on use of information.--
                Information disclosed or obtained pursuant to 
                the provisions of this subsection may be used 
                by officers, employees, and contractors of the 
                Department of Health and Human Services only 
                for the purposes of, and to the extent 
                necessary in, carrying out this subsection.
    ``(d) Organizational and Financial Requirements.--
            ``(1) In general.--In the case of an MA 
        organization that is offering an MA regional plan in an 
        MA region and--
                    ``(A) meets the requirements of section 
                1855(a)(1) with respect to at least one such 
                State in such region; and
                    ``(B) with respect to each other State in 
                such region in which it does not meet 
                requirements, it demonstrates to the 
                satisfaction of the Secretary that it has filed 
                the necessary application to meet such 
                requirements,

        the Secretary may waive such requirement with respect 
        to each State described in subparagraph (B) for such 
        period of time as the Secretary determines appropriate 
        for the timely processing of such an application by the 
        State (and, if such application is denied, through the 
        end of such plan year as the Secretary determines 
        appropriate to provide for a transition).
            ``(2) Selection of appropriate state.--In applying 
        paragraph (1) in the case of an MA organization that 
        meets the requirements of section 1855(a)(1) with 
        respect to more than one State in a region, the 
        organization shall select, in a manner specified by the 
        Secretary among such States, one State the rules of 
        which shall apply in the case of the States described 
        in paragraph (1)(B).
    ``(e) Stabilization Fund.--
            ``(1) Establishment.--The Secretary shall establish 
        under this subsection an MA Regional Plan Stabilization 
        Fund (in this subsection referred to as the `Fund') 
        which shall be available for 2 purposes:
                    ``(A) Plan entry.--To provide incentives to 
                have MA regional plans offered in each MA 
                region under paragraph (3).
                    ``(B) Plan retention.--To provide 
                incentives to retain MA regional plans in 
                certain MA regions with below-national-average 
                MA market penetration under paragraph (4).
            ``(2) Funding.--
                    ``(A) Initial funding.--
                            ``(i) In general.--There shall be 
                        available to the Fund, for expenditures 
                        from the Fund during the period 
                        beginning on January 1, 2007, and 
                        ending on December 31, 2013, a total of 
                        $10,000,000,000.
                            ``(ii) Payment from trust funds.--
                        Such amount shall be available to the 
                        Fund, as expenditures are made from the 
                        Fund, from the Federal Hospital 
                        Insurance Trust Fund and the Federal 
                        Supplementary Medical Insurance Trust 
                        Fund in the proportion specified in 
                        section 1853(f).
                    ``(B) Additional funding from savings.--
                            ``(i) In general.--There shall also 
                        be made available to the Fund, 50 
                        percent of savings described in clause 
                        (ii).
                            ``(ii) Savings.--The savings 
                        described in this clause are 25 percent 
                        of the average per capita savings 
                        described in section 1854(b)(4)(C) for 
                        which monthly rebates are provided 
                        under section 1854(b)(1)(C) in the 
                        fiscal year involved that are 
                        attributable to MA regional plans.
                            ``(iii) Availability.--Funds made 
                        available under this subparagraph shall 
                        be transferred into a special account 
                        in the Treasury from the Federal 
                        Hospital Insurance Trust Fund and the 
                        Federal Supplementary Medical Insurance 
                        Trust Fund in the proportion specified 
                        in section 1853(f) on a monthly basis.
                    ``(C) Obligations.--Amounts in the Fund 
                shall be available in advance of appropriations 
                to MA regional plans in qualifying MA regions 
                only in accordance with paragraph (5).
                    ``(D) Ordering.--Expenditures from the Fund 
                shall first be made from amounts made available 
                under subparagraph (A).
            ``(3) Plan entry funding.--
                    ``(A) In general.--Funding is available 
                under this paragraph for a year only as 
                follows:
                            ``(i) National plan.--For a 
                        national bonus payment described in 
                        subparagraph (B) for the offering by a 
                        single MA organization of an MA 
                        regional plan in each MA region in the 
                        year, but only if there was not such a 
                        plan offered in each such region in the 
                        previous year. Funding under this 
                        clause is only available with respect 
                        to any individual MA organization for a 
                        single year, but may be made available 
                        to more than one such organization in 
                        the same year.
                            ``(ii) Regional plans.--Subject to 
                        clause (iii), for an increased amount 
                        under subparagraph (C) for an MA 
                        regional plan offered in an MA region 
                        which did not have any MA regional plan 
                        offered in the prior year.
                            ``(iii) Limitation on regional plan 
                        funding in case of national plan.--In 
                        no case shall there be any payment 
                        adjustment under subparagraph (C) for a 
                        year for which a national payment 
                        adjustment is made under subparagraph 
                        (B).
                    ``(B) National bonus payment.--The national 
                bonus payment under this subparagraph shall--
                            ``(i) be available to an MA 
                        organization only if the organization 
                        offers MA regional plans in every MA 
                        region;
                            ``(ii) be available with respect to 
                        all MA regional plans of the 
                        organization regardless of whether any 
                        other MA regional plan is offered in 
                        any region; and
                            ``(iii) subject to amounts 
                        available under paragraph (5) for a 
                        year, be equal to 3 percent of the 
                        benchmark amount otherwise applicable 
                        for each MA regional plan offered by 
                        the organization.
                    ``(C) Regional payment adjustment.--
                            ``(i) In general.--The increased 
                        amount under this subparagraph for an 
                        MA regional plan in an MA region for a 
                        year shall be an amount, determined by 
                        the Secretary, based on the bid 
                        submitted for such plan (or plans) and 
                        shall be available to all MA regional 
                        plans offered in such region and year. 
                        Such amount may be based on the mean, 
                        mode, or median, or other measure of 
                        such bids and may vary from region to 
                        region. The Secretary may not limit the 
                        number of plans or bids in a region.
                            ``(ii) Multi-year funding.--
                                    ``(I) In general.--Subject 
                                to amounts available under 
                                paragraph (5), funding under 
                                this subparagraph shall be 
                                available for a period 
                                determined by the Secretary.
                                    ``(II) Report.--If the 
                                Secretary determines that 
                                funding will be provided for a 
                                second consecutive year with 
                                respect to an MA region, the 
                                Secretary shall submit to the 
                                Congress a report that 
                                describes the underlying market 
                                dynamics in the region and that 
                                includes recommendations 
                                concerning changes in the 
                                payment methodology otherwise 
                                provided for MA regional plans 
                                under this part.
                            ``(iii) Application to all plans in 
                        a region.--Funding under this 
                        subparagraph with respect to an MA 
                        region shall be made available with 
                        respect to all MA regional plans 
                        offered in the region.
                            ``(iv) Limitation on availability 
                        of plan retention funding in next 
                        year.--If an increased amount is made 
                        available under this subparagraph with 
                        respect to an MA region for a period 
                        determined by the Secretary under 
                        clause (ii)(I), in no case shall 
                        funding be available under paragraph 
                        (4) with respect to MA regional plans 
                        offered in the region in the year 
                        following such period.
                    ``(D) Application.--Any additional payment 
                under this paragraph provided for an MA 
                regional plan for a year shall be treated as if 
                it were an addition to the benchmark amount 
                otherwise applicable to such plan and year, but 
                shall not be taken into account in the 
                computation of any benchmark amount for any 
                subsequent year.
            ``(4) Plan retention funding.--
                    ``(A) In general.--Funding is available 
                under this paragraph for a year with respect to 
                MA regional plans offered in an MA region for 
                the increased amount specified in subparagraph 
                (B) but only if the region meets the 
                requirements of subparagraphs (C) and (E).
                    ``(B) Payment increase.--The increased 
                amount under this subparagraph for an MA 
                regional plan in an MA region for a year shall 
                be an amount, determined by the Secretary, that 
                does not exceed the greater of--
                            ``(i) 3 percent of the benchmark 
                        amount applicable in the region; or
                            ``(ii) such amount as (when added 
                        to the benchmark amount applicable to 
                        the region) will result in the ratio 
                        of--
                                    ``(I) such additional 
                                amount plus the benchmark 
                                amount computed under section 
                                1854(b)(4)(B)(i) for the region 
                                and year, to the adjusted 
                                average per capita cost for the 
                                region and year, as estimated 
                                by the Secretary under section 
                                1876(a)(4) and adjusted as 
                                appropriate for the purpose of 
                                risk adjustment; being equal to
                                    ``(II) the weighted average 
                                of such benchmark amounts for 
                                all the regions and such year, 
                                to the average per capita cost 
                                for the United States and such 
                                year, as estimated by the 
                                Secretary under section 
                                1876(a)(4) and adjusted as 
                                appropriate for the purpose of 
                                risk adjustment.
                    ``(C) Regional requirements.--The 
                requirements of this subparagraph for an MA 
                region for a year are as follows:
                            ``(i) Notification of plan exit.--
                        The Secretary has received notice (in 
                        such form and manner as the Secretary 
                        specifies) before a year that one or 
                        more MA regional plans that were 
                        offered in the region in the previous 
                        year will not be offered in the 
                        succeeding year.
                            ``(ii) Regional plans available 
                        from fewer than 2 ma organizations in 
                        the region.--The Secretary determines 
                        that if the plans referred to in clause 
                        (i) are not offered in the year, fewer 
                        than 2 MA organizations will be 
                        offering MA regional plans in the 
                        region in the year involved.
                            ``(iii) Percentage enrollment in ma 
                        regional plans below national 
                        average.--For the previous year, the 
                        Secretary determines that the average 
                        percentage of MA eligible individuals 
                        residing in the region who are enrolled 
                        in MA regional plans is less than the 
                        average percentage of such individuals 
                        in the United States enrolled in such 
                        plans.
                    ``(D) Application.--Any additional payment 
                under this paragraph provided for an MA 
                regional plan for a year shall be treated as if 
                it were an addition to the benchmark amount 
                otherwise applicable to such plan and year, but 
                shall not be taken into account in the 
                computation of any benchmark amount for any 
                subsequent year.
                    ``(E) 2-consecutive-year limitation.--
                            ``(i) In general.--In no case shall 
                        any funding be available under this 
                        paragraph in an MA region in a period 
                        of consecutive years that exceeds 2 
                        years.
                            ``(ii) Report.--If the Secretary 
                        determines that funding will be 
                        provided under this paragraph for a 
                        second consecutive year with respect to 
                        an MA region, the Secretary shall 
                        submit to the Congress a report that 
                        describes the underlying market 
                        dynamics in the region and that 
                        includes recommendations concerning 
                        changes in the payment methodology 
                        otherwise provided for MA regional 
                        plans under this part.
            ``(5) Funding limitation.--
                    ``(A) In general.--The total amount 
                expended from the Fund as a result of the 
                application of this subsection through the end 
                of a calendar year may not exceed the amount 
                available to the Fund as of the first day of 
                such year. For purposes of this subsection, 
                amounts that are expended under this title 
                insofar as such amounts would not have been 
                expended but for the application of this 
                subsection shall be counted as amounts expended 
                as a result of such application.
                    ``(B) Application of limitation.--The 
                Secretary may obligate funds from the Fund for 
                a year only if the Secretary determines (and 
                the Chief Actuary of the Centers for Medicare & 
                Medicaid Services and the appropriate budget 
                officer certify) that there are available in 
                the Fund at the beginning of the year 
                sufficient amounts to cover all such 
                obligations incurred during the year consistent 
                with subparagraph (A). The Secretary shall take 
                such steps, in connection with computing 
                additional payment amounts under paragraphs (3) 
                and (4) and including limitations on enrollment 
                in MA regional plans receiving such payments, 
                as will ensure that sufficient funds are 
                available to make such payments for the entire 
                year. Funds shall only be made available from 
                the Fund pursuant to an apportionment made in 
                accordance with applicable procedures.
            ``(6) Secretary reports.--Not later than April 1 of 
        each year (beginning in 2008), the Secretary shall 
        submit a report to Congress and the Comptroller General 
        of the United States that includes--
                    ``(A) a detailed description of--
                            ``(i) the total amount expended as 
                        a result of the application of this 
                        subsection in the previous year 
                        compared to the total amount that would 
                        have been expended under this title in 
                        the year if this subsection had not 
                        been enacted;
                            ``(ii) the projections of the total 
                        amount that will be expended as a 
                        result of the application of this 
                        subsection in the year in which the 
                        report is submitted compared to the 
                        total amount that would have been 
                        expended under this title in the year 
                        if this subsection had not been 
                        enacted;
                            ``(iii) amounts remaining within 
                        the funding limitation specified in 
                        paragraph (5); and
                            ``(iv) the steps that the Secretary 
                        will take under paragraph (5)(B) to 
                        ensure that the application of this 
                        subsection will not cause expenditures 
                        to exceed the amount available in the 
                        Fund; and
                    ``(B) a certification from the Chief 
                Actuary of the Centers for Medicare & Medicaid 
                Services that the description provided under 
                subparagraph (A) is reasonable, accurate, and 
                based on generally accepted actuarial 
                principles and methodologies.
            ``(7) Biennial gao reports.--Not later than January 
        1 of 2009, 2011, 2013, and 2015, the Comptroller 
        General of the United States shall submit to the 
        Secretary and Congress a report on the application of 
        additional payments under this subsection. Each report 
        shall include--
                    ``(A) an evaluation of--
                            ``(i) the quality of care provided 
                        to individuals enrolled in MA regional 
                        plans for which additional payments 
                        were made under this subsection;
                            ``(ii) the satisfaction of such 
                        individuals with benefits under such a 
                        plan;
                            ``(iii) the costs to the medicare 
                        program for payments made to such 
                        plans; and
                            ``(iv) any improvements in the 
                        delivery of health care services under 
                        such a plan;
                    ``(B) a comparative analysis of the 
                performance of MA regional plans receiving 
                payments under this subsection with MA regional 
                plans not receiving such payments; and
                    ``(C) recommendations for such legislation 
                or administrative action as the Comptroller 
                General determines to be appropriate.
    ``(f) Computation of Applicable MA Region-Specific Non-Drug 
Monthly Benchmark Amounts.--
            ``(1) Computation for regions.--For purposes of 
        section 1853(j)(2) and this section, subject to 
        subsection (e), the term `MA region-specific non-drug 
        monthly benchmark amount' means, with respect to an MA 
        region for a month in a year, the sum of the 2 
        components described in paragraph (2) for the region 
        and year. The Secretary shall compute such benchmark 
        amount for each MA region before the beginning of each 
        annual, coordinated election period under section 
        1851(e)(3)(B) for each year (beginning with 2006).
            ``(2) 2 components.--For purposes of paragraph (1), 
        the 2 components described in this paragraph for an MA 
        region and a year are the following:
                    ``(A) Statutory component.--The product of 
                the following:
                            ``(i) Statutory region-specific 
                        non-drug amount.--The statutory region-
                        specific non-drug amount (as defined in 
                        paragraph (3)) for the region and year.
                            ``(ii) Statutory national market 
                        share.--The statutory national market 
                        share percentage, determined under 
                        paragraph (4) for the year.
                    ``(B) Plan-bid component.--The product of 
                the following:
                            ``(i) Weighted average of ma plan 
                        bids in region.--The weighted average 
                        of the plan bids for the region and 
                        year (as determined under paragraph 
                        (5)(A)).
                            ``(ii) Non-statutory market 
                        share.--1 minus the statutory national 
                        market share percentage, determined 
                        under paragraph (4) for the year.
            ``(3) Statutory region-specific non-drug amount.--
        For purposes of paragraph (2)(A)(i), the term 
        `statutory region-specific non-drug amount' means, for 
        an MA region and year, an amount equal the sum (for 
        each MA local area within the region) of the product 
        of--
                    ``(A) MA area-specific non-drug monthly 
                benchmark amount under section 1853(j)(1)(A) 
                for that area and year; and
                    ``(B) the number of MA eligible individuals 
                residing in the local area, divided by the 
                total number of MA eligible individuals 
                residing in the region.
            ``(4) Computation of statutory market share 
        percentage.--
                    ``(A) In general.--The Secretary shall 
                determine for each year a statutory national 
                market share percentage that is equal to the 
                proportion of MA eligible individuals 
                nationally who were not enrolled in an MA plan 
                during the reference month.
                    ``(B) Reference month defined.--For 
                purposes of this part, the term `reference 
                month' means, with respect to a year, the most 
                recent month during the previous year for which 
                the Secretary determines that data are 
                available to compute the percentage specified 
                in subparagraph (A) and other relevant 
                percentages under this part.
            ``(5) Determination of weighted average ma bids for 
        a region.--
                    ``(A) In general.--For purposes of 
                paragraph (2)(B)(i), the weighted average of 
                plan bids for an MA region and a year is the 
                sum, for MA regional plans described in 
                subparagraph (D) in the region and year, of the 
                products (for each such plan) of the following:
                            ``(i) Monthly ma statutory non-drug 
                        bid amount.--The unadjusted MA 
                        statutory non-drug monthly bid amount 
                        for the plan.
                            ``(ii) Plan's share of ma 
                        enrollment in region.--The factor 
                        described in subparagraph (B) for the 
                        plan.
                    ``(B) Plan's share of ma enrollment in 
                region.--
                            ``(i) In general.--Subject to the 
                        succeeding provisions of this 
                        subparagraph, the factor described in 
                        this subparagraph for a plan is equal 
                        to the number of individuals described 
                        in subparagraph (C) for such plan, 
                        divided by the total number of such 
                        individuals for all MA regional plans 
                        described in subparagraph (D) for that 
                        region and year.
                            ``(ii) Single plan rule.--In the 
                        case of an MA region in which only a 
                        single MA regional plan is being 
                        offered, the factor described in this 
                        subparagraph shall be equal to 1.
                            ``(iii) Equal division among 
                        multiple plans in year in which plans 
                        are first available.--In the case of an 
                        MA region in the first year in which 
                        any MA regional plan is offered, if 
                        more than one MA regional plan is 
                        offered in such year, the factor 
                        described in this subparagraph for a 
                        plan shall (as specified by the 
                        Secretary) be equal to--
                                    ``(I) 1 divided by the 
                                number of such plans offered in 
                                such year; or
                                    ``(II) a factor for such 
                                plan that is based upon the 
                                organization's estimate of 
                                projected enrollment, as 
                                reviewed and adjusted by the 
                                Secretary to ensure 
                                reasonableness and as is 
                                certified by the Chief Actuary 
                                of the Centers for Medicare & 
                                Medicaid Services.
                    ``(C) Counting of individuals.--For 
                purposes of subparagraph (B)(i), the Secretary 
                shall count for each MA regional plan described 
                in subparagraph (D) for an MA region and year, 
                the number of individuals who reside in the 
                region and who were enrolled under such plan 
                under this part during the reference month.
                    ``(D) Plans covered.--For an MA region and 
                year, an MA regional plan described in this 
                subparagraph is an MA regional plan that is 
                offered in the region and year and was offered 
                in the region in the reference month.
    ``(g) Election of Uniform Coverage Determination.--Instead 
of applying section 1852(a)(2)(C) with respect to an MA 
regional plan, the organization offering the plan may elect to 
have a local coverage determination for the entire MA region be 
the local coverage determination applied for any part of such 
region (as selected by the organization).
    ``(h) Assuring Network Adequacy.--
            ``(1) In general.--For purposes of enabling MA 
        organizations that offer MA regional plans to meet 
        applicable provider access requirements under section 
        1852 with respect to such plans, the Secretary may 
        provide for payment under this section to an essential 
        hospital that provides inpatient hospital services to 
        enrollees in such a plan where the MA organization 
        offering the plan certifies to the Secretary that the 
        organization was unable to reach an agreement between 
        the hospital and the organization regarding provision 
        of such services under the plan. Such payment shall be 
        available only if--
                    ``(A) the organization provides assurances 
                satisfactory to the Secretary that the 
                organization will make payment to the hospital 
                for inpatient hospital services of an amount 
                that is not less than the amount that would be 
                payable to the hospital under section 1886 with 
                respect to such services; and
                    ``(B) with respect to specific inpatient 
                hospital services provided to an enrollee, the 
                hospital demonstrates to the satisfaction of 
                the Secretary that the hospital's costs of such 
                services exceed the payment amount described in 
                subparagraph (A).
            ``(2) Payment amounts.--The payment amount under 
        this subsection for inpatient hospital services 
        provided by a subsection (d) hospital to an enrollee in 
        an MA regional plan shall be, subject to the limitation 
        of funds under paragraph (3), the amount (if any) by 
        which--
                    ``(A) the amount of payment that would have 
                been paid for such services under this title if 
                the enrollees were covered under the original 
                medicare fee-for-service program option and the 
                hospital were a critical access hospital; 
                exceeds
                    ``(B) the amount of payment made for such 
                services under paragraph (1)(A).
            ``(3) Available amounts.--There shall be available 
        for payments under this subsection--
                    ``(A) in 2006, $25,000,000; and
                    ``(B) in each succeeding year the amount 
                specified in this paragraph for the preceding 
                year increased by the market basket percentage 
                increase (as defined in section 
                1886(b)(3)(B)(iii)) for the fiscal year ending 
                in such succeeding year.

        Payments under this subsection shall be made from the 
        Federal Hospital Insurance Trust Fund.
            ``(4) Essential hospital.--In this subsection, the 
        term `essential hospital' means, with respect to an MA 
        regional plan offered by an MA organization, a 
        subsection (d) hospital (as defined in section 1886(d)) 
        that the Secretary determines, based upon an 
        application filed by the organization with the 
        Secretary, is necessary to meet the requirements 
        referred to in paragraph (1) for such plan.''.
    (d) Conforming Amendments.--
            (1) Relating to ma regions.--Section 1853(d) (42 
        U.S.C. 1395w-23(d)) is amended--
                    (A) by amending the heading to read as 
                follows: ``MA Payment Area; MA Local Area; MA 
                Region Defined'';
                    (B) by redesignating paragraphs (2) and (3) 
                as paragraphs (3) and (4), respectively;
                    (C) by amending paragraph (1) to read as 
                follows:
            ``(1) MA payment area.--In this part, except as 
        provided in this subsection, the term `MA payment area' 
        means--
                    ``(A) with respect to an MA local plan, an 
                MA local area (as defined in paragraph (2)); 
                and
                    ``(B) with respect to an MA regional plan, 
                an MA region (as established under section 
                1858(a)(2)).'';
                    (D) by inserting after paragraph (1) the 
                following new paragraph:
            ``(2) MA local area.--The term `MA local area' 
        means a county or equivalent area specified by the 
        Secretary.''; and
                    (E) in paragraph (4), as so redesignated--
                            (i) in subparagraph (A), by 
                        inserting ``for MA local plans'' after 
                        ``paragraph (1)'';
                            (ii) in subparagraph (A)(iii), by 
                        striking ``paragraph (1)'' and 
                        inserting ``paragraph (1)(A)''; and
                            (iii) in subparagraph (B)--
                                    (I) by inserting ``with 
                                respect to MA local plans'' 
                                after ``established under this 
                                section'';
                                    (II) by inserting ``for 
                                such plans'' after ``payments 
                                under this section''; and
                                    (III) by inserting ``for 
                                such plans'' after ``made under 
                                this section''.
            (2) MA local area defined.--Section 1859(c) (42 
        U.S.C. 1395w-29(c)) is amended by adding at the end the 
        following:
            ``(5) MA local area.--The term `MA local area' is 
        defined in section 1853(d)(2).''.
            (3) Application of special benefit rules to ppos 
        and regional plans.--Section 1852(a) (42 U.S.C. 1395w-
        22(a)) is amended--
                    (A) in paragraph (1), by inserting ``and 
                except as provided in paragraph (6) for MA 
                regional plans'' after ``MSA plans''; and
                    (B) by adding at the end the following new 
                paragraph:
            ``(6) Special benefit rules for regional plans.--In 
        the case of an MA plan that is an MA regional plan, 
        benefits under the plan shall include the benefits 
        described in paragraphs (1) and (2) of section 
        1858(b).''.
            (4) Application of capitation rates to local 
        areas.--Section 1853(c)(1) (42 U.S.C. 1395w-23(c)(1)) 
        is amended by inserting ``that is an MA local area'' 
        after ``for a Medicare+Choice payment area''.
            (5) Network adequacy hospital payments.--Section 
        1851(i)(2) (42 U.S.C. 1395w-21(i)(2)) is amended by 
        inserting ``1858(h),'' after ``1857(f)(2),''.

SEC. 222. COMPETITION PROGRAM BEGINNING IN 2006.

    (a) Submission of Bidding and Rebate Information Beginning 
in 2006.--
            (1) In general.--Section 1854 (42 U.S.C. 1395w-24) 
        is amended--
                    (A) by amending paragraph (1) of subsection 
                (a) to read as follows:
            ``(1) In general.--
                    ``(A) Initial submission.--Not later than 
                the second Monday in September of 2002, 2003, 
                and 2004 (or the first Monday in June of each 
                subsequent year), each MA organization shall 
                submit to the Secretary, in a form and manner 
                specified by the Secretary and for each MA plan 
                for the service area (or segment of such an 
                area if permitted under subsection (h)) in 
                which it intends to be offered in the following 
                year the following:
                            ``(i) The information described in 
                        paragraph (2), (3), (4), or (6)(A) for 
                        the type of plan and year involved.
                            ``(ii) The plan type for each plan.
                            ``(iii) The enrollment capacity (if 
                        any) in relation to the plan and area.
                    ``(B) Beneficiary rebate information.--In 
                the case of a plan required to provide a 
                monthly rebate under subsection (b)(1)(C) for a 
                year, the MA organization offering the plan 
                shall submit to the Secretary, in such form and 
                manner and at such time as the Secretary 
                specifies, information on--
                            ``(i) the manner in which such 
                        rebate will be provided under clause 
                        (ii) of such subsection; and
                            ``(ii) the MA monthly prescription 
                        drug beneficiary premium (if any) and 
                        the MA monthly supplemental beneficiary 
                        premium (if any).
                    ``(C) Paperwork reduction for offering of 
                ma regional plans nationally or in multi-region 
                areas.--The Secretary shall establish 
                requirements for information submission under 
                this subsection in a manner that promotes the 
                offering of MA regional plans in more than one 
                region (including all regions) through the 
                filing of consolidated information.''; and
                    (B) by adding at the end of subsection (a) 
                the following:
            ``(6) Submission of bid amounts by ma organizations 
        beginning in 2006.--
                    ``(A) Information to be submitted.--For an 
                MA plan (other than an MSA plan) for a plan 
                year beginning on or after January 1, 2006, the 
                information described in this subparagraph is 
                as follows:
                            ``(i) The monthly aggregate bid 
                        amount for the provision of all items 
                        and services under the plan, which 
                        amount shall be based on average 
                        revenue requirements (as used for 
                        purposes of section 1302(8) of the 
                        Public Health Service Act) in the 
                        payment area for an enrollee with a 
                        national average risk profile for the 
                        factors described in section 
                        1853(a)(1)(C) (as specified by the 
                        Secretary).
                            ``(ii) The proportions of such bid 
                        amount that are attributable to--
                                    ``(I) the provision of 
                                benefits under the original 
                                medicare fee-for-service 
                                program option (as defined in 
                                section 1852(a)(1)(B));
                                    ``(II) the provision of 
                                basic prescription drug 
                                coverage; and
                                    ``(III) the provision of 
                                supplemental health care 
                                benefits.
                            ``(iii) The actuarial basis for 
                        determining the amount under clause (i) 
                        and the proportions described in clause 
                        (ii) and such additional information as 
                        the Secretary may require to verify 
                        such actuarial bases and the projected 
                        number of enrollees in each MA local 
                        area.
                            ``(iv) A description of 
                        deductibles, coinsurance, and 
                        copayments applicable under the plan 
                        and the actuarial value of such 
                        deductibles, coinsurance, and 
                        copayments, described in subsection 
                        (e)(4)(A).
                            ``(v) With respect to qualified 
                        prescription drug coverage, the 
                        information required under section 
                        1860D-4, as incorporated under section 
                        1860D-11(b)(2), with respect to such 
                        coverage.
                In the case of a specialized MA plan for 
                special needs individuals, the information 
                described in this subparagraph is such 
                information as the Secretary shall specify.
                    ``(B) Acceptance and negotiation of bid 
                amounts.--
                            ``(i) Authority.--Subject to 
                        clauses (iii) and (iv), the Secretary 
                        has the authority to negotiate 
                        regarding monthly bid amounts submitted 
                        under subparagraph (A) (and the 
                        proportions described in subparagraph 
                        (A)(ii)), including supplemental 
                        benefits provided under subsection 
                        (b)(1)(C)(ii)(I) and in exercising such 
                        authority the Secretary shall have 
                        authority similar to the authority of 
                        the Director of the Office of Personnel 
                        Management with respect to health 
                        benefits plans under chapter 89 of 
                        title 5, United States Code.
                            ``(ii) Application of fehbp 
                        standard.--Subject to clause (iv), the 
                        Secretary may only accept such a bid 
                        amount or proportion if the Secretary 
                        determines that such amount and 
                        proportions are supported by the 
                        actuarial bases provided under 
                        subparagraph (A) and reasonably and 
                        equitably reflects the revenue 
                        requirements (as used for purposes of 
                        section 1302(8) of the Public Health 
                        Service Act) of benefits provided under 
                        that plan.
                            ``(iii) Noninterference.--In order 
                        to promote competition under this part 
                        and part D and in carrying out such 
                        parts, the Secretary may not require 
                        any MA organization to contract with a 
                        particular hospital, physician, or 
                        other entity or individual to furnish 
                        items and services under this title or 
                        require a particular price structure 
                        for payment under such a contract to 
                        the extent consistent with the 
                        Secretary's authority under this part.
                            ``(iv) Exception.--In the case of a 
                        plan described in section 
                        1851(a)(2)(C), the provisions of 
                        clauses (i) and (ii) shall not apply 
                        and the provisions of paragraph (5)(B), 
                        prohibiting the review, approval, or 
                        disapproval of amounts described in 
                        such paragraph, shall apply to the 
                        negotiation and rejection of the 
                        monthly bid amounts and the proportions 
                        referred to in subparagraph (A).''.
            (2) Definition of benefits under the original 
        medicare fee-for-service program option.--Section 
        1852(a)(1) (42 U.S.C. 1395w-22(a)(1)) is amended--
                    (A) by striking ``In general.--Except'' and 
                inserting ``Requirement.--
                    ``(A) In general.--Except''; and
                    (B) by striking ``title XI'' and all that 
                follows and inserting the following: ``title 
                XI, benefits under the original medicare fee-
                for-service program option (and, for plan years 
                before 2006, additional benefits required under 
                section 1854(f)(1)(A)).
                    ``(B) Benefits under the original medicare 
                fee-for-service program option defined.--
                            ``(i) In general.--For purposes of 
                        this part, the term `benefits under the 
                        original medicare fee-for-service 
                        program option' means those items and 
                        services (other than hospice care) for 
                        which benefits are available under 
                        parts A and B to individuals entitled 
                        to benefits under part A and enrolled 
                        under part B, with cost-sharing for 
                        those services as required under parts 
                        A and B or an actuarially equivalent 
                        level of cost-sharing as determined in 
                        this part.
                            ``(ii) Special rule for regional 
                        plans.--In the case of an MA regional 
                        plan in determining an actuarially 
                        equivalent level of cost-sharing with 
                        respect to benefits under the original 
                        medicare fee-for-service program 
                        option, there shall only be taken into 
                        account, with respect to the 
                        application of section 1858(b)(2), such 
                        expenses only with respect to 
                        subparagraph (A) of such section.''.
            (3) Conforming amendment relating to supplemental 
        health benefits.--Section 1852(a)(3) (42 U.S.C. 1395w-
        22(a)(3)) is amended by adding at the end the 
        following: ``Such benefits may include reductions in 
        cost-sharing below the actuarial value specified in 
        section 1854(e)(4)(B).''.
    (b) Providing for Beneficiary Savings for Certain Plans.--
            (1) Beneficiary rebates.--Section 1854(b)(1) (42 
        U.S.C. 1395w-24(b)(1)) is amended--
                    (A) in subparagraph (A), by striking ``The 
                monthly amount'' and inserting ``Subject to the 
                rebate under subparagraph (C), the monthly 
                amount (if any)''; and
                    (B) by adding at the end the following new 
                subparagraph:
                    ``(C) Beneficiary rebate rule.--
                            ``(i) Requirement.--The MA plan 
                        shall provide to the enrollee a monthly 
                        rebate equal to 75 percent of the 
                        average per capita savings (if any) 
                        described in paragraph (3)(C) or 
                        (4)(C), as applicable to the plan and 
                        year involved.
                            ``(ii) Form of rebate.--A rebate 
                        required under this subparagraph shall 
                        be provided through the application of 
                        the amount of the rebate toward one or 
                        more of the following:
                                    ``(I) Provision of 
                                supplemental health care 
                                benefits and payment for 
                                premium for supplemental 
                                benefits.--The provision of 
                                supplemental health care 
                                benefits described in section 
                                1852(a)(3) in a manner 
                                specified under the plan, which 
                                may include the reduction of 
                                cost-sharing otherwise 
                                applicable as well as 
                                additional health care benefits 
                                which are not benefits under 
                                the original medicare fee-for-
                                service program option, or 
                                crediting toward an MA monthly 
                                supplemental beneficiary 
                                premium (if any).
                                    ``(II) Payment for premium 
                                for prescription drug 
                                coverage.--Crediting toward the 
                                MA monthly prescription drug 
                                beneficiary premium.
                                    ``(III) Payment toward part 
                                b premium.--Crediting toward 
                                the premium imposed under part 
                                B (determined without regard to 
                                the application of subsections 
                                (b), (h), and (i) of section 
                                1839).
                            ``(iii) Disclosure relating to 
                        rebates.--The plan shall disclose to 
                        the Secretary information on the form 
                        and amount of the rebate provided under 
                        this subparagraph or the actuarial 
                        value in the case of supplemental 
                        health care benefits.
                            ``(iv) Application of part b 
                        premium reduction.--Insofar as an MA 
                        organization elects to provide a rebate 
                        under this subparagraph under a plan as 
                        a credit toward the part B premium 
                        under clause (ii)(III), the Secretary 
                        shall apply such credit to reduce the 
                        premium under section 1839 of each 
                        enrollee in such plan as provided in 
                        section 1840(i).''.
            (2) Revision of premium terminology.--Section 
        1854(b)(2) (42 U.S.C. 1395w-24(b)(2)) is amended--
                    (A) in the heading, by inserting ``and 
                bid'' after ``Premium'';
                    (B) by redesignating subparagraph (C) as 
                subparagraph (D);
                    (C) by striking subparagraphs (A) and (B) 
                and inserting the following:
                    ``(A) MA monthly basic beneficiary 
                premium.--The term `MA monthly basic 
                beneficiary premium' means, with respect to an 
                MA plan--
                            ``(i) described in section 
                        1853(a)(1)(B)(i) (relating to plans 
                        providing rebates), zero; or
                            ``(ii) described in section 
                        1853(a)(1)(B)(ii), the amount (if any) 
                        by which the unadjusted MA statutory 
                        non-drug monthly bid amount (as defined 
                        in subparagraph (E)) exceeds the 
                        applicable unadjusted MA area-specific 
                        non-drug monthly benchmark amount (as 
                        defined in section 1853(j)).
                    ``(B) MA monthly prescription drug 
                beneficiary premium.--The term `MA monthly 
                prescription drug beneficiary premium' means, 
                with respect to an MA plan, the base 
                beneficiary premium (as determined under 
                section 1860D-13(a)(2) and as adjusted under 
                section 1860D-13(a)(1)(B)), less the amount of 
                rebate credited toward such amount under 
                section 1854(b)(1)(C)(ii)(II).
                    ``(C) MA monthly supplemental beneficiary 
                premium.--The term `MA monthly supplemental 
                beneficiary premium' means, with respect to an 
                MA plan, the portion of the aggregate monthly 
                bid amount submitted under clause (i) of 
                subsection (a)(6)(A) for the year that is 
                attributable under clause (ii)(III) of such 
                subsection to the provision of supplemental 
                health care benefits, less the amount of rebate 
                credited toward such portion under section 
                1854(b)(1)(C)(ii)(I).''; and
                    (D) by adding at the end the following:
                    ``(E) Unadjusted ma statutory non-drug 
                monthly bid amount.--The term `unadjusted MA 
                statutory non-drug monthly bid amount' means 
                the portion of the bid amount submitted under 
                clause (i) of subsection (a)(6)(A) for the year 
                that is attributable under clause (ii)(I) of 
                such subsection to the provision of benefits 
                under the original medicare fee-for-service 
                program option (as defined in section 
                1852(a)(1)(B)).''.
            (3) Computation of savings.--Section 1854(b) (42 
        U.S.C. 1395w-24(b)) is further amended by adding at the 
        end the following new paragraphs:
            ``(3) Computation of average per capita monthly 
        savings for local plans.--For purposes of paragraph 
        (1)(C)(i), the average per capita monthly savings 
        referred to in such paragraph for an MA local plan and 
        year is computed as follows:
                    ``(A) Determination of statewide average 
                risk adjustment for local plans.--
                            ``(i) In general.--Subject to 
                        clause (iii), the Secretary shall 
                        determine, at the same time rates are 
                        promulgated under section 1853(b)(1) 
                        (beginning with 2006) for each State, 
                        the average of the risk adjustment 
                        factors to be applied under section 
                        1853(a)(1)(C) to payment for enrollees 
                        in that State for MA local plans.
                            ``(ii) Treatment of states for 
                        first year in which local plan 
                        offered.--In the case of a State in 
                        which no MA local plan was offered in 
                        the previous year, the Secretary shall 
                        estimate such average. In making such 
                        estimate, the Secretary may use average 
                        risk adjustment factors applied to 
                        comparable States or applied on a 
                        national basis.
                            ``(iii) Authority to determine risk 
                        adjustment for areas other than 
                        states.--The Secretary may provide for 
                        the determination and application of 
                        risk adjustment factors under this 
                        subparagraph on the basis of areas 
                        other than States or on a plan-specific 
                        basis.
                    ``(B) Determination of risk adjusted 
                benchmark and risk-adjusted bid for local 
                plans.--For each MA plan offered in a local 
                area in a State, the Secretary shall--
                            ``(i) adjust the applicable MA 
                        area-specific non-drug monthly 
                        benchmark amount (as defined in section 
                        1853(j)(1)) for the area by the average 
                        risk adjustment factor computed under 
                        subparagraph (A); and
                            ``(ii) adjust the unadjusted MA 
                        statutory non-drug monthly bid amount 
                        by such applicable average risk 
                        adjustment factor.
                    ``(C) Determination of average per capita 
                monthly savings.--The average per capita 
                monthly savings described in this subparagraph 
                for an MA local plan is equal to the amount (if 
                any) by which--
                            ``(i) the risk-adjusted benchmark 
                        amount computed under subparagraph 
                        (B)(i); exceeds
                            ``(ii) the risk-adjusted bid 
                        computed under subparagraph (B)(ii).
            ``(4) Computation of average per capita monthly 
        savings for regional plans.--For purposes of paragraph 
        (1)(C)(i), the average per capita monthly savings 
        referred to in such paragraph for an MA regional plan 
        and year is computed as follows:
                    ``(A) Determination of regionwide average 
                risk adjustment for regional plans.--
                            ``(i) In general.--The Secretary 
                        shall determine, at the same time rates 
                        are promulgated under section 
                        1853(b)(1) (beginning with 2006) for 
                        each MA region the average of the risk 
                        adjustment factors to be applied under 
                        section 1853(a)(1)(C) to payment for 
                        enrollees in that region for MA 
                        regional plans.
                            ``(ii) Treatment of regions for 
                        first year in which regional plan 
                        offered.--In the case of an MA region 
                        in which no MA regional plan was 
                        offered in the previous year, the 
                        Secretary shall estimate such average. 
                        In making such estimate, the Secretary 
                        may use average risk adjustment factors 
                        applied to comparable regions or 
                        applied on a national basis.
                            ``(iii) Authority to determine risk 
                        adjustment for areas other than 
                        regions.--The Secretary may provide for 
                        the determination and application of 
                        risk adjustment factors under this 
                        subparagraph on the basis of areas 
                        other than MA regions or on a plan-
                        specific basis.
                    ``(B) Determination of risk-adjusted 
                benchmark and risk-adjusted bid for regional 
                plans.--For each MA regional plan offered in a 
                region, the Secretary shall--
                            ``(i) adjust the applicable MA 
                        area-specific non-drug monthly 
                        benchmark amount (as defined in section 
                        1853(j)(2)) for the region by the 
                        average risk adjustment factor computed 
                        under subparagraph (A); and
                            ``(ii) adjust the unadjusted MA 
                        statutory non-drug monthly bid amount 
                        by such applicable average risk 
                        adjustment factor.
                    ``(C) Determination of average per capita 
                monthly savings.--The average per capita 
                monthly savings described in this subparagraph 
                for an MA regional plan is equal to the amount 
                (if any) by which--
                            ``(i) the risk-adjusted benchmark 
                        amount computed under subparagraph 
                        (B)(i); exceeds
                            ``(ii) the risk-adjusted bid 
                        computed under subparagraph (B)(ii).''.
    (c) Collection of Premiums.--Section 1854(d) (42 U.S.C. 
1395w-24(d)) is amended--
            (1) by striking ``Premiums.--Each'' and inserting 
        ``Premiums.--
            ``(1) In general.--Each''; and
            (2) by adding at the end the following new 
        paragraphs:
            ``(2) Beneficiary's option of payment through 
        withholding from social security payment or use of 
        electronic funds transfer mechanism.--In accordance 
        with regulations, an MA organization shall permit each 
        enrollee, at the enrollee's option, to make payment of 
        premiums (if any) under this part to the organization 
        through--
                    ``(A) withholding from benefit payments in 
                the manner provided under section 1840 with 
                respect to monthly premiums under section 1839;
                    ``(B) an electronic funds transfer 
                mechanism (such as automatic charges of an 
                account at a financial institution or a credit 
                or debit card account); or
                    ``(C) such other means as the Secretary may 
                specify, including payment by an employer or 
                under employment-based retiree health coverage 
                (as defined in section 1860D-22(c)(1)) on 
                behalf of an employee or former employee (or 
                dependent).
        All premium payments that are withheld under 
        subparagraph (A) shall be credited to the appropriate 
        Trust Fund (or Account thereof), as specified by the 
        Secretary, under this title and shall be paid to the MA 
        organization involved. No charge may be imposed under 
        an MA plan with respect to the election of the payment 
        option described in subparagraph (A). The Secretary 
        shall consult with the Commissioner of Social Security 
        and the Secretary of the Treasury regarding methods for 
        allocating premiums withheld under subparagraph (A) 
        among the appropriate Trust Funds and Account.
            ``(3) Information necessary for collection.--In 
        order to carry out paragraph (2)(A) with respect to an 
        enrollee who has elected such paragraph to apply, the 
        Secretary shall transmit to the Commissioner of Social 
        Security--
                    ``(A) by the beginning of each year, the 
                name, social security account number, 
                consolidated monthly beneficiary premium 
                described in paragraph (4) owed by such 
                enrollee for each month during the year, and 
                other information determined appropriate by the 
                Secretary, in consultation with the 
                Commissioner of Social Security; and
                    ``(B) periodically throughout the year, 
                information to update the information 
                previously transmitted under this paragraph for 
                the year.
            ``(4) Consolidated monthly beneficiary premium.--In 
        the case of an enrollee in an MA plan, the Secretary 
        shall provide a mechanism for the consolidation of--
                    ``(A) the MA monthly basic beneficiary 
                premium (if any);
                    ``(B) the MA monthly supplemental 
                beneficiary premium (if any); and
                    ``(C) the MA monthly prescription drug 
                beneficiary premium (if any).''.
    (d) Computation of MA Area-Specific Non-Drug Benchmark.--
Section 1853 (42 U.S.C. 1395w-23) is amended by adding at the 
end the following new subsection:
    ``(j) Computation of Benchmark Amounts.--For purposes of 
this part, the term `MA area-specific non-drug monthly 
benchmark amount' means for a month in a year--
            ``(1) with respect to--
                    ``(A) a service area that is entirely 
                within an MA local area, an amount equal to \1/
                12\ of the annual MA capitation rate under 
                section 1853(c)(1) for the area for the year, 
                adjusted as appropriate for the purpose of risk 
                adjustment; or
                    ``(B) a service area that includes more 
                than one MA local area, an amount equal to the 
                average of the amounts described in 
                subparagraph (A) for each such local MA area, 
                weighted by the projected number of enrollees 
                in the plan residing in the respective local MA 
                areas (as used by the plan for purposes of the 
                bid and disclosed to the Secretary under 
                section 1854(a)(6)(A)(iii)), adjusted as 
                appropriate for the purpose of risk adjustment; 
                or
            ``(2) with respect to an MA region for a month in a 
        year, the MA region-specific non-drug monthly benchmark 
        amount, as defined in section 1858(f) for the region 
        for the year.''.
    (e) Payment of Plans Based on Bid Amounts.--
            (1) In general.--Section 1853(a)(1) (42 U.S.C. 
        1395w-23(a)(1)) (42 U.S.C. 1395w-23) is amended--
                    (A) by redesignating subparagraph (B) as 
                subparagraph (H); and
                    (B) in subparagraph (A), by striking ``in 
                an amount'' and all that follows and inserting 
                the following: ``in an amount determined as 
                follows:
                            ``(i) Payment before 2006.--For 
                        years before 2006, the payment amount 
                        shall be equal to \1/12\ of the annual 
                        MA capitation rate (as calculated under 
                        subsection (c)(1)) with respect to that 
                        individual for that area, adjusted 
                        under subparagraph (C) and reduced by 
                        the amount of any reduction elected 
                        under section 1854(f )(1)(E).
                            ``(ii) Payment for original fee-
                        for-service benefits beginning with 
                        2006.--For years beginning with 2006, 
                        the amount specified in subparagraph 
                        (B).
                    ``(B) Payment amount for original fee-for-
                service benefits beginning with 2006.--
                            ``(i) Payment of bid for plans with 
                        bids below benchmark.--In the case of a 
                        plan for which there are average per 
                        capita monthly savings described in 
                        section 1854(b)(3)(C) or 1854(b)(4)(C), 
                        as the case may be, the amount 
                        specified in this subparagraph is equal 
                        to the unadjusted MA statutory non-drug 
                        monthly bid amount, adjusted under 
                        subparagraph (C) and (if applicable) 
                        under subparagraphs (F) and (G), plus 
                        the amount (if any) of any rebate under 
                        subparagraph (E).
                            ``(ii) Payment of benchmark for 
                        plans with bids at or above 
                        benchmark.--In the case of a plan for 
                        which there are no average per capita 
                        monthly savings described in section 
                        1854(b)(3)(C) or 1854(b)(4)(C), as the 
                        case may be, the amount specified in 
                        this subparagraph is equal to the MA 
                        area-specific non-drug monthly 
                        benchmark amount, adjusted under 
                        subparagraph (C) and (if applicable) 
                        under subparagraphs (F) and (G).
                            ``(iii) Payment of benchmark for 
                        msa plans.--Notwithstanding clauses (i) 
                        and (ii), in the case of an MSA plan, 
                        the amount specified in this 
                        subparagraph is equal to the MA area-
                        specific non-drug monthly benchmark 
                        amount, adjusted under subparagraph 
                        (C).
                    ``(C) Demographic adjustment, including 
                adjustment for health status.--The Secretary 
                shall adjust the payment amount under 
                subparagraph (A)(i) and the amount specified 
                under subparagraph (B)(i), (B)(ii), and 
                (B)(iii) for such risk factors as age, 
                disability status, gender, institutional 
                status, and such other factors as the Secretary 
                determines to be appropriate, including 
                adjustment for health status under paragraph 
                (3), so as to ensure actuarial equivalence. The 
                Secretary may add to, modify, or substitute for 
                such adjustment factors if such changes will 
                improve the determination of actuarial 
                equivalence.
                    ``(D) Separate payment for federal drug 
                subsidies.--In the case of an enrollee in an 
                MA-PD plan, the MA organization offering such 
                plan also receives--
                            ``(i) subsidies under section 
                        1860D-15 (other than under subsection 
                        (g)); and
                            ``(ii) reimbursement for premium 
                        and cost-sharing reductions for low-
                        income individuals under section 1860D-
                        14(c)(1)(C).
                    ``(E) Payment of rebate for plans with bids 
                below benchmark.--In the case of a plan for 
                which there are average per capita monthly 
                savings described in section 1854(b)(3)(C) or 
                1854(b)(4)(C), as the case may be, the amount 
                specified in this subparagraph is the amount of 
                the monthly rebate computed under section 
                1854(b)(1)(C)(i) for that plan and year (as 
                reduced by the amount of any credit provided 
                under section 1854(b)(1)(C)(iv)).
                    ``(F) Adjustment for intra-area 
                variations.--
                            ``(i) Intra-regional variations.--
                        In the case of payment with respect to 
                        an MA regional plan for an MA region, 
                        the Secretary shall also adjust the 
                        amounts specified under subparagraphs 
                        (B)(i) and (B)(ii) in a manner to take 
                        into account variations in MA local 
                        payment rates under this part among the 
                        different MA local areas included in 
                        such region.
                            ``(ii) Intra-service area 
                        variations.--In the case of payment 
                        with respect to an MA local plan for a 
                        service area that covers more than one 
                        MA local area, the Secretary shall also 
                        adjust the amounts specified under 
                        subparagraphs (B)(i) and (B)(ii) in a 
                        manner to take into account variations 
                        in MA local payment rates under this 
                        part among the different MA local areas 
                        included in such service area.
                    ``(G) Adjustment relating to risk 
                adjustment.--The Secretary shall adjust 
                payments with respect to MA plans as necessary 
                to ensure that--
                            ``(i) the sum of--
                                    ``(I) the monthly payment 
                                made under subparagraph 
                                (A)(ii); and
                                    ``(II) the MA monthly basic 
                                beneficiary premium under 
                                section 1854(b)(2)(A); equals
                            ``(ii) the unadjusted MA statutory 
                        non-drug monthly bid amount, adjusted 
                        in the manner described in subparagraph 
                        (C) and, for an MA regional plan, 
                        subparagraph (F).''.
    (f) Conforming Changes to Annual Announcement Process.--
Section 1853(b) (42 U.S.C. 1395w-23(b)(1)) is amended--
            (1) by amending paragraph (1) to read as follows:
            ``(1) Annual announcements.--
                    ``(A) For 2005.--The Secretary shall 
                determine, and shall announce (in a manner 
                intended to provide notice to interested 
                parties), not later than the second Monday in 
                May of 2004, with respect to each MA payment 
                area, the following:
                            ``(i) MA capitation rates.--The 
                        annual MA capitation rate for each MA 
                        payment area for 2005.
                            ``(ii) Adjustment factors.--The 
                        risk and other factors to be used in 
                        adjusting such rates under subsection 
                        (a)(1)(C) for payments for months in 
                        2005.
                    ``(B) For 2006 and subsequent years.--For a 
                year after 2005--
                            ``(i) Initial announcement.--The 
                        Secretary shall determine, and shall 
                        announce (in a manner intended to 
                        provide notice to interested parties), 
                        not later than the first Monday in 
                        April before the calendar year 
                        concerned, with respect to each MA 
                        payment area, the following:
                                    ``(I) MA capitation rates; 
                                ma local area benchmark.--The 
                                annual MA capitation rate for 
                                each MA payment area for the 
                                year.
                                    ``(II) Adjustment 
                                factors.--The risk and other 
                                factors to be used in adjusting 
                                such rates under subsection 
                                (a)(1)(C) for payments for 
                                months in such year.
                            ``(ii) Regional benchmark 
                        announcement.--The Secretary shall 
                        determine, and shall announce (in a 
                        manner intended to provide notice to 
                        interested parties), on a timely basis 
                        before the calendar year concerned, 
                        with respect to each MA region and each 
                        MA regional plan for which a bid was 
                        submitted under section 1854, the MA 
                        region-specific non-drug monthly 
                        benchmark amount for that region for 
                        the year involved.''; and
            (2) in paragraph (3), by striking ``in the 
        announcement'' and all that follows and inserting ``in 
        such announcement.''.
    (g) Other Amendments Relating to Premiums and Bid 
Amounts.--
            (1) In general.--Section 1854 (42 U.S.C. 1395w-24) 
        is amended--
                    (A) by amending the section heading to read 
                as follows:

                     ``PREMIUMS AND BID AMOUNTS'';

                    (B) in the heading of subsection (a), by 
                inserting ``, Bid Amounts,'' after 
                ``Premiums'';
                    (C) in subsection (a)(2)--
                            (i) by inserting ``before 2006'' 
                        after ``for coordinated care plans''; 
                        and
                            (ii) by inserting ``for a year 
                        before 2006'' after ``section 
                        1851(a)(2)(A)'';
                    (D) in subsection (a)(3), by striking 
                ``described'' and inserting ``for any year'';
                    (E) in subsection (a)(4)--
                            (i) by inserting ``before 2006'' 
                        after ``for private fee-for-service 
                        plans''; and
                            (ii) by inserting ``for a year 
                        before 2006'' after ``section 
                        1852(a)(1)(A)'';
                    (F) in subsection (a)(5)(A), by inserting 
                ``paragraphs (2) and (4) of'' after ``filed 
                under'';
                    (G) in subsection (a)(5)(B), by inserting 
                after ``paragraph (3) or'' the following: ``, 
                in the case of an MA private fee-for-service 
                plan,''; and
                    (H) in subsection (b)(1)(A) by striking 
                ``and'' and inserting a comma and by inserting 
                before the period at the end the following: ``, 
                and, if the plan provides qualified 
                prescription drug coverage, the MA monthly 
                prescription drug beneficiary premium''.
            (2) Uniformity.--Section 1854(c) (42 U.S.C. 1395w-
        24(c)) is amended to read as follows:
    ``(c) Uniform Premium and Bid Amounts.--Except as permitted 
under section 1857(i), the MA monthly bid amount submitted 
under subsection (a)(6), the amounts of the MA monthly basic, 
prescription drug, and supplemental beneficiary premiums, and 
the MA monthly MSA premium charged under subsection (b) of an 
MA organization under this part may not vary among individuals 
enrolled in the plan.''.
            (3) Premiums.--Section 1854(d)(1) (42 U.S.C. 1395w-
        24(d)(1)), as amended by subsection (c)(1), is amended 
        by inserting ``, prescription drug,'' after ``basic''.
            (4) Limitation on enrollee liability.--Section 
        1854(e) (42 U.S.C. 1395w-24(e)) is amended--
                    (A) in paragraph (1), by striking ``.--In'' 
                and inserting ``before 2006.--For periods 
                before 2006, in'';
                    (B) in paragraph (2), by striking ``.--If'' 
                and insert ``before 2006.--For periods before 
                2006, if'';
                    (C) in paragraph (3), by striking ``or 
                (2)'' and inserting ``, (2), or (4)''; and
                    (D) in paragraph (4)--
                            (i) by inserting ``and for basic 
                        benefits beginning in 2006'' after 
                        ``plans'';
                            (ii) in the matter before 
                        subparagraph (A), by inserting ``and 
                        for periods beginning with 2006, with 
                        respect to an MA plan described in 
                        section 1851(a)(2)(A)'' after ``MSA 
                        plan)'';
                            (iii) in subparagraph (A), by 
                        striking ``required benefits described 
                        in section 1852(a)(1)'' and inserting 
                        ``benefits under the original medicare 
                        fee-for-service program option''; and
                            (iv) in subparagraph (B), by 
                        inserting ``with respect to such 
                        benefits'' after ``would be 
                        applicable''.
            (5) Modification of acr process.--Section 1854(f) 
        (42 U.S.C. 1395w-24(f)) is amended--
                    (A) in the heading, by inserting ``Before 
                2006'' after ``Additional Benefits''; and
                    (B) in paragraph (1)(A), by striking 
                ``Each'' and inserting ``For years before 2006, 
                each''.
    (h) Plan Incentives.--Section 1852(j)(4) (42 U.S.C. 1395w-
22(j)(4)) is amended--
            (1) by inserting ``the organization provides 
        assurances satisfactory to the Secretary that'' after 
        ``unless'';
            (2) in clause (ii)--
                    (A) by striking ``the organization--'' and 
                all that follows through ``(I) provides'' and 
                inserting ``the organization provides'';
                    (B) by striking ``, and'' and inserting a 
                period; and
                    (C) by striking subclause (II); and
            (3) by striking clause (iii).
    (i) Continuation of Treatment of Enrollees With End-Stage 
Renal Disease.--Section 1853(a)(1)(H), as redesignated under 
subsection (d)(1)(A), is amended--
            (1) by amending the second sentence to read as 
        follows: ``Such rates of payment shall be actuarially 
        equivalent to rates that would have been paid with 
        respect to other enrollees in the MA payment area (or 
        such other area as specified by the Secretary) under 
        the provisions of this section as in effect before the 
        date of the enactment of the Medicare Prescription 
        Drug, Improvement, and Modernization Act of 2003.''; 
        and
            (2) by adding at the end the following new 
        sentence: ``The Secretary may apply the competitive 
        bidding methodology provided for in this section, with 
        appropriate adjustments to account for the risk 
        adjustment methodology applied to end stage renal 
        disease payments.''.
    (j) Facilitation of Employer Sponsorship of MA Plans.--
Section 1857(i) (42 U.S.C. 1395w-27(i)) is amended--
            (1) by designating the matter following the heading 
        as a paragraph (1) with the heading ``Contracts with ma 
        organizations.--'' and appropriate indentation; and
            (2) by adding at the end the following new 
        paragraph:
            ``(2) Employer sponsored ma plans.--To facilitate 
        the offering of MA plans by employers, labor 
        organizations, or the trustees of a fund established by 
        one or more employers or labor organizations (or 
        combination thereof ) to furnish benefits to the 
        entity's employees, former employees (or combination 
        thereof ) or members or former members (or combination 
        thereof ) of the labor organizations, the Secretary may 
        waive or modify requirements that hinder the design of, 
        the offering of, or the enrollment in such MA plans. 
        Notwithstanding section 1851(g), an MA plan described 
        in the previous sentence may restrict the enrollment of 
        individuals under this part to individuals who are 
        beneficiaries and participants in such plan.''.
    (k) Expansion of Medicare Beneficiary Education and 
Information Campaign.--Section 1857(e)(2) (42 U.S.C. 1395w-
27(e)(2)) is amended--
            (1) in subparagraph (A) by inserting ``and a PDP 
        sponsor under part D'' after ``organization'';
            (2) in subparagraph (B)--
                    (A) by inserting ``and each PDP sponsor 
                with a contract under part D'' after ``contract 
                under this part'';
                    (B) by inserting ``or sponsor's'' after 
                ``organization's''; and
                    (C) by inserting ``, section 1860D-1(c),'' 
                after ``information)'';
            (3) in subparagraph (C)--
                    (A) by inserting ``and ending with fiscal 
                year 2005'' after ``beginning with fiscal year 
                2001'';
                    (B) by inserting ``and for each fiscal year 
                beginning with fiscal year 2006 an amount equal 
                to $200,000,000,'' after ``$100,000,000,''; and
                    (C) by inserting ``and section 1860D-
                12(b)(3)(D)'' after ``under this paragraph'';
            (4) in subparagraph (D)--
                    (A) in clause (i) by inserting ``and 
                section 1860D-1(c)'' after ``section 1851'';
                    (B) in clause (ii)(III), by striking 
                ``and'' at the end of subclause (III);
                    (C) in clause (ii)(IV), by striking ``each 
                succeeding fiscal year.'' and inserting ``each 
                succeeding fiscal year before fiscal year 2006; 
                and''; and
                    (D) in clause (ii), by adding at the end 
                the following new subclause:
                            ``(V) the applicable portion (as 
                        defined in subparagraph (F)) of 
                        $200,000,000 in fiscal year 2006 and 
                        each succeeding fiscal year.''; and
            (5) by adding at the end the following new 
        subparagraph:
                    ``(F) Applicable portion defined.--In this 
                paragraph, the term `applicable portion' means, 
                for a fiscal year--
                            ``(i) with respect to MA 
                        organizations, the Secretary's estimate 
                        of the total proportion of expenditures 
                        under this title that are attributable 
                        to expenditures made under this part 
                        (including payments under part D that 
                        are made to such organizations); or
                            ``(ii) with respect to PDP 
                        sponsors, the Secretary's estimate of 
                        the total proportion of expenditures 
                        under this title that are attributable 
                        to expenditures made to such sponsors 
                        under part D.''.
    (l) Conforming Amendments.--
            (1) Protection against beneficiary selection.--
        Section 1852(b)(1)(A) (42 U.S.C. 1395w-22(b)(1)(A)) is 
        amended by adding at the end the following: ``The 
        Secretary shall not approve a plan of an organization 
        if the Secretary determines that the design of the plan 
        and its benefits are likely to substantially discourage 
        enrollment by certain MA eligible individuals with the 
        organization.''.
            (2) Relating to rebates.--
                    (A) Section 1839(a)(2) (42 U.S.C. 
                1395r(a)(2)) is amended by striking ``80 
                percent of any reduction elected under section 
                1854(f )(1)(E)'' and inserting ``any credit 
                provided under section 
                1854(b)(1)(C)(ii)(III)''.
                    (B) The first sentence of section 1840(i) 
                (42 U.S.C. 1395s(i)) is amended by inserting 
                ``and to reflect any credit provided under 
                section 1854(b)(1)(C)(iv)'' after ``section 
                1854(f )(1)(E)''.
                    (C) Section 1844(c) (42 U.S.C. 1395w(c)) is 
                amended by inserting ``or any credits provided 
                under section 1854(b)(1)(C)(iv)'' after 
                ``section 1854(f )(1)(E)''.
            (3) Other conforming and technical amendments.--
                    (A) Section 1851(b)(1) (42 U.S.C. 1395w-
                21(b)(1)) is amended--
                            (i) in subparagraph (B), by 
                        striking ``a plan'' and inserting ``an 
                        MA local plan'';
                            (ii) in subparagraph (B), by 
                        striking ``basic benefits described in 
                        section 1852(a)(1)(A)'' and inserting 
                        ``benefits under the original medicare 
                        fee-for-service program option''; and
                            (iii) in subparagraph (C), by 
                        striking ``in a Medicare+Choice plan'' 
                        and inserting ``in an MA local plan''.
                    (B) Section 1851(d) (42 U.S.C. 1395w-21(d)) 
                is amended--
                            (i) in paragraph (3), by adding at 
                        the end the following new subparagraph:
                    ``(F) Catastrophic coverage and single 
                deductible.--In the case of an MA regional 
                plan, a description of the catastrophic 
                coverage and single deductible applicable under 
                the plan.'';
                            (ii) in paragraph (4)(A)(ii), by 
                        inserting ``, including information on 
                        the single deductible (if applicable) 
                        under section 1858(b)(1)'' after ``cost 
                        sharing'';
                            (iii) in paragraph (4)(B)(i), by 
                        striking ``Medicare+Choice monthly 
                        basic'' and all that follows and 
                        inserting ``monthly amount of the 
                        premium charged to an individual.''; 
                        and
                            (iv) by amending subparagraph (E) 
                        of subsection (d)(4) to read as 
                        follows:
                    ``(E) Supplemental benefits.--Supplemental 
                health care benefits, including any reductions 
                in cost-sharing under section 1852(a)(3) and 
                the terms and conditions (including premiums) 
                for such benefits.''.
                    (C) Section 1857(d)(1) (42 U.S.C. 1395w-
                27(d)(1)) is amended by striking ``, costs, and 
                computation of the adjusted community rate'' 
                and inserting ``and costs, including allowable 
                costs under section 1858(c)''.
                    (D) Section 1851(a)(3)(B)(ii) (42 U.S.C. 
                1395w-21(a)(3)(B)(ii)) is amended by striking 
                ``section 1851(e)(4)(A)'' and inserting 
                ``subsection (e)(4)(A)''.
                    (E) Section 1851(f)(1) (42 U.S.C. 1395w-
                21(f)(1)) is amended by striking ``subsection 
                (e)(1)(A)'' and inserting ``subsection 
                (e)(1)''.

SEC. 223. EFFECTIVE DATE.

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

                     Subtitle D--Additional Reforms

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

    (a) Treatment as Coordinated Care Plan.--Section 
1851(a)(2)(A) (42 U.S.C. 1395w-21(a)(2)(A)), as amended by 
section 221(a), is amended by adding at the end the following 
new clause:
                            ``(ii) Specialized ma plans for 
                        special needs individuals.--Specialized 
                        MA plans for special needs individuals 
                        (as defined in section 1859(b)(6)) may 
                        be any type of coordinated care 
                        plan.''.
    (b) Specialized MA Plan for Special Needs Individuals 
Defined.--Section 1859(b) (42 U.S.C. 1395w-29(b)), as amended 
by section 221(b), is amended by adding at the end the 
following new paragraph:
            ``(6) Specialized ma plans for special needs 
        individuals.--
                    ``(A) In general.--The term `specialized MA 
                plan for special needs individuals' means an MA 
                plan that exclusively serves special needs 
                individuals (as defined in subparagraph (B)).
                    ``(B) Special needs individual.--The term 
                `special needs individual' means an MA eligible 
                individual who--
                            ``(i) is institutionalized (as 
                        defined by the Secretary);
                            ``(ii) is entitled to medical 
                        assistance under a State plan under 
                        title XIX; or
                            ``(iii) meets such requirements as 
                        the Secretary may determine would 
                        benefit from enrollment in such a 
                        specialized MA plan described in 
                        subparagraph (A) for individuals with 
                        severe or disabling chronic conditions.
                The Secretary may waive application of section 
                1851(a)(3)(B) in the case of an individual 
                described in clause (i), (ii), or (iii) of this 
                subparagraph and may apply rules similar to the 
                rules of section 1894(c)(4) for continued 
                eligibility of special needs individuals.''.
    (c) Restriction on Enrollment Permitted.--Section 1859 (42 
U.S.C. 1395w-29) is amended by adding at the end the following 
new subsection:
    ``(f) Restriction on Enrollment for Specialized MA Plans 
for Special Needs Individuals.--In the case of a specialized MA 
plan for special needs individuals (as defined in subsection 
(b)(6)), notwithstanding any other provision of this part and 
in accordance with regulations of the Secretary and for periods 
before January 1, 2009, the plan may restrict the enrollment of 
individuals under the plan to individuals who are within one or 
more classes of special needs individuals.''.
    (d) Authority To Designate Other Plans as Specialized MA 
Plans.--In promulgating regulations to carry out section 
1851(a)(2)(A)(ii) of the Social Security Act (as added by 
subsection (a)) and section 1859(b)(6) of such Act (as added by 
subsection (b)), the Secretary may provide (notwithstanding 
section 1859(b)(6)(A) of such Act) for the offering of 
specialized MA plans for special needs individuals by MA plans 
that disproportionately serve special needs individuals.
    (e) Report to Congress.--Not later than December 31, 2007, 
the Secretary shall submit to Congress a report that assesses 
the impact of specialized MA plans for special needs 
individuals on the cost and quality of services provided to 
enrollees. Such report shall include an assessment of the costs 
and savings to the medicare program as a result of amendments 
made by subsections (a), (b), and (c).
    (f) Effective Dates.--
            (1) In general.--The amendments made by subsections 
        (a), (b), and (c) shall take effect upon the date of 
        the enactment of this Act.
            (2) Deadline for issuance of requirements for 
        special needs individuals; transition.--No later than 1 
        year after the date of the enactment of this Act, the 
        Secretary shall issue final regulations to establish 
        requirements for special needs individuals under 
        section 1859(b)(6)(B)(iii) of the Social Security Act, 
        as added by subsection (b).

SEC. 232. AVOIDING DUPLICATIVE STATE REGULATION.

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

SEC. 233. MEDICARE MSAS.

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

SEC. 234. EXTENSION OF REASONABLE COST CONTRACTS.

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

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

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

SEC. 236. PAYMENT BY PACE PROVIDERS FOR MEDICARE AND MEDICAID SERVICES 
                    FURNISHED BY NONCONTRACT PROVIDERS.

    (a) Medicare Services.--
            (1) Medicare services furnished by providers of 
        services.--Section 1866(a)(1)(O) (42 U.S.C. 
        1395cc(a)(1)(O)) is amended--
                    (A) by striking ``part C or'' and inserting 
                ``part C, with a PACE provider under section 
                1894 or 1934, or'';
                    (B) by striking ``(i)'';
                    (C) by striking ``and (ii)'';
                    (D) by inserting ``(or, in the case of a 
                PACE provider, contract or other agreement)'' 
                after ``have a contract''; and
                    (E) by striking ``members of the 
                organization'' and inserting ``members of the 
                organization or PACE program eligible 
                individuals enrolled with the PACE provider,''.
            (2) Medicare services furnished by physicians and 
        other entities.--Section 1894(b) (42 U.S.C. 1395eee(b)) 
        is amended by adding at the end the following new 
        paragraphs:
            ``(3) Treatment of medicare services furnished by 
        noncontract physicians and other entities.--
                    ``(A) Application of medicare advantage 
                requirement with respect to medicare services 
                furnished by noncontract physicians and other 
                entities.--Section 1852(k)(1) (relating to 
                limitations on balance billing against MA 
                organizations for noncontract physicians and 
                other entities with respect to services covered 
                under this title) shall apply to PACE 
                providers, PACE program eligible individuals 
                enrolled with such PACE providers, and 
                physicians and other entities that do not have 
                a contract or other agreement establishing 
                payment amounts for services furnished to such 
                an individual in the same manner as such 
                section applies to MA organizations, 
                individuals enrolled with such organizations, 
                and physicians and other entities referred to 
                in such section.
                    ``(B) Reference to related provision for 
                noncontract providers of services.--For the 
                provision relating to limitations on balance 
                billing against PACE providers for services 
                covered under this title furnished by 
                noncontract providers of services, see section 
                1866(a)(1)(O).
            ``(4) Reference to related provision for services 
        covered under title xix but not under this title.--For 
        provisions relating to limitations on payments to 
        providers participating under the State plan under 
        title XIX that do not have a contract or other 
        agreement with a PACE provider establishing payment 
        amounts for services covered under such plan (but not 
        under this title) when such services are furnished to 
        enrollees of that PACE provider, see section 
        1902(a)(66).''.
    (b) Medicaid Services.--
            (1) Requirement under state plan.--Section 1902(a) 
        (42 U.S.C. 1396a(a)), as amended by section 103(a), is 
        amended--
                    (A) in paragraph (65), by striking ``and'' 
                at the end;
                    (B) in paragraph (66), by striking the 
                period at the end and inserting ``; and''; and
                    (C) by inserting after paragraph (66) the 
                following new paragraph:
            ``(67) provide, with respect to services covered 
        under the State plan (but not under title XVIII) that 
        are furnished to a PACE program eligible individual 
        enrolled with a PACE provider by a provider 
        participating under the State plan that does not have a 
        contract or other agreement with the PACE provider that 
        establishes payment amounts for such services, that 
        such participating provider may not require the PACE 
        provider to pay the participating provider an amount 
        greater than the amount that would otherwise be payable 
        for the service to the participating provider under the 
        State plan for the State where the PACE provider is 
        located (in accordance with regulations issued by the 
        Secretary).''.
            (2) Application under medicaid.--Section 1934(b) 
        (42 U.S.C. 1396u-4(b)) is amended by adding at the end 
        the following new paragraphs:
            ``(3) Treatment of medicare services furnished by 
        noncontract physicians and other entities.--
                    ``(A) Application of medicare advantage 
                requirement with respect to medicare services 
                furnished by noncontract physicians and other 
                entities.--Section 1852(k)(1) (relating to 
                limitations on balance billing against MA 
                organizations for noncontract physicians and 
                other entities with respect to services covered 
                under title XVIII) shall apply to PACE 
                providers, PACE program eligible individuals 
                enrolled with such PACE providers, and 
                physicians and other entities that do not have 
                a contract or other agreement establishing 
                payment amounts for services furnished to such 
                an individual in the same manner as such 
                section applies to MA organizations, 
                individuals enrolled with such organizations, 
                and physicians and other entities referred to 
                in such section.
                    ``(B) Reference to related provision for 
                noncontract providers of services.--For the 
                provision relating to limitations on balance 
                billing against PACE providers for services 
                covered under title XVIII furnished by 
                noncontract providers of services, see section 
                1866(a)(1)(O).
            ``(4) Reference to related provision for services 
        covered under this title but not under title xviii.--
        For provisions relating to limitations on payments to 
        providers participating under the State plan under this 
        title that do not have a contract or other agreement 
        with a PACE provider establishing payment amounts for 
        services covered under such plan (but not under title 
        XVIII) when such services are furnished to enrollees of 
        that PACE provider, see section 1902(a)(67).''.
    (c) Effective Date.--The amendments made by this section 
shall apply to services furnished on or after January 1, 2004.

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

    (a) Reimbursement.--Section 1833(a)(3) (42 U.S.C. 
1395l(a)(3)) is amended to read as follows:
            ``(3) in the case of services described in section 
        1832(a)(2)(D)--
                    ``(A) except as provided in subparagraph 
                (B), the costs which are reasonable and related 
                to the cost of furnishing such services or 
                which are based on such other tests of 
                reasonableness as the Secretary may prescribe 
                in regulations, including those authorized 
                under section 1861(v)(1)(A), less the amount a 
                provider may charge as described in clause (ii) 
                of section 1866(a)(2)(A), but in no case may 
                the payment for such services (other than for 
                items and services described in section 
                1861(s)(10)(A)) exceed 80 percent of such 
                costs; or
                    ``(B) with respect to the services 
                described in clause (ii) of section 
                1832(a)(2)(D) that are furnished to an 
                individual enrolled with a MA plan under part C 
                pursuant to a written agreement described in 
                section 1853(a)(4), the amount (if any) by 
                which--
                            ``(i) the amount of payment that 
                        would have otherwise been provided 
                        under subparagraph (A) (calculated as 
                        if `100 percent' were substituted for 
                        `80 percent' in such subparagraph) for 
                        such services if the individual had not 
                        been so enrolled; exceeds
                            ``(ii) the amount of the payments 
                        received under such written agreement 
                        for such services (not including any 
                        financial incentives provided for in 
                        such agreement such as risk pool 
                        payments, bonuses, or withholds),
                less the amount the Federally qualified health 
                center may charge as described in section 
                1857(e)(3)(B);''.
    (b) Continuation of Monthly Payments.--
            (1) In general.--Section 1853(a) (42 U.S.C. 1395w-
        23(a)) is amended by adding at the end the following 
        new paragraph:
            ``(4) Payment rule for federally qualified health 
        center services.--If an individual who is enrolled with 
        an MA plan under this part receives a service from a 
        Federally qualified health center that has a written 
        agreement with the MA organization that offers such 
        plan for providing such a service (including any 
        agreement required under section 1857(e)(3))--
                    ``(A) the Secretary shall pay the amount 
                determined under section 1833(a)(3)(B) directly 
                to the Federally qualified health center not 
                less frequently than quarterly; and
                    ``(B) the Secretary shall not reduce the 
                amount of the monthly payments under this 
                subsection as a result of the application of 
                subparagraph (A).''.
            (2) Conforming amendments.--
                    (A) Section 1851(i) (42 U.S.C. 1395w-21(i)) 
                is amended--
                            (i) in paragraph (1), by inserting 
                        ``1853(a)(4),'' after ``Subject to 
                        sections 1852(a)(5),''; and
                            (ii) in paragraph (2), by inserting 
                        ``1853(a)(4),'' after ``Subject to 
                        sections''.
                    (B) Section 1853(c)(5) is amended by 
                striking ``subsections (a)(3)(C)(iii) and (i)'' 
                and inserting ``subsections (a)(3)(C)(iii), 
                (a)(4), and (i)''.
    (c) Additional Contract Requirements.--Section 1857(e) (42 
U.S.C. 1395w-27(e)) is amended by adding at the end the 
following new paragraph:
            ``(3) Agreements with federally qualified health 
        centers.--
                    ``(A) Payment levels and amounts.--A 
                contract under this section with an MA 
                organization shall require the organization to 
                provide, in any written agreement described in 
                section 1853(a)(4) between the organization and 
                a Federally qualified health center, for a 
                level and amount of payment to the Federally 
                qualified health center for services provided 
                by such health center that is not less than the 
                level and amount of payment that the plan would 
                make for such services if the services had been 
                furnished by a entity providing similar 
                services that was not a Federally qualified 
                health center.
                    ``(B) Cost-sharing.--Under the written 
                agreement referred to in subparagraph (A), a 
                Federally qualified health center must accept 
                the payment amount referred to in such 
                subparagraph plus the Federal payment provided 
                for in section 1833(a)(3)(B) as payment in full 
                for services covered by the agreement, except 
                that such a health center may collect any 
                amount of cost-sharing permitted under the 
                contract under this section, so long as the 
                amounts of any deductible, coinsurance, or 
                copayment comply with the requirements under 
                section 1854(e).''.
    (d) Safe Harbor.--Section 1128B(b)(3) (42 U.S.C. 1320a-
7b(b)(3)), as amended by section 101(f)(2), is amended--
            (1) in subparagraph (F), by striking ``and'' after 
        the semicolon at the end;
            (2) in subparagraph (G), by striking the period at 
        the end and inserting ``; and''; and
            (3) by adding at the end the following new 
        subparagraph:
                    ``(H) any remuneration between a Federally 
                qualified health center (or an entity 
                controlled by such a health center) and an MA 
                organization pursuant to a written agreement 
                described in section 1853(a)(4).''.
    (e) Effective Date.--The amendments made by this section 
shall apply to services provided on or after January 1, 2006, 
and contract years beginning on or after such date.

SEC. 238. INSTITUTE OF MEDICINE EVALUATION AND REPORT ON HEALTH CARE 
                    PERFORMANCE MEASURES.

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

         Subtitle E--Comparative Cost Adjustment (CCA) Program

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

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

              ``COMPARATIVE COST ADJUSTMENT (CCA) PROGRAM

    ``Sec. 1860C-1. (a) Establishment of Program.--
            ``(1) In general.--The Secretary shall establish a 
        program under this section (in this section referred to 
        as the `CCA program') for the application of 
        comparative cost adjustment in CCA areas selected under 
        this section.
            ``(2) Duration.--The CCA program shall begin 
        January 1, 2010, and shall extend over a period of 6 
        years, and end on December 31, 2015.
            ``(3) Report.--Upon the completion of the CCA 
        program, the Secretary shall submit a report to 
        Congress. Such report shall include the following, with 
        respect to both this part and the original medicare 
        fee-for-service program:
                    ``(A) An evaluation of the financial impact 
                of the CCA program.
                    ``(B) An evaluation of changes in access to 
                physicians and other health care providers.
                    ``(C) Beneficiary satisfaction.
                    ``(D) Recommendations regarding any 
                extension or expansion of the CCA program.
    ``(b) Requirements for Selection of CCA Areas.--
            ``(1) CCA area defined.--
                    ``(A) In general.--For purposes of this 
                section, the term `CCA area' means an MSA that 
                meets the requirements of paragraph (2) and is 
                selected by the Secretary under subsection (c).
                    ``(B) MSA defined.--For purposes of this 
                section, the term `MSA' means a Metropolitan 
                Statistical Area (or such similar area as the 
                Secretary recognizes).
            ``(2) Requirements for cca areas.--The requirements 
        of this paragraph for an MSA to be a CCA area are as 
        follows:
                    ``(A) MA enrollment requirement.--For the 
                reference month (as defined under section 
                1858(f)(4)(B)) with respect to 2010, at least 
                25 percent of the total number of MA eligible 
                individuals who reside in the MSA were enrolled 
                in an MA local plan described in section 
                1851(a)(2)(A)(i).
                    ``(B) 2 plan requirement.--There will be 
                offered in the MSA during the annual, 
                coordinated election period under section 
                1851(e)(3)(B) before the beginning of 2010 at 
                least 2 MA local plans described in section 
                1851(a)(2)(A)(i) (in addition to the fee-for-
                service program under parts A and B), each 
                offered by a different MA organization and each 
                of which met the minimum enrollment 
                requirements of paragraph (1) of section 
                1857(b) (as applied without regard to paragraph 
                (3) thereof) as of the reference month.
    ``(c) Selection of CCA Areas.--
            ``(1) General selection criteria.--The Secretary 
        shall select CCA areas from among those MSAs qualifying 
        under subsection (b) in a manner that--
                    ``(A) seeks to maximize the opportunity to 
                test the application of comparative cost 
                adjustment under this title;
                    ``(B) does not seek to maximize the number 
                of MA eligible individuals who reside in such 
                areas; and
                    ``(C) provides for geographic diversity 
                consistent with the criteria specified in 
                paragraph (2).
            ``(2) Selection criteria.--With respect to the 
        selection of MSAs that qualify to be CCA areas under 
        subsection (b), the following rules apply, to the 
        maximum extent feasible:
                    ``(A) Maximum number.--The number of such 
                MSAs selected may not exceed the lesser of (i) 
                6, or (ii) 25 percent of the number of MSAs 
                that meet the requirement of subsection 
                (b)(2)(A).
                    ``(B) One of 4 largest areas by 
                population.--At least one such qualifying MSA 
                shall be selected from among the 4 such 
                qualifying MSAs with the largest total 
                population of MA eligible individuals.
                    ``(C) One of 4 areas with lowest population 
                density.--At least one such qualifying MSA 
                shall be selected from among the 4 such 
                qualifying MSAs with the lowest population 
                density (as measured by residents per square 
                mile or similar measure of density).
                    ``(D) Multistate area.--At least one such 
                qualifying MSA shall be selected that includes 
                a multi-State area. Such an MSA may be an MSA 
                described in subparagraph (B) or (C).
                    ``(E) Limitation within same geographic 
                region.--No more than 2 such MSAs shall be 
                selected that are, in whole or in part, within 
                the same geographic region (as specified by the 
                Secretary) of the United States.
                    ``(F) Priority to areas not within certain 
                demonstration projects.--Priority shall be 
                provided for those qualifying MSAs that do not 
                have a demonstration project in effect as of 
                the date of the enactment of this section for 
                medicare preferred provider organization plans 
                under this part.
    ``(d) Application of Comparative Cost Adjustment.--
            ``(1) In general.--In the case of a CCA area for a 
        year--
                    ``(A) for purposes of applying this part 
                with respect to payment for MA local plans, any 
                reference to an MA area-specific non-drug 
                monthly benchmark amount shall be treated as a 
                reference to such benchmark computed as if the 
                CCA area-specific non-drug monthly benchmark 
                amount (as defined in subsection (e)(1)) were 
                substituted for the amount described in section 
                1853(j)(1)(A) for the CCA area and year 
                involved, as phased in under paragraph (3); and
                    ``(B) with respect to months in the year 
                for individuals residing in the CCA area who 
                are not enrolled in an MA plan, the amount of 
                the monthly premium under section 1839 is 
                subject to adjustment under subsection (f).
            ``(2) Exclusion of ma local areas with fewer than 2 
        organizations offering ma plans.--
                    ``(A) In general.--In no case shall an MA 
                local area that is within an MSA be included as 
                part of a CCA area unless for 2010 (and, except 
                as provided in subparagraph (B), for a 
                subsequent year) there is offered in each part 
                of such MA local area at least 2 MA local plans 
                described in section 1851(a)(2)(A)(i) each of 
                which is offered by a different MA 
                organization.
                    ``(B) Continuation.--If an MA local area 
                meets the requirement of subparagraph (A) and 
                is included in a CCA area for 2010, such local 
                area shall continue to be included in such CCA 
                area for a subsequent year notwithstanding that 
                it no longer meets such requirement so long as 
                there is at least one MA local plan described 
                in section 1851(a)(2)(A)(i) that is offered in 
                such local area.
            ``(3) Phase-in of cca benchmark.--
                    ``(A) In general.--In applying this section 
                for a year before 2013, paragraph (1)(A) shall 
                be applied as if the phase-in fraction under 
                subparagraph (B) of the CCA non-drug monthly 
                benchmark amount for the year were substituted 
                for such fraction of the MA area-specific non-
                drug monthly benchmark amount.
                    ``(B) Phase-in fraction.--The phase-in 
                fraction under this subparagraph is--
                            ``(i) for 2010 \1/4\; and
                            ``(ii) for a subsequent year is the 
                        phase-in fraction under this 
                        subparagraph for the previous year 
                        increased by \1/4\, but in no case more 
                        than 1.
    ``(e) Computation of CCA Benchmark Amount.--
            ``(1) CCA non-drug monthly benchmark amount.--For 
        purposes of this section, the term `CCA non-drug 
        monthly benchmark amount' means, with respect to a CCA 
        area for a month in a year, the sum of the 2 components 
        described in paragraph (2) for the area and year. The 
        Secretary shall compute such benchmark amount for each 
        such CCA area before the beginning of each annual, 
        coordinated election period under section 1851(e)(3)(B) 
        for each year (beginning with 2010) in which the CCA 
        area is so selected.
            ``(2) 2 components.--For purposes of paragraph (1), 
        the 2 components described in this paragraph for a CCA 
        area and a year are the following:
                    ``(A) MA local component.--The product of 
                the following:
                            ``(i) Weighted average of medicare 
                        advantage plan bids in area.--The 
                        weighted average of the plan bids for 
                        the area and year (as determined under 
                        paragraph (3)(A)).
                            ``(ii) Non-ffs market share.--1 
                        minus the fee-for-service market share 
                        percentage, determined under paragraph 
                        (4) for the area and year.
                    ``(B) Fee-for-service component.--The 
                product of the following:
                            ``(i) Fee-for-service area-specific 
                        non-drug amount.--The fee-for-service 
                        area-specific non-drug amount (as 
                        defined in paragraph (5)) for the area 
                        and year.
                            ``(ii) Fee-for-service market 
                        share.--The fee-for-service market 
                        share percentage, determined under 
                        paragraph (4) for the area and year.
            ``(3) Determination of weighted average ma bids for 
        a cca area.--
                    ``(A) In general.--For purposes of 
                paragraph (2)(A)(i), the weighted average of 
                plan bids for a CCA area and a year is, subject 
                to subparagraph (D), the sum of the following 
                products for MA local plans described in 
                subparagraph (C) in the area and year:
                            ``(i) Monthly medicare advantage 
                        statutory non-drug bid amount.--The 
                        accepted unadjusted MA statutory non-
                        drug monthly bid amount.
                            ``(ii) Plan's share of medicare 
                        advantage enrollment in area.--The 
                        number of individuals described in 
                        subparagraph (B), divided by the total 
                        number of such individuals for all MA 
                        plans described in subparagraph (C) for 
                        that area and year.
                    ``(B) Counting of individuals.--The 
                Secretary shall count, for each MA local plan 
                described in subparagraph (C) for an area and 
                year, the number of individuals who reside in 
                the area and who were enrolled under such plan 
                under this part during the reference month for 
                that year.
                    ``(C) Exclusion of plans not offered in 
                previous year.--For an area and year, the MA 
                local plans described in this subparagraph are 
                MA local plans described in section 
                1851(a)(2)(A)(i) that are offered in the area 
                and year and were offered in the CCA area in 
                the reference month.
                    ``(D) Computation of weighted average of 
                plan bids.--In calculating the weighted average 
                of plan bids for a CCA area under subparagraph 
                (A)--
                            ``(i) in the case of an MA local 
                        plan that has a service area only part 
                        of which is within such CCA area, the 
                        MA organization offering such plan 
                        shall submit a separate bid for such 
                        plan for the portion within such CCA 
                        area; and
                            ``(ii) the Secretary shall adjust 
                        such separate bid (or, in the case of 
                        an MA local plan that has a service 
                        area entirely within such CCA area, the 
                        plan bid) as may be necessary to take 
                        into account differences between the 
                        service area of such plan within the 
                        CCA area and the entire CCA area and 
                        the distribution of plan enrollees of 
                        all MA local plans offered within the 
                        CCA area.
            ``(4) Computation of fee-for-service market share 
        percentage.--The Secretary shall determine, for a year 
        and a CCA area, the proportion (in this subsection 
        referred to as the `fee-for-service market share 
        percentage') equal to--
                    ``(A) the total number of MA eligible 
                individuals residing in such area who during 
                the reference month for the year were not 
                enrolled in any MA plan; divided by
                    ``(B) the sum of such number and the total 
                number of MA eligible individuals residing in 
                such area who during such reference month were 
                enrolled in an MA local plan described in 
                section 1851(a)(2)(A)(i),
        or, if greater, such proportion determined for 
        individuals nationally.
            ``(5) Fee-for-service area-specific non-drug 
        amount.--
                    ``(A) In general.--For purposes of 
                paragraph (2)(B)(i) and subsection (f)(2)(A), 
                subject to subparagraph (C), the term `fee-for-
                service area-specific non-drug amount' means, 
                for a CCA area and a year, the adjusted average 
                per capita cost for such area and year 
                involved, determined under section 1876(a)(4) 
                and adjusted as appropriate for the purpose of 
                risk adjustment for benefits under the original 
                medicare fee-for-service program option for 
                individuals entitled to benefits under part A 
                and enrolled under part B who are not enrolled 
                in an MA plan for the year, but adjusted to 
                exclude costs attributable to payments under 
                section 1886(h).
                    ``(B) Use of full risk adjustment to 
                standardize fee-for-service costs to typical 
                beneficiary.--In determining the adjusted 
                average per capita cost for an area and year 
                under subparagraph (A), such costs shall be 
                adjusted to fully take into account the 
                demographic and health status risk factors 
                established under section 1853(a)(1)(A)(iv) so 
                that such per capita costs reflect the average 
                costs for a typical beneficiary residing in the 
                CCA area.
                    ``(C) Inclusion of costs of va and dod 
                military facility services to medicare-eligible 
                beneficiaries.--In determining the adjusted 
                average per capita cost under subparagraph (A) 
                for a year, such cost shall be adjusted to 
                include the Secretary's estimate, on a per 
                capita basis, of the amount of additional 
                payments that would have been made in the area 
                involved under this title if individuals 
                entitled to benefits under this title had not 
                received services from facilities of the 
                Department of Veterans Affairs or the 
                Department of Defense.
    ``(f) Premium Adjustment.--
            ``(1) Application.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), in the case of an individual 
                who is enrolled under part B, who resides in a 
                CCA area, and who is not enrolled in an MA plan 
                under this part, the monthly premium otherwise 
                applied under part B (determined without regard 
                to subsections (b), (f), and (i) of section 
                1839 or any adjustment under this subsection) 
                shall be adjusted in accordance with paragraph 
                (2), but only in the case of premiums for 
                months during the period in which the CCA 
                program under this section for such area is in 
                effect.
                    ``(B) No premium adjustment for subsidy 
                eligible beneficiaries.--No premium adjustment 
                shall be made under this subsection for a 
                premium for a month if the individual is 
                determined to be a subsidy eligible individual 
                (as defined in section 1860D-14(a)(3)(A)) for 
                the month.
            ``(2) Amount of adjustment.--
                    ``(A) In general.--Under this paragraph, 
                subject to the exemption under paragraph (1)(B) 
                and the limitation under subparagraph (B), if 
                the fee-for-service area-specific non-drug 
                amount (as defined in section (e)(5)) for a CCA 
                area in which an individual resides for a 
                month--
                            ``(i) does not exceed the CCA non-
                        drug monthly benchmark amount (as 
                        determined under subsection (e)(1)) for 
                        such area and month, the amount of the 
                        premium for the individual for the 
                        month shall be reduced, by an amount 
                        equal to 75 percent of the amount by 
                        which such CCA benchmark exceeds such 
                        fee-for-service area-specific non-drug 
                        amount; or
                            ``(ii) exceeds such CCA non-drug 
                        benchmark, the amount of the premium 
                        for the individual for the month shall 
                        be adjusted to ensure, that--
                                    ``(I) the sum of the amount 
                                of the adjusted premium and the 
                                CCA non-drug benchmark for the 
                                area; is equal to
                                    ``(II) the sum of the 
                                unadjusted premium plus the 
                                amount of such fee-for-service 
                                area-specific non-drug amount 
                                for the area.
                    ``(B) Limitation.--In no case shall the 
                actual amount of an adjustment under 
                subparagraph (A) for an area and month in a 
                year result in an adjustment that exceeds the 
                maximum adjustment permitted under subparagraph 
                (C) for the area and year, or, if less, the 
                maximum annual adjustment permitted under 
                subparagraph (D) for the area and year.
                    ``(C) Phase-in of adjustment.--The amount 
                of an adjustment under subparagraph (A) for a 
                CCA area and year may not exceed the product of 
                the phase-in fraction for the year under 
                subsection (d)(3)(B) multiplied by the amount 
                of the adjustment otherwise computed under 
                subparagraph (A) for the area and year, 
                determined without regard to this subparagraph 
                and subparagraph (D).
                    ``(D) 5-percent limitation on adjustment.--
                The amount of the adjustment under this 
                subsection for months in a year shall not 
                exceed 5 percent of the amount of the monthly 
                premium amount determined for months in the 
                year under section 1839 without regard to 
                subsections (b), (f), and (i) of such section 
                and this subsection.''.
    (b) Conforming Amendments.--
            (1) MA local plans.--
                    (A) Section 1853(j)(1)(A) (42 U.S.C. 1395w-
                23(j)(1)(A)), as added by section 222(d), is 
                amended by inserting ``subject to section 
                1860C-1(d)(2)(A),'' after ``within an MA local 
                area,''.
                    (B) Section 1853(b)(1)(B), as amended by 
                section 222(f)(1), is amended by adding at the 
                end the following new clause:
                            ``(iii) Benchmark announcement for 
                        cca local areas.--The Secretary shall 
                        determine, and shall announce (in a 
                        manner intended to provide notice to 
                        interested parties), on a timely basis 
                        before the calendar year concerned, 
                        with respect to each CCA area (as 
                        defined in section 1860C-1(b)(1)(A)), 
                        the CCA non-drug monthly benchmark 
                        amount under section 1860C-1(e)(1) for 
                        that area for the year involved.''.
            (2) Premium adjustment.--
                    (A) Section 1839 (42 U.S.C. 1395r) is 
                amended by adding at the end the following new 
                subsection:
    ``(h) Potential Application of Comparative Cost Adjustment 
in CCA Areas.--
            ``(1) In general.--Certain individuals who are 
        residing in a CCA area under section 1860C-1 who are 
        not enrolled in an MA plan under part C may be subject 
        to a premium adjustment under subsection (f) of such 
        section for months in which the CCA program under such 
        section is in effect in such area.
            ``(2) No effect on late enrollment penalty or 
        income-related adjustment in subsidies.--Nothing in 
        this subsection or section 1860C-1(f) shall be 
        construed as affecting the amount of any premium 
        adjustment under subsection (b) or (i). Subsection (f) 
        shall be applied without regard to any premium 
        adjustment referred to in paragraph (1).
            ``(3) Implementation.--In order to carry out a 
        premium adjustment under this subsection and section 
        1860C-1(f) (insofar as it is effected through the 
        manner of collection of premiums under section 
        1840(a)), the Secretary shall transmit to the 
        Commissioner of Social Security--
                    ``(A) at the beginning of each year, the 
                name, social security account number, and the 
                amount of the premium adjustment (if any) for 
                each individual enrolled under this part for 
                each month during the year; and
                    ``(B) periodically throughout the year, 
                information to update the information 
                previously transmitted under this paragraph for 
                the year.''.
                    (B) Section 1844(c) (42 U.S.C. 1395w(c)) is 
                amended by inserting ``and without regard to 
                any premium adjustment effected under sections 
                1839(h) and 1860C-1(f)'' before the period at 
                the end.
    (c) No Change in Medicare's Defined Benefit Package.--
Nothing in this part (or the amendments made by this part) 
shall be construed as changing the entitlement to defined 
benefits under parts A and B of title XVIII of the Social 
Security Act.

             TITLE III--COMBATTING WASTE, FRAUD, AND ABUSE

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

    (a) Technical Amendment Concerning Secretary's Authority To 
Make Conditional Payment When Certain Primary Plans Do Not Pay 
Promptly.--Section 1862(b)(2) (42 U.S.C. 1395y(b)(2)) is 
amended--
            (1) in subparagraph (A)(ii), by striking ``promptly 
        (as determined in accordance with regulations)''; and
            (2) in subparagraph (B)--
                    (A) by redesignating clauses (i) through 
                (v) as clauses (ii) through (vi), respectively; 
                and
                    (B) by inserting before clause (ii), as so 
                redesignated, the following new clause:
                            ``(i) Authority to make conditional 
                        payment.--The Secretary may make 
                        payment under this title with respect 
                        to an item or service if a primary plan 
                        described in subparagraph (A)(ii) has 
                        not made or cannot reasonably be 
                        expected to make payment with respect 
                        to such item or service promptly (as 
                        determined in accordance with 
                        regulations). Any such payment by the 
                        Secretary shall be conditioned on 
                        reimbursement to the appropriate Trust 
                        Fund in accordance with the succeeding 
                        provisions of this subsection.''.
    (b) Clarifying Amendments to Conditional Payment 
Provisions.--Section 1862(b)(2) (42 U.S.C. 1395y(b)(2)), as 
amended by subsection (a), is amended--
            (1) in subparagraph (A), in the matter following 
        clause (ii), by inserting the following sentence at the 
        end: ``An entity that engages in a business, trade, or 
        profession shall be deemed to have a self-insured plan 
        if it carries its own risk (whether by a failure to 
        obtain insurance, or otherwise) in whole or in part.'';
            (2) in subparagraph (B)(ii), as redesignated by 
        subsection (a)(2)(A)--
                    (A) by striking the first sentence and 
                inserting the following: ``A primary plan, and 
                an entity that receives payment from a primary 
                plan, shall reimburse the appropriate Trust 
                Fund for any payment made by the Secretary 
                under this title with respect to an item or 
                service if it is demonstrated that such primary 
                plan has or had a responsibility to make 
                payment with respect to such item or service. A 
                primary plan's responsibility for such payment 
                may be demonstrated by a judgment, a payment 
                conditioned upon the recipient's compromise, 
                waiver, or release (whether or not there is a 
                determination or admission of liability) of 
                payment for items or services included in a 
                claim against the primary plan or the primary 
                plan's insured, or by other means.''; and
                    (B) in the final sentence, by striking ``on 
                the date such notice or other information is 
                received'' and inserting ``on the date notice 
                of, or information related to, a primary plan's 
                responsibility for such payment or other 
                information is received''; and
            (3) in subparagraph (B)(iii), as redesignated by 
        subsection (a)(2)(A), by striking the first sentence 
        and inserting the following: ``In order to recover 
        payment made under this title for an item or service, 
        the United States may bring an action against any or 
        all entities that are or were required or responsible 
        (directly, as an insurer or self-insurer, as a third-
        party administrator, as an employer that sponsors or 
        contributes to a group health plan, or large group 
        health plan, or otherwise) to make payment with respect 
        to the same item or service (or any portion thereof) 
        under a primary plan. The United States may, in 
        accordance with paragraph (3)(A) collect double damages 
        against any such entity. In addition, the United States 
        may recover under this clause from any entity that has 
        received payment from a primary plan or from the 
        proceeds of a primary plan's payment to any entity.''.
    (c) Clerical Amendments.--Section 1862(b) (42 U.S.C. 
1395y(b)) is amended--
            (1) in paragraph (1)(A), by moving the indentation 
        of clauses (ii) through (v) 2 ems to the left; and
            (2) in paragraph (3)(A), by striking ``such'' 
        before ``paragraphs''.
    (d) Effective Dates.--The amendments made by this section 
shall be effective--
            (1) in the case of subsection (a), as if included 
        in the enactment of title III of the Medicare and 
        Medicaid Budget Reconciliation Amendments of 1984 
        (Public Law 98-369); and
            (2) in the case of subsections (b) and (c), as if 
        included in the enactment of section 953 of the Omnibus 
        Reconciliation Act of 1980 (Public Law 96-499; 94 Stat. 
        2647).

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

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

        ``COMPETITIVE ACQUISITION OF CERTAIN ITEMS AND SERVICES

    ``Sec. 1847. (a) Establishment of Competitive Acquisition 
Programs.--
            ``(1) Implementation of programs.--
                    ``(A) In general.--The Secretary shall 
                establish and implement programs under which 
                competitive acquisition areas are established 
                throughout the United States for contract award 
                purposes for the furnishing under this part of 
                competitively priced items and services 
                (described in paragraph (2)) for which payment 
                is made under this part. Such areas may differ 
                for different items and services.
                    ``(B) Phased-in implementation.--The 
                programs--
                            ``(i) shall be phased in among 
                        competitive acquisition areas in a 
                        manner so that the competition under 
                        the programs occurs in--
                                    ``(I) 10 of the largest 
                                metropolitan statistical areas 
                                in 2007;
                                    ``(II) 80 of the largest 
                                metropolitan statistical areas 
                                in 2009; and
                                    ``(III) additional areas 
                                after 2009; and
                            ``(ii) may be phased in first among 
                        the highest cost and highest volume 
                        items and services or those items and 
                        services that the Secretary determines 
                        have the largest savings potential.
                    ``(C) Waiver of certain provisions.--In 
                carrying out the programs, the Secretary may 
                waive such provisions of the Federal 
                Acquisition Regulation as are necessary for the 
                efficient implementation of this section, other 
                than provisions relating to confidentiality of 
                information and such other provisions as the 
                Secretary determines appropriate.
            ``(2) Items and services described.--The items and 
        services referred to in paragraph (1) are the 
        following:
                    ``(A) Durable medical equipment and medical 
                supplies.--Covered items (as defined in section 
                1834(a)(13)) for which payment would otherwise 
                be made under section 1834(a), including items 
                used in infusion and drugs (other than 
                inhalation drugs) and supplies used in 
                conjunction with durable medical equipment, but 
                excluding class III devices under the Federal 
                Food, Drug, and Cosmetic Act.
                    ``(B) Other equipment and supplies.--Items 
                and services described in section 
                1842(s)(2)(D), other than parenteral nutrients, 
                equipment, and supplies.
                    ``(C) Off-the-shelf orthotics.--Orthotics 
                described in section 1861(s)(9) for which 
                payment would otherwise be made under section 
                1834(h) which require minimal self-adjustment 
                for appropriate use and do not require 
                expertise in trimming, bending, molding, 
                assembling, or customizing to fit to the 
                individual.
            ``(3) Exception authority.--In carrying out the 
        programs under this section, the Secretary may exempt--
                    ``(A) rural areas and areas with low 
                population density within urban areas that are 
                not competitive, unless there is a significant 
                national market through mail order for a 
                particular item or service; and
                    ``(B) items and services for which the 
                application of competitive acquisition is not 
                likely to result in significant savings.
            ``(4) Special rule for certain rented items of 
        durable medical equipment and oxygen.--In the case of a 
        covered item for which payment is made on a rental 
        basis under section 1834(a) and in the case of payment 
        for oxygen under section 1834(a)(5), the Secretary 
        shall establish a process by which rental agreements 
        for the covered items and supply arrangements with 
        oxygen suppliers entered into before the application of 
        the competitive acquisition program under this section 
        for the item may be continued notwithstanding this 
        section. In the case of any such continuation, the 
        supplier involved shall provide for appropriate 
        servicing and replacement, as required under section 
        1834(a).
            ``(5) Physician authorization.--
                    ``(A) In general.--With respect to items or 
                services included within a particular HCPCS 
                code, the Secretary may establish a process for 
                certain items and services under which a 
                physician may prescribe a particular brand or 
                mode of delivery of an item or service within 
                such code if the physician determines that use 
                of the particular item or service would avoid 
                an adverse medical outcome on the individual, 
                as determined by the Secretary.
                    ``(B) No effect on payment amount.--A 
                prescription under subparagraph (A) shall not 
                affect the amount of payment otherwise 
                applicable for the item or service under the 
                code involved.
            ``(6) Application.--For each competitive 
        acquisition area in which the program is implemented 
        under this subsection with respect to items and 
        services, the payment basis determined under the 
        competition conducted under subsection (b) shall be 
        substituted for the payment basis otherwise applied 
        under section 1834(a), section 1834(h), or section 
        1842(s), as appropriate.
    ``(b) Program Requirements.--
            ``(1) In general.--The Secretary shall conduct a 
        competition among entities supplying items and services 
        described in subsection (a)(2) for each competitive 
        acquisition area in which the program is implemented 
        under subsection (a) with respect to such items and 
        services.
            ``(2) Conditions for awarding contract.--
                    ``(A) In general.--The Secretary may not 
                award a contract to any entity under the 
                competition conducted in an competitive 
                acquisition area pursuant to paragraph (1) to 
                furnish such items or services unless the 
                Secretary finds all of the following:
                            ``(i) The entity meets applicable 
                        quality standards specified by the 
                        Secretary under section 1834(a)(20).
                            ``(ii) The entity meets applicable 
                        financial standards specified by the 
                        Secretary, taking into account the 
                        needs of small providers.
                            ``(iii) The total amounts to be 
                        paid to contractors in a competitive 
                        acquisition area are expected to be 
                        less than the total amounts that would 
                        otherwise be paid.
                            ``(iv) Access of individuals to a 
                        choice of multiple suppliers in the 
                        area is maintained.
                    ``(B) Timely implementation of program.--
                Any delay in the implementation of quality 
                standards under section 1834(a)(20) or delay in 
                the receipt of advice from the program 
                oversight committee established under 
                subsection (c) shall not delay the 
                implementation of the competitive acquisition 
                program under this section.
            ``(3) Contents of contract.--
                    ``(A) In general.--A contract entered into 
                with an entity under the competition conducted 
                pursuant to paragraph (1) is subject to terms 
                and conditions that the Secretary may specify.
                    ``(B) Term of contracts.--The Secretary 
                shall recompete contracts under this section 
                not less often than once every 3 years.
            ``(4) Limit on number of contractors.--
                    ``(A) In general.--The Secretary may limit 
                the number of contractors in a competitive 
                acquisition area to the number needed to meet 
                projected demand for items and services covered 
                under the contracts. In awarding contracts, the 
                Secretary shall take into account the ability 
                of bidding entities to furnish items or 
                services in sufficient quantities to meet the 
                anticipated needs of individuals for such items 
                or services in the geographic area covered 
                under the contract on a timely basis.
                    ``(B) Multiple winners.--The Secretary 
                shall award contracts to multiple entities 
                submitting bids in each area for an item or 
                service.
            ``(5) Payment.--
                    ``(A) In general.--Payment under this part 
                for competitively priced items and services 
                described in subsection (a)(2) shall be based 
                on bids submitted and accepted under this 
                section for such items and services. Based on 
                such bids the Secretary shall determine a 
                single payment amount for each item or service 
                in each competitive acquisition area.
                    ``(B) Reduced beneficiary cost-sharing.--
                            ``(i) Application of coinsurance.--
                        Payment under this section for items 
                        and services shall be in an amount 
                        equal to 80 percent of the payment 
                        basis described in subparagraph (A).
                            ``(ii) Application of deductible.--
                        Before applying clause (i), the 
                        individual shall be required to meet 
                        the deductible described in section 
                        1833(b).
                    ``(C) Payment on assignment-related 
                basis.--Payment for any item or service 
                furnished by the entity may only be made under 
                this section on an assignment-related basis.
                    ``(D) Construction.--Nothing in this 
                section shall be construed as precluding the 
                use of an advanced beneficiary notice with 
                respect to a competitively priced item and 
                service.
            ``(6) Participating contractors.--
                    ``(A) In general.--Except as provided in 
                subsection (a)(4), payment shall not be made 
                for items and services described in subsection 
                (a)(2) furnished by a contractor and for which 
                competition is conducted under this section 
                unless--
                            ``(i) the contractor has submitted 
                        a bid for such items and services under 
                        this section; and
                            ``(ii) the Secretary has awarded a 
                        contract to the contractor for such 
                        items and services under this section.
                    ``(B) Bid defined.--In this section, the 
                term `bid' means an offer to furnish an item or 
                service for a particular price and time period 
                that includes, where appropriate, any services 
                that are attendant to the furnishing of the 
                item or service.
                    ``(C) Rules for mergers and acquisitions.--
                In applying subparagraph (A) to a contractor, 
                the contractor shall include a successor entity 
                in the case of a merger or acquisition, if the 
                successor entity assumes such contract along 
                with any liabilities that may have occurred 
                thereunder.
                    ``(D) Protection of small suppliers.--In 
                developing procedures relating to bids and the 
                awarding of contracts under this section, the 
                Secretary shall take appropriate steps to 
                ensure that small suppliers of items and 
                services have an opportunity to be considered 
                for participation in the program under this 
                section.
            ``(7) Consideration in determining categories for 
        bids.--The Secretary may consider the clinical 
        efficiency and value of specific items within codes, 
        including whether some items have a greater therapeutic 
        advantage to individuals.
            ``(8) Authority to contract for education, 
        monitoring, outreach, and complaint services.--The 
        Secretary may enter into contracts with appropriate 
        entities to address complaints from individuals who 
        receive items and services from an entity with a 
        contract under this section and to conduct appropriate 
        education of and outreach to such individuals and 
        monitoring quality of services with respect to the 
        program.
            ``(9) Authority to contract for implementation.--
        The Secretary may contract with appropriate entities to 
        implement the competitive bidding program under this 
        section.
            ``(10) No administrative or judicial review.--There 
        shall be no administrative or judicial review under 
        section 1869, section 1878, or otherwise, of--
                    ``(A) the establishment of payment amounts 
                under paragraph (5);
                    ``(B) the awarding of contracts under this 
                section;
                    ``(C) the designation of competitive 
                acquisition areas under subsection (a)(1)(A);
                    ``(D) the phased-in implementation under 
                subsection (a)(1)(B);
                    ``(E) the selection of items and services 
                for competitive acquisition under subsection 
                (a)(2); or
                    ``(F) the bidding structure and number of 
                contractors selected under this section.
    ``(c) Program Advisory and Oversight Committee.--
            ``(1) Establishment.--The Secretary shall establish 
        a Program Advisory and Oversight Committee (hereinafter 
        in this section referred to as the `Committee').
            ``(2) Membership; terms.--The Committee shall 
        consist of such members as the Secretary may appoint 
        who shall serve for such term as the Secretary may 
        specify.
            ``(3) Duties.--
                    ``(A) Advice.--The Committee shall provide 
                advice to the Secretary with respect to the 
                following functions:
                            ``(i) The implementation of the 
                        program under this section.
                            ``(ii) The establishment of 
                        financial standards for purposes of 
                        subsection (b)(2)(A)(ii).
                            ``(iii) The establishment of 
                        requirements for collection of data for 
                        the efficient management of the 
                        program.
                            ``(iv) The development of proposals 
                        for efficient interaction among 
                        manufacturers, providers of services, 
                        suppliers (as defined in section 
                        1861(d)), and individuals.
                            ``(v) The establishment of quality 
                        standards under section 1834(a)(20).
                    ``(B) Additional duties.--The Committee 
                shall perform such additional functions to 
                assist the Secretary in carrying out this 
                section as the Secretary may specify.
            ``(4) Inapplicability of faca.--The provisions of 
        the Federal Advisory Committee Act (5 U.S.C. App.) 
        shall not apply.
            ``(5) Termination.--The Committee shall terminate 
        on December 31, 2009.
    ``(d) Report.--Not later than July 1, 2009, the Secretary 
shall submit to Congress a report on the programs under this 
section. The report shall include information on savings, 
reductions in cost-sharing, access to and quality of items and 
services, and satisfaction of individuals.
    ``(e) Demonstration Project for Clinical Laboratory 
Services.--
            ``(1) In general.--The Secretary shall conduct a 
        demonstration project on the application of competitive 
        acquisition under this section to clinical diagnostic 
        laboratory tests--
                    ``(A) for which payment would otherwise be 
                made under section 1833(h) (other than for pap 
                smear laboratory tests under paragraph (7) of 
                such section) or section 1834(d)(1) (relating 
                to colorectal cancer screening tests); and
                    ``(B) which are furnished by entities that 
                did not have a face-to-face encounter with the 
                individual.
            ``(2) Terms and conditions.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), such project shall be under 
                the same conditions as are applicable to items 
                and services described in subsection (a)(2), 
                excluding subsection (b)(5)(B) and other 
                conditions as the Secretary determines to be 
                appropriate.
                    ``(B) Application of clia quality 
                standards.--The quality standards established 
                by the Secretary under section 353 of the 
                Public Health Service Act for clinical 
                diagnostic laboratory tests shall apply to such 
                tests under the demonstration project under 
                this section in lieu of quality standards 
                described in subsection (b)(2)(A)(i).
            ``(3) Report.--The Secretary shall submit to 
        Congress--
                    ``(A) an initial report on the project not 
                later than December 31, 2005; and
                    ``(B) such progress and final reports on 
                the project after such date as the Secretary 
                determines appropriate.''.
            (2) Conforming amendments.--Section 1833(a)(1) (42 
        U.S.C. 1395l(a)(1)) is amended--
                    (A) by striking ``and (U)'' and inserting 
                ``(U)'';
                    (B) by inserting before the semicolon at 
                the end the following: ``, and (V) 
                notwithstanding subparagraphs (I) (relating to 
                durable medical equipment), (M) (relating to 
                prosthetic devices and orthotics and 
                prosthetics), and (Q) (relating to 1842(s) 
                items), with respect to competitively priced 
                items and services (described in section 
                1847(a)(2)) that are furnished in a competitive 
                area, the amounts paid shall be the amounts 
                described in section 1847(b)(5)''; and
                    (C) in clause (D)--
                            (i) by striking ``or (ii)'' and 
                        inserting ``(ii)''; and
                            (ii) by adding at the end the 
                        following: ``or (iii) on the basis of a 
                        rate established under a demonstration 
                        project under section 1847(e), the 
                        amount paid shall be equal to 100 
                        percent of such rate,''.
            (3) GAO report on impact of competitive acquisition 
        on suppliers.--
                    (A) Study.--The Comptroller General of the 
                United States shall conduct a study on the 
                impact of competitive acquisition of durable 
                medical equipment under section 1847 of the 
                Social Security Act, as amended by paragraph 
                (1), on suppliers and manufacturers of such 
                equipment and on patients. Such study shall 
                specifically examine the impact of such 
                competitive acquisition on access to, and 
                quality of, such equipment and service related 
                to such equipment.
                    (B) Report.--Not later than January 1, 
                2009, the Comptroller General shall submit to 
                Congress a report on the study conducted under 
                subparagraph (A) and shall include in the 
                report such recommendations as the Comptroller 
                General determines appropriate.
    (c) Transitional Freeze.--
            (1) DME.--
                    (A) In general.--Section 1834(a)(14) (42 
                U.S.C. 1395m(a)(14)) is amended--
                            (i) in subparagraph (E), by 
                        striking ``and'' at the end;
                            (ii) in subparagraph (F)--
                                    (I) by striking ``a 
                                subsequent year'' and inserting 
                                ``2003''; and
                                    (II) by striking ``the 
                                previous year.'' and inserting 
                                ``2002;''; and
                            (iii) by adding at the end the 
                        following new subparagraphs:
                    ``(G) for 2004 through 2006--
                            ``(i) subject to clause (ii), in 
                        the case of class III medical devices 
                        described in section 513(a)(1)(C) of 
                        the Federal Food, Drug, and Cosmetic 
                        Act (21 U.S.C. 360(c)(1)(C)), the 
                        percentage increase described in 
                        subparagraph (B) for the year involved; 
                        and
                            ``(ii) in the case of covered items 
                        not described in clause (i), 0 
                        percentage points;
                    ``(H) for 2007--
                            ``(i) subject to clause (ii), in 
                        the case of class III medical devices 
                        described in section 513(a)(1)(C) of 
                        the Federal Food, Drug, and Cosmetic 
                        Act (21 U.S.C. 360(c)(1)(C)), the 
                        percentage change determined by the 
                        Secretary to be appropriate taking into 
                        account recommendations contained in 
                        the report of the Comptroller General 
                        of the United States under section 
                        302(c)(1)(B) of the Medicare 
                        Prescription Drug, Improvement, and 
                        Modernization Act of 2003; and
                            ``(ii) in the case of covered items 
                        not described in clause (i), 0 
                        percentage points; and
                    ``(I) for 2008--
                            ``(i) subject to clause (ii), in 
                        the case of class III medical devices 
                        described in section 513(a)(1)(C) of 
                        the Federal Food, Drug, and Cosmetic 
                        Act (21 U.S.C. 360(c)(1)(C)), the 
                        percentage increase described in 
                        subparagraph (B) (as applied to the 
                        payment amount for 2007 determined 
                        after the application of the percentage 
                        change under subparagraph (H)(i)); and
                            ``(ii) in the case of covered items 
                        not described in clause (i), 0 
                        percentage points; and
                    ``(J) for a subsequent year, the percentage 
                increase in the consumer price index for all 
                urban consumers (U.S. urban average) for the 
                12-month period ending with June of the 
                previous year.''.
                    (B) GAO report on class iii medical 
                devices.--Not later than March 1, 2006, the 
                Comptroller General of the United States shall 
                submit to Congress, and transmit to the 
                Secretary, a report containing recommendations 
                on the appropriate update percentage under 
                section 1834(a)(14) of the Social Security Act 
                (42 U.S.C. 1395m(a)(14)) for class III medical 
                devices described in section 513(a)(1)(C) of 
                the Federal Food, Drug, and Cosmetic Act (21 
                U.S.C. 360(a)(1)(C)) furnished to medicare 
                beneficiaries during 2007 and 2008.
            (2) Payment rule for specified items.--Section 
        1834(a) (42 U.S.C. 1395m(a)), as amended by subsection 
        (a), is further amended by adding at the end the 
        following new paragraph:
            ``(21) Special payment rule for specified items and 
        supplies.--
                    ``(A) In general.--Notwithstanding the 
                preceding provisions of this subsection, for 
                specified items and supplies (described in 
                subparagraph (B)) furnished during 2005, the 
                payment amount otherwise determined under this 
                subsection for such specified items and 
                supplies shall be reduced by the percentage 
                difference between--
                            ``(i) the amount of payment 
                        otherwise determined for the specified 
                        item or supply under this subsection 
                        for 2002, and
                            ``(ii) the amount of payment for 
                        the specified item or supply under 
                        chapter 89 of title 5, United States 
                        Code, as identified in the column 
                        entitled `Median FEHP Price' in the 
                        table entitled `SUMMARY OF MEDICARE 
                        PRICES COMPARED TO VA, MEDICAID, 
                        RETAIL, AND FEHP PRICES FOR 16 ITEMS' 
                        included in the Testimony of the 
                        Inspector General before the Senate 
                        Committee on Appropriations, June 12, 
                        2002, or any subsequent report by the 
                        Inspector General.
                    ``(B) Specified item or supply described.--
                For purposes of subparagraph (A), a specified 
                item or supply means oxygen and oxygen 
                equipment, standard wheelchairs (including 
                standard power wheelchairs), nebulizers, 
                diabetic supplies consisting of lancets and 
                testing strips, hospital beds, and air 
                mattresses, but only if the HCPCS code for the 
                item or supply is identified in a table 
                referred to in subparagraph (A)(ii).
                    ``(C) Application of update to special 
                payment amount.--The covered item update under 
                paragraph (14) for specified items and supplies 
                for 2006 and each subsequent year shall be 
                applied to the payment amount under 
                subparagraph (A) unless payment is made for 
                such items and supplies under section 1847.''.
            (3) Prosthetic devices and orthotics and 
        prosthetics.--Section 1834(h)(4)(A) (42 U.S.C. 
        1395m(h)(4)(A)) is amended--
                    (A) in clause (vii), by striking ``and'' at 
                the end;
                    (B) in clause (viii), by striking ``a 
                subsequent year'' and inserting ``2003''; and
                    (C) by adding at the end the following new 
                clauses:
                            ``(ix) for 2004, 2005, and 2006, 0 
                        percent; and
                            ``(x) for a subsequent year, the 
                        percentage increase in the consumer 
                        price index for all urban consumers 
                        (United States city average) for the 
                        12-month period ending with June of the 
                        previous year;''.
    (d) Conforming Amendments.--
            (1) Durable medical equipment; limitation of 
        inherent reasonableness authority.--Section 1834(a) (42 
        U.S.C. 1395m(a)) is amended--
                    (A) in paragraph (1)(B), by striking ``The 
                payment basis'' and inserting ``Subject to 
                subparagraph (F)(i), the payment basis'';
                    (B) in paragraph (1)(C), by striking ``This 
                subsection'' and inserting ``Subject to 
                subparagraph (F)(ii), this subsection'';
                    (C) by adding at the end of paragraph (1) 
                the following new subparagraph:
                    ``(F) Application of competitive 
                acquisition; limitation of inherent 
                reasonableness authority.--In the case of 
                covered items furnished on or after January 1, 
                2009, that are included in a competitive 
                acquisition program in a competitive 
                acquisition area under section 1847(a)--
                            ``(i) the payment basis under this 
                        subsection for such items and services 
                        furnished in such area shall be the 
                        payment basis determined under such 
                        competitive acquisition program; and
                            ``(ii) the Secretary may use 
                        information on the payment determined 
                        under such competitive acquisition 
                        programs to adjust the payment amount 
                        otherwise recognized under subparagraph 
                        (B)(ii) for an area that is not a 
                        competitive acquisition area under 
                        section 1847 and in the case of such 
                        adjustment, paragraph (10)(B) shall not 
                        be applied.''; and
                    (D) in paragraph (10)(B), by inserting ``in 
                an area and with respect to covered items and 
                services for which the Secretary does not make 
                a payment amount adjustment under paragraph 
                (1)(F)'' after ``under this subsection''.
            (2) Off-the-shelf orthotics; limitation of inherent 
        reasonableness authority.--Section 1834(h) (42 U.S.C. 
        1395m(h)) is amended--
                    (A) in paragraph (1)(B), by striking ``and 
                (E)'' and inserting ``, (E), and (H)(i)'';
                    (B) in paragraph (1)(D), by striking ``This 
                subsection'' and inserting ``Subject to 
                subparagraph (H)(ii), this subsection''; and
                    (C) by adding at the end of paragraph (1) 
                the following new subparagraph:
                    ``(H) Application of competitive 
                acquisition to orthotics; limitation of 
                inherent reasonableness authority.--In the case 
                of orthotics described in paragraph (2)(C) of 
                section 1847(a) furnished on or after January 
                1, 2009, that are included in a competitive 
                acquisition program in a competitive 
                acquisition area under such section--
                            ``(i) the payment basis under this 
                        subsection for such orthotics furnished 
                        in such area shall be the payment basis 
                        determined under such competitive 
                        acquisition program; and
                            ``(ii) the Secretary may use 
                        information on the payment determined 
                        under such competitive acquisition 
                        programs to adjust the payment amount 
                        otherwise recognized under subparagraph 
                        (B)(ii) for an area that is not a 
                        competitive acquisition area under 
                        section 1847, and in the case of such 
                        adjustment, paragraphs (8) and (9) of 
                        section 1842(b) shall not be 
                        applied.''.
            (3) Other items and services; limitation of 
        inherent reasonableness authority.--Section 1842(s) (42 
        U.S.C. 1395u(s)) is amended--
                    (A) in the first sentence of paragraph (1), 
                by striking ``The Secretary'' and inserting 
                ``Subject to paragraph (3), the Secretary''; 
                and
                    (B) by adding at the end the following new 
                paragraph:
    ``(3) In the case of items and services described in 
paragraph (2)(D) that are included in a competitive acquisition 
program in a competitive acquisition area under section 
1847(a)--
            ``(A) the payment basis under this subsection for 
        such items and services furnished in such area shall be 
        the payment basis determined under such competitive 
        acquisition program; and
            ``(B) the Secretary may use information on the 
        payment determined under such competitive acquisition 
        programs to adjust the payment amount otherwise 
        applicable under paragraph (1) for an area that is not 
        a competitive acquisition area under section 1847, and 
        in the case of such adjustment, paragraphs (8) and (9) 
        of section 1842(b) shall not be applied.''.
    (e) Report on Activities of Suppliers.--The Inspector 
General of the Department of Health and Human Services shall 
conduct a study to determine the extent to which (if any) 
suppliers of covered items of durable medical equipment that 
are subject to the competitive acquisition program under 
section 1847 of the Social Security Act, as amended by 
subsection (a), are soliciting physicians to prescribe certain 
brands or modes of delivery of covered items based on 
profitability. Not later than July 1, 2009, the Inspector 
General shall submit to Congress a report on such study.

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

    (a) Adjustment to Physician Fee Schedule.--
            (1) Adjustment in practice expense relative value 
        units.--Section 1848(c)(2) (42 U.S.C. 1395w-4(c)(2)) is 
        amended--
                    (A) in subparagraph (B)--
                            (i) in clause (ii)(II), by striking 
                        ``The adjustments'' and inserting 
                        ``Subject to clause (iv), the 
                        adjustments''; and
                            (ii) by adding at the end of 
                        subparagraph (B), the following new 
                        clause:
                            ``(iv) Exemption from budget 
                        neutrality.--The additional 
                        expenditures attributable to--
                                    ``(I) subparagraph (H) 
                                shall not be taken into account 
                                in applying clause (ii)(II) for 
                                2004;
                                    ``(II) subparagraph (I) 
                                insofar as it relates to a 
                                physician fee schedule for 2005 
                                or 2006 shall not be taken into 
                                account in applying clause 
                                (ii)(II) for drug 
                                administration services under 
                                the fee schedule for such year 
                                for a specialty described in 
                                subparagraph (I)(ii)(II); and
                                    ``(III) subparagraph (J) 
                                insofar as it relates to a 
                                physician fee schedule for 2005 
                                or 2006 shall not be taken into 
                                account in applying clause 
                                (ii)(II) for drug 
                                administration services under 
                                the fee schedule for such 
                                year.''; and
                    (B) by adding at the end the following new 
                subparagraphs:
                    ``(H) Adjustments in practice expense 
                relative value units for certain drug 
                administration services beginning in 2004.--
                            ``(i) Use of survey data.--In 
                        establishing the physician fee schedule 
                        under subsection (b) with respect to 
                        payments for services furnished on or 
                        after January 1, 2004, the Secretary 
                        shall, in determining practice expense 
                        relative value units under this 
                        subsection, utilize a survey submitted 
                        to the Secretary as of January 1, 2003, 
                        by a physician specialty organization 
                        pursuant to section 212 of the 
                        Medicare, Medicaid, and SCHIP Balanced 
                        Budget Refinement Act of 1999 if the 
                        survey--
                                    ``(I) covers practice 
                                expenses for oncology drug 
                                administration services; and
                                    ``(II) meets criteria 
                                established by the Secretary 
                                for acceptance of such surveys.
                            ``(ii) Pricing of clinical oncology 
                        nurses in practice expense 
                        methodology.--If the survey described 
                        in clause (i) includes data on wages, 
                        salaries, and compensation of clinical 
                        oncology nurses, the Secretary shall 
                        utilize such data in the methodology 
                        for determining practice expense 
                        relative value units under subsection 
                        (c).
                            ``(iii) Work relative value units 
                        for certain drug administration 
                        services.--In establishing the relative 
                        value units under this paragraph for 
                        drug administration services described 
                        in clause (iv) furnished on or after 
                        January 1, 2004, the Secretary shall 
                        establish work relative value units 
                        equal to the work relative value units 
                        for a level 1 office medical visit for 
                        an established patient.
                            ``(iv) Drug administration services 
                        described.--The drug administration 
                        services described in this clause are 
                        physicians' services--
                                    ``(I) which are classified 
                                as of October 1, 2003, within 
                                any of the following groups of 
                                procedures: therapeutic or 
                                diagnostic infusions (excluding 
                                chemotherapy); chemotherapy 
                                administration services; and 
                                therapeutic, prophylactic, or 
                                diagnostic injections;
                                    ``(II) for which there are 
                                no work relative value units 
                                assigned under this subsection 
                                as of such date; and
                                    ``(III) for which national 
                                relative value units have been 
                                assigned under this subsection 
                                as of such date.
                    ``(I) Adjustments in practice expense 
                relative value units for certain drug 
                administration services beginning with 2005.--
                            ``(i) In general.--In establishing 
                        the physician fee schedule under 
                        subsection (b) with respect to payments 
                        for services furnished on or after 
                        January 1, 2005 or 2006, the Secretary 
                        shall adjust the practice expense 
                        relative value units for such year 
                        consistent with clause (ii).
                            ``(ii) Use of supplemental survey 
                        data.--
                                    ``(I) In general.--Subject 
                                to subclause (II), if a 
                                specialty submits to the 
                                Secretary by not later than 
                                March 1, 2004, for 2005, or 
                                March 1, 2005, for 2006, data 
                                that includes expenses for the 
                                administration of drugs and 
                                biologicals for which the 
                                payment amount is determined 
                                pursuant to section 1842(o), 
                                the Secretary shall use such 
                                supplemental survey data in 
                                carrying out this subparagraph 
                                for the years involved insofar 
                                as they are collected and 
                                provided by entities and 
                                organizations consistent with 
                                the criteria established by the 
                                Secretary pursuant to section 
                                212(a) of the Medicare, 
                                Medicaid, and SCHIP Balanced 
                                Budget Refinement Act of 1999.
                                    ``(II) Limitation on 
                                specialty.--Subclause (I) shall 
                                apply to a specialty only 
                                insofar as not less than 40 
                                percent of payments for the 
                                specialty under this title in 
                                2002 are attributable to the 
                                administration of drugs and 
                                biologicals, as determined by 
                                the Secretary.
                                    ``(III) Application.--This 
                                clause shall not apply with 
                                respect to a survey to which 
                                subparagraph (H)(i) applies.
                    ``(J) Provisions for appropriate reporting 
                and billing for physicians' services associated 
                with the administration of covered outpatient 
                drugs and biologicals.--
                            ``(i) Evaluation of codes.--The 
                        Secretary shall promptly evaluate 
                        existing drug administration codes for 
                        physicians' services to ensure accurate 
                        reporting and billing for such 
                        services, taking into account levels of 
                        complexity of the administration and 
                        resource consumption.
                            ``(ii) Use of existing processes.--
                        In carrying out clause (i), the 
                        Secretary shall use existing processes 
                        for the consideration of coding changes 
                        and, to the extent coding changes are 
                        made, shall use such processes in 
                        establishing relative values for such 
                        services.
                            ``(iii) Implementation.--In 
                        carrying out clause (i), the Secretary 
                        shall consult with representatives of 
                        physician specialties affected by the 
                        implementation of section 1847A or 
                        section 1847B, and shall take such 
                        steps within the Secretary's authority 
                        to expedite such considerations under 
                        clause (ii).
                            ``(iv) Subsequent, budget neutral 
                        adjustments permitted.--Nothing in 
                        subparagraph (H) or (I) or this 
                        subparagraph shall be construed as 
                        preventing the Secretary from providing 
                        for adjustments in practice expense 
                        relative value units under (and 
                        consistent with) subparagraph (B) for 
                        years after 2004, 2005, or 2006, 
                        respectively.''.
            (2) Treatment of other services currently in the 
        nonphysician work pool.--The Secretary shall make 
        adjustments to the nonphysician work pool methodology 
        (as such term is used in the final rule promulgated by 
        the Secretary in the Federal Register on December 31, 
        2002 (67 Fed. Reg. 251)), for the determination of 
        practice expense relative value units under the 
        physician fee schedule under section 1848(c)(2)(C)(ii) 
        of the Social Security Act (42 U.S.C. 1395w-
        4(c)(2)(C)(ii)), so that the practice expense relative 
        value units for services determined under such 
        methodology are not affected relative to the practice 
        expense relative value units of services not determined 
        under such methodology, as a result of the amendments 
        made by paragraph (1).
            (3) Payment for multiple chemotherapy agents 
        furnished on a single day through the push technique.--
                    (A) Review of policy.--The Secretary shall 
                review the policy, as in effect on October 1, 
                2003, with respect to payment under section 
                1848 of the Social Security Act (42 U.S.C. 
                1395w-4) for the administration of more than 1 
                drug or biological to an individual on a single 
                day through the push technique.
                    (B) Modification of policy.--After 
                conducting the review under subparagraph (A), 
                the Secretary shall modify such payment policy 
                as the Secretary determines to be appropriate.
                    (C) Exemption from budget neutrality under 
                physician fee schedule.--If the Secretary 
                modifies such payment policy pursuant to 
                subparagraph (B), any increased expenditures 
                under title XVIII of the Social Security Act 
                resulting from such modification shall be 
                treated as additional expenditures attributable 
                to subparagraph (H) of section 1848(c)(2) of 
                the Social Security Act (42 U.S.C. 1395w-
                4(c)(2)), as added by paragraph (1)(B), for 
                purposes of applying the exemption to budget 
                neutrality under subparagraph (B)(iv) of such 
                section, as added by paragraph (1)(A).
            (4) Transitional adjustment.--
                    (A) In general.--In order to provide for a 
                transition during 2004 and 2005 to the payment 
                system established under the amendments made by 
                this section, in the case of physicians' 
                services consisting of drug administration 
                services described in subparagraph (H)(iv) of 
                section 1848(c)(2) of the Social Security Act 
                (42 U.S.C. 1395w-4(c)(2)), as added by 
                paragraph (1)(B), furnished on or after January 
                1, 2004, and before January 1, 2006, in 
                addition to the amount determined under the fee 
                schedule under section 1848(b) of such Act (42 
                U.S.C. 1395w-4(b)) there also shall be paid to 
                the physician from the Federal Supplementary 
                Medical Insurance Trust Fund an amount equal to 
                the applicable percentage specified in 
                subparagraph (B) of such fee schedule amount 
                for the services so determined.
                    (B) Applicable percentage.--The applicable 
                percentage specified in this subparagraph for 
                services furnished--
                            (i) during 2004, is 32 percent; and
                            (ii) during 2005, is 3 percent.
            (5) Medpac review and reports; secretarial 
        response.--
                    (A) Review.--The Medicare Payment Advisory 
                Commission shall review the payment changes 
                made under this section insofar as they affect 
                payment under part B of title XVIII of the 
                Social Security Act--
                            (i) for items and services 
                        furnished by oncologists; and
                            (ii) for drug administration 
                        services furnished by other 
                        specialists.
                    (B) Other matters studied.--In conducting 
                the review under subparagraph (A), the 
                Commission shall also review such changes as 
                they affect--
                            (i) the quality of care furnished 
                        to individuals enrolled under part B 
                        and the satisfaction of such 
                        individuals with that care;
                            (ii) the adequacy of reimbursement 
                        as applied in, and the availability in, 
                        different geographic areas and to 
                        different physician practice sizes; and
                            (iii) the impact on physician 
                        practices.
                    (C) Reports.--The Commission shall submit 
                to the Secretary and Congress--
                            (i) not later than January 1, 2006, 
                        a report on the review conducted under 
                        subparagraph (A)(i); and
                            (ii) not later than January 1, 
                        2007, a report on the review conducted 
                        under subparagraph (A)(ii).
                Each such report may include such 
                recommendations regarding further adjustments 
                in such payments as the Commission deems 
                appropriate.
                    (D) Secretarial response.--As part of the 
                rulemaking with respect to payment for 
                physicians services under section 1848 of the 
                Social Security Act (42 U.S.C. 1395w-4) for 
                2007, the Secretary may make appropriate 
                adjustments to payment for items and services 
                described in subparagraph (A)(i), taking into 
                account the report submitted under such 
                subparagraph (C)(i).
    (b) Application of Market-Based Payment Systems.--Section 
1842(o) (42 U.S.C. 1395u(o)) is amended--
            (1) in paragraph (1), by striking ``equal to 95 
        percent of the average wholesale price.'' and inserting 
        ``equal to the following:
            ``(A) In the case of any of the following drugs or 
        biologicals, 95 percent of the average wholesale price:
                    ``(i) A drug or biological furnished before 
                January 1, 2004.
                    ``(ii) Blood clotting factors furnished 
                during 2004.
                    ``(iii) A drug or biological furnished 
                during 2004 that was not available for payment 
                under this part as of April 1, 2003.
                    ``(iv) A vaccine described in subparagraph 
                (A) or (B) of section 1861(s)(10) furnished on 
                or after January 1, 2004.
                    ``(v) A drug or biological furnished during 
                2004 in connection with the furnishing of renal 
                dialysis services if separately billed by renal 
                dialysis facilities.
            ``(B) In the case of a drug or biological furnished 
        during 2004 that is not described in--
                    ``(i) clause (ii), (iii), (iv), or (v) of 
                subparagraph (A),
                    ``(ii) subparagraph (D)(i), or
                    ``(iii) subparagraph (F),
        the amount determined under paragraph (4).
            ``(C) In the case of a drug or biological that is 
        not described in subparagraph (A)(iv), (D)(i), or (F) 
        furnished on or after January 1, 2005, the amount 
        provided under section 1847, section 1847A, section 
        1847B, or section 1881(b)(13), as the case may be for 
        the drug or biological.
            ``(D)(i) Except as provided in clause (ii), in the 
        case of infusion drugs furnished through an item of 
        durable medical equipment covered under section 1861(n) 
        on or after January 1, 2004, 95 percent of the average 
        wholesale price for such drug in effect on October 1, 
        2003.
            ``(ii) In the case of such infusion drugs furnished 
        in a competitive acquisition area under section 1847 on 
        or after January 1, 2007, the amount provided under 
        section 1847.
            ``(E) In the case of a drug or biological, 
        consisting of intravenous immune globulin, furnished--
                    ``(i) in 2004, the amount of payment 
                provided under paragraph (4); and
                    ``(ii) in 2005 and subsequent years, the 
                amount of payment provided under section 1847A.
            ``(F) In the case of blood and blood products 
        (other than blood clotting factors), the amount of 
        payment shall be determined in the same manner as such 
        amount of payment was determined on October 1, 2003.
            ``(G) The provisions of subparagraphs (A) through 
        (F) of this paragraph shall not apply to an inhalation 
        drug or biological furnished through durable medical 
        equipment covered under section 1861(n).''; and
            (2) by adding at the end the following new 
        paragraph:
    ``(4)(A) Subject to the succeeding provisions of this 
paragraph, the amount of payment for a drug or biological under 
this paragraph furnished in 2004 is equal to 85 percent of the 
average wholesale price (determined as of April 1, 2003) for 
the drug or biological.
    ``(B) The Secretary shall substitute for the percentage 
under subparagraph (A) for a drug or biological the percentage 
that would apply to the drug or biological under the column 
entitled `Average of GAO and OIG data (percent)' in the table 
entitled `Table 3.--Medicare Part B Drugs in the Most Recent 
GAO and OIG Studies' published on August 20, 2003, in the 
Federal Register (68 Fed. Reg. 50445).
    ``(C)(i) The Secretary may substitute for the percentage 
under subparagraph (A) a percentage that is based on data and 
information submitted by the manufacturer of the drug or 
biological by October 15, 2003.
    ``(ii) The Secretary may substitute for the percentage 
under subparagraph (A) with respect to drugs and biologicals 
furnished during 2004 on or after April 1, 2004, a percentage 
that is based on data and information submitted by the 
manufacturer of the drug or biological after October 15, 2003, 
and before January 1, 2004.
    ``(D) In no case may the percentage substituted under 
subparagraph (B) or (C) be less than 80 percent.''.
    (c) Application of Average Sales Price Methods Beginning in 
2005.--
            (1) In general.--Title XVIII is amended by 
        inserting after section 1847 (42 U.S.C. 1395w-3), as 
        amended by section 302(b), the following new section:

            ``USE OF AVERAGE SALES PRICE PAYMENT METHODOLOGY

    ``Sec. 1847A. (a) Application.--
            ``(1) In general.--Except as provided in paragraph 
        (2), this section shall apply to payment for drugs and 
        biologicals that are described in section 1842(o)(1)(C) 
        and that are furnished on or after January 1, 2005.
            ``(2) Election.--This section shall not apply in 
        the case of a physician who elects under subsection 
        (a)(1)(A)(ii) of section 1847B for that section to 
        apply instead of this section for the payment for drugs 
        and biologicals.
    ``(b) Payment Amount.--
            ``(1) In general.--Subject to subsections (d)(3)(C) 
        and (e), the amount of payment determined under this 
        section for the billing and payment code for a drug or 
        biological (based on a minimum dosage unit) is, subject 
        to applicable deductible and coinsurance--
                    ``(A) in the case of a multiple source drug 
                (as defined in subsection (c)(6)(C)), 106 
                percent of the amount determined under 
                paragraph (3); or
                    ``(B) in the case of a single source drug 
                or biological (as defined in subsection 
                (c)(6)(D)), 106 percent of the amount 
                determined under paragraph (4).
            ``(2) Specification of unit.--
                    ``(A) Specification by manufacturer.--The 
                manufacturer of a drug or biological shall 
                specify the unit associated with each National 
                Drug Code (including package size) as part of 
                the submission of data under section 
                1927(b)(3)(A)(iii).
                    ``(B) Unit defined.--In this section, the 
                term `unit' means, with respect to each 
                National Drug Code (including package size) 
                associated with a drug or biological, the 
                lowest identifiable quantity (such as a capsule 
                or tablet, milligram of molecules, or grams) of 
                the drug or biological that is dispensed, 
                exclusive of any diluent without reference to 
                volume measures pertaining to liquids. For 
                years after 2004, the Secretary may establish 
                the unit for a manufacturer to report and 
                methods for counting units as the Secretary 
                determines appropriate to implement this 
                section.
            ``(3) Multiple source drug.--For all drug products 
        included within the same multiple source drug billing 
        and payment code, the amount specified in this 
        paragraph is the volume-weighted average of the average 
        sales prices reported under section 1927(b)(3)(A)(iii) 
        determined by--
                    ``(A) computing the sum of the products 
                (for each National Drug Code assigned to such 
                drug products) of--
                            ``(i) the manufacturer's average 
                        sales price (as defined in subsection 
                        (c)); and
                            ``(ii) the total number of units 
                        specified under paragraph (2) sold; and
                    ``(B) dividing the sum determined under 
                subparagraph (A) by the sum of the total number 
                of units under subparagraph (A)(ii) for all 
                National Drug Codes assigned to such drug 
                products.
            ``(4) Single source drug or biological.--The amount 
        specified in this paragraph for a single source drug or 
        biological is the lesser of the following:
                    ``(A) Average sales price.--The average 
                sales price as determined using the methodology 
                applied under paragraph (3) for all National 
                Drug Codes assigned to such drug or biological 
                product.
                    ``(B) Wholesale acquisition cost (wac).--
                The wholesale acquisition cost (as defined in 
                subsection (c)(6)(B)) using the methodology 
                applied under paragraph (3) for all National 
                Drug Codes assigned to such drug or biological 
                product.
            ``(5) Basis for payment amount.--The payment amount 
        shall be determined under this subsection based on 
        information reported under subsection (f) and without 
        regard to any special packaging, labeling, or 
        identifiers on the dosage form or product or package.
    ``(c) Manufacturer's Average Sales Price.--
            ``(1) In general.--For purposes of this section, 
        subject to paragraphs (2) and (3), the manufacturer's 
        `average sales price' means, of a drug or biological 
        for a National Drug Code for a calendar quarter for a 
        manufacturer for a unit--
                    ``(A) the manufacturer's sales to all 
                purchasers (excluding sales exempted in 
                paragraph (2)) in the United States for such 
                drug or biological in the calendar quarter; 
                divided by
                    ``(B) the total number of such units of 
                such drug or biological sold by the 
                manufacturer in such quarter.
            ``(2) Certain sales exempted from computation.--In 
        calculating the manufacturer's average sales price 
        under this subsection, the following sales shall be 
        excluded:
                    ``(A) Sales exempt from best price.--Sales 
                exempt from the inclusion in the determination 
                of `best price' under section 1927(c)(1)(C)(i).
                    ``(B) Sales at nominal charge.--Such other 
                sales as the Secretary identifies as sales to 
                an entity that are merely nominal in amount (as 
                applied for purposes of section 
                1927(c)(1)(C)(ii)(III), except as the Secretary 
                may otherwise provide).
            ``(3) Sale price net of discounts.--In calculating 
        the manufacturer's average sales price under this 
        subsection, such price shall include volume discounts, 
        prompt pay discounts, cash discounts, free goods that 
        are contingent on any purchase requirement, 
        chargebacks, and rebates (other than rebates under 
        section 1927). For years after 2004, the Secretary may 
        include in such price other price concessions, which 
        may be based on recommendations of the Inspector 
        General, that would result in a reduction of the cost 
        to the purchaser.
            ``(4) Payment methodology in cases where average 
        sales price during first quarter of sales is 
        unavailable.--In the case of a drug or biological 
        during an initial period (not to exceed a full calendar 
        quarter) in which data on the prices for sales for the 
        drug or biological is not sufficiently available from 
        the manufacturer to compute an average sales price for 
        the drug or biological, the Secretary may determine the 
        amount payable under this section for the drug or 
        biological based on--
                    ``(A) the wholesale acquisition cost; or
                    ``(B) the methodologies in effect under 
                this part on November 1, 2003, to determine 
                payment amounts for drugs or biologicals.
            ``(5) Frequency of determinations.--
                    ``(A) In general on a quarterly basis.--The 
                manufacturer's average sales price, for a drug 
                or biological of a manufacturer, shall be 
                calculated by such manufacturer under this 
                subsection on a quarterly basis. In making such 
                calculation insofar as there is a lag in the 
                reporting of the information on rebates and 
                chargebacks under paragraph (3) so that 
                adequate data are not available on a timely 
                basis, the manufacturer shall apply a 
                methodology based on a 12-month rolling average 
                for the manufacturer to estimate costs 
                attributable to rebates and chargebacks. For 
                years after 2004, the Secretary may establish a 
                uniform methodology under this subparagraph to 
                estimate and apply such costs.
                    ``(B) Updates in payment amounts.--The 
                payment amounts under subsection (b) shall be 
                updated by the Secretary on a quarterly basis 
                and shall be applied based upon the 
                manufacturer's average sales price calculated 
                for the most recent calendar quarter for which 
                data is available.
                    ``(C) Use of contractors; implementation.--
                The Secretary may contract with appropriate 
                entities to calculate the payment amount under 
                subsection (b). Notwithstanding any other 
                provision of law, the Secretary may implement, 
                by program instruction or otherwise, any of the 
                provisions of this section.
            ``(6) Definitions and other rules.--In this 
        section:
                    ``(A) Manufacturer.--The term 
                `manufacturer' means, with respect to a drug or 
                biological, the manufacturer (as defined in 
                section 1927(k)(5)).
                    ``(B) Wholesale acquisition cost.--The term 
                `wholesale acquisition cost' means, with 
                respect to a drug or biological, the 
                manufacturer's list price for the drug or 
                biological to wholesalers or direct purchasers 
                in the United States, not including prompt pay 
                or other discounts, rebates or reductions in 
                price, for the most recent month for which the 
                information is available, as reported in 
                wholesale price guides or other publications of 
                drug or biological pricing data.
                    ``(C) Multiple source drug.--
                            ``(i) In general.--The term 
                        `multiple source drug' means, for a 
                        calendar quarter, a drug for which 
                        there are 2 or more drug products 
                        which--
                                    ``(I) are rated as 
                                therapeutically equivalent 
                                (under the Food and Drug 
                                Administration's most recent 
                                publication of `Approved Drug 
                                Products with Therapeutic 
                                Equivalence Evaluations'),
                                    ``(II) except as provided 
                                in subparagraph (E), are 
                                pharmaceutically equivalent and 
                                bioequivalent, as determined 
                                under subparagraph (F) and as 
                                determined by the Food and Drug 
                                Administration, and
                                    ``(III) are sold or 
                                marketed in the United States 
                                during the quarter.
                            ``(ii) Exception.--With respect to 
                        single source drugs or biologicals that 
                        are within the same billing and payment 
                        code as of October 1, 2003, the 
                        Secretary shall treat such single 
                        source drugs or biologicals as if the 
                        single source drugs or biologicals were 
                        multiple source drugs.
                    ``(D) Single source drug or biological.--
                The term `single source drug or biological' 
                means--
                            ``(i) a biological; or
                            ``(ii) a drug which is not a 
                        multiple source drug and which is 
                        produced or distributed under a new 
                        drug application approved by the Food 
                        and Drug Administration, including a 
                        drug product marketed by any cross-
                        licensed producers or distributors 
                        operating under the new drug 
                        application.
                    ``(E) Exception from pharmaceutical 
                equivalence and bioequivalence requirement.--
                Subparagraph (C)(ii) shall not apply if the 
                Food and Drug Administration changes by 
                regulation the requirement that, for purposes 
                of the publication described in subparagraph 
                (C)(i), in order for drug products to be rated 
                as therapeutically equivalent, they must be 
                pharmaceutically equivalent and bioequivalent, 
                as defined in subparagraph (F).
                    ``(F) Determination of pharmaceutical 
                equivalence and bioequivalence.--For purposes 
                of this paragraph--
                            ``(i) drug products are 
                        pharmaceutically equivalent if the 
                        products contain identical amounts of 
                        the same active drug ingredient in the 
                        same dosage form and meet compendial or 
                        other applicable standards of strength, 
                        quality, purity, and identity; and
                            ``(ii) drugs are bioequivalent if 
                        they do not present a known or 
                        potential bioequivalence problem, or, 
                        if they do present such a problem, they 
                        are shown to meet an appropriate 
                        standard of bioequivalence.
                    ``(G) Inclusion of vaccines.--In applying 
                provisions of section 1927 under this section, 
                `other than a vaccine' is deemed deleted from 
                section 1927(k)(2)(B).
    ``(d) Monitoring of Market Prices.--
            ``(1) In general.--The Inspector General of the 
        Department of Health and Human Services shall conduct 
        studies, which may include surveys, to determine the 
        widely available market prices of drugs and biologicals 
        to which this section applies, as the Inspector 
        General, in consultation with the Secretary, determines 
        to be appropriate.
            ``(2) Comparison of prices.--Based upon such 
        studies and other data for drugs and biologicals, the 
        Inspector General shall compare the average sales price 
        under this section for drugs and biologicals with--
                    ``(A) the widely available market price for 
                such drugs and biologicals (if any); and
                    ``(B) the average manufacturer price (as 
                determined under section 1927(k)(1)) for such 
                drugs and biologicals.
            ``(3) Limitation on average sales price.--
                    ``(A) In general.--The Secretary may 
                disregard the average sales price for a drug or 
                biological that exceeds the widely available 
                market price or the average manufacturer price 
                for such drug or biological by the applicable 
                threshold percentage (as defined in 
                subparagraph (B)).
                    ``(B) Applicable threshold percentage 
                defined.--In this paragraph, the term 
                `applicable threshold percentage' means--
                            ``(i) in 2005, in the case of an 
                        average sales price for a drug or 
                        biological that exceeds widely 
                        available market price or the average 
                        manufacturer price, 5 percent; and
                            ``(ii) in 2006 and subsequent 
                        years, the percentage applied under 
                        this subparagraph subject to such 
                        adjustment as the Secretary may specify 
                        for the widely available market price 
                        or the average manufacturer price, or 
                        both.
                    ``(C) Authority to adjust average sales 
                price.--If the Inspector General finds that the 
                average sales price for a drug or biological 
                exceeds such widely available market price or 
                average manufacturer price for such drug or 
                biological by the applicable threshold 
                percentage, the Inspector General shall inform 
                the Secretary (at such times as the Secretary 
                may specify to carry out this subparagraph) and 
                the Secretary shall, effective as of the next 
                quarter, substitute for the amount of payment 
                otherwise determined under this section for 
                such drug or biological the lesser of--
                            ``(i) the widely available market 
                        price for the drug or biological (if 
                        any); or
                            ``(ii) 103 percent of the average 
                        manufacturer price (as determined under 
                        section 1927(k)(1)) for the drug or 
                        biological.
            ``(4) Civil money penalty.--
                    ``(A) In general.--If the Secretary 
                determines that a manufacturer has made a 
                misrepresentation in the reporting of the 
                manufacturer's average sales price for a drug 
                or biological, the Secretary may apply a civil 
                money penalty in an amount of up to $10,000 for 
                each such price misrepresentation and for each 
                day in which such price misrepresentation was 
                applied.
                    ``(B) Procedures.--The provisions of 
                section 1128A (other than subsections (a) and 
                (b)) shall apply to civil money penalties under 
                subparagraph (B) in the same manner as they 
                apply to a penalty or proceeding under section 
                1128A(a).
            ``(5) Widely available market price.--
                    ``(A) In general.--In this subsection, the 
                term `widely available market price' means the 
                price that a prudent physician or supplier 
                would pay for the drug or biological. In 
                determining such price, the Inspector General 
                shall take into account the discounts, rebates, 
                and other price concessions routinely made 
                available to such prudent physicians or 
                suppliers for such drugs or biologicals.
                    ``(B) Considerations.--In determining the 
                price under subparagraph (A), the Inspector 
                General shall consider information from one or 
                more of the following sources:
                            ``(i) Manufacturers.
                            ``(ii) Wholesalers.
                            ``(iii) Distributors.
                            ``(iv) Physician supply houses.
                            ``(v) Specialty pharmacies.
                            ``(vi) Group purchasing 
                        arrangements.
                            ``(vii) Surveys of physicians.
                            ``(viii) Surveys of suppliers.
                            ``(ix) Information on such market 
                        prices from insurers.
                            ``(x) Information on such market 
                        prices from private health plans.
    ``(e) Authority To Use Alternative Payment in Response to 
Public Health Emergency.--In the case of a public health 
emergency under section 319 of the Public Health Service Act in 
which there is a documented inability to access drugs and 
biologicals, and a concomitant increase in the price, of a drug 
or biological which is not reflected in the manufacturer's 
average sales price for one or more quarters, the Secretary may 
use the wholesale acquisition cost (or other reasonable measure 
of drug or biological price) instead of the manufacturer's 
average sales price for such quarters and for subsequent 
quarters until the price and availability of the drug or 
biological has stabilized and is substantially reflected in the 
applicable manufacturer's average sales price.
    ``(f) Quarterly Report on Average Sales Price.--For 
requirements for reporting the manufacturer's average sales 
price (and, if required to make payment, the manufacturer's 
wholesale acquisition cost) for the drug or biological under 
this section, see section 1927(b)(3).
    ``(g) Judicial Review.--There shall be no administrative or 
judicial review under section 1869, section 1878, or otherwise, 
of--
            ``(1) determinations of payment amounts under this 
        section, including the assignment of National Drug 
        Codes to billing and payment codes;
            ``(2) the identification of units (and package 
        size) under subsection (b)(2);
            ``(3) the method to allocate rebates, chargebacks, 
        and other price concessions to a quarter if specified 
        by the Secretary;
            ``(4) the manufacturer's average sales price when 
        it is used for the determination of a payment amount 
        under this section; and
            ``(5) the disclosure of the average manufacturer 
        price by reason of an adjustment under subsection 
        (d)(3)(C) or (e).''.
            (2) Report on sales to pharmacy benefit managers.--
                    (A) Study.--The Secretary shall conduct a 
                study on sales of drugs and biologicals to 
                large volume purchasers, such as pharmacy 
                benefit managers and health maintenance 
                organizations, for purposes of determining 
                whether the price at which such drugs and 
                biologicals are sold to such purchasers does 
                not represent the price such drugs and 
                biologicals are made available for purchase to 
                prudent physicians.
                    (B) Report.--Not later than January 1, 
                2006, the Secretary shall submit to Congress a 
                report on the study conducted under paragraph 
                (1), and shall include recommendations on 
                whether such sales to large volume purchasers 
                should be excluded from the computation of a 
                manufacturer's average sales price under 
                section 1847A of the Social Security Act, as 
                added by paragraph (1).
            (3) Inspector general report on adequacy of 
        reimbursement rate under average sales price 
        methodology.--
                    (A) Study.--The Inspector General of the 
                Department of Health and Human Services shall 
                conduct a study on the ability of physician 
                practices in the specialties of hematology, 
                hematology/oncology, and medical oncology of 
                different sizes, especially particularly large 
                practices, to obtain drugs and biologicals for 
                the treatment of cancer patients at 106 percent 
                of the average sales price for the drugs and 
                biologicals. In conducting the study, the 
                Inspector General shall conduct an audit of a 
                representative sample of such practices to 
                determine the adequacy of reimbursement under 
                section 1847A of the Social Security Act, as 
                added by paragraph (1).
                    (B) Report.--Not later October 1, 2005, the 
                Inspector General shall submit to Congress a 
                report on the study conducted under 
                subparagraph (A), and shall include 
                recommendations on the adequacy of 
                reimbursement for such drugs and biologicals 
                under such section 1847A.
    (d) Payment Based on Competition.--
            (1) In general.--Title XVIII is amended by 
        inserting after section 1847A, as added by subsection 
        (c), the following new section:

     ``COMPETITIVE ACQUISITION OF OUTPATIENT DRUGS AND BIOLOGICALS

    ``Sec. 1847B. (a) Implementation of Competitive 
Acquisition.--
            ``(1) Implementation of program.--
                    ``(A) In general.--The Secretary shall 
                establish and implement a competitive 
                acquisition program under which--
                            ``(i) competitive acquisition areas 
                        are established for contract award 
                        purposes for acquisition of and payment 
                        for categories of competitively 
                        biddable drugs and biologicals (as 
                        defined in paragraph (2)) under this 
                        part;
                            ``(ii) each physician is given the 
                        opportunity annually to elect to obtain 
                        drugs and biologicals under the 
                        program, rather than under section 
                        1847A; and
                            ``(iii) each physician who elects 
                        to obtain drugs and biologicals under 
                        the program makes an annual selection 
                        under paragraph (5) of the contractor 
                        through which drugs and biologicals 
                        within a category of drugs and 
                        biologicals will be acquired and 
                        delivered to the physician under this 
                        part.
                This section shall not apply in the case of a 
                physician who elects section 1847A to apply.
                    ``(B) Implementation.--For purposes of 
                implementing the program, the Secretary shall 
                establish categories of competitively biddable 
                drugs and biologicals. The Secretary shall 
                phase in the program with respect to those 
                categories beginning in 2006 in such manner as 
                the Secretary determines to be appropriate.
                    ``(C) Waiver of certain provisions.--In 
                order to promote competition, in carrying out 
                the program the Secretary may waive such 
                provisions of the Federal Acquisition 
                Regulation as are necessary for the efficient 
                implementation of this section, other than 
                provisions relating to confidentiality of 
                information and such other provisions as the 
                Secretary determines appropriate.
                    ``(D) Exclusion authority.--The Secretary 
                may exclude competitively biddable drugs and 
                biologicals (including a class of such drugs 
                and biologicals) from the competitive bidding 
                system under this section if the application of 
                competitive bidding to such drugs or 
                biologicals--
                            ``(i) is not likely to result in 
                        significant savings; or
                            ``(ii) is likely to have an adverse 
                        impact on access to such drugs or 
                        biologicals.
            ``(2) Competitively biddable drugs and biologicals 
        and program defined.--For purposes of this section--
                    ``(A) Competitively biddable drugs and 
                biologicals defined.--The term `competitively 
                biddable drugs and biologicals' means a drug or 
                biological described in section 1842(o)(1)(C) 
                and furnished on or after January 1, 2006.
                    ``(B) Program.--The term `program' means 
                the competitive acquisition program under this 
                section.
                    ``(C) Competitive acquisition area; area.--
                The terms `competitive acquisition area' and 
                `area' mean an appropriate geographic region 
                established by the Secretary under the program.
                    ``(D) Contractor.--The term `contractor' 
                means an entity that has entered into a 
                contract with the Secretary under this section.
            ``(3) Application of program payment methodology.--
                    ``(A) In general.--With respect to 
                competitively biddable drugs and biologicals 
                which are supplied under the program in an area 
                and which are prescribed by a physician who has 
                elected this section to apply--
                            ``(i) the claim for such drugs and 
                        biologicals shall be submitted by the 
                        contractor that supplied the drugs and 
                        biologicals;
                            ``(ii) collection of amounts of any 
                        deductible and coinsurance applicable 
                        with respect to such drugs and 
                        biologicals shall be the responsibility 
                        of such contractor and shall not be 
                        collected unless the drug or biological 
                        is administered to the individual 
                        involved; and
                            ``(iii) the payment under this 
                        section (and related amounts of any 
                        applicable deductible and coinsurance) 
                        for such drugs and biologicals--
                                    ``(I) shall be made only to 
                                such contractor; and
                                    ``(II) shall be conditioned 
                                upon the administration of such 
                                drugs and biologicals.
                    ``(B) Process for adjustments.--The 
                Secretary shall provide a process for 
                adjustments to payments in the case in which 
                payment is made for drugs and biologicals which 
                were billed at the time of dispensing but which 
                were not actually administered.
                    ``(C) Information for purposes of cost-
                sharing.--The Secretary shall provide a process 
                by which physicians submit information to 
                contractors for purposes of the collection of 
                any applicable deductible or coinsurance 
                amounts under subparagraph (A)(ii).
            ``(4) Contract required.--Payment may not be made 
        under this part for competitively biddable drugs and 
        biologicals prescribed by a physician who has elected 
        this section to apply within a category and a 
        competitive acquisition area with respect to which the 
        program applies unless--
                    ``(A) the drugs or biologicals are supplied 
                by a contractor with a contract under this 
                section for such category of drugs and 
                biologicals and area; and
                    ``(B) the physician has elected such 
                contractor under paragraph (5) for such 
                category and area.
            ``(5) Contractor selection process.--
                    ``(A) Annual selection.--
                            ``(i) In general.--The Secretary 
                        shall provide a process for the 
                        selection of a contractor, on an annual 
                        basis and in such exigent circumstances 
                        as the Secretary may provide and with 
                        respect to each category of 
                        competitively biddable drugs and 
                        biologicals for an area by selecting 
                        physicians.
                            ``(ii) Timing of selection.--The 
                        selection of a contractor under clause 
                        (i) shall be made at the time of the 
                        election described in section 1847A(a) 
                        for this section to apply and shall be 
                        coordinated with agreements entered 
                        into under section 1842(h).
                    ``(B) Information on contractors.--The 
                Secretary shall make available to physicians on 
                an ongoing basis, through a directory posted on 
                the Internet website of the Centers for 
                Medicare & Medicaid Services or otherwise and 
                upon request, a list of the contractors under 
                this section in the different competitive 
                acquisition areas.
                    ``(C) Selecting physician defined.--For 
                purposes of this section, the term `selecting 
                physician' means, with respect to a contractor 
                and category and competitive acquisition area, 
                a physician who has elected this section to 
                apply and has selected to apply under this 
                section such contractor for such category and 
                area.
    ``(b) Program Requirements.--
            ``(1) Contract for competitively biddable drugs and 
        biologicals.--The Secretary shall conduct a competition 
        among entities for the acquisition of competitively 
        biddable drugs and biologicals. Notwithstanding any 
        other provision of this title, in the case of a 
        multiple source drug, the Secretary shall conduct such 
        competition among entities for the acquisition of at 
        least one competitively biddable drug and biological 
        within each billing and payment code within each 
        category for each competitive acquisition area.
            ``(2) Conditions for awarding contract.--
                    ``(A) In general.--The Secretary may not 
                award a contract to any entity under the 
                competition conducted in a competitive 
                acquisition area pursuant to paragraph (1) with 
                respect to the acquisition of competitively 
                biddable drugs and biologicals within a 
                category unless the Secretary finds that the 
                entity meets all of the following with respect 
                to the contract period involved:
                            ``(i) Capacity to supply 
                        competitively biddable drug or 
                        biological within category.--
                                    ``(I) In general.--The 
                                entity has sufficient 
                                arrangements to acquire and to 
                                deliver competitively biddable 
                                drugs and biologicals within 
                                such category in the area 
                                specified in the contract.
                                    ``(II) Shipment 
                                methodology.--The entity has 
                                arrangements in effect for the 
                                shipment at least 5 days each 
                                week of competitively biddable 
                                drugs and biologicals under the 
                                contract and for the timely 
                                delivery (including for 
                                emergency situations) of such 
                                drugs and biologicals in the 
                                area under the contract.
                            ``(ii) Quality, service, financial 
                        performance and solvency standards.--
                        The entity meets quality, service, 
                        financial performance, and solvency 
                        standards specified by the Secretary, 
                        including--
                                    ``(I) the establishment of 
                                procedures for the prompt 
                                response and resolution of 
                                complaints of physicians and 
                                individuals and of inquiries 
                                regarding the shipment of 
                                competitively biddable drugs 
                                and biologicals; and
                                    ``(II) a grievance and 
                                appeals process for the 
                                resolution of disputes.
                    ``(B) Additional considerations.--The 
                Secretary may refuse to award a contract under 
                this section, and may terminate such a 
                contract, with an entity based upon--
                            ``(i) the suspension or revocation, 
                        by the Federal Government or a State 
                        government, of the entity's license for 
                        the distribution of drugs or 
                        biologicals (including controlled 
                        substances); or
                            ``(ii) the exclusion of the entity 
                        under section 1128 from participation 
                        under this title.
                    ``(C) Application of medicare provider 
                ombudsman.--For provision providing for a 
                program-wide Medicare Provider Ombudsman to 
                review complaints, see section 1868(b), as 
                added by section 923 of the Medicare 
                Prescription Drug, Improvement, and 
                Modernization Act of 2003.
            ``(3) Awarding multiple contracts for a category 
        and area.--The Secretary may limit (but not below 2) 
        the number of qualified entities that are awarded such 
        contracts for any category and area. The Secretary 
        shall select among qualified entities based on the 
        following:
                    ``(A) The bid prices for competitively 
                biddable drugs and biologicals within the 
                category and area.
                    ``(B) Bid price for distribution of such 
                drugs and biologicals.
                    ``(C) Ability to ensure product integrity.
                    ``(D) Customer service.
                    ``(E) Past experience in the distribution 
                of drugs and biologicals, including controlled 
                substances.
                    ``(F) Such other factors as the Secretary 
                may specify.
            ``(4) Terms of contracts.--
                    ``(A) In general.--A contract entered into 
                with an entity under the competition conducted 
                pursuant to paragraph (1) is subject to terms 
                and conditions that the Secretary may specify 
                consistent with this section.
                    ``(B) Period of contracts.--A contract 
                under this section shall be for a term of 3 
                years, but may be terminated by the Secretary 
                or the entity with appropriate, advance notice.
                    ``(C) Integrity of drug and biological 
                distribution system.--A contractor (as defined 
                in subsection (a)(2)(D)) shall--
                            ``(i) acquire all drug and 
                        biological products it distributes 
                        directly from the manufacturer or from 
                        a distributor that has acquired the 
                        products directly from the 
                        manufacturer; and
                            ``(ii) comply with any product 
                        integrity safeguards as may be 
                        determined to be appropriate by the 
                        Secretary.
                Nothing in this subparagraph shall be construed 
                to relieve or exempt any contractor from the 
                provisions of the Federal Food, Drug, and 
                Cosmetic Act that relate to the wholesale 
                distribution of prescription drugs or 
                biologicals.
                    ``(D) Compliance with code of conduct and 
                fraud and abuse rules.--Under the contract--
                            ``(i) the contractor shall comply 
                        with a code of conduct, specified or 
                        recognized by the Secretary, that 
                        includes standards relating to 
                        conflicts of interest; and
                            ``(ii) the contractor shall comply 
                        with all applicable provisions relating 
                        to prevention of fraud and abuse, 
                        including compliance with applicable 
                        guidelines of the Department of Justice 
                        and the Inspector General of the 
                        Department of Health and Human 
                        Services.
                    ``(E) Direct delivery of drugs and 
                biologicals to physicians.--Under the contract 
                the contractor shall only supply competitively 
                biddable drugs and biologicals directly to the 
                selecting physicians and not directly to 
                individuals, except under circumstances and 
                settings where an individual currently receives 
                a drug or biological in the individual's home 
                or other non-physician office setting as the 
                Secretary may provide. The contractor shall not 
                deliver drugs and biologicals to a selecting 
                physician except upon receipt of a prescription 
                for such drugs and biologicals, and such 
                necessary data as may be required by the 
                Secretary to carry out this section. This 
                section does not--
                            ``(i) require a physician to submit 
                        a prescription for each individual 
                        treatment; or
                            ``(ii) change a physician's 
                        flexibility in terms of writing a 
                        prescription for drugs or biologicals 
                        for a single treatment or a course of 
                        treatment.
            ``(5) Permitting access to drugs and biologicals.--
        The Secretary shall establish rules under this section 
        under which drugs and biologicals which are acquired 
        through a contractor under this section may be used to 
        resupply inventories of such drugs and biologicals 
        which are administered consistent with safe drug 
        practices and with adequate safeguards against fraud 
        and abuse. The previous sentence shall apply if the 
        physicians can demonstrate to the Secretary all of the 
        following:
                    ``(A) The drugs or biologicals are required 
                immediately.
                    ``(B) The physician could not have 
                reasonably anticipated the immediate 
                requirement for the drugs or biologicals.
                    ``(C) The contractor could not deliver to 
                the physician the drugs or biologicals in a 
                timely manner.
                    ``(D) The drugs or biologicals were 
                administered in an emergency situation.
            ``(6) Construction.--Nothing in this section shall 
        be construed as waiving applicable State requirements 
        relating to licensing of pharmacies.
    ``(c) Bidding Process.--
            ``(1) In general.--In awarding a contract for a 
        category of drugs and biologicals in an area under the 
        program, the Secretary shall consider with respect to 
        each entity seeking to be awarded a contract the bid 
        price and the other factors referred to in subsection 
        (b)(3).
            ``(2) Bid defined.--In this section, the term `bid' 
        means an offer to furnish a competitively biddable drug 
        or biological for a particular price and time period.
            ``(3) Bidding on a national or regional basis.--
        Nothing in this section shall be construed as 
        precluding a bidder from bidding for contracts in all 
        areas of the United States or as requiring a bidder to 
        submit a bid for all areas of the United States.
            ``(4) Uniformity of bids within area.--The amount 
        of the bid submitted under a contract offer for any 
        competitively biddable drug or biological for an area 
        shall be the same for that drug or biological for all 
        portions of that area.
            ``(5) Confidentiality of bids.--The provisions of 
        subparagraph (D) of section 1927(b)(3) shall apply to 
        periods during which a bid is submitted with respect to 
        a competitively biddable drug or biological under this 
        section in the same manner as it applies to information 
        disclosed under such section, except that any 
        reference--
                    ``(A) in that subparagraph to a 
                `manufacturer or wholesaler' is deemed a 
                reference to a `bidder' under this section;
                    ``(B) in that section to `prices charged 
                for drugs' is deemed a reference to a `bid' 
                submitted under this section; and
                    ``(C) in clause (i) of that section to 
                `this section', is deemed a reference to `part 
                B of title XVIII'.
            ``(6) Inclusion of costs.--The bid price submitted 
        in a contract offer for a competitively biddable drug 
        or biological shall--
                    ``(A) include all costs related to the 
                delivery of the drug or biological to the 
                selecting physician (or other point of 
                delivery); and
                    ``(B) include the costs of dispensing 
                (including shipping) of such drug or biological 
                and management fees, but shall not include any 
                costs related to the administration of the drug 
                or biological, or wastage, spillage, or 
                spoilage.
            ``(7) Price adjustments during contract period; 
        disclosure of costs.--Each contract awarded shall 
        provide for--
                    ``(A) disclosure to the Secretary the 
                contractor's reasonable, net acquisition costs 
                for periods specified by the Secretary, not 
                more often than quarterly, of the contract; and
                    ``(B) appropriate price adjustments over 
                the period of the contract to reflect 
                significant increases or decreases in a 
                contractor's reasonable, net acquisition costs, 
                as so disclosed.
    ``(d) Computation of Payment Amounts.--
            ``(1) In general.--Payment under this section for 
        competitively biddable drugs or biologicals shall be 
        based on bids submitted and accepted under this section 
        for such drugs or biologicals in an area. Based on such 
        bids the Secretary shall determine a single payment 
        amount for each competitively biddable drug or 
        biological in the area.
            ``(2) Special rules.--The Secretary shall establish 
        rules regarding the use under this section of the 
        alternative payment amount provided under section 1847A 
        to the use of a price for specific competitively 
        biddable drugs and biologicals in the following cases:
                    ``(A) New drugs and biologicals.--A 
                competitively biddable drug or biological for 
                which a payment and billing code has not been 
                established.
                    ``(B) Other cases.--Such other exceptional 
                cases as the Secretary may specify in 
                regulations.
    ``(e) Cost-sharing.--
            ``(1) Application of coinsurance.--Payment under 
        this section for competitively biddable drugs and 
        biologicals shall be in an amount equal to 80 percent 
        of the payment basis described in subsection (d)(1).
            ``(2) Deductible.--Before applying paragraph (1), 
        the individual shall be required to meet the deductible 
        described in section 1833(b).
            ``(3) Collection.--Such coinsurance and deductible 
        shall be collected by the contractor that supplies the 
        drug or biological involved. Subject to subsection 
        (a)(3)(B), such coinsurance and deductible may be 
        collected in a manner similar to the manner in which 
        the coinsurance and deductible are collected for 
        durable medical equipment under this part.
    ``(f) Special Payment Rules.--
            ``(1) Use in exclusion cases.--If the Secretary 
        excludes a drug or biological (or class of drugs or 
        biologicals) under subsection (a)(1)(D), the Secretary 
        may provide for payment to be made under this part for 
        such drugs and biologicals (or class) using the payment 
        methodology under section 1847A.
            ``(2) Application of requirement for assignment.--
        For provision requiring assignment of claims for 
        competitively biddable drugs and biologicals, see 
        section 1842(o)(3).
            ``(3) Protection for beneficiary in case of medical 
        necessity denial.--For protection of individuals 
        against liability in the case of medical necessity 
        determinations, see section 1842(b)(3)(B)(ii)(III).
    ``(g) Judicial Review.--There shall be no administrative or 
judicial review under section 1869, section 1878, or otherwise, 
of--
            ``(1) the establishment of payment amounts under 
        subsection (d)(1);
            ``(2) the awarding of contracts under this section;
            ``(3) the establishment of competitive acquisition 
        areas under subsection (a)(2)(C);
            ``(4) the phased-in implementation under subsection 
        (a)(1)(B);
            ``(5) the selection of categories of competitively 
        biddable drugs and biologicals for competitive 
        acquisition under such subsection or the selection of a 
        drug in the case of multiple source drugs; or
            ``(6) the bidding structure and number of 
        contractors selected under this section.''.
            (2) Report.--Not later than July 1, 2008, the 
        Secretary shall submit to Congress a report on the 
        program conducted under section 1847B of the Social 
        Security Act, as added by paragraph (1). Such report 
        shall include information on savings, reductions in 
        cost-sharing, access to competitively biddable drugs 
        and biologicals, the range of choices of contractors 
        available to physicians, the satisfaction of physicians 
        and of individuals enrolled under this part, and 
        information comparing prices for drugs and biologicals 
        under such section and section 1847A of such Act, as 
        added by subsection (c).
    (e) Adjustments to Payment Amounts for Administration of 
Drugs and Biologicals.--
            (1) Items and services relating to furnishing of 
        blood clotting factors.--Section 1842(o) (42 U.S.C. 
        1395u(o)), as amended by subsection (b)(2), is amended 
        by adding at the end the following new paragraph:
    ``(5)(A) Subject to subparagraph (B), in the case of 
clotting factors furnished on or after January 1, 2005, the 
Secretary shall, after reviewing the January 2003 report to 
Congress by the Comptroller General of the United States 
entitled `Payment for Blood Clotting Factor Exceeds Providers 
Acquisition Cost', provide for a separate payment, to the 
entity which furnishes to the patient blood clotting factors, 
for items and services related to the furnishing of such 
factors in an amount that the Secretary determines to be 
appropriate. Such payment amount may take into account any or 
all of the following:
            ``(i) The mixing (if appropriate) and delivery of 
        factors to an individual, including special inventory 
        management and storage requirements.
            ``(ii) Ancillary supplies and patient training 
        necessary for the self-administration of such factors.
    ``(B) In determining the separate payment amount under 
subparagraph (A) for blood clotting factors furnished in 2005, 
the Secretary shall ensure that the total amount of payments 
under this part (as estimated by the Secretary) for such 
factors under paragraph (1)(C) and such separate payments for 
such factors does not exceed the total amount of payments that 
would have been made for such factors under this part (as 
estimated by the Secretary) if the amendments made by section 
303 of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 had not been enacted.
    ``(C) The separate payment amount under this subparagraph 
for blood clotting factors furnished in 2006 or a subsequent 
year shall be equal to the separate payment amount determined 
under this paragraph for the previous year increased by the 
percentage increase in the consumer price index for medical 
care for the 12-month period ending with June of the previous 
year.''.
            (2) Pharmacy supplying fee for certain drugs and 
        biologicals.--Section 1842(o) (42 U.S.C. 1395u(o)), as 
        previously amended, is amended by adding at the end the 
        following new paragraph:
    ``(6) In the case of an immunosuppressive drug described in 
subparagraph (J) of section 1861(s)(2) and an oral drug 
described in subparagraph (Q) or (T) of such section, the 
Secretary shall pay to the pharmacy a supplying fee for such a 
drug determined appropriate by the Secretary (less the 
applicable deductible and coinsurance amounts).''.
    (f) Linkage of Revised Drug Payments and Increases for Drug 
Administration.--The Secretary shall not implement the 
revisions in payment amounts for drugs and biologicals 
administered by physicians as a result of the amendments made 
by subsection (b) with respect to 2004 unless the Secretary 
concurrently makes adjustments to the practice expense payment 
adjustment under the amendments made by subsection (a).
    (g) Prohibition of Administrative and Judicial Review.--
            (1) Drugs.--Section 1842(o) (42 U.S.C. 1395u(o)), 
        as previously amended, is amended by adding at the end 
        the following new paragraph:
    ``(7) There shall be no administrative or judicial review 
under section 1869, section 1878, or otherwise, of 
determinations of payment amounts, methods, or adjustments 
under paragraphs (4) through (6).''.
            (2) Physician fee schedule.--Section 1848(i)(1)(B) 
        (42 U.S.C. 1395w-4(i)(1)(B)) is amended by striking 
        ``subsection (c)(2)(F)'' and inserting ``subsections 
        (c)(2)(F), (c)(2)(H), and (c)(2)(I)''.
            (3) Multiple chemotherapy agents, other services 
        currently on the non-physician work pool, and 
        transitional adjustment.--There shall be no 
        administrative or judicial review under section 1869, 
        section 1878, or otherwise, of determinations of 
        payment amounts, methods, or adjustments under 
        paragraphs (2) through (4) of subsection (a).
    (h) Continuation of Payment Methodology for 
Radiopharmaceuticals.--Nothing in the amendments made by this 
section shall be construed as changing the payment methodology 
under part B of title XVIII of the Social Security Act for 
radiopharmaceuticals, including the use by carriers of invoice 
pricing methodology.
    (i) Conforming Amendments.--
            (1) Application of asp and competitive bidding.--
        Section 1842(o)(2) (42 U.S.C. 1395u(o)(2)) is amended 
        by adding at the end the following: ``This paragraph 
        shall not apply in the case of payment under paragraph 
        (1)(C).''.
            (2) No change in coverage basis.--Section 
        1861(s)(2)(A) (42 U.S.C. 1395x(s)(2)(A)) is amended by 
        inserting ``(or would have been so included but for the 
        application of section 1847B)'' after ``included in the 
        physicians' bills''.
            (3) Payment.--(A) Section 1833(a)(1)(S) (42 U.S.C. 
        1395l(a)(1)(S)) is amended by inserting ``(or, if 
        applicable, under section 1847, 1847A, or 1847B)'' 
        after ``1842(o)''.
            (B) Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)) is 
        amended--
                    (i) by striking ``and'' at the end of 
                subparagraph (H);
                    (ii) by striking the semicolon at the end 
                of subparagraph (I) and inserting ``, and''; 
                and
                    (iii) by adding at the end the following 
                new subparagraph:
            ``(J) in the case of a drug or biological specified 
        in section 1847A(c)(6)(C) for which payment is made 
        under part B that is furnished in a competitive area 
        under section 1847B, that is not furnished by an entity 
        under a contract under such section;''.
            (4) Consolidated reporting of pricing 
        information.--Section 1927 (42 U.S.C. 1396r-8) is 
        amended--
                    (A) in subsection (a)(1), by inserting ``or 
                under part B of title XVIII'' after ``section 
                1903(a)'';
                    (B) in subsection (b)(3)(A)--
                            (i) in clause (i), by striking 
                        ``and'' at the end and inserting a 
                        semicolon;
                            (ii) in clause (ii), by striking 
                        the period and inserting ``; and''; and
                            (iii) by adding at the end the 
                        following:
                            ``(iii) for calendar quarters 
                        beginning on or after January 1, 2004, 
                        in conjunction with reporting required 
                        under clause (i) and by National Drug 
                        Code (including package size)--
                                    ``(I) the manufacturer's 
                                average sales price (as defined 
                                in section 1847A(c)) and the 
                                total number of units specified 
                                under section 1847A(b)(2)(A);
                                    ``(II) if required to make 
                                payment under section 1847A, 
                                the manufacturer's wholesale 
                                acquisition cost, as defined in 
                                subsection (c)(6) of such 
                                section; and
                                    ``(III) information on 
                                those sales that were made at a 
                                nominal price or otherwise 
                                described in section 
                                1847A(c)(2)(B);
                        for a drug or biological described in 
                        subparagraph (C), (D), (E), or (G) of 
                        section 1842(o)(1) or section 
                        1881(b)(13)(A)(ii).
                Information reported under this subparagraph is 
                subject to audit by the Inspector General of 
                the Department of Health and Human Services.'';
                    (C) in subsection (b)(3)(B)--
                            (i) in the heading, by inserting 
                        ``and manufacturer's average sales 
                        price'' after ``price''; and
                            (ii) by inserting ``and 
                        manufacturer's average sales prices 
                        (including wholesale acquisition cost) 
                        if required to make payment'' after 
                        ``manufacturer prices''; and
                    (D) in subsection (b)(3)(D)--
                            (i) in the matter preceding clause 
                        (i), by inserting ``(other than the 
                        wholesale acquisition cost for purposes 
                        of carrying out section 1847A)'' after 
                        ``subsection (a)(6)(A)(ii)''; and
                            (ii) in clause (i), by inserting 
                        ``, to carry out section 1847A 
                        (including the determination and 
                        implementation of the payment amount), 
                        or to carry out section 1847B'' after 
                        ``this section''.
            (5) Implementation.--The provisions of chapter 8 of 
        title 5, United States Code, shall not apply with 
        respect to regulations implementing the amendments made 
        by subsections (a), (b), and (e)(3), to regulations 
        implementing section 304, and to regulations 
        implementing the amendment made by section 305(a), 
        insofar as such regulations apply in 2004.
            (6) Repeal of study.--Section 4556 of the Balanced 
        Budget Act of 1997 (42 U.S.C. 1395u note) is amended by 
        striking subsection (c).
    (j) Application to Certain Physician Specialties.--Insofar 
as the amendments made by this section apply to payments for 
drugs or biologicals and drug administration services furnished 
by physicians, such amendments shall only apply to physicians 
in the specialties of hematology, hematology/oncology, and 
medical oncology under title XVIII of the Social Security Act.

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

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

SEC. 305. PAYMENT FOR INHALATION DRUGS.

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

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

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

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

    (a) Authority To Conduct Program.--The Secretary, in 
consultation with the Attorney General, shall establish a pilot 
program to identify efficient, effective, and economical 
procedures for long term care facilities or providers to 
conduct background checks on prospective direct patient access 
employees.
    (b) Requirements.--
            (1) In general.--Under the pilot program, a long-
        term care facility or provider in a participating 
        State, prior to employing a direct patient access 
        employee that is first hired on or after the 
        commencement date of the pilot program in the State, 
        shall conduct a background check on the employee in 
        accordance with such procedures as the participating 
        State shall establish.
            (2) Procedures.--
                    (A) In general.--The procedures established 
                by a participating State under paragraph (1) 
                should be designed to--
                            (i) give a prospective direct 
                        access patient employee notice that the 
                        long-term care facility or provider is 
                        required to perform background checks 
                        with respect to new employees;
                            (ii) require, as a condition of 
                        employment, that the employee--
                                    (I) provide a written 
                                statement disclosing any 
                                disqualifying information;
                                    (II) provide a statement 
                                signed by the employee 
                                authorizing the facility to 
                                request national and State 
                                criminal history background 
                                checks;
                                    (III) provide the facility 
                                with a rolled set of the 
                                employee's fingerprints; and
                                    (IV) provide any other 
                                identification information the 
                                participating State may 
                                require;
                            (iii) require the facility or 
                        provider to check any available 
                        registries that would be likely to 
                        contain disqualifying information about 
                        a prospective employee of a long-term 
                        care facility or provider; and
                            (iv) permit the facility or 
                        provider to obtain State and national 
                        criminal history background checks on 
                        the prospective employee through a 10-
                        fingerprint check that utilizes State 
                        criminal records and the Integrated 
                        Automated Fingerprint Identification 
                        System of the Federal Bureau of 
                        Investigation.
                    (B) Elimination of unnecessary checks.--The 
                procedures established by a participating State 
                under paragraph (1) shall permit a long-term 
                care facility or provider to terminate the 
                background check at any stage at which the 
                facility or provider obtains disqualifying 
                information regarding a prospective direct 
                patient access employee.
            (3) Prohibition on hiring of abusive workers.--
                    (A) In general.--A long-term care facility 
                or provider may not knowingly employ any direct 
                patient access employee who has any 
                disqualifying information.
                    (B) Provisional employment.--
                            (i) In general.--Under the pilot 
                        program, a participating State may 
                        permit a long-term care facility or 
                        provider to provide for a provisional 
                        period of employment for a direct 
                        patient access employee pending 
                        completion of a background check, 
                        subject to such supervision during the 
                        employee's provisional period of 
                        employment as the participating State 
                        determines appropriate.
                            (ii) Special consideration for 
                        certain facilities and providers.--In 
                        determining what constitutes 
                        appropriate supervision of a 
                        provisional employee, a participating 
                        State shall take into account cost or 
                        other burdens that would be imposed on 
                        small rural long-term care facilities 
                        or providers, as well as the nature of 
                        care delivered by such facilities or 
                        providers that are home health agencies 
                        or providers of hospice care.
            (4) Use of information; immunity from liability.--
                    (A) Use of information.--A participating 
                State shall ensure that a long-term care 
                facility or provider that obtains information 
                about a direct patient access employee pursuant 
                to a background check uses such information 
                only for the purpose of determining the 
                suitability of the employee for employment.
                    (B) Immunity from liability.--A 
                participating State shall ensure that a long-
                term care facility or provider that, in denying 
                employment for an individual selected for hire 
                as a direct patient access employee (including 
                during any period of provisional employment), 
                reasonably relies upon information obtained 
                through a background check of the individual, 
                shall not be liable in any action brought by 
                the individual based on the employment 
                determination resulting from the information.
            (5) Agreements with employment agencies.--A 
        participating State may establish procedures for 
        facilitating the conduct of background checks on 
        prospective direct patient access employees that are 
        hired by a long-term care facility or provider through 
        an employment agency (including a temporary employment 
        agency).
            (6) Penalties.--A participating State may impose 
        such penalties as the State determines appropriate to 
        enforce the requirements of the pilot program conducted 
        in that State.
    (c) Participating States.--
            (1) In general.--The Secretary shall enter into 
        agreements with not more than 10 States to conduct the 
        pilot program under this section in such States.
            (2) Requirements for states.--An agreement entered 
        into under paragraph (1) shall require that a 
        participating State--
                    (A) be responsible for monitoring 
                compliance with the requirements of the pilot 
                program;
                    (B) have procedures by which a provisional 
                employee or an employee may appeal or dispute 
                the accuracy of the information obtained in a 
                background check performed under the pilot 
                program; and
                    (C) agree to--
                            (i) review the results of any State 
                        or national criminal history background 
                        checks conducted regarding a 
                        prospective direct patient access 
                        employee to determine whether the 
                        employee has any conviction for a 
                        relevant crime;
                            (ii) immediately report to the 
                        entity that requested the criminal 
                        history background checks the results 
                        of such review; and
                            (iii) in the case of an employee 
                        with a conviction for a relevant crime 
                        that is subject to reporting under 
                        section 1128E of the Social Security 
                        Act (42 U.S.C. 1320a-7e), report the 
                        existence of such conviction to the 
                        database established under that 
                        section.
            (3) Application and selection criteria.--
                    (A) Application.--A State seeking to 
                participate in the pilot program established 
                under this section, shall submit an application 
                to the Secretary containing such information 
                and at such time as the Secretary may specify.
                    (B) Selection criteria.--
                            (i) In general.--In selecting 
                        States to participate in the pilot 
                        program, the Secretary shall establish 
                        criteria to ensure--
                                    (I) geographic diversity;
                                    (II) the inclusion of a 
                                variety of long-term care 
                                facilities or providers;
                                    (III) the evaluation of a 
                                variety of payment mechanisms 
                                for covering the costs of 
                                conducting the background 
                                checks required under the pilot 
                                program; and
                                    (IV) the evaluation of a 
                                variety of penalties (monetary 
                                and otherwise) used by 
                                participating States to enforce 
                                the requirements of the pilot 
                                program in such States.
                            (ii) Additional criteria.--The 
                        Secretary shall, to the greatest extent 
                        practicable, select States to 
                        participate in the pilot program in 
                        accordance with the following:
                                    (I) At least one 
                                participating State should 
                                permit long-term care 
                                facilities or providers to 
                                provide for a provisional 
                                period of employment pending 
                                completion of a background 
                                check and at least one such 
                                State should not permit such a 
                                period of employment.
                                    (II) At least one 
                                participating State should 
                                establish procedures under 
                                which employment agencies 
                                (including temporary employment 
                                agencies) may contact the State 
                                directly to conduct background 
                                checks on prospective direct 
                                patient access employees.
                                    (III) At least one 
                                participating State should 
                                include patient abuse 
                                prevention training (including 
                                behavior training and 
                                interventions) for managers and 
                                employees of long-term care 
                                facilities and providers as 
                                part of the pilot program 
                                conducted in that State.
                            (iii) Inclusion of states with 
                        existing programs.--Nothing in this 
                        section shall be construed as 
                        prohibiting any State which, as of the 
                        date of the enactment of this Act, has 
                        procedures for conducting background 
                        checks on behalf of any entity 
                        described in subsection (g)(5) from 
                        being selected to participate in the 
                        pilot program conducted under this 
                        section.
    (d) Payments.--Of the amounts made available under 
subsection (f) to conduct the pilot program under this section, 
the Secretary shall--
            (1) make payments to participating States for the 
        costs of conducting the pilot program in such States; 
        and
            (2) reserve up to 4 percent of such amounts to 
        conduct the evaluation required under subsection (e).
    (e) Evaluation.--The Secretary, in consultation with the 
Attorney General, shall conduct by grant, contract, or 
interagency agreement an evaluation of the pilot program 
conducted under this section. Such evaluation shall--
            (1) review the various procedures implemented by 
        participating States for long-term care facilities or 
        providers to conduct background checks of direct 
        patient access employees and identify the most 
        efficient, effective, and economical procedures for 
        conducting such background checks;
            (2) assess the costs of conducting such background 
        checks (including start-up and administrative costs);
            (3) consider the benefits and problems associated 
        with requiring employees or facilities or providers to 
        pay the costs of conducting such background checks;
            (4) consider whether the costs of conducting such 
        background checks should be allocated between the 
        medicare and medicaid programs and if so, identify an 
        equitable methodology for doing so;
            (5) determine the extent to which conducting such 
        background checks leads to any unintended consequences, 
        including a reduction in the available workforce for 
        such facilities or providers;
            (6) review forms used by participating States in 
        order to develop, in consultation with the Attorney 
        General, a model form for such background checks;
            (7) determine the effectiveness of background 
        checks conducted by employment agencies; and
            (8) recommend appropriate procedures and payment 
        mechanisms for implementing a national criminal 
        background check program for such facilities and 
        providers.
    (f) Funding.--Out of any funds in the Treasury not 
otherwise appropriated, there are appropriated to the Secretary 
to carry out the pilot program under this section for the 
period of fiscal years 2004 through 2007, $25,000,000.
    (g) Definitions.--In this section:
            (1) Conviction for a relevant crime.--The term 
        ``conviction for a relevant crime'' means any Federal 
        or State criminal conviction for--
                    (A) any offense described in section 
                1128(a) of the Social Security Act (42 U.S.C. 
                1320a-7); and
                    (B) such other types of offenses as a 
                participating State may specify for purposes of 
                conducting the pilot program in such State.
            (2) Disqualifying information.--The term 
        ``disqualifying information'' means a conviction for a 
        relevant crime or a finding of patient or resident 
        abuse.
            (3) Finding of patient or resident abuse.--The term 
        ``finding of patient or resident abuse'' means any 
        substantiated finding by a State agency under section 
        1819(g)(1)(C) or 1919(g)(1)(C) of the Social Security 
        Act (42 U.S.C. 1395i-3(g)(1)(C), 1396r(g)(1)(C)) or a 
        Federal agency that a direct patient access employee 
        has committed--
                    (A) an act of patient or resident abuse or 
                neglect or a misappropriation of patient or 
                resident property; or
                    (B) such other types of acts as a 
                participating State may specify for purposes of 
                conducting the pilot program in such State.
            (4) Direct patient access employee.--The term 
        ``direct patient access employee'' means any individual 
        (other than a volunteer) that has access to a patient 
        or resident of a long-term care facility or provider 
        through employment or through a contract with such 
        facility or provider, as determined by a participating 
        State for purposes of conducting the pilot program in 
        such State.
            (5) Long-term care facility or provider.--
                    (A) In general.--The term ``long-term care 
                facility or provider'' means the following 
                facilities or providers which receive payment 
                for services under title XVIII or XIX of the 
                Social Security Act:
                            (i) A skilled nursing facility (as 
                        defined in section 1819(a) of the 
                        Social Security Act) (42 U.S.C. 1395i-
                        3(a)).
                            (ii) A nursing facility (as defined 
                        in section 1919(a) in such Act) (42 
                        U.S.C. 1396r(a)).
                            (iii) A home health agency.
                            (iv) A provider of hospice care (as 
                        defined in section 1861(dd)(1) of such 
                        Act) (42 U.S.C. 1395x(dd)(1)).
                            (v) A long-term care hospital (as 
                        described in section 1886(d)(1)(B)(iv) 
                        of such Act) (42 U.S.C. 
                        1395ww(d)(1)(B)(iv)).
                            (vi) A provider of personal care 
                        services.
                            (vii) A residential care provider 
                        that arranges for, or directly 
                        provides, long-term care services.
                            (viii) An intermediate care 
                        facility for the mentally retarded (as 
                        defined in section 1905(d) of such Act) 
                        42 U.S.C. 1396d(d)).
                    (B) Additional facilities or providers.--
                During the first year in which a pilot program 
                under this section is conducted in a 
                participating State, the State may expand the 
                list of facilities or providers under 
                subparagraph (A) (on a phased-in basis or 
                otherwise) to include such other facilities or 
                providers of long-term care services under such 
                titles as the participating State determines 
                appropriate.
                    (C) Exceptions.--Such term does not 
                include--
                            (i) any facility or entity that 
                        provides, or is a provider of, services 
                        described in subparagraph (A) that are 
                        exclusively provided to an individual 
                        pursuant to a self-directed arrangement 
                        that meets such requirements as the 
                        participating State may establish in 
                        accordance with guidance from the 
                        Secretary; or
                            (ii) any such arrangement that is 
                        obtained by a patient or resident 
                        functioning as an employer.
            (6) Participating state.--The term ``participating 
        State'' means a State with an agreement under 
        subsection (c)(1).

                       TITLE IV--RURAL PROVISIONS

             Subtitle A--Provisions Relating to Part A Only

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

    (a) In General.--Section 1886(d)(3)(A)(iv) (42 U.S.C. 
1395ww(d)(3)(A)(iv)) is amended--
            (1) by striking ``(iv) For discharges'' and 
        inserting ``(iv)(I) Subject to subclause (II), for 
        discharges''; and
            (2) by adding at the end the following new 
        subclause:
            ``(II) For discharges occurring in a fiscal year 
        (beginning with fiscal year 2004), the Secretary shall 
        compute a standardized amount for hospitals located in 
        any area within the United States and within each 
        region equal to the standardized amount computed for 
        the previous fiscal year under this subparagraph for 
        hospitals located in a large urban area (or, beginning 
        with fiscal year 2005, for all hospitals in the 
        previous fiscal year) increased by the applicable 
        percentage increase under subsection (b)(3)(B)(i) for 
        the fiscal year involved.''.
    (b) Conforming Amendments.--
            (1) Computing drg-specific rates.--Section 
        1886(d)(3)(D) (42 U.S.C. 1395ww(d)(3)(D)) is amended--
                    (A) in the heading, by striking ``in 
                different areas'';
                    (B) in the matter preceding clause (i), by 
                striking ``, each of'';
                    (C) in clause (i)--
                            (i) in the matter preceding 
                        subclause (I), by inserting ``for 
                        fiscal years before fiscal year 2004,'' 
                        before ``for hospitals''; and
                            (ii) in subclause (II), by striking 
                        ``and'' after the semicolon at the end;
                    (D) in clause (ii)--
                            (i) in the matter preceding 
                        subclause (I), by inserting ``for 
                        fiscal years before fiscal year 2004,'' 
                        before ``for hospitals''; and
                            (ii) in subclause (II), by striking 
                        the period at the end and inserting ``; 
                        and''; and
                    (E) by adding at the end the following new 
                clause:
                    ``(iii) for a fiscal year beginning after 
                fiscal year 2003, for hospitals located in all 
                areas, to the product of--
                            ``(I) the applicable standardized 
                        amount (computed under subparagraph 
                        (A)), reduced under subparagraph (B), 
                        and adjusted or reduced under 
                        subparagraph (C) for the fiscal year; 
                        and
                            ``(II) the weighting factor 
                        (determined under paragraph (4)(B)) for 
                        that diagnosis-related group.''.
            (2) Technical conforming sunset.--Section 
        1886(d)(3) (42 U.S.C. 1395ww(d)(3)) is amended--
                    (A) in the matter preceding subparagraph 
                (A), by inserting ``, for fiscal years before 
                fiscal year 1997,'' before ``a regional 
                adjusted DRG prospective payment rate''; and
                    (B) in subparagraph (D), in the matter 
                preceding clause (i), by inserting ``, for 
                fiscal years before fiscal year 1997,'' before 
                ``a regional DRG prospective payment rate for 
                each region,''.
            (3) Additional technical amendment.--Section 
        1886(d)(3)(A)(iii) (42 U.S.C. 1395ww(d)(3)(A)(iii)) is 
        amended by striking ``in an other urban area'' and 
        inserting ``in an urban area''.
    (c) Equalizing Urban and Rural Standardized Payment Amounts 
Under the Medicare Inpatient Hospital Prospective Payment 
System for Hospitals in Puerto Rico.--
            (1) In general.--Section 1886(d)(9)(A) (42 U.S.C. 
        1395ww(d)(9)(A)), as amended by section 504, is 
        amended--
                    (A) in clause (i), by striking ``and'' 
                after the comma at the end; and
                    (B) by striking clause (ii) and inserting 
                the following new clause:
            ``(ii) the applicable Federal percentage (specified 
        in subparagraph (E)) of--
                    ``(I) for discharges beginning in a fiscal 
                year beginning on or after October 1, 1997, and 
                before October 1, 2003, the discharge-weighted 
                average of--
                            ``(aa) the national adjusted DRG 
                        prospective payment rate (determined 
                        under paragraph (3)(D)) for hospitals 
                        located in a large urban area,
                            ``(bb) such rate for hospitals 
                        located in other urban areas, and
                            ``(cc) such rate for hospitals 
                        located in a rural area,
                for such discharges, adjusted in the manner 
                provided in paragraph (3)(E) for different area 
                wage levels; and
                    ``(II) for discharges in a fiscal year 
                beginning on or after October 1, 2003, the 
                national DRG prospective payment rate 
                determined under paragraph (3)(D)(iii) for 
                hospitals located in any area for such 
                discharges, adjusted in the manner provided in 
                paragraph (3)(E) for different area wage 
                levels.
As used in this section, the term `subsection (d) Puerto Rico 
hospital' means a hospital that is located in Puerto Rico and 
that would be a subsection (d) hospital (as defined in 
paragraph (1)(B)) if it were located in one of the 50 
States.''.
            (2) Application of puerto rico standardized amount 
        based on large urban areas.--Section 1886(d)(9)(C) (42 
        U.S.C. 1395ww(d)(9)(C)) is amended--
                    (A) in clause (i)--
                            (i) by striking ``(i) The 
                        Secretary'' and inserting ``(i)(I) For 
                        discharges in a fiscal year after 
                        fiscal year 1988 and before fiscal year 
                        2004, the Secretary''; and
                            (ii) by adding at the end the 
                        following new subclause:
            ``(II) For discharges occurring in a fiscal year 
        (beginning with fiscal year 2004), the Secretary shall 
        compute an average standardized amount for hospitals 
        located in any area of Puerto Rico that is equal to the 
        average standardized amount computed under subclause 
        (I) for fiscal year 2003 for hospitals in a large urban 
        area (or, beginning with fiscal year 2005, for all 
        hospitals in the previous fiscal year) increased by the 
        applicable percentage increase under subsection 
        (b)(3)(B) for the fiscal year involved.'';
                    (B) in clause (ii), by inserting ``(or for 
                fiscal year 2004 and thereafter, the average 
                standardized amount)'' after ``each of the 
                average standardized amounts''; and
                    (C) in clause (iii)(I), by striking ``for 
                hospitals located in an urban or rural area, 
                respectively''.
    (d) Implementation.--
            (1) In general.--The amendments made by subsections 
        (a), (b), and (c)(1) of this section shall have no 
        effect on the authority of the Secretary, under 
        subsection (b)(2) of section 402 of Public Law 108-89, 
        to delay implementation of the extension of provisions 
        equalizing urban and rural standardized inpatient 
        hospital payments under subsection (a) of such section 
        402.
            (2) Application of puerto rico standardized amount 
        based on large urban areas.--The authority of the 
        Secretary referred to in paragraph (1) shall apply with 
        respect to the amendments made by subsection (c)(2) of 
        this section in the same manner as that authority 
        applies with respect to the extension of provisions 
        equalizing urban and rural standardized inpatient 
        hospital payments under subsection (a) of such section 
        402, except that any reference in subsection (b)(2)(A) 
        of such section 402 is deemed to be a reference to 
        April 1, 2004.

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

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

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

    (a) Adjustment.--
            (1) In general.--Section 1886(d)(3)(E) (42 U.S.C. 
        1395ww(d)(3)(E)) is amended--
                    (A) by striking ``wage levels.--The 
                Secretary'' and inserting ``wage levels.--
                    ``(i) In general.--Except as provided in 
                clause (ii), the Secretary''; and
                    (B) by adding at the end the following new 
                clause:
                    ``(ii) Alternative proportion to be 
                adjusted beginning in fiscal year 2005.--For 
                discharges occurring on or after October 1, 
                2004, the Secretary shall substitute `62 
                percent' for the proportion described in the 
                first sentence of clause (i), unless the 
                application of this clause would result in 
                lower payments to a hospital than would 
                otherwise be made.''.
            (2) Waiving budget neutrality.--Section 
        1886(d)(3)(E) (42 U.S.C. 1395ww(d)(3)(E)), as amended 
        by subsection (a), is amended by adding at the end of 
        clause (i) the following new sentence: ``The Secretary 
        shall apply the previous sentence for any period as if 
        the amendments made by section 403(a)(1) of the 
        Medicare Prescription Drug, Improvement, and 
        Modernization Act of 2003 had not been enacted.''.
    (b) Application to Puerto Rico Hospitals.--Section 
1886(d)(9)(C)(iv) (42 U.S.C. 1395ww(d)(9)(C)(iv)) is amended--
            (1) by inserting ``(I)'' after ``(iv)'';
            (2) by striking ``paragraph (3)(E)'' and inserting 
        ``paragraph (3)(E)(i)''; and
            (3) by adding at the end the following new 
        subclause:
            ``(II) For discharges occurring on or after October 
        1, 2004, the Secretary shall substitute `62 percent' 
        for the proportion described in the first sentence of 
        clause (i), unless the application of this subclause 
        would result in lower payments to a hospital than would 
        otherwise be made.''.

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

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

SEC. 405. IMPROVEMENTS TO CRITICAL ACCESS HOSPITAL PROGRAM.

    (a) Increase in Payment Amounts.--
            (1) In general.--Sections 1814(l), 1834(g)(1), and 
        1883(a)(3) (42 U.S.C. 1395f(l), 1395m(g)(1), and 
        1395tt(a)(3)) are each amended by inserting ``equal to 
        101 percent of '' before ``the reasonable costs''.
            (2) Effective date.--The amendments made by 
        paragraph (1) shall apply to payments for services 
        furnished during cost reporting periods beginning on or 
        after January 1, 2004.
    (b) Coverage of Costs for Certain Emergency Room On-Call 
Providers.--
            (1) In general.--Section 1834(g)(5) (42 U.S.C. 
        1395m(g)(5)) is amended--
                    (A) in the heading--
                            (i) by inserting ``certain'' before 
                        ``emergency''; and
                            (ii) by striking ``physicians'' and 
                        inserting ``providers'';
                    (B) by striking ``emergency room physicians 
                who are on-call (as defined by the Secretary)'' 
                and inserting ``physicians, physician 
                assistants, nurse practitioners, and clinical 
                nurse specialists who are on-call (as defined 
                by the Secretary) to provide emergency 
                services''; and
                    (C) by striking ``physicians' services'' 
                and inserting ``services covered under this 
                title''.
            (2) Effective date.--The amendments made by 
        paragraph (1) shall apply with respect to costs 
        incurred for services furnished on or after January 1, 
        2005.
    (c) Authorization of Periodic Interim Payment (PIP).--
            (1) In general.--Section 1815(e)(2) (42 U.S.C. 
        1395g(e)(2)) is amended--
                    (A) in the matter before subparagraph (A), 
                by inserting ``, in the cases described in 
                subparagraphs (A) through (D)'' after ``1986'';
                    (B) by striking ``and'' at the end of 
                subparagraph (C);
                    (C) by adding ``and'' at the end of 
                subparagraph (D); and
                    (D) by inserting after subparagraph (D) the 
                following new subparagraph:
            ``(E) inpatient critical access hospital 
        services;''.
            (2) Development of alternative timing methods of 
        periodic interim payments.--With respect to periodic 
        interim payments to critical access hospitals for 
        inpatient critical access hospital services under 
        section 1815(e)(2)(E) of the Social Security Act, as 
        added by paragraph (1), the Secretary shall develop 
        alternative methods for the timing of such payments.
            (3) Authorization of pip.--The amendments made by 
        paragraph (1) shall apply to payments made on or after 
        July 1, 2004.
    (d) Condition for Application of Special Professional 
Service Payment Adjustment.--
            (1) In general.--Section 1834(g)(2) (42 U.S.C. 
        1395m(g)(2)) is amended by adding after and below 
        subparagraph (B) the following:
        ``The Secretary may not require, as a condition for 
        applying subparagraph (B) with respect to a critical 
        access hospital, that each physician or other 
        practitioner providing professional services in the 
        hospital must assign billing rights with respect to 
        such services, except that such subparagraph shall not 
        apply to those physicians and practitioners who have 
        not assigned such billing rights.''.
            (2) Effective date.--
                    (A) In general.--Except as provided in 
                subparagraph (B), the amendment made by 
                paragraph (1) shall apply to cost reporting 
                periods beginning on or after July 1, 2004.
                    (B) Rule of application.--In the case of a 
                critical access hospital that made an election 
                under section 1834(g)(2) of the Social Security 
                Act (42 U.S.C. 1395m(g)(2)) before November 1, 
                2003, the amendment made by paragraph (1) shall 
                apply to cost reporting periods beginning on or 
                after July 1, 2001.
    (e) Revision of Bed Limitation for Hospitals.--
            (1) In general.--Section 1820(c)(2)(B)(iii) (42 
        U.S.C. 1395i-4(c)(2)(B)(iii)) is amended by striking 
        ``15 (or, in the case of a facility under an agreement 
        described in subsection (f), 25)'' and inserting 
        ``25''.
            (2) Conforming amendment.--Section 1820(f) (42 
        U.S.C. 1395i-4(f)) is amended by striking ``and the 
        number of beds used at any time for acute care 
        inpatient services does not exceed 15 beds''.
            (3) Effective date.--The amendments made by this 
        subsection shall apply to designations made before, on, 
        or after January 1, 2004, but any election made 
        pursuant to regulations promulgated to carry out such 
        amendments shall only apply prospectively.
    (f) Provisions Relating to FLEX Grants.--
            (1) Additional 4-year period of funding.--Section 
        1820(j) (42 U.S.C. 1395i-4(j)) is amended by inserting 
        before the period at the end the following: ``, and for 
        making grants to all States under paragraphs (1) and 
        (2) of subsection (g), $35,000,000 in each of fiscal 
        years 2005 through 2008''.
            (2) Additional requirements and administration.--
        Section 1820(g) (42 U.S.C. 1395i-4(g)) is amended by 
        adding at the end the following new paragraphs:
            ``(4) Additional requirements with respect to flex 
        grants.--With respect to grants awarded under paragraph 
        (1) or (2) from funds appropriated for fiscal year 2005 
        and subsequent fiscal years--
                    ``(A) Consultation with the state hospital 
                association and rural hospitals on the most 
                appropriate ways to use grants.--A State shall 
                consult with the hospital association of such 
                State and rural hospitals located in such State 
                on the most appropriate ways to use the funds 
                under such grant.
                    ``(B) Limitation on use of grant funds for 
                administrative expenses.--A State may not 
                expend more than the lesser of--
                            ``(i) 15 percent of the amount of 
                        the grant for administrative expenses; 
                        or
                            ``(ii) the State's federally 
                        negotiated indirect rate for 
                        administering the grant.
            ``(5) Use of funds for federal administrative 
        expenses.--Of the total amount appropriated for grants 
        under paragraphs (1) and (2) for a fiscal year 
        (beginning with fiscal year 2005), up to 5 percent of 
        such amount shall be available to the Health Resources 
        and Services Administration for purposes of 
        administering such grants.''.
    (g) Authority To Establish Psychiatric and Rehabilitation 
Distinct Part Units.--
            (1) In general.--Section 1820(c)(2) (42 U.S.C. 
        1395i-4(c)(2)) is amended by adding at the end the 
        following:
                    ``(E) Authority to establish psychiatric 
                and rehabilitation distinct part units.--
                            ``(i) In general.--Subject to the 
                        succeeding provisions of this 
                        subparagraph, a critical access 
                        hospital may establish--
                                    ``(I) a psychiatric unit of 
                                the hospital that is a distinct 
                                part of the hospital; and
                                    ``(II) a rehabilitation 
                                unit of the hospital that is a 
                                distinct part of the hospital,
                        if the distinct part meets the 
                        requirements (including conditions of 
                        participation) that would otherwise 
                        apply to the distinct part if the 
                        distinct part were established by a 
                        subsection (d) hospital in accordance 
                        with the matter following clause (v) of 
                        section 1886(d)(1)(B), including any 
                        regulations adopted by the Secretary 
                        under such section.
                            ``(ii) Limitation on number of 
                        beds.--The total number of beds that 
                        may be established under clause (i) for 
                        a distinct part unit may not exceed 10.
                            ``(iii) Exclusion of beds from bed 
                        count.--In determining the number of 
                        beds of a critical access hospital for 
                        purposes of applying the bed 
                        limitations referred to in subparagraph 
                        (B)(iii) and subsection (f), the 
                        Secretary shall not take into account 
                        any bed established under clause (i).
                            ``(iv) Effect of failure to meet 
                        requirements.--If a psychiatric or 
                        rehabilitation unit established under 
                        clause (i) does not meet the 
                        requirements described in such clause 
                        with respect to a cost reporting 
                        period, no payment may be made under 
                        this title to the hospital for services 
                        furnished in such unit during such 
                        period. Payment to the hospital for 
                        services furnished in the unit may 
                        resume only after the hospital has 
                        demonstrated to the Secretary that the 
                        unit meets such requirements.''.
            (2) Payment on a prospective payment basis.--
        Section 1814(l) (42 U.S.C. 1395f(l)) is amended--
                    (A) by striking ``(l) The amount'' and 
                inserting ``(l)(1) Except as provided in 
                paragraph (2), the amount''; and
                    (B) by adding at the end the following new 
                paragraph:
    ``(2) In the case of a distinct part psychiatric or 
rehabilitation unit of a critical access hospital described in 
section 1820(c)(2)(E), the amount of payment for inpatient 
critical access hospital services of such unit shall be equal 
to the amount of the payment that would otherwise be made if 
such services were inpatient hospital services of a distinct 
part psychiatric or rehabilitation unit, respectively, 
described in the matter following clause (v) of section 
1886(d)(1)(B).''.
            (3) Effective date.--The amendments made by this 
        subsection shall apply to cost reporting periods 
        beginning on or after October 1, 2004.
    (h) Waiver Authority.--
            (1) In general.--Section 1820(c)(2)(B)(i)(II) (42 
        U.S.C. 1395i-4(c)(2)(B)(i)(II)) is amended by inserting 
        ``before January 1, 2006,'' after ``is certified''.
            (2) Grandfathering waiver authority for certain 
        facilities.--Section 1820(h) (42 U.S.C. 1395i-4(h)) is 
        amended--
                    (A) in the heading preceding paragraph (1), 
                by striking ``of Certain Facilities'' and 
                inserting ``Provisions''; and
                    (B) by adding at the end the following new 
                paragraph:
            ``(3) State authority to waive 35-mile rule.--In 
        the case of a facility that was designated as a 
        critical access hospital before January 1, 2006, and 
        was certified by the State as being a necessary 
        provider of health care services to residents in the 
        area under subsection (c)(2)(B)(i)(II), as in effect 
        before such date, the authority under such subsection 
        with respect to any redesignation of such facility 
        shall continue to apply notwithstanding the amendment 
        made by section 405(h)(1) of the Medicare Prescription 
        Drug, Improvement, and Modernization Act of 2003.''.

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

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

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

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

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

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

SEC. 409. RURAL HOSPICE DEMONSTRATION PROJECT.

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

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

    (a) In General.--Section 1888(e)(2)(A) (42 U.S.C. 
1395yy(e)(2)(A)) is amended--
            (1) in clause (i)(II), by striking ``clauses (ii) 
        and (iii)'' and inserting ``clauses (ii), (iii), and 
        (iv)''; and
            (2) by adding at the end the following new clause:
                            ``(iv) Exclusion of certain rural 
                        health clinic and federally qualified 
                        health center services.--Services 
                        described in this clause are--
                                    ``(I) rural health clinic 
                                services (as defined in 
                                paragraph (1) of section 
                                1861(aa)); and
                                    ``(II) Federally qualified 
                                health center services (as 
                                defined in paragraph (3) of 
                                such section);
                        that would be described in clause (ii) 
                        if such services were furnished by an 
                        individual not affiliated with a rural 
                        health clinic or a Federally qualified 
                        health center.''.
    (b) Effective Date.--The amendments made by subsection (a) 
shall apply to services furnished on or after January 1, 2005.

SEC. 410A. RURAL COMMUNITY HOSPITAL DEMONSTRATION PROGRAM.

    (a) Establishment of Rural Community Hospital (RCH) 
Demonstration Program.--
            (1) In general.--The Secretary shall establish a 
        demonstration program to test the feasibility and 
        advisability of the establishment of rural community 
        hospitals (as defined in subsection (f)(1)) to furnish 
        covered inpatient hospital services (as defined in 
        subsection (f)(2)) to medicare beneficiaries.
            (2) Demonstration areas.--The program shall be 
        conducted in rural areas selected by the Secretary in 
        States with low population densities, as determined by 
        the Secretary.
            (3) Application.--Each rural community hospital 
        that is located in a demonstration area selected under 
        paragraph (2) that desires to participate in the 
        demonstration program under this section shall submit 
        an application to the Secretary at such time, in such 
        manner, and containing such information as the 
        Secretary may require.
            (4) Selection of hospitals.--The Secretary shall 
        select from among rural community hospitals submitting 
        applications under paragraph (3) not more than 15 of 
        such hospitals to participate in the demonstration 
        program under this section.
            (5) Duration.--The Secretary shall conduct the 
        demonstration program under this section for a 5-year 
        period.
            (6) Implementation.--The Secretary shall implement 
        the demonstration program not later than January 1, 
        2005, but may not implement the program before October 
        1, 2004.
    (b) Payment.--
            (1) In general.--The amount of payment under the 
        demonstration program for covered inpatient hospital 
        services furnished in a rural community hospital, other 
        than such services furnished in a psychiatric or 
        rehabilitation unit of the hospital which is a distinct 
        part, is--
                    (A) for discharges occurring in the first 
                cost reporting period beginning on or after the 
                implementation of the demonstration program, 
                the reasonable costs of providing such 
                services; and
                    (B) for discharges occurring in a 
                subsequent cost reporting period under the 
                demonstration program, the lesser of--
                            (i) the reasonable costs of 
                        providing such services in the cost 
                        reporting period involved; or
                            (ii) the target amount (as defined 
                        in paragraph (2), applicable to the 
                        cost reporting period involved.
            (2) Target amount.--For purposes of paragraph 
        (1)(B)(ii), the term ``target amount'' means, with 
        respect to a rural community hospital for a particular 
        12-month cost reporting period--
                    (A) in the case of the second such 
                reporting period for which this subsection is 
                in effect, the reasonable costs of providing 
                such covered inpatient hospital services as 
                determined under paragraph (1)(A), and
                    (B) in the case of a later reporting 
                period, the target amount for the preceding 12-
                month cost reporting period,
        increased by the applicable percentage increase (under 
        clause (i) of section 1886(b)(3)(B) of the Social 
        Security Act (42 U.S.C. 1395ww(b)(3)(B))) in the market 
        basket percentage increase (as defined in clause (iii) 
        of such section) for that particular cost reporting 
        period.
    (c) Funding.--
            (1) In general.--The Secretary shall provide for 
        the transfer from the Federal Hospital Insurance Trust 
        Fund under section 1817 of the Social Security Act (42 
        U.S.C. 1395i) of such funds as are necessary for the 
        costs of carrying out the demonstration program under 
        this section.
            (2) Budget neutrality.--In conducting the 
        demonstration program under this section, the Secretary 
        shall ensure that the aggregate payments made by the 
        Secretary do not exceed the amount which the Secretary 
        would have paid if the demonstration program under this 
        section was not implemented.
    (d) Waiver Authority.--The Secretary may waive such 
requirements of title XVIII of the Social Security Act (42 
U.S.C. 1395 et seq.) as may be necessary for the purpose of 
carrying out the demonstration program under this section.
    (e) Report.--Not later than 6 months after the completion 
of the demonstration program under this section, the Secretary 
shall submit to Congress a report on such program, together 
with recommendations for such legislation and administrative 
action as the Secretary determines to be appropriate.
    (f) Definitions.--In this section:
            (1) Rural community hospital defined.--
                    (A) In general.--The term ``rural community 
                hospital'' means a hospital (as defined in 
                section 1861(e) of the Social Security Act (42 
                U.S.C. 1395x(e))) that--
                            (i) is located in a rural area (as 
                        defined in section 1886(d)(2)(D) of 
                        such Act (42 U.S.C. 1395ww(d)(2)(D))) 
                        or treated as being so located pursuant 
                        to section 1886(d)(8)(E) of such Act 
                        (42 U.S.C. 1395ww(d)(8)(E));
                            (ii) subject to paragraph (2), has 
                        fewer than 51 acute care inpatient 
                        beds, as reported in its most recent 
                        cost report;
                            (iii) makes available 24-hour 
                        emergency care services; and
                            (iv) is not eligible for 
                        designation, or has not been 
                        designated, as a critical access 
                        hospital under section 1820.
                    (B) Treatment of psychiatric and 
                rehabilitation units.--For purposes of 
                paragraph (1)(B), beds in a psychiatric or 
                rehabilitation unit of the hospital which is a 
                distinct part of the hospital shall not be 
                counted.
            (2) Covered inpatient hospital services.--The term 
        ``covered inpatient hospital services'' means inpatient 
        hospital services, and includes extended care services 
        furnished under an agreement under section 1883 of the 
        Social Security Act (42 U.S.C. 1395tt).

             Subtitle B--Provisions Relating to Part B Only

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

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

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

    Section 1848(e)(1) (42 U.S.C. 1395w-4(e)(1)) is amended--
            (1) in subparagraph (A), by striking 
        ``subparagraphs (B) and (C)'' and inserting 
        ``subparagraphs (B), (C), and (E)''; and
            (2) by adding at the end the following new 
        subparagraph:
                    ``(E) Floor at 1.0 on work geographic 
                index.--After calculating the work geographic 
                index in subparagraph (A)(iii), for purposes of 
                payment for services furnished on or after 
                January 1, 2004, and before January 1, 2007, 
                the Secretary shall increase the work 
                geographic index to 1.00 for any locality for 
                which such work geographic index is less than 
                1.00.''.

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

    (a) Additional Incentive Payment for Certain Physician 
Scarcity Areas.--Section 1833 (42 U.S.C. 1395l) is amended by 
adding at the end the following new subsection:
    ``(u) Incentive Payments for Physician Scarcity Areas.--
            ``(1) In general.--In the case of physicians' 
        services furnished on or after January 1, 2005, and 
        before January 1, 2008--
                    ``(A) by a primary care physician in a 
                primary care scarcity county (identified under 
                paragraph (4)); or
                    ``(B) by a physician who is not a primary 
                care physician in a specialist care scarcity 
                county (as so identified),
        in addition to the amount of payment that would 
        otherwise be made for such services under this part, 
        there also shall be paid an amount equal to 5 percent 
        of the payment amount for the service under this part.
            ``(2) Determination of ratios of physicians to 
        medicare beneficiaries in area.--Based upon available 
        data, the Secretary shall establish for each county or 
        equivalent area in the United States, the following:
                    ``(A) Number of physicians practicing in 
                the area.--The number of physicians who furnish 
                physicians' services in the active practice of 
                medicine or osteopathy in that county or area, 
                other than physicians whose practice is 
                exclusively for the Federal Government, 
                physicians who are retired, or physicians who 
                only provide administrative services. Of such 
                number, the number of such physicians who are--
                            ``(i) primary care physicians; or
                            ``(ii) physicians who are not 
                        primary care physicians.
                    ``(B) Number of medicare beneficiaries 
                residing in the area.--The number of 
                individuals who are residing in the county and 
                are entitled to benefits under part A or 
                enrolled under this part, or both (in this 
                subsection referred to as `individuals').
                    ``(C) Determination of ratios.--
                            ``(i) Primary care ratio.--The 
                        ratio (in this paragraph referred to as 
                        the `primary care ratio') of the number 
                        of primary care physicians (determined 
                        under subparagraph (A)(i)), to the 
                        number of individuals determined under 
                        subparagraph (B).
                            ``(ii) Specialist care ratio.--The 
                        ratio (in this paragraph referred to as 
                        the `specialist care ratio') of the 
                        number of other physicians (determined 
                        under subparagraph (A)(ii)), to the 
                        number of individuals determined under 
                        subparagraph (B).
            ``(3) Ranking of counties.--The Secretary shall 
        rank each such county or area based separately on its 
        primary care ratio and its specialist care ratio.
            ``(4) Identification of counties.--
                    ``(A) In general.--The Secretary shall 
                identify--
                            ``(i) those counties and areas (in 
                        this paragraph referred to as `primary 
                        care scarcity counties') with the 
                        lowest primary care ratios that 
                        represent, if each such county or area 
                        were weighted by the number of 
                        individuals determined under paragraph 
                        (2)(B), an aggregate total of 20 
                        percent of the total of the individuals 
                        determined under such paragraph; and
                            ``(ii) those counties and areas (in 
                        this subsection referred to as 
                        `specialist care scarcity counties') 
                        with the lowest specialist care ratios 
                        that represent, if each such county or 
                        area were weighted by the number of 
                        individuals determined under paragraph 
                        (2)(B), an aggregate total of 20 
                        percent of the total of the individuals 
                        determined under such paragraph.
                    ``(B) Periodic revisions.--The Secretary 
                shall periodically revise the counties or areas 
                identified in subparagraph (A) (but not less 
                often than once every three years) unless the 
                Secretary determines that there is no new data 
                available on the number of physicians 
                practicing in the county or area or the number 
                of individuals residing in the county or area, 
                as identified in paragraph (2).
                    ``(C) Identification of counties where 
                service is furnished.--For purposes of paying 
                the additional amount specified in paragraph 
                (1), if the Secretary uses the 5-digit postal 
                ZIP Code where the service is furnished, the 
                dominant county of the postal ZIP Code (as 
                determined by the United States Postal Service, 
                or otherwise) shall be used to determine 
                whether the postal ZIP Code is in a scarcity 
                county identified in subparagraph (A) or 
                revised in subparagraph (B).
                    ``(D) Judicial review.--There shall be no 
                administrative or judicial review under section 
                1869, 1878, or otherwise, respecting--
                            ``(i) the identification of a 
                        county or area;
                            ``(ii) the assignment of a 
                        specialty of any physician under this 
                        paragraph;
                            ``(iii) the assignment of a 
                        physician to a county under paragraph 
                        (2); or
                            ``(iv) the assignment of a postal 
                        ZIP Code to a county or other area 
                        under this subsection.
            ``(5) Rural census tracts.--To the extent feasible, 
        the Secretary shall treat a rural census tract of a 
        metropolitan statistical area (as determined under the 
        most recent modification of the Goldsmith Modification, 
        originally published in the Federal Register on 
        February 27, 1992 (57 Fed. Reg. 6725)), as an 
        equivalent area for purposes of qualifying as a primary 
        care scarcity county or specialist care scarcity county 
        under this subsection.
            ``(6) Physician Defined.--For purposes of this 
        paragraph, the term `physician' means a physician 
        described in section 1861(r)(1) and the term `primary 
        care physician' means a physician who is identified in 
        the available data as a general practitioner, family 
        practice practitioner, general internist, or 
        obstetrician or gynecologist.
            ``(7) Publication of list of counties; posting on 
        website.--With respect to a year for which a county or 
        area is identified or revised under paragraph (4), the 
        Secretary shall identify such counties or areas as part 
        of the proposed and final rule to implement the 
        physician fee schedule under section 1848 for the 
        applicable year. The Secretary shall post the list of 
        counties identified or revised under paragraph (4) on 
        the Internet website of the Centers for Medicare & 
        Medicaid Services.''.
    (b) Improvement to Medicare Incentive Payment Program.--
            (1) In general.--Section 1833(m) (42 U.S.C. 
        1395l(m)) is amended--
                    (A) by inserting ``(1)'' after ``(m)'';
                    (B) in paragraph (1), as designated by 
                subparagraph (A)--
                            (i) by inserting ``in a year'' 
                        after ``In the case of physicians' 
                        services furnished''; and
                            (ii) by inserting ``as identified 
                        by the Secretary prior to the beginning 
                        of such year'' after ``as a health 
                        professional shortage area''; and
                    (C) by adding at the end the following new 
                paragraphs:
    ``(2) For each health professional shortage area identified 
in paragraph (1) that consists of an entire county, the 
Secretary shall provide for the additional payment under 
paragraph (1) without any requirement on the physician to 
identify the health professional shortage area involved. The 
Secretary may implement the previous sentence using the method 
specified in subsection (u)(4)(C).
    ``(3) The Secretary shall post on the Internet website of 
the Centers for Medicare & Medicaid Services a list of the 
health professional shortage areas identified in paragraph (1) 
that consist of a partial county to facilitate the additional 
payment under paragraph (1) in such areas.
    ``(4) There shall be no administrative or judicial review 
under section 1869, section 1878, or otherwise, respecting--
            ``(A) the identification of a county or area;
            ``(B) the assignment of a specialty of any 
        physician under this paragraph;
            ``(C) the assignment of a physician to a county 
        under this subsection; or
            ``(D) the assignment of a postal ZIP code to a 
        county or other area under this subsection.''.
            (2) Effective date.--The amendments made by 
        paragraph (1) shall apply to physicians' services 
        furnished on or after January 1, 2005.
    (c) GAO Study of Geographic Differences in Payments for 
Physicians' Services.--
            (1) Study.--The Comptroller General of the United 
        States shall conduct a study of differences in payment 
        amounts under the physician fee schedule under section 
        1848 of the Social Security Act (42 U.S.C. 1395w-4) for 
        physicians' services in different geographic areas. 
        Such study shall include--
                    (A) an assessment of the validity of the 
                geographic adjustment factors used for each 
                component of the fee schedule;
                    (B) an evaluation of the measures used for 
                such adjustment, including the frequency of 
                revisions;
                    (C) an evaluation of the methods used to 
                determine professional liability insurance 
                costs used in computing the malpractice 
                component, including a review of increases in 
                professional liability insurance premiums and 
                variation in such increases by State and 
                physician specialty and methods used to update 
                the geographic cost of practice index and 
                relative weights for the malpractice component; 
                and
                    (D) an evaluation of the effect of the 
                adjustment to the physician work geographic 
                index under section 1848(e)(1)(E) of the Social 
                Security Act, as added by section 412, on 
                physician location and retention in areas 
                affected by such adjustment, taking into 
                account--
                            (i) differences in recruitment 
                        costs and retention rates for 
                        physicians, including specialists, 
                        between large urban areas and other 
                        areas; and
                            (ii) the mobility of physicians, 
                        including specialists, over the last 
                        decade.
            (2) Report.--Not later than 1 year after the date 
        of the enactment of this Act, the Comptroller General 
        shall submit to Congress a report on the study 
        conducted under paragraph (1). The report shall include 
        recommendations regarding the use of more current data 
        in computing geographic cost of practice indices as 
        well as the use of data directly representative of 
        physicians' costs (rather than proxy measures of such 
        costs).

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

    (a) Phase-In Providing Floor Using Blend of Fee Schedule 
and Regional Fee Schedules.--Section 1834(l) (42 U.S.C. 
1395m(l)) is amended--
            (1) in paragraph (2)(E), by inserting ``consistent 
        with paragraph (11)'' after ``in an efficient and fair 
        manner''; and
            (2) by redesignating paragraph (8), as added by 
        section 221(a) of BIPA (114 Stat. 2763A-486), as 
        paragraph (9); and
            (3) by adding at the end the following new 
        paragraph:
            ``(10) Phase-in providing floor using blend of fee 
        schedule and regional fee schedules.--In carrying out 
        the phase-in under paragraph (2)(E) for each level of 
        ground service furnished in a year, the portion of the 
        payment amount that is based on the fee schedule shall 
        be the greater of the amount determined under such fee 
        schedule (without regard to this paragraph) or the 
        following blended rate of the fee schedule under 
        paragraph (1) and of a regional fee schedule for the 
        region involved:
                    ``(A) For 2004 (for services furnished on 
                or after July 1, 2004), the blended rate shall 
                be based 20 percent on the fee schedule under 
                paragraph (1) and 80 percent on the regional 
                fee schedule.
                    ``(B) For 2005, the blended rate shall be 
                based 40 percent on the fee schedule under 
                paragraph (1) and 60 percent on the regional 
                fee schedule.
                    ``(C) For 2006, the blended rate shall be 
                based 60 percent on the fee schedule under 
                paragraph (1) and 40 percent on the regional 
                fee schedule.
                    ``(D) For 2007, 2008, and 2009, the blended 
                rate shall be based 80 percent on the fee 
                schedule under paragraph (1) and 20 percent on 
                the regional fee schedule.
                    ``(E) For 2010 and each succeeding year, 
                the blended rate shall be based 100 percent on 
                the fee schedule under paragraph (1).
        For purposes of this paragraph, the Secretary shall 
        establish a regional fee schedule for each of the nine 
        census divisions (referred to in section 1886(d)(2)) 
        using the methodology (used in establishing the fee 
        schedule under paragraph (1)) to calculate a regional 
        conversion factor and a regional mileage payment rate 
        and using the same payment adjustments and the same 
        relative value units as used in the fee schedule under 
        such paragraph.''.
    (b) Adjustment in Payment for Certain Long Trips.--Section 
1834(l), as amended by subsection (a), is amended by adding at 
the end the following new paragraph:
            ``(11) Adjustment in payment for certain long 
        trips.--In the case of ground ambulance services 
        furnished on or after July 1, 2004, and before January 
        1, 2009, regardless of where the transportation 
        originates, the fee schedule established under this 
        subsection shall provide that, with respect to the 
        payment rate for mileage for a trip above 50 miles the 
        per-mile rate otherwise established shall be increased 
        by \1/4\ of the payment per mile otherwise applicable 
        to miles in excess of 50 miles in such trip.''.
    (c) Improvement in Payments To Retain Emergency Capacity 
for Ambulance Services in Rural Areas.--
            (1) In general.--Section 1834(l) (42 U.S.C. 
        1395m(l)), as amended by subsections (a) and (b), is 
        amended by adding at the end the following new 
        paragraph:
            ``(12) Assistance for rural providers furnishing 
        services in low population density areas.--
                    ``(A) In general.--In the case of ground 
                ambulance services furnished on or after July 
                1, 2004, and before January 1, 2010, for which 
                the transportation originates in a qualified 
                rural area (identified under subparagraph 
                (B)(iii)), the Secretary shall provide for a 
                percent increase in the base rate of the fee 
                schedule for a trip established under this 
                subsection. In establishing such percent 
                increase, the Secretary shall estimate the 
                average cost per trip for such services (not 
                taking into account mileage) in the lowest 
                quartile as compared to the average cost per 
                trip for such services (not taking into account 
                mileage) in the highest quartile of all rural 
                county populations.
                    ``(B) Identification of qualified rural 
                areas.--
                            ``(i) Determination of population 
                        density in area.--Based upon data from 
                        the United States decennial census for 
                        the year 2000, the Secretary shall 
                        determine, for each rural area, the 
                        population density for that area.
                            ``(ii) Ranking of areas.--The 
                        Secretary shall rank each such area 
                        based on such population density.
                            ``(iii) Identification of qualified 
                        rural areas.--The Secretary shall 
                        identify those areas (in subparagraph 
                        (A) referred to as `qualified rural 
                        areas') with the lowest population 
                        densities that represent, if each such 
                        area were weighted by the population of 
                        such area (as used in computing such 
                        population densities), an aggregate 
                        total of 25 percent of the total of the 
                        population of all such areas.
                            ``(iv) Rural area.--For purposes of 
                        this paragraph, the term `rural area' 
                        has the meaning given such term in 
                        section 1886(d)(2)(D). If feasible, the 
                        Secretary shall treat a rural census 
                        tract of a metropolitan statistical 
                        area (as determined under the most 
                        recent modification of the Goldsmith 
                        Modification, originally published in 
                        the Federal Register on February 27, 
                        1992 (57 Fed. Reg. 6725) as a rural 
                        area for purposes of this paragraph.
                            ``(v) Judicial review.--There shall 
                        be no administrative or judicial review 
                        under section 1869, 1878, or otherwise, 
                        respecting the identification of an 
                        area under this subparagraph.''.
            (2) Use of data.--In order to promptly implement 
        section 1834(l)(12) of the Social Security Act, as 
        added by paragraph (1), the Secretary may use data 
        furnished by the Comptroller General of the United 
        States.
    (d) Temporary Increase for Ground Ambulance Services.--
Section 1834(l) (42 U.S.C. 1395m(l)), as amended by subsections 
(a), (b), and (c), is amended by adding at the end the 
following new paragraph:
            ``(13) Temporary increase for ground ambulance 
        services.--
                    ``(A) In general.--After computing the 
                rates with respect to ground ambulance services 
                under the other applicable provisions of this 
                subsection, in the case of such services 
                furnished on or after July 1, 2004, and before 
                January 1, 2007, for which the transportation 
                originates in--
                            ``(i) a rural area described in 
                        paragraph (9) or in a rural census 
                        tract described in such paragraph, the 
                        fee schedule established under this 
                        section shall provide that the rate for 
                        the service otherwise established, 
                        after the application of any increase 
                        under paragraphs (11) and (12), shall 
                        be increased by 2 percent; and
                            ``(ii) an area not described in 
                        clause (i), the fee schedule 
                        established under this subsection shall 
                        provide that the rate for the service 
                        otherwise established, after the 
                        application of any increase under 
                        paragraph (11), shall be increased by 1 
                        percent.
                    ``(B) Application of increased payments 
                after 2006.--The increased payments under 
                subparagraph (A) shall not be taken into 
                account in calculating payments for services 
                furnished after the period specified in such 
                subparagraph.''.
    (e) Implementation.--The Secretary may implement the 
amendments made by this section, and revise the conversion 
factor applicable under section 1834(l) of the Social Security 
Act (42 U.S.C. 1395m(l)) for purposes of implementing such 
amendments, on an interim final basis, or by program 
instruction.
    (f) GAO Report on Costs and Access.--Not later than 
December 31, 2005, the Comptroller General of the United States 
shall submit to Congress an initial report on how costs differ 
among the types of ambulance providers and on access, supply, 
and quality of ambulance services in those regions and States 
that have a reduction in payment under the medicare ambulance 
fee schedule (under section 1834(l) of the Social Security Act, 
as amended by this Act). Not later than December 31, 2007, the 
Comptroller General shall submit to Congress a final report on 
such access and supply.
    (g) Technical Amendments.--(1) Section 221(c) of BIPA (114 
Stat. 2763A-487) is amended by striking ``subsection (b)(2)'' 
and inserting ``subsection (b)(3)''.
    (2) Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)) is amended 
by moving subparagraph (U) 4 ems to the left.

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

    (a) Coverage.--Section 1834(l) (42 U.S.C. 1395m(l)), as 
amended by subsections (a), (b), (c), and (d) of section 414, 
is amended by adding at the end the following new paragraph:
            ``(14) Providing appropriate coverage of rural air 
        ambulance services.--
                    ``(A) In general.--The regulations 
                described in section 1861(s)(7) shall provide, 
                to the extent that any ambulance services 
                (whether ground or air) may be covered under 
                such section, that a rural air ambulance 
                service (as defined in subparagraph (C)) is 
                reimbursedunder this subsection at the air 
ambulance rate if the air ambulance service--
                            ``(i) is reasonable and necessary 
                        based on the health condition of the 
                        individual being transported at or 
                        immediately prior to the time of the 
                        transport; and
                            ``(ii) complies with equipment and 
                        crew requirements established by the 
                        Secretary.
                    ``(B) Satisfaction of requirement of 
                medically necessary.--The requirement of 
                subparagraph (A)(i) is deemed to be met for a 
                rural air ambulance service if--
                            ``(i) subject to subparagraph (D), 
                        such service is requested by a 
                        physician or other qualified medical 
                        personnel (as specified by the 
                        Secretary) who reasonably determines or 
                        certifies that the individual's 
                        condition is such that the time needed 
                        to transport the individual by land or 
                        the instability of transportation by 
                        land poses a threat to the individual's 
                        survival or seriously endangers the 
                        individual's health; or
                            ``(ii) such service is furnished 
                        pursuant to a protocol that is 
                        established by a State or regional 
                        emergency medical service (EMS) agency 
                        and recognized or approved by the 
                        Secretary under which the use of an air 
                        ambulance is recommended, if such 
                        agency does not have an ownership 
                        interest in the entity furnishing such 
                        service.
                    ``(C) Rural air ambulance service 
                defined.--For purposes of this paragraph, the 
                term `rural air ambulance service' means fixed 
                wing and rotary wing air ambulance service in 
                which the point of pick up of the individual 
                occurs in a rural area (as defined in section 
                1886(d)(2)(D)) or in a rural census tract of a 
                metropolitan statistical area (as determined 
                under the most recent modification of the 
                Goldsmith Modification, originally published in 
                the Federal Register on February 27, 1992 (57 
                Fed. Reg. 6725)).
                    ``(D) Limitation.--
                            ``(i) In general.--Subparagraph 
                        (B)(i) shall not apply if there is a 
                        financial or employment relationship 
                        between the person requesting the rural 
                        air ambulance service and the entity 
                        furnishing the ambulance service, or an 
                        entity under common ownership with the 
                        entity furnishing the air ambulance 
                        service, or a financial relationship 
                        between an immediate family member of 
                        such requester and such an entity.
                            ``(ii) Exception.--Where a hospital 
                        and the entity furnishing rural air 
                        ambulance services are under common 
                        ownership, clause (i) shall not apply 
                        to remuneration (through employment or 
                        other relationship) by the hospital of 
                        the requester or immediate family 
                        member if the remuneration is for 
                        provider-based physician services 
                        furnished in a hospital (as described 
                        in section 1887) which are reimbursed 
                        under part A and the amount of the 
                        remuneration is unrelated directly or 
                        indirectly to the provision of rural 
                        air ambulance services.''.
    (b) Conforming Amendment.--Section 1861(s)(7) (42 U.S.C. 
1395x(s)(7)) is amended by inserting ``, subject to section 
1834(l)(14),'' after ``but''.
    (c) Effective Date.--The amendments made by this subsection 
shall apply to services furnished on or after January 1, 2005.

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

    (a) In General.--Notwithstanding subsections (a), (b), and 
(h) of section 1833 of the Social Security Act (42 U.S.C. 
1395l) and section 1834(d)(1) of such Act (42 U.S.C. 
1395m(d)(1)), in the case of a clinical diagnostic laboratory 
test covered under part B of title XVIII of such Act that is 
furnished during a cost reporting period described in 
subsection (b) by a hospital with fewer than 50 beds that is 
located in a qualified rural area (identified under paragraph 
(12)(B)(iii) of section 1834(l) of the Social Security Act (42 
U.S.C. 1395m(l)), as added by section 414(c)) as part of 
outpatient services of the hospital, the amount of payment for 
such test shall be 100 percent of the reasonable costs of the 
hospital in furnishing such test.
    (b) Application.--A cost reporting period described in this 
subsection is a cost reporting period beginning during the 2-
year period beginning on July 1, 2004.
    (c) Provision as Part of Outpatient Hospital Services.--For 
purposes of subsection (a), in determining whether clinical 
diagnostic laboratory services are furnished as part of 
outpatient services of a hospital, the Secretary shall apply 
the same rules that are used to determine whether clinical 
diagnostic laboratory services are furnished as an outpatient 
critical access hospital service under section 1834(g)(4) of 
the Social Security Act (42 U.S.C. 1395m(g)(4)).

SEC. 417. EXTENSION OF TELEMEDICINE DEMONSTRATION PROJECT.

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

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

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

            Subtitle C--Provisions Relating to Parts A and B

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

    (a) In General.--With respect to episodes and visits ending 
on or after April 1, 2004, and before April 1, 2005, in the 
case of home health services furnished in a rural area (as 
defined in section 1886(d)(2)(D) of the Social Security Act (42 
U.S.C. 1395ww(d)(2)(D))), the Secretary shall increase the 
payment amount otherwise made under section 1895 of such Act 
(42 U.S.C. 1395fff ) for such services by 5 percent.
    (b) Waiving Budget Neutrality.--The Secretary shall not 
reduce the standard prospective payment amount (or amounts) 
under section 1895 of the Social Security Act (42 U.S.C. 
1395fff ) applicable to home health services furnished during a 
period to offset the increase in payments resulting from the 
application of subsection (a).
    (c) No Effect on Subsequent Periods.--The payment increase 
provided under subsection (a) for a period under such 
subsection--
            (1) shall not apply to episodes and visits ending 
        after such period; and
            (2) shall not be taken into account in calculating 
        the payment amounts applicable for episodes and visits 
        occurring after such period.

SEC. 422. REDISTRIBUTION OF UNUSED RESIDENT POSITIONS.

    (a) In General.--Section 1886(h) (42 U.S.C. 1395ww(h)(4)) 
is amended--
            (1) in paragraph (4)(F)(i), by inserting ``subject 
        to paragraph (7),'' after ``October 1, 1997,'';
            (2) in paragraph (4)(H)(i), by inserting ``and 
        subject to paragraph (7)'' after ``subparagraphs (F) 
        and (G)''; and
            (3) by adding at the end the following new 
        paragraph:
            ``(7) Redistribution of unused resident 
        positions.--
                    ``(A) Reduction in limit based on unused 
                positions.--
                            ``(i) Programs subject to 
                        reduction.--
                                    ``(I) In general.--Except 
                                as provided in subclause (II), 
                                if a hospital's reference 
                                resident level (specified in 
                                clause (ii)) is less than the 
                                otherwise applicable resident 
                                limit (as defined in 
                                subparagraph (C)(ii)), 
                                effective for portions of cost 
                                reporting periods occurring on 
                                or after July 1, 2005, the 
                                otherwise applicable resident 
                                limit shall be reduced by 75 
                                percent of the difference 
                                between such otherwise 
                                applicable resident limit and 
                                such reference resident level.
                                    ``(II) Exception for small 
                                rural hospitals.--This 
                                subparagraph shall not apply to 
                                a hospital located in a rural 
                                area (as defined in subsection 
                                (d)(2)(D)(ii)) with fewer than 
                                250 acute care inpatient beds.
                            ``(ii) Reference resident level.--
                                    ``(I) In general.--Except 
                                as otherwise provided in 
                                subclauses (II) and (III), the 
                                reference resident level 
                                specified in this clause for a 
                                hospital is the resident level 
                                for the most recent cost 
                                reporting period of the 
                                hospital ending on or before 
                                September 30, 2002, for which a 
                                cost report has been settled 
                                (or, if not, submitted (subject 
                                to audit)), as determined by 
                                the Secretary.
                                    ``(II) Use of most recent 
                                accounting period to recognize 
                                expansion of existing 
                                programs.--If a hospital 
                                submits a timely request to 
                                increase its resident level due 
                                to an expansion of an existing 
                                residency training program that 
                                is not reflected on the most 
                                recent settled cost report, 
                                after audit and subject to the 
                                discretion of the Secretary, 
                                the reference resident level 
                                for such hospital is the 
                                resident level for the cost 
                                reporting period that includes 
                                July 1, 2003, as determined by 
                                the Secretary.
                                    ``(III) Expansions under 
                                newly approved programs.--Upon 
                                the timely request of a 
                                hospital, the Secretary shall 
                                adjust the reference resident 
                                level specified under subclause 
                                (I) or (II) to include the 
                                number of medical residents 
                                that were approved in an 
                                application for a medical 
                                residency training program that 
                                was approved by an appropriate 
                                accrediting organization (as 
                                determined by the Secretary) 
                                before January 1, 2002, but 
                                which was not in operation 
                                during the cost reporting 
                                period used under subclause (I) 
                                or (II), as the case may be, as 
                                determined by the Secretary.
                            ``(iii) Affiliation.--The 
                        provisions of clause (i) shall be 
                        applied to hospitals which are members 
                        of the same affiliated group (as 
                        defined by the Secretary under 
                        paragraph (4)(H)(ii)) as of July 1, 
                        2003.
                    ``(B) Redistribution.--
                            ``(i) In general.--The Secretary is 
                        authorized to increase the otherwise 
                        applicable resident limit for each 
                        qualifying hospital that submits a 
                        timely application under this 
                        subparagraph by such number as the 
                        Secretary may approve for portions of 
                        cost reporting periods occurring on or 
                        after July 1, 2005. The aggregate 
                        number of increases in the otherwise 
                        applicable resident limits under this 
                        subparagraph may not exceed the 
                        Secretary's estimate of the aggregate 
                        reduction in such limits attributable 
                        to subparagraph (A).
                            ``(ii) Considerations in 
                        redistribution.--In determining for 
                        which hospitals the increase in the 
                        otherwise applicable resident limit is 
                        provided under clause (i), the 
                        Secretary shall take into account the 
                        demonstrated likelihood of the hospital 
                        filling the positions within the first 
                        3 cost reporting periods beginning on 
                        or after July 1, 2005, made available 
                        under this subparagraph, as determined 
                        by the Secretary.
                            ``(iii) Priority for rural and 
                        small urban areas.--In determining for 
                        which hospitals and residency training 
                        programs an increase in the otherwise 
                        applicable resident limit is provided 
                        under clause (i), the Secretary shall 
                        distribute the increase to programs of 
                        hospitals located in the following 
                        priority order:
                                    ``(I) First, to hospitals 
                                located in rural areas (as 
                                defined in subsection 
                                (d)(2)(D)(ii)).
                                    ``(II) Second, to hospitals 
                                located in urban areas that are 
                                not large urban areas (as 
                                defined for purposes of 
                                subsection (d)).
                                    ``(III) Third, to other 
                                hospitals in a State if the 
                                residency training program 
                                involved is in a specialty for 
                                which there are not other 
                                residency training programs in 
                                the State.
                        Increases of residency limits within 
                        the same priority category under this 
                        clause shall be determined by the 
                        Secretary.
                            ``(iv) Limitation.--In no case 
                        shall more than 25 full-time equivalent 
                        additional residency positions be made 
                        available under this subparagraph with 
                        respect to any hospital.
                            ``(v) Application of locality 
                        adjusted national average per resident 
                        amount.--With respect to additional 
                        residency positions in a hospital 
                        attributable to the increase provided 
                        under this subparagraph, 
                        notwithstanding any other provision of 
                        this subsection, the approved FTE 
                        resident amount is deemed to be equal 
                        to the locality adjusted national 
                        average per resident amount computed 
                        under paragraph (4)(E) for that 
                        hospital.
                            ``(vi) Construction.--Nothing in 
                        this subparagraph shall be construed as 
                        permitting the redistribution of 
                        reductions in residency positions 
                        attributable to voluntary reduction 
                        programs under paragraph (6), under a 
                        demonstration project approved as of 
                        October 31, 2003, under the authority 
                        of section 402 of Public Law 90-248, or 
                        as affecting the ability of a hospital 
                        to establish new medical residency 
                        training programs under paragraph 
                        (4)(H).
                    ``(C) Resident level and limit defined.--In 
                this paragraph:
                            ``(i) Resident level.--The term 
                        `resident level' means, with respect to 
                        a hospital, the total number of full-
                        time equivalent residents, before the 
                        application of weighting factors (as 
                        determined under paragraph (4)), in the 
                        fields of allopathic and osteopathic 
                        medicine for the hospital.
                            ``(ii) Otherwise applicable 
                        resident limit.--The term `otherwise 
                        applicable resident limit' means, with 
                        respect to a hospital, the limit 
                        otherwise applicable under 
                        subparagraphs (F)(i) and (H) of 
                        paragraph (4) on the resident level for 
                        the hospital determined without regard 
                        to this paragraph.
                    ``(D) Judicial review.--There shall be no 
                administrative or judicial review under section 
                1869, 1878, or otherwise, with respect to 
                determinations made under this paragraph.''.
    (b) Conforming Provisions.--(1) Section 1886(d)(5)(B) (42 
U.S.C. 1395ww(d)(5)(B)) is amended--
            (A) in the second sentence of clause (ii), by 
        striking ``For discharges'' and inserting ``Subject to 
        clause (ix), for discharges'';
            (B) in clause (v), by adding at the end the 
        following: ``The provisions of subsection (h)(7) shall 
        apply with respect to the first sentence of this clause 
        in the same manner as it applies with respect to 
        subsection (h)(4)(F)(i).''; and
            (C) by adding at the end the following new clause:
            ``(ix) For discharges occurring on or after July 1, 
        2005, insofar as an additional payment amount under 
        this subparagraph is attributable to resident positions 
        redistributed to a hospital under subsection (h)(7)(B), 
        in computing the indirect teaching adjustment factor 
        under clause (ii) the adjustment shall be computed in a 
        manner as if `c' were equal to 0.66 with respect to 
        such resident positions.''.
    (2) Chapter 35 of title 44, United States Code, shall not 
apply with respect to applications under section 1886(h)(7) of 
the Social Security Act, as added by subsection (a)(3).
    (c) Report on Extension of Applications Under 
Redistribution Program.--Not later than July 1, 2005, the 
Secretary shall submit to Congress a report containing 
recommendations regarding whether to extend the deadline for 
applications for an increase in resident limits under section 
1886(h)(4)(I)(ii)(II) of the Social Security Act (as added by 
subsection (a)).

                      Subtitle D--Other Provisions

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

    (a) In General.--Section 1128B(b)(3) (42 U.S.C. 1320a-
7(b)(3)), as amended by section 101(e)(2), is amended--
            (1) in subparagraph (F), by striking ``and'' after 
        the semicolon at the end;
            (2) in subparagraph (G), by striking the period at 
        the end and inserting ``; and''; and
            (3) by adding at the end the following new 
        subparagraph:
                    ``(H) any remuneration between a health 
                center entity described under clause (i) or 
                (ii) of section 1905(l)(2)(B) and any 
                individual or entity providing goods, items, 
                services, donations, loans, or a combination 
                thereof, to such health center entity pursuant 
                to a contract, lease, grant, loan, or other 
                agreement, if such agreement contributes to the 
                ability of the health center entity to maintain 
                or increase the availability, or enhance the 
                quality, of services provided to a medically 
                underserved population served by the health 
                center entity.''.
    (b) Rulemaking for Exception for Health Center Entity 
Arrangements.--
            (1) Establishment.--
                    (A) In general.--The Secretary shall 
                establish, on an expedited basis, standards 
                relating to the exception described in section 
                1128B(b)(3)(H) of the Social Security Act, as 
                added by subsection (a), for health center 
                entity arrangements to the antikickback 
                penalties.
                    (B) Factors to consider.--The Secretary 
                shall consider the following factors, among 
                others, in establishing standards relating to 
                the exception for health center entity 
                arrangements under subparagraph (A):
                            (i) Whether the arrangement between 
                        the health center entity and the other 
                        party results in savings of Federal 
                        grant funds or increased revenues to 
                        the health center entity.
                            (ii) Whether the arrangement 
                        between the health center entity and 
                        the other party restricts or limits an 
                        individual's freedom of choice.
                            (iii) Whether the arrangement 
                        between the health center entity and 
                        the other party protects a health care 
                        professional's independent medical 
                        judgment regarding medically 
                        appropriate treatment.
                The Secretary may also include other standards 
                and criteria that are consistent with the 
                intent of Congress in enacting the exception 
                established under this section.
            (2) Deadline.--Not later than 1 year after the date 
        of the enactment of this Act the Secretary shall 
        publish final regulations establishing the standards 
        described in paragraph (1).

SEC. 432. OFFICE OF RURAL HEALTH POLICY IMPROVEMENTS.

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

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

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

SEC. 434. FRONTIER EXTENDED STAY CLINIC DEMONSTRATION PROJECT.

    (a) Authority To Conduct Demonstration Project.--The 
Secretary shall waive such provisions of the medicare program 
established under title XVIII of the Social Security Act (42 
U.S.C. 1395 et seq.) as are necessary to conduct a 
demonstration project under which frontier extended stay 
clinics described in subsection (b) in isolated rural areas are 
treated as providers of items and services under the medicare 
program.
    (b) Clinics Described.--A frontier extended stay clinic is 
described in this subsection if the clinic--
            (1) is located in a community where the closest 
        short-term acute care hospital or critical access 
        hospital is at least 75 miles away from the community 
        or is inaccessible by public road; and
            (2) is designed to address the needs of--
                    (A) seriously or critically ill or injured 
                patients who, due to adverse weather conditions 
                or other reasons, cannot be transferred quickly 
                to acute care referral centers; or
                    (B) patients who need monitoring and 
                observation for a limited period of time.
    (c) Specification of Codes.--The Secretary shall determine 
the appropriate life-safety codes for such clinics that treat 
patients for needs referred to in subsection (b)(2).
    (d) Funding.--
            (1) In general.--Subject to paragraph (2), there 
        are authorized to be appropriated, in appropriate part 
        from the Federal Hospital Insurance Trust Fund and the 
        Federal Supplementary Medical Insurance Trust Fund, 
        such sums as are necessary to conduct the demonstration 
        project under this section.
            (2) Budget neutral implementation.--In conducting 
        the demonstration project under this section, the 
        Secretary shall ensure that the aggregate payments made 
        by the Secretary under the medicare program do not 
        exceed the amount which the Secretary would have paid 
        under the medicare program if the demonstration project 
        under this section was not implemented.
    (e) 3-Year Period.--The Secretary shall conduct the 
demonstration under this section for a 3-year period.
    (f) Report.--Not later than the date that is 1 year after 
the date on which the demonstration project concludes, the 
Secretary shall submit to Congress a report on the 
demonstration project, together with such recommendations for 
legislation or administrative action as the Secretary 
determines appropriate.
    (g) Definitions.--In this section, the terms ``hospital'' 
and ``critical access hospital'' have the meanings given such 
terms in subsections (e) and (mm), respectively, of section 
1861 of the Social Security Act (42 U.S.C. 1395x).

                 TITLE V--PROVISIONS RELATING TO PART A

                Subtitle A--Inpatient Hospital Services

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

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

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

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

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

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

SEC. 504. INCREASE IN FEDERAL RATE FOR HOSPITALS IN PUERTO RICO.

    Section 1886(d)(9) (42 U.S.C. 1395ww(d)(9)) is amended--
            (1) in subparagraph (A)--
                    (A) in clause (i), by striking ``for 
                discharges beginning on or after October 1, 
                1997, 50 percent (and for discharges between 
                October 1, 1987, and September 30, 1997, 75 
                percent)'' and inserting ``the applicable 
                Puerto Rico percentage (specified in 
                subparagraph (E))''; and
                    (B) in clause (ii), by striking ``for 
                discharges beginning in a fiscal year beginning 
                on or after October 1, 1997, 50 percent (and 
                for discharges between October 1, 1987, and 
                September 30, 1997, 25 percent)'' and inserting 
                ``the applicable Federal percentage (specified 
                in subparagraph (E))''; and
            (2) by adding at the end the following new 
        subparagraph:
    ``(E) For purposes of subparagraph (A), for discharges 
occurring--
            ``(i) on or after October 1, 1987, and before 
        October 1, 1997, the applicable Puerto Rico percentage 
        is 75 percent and the applicable Federal percentage is 
        25 percent;
            ``(ii) on or after October 1, 1997, and before 
        April 1, 2004, the applicable Puerto Rico percentage is 
        50 percent and the applicable Federal percentage is 50 
        percent;
            ``(iii) on or after April 1, 2004, and before 
        October 1, 2004, the applicable Puerto Rico percentage 
        is 37.5 percent and the applicable Federal percentage 
        is 62.5 percent; and
            ``(iv) on or after October 1, 2004, the applicable 
        Puerto Rico percentage is 25 percent and the applicable 
        Federal percentage is 75 percent.''.

SEC. 505. WAGE INDEX ADJUSTMENT RECLASSIFICATION REFORM.

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

SEC. 506. LIMITATION ON CHARGES FOR INPATIENT HOSPITAL CONTRACT HEALTH 
                    SERVICES PROVIDED TO INDIANS BY MEDICARE 
                    PARTICIPATING HOSPITALS.

    (a) In General.--Section 1866(a)(1) (42 U.S.C. 
1395cc(a)(1)), as amended by section 505(b), is amended--
            (1) in subparagraph (S), by striking ``and'' at the 
        end;
            (2) in subparagraph (T), by striking the period and 
        inserting ``, and''; and
            (3) by inserting after subparagraph (T) the 
        following new subparagraph:
            ``(U) in the case of hospitals which furnish 
        inpatient hospital services for which payment may be 
        made under this title, to be a participating provider 
        of medical care both--
                    ``(i) under the contract health services 
                program funded by the Indian Health Service and 
                operated by the Indian Health Service, an 
                Indian tribe, or tribal organization (as those 
                terms are defined in section 4 of the Indian 
                Health Care Improvement Act), with respect to 
                items and services that are covered under such 
                program and furnished to an individual eligible 
                for such items and services under such program; 
                and
                    ``(ii) under any program funded by the 
                Indian Health Service and operated by an urban 
                Indian organization with respect to the 
                purchase of items and services for an eligible 
                urban Indian (as those terms are defined in 
                such section 4),

        in accordance with regulations promulgated by the 
        Secretary regarding admission practices, payment 
        methodology, and rates of payment (including the 
        acceptance of no more than such payment rate as payment 
        in full for such items and services.''.
    (b) Effective Date.--The amendments made by this section 
shall apply as of a date specified by the Secretary of Health 
and Human Services (but in no case later than 1 year after the 
date of enactment of this Act) to medicare participation 
agreements in effect (or entered into) on or after such date.
    (c) Promulgation of Regulations.--The Secretary shall 
promulgate regulations to carry out the amendments made by 
subsection (a).

SEC. 507. CLARIFICATIONS TO CERTAIN EXCEPTIONS TO MEDICARE LIMITS ON 
                    PHYSICIAN REFERRALS.

    (a) Limits on Physician Referrals.--
            (1) Ownership and investment interests in whole 
        hospitals.--
                    (A) In general.--Section 1877(d)(3) (42 
                U.S.C. 1395nn(d)(3)) is amended--
                            (i) by striking ``, and'' at the 
                        end of subparagraph (A) and inserting a 
                        semicolon; and
                            (ii) by redesignating subparagraph 
                        (B) as subparagraph (C) and inserting 
                        after subparagraph (A) the following 
                        new subparagraph:
                    ``(B) effective for the 18-month period 
                beginning on the date of the enactment of the 
                Medicare Prescription Drug, Improvement, and 
                Modernization Act of 2003, the hospital is not 
                a specialty hospital (as defined in subsection 
                (h)(7)); and''.
                    (B) Definition.--Section 1877(h) (42 U.S.C. 
                1395nn(h)) is amended by adding at the end the 
                following:
            ``(7) Specialty hospital.--
                    ``(A) In general.--For purposes of this 
                section, except as provided in subparagraph 
                (B), the term `specialty hospital' means a 
                subsection (d) hospital (as defined in section 
                1886(d)(1)(B)) that is primarily or exclusively 
                engaged in the care and treatment of one of the 
                following categories:
                            ``(i) Patients with a cardiac 
                        condition.
                            ``(ii) Patients with an orthopedic 
                        condition.
                            ``(iii) Patients receiving a 
                        surgical procedure.
                            ``(iv) Any other specialized 
                        category of services that the Secretary 
                        designates as inconsistent with the 
                        purpose of permitting physician 
                        ownership and investment interests in a 
                        hospital under this section.
                    ``(B) Exception.--For purposes of this 
                section, the term `specialty hospital' does not 
                include any hospital--
                            ``(i) determined by the Secretary--
                                    ``(I) to be in operation 
                                before November 18, 2003; or
                                    ``(II) under development as 
                                of such date;
                            ``(ii) for which the number of 
                        physician investors at any time on or 
                        after such date is no greater than the 
                        number of such investors as of such 
                        date;
                            ``(iii) for which the type of 
                        categories described in subparagraph 
                        (A) at any time on or after such date 
                        is no different than the type of such 
                        categories as of such date;
                            ``(iv) for which any increase in 
                        the number of beds occurs only in the 
                        facilities on the main campus of the 
                        hospital and does not exceed 50 percent 
                        of the number of beds in the hospital 
                        as of November 18, 2003, or 5 beds, 
                        whichever is greater; and
                            ``(v) that meets such other 
                        requirements as the Secretary may 
                        specify.''.
            (2) Ownership and investment interests in a rural 
        provider.--Section 1877(d)(2) (42 U.S.C. 1395nn(d)(2)) 
        is amended to read as follows:
            ``(2) Rural providers.--In the case of designated 
        health services furnished in a rural area (as defined 
        in section 1886(d)(2)(D)) by an entity, if--
                    ``(A) substantially all of the designated 
                health services furnished by the entity are 
                furnished to individuals residing in such a 
                rural area; and
                    ``(B) effective for the 18-month period 
                beginning on the date of the enactment of the 
                Medicare Prescription Drug, Improvement, and 
                Modernization Act of 2003, the entity is not a 
                specialty hospital (as defined in subsection 
                (h)(7)).''.
    (b) Application of Exception for Hospitals Under 
Development.--For purposes of section 1877(h)(7)(B)(i)(II) of 
the Social Security Act, as added by subsection (a)(1)(B), in 
determining whether a hospital is under development as of 
November 18, 2003, the Secretary shall consider--
            (1) whether architectural plans have been 
        completed, funding has been received, zoning 
        requirements have been met, and necessary approvals 
        from appropriate State agencies have been received; and
            (2) any other evidence the Secretary determines 
        would indicate whether a hospital is under development 
        as of such date.
    (c) Studies.--
            (1) MedPAC study.--The Medicare Payment Advisory 
        Commission, in consultation with the Comptroller 
        General of the United States, shall conduct a study to 
        determine--
                    (A) any differences in the costs of health 
                care services furnished to patients by 
                physician-owned specialty hospitals and the 
                costs of such services furnished by local full-
                service community hospitals within specific 
                diagnosis-related groups;
                    (B) the extent to which specialty 
                hospitals, relative to local full-service 
                community hospitals, treat patients in certain 
                diagnosis-related groups within a category, 
                such as cardiology, and an analysis of the 
                selection;
                    (C) the financial impact of physician-owned 
                specialty hospitals on local full-service 
                community hospitals;
                    (D) how the current diagnosis-related group 
                system should be updated to better reflect the 
                cost of delivering care in a hospital setting; 
                and
                    (E) the proportions of payments received, 
                by type of payer, between the specialty 
                hospitals and local full-service community 
                hospitals.
            (2) HHS study.--The Secretary shall conduct a study 
        of a representative sample of specialty hospitals--
                    (A) to determine the percentage of patients 
                admitted to physician-owned specialty hospitals 
                who are referred by physicians with an 
                ownership interest;
                    (B) to determine the referral patterns of 
                physician owners, including the percentage of 
                patients they referred to physician-owned 
                specialty hospitals and the percentage of 
                patients they referred to local full-service 
                community hospitals for the same condition;
                    (C) to compare the quality of care 
                furnished in physician-owned specialty 
                hospitals and in local full-service community 
                hospitals for similar conditions and patient 
                satisfaction with such care; and
                    (D) to assess the differences in 
                uncompensated care, as defined by the 
                Secretary, between the specialty hospital and 
                local full-service community hospitals, and the 
                relative value of any tax exemption available 
                to such hospitals.
            (3) Reports.--Not later than 15 months after the 
        date of the enactment of this Act, the Commission and 
        the Secretary, respectively, shall each submit to 
        Congress a report on the studies conducted under 
        paragraphs (1) and (2), respectively, and shall include 
        any recommendations for legislation or administrative 
        changes.

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

    (a) Establishment of Process.--
            (1) In general.--The Secretary shall establish not 
        later than January 1, 2004, by instruction or otherwise 
        a process under which a hospital may appeal the wage 
        index classification otherwise applicable to the 
        hospital and select another area within the State (or, 
        at the discretion of the Secretary, within a contiguous 
        State) to which to be reclassified.
            (2) Process requirements.--The process established 
        under paragraph (1) shall be consistent with the 
        following:
                    (A) Such an appeal may be filed as soon as 
                possible after the date of the enactment of 
                this Act but shall be filed by not later than 
                February 15, 2004.
                    (B) Such an appeal shall be heard by the 
                Medicare Geographic Reclassification Review 
                Board.
                    (C) There shall be no further 
                administrative or judicial review of a decision 
                of such Board.
            (3) Reclassification upon successful appeal.--If 
        the Medicare Geographic Reclassification Review Board 
        determines that the hospital is a qualifying hospital 
        (as defined in subsection (c)), the hospital shall be 
        reclassified to the area selected under paragraph (1). 
        Such reclassification shall apply with respect to 
        discharges occurring during the 3-year period beginning 
        with April 1, 2004.
            (4) Inapplicability of certain provisions.--Except 
        as the Secretary may provide, the provisions of 
        paragraphs (8) and (10) of section 1886(d) of the 
        Social Security Act (42 U.S.C. 1395ww(d)) shall not 
        apply to an appeal under this section.
    (b) Application of Reclassification.--In the case of an 
appeal decided in favor of a qualifying hospital under 
subsection (a), the wage index reclassification shall not 
affect the wage index computation for any area or for any other 
hospital and shall not be effected in a budget neutral manner. 
The provisions of this section shall not affect payment for 
discharges occurring after the end of the 3-year-period 
referred to in subsection (a).
    (c) Qualifying Hospital Defined.--For purposes of this 
section, the term ``qualifying hospital'' means a subsection 
(d) hospital (as defined in section 1886(d)(1)(B) of the Social 
Security Act, 42 U.S.C. 1395ww(d)(1)(B)) that--
            (1) does not qualify for a change in wage index 
        classification under paragraph (8) or (10) of section 
        1886(d) of the Social Security Act (42 U.S.C. 
        1395ww(d)) on the basis of requirements relating to 
        distance or commuting; and
            (2) meets such other criteria, such as quality, as 
        the Secretary may specify by instruction or otherwise.
The Secretary may modify the wage comparison guidelines 
promulgated under section 1886(d)(10)(D) of such Act (42 U.S.C. 
1395ww(d)(10)(D)) in carrying out this section.
    (d) Wage Index Classification.--For purposes of this 
section, the term ``wage index classification'' means the 
geographic area in which it is classified for purposes of 
determining for a fiscal year the factor used to adjust the DRG 
prospective payment rate under section 1886(d) of the Social 
Security Act (42 U.S.C. 1395ww(d)) for area differences in 
hospital wage levels that applies to such hospital under 
paragraph (3)(E) of such section.
    (e) Limitation on Expenditures.--The aggregate amount of 
additional expenditures resulting from the application of this 
section shall not exceed $900,000,000.
    (f) Transitional Extension.--Any reclassification of a 
county or other area made by Act of Congress for purposes of 
making payments under section 1886(d) of the Social Security 
Act (42 U.S.C. 1395ww(d)) that expired on September 30, 2003, 
shall be deemed to be in effect during the period beginning on 
January 1, 2004, and ending on September 30, 2004.

                      Subtitle B--Other Provisions

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

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

SEC. 512. COVERAGE OF HOSPICE CONSULTATION SERVICES.

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

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

    (a) Study.--The Comptroller General of the United States 
shall conduct a study of portable diagnostic ultrasound 
services furnished to medicare beneficiaries in skilled nursing 
facilities. Such study shall consider the following:
            (1) Types of equipment; training.--The types of 
        portable diagnostic ultrasound services furnished to 
        such beneficiaries, the types of portable ultrasound 
        equipment used to furnish such services, and the 
        technical skills, or training, or both, required for 
        technicians to furnish such services.
            (2) Clinical appropriateness.--The clinical 
        appropriateness of transporting portable diagnostic 
        ultrasound diagnostic and technicians to patients in 
        skilled nursing facilities as opposed to transporting 
        such patients to a hospital or other facility that 
        furnishes diagnostic ultrasound services.
            (3) Financial impact.--The financial impact if 
        Medicare were make a separate payment for portable 
        ultrasound diagnostic services, including the impact of 
        separate payments--
                    (A) for transportation and technician 
                services for residents during a resident in a 
                part A stay, that would otherwise be paid for 
                under the prospective payment system for 
                covered skilled nursing facility services 
                (under section 1888(e) of the Social Security 
                Act (42 U.S.C. 1395yy(e)); and
                    (B) for such services for residents in a 
                skilled nursing facility after a part A stay.
            (4) Credentialing requirements.--Whether the 
        Secretary should establish credentialing or other 
        requirements for technicians that furnish diagnostic 
        ultrasound services to medicare beneficiaries.
    (b) Report.--Not later than 2 years after the date of the 
enactment of this Act, the Comptroller General shall submit to 
Congress a report on the study conducted under subsection (a), 
and shall include any recommendations for legislation or 
administrative change as the Comptroller General determines 
appropriate.

                TITLE VI--PROVISIONS RELATING TO PART B

        Subtitle A--Provisions Relating to Physicians' Services

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

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

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

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

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

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

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

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

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

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

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

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

                    Subtitle B--Preventive Services

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

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

               ``Initial Preventive Physical Examination

    ``(ww)(1) The term `initial preventive physical 
examination' means physicians' services consisting of a 
physical examination (including measurement of height, weight, 
and blood pressure, and an electrocardiogram) with the goal of 
health promotion and disease detection and includes education, 
counseling, and referral with respect to screening and other 
preventive services described in paragraph (2), but does not 
include clinical laboratory tests.
    ``(2) The screening and other preventive services described 
in this paragraph include the following:
            ``(A) Pneumococcal, influenza, and hepatitis B 
        vaccine and administration under subsection (s)(10).
            ``(B) Screening mammography as defined in 
        subsection (jj).
            ``(C) Screening pap smear and screening pelvic exam 
        as defined in subsection (nn).
            ``(D) Prostate cancer screening tests as defined in 
        subsection (oo).
            ``(E) Colorectal cancer screening tests as defined 
        in subsection (pp).
            ``(F) Diabetes outpatient self-management training 
        services as defined in subsection (qq)(1).
            ``(G) Bone mass measurement as defined in 
        subsection (rr).
            ``(H) Screening for glaucoma as defined in 
        subsection (uu).
            ``(I) Medical nutrition therapy services as defined 
        in subsection (vv).
            ``(J) Cardiovascular screening blood tests as 
        defined in subsection (xx)(1).
            ``(K) Diabetes screening tests as defined in 
        subsection (yy).''.
    (c) Payment as Physicians' Services.--Section 1848(j)(3) 
(42 U.S.C. 1395w-4(j)(3)) is amended by inserting ``(2)(W),'' 
after ``(2)(S),''.
    (d) Other Conforming Amendments.--(1) Section 1862(a) (42 
U.S.C. 1395y(a)), as amended by section 303(i)(3)(B), is 
amended--
            (A) in paragraph (1)--
                    (i) by striking ``and'' at the end of 
                subparagraph (I);
                    (ii) by striking the semicolon at the end 
                of subparagraph (J) and inserting ``, and''; 
                and
                    (iii) by adding at the end the following 
                new subparagraph:
            ``(K) in the case of an initial preventive physical 
        examination, which is performed not later than 6 months 
        after the date the individual's first coverage period 
        begins under part B;''; a
            (B) in paragraph (7), by striking ``or (H)'' and 
        inserting ``(H), or (K)''.
    (2) Clauses (i) and (ii) of section 1861(s)(2)(K) (42 
U.S.C. 1395x(s)(2)(K)) are each amended by inserting ``and 
services described in subsection (ww)(1)'' after ``services 
which would be physicians' services''.
    (e) Effective Date.--The amendments made by this section 
shall apply to services furnished on or after January 1, 2005, 
but only for individuals whose coverage period under part B 
begins on or after such date.

SEC. 612. COVERAGE OF CARDIOVASCULAR SCREENING BLOOD TESTS.

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

                 ``Cardiovascular Screening Blood Test

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

SEC. 613. COVERAGE OF DIABETES SCREENING TESTS.

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

                       ``Diabetes Screening Tests

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

SEC. 614. IMPROVED PAYMENT FOR CERTAIN MAMMOGRAPHY SERVICES.

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

                      Subtitle C--Other Provisions

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

    (a) Payment for Drugs.--
            (1) Special rules for certain drugs and 
        biologicals.--Section 1833(t) (42 U.S.C. 1395l(t)), as 
        amended by section 411(b), is amended by inserting 
        after paragraph (13) the following new paragraphs:
            ``(14) Drug apc payment rates.--
                    ``(A) In general.--The amount of payment 
                under this subsection for a specified covered 
                outpatient drug (defined in subparagraph (B)) 
                that is furnished as part of a covered OPD 
                service (or group of services)--
                            ``(i) in 2004, in the case of--
                                    ``(I) a sole source drug 
                                shall in no case be less than 
                                88 percent, or exceed 95 
                                percent, of the reference 
                                average wholesale price for the 
                                drug;
                                    ``(II) an innovator 
                                multiple source drug shall in 
                                no case exceed 68 percent of 
                                the reference average wholesale 
                                price for the drug; or
                                    ``(III) a noninnovator 
                                multiple source drug shall in 
                                no case exceed 46 percent of 
                                the reference average wholesale 
                                price for the drug;
                            ``(ii) in 2005, in the case of--
                                    ``(I) a sole source drug 
                                shall in no case be less than 
                                83 percent, or exceed 95 
                                percent, of the reference 
                                average wholesale price for the 
                                drug;
                                    ``(II) an innovator 
                                multiple source drug shall in 
                                no case exceed 68 percent of 
                                the reference average wholesale 
                                price for the drug; or
                                    ``(III) a noninnovator 
                                multiple source drug shall in 
                                no case exceed 46 percent of 
                                the reference average wholesale 
                                price for the drug; or
                            ``(iii) in a subsequent year, shall 
                        be equal, subject to subparagraph (E)--
                                    ``(I) to the average 
                                acquisition cost for the drug 
                                for that year (which, at the 
                                option of the Secretary, may 
                                vary by hospital group (as 
                                defined by the Secretary based 
                                on volume of covered OPD 
                                services or other relevant 
                                characteristics)), as 
                                determined by the Secretary 
                                taking into account the 
                                hospital acquisition cost 
                                survey data under subparagraph 
                                (D); or
                                    ``(II) if hospital 
                                acquisition cost data are not 
                                available, the average price 
                                for the drug in the year 
                                established under section 
                                1842(o), section 1847A, or 
                                section 1847B, as the case may 
                                be, as calculated and adjusted 
                                by the Secretary as necessary 
                                for purposes of this paragraph.
                    ``(B) Specified covered outpatient drug 
                defined.--
                            ``(i) In general.--In this 
                        paragraph, the term `specified covered 
                        outpatient drug' means, subject to 
                        clause (ii), a covered outpatient drug 
                        (as defined in section 1927(k)(2)) for 
                        which a separate ambulatory payment 
                        classification group (APC) has been 
                        established and that is--
                                    ``(I) a 
                                radiopharmaceutical; or
                                    ``(II) a drug or biological 
                                for which payment was made 
                                under paragraph (6) (relating 
                                to pass-through payments) on or 
                                before December 31, 2002.
                            ``(ii) Exception.--Such term does 
                        not include--
                                    ``(I) a drug or biological 
                                for which payment is first made 
                                on or after January 1, 2003, 
                                under paragraph (6);
                                    ``(II) a drug or biological 
                                for which a temporary HCPCS 
                                code has not been assigned; or
                                    ``(III) during 2004 and 
                                2005, an orphan drug (as 
                                designated by the Secretary).
                    ``(C) Payment for designated orphan drugs 
                during 2004 and 2005.--The amount of payment 
                under this subsection for an orphan drug 
                designated by the Secretary under subparagraph 
                (B)(ii)(III) that is furnished as part of a 
                covered OPD service (or group of services) 
                during 2004 and 2005 shall equal such amount as 
                the Secretary may specify.
                    ``(D) Acquisition cost survey for hospital 
                outpatient drugs.--
                            ``(i) Annual gao surveys in 2004 
                        and 2005.--
                                    ``(I) In general.--The 
                                Comptroller General of the 
                                United States shall conduct a 
                                survey in each of 2004 and 2005 
                                to determine the hospital 
                                acquisition cost for each 
                                specified covered outpatient 
                                drug. Not later than April 1, 
                                2005, the Comptroller General 
                                shall furnish data from such 
                                surveys to the Secretary for 
                                use in setting the payment 
                                rates under subparagraph (A) 
                                for 2006.
                                    ``(II) Recommendations.--
                                Upon the completion of such 
                                surveys, the Comptroller 
                                General shall recommend to the 
                                Secretary the frequency and 
                                methodology of subsequent 
                                surveys to be conducted by the 
                                Secretary under clause (ii).
                            ``(ii) Subsequent secretarial 
                        surveys.--The Secretary, taking into 
                        account such recommendations, shall 
                        conduct periodic subsequent surveys to 
                        determine the hospital acquisition cost 
                        for each specified covered outpatient 
                        drug for use in setting the payment 
                        rates under subparagraph (A).
                            ``(iii) Survey requirements.--The 
                        surveys conducted under clauses (i) and 
                        (ii) shall have a large sample of 
                        hospitals that is sufficient to 
                        generate a statistically significant 
                        estimate of the average hospital 
                        acquisition cost for each specified 
                        covered outpatient drug. With respect 
                        to the surveys conducted under clause 
                        (i), the Comptroller General shall 
                        report to Congress on the justification 
                        for the size of the sample used in 
                        order to assure the validity of such 
                        estimates.
                            ``(iv) Differentiation in cost.--In 
                        conducting surveys under clause (i), 
                        the Comptroller General shall determine 
                        and report to Congress if there is (and 
                        the extent of any) variation in 
                        hospital acquisition costs for drugs 
                        among hospitals based on the volume of 
                        covered OPD services performed by such 
                        hospitals or other relevant 
                        characteristics of such hospitals (as 
                        defined by the Comptroller General).
                            ``(v) Comment on proposed rates.--
                        Not later than 30 days after the date 
                        the Secretary promulgated proposed 
                        rules setting forth the payment rates 
                        under subparagraph (A) for 2006, the 
                        Comptroller General shall evaluate such 
                        proposed rates and submit to Congress a 
                        report regarding the appropriateness of 
                        such rates based on the surveys the 
                        Comptroller General has conducted under 
                        clause (i).
                    ``(E) Adjustment in payment rates for 
                overhead costs.--
                            ``(i) Medpac report on drug apc 
                        design.--The Medicare Payment Advisory 
                        Commission shall submit to the 
                        Secretary, not later than July 1, 2005, 
                        a report on adjustment of payment for 
                        ambulatory payment classifications for 
                        specified covered outpatient drugs to 
                        take into account overhead and related 
                        expenses, such as pharmacy services and 
                        handling costs. Such report shall 
                        include--
                                    ``(I) a description and 
                                analysis of the data available 
                                with regard to such expenses;
                                    ``(II) a recommendation as 
                                to whether such a payment 
                                adjustment should be made; and
                                    ``(III) if such adjustment 
                                should be made, a 
                                recommendation regarding the 
                                methodology for making such an 
                                adjustment.
                            ``(ii) Adjustment authorized.--The 
                        Secretary may adjust the weights for 
                        ambulatory payment classifications for 
                        specified covered outpatient drugs to 
                        take into account the recommendations 
                        contained in the report submitted under 
                        clause (i).
                    ``(F) Classes of drugs.--For purposes of 
                this paragraph:
                            ``(i) Sole source drugs.--The term 
                        `sole source drug' means--
                                    ``(I) a biological product 
                                (as defined under section 
                                1861(t)(1)); or
                                    ``(II) a single source drug 
                                (as defined in section 
                                1927(k)(7)(A)(iv)).
                            ``(ii) Innovator multiple source 
                        drugs.--The term `innovator multiple 
                        source drug' has the meaning given such 
                        term in section 1927(k)(7)(A)(ii).
                            ``(iii) Noninnovator multiple 
                        source drugs.--The term `noninnovator 
                        multiple source drug' has the meaning 
                        given such term in section 
                        1927(k)(7)(A)(iii).
                    ``(G) Reference average wholesale price.--
                The term `reference average wholesale price' 
                means, with respect to a specified covered 
                outpatient drug, the average wholesale price 
                for the drug as determined under section 
                1842(o) as of May 1, 2003.
                    ``(H) Inapplicability of expenditures in 
                determining conversion, weighting, and other 
                adjustment factors.--Additional expenditures 
                resulting from this paragraph shall not be 
                taken into account in establishing the 
                conversion, weighting, and other adjustment 
                factors for 2004 and 2005 under paragraph (9), 
                but shall be taken into account for subsequent 
                years.
            ``(15) Payment for new drugs and biologicals until 
        hcpcs code assigned.--With respect to payment under 
        this part for an outpatient drug or biological that is 
        covered under this part and is furnished as part of 
        covered OPD services for which a HCPCS code has not 
        been assigned, the amount provided for payment for such 
        drug or biological under this part shall be equal to 95 
        percent of the average wholesale price for the drug or 
        biological.''.
            (2) Reduction in threshold for separate apcs for 
        drugs.--Section 1833(t)(16), as redesignated section 
        411(b), is amended by adding at the end the following 
        new subparagraph:
                    ``(B) Threshold for establishment of 
                separate apcs for drugs.--The Secretary shall 
                reduce the threshold for the establishment of 
                separate ambulatory payment classification 
                groups (APCs) with respect to drugs or 
                biologicals to $50 per administration for drugs 
                and biologicals furnished in 2005 and 2006.''.
            (3) Exclusion of separate drug apcs from outlier 
        payments.--Section 1833(t)(5) is amended by adding at 
        the end the following new subparagraph:
                    ``(E) Exclusion of separate drug and 
                biological apcs from outlier payments.--No 
                additional payment shall be made under 
                subparagraph (A) in the case of ambulatory 
                payment classification groups established 
                separately for drugs or biologicals.''.
            (4) Payment for pass through drugs.--Section 
        1833(t)(6)(D)(i) (42 U.S.C. 1395l(t)(6)(D)(i)) is 
        amended by inserting after ``under section 1842(o)'' 
        the following: ``(or if the drug or biological is 
        covered under a competitive acquisition contract under 
        section 1847B, an amount determined by the Secretary 
        equal to the average price for the drug or biological 
        for all competitive acquisition areas and year 
        established under such section as calculated and 
        adjusted by the Secretary for purposes of this 
        paragraph)''.
            (5) Conforming amendment to budget neutrality 
        requirement.--Section 1833(t)(9)(B) (42 U.S.C. 
        1395l(t)(9)(B)) is amended by adding at the end the 
        following: ``In determining adjustments under the 
        preceding sentence for 2004 and 2005, the Secretary 
        shall not take into account under this subparagraph or 
        paragraph (2)(E) any expenditures that would not have 
        been made but for the application of paragraph (14).''.
            (6) Effective date.--The amendments made by this 
        subsection shall apply to items and services furnished 
        on or after January 1, 2004.
    (b) Special Payment for Brachytherapy.--
            (1) In general.--Section 1833(t)(16), as 
        redesignated by section 411(b) and as amended by 
        subsection (a)(2), is amended by adding at the end the 
        following new subparagraph:
                    ``(C) Payment for devices of brachytherapy 
                at charges adjusted to cost.--Notwithstanding 
                the preceding provisions of this subsection, 
                for a device of brachytherapy consisting of a 
                seed or seeds (or radioactive source) furnished 
                on or after January 1, 2004, and before January 
                1, 2007, the payment basis for the device under 
                this subsection shall be equal to the 
                hospital's charges for each device furnished, 
                adjusted to cost. Charges for such devices 
                shall not be included in determining any 
                outlier payment under this subsection.''.
            (2) Specification of groups for brachytherapy 
        devices.--Section 1833(t)(2) (42 U.S.C. 1395l(t)(2)) is 
        amended--
                    (A) in subparagraph (F), by striking 
                ``and'' at the end;
                    (B) in subparagraph (G), by striking the 
                period at the end and inserting ``; and''; and
                    (C) by adding at the end the following new 
                subparagraph:
                    ``(H) with respect to devices of 
                brachytherapy consisting of a seed or seeds (or 
                radioactive source), the Secretary shall create 
                additional groups of covered OPD services that 
                classify such devices separately from the other 
                services (or group of services) paid for under 
                this subsection in a manner reflecting the 
                number, isotope, and radioactive intensity of 
                such devices furnished, including separate 
                groups for palladium-103 and iodine-125 
                devices.''.
            (3) GAO report.--The Comptroller General of the 
        United States shall conduct a study to determine 
        appropriate payment amounts under section 
        1833(t)(16)(C) of the Social Security Act, as added by 
        paragraph (1), for devices of brachytherapy. Not later 
        than January 1, 2005, the Comptroller General shall 
        submit to Congress and the Secretary a report on the 
        study conducted under this paragraph, and shall include 
        specific recommendations for appropriate payments for 
        such devices.

SEC. 622. LIMITATION OF APPLICATION OF FUNCTIONAL EQUIVALENCE STANDARD.

    Section 1833(t)(6) (42 U.S.C. 1395l(t)(6)) is amended by 
adding at the end the following new subparagraph:
                    ``(F) Limitation of application of 
                functional equivalence standard.--
                            ``(i) In general.--The Secretary 
                        may not publish regulations that apply 
                        a functional equivalence standard to a 
                        drug or biological under this 
                        paragraph.
                            ``(ii) Application.--Clause (i) 
                        shall apply to the application of a 
                        functional equivalence standard to a 
                        drug or biological on or after the date 
                        of enactment of the Medicare 
                        Prescription Drug, Improvement, and 
                        Modernization Act of 2003 unless--
                                    ``(I) such application was 
                                being made to such drug or 
                                biological prior to such date 
                                of enactment; and
                                    ``(II) the Secretary 
                                applies such standard to such 
                                drug or biological only for the 
                                purpose of determining 
                                eligibility of such drug or 
                                biological for additional 
                                payments under this paragraph 
                                and not for the purpose of any 
                                other payments under this 
                                title.
                            ``(iii) Rule of construction.--
                        Nothing in this subparagraph shall be 
                        construed to effect the Secretary's 
                        authority to deem a particular drug to 
                        be identical to another drug if the 2 
                        products are pharmaceutically 
                        equivalent and bioequivalent, as 
                        determined by the Commissioner of Food 
                        and Drugs.''.

SEC. 623. PAYMENT FOR RENAL DIALYSIS SERVICES.

    (a) Increase in Renal Dialysis Composite Rate for Services 
Furnished.--The last sentence of section 1881(b)(7) (42 U.S.C. 
1395rr(b)(7)) is amended--
            (1) by striking ``and'' before ``for such 
        services'' the second place it appears;
            (2) by inserting ``and before January 1, 2005,'' 
        after ``January 1, 2001,''; and
            (3) by inserting before the period at the end the 
        following: ``, and for such services furnished on or 
        after January 1, 2005, by 1.6 percent above such 
        composite rate payment amounts for such services 
        furnished on December 31, 2004''.
    (b) Restoring Composite Rate Exceptions for Pediatric 
Facilities.--
            (1) In general.--Section 422(a)(2) of BIPA is 
        amended--
                    (A) in subparagraph (A), by striking ``and 
                (C)'' and inserting ``, (C), and (D)'';
                    (B) in subparagraph (B), by striking ``In 
                the case'' and inserting ``Subject to 
                subparagraph (D), in the case''; and
                    (C) by adding at the end the following new 
                subparagraph:
                    ``(D) Inapplicability to pediatric 
                facilities.--Subparagraphs (A) and (B) shall 
                not apply, as of October 1, 2002, to pediatric 
                facilities that do not have an exception rate 
                described in subparagraph (C) in effect on such 
                date. For purposes of this subparagraph, the 
                term `pediatric facility' means a renal 
                facility at least 50 percent of whose patients 
                are individuals under 18 years of age.''.
            (2) Conforming amendment.--The fourth sentence of 
        section 1881(b)(7) (42 U.S.C. 1395rr(b)(7)) is amended 
        by striking ``The Secretary'' and inserting ``Subject 
        to section 422(a)(2) of the Medicare, Medicaid, and 
        SCHIP Benefits Improvement and Protection Act of 2000, 
        the Secretary''.
    (c) Inspector General Studies on ESRD Drugs.--
            (1) In general.--The Inspector General of the 
        Department of Health and Human Services shall conduct 
        two studies with respect to drugs and biologicals 
        (including erythropoietin) furnished to end-stage renal 
        disease patients under the medicare program which are 
        separately billed by end stage renal disease 
        facilities.
            (2) Studies on esrd drugs.--
                    (A) Existing drugs.--The first study under 
                paragraph (1) shall be conducted with respect 
                to such drugs and biologicals for which a 
                billing code exists prior to January 1, 2004.
                    (B) New drugs.--The second study under 
                paragraph (1) shall be conducted with respect 
                to such drugs and biologicals for which a 
                billing code does not exist prior to January 1, 
                2004.
            (3) Matters studied.--Under each study conducted 
        under paragraph (1), the Inspector General shall--
                    (A) determine the difference between the 
                amount of payment made to end stage renal 
                disease facilities under title XVIII of the 
                Social Security Act for such drugs and 
                biologicals and the acquisition costs of such 
                facilities for such drugs and biologicals and 
                which are separately billed by end stage renal 
                disease facilities, and
                    (B) estimate the rates of growth of 
                expenditures for such drugs and biologicals 
                billed by such facilities.
            (4) Reports.--
                    (A) Existing esrd drugs.--Not later than 
                April 1, 2004, the Inspector General shall 
                report to the Secretary on the study described 
                in paragraph (2)(A).
                    (B) New esrd drugs.--Not later than April 
                1, 2006, the Inspector General shall report to 
                the Secretary on the study described in 
                paragraph (2)(B).
    (d) Basic Case-Mix Adjusted Composite Rate for Renal 
Dialysis Facility Services.--(1) Section 1881(b) (42 U.S.C. 
1395rr(b)) is amended by adding at the end the following new 
paragraphs:
    ``(12)(A) In lieu of payment under paragraph (7) beginning 
with services furnished on January 1, 2005, the Secretary shall 
establish a basic case-mix adjusted prospective payment system 
for dialysis services furnished by providers of services and 
renal dialysis facilities in a year to individuals in a 
facility and to such individuals at home. The case-mix under 
such system shall be for a limited number of patient 
characteristics.
    ``(B) The system described in subparagraph (A) shall 
include--
            ``(i) the services comprising the composite rate 
        established under paragraph (7); and
            ``(ii) the difference between payment amounts under 
        this title for separately billed drugs and biologicals 
        (including erythropoietin) and acquisition costs of 
        such drugs and biologicals, as determined by the 
        Inspector General reports to the Secretary as required 
        by section 623(c) of the Medicare Prescription Drug, 
        Improvement, and Modernization Act of 2003--
                    ``(I) beginning with 2005, for such drugs 
                and biologicals for which a billing code exists 
                prior to January 1, 2004; and
                    ``(II) beginning with 2007, for such drugs 
                and biologicals for which a billing code does 
                not exist prior to January 1, 2004,
        adjusted to 2005, or 2007, respectively, as determined 
        to be appropriate by the Secretary.
    ``(C)(i) In applying subparagraph (B)(ii) for 2005, such 
payment amounts under this title shall be determined using the 
methodology specified in paragraph (13)(A)(i).
    ``(ii) For 2006, the Secretary shall provide for an 
adjustment to the payments under clause (i) to reflect the 
difference between the payment amounts using the methodology 
under paragraph (13)(A)(i) and the payment amount determined 
using the methodology applied by the Secretary under paragraph 
(13)(A)(iii) of such paragraph, as estimated by the Secretary.
    ``(D) The Secretary shall adjust the payment rates under 
such system by a geographic index as the Secretary determines 
to be appropriate. If the Secretary applies a geographic index 
under this paragraph that differs from the index applied under 
paragraph (7) the Secretary shall phase-in the application of 
the index under this paragraph over a multiyear period.
    ``(E)(i) Such system shall be designed to result in the 
same aggregate amount of expenditures for such services, as 
estimated by the Secretary, as would have been made for 2005 if 
this paragraph did not apply.
    ``(ii) The adjustment made under subparagraph (B)(ii)(II) 
shall be done in a manner to result in the same aggregate 
amount of expenditures after such adjustment as would otherwise 
have been made for such services for 2006 or 2007, 
respectively, as estimated by the Secretary, if this paragraph 
did not apply.
    ``(F) Beginning with 2006, the Secretary shall annually 
increase the basic case-mix adjusted payment amounts 
established under this paragraph, by an amount determined by--
            ``(i) applying the estimated growth in expenditures 
        for drugs and biologicals (including erythropoietin) 
        that are separately billable to the component of the 
        basic case-mix adjusted system described in 
        subparagraph (B)(ii); and
            ``(ii) converting the amount determined in clause 
        (i) to an increase applicable to the basic case-mix 
        adjusted payment amounts established under subparagraph 
        (B).
Nothing in this paragraph shall be construed as providing for 
an update to the composite rate component of the basic case-mix 
adjusted system under subparagraph (B).
    ``(G) There shall be no administrative or judicial review 
under section 1869, section 1878, or otherwise, of the case-mix 
system, relative weights, payment amounts, the geographic 
adjustment factor, or the update for the system established 
under this paragraph, or the determination of the difference 
between medicare payment amounts and acquisition costs for 
separately billed drugs and biologicals (including 
erythropoietin) under this paragraph and paragraph (13).
    ``(13)(A) The payment amounts under this title for 
separately billed drugs and biologicals furnished in a year, 
beginning with 2004, are as follows:
            ``(i) For such drugs and biologicals (other than 
        erythropoietin) furnished in 2004, the amount 
        determined under section 1842(o)(1)(A)(v) for the drug 
        or biological.
            ``(ii) For such drugs and biologicals (including 
        erythropoietin) furnished in 2005, the acquisition cost 
        of the drug or biological, as determined by the 
        Inspector General reports to the Secretary as required 
        by section 623(c) of the Medicare Prescription Drug, 
        Improvement, and Modernization Act of 2003. Insofar as 
        the Inspector General has not determined the 
        acquisition cost with respect to a drug or biological, 
        the Secretary shall determine the payment amount for 
        such drug or biological.
            ``(iii) For such drugs and biologicals (including 
        erythropoietin) furnished in 2006 and subsequent years, 
        such acquisition cost or the amount determined under 
        section 1847A for the drug or biological, as the 
        Secretary may specify.
    ``(B)(i) Drugs and biologicals (including erythropoietin) 
which were separately billed under this subsection on the day 
before the date of the enactment of the Medicare Prescription 
Drug, Improvement, and Modernization Act of 2003 shall continue 
to be separately billed on and after such date.
    ``(ii) Nothing in this paragraph, section 1842(o), section 
1847A, or section 1847B shall be construed as requiring or 
authorizing the bundling of payment for drugs and biologicals 
into the basic case-mix adjusted payment system under this 
paragraph.''.
    (2) Paragraph (7) of such section is amended in the first 
sentence by striking ``The Secretary'' and inserting ``Subject 
to paragraph (12), the Secretary''.
    (3) Paragraph (11)(B) of such section is amended by 
inserting ``subject to paragraphs (12) and (13)'' before 
``payment for such item''.
    (e) Demonstration of Bundled Case-Mix Adjusted Payment 
System for ESRD Services.--
            (1) In general.--The Secretary shall establish a 
        demonstration project of the use of a fully case-mix 
        adjusted payment system for end stage renal disease 
        services under section 1881 of the Social Security Act 
        (42 U.S.C. 1395rr) for patient characteristics 
        identified in the report under subsection (f) that 
        bundles into such payment rates amounts for--
                    (A) drugs and biologicals (including 
                erythropoietin) furnished to end stage renal 
                disease patients under the medicare program 
                which are separately billed by end stage renal 
                disease facilities (as of the date of the 
                enactment of this Act); and
                    (B) clinical laboratory tests related to 
                such drugs and biologicals.
            (2) Facilities included in the demonstration.--In 
        conducting the demonstration under this subsection, the 
        Secretary shall ensure the participation of a 
        sufficient number of providers of dialysis services and 
        renal dialysis facilities, but in no case to exceed 
        500. In selecting such providers and facilities, the 
        Secretary shall ensure that the following types of 
        providers are included in the demonstration:
                    (A) Urban providers and facilities.
                    (B) Rural providers and facilities.
                    (C) Not-for-profit providers and 
                facilities.
                    (D) For-profit providers and facilities.
                    (E) Independent providers and facilities.
                    (F) Specialty providers and facilities, 
                including pediatric providers and facilities 
                and small providers and facilities.
            (3) Temporary add-on payment for dialysis services 
        furnished under the demonstration.--
                    (A) In general.--During the period of the 
                demonstration project, the Secretary shall 
                increase payment rates that would otherwise 
                apply under section 1881(b) of such Act (42 
                U.S.C. 1395rr(b)) by 1.6 percent for dialysis 
                services furnished in facilities in the 
                demonstration site.
                    (B) Rules of construction.--Nothing in this 
                subsection shall be construed as--
                            (i) as an annual update under 
                        section 1881(b) of the Social Security 
                        Act (42 U.S.C. 1395rr(b));
                            (ii) as increasing the baseline for 
                        payments under such section; or
                            (iii) requiring the budget neutral 
                        implementation of the demonstration 
                        project under this subsection.
            (4) 3-year period.--The Secretary shall conduct the 
        demonstration under this subsection for the 3-year 
        period beginning on January 1, 2006.
            (5) Use of advisory board.--
                    (A) In general.--In carrying out the 
                demonstration under this subsection, the 
                Secretary shall establish an advisory board 
                comprised of representatives described in 
                subparagraph (B) to provide advice and 
                recommendations with respect to the 
                establishment and operation of such 
                demonstration.
                    (B) Representatives.--Representatives 
                referred to in subparagraph (A) include 
                representatives of the following:
                            (i) Patient organizations.
                            (ii) Individuals with expertise in 
                        end stage renal dialysis services, such 
                        as clinicians, economists, and 
                        researchers.
                            (iii) The Medicare Payment Advisory 
                        Commission, established under section 
                        1805 of the Social Security Act (42 
                        U.S.C. 1395b-6).
                            (iv) The National Institutes of 
                        Health.
                            (v) Network organizations under 
                        section 1881(c) of the Social Security 
                        Act (42 U.S.C. 1395rr(c)).
                            (vi) Medicare contractors to 
                        monitor quality of care.
                            (vii) Providers of services and 
                        renal dialysis facilities furnishing 
                        end stage renal disease services.
                    (C) Termination of advisory panel.--The 
                advisory panel shall terminate on December 31, 
                2008.
            (6) Authorization of appropriations.--There are 
        authorized to be appropriated, in appropriate part from 
        the Federal Hospital Insurance Trust Fund and the 
        Federal Supplementary Medical Insurance Trust Fund, 
        $5,000,000 in fiscal year 2006 to conduct the 
        demonstration under this subsection.
    (f) Report on a Bundled Prospective Payment System for End 
Stage Renal Disease Services.--
            (1) Report.--
                    (A) In general.--Not later than October 1, 
                2005, the Secretary shall submit to Congress a 
                report detailing the elements and features for 
                the design and implementation of a bundled 
                prospective payment system for services 
                furnished by end stage renal disease facilities 
                including, to the maximum extent feasible, 
                bundling of drugs, clinical laboratory tests, 
                and other items that are separately billed by 
                such facilities. The report shall include a 
                description of the methodology to be used for 
                the establishment of payment rates, including 
                components of the new system described in 
                paragraph (2).
                    (B) Recommendations.--The Secretary shall 
                include in such report recommendations on 
                elements, features, and methodology for a 
                bundled prospective payment system or other 
                issues related to such system as the Secretary 
                determines to be appropriate.
            (2) Elements and features of a bundled prospective 
        payment system.--The report required under paragraph 
        (1) shall include the following elements and features 
        of a bundled prospective payment system:
                    (A) Bundle of items and services.--A 
                description of the bundle of items and services 
                to be included under the prospective payment 
                system.
                    (B) Case mix.--A description of the case-
                mix adjustment to account for the relative 
                resource use of different types of patients.
                    (C) Wage index.--A description of an 
                adjustment to account for geographic 
                differences in wages.
                    (D) Rural areas.--The appropriateness of 
                establishing a specific payment adjustment to 
                account for additional costs incurred by rural 
                facilities.
                    (E) Other adjustments.--Such other 
                adjustments as may be necessary to reflect the 
                variation in costs incurred by facilities in 
                caring for patients with end stage renal 
                disease.
                    (F) Update framework.--A methodology for 
                appropriate updates under the prospective 
                payment system.
                    (G) Additional recommendations.--Such other 
                matters as the Secretary determines to be 
                appropriate.

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

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

SEC. 625. WAIVER OF PART B LATE ENROLLMENT PENALTY FOR CERTAIN MILITARY 
                    RETIREES; SPECIAL ENROLLMENT PERIOD.

    (a) Waiver of Penalty.--
            (1) In general.--Section 1839(b) (42 U.S.C. 
        1395r(b)) is amended by adding at the end the following 
        new sentence: ``No increase in the premium shall be 
        effected for a month in the case of an individual who 
        enrolls under this part during 2001, 2002, 2003, or 
        2004 and who demonstrates to the Secretary before 
        December 31, 2004, that the individual is a covered 
        beneficiary (as defined in section 1072(5) of title 10, 
        United States Code). The Secretary of Health and Human 
        Services shall consult with the Secretary of Defense in 
        identifying individuals described in the previous 
        sentence.''.
            (2) Effective date.--The amendment made by 
        paragraph (1) shall apply to premiums for months 
        beginning with January 2004. The Secretary shall 
        establish a method for providing rebates of premium 
        penalties paid for months on or after January 2004 for 
        which a penalty does not apply under such amendment but 
        for which a penalty was previously collected.
    (b) Medicare Part B Special Enrollment Period.--
            (1) In general.--In the case of any individual who, 
        as of the date of the enactment of this Act, is 
        eligible to enroll but is not enrolled under part B of 
        title XVIII of the Social Security Act and is a covered 
        beneficiary (as defined in section 1072(5) of title 10, 
        United States Code), the Secretary of Health and Human 
        Services shall provide for a special enrollment period 
        during which the individual may enroll under such part. 
        Such period shall begin as soon as possible after the 
        date of the enactment of this Act and shall end on 
        December 31, 2004.
            (2) Coverage period.--In the case of an individual 
        who enrolls during the special enrollment period 
        provided under paragraph (1), the coverage period under 
        part B of title XVIII of the Social Security Act shall 
        begin on the first day of the month following the month 
        in which the individual enrolls.

SEC. 626. PAYMENT FOR SERVICES FURNISHED IN AMBULATORY SURGICAL 
                    CENTERS.

    (a) Reductions in Payment Updates.--Section 1833(i)(2)(C) 
(42 U.S.C. 1395l(i)(2)(C)) is amended to read as follows:
    ``(C)(i) Notwithstanding the second sentence of each of 
subparagraphs (A) and (B), except as otherwise specified in 
clauses (ii), (iii), and (iv), if the Secretary has not updated 
amounts established under such subparagraphs or under 
subparagraph (D), with respect to facility services furnished 
during a fiscal year (beginning with fiscal year 1986 or a 
calendar year (beginning with 2006)), such amounts shall be 
increased by the percentage increase in the Consumer Price 
Index for all urban consumers (U.S. city average) as estimated 
by the Secretary for the 12-month period ending with the 
midpoint of the year involved.
    ``(ii) In each of the fiscal years 1998 through 2002, the 
increase under this subparagraph shall be reduced (but not 
below zero) by 2.0 percentage points.
    ``(iii) In fiscal year 2004, beginning with April 1, 2004, 
the increase under this subparagraph shall be the Consumer 
Price Index for all urban consumers (U.S. city average) as 
estimated by the Secretary for the 12-month period ending with 
March 31, 2003, minus 3.0 percentage points.
    ``(iv) In fiscal year 2005, the last quarter of calendar 
year 2005, and each of calendar years 2006 through 2009, the 
increase under this subparagraph shall be 0 percent.''.
    (b) Repeal of Survey Requirement and Implementation of New 
System.--Section 1833(i)(2) (42 U.S.C. 1395l(i)(2)) is 
amended--
            (1) in subparagraph (A)--
                    (A) in the matter preceding clause (i), by 
                striking ``The'' and inserting ``For services 
                furnished prior to the implementation of the 
                system described in subparagraph (D), the''; 
                and
                    (B) in clause (i), by striking ``taken not 
                later than January 1, 1995, and every 5 years 
                thereafter,''; and
            (2) by adding at the end the following new 
        subparagraph:
    ``(D)(i) Taking into account the recommendations in the 
report under section 626(d) of Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003, the Secretary shall 
implement a revised payment system for payment of surgical 
services furnished in ambulatory surgical centers.
    ``(ii) In the year the system described in clause (i) is 
implemented, such system shall be designed to result in the 
same aggregate amount of expenditures for such services as 
would be made if this subparagraph did not apply, as estimated 
by the Secretary.
    ``(iii) The Secretary shall implement the system described 
in clause (i) for periods in a manner so that it is first 
effective beginning on or after January 1, 2006, and not later 
than January 1, 2008.
    ``(iv) There shall be no administrative or judicial review 
under section 1869, 1878, or otherwise, of the classification 
system, the relative weights, payment amounts, and the 
geographic adjustment factor, if any, under this 
subparagraph.''.
    (c) Conforming Amendment.--Section 1833(a)(1) (42 U.S.C. 
1395l(a)(1)) is amended by adding the following new 
subparagraph:
                    ``(G) with respect to facility services 
                furnished in connection with a surgical 
                procedure specified pursuant to subsection 
                (i)(1)(A) and furnished to an individual in an 
                ambulatory surgical center described in such 
                subsection, for services furnished beginning 
                with the implementation date of a revised 
                payment system for such services in such 
                facilities specified in subsection (i)(2)(D), 
                the amounts paid shall be 80 percent of the 
                lesser of the actual charge for the services or 
                the amount determined by the Secretary under 
                such revised payment system,''.
    (d) GAO Study of Ambulatory Surgical Center Payments.--
            (1) Study.--
                    (A) In general.--The Comptroller General of 
                the United States shall conduct a study that 
                compares the relative costs of procedures 
                furnished in ambulatory surgical centers to the 
                relative costs of procedures furnished in 
                hospital outpatient departments under section 
                1833(t) of the Social Security Act (42 U.S.C. 
                1395l(t)). The study shall also examine how 
                accurately ambulatory payment categories 
                reflect procedures furnished in ambulatory 
                surgical centers.
                    (B) Consideration of asc data.--In 
                conducting the study under paragraph (1), the 
                Comptroller General shall consider data 
                submitted by ambulatory surgical centers 
                regarding the matters described in clauses (i) 
                through (iii) of paragraph (2)(B).
            (2) Report and recommendations.--
                    (A) Report.--Not later than January 1, 
                2005, the Comptroller General shall submit to 
                Congress a report on the study conducted under 
                paragraph (1).
                    (B) Recommendations.--The report submitted 
                under subparagraph (A) shall include 
                recommendations on the following matters:
                            (i) The appropriateness of using 
                        the groups of covered services and 
                        relative weights established under the 
                        outpatient prospective payment system 
                        as the basis of payment for ambulatory 
                        surgical centers.
                            (ii) If the relative weights under 
                        such hospital outpatient prospective 
                        payment system are appropriate for such 
                        purpose--
                                    (I) whether the payment 
                                rates for ambulatory surgical 
                                centers should be based on a 
                                uniform percentage of the 
                                payment rates or weights under 
                                such outpatient system; or
                                    (II) whether the payment 
                                rates for ambulatory surgical 
                                centers should vary, or the 
                                weights should be revised, 
                                based on specific procedures or 
                                types of services (such as 
                                ophthalmology and pain 
                                management services).
                            (iii) Whether a geographic 
                        adjustment should be used for payment 
                        of services furnished in ambulatory 
                        surgical centers, and if so, the labor 
                        and nonlabor shares of such payment.

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

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

SEC. 628. PAYMENT FOR CLINICAL DIAGNOSTIC LABORATORY TESTS.

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

SEC. 629. INDEXING PART B DEDUCTIBLE TO INFLATION.

    The first sentence of section 1833(b) (42 U.S.C. 1395l(b)) 
is amended by striking ``and $100 for 1991 and subsequent 
years'' and inserting the following: ``, $100 for 1991 through 
2004, $110 for 2005, and for a subsequent year the amount of 
such deductible for the previous year increased by the annual 
percentage increase in the monthly actuarial rate under section 
1839(a)(1) ending with such subsequent year (rounded to the 
nearest $1)''.

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

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

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

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

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

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

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

                     ``Intravenous Immune Globulin

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

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

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

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

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

SEC. 645. STUDIES RELATING TO VISION IMPAIRMENTS.

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

SEC. 646. MEDICARE HEALTH CARE QUALITY DEMONSTRATION PROGRAMS.

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

              ``HEALTH CARE QUALITY DEMONSTRATION PROGRAM

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

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

    (a) Study.--The Medicare Payment Advisory Commission (in 
this section referred to as the ``Commission'') shall conduct a 
study on the feasibility and advisability of allowing medicare 
fee-for-service beneficiaries direct access to outpatient 
physical therapy services and physical therapy services 
furnished as comprehensive rehabilitation facility services.
    (b) Report.--Not later than January 1, 2005, the Commission 
shall submit to Congress a report on the study conducted under 
subsection (a) together with recommendations for such 
legislation or administrative action as the Commission 
determines to be appropriate.
    (c) Direct Access Defined.--The term ``direct access'' 
means, with respect to outpatient physical therapy services and 
physical therapy services furnished as comprehensive outpatient 
rehabilitation facility services, coverage of and payment for 
such services in accordance with the provisions of title XVIII 
of the Social Security Act, except that sections 1835(a)(2), 
1861(p), and 1861(cc) of such Act (42 U.S.C. 1395n(a)(2), 
1395x(p), and 1395x(cc), respectively) shall be applied--
            (1) without regard to any requirement that--
                    (A) an individual be under the care of (or 
                referred by) a physician; or
                    (B) services be provided under the 
                supervision of a physician; and
            (2) by allowing a physician or a qualified physical 
        therapist to satisfy any requirement for--
                    (A) certification and recertification; and
                    (B) establishment and periodic review of a 
                plan of care.

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

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

SEC. 649. MEDICARE CARE MANAGEMENT PERFORMANCE DEMONSTRATION.

    (a) Establishment.--
            (1) In general.--The Secretary shall establish a 
        pay-for-performance demonstration program with 
        physicians to meet the needs of eligible beneficiaries 
        through the adoption and use of health information 
        technology and evidence-based outcomes measures for--
                    (A) promoting continuity of care;
                    (B) helping stabilize medical conditions;
                    (C) preventing or minimizing acute 
                exacerbations of chronic conditions; and
                    (D) reducing adverse health outcomes, such 
                as adverse drug interactions related to 
                polypharmacy.
            (2) Sites.--The Secretary shall designate no more 
        than 4 sites at which to conduct the demonstration 
        program under this section, of which--
                    (A) 2 shall be in an urban area;
                    (B) 1 shall be in a rural area; and
                    (C) 1 shall be in a State with a medical 
                school with a Department of Geriatrics that 
                manages rural outreach sites and is capable of 
                managing patients with multiple chronic 
                conditions, one of which is dementia.
            (3) Duration.--The Secretary shall conduct the 
        demonstration program under this section for a 3-year 
        period.
            (4) Consultation.--In carrying out the 
        demonstration program under this section, the Secretary 
        shall consult with private sector and non-profit groups 
        that are undertaking similar efforts to improve quality 
        and reduce avoidable hospitalizations for chronically 
        ill patients.
    (b) Participation.--
            (1) In general.--A physician who provides care for 
        a minimum number of eligible beneficiaries (as 
        specified by the Secretary) may participate in the 
        demonstration program under this section if such 
        physician agrees, to phase-in over the course of the 3-
        year demonstration period and with the assistance 
        provided under subsection (d)(2)--
                    (A) the use of health information 
                technology to manage the clinical care of 
                eligible beneficiaries consistent with 
                paragraph (3); and
                    (B) the electronic reporting of clinical 
                quality and outcomes measures in accordance 
                with requirements established by the Secretary 
                under the demonstration program.
            (2) Special rule.--In the case of the sites 
        referred to in subparagraphs (B) and (C) of subsection 
        (a)(2), a physician who provides care for a minimum 
        number of beneficiaries with two or more chronic 
        conditions, including dementia (as specified by the 
        Secretary), may participate in the program under this 
        section if such physician agrees to the requirements in 
        subparagraphs (A) and (B) of paragraph (1).
            (3) Practice standards.--Each physician 
        participating in the demonstration program under this 
        section must demonstrate the ability--
                    (A) to assess each eligible beneficiary for 
                conditions other than chronic conditions, such 
                as impaired cognitive ability and co-
                morbidities, for the purposes of developing 
                care management requirements;
                    (B) to serve as the primary contact of 
                eligible beneficiaries in accessing items and 
                services for which payment may be made under 
                the medicare program;
                    (C) to establish and maintain health care 
                information system for such beneficiaries;
                    (D) to promote continuity of care across 
                providers and settings;
                    (E) to use evidence-based guidelines and 
                meet such clinical quality and outcome measures 
                as the Secretary shall require;
                    (F) to promote self-care through the 
                provision of patient education and support for 
                patients or, where appropriate, family 
                caregivers;
                    (G) when appropriate, to refer such 
                beneficiaries to community service 
                organizations; and
                    (H) to meet such other complex care 
                management requirements as the Secretary may 
                specify.
        The guidelines and measures required under subparagraph 
        (E) shall be designed to take into account 
        beneficiaries with multiple chronic conditions.
    (c) Payment Methodology.--Under the demonstration program 
under this section the Secretary shall pay a per beneficiary 
amount to each participating physician who meets or exceeds 
specific performance standards established by the Secretary 
with respect to the clinical quality and outcome measures 
reported under subsection (b)(1)(B). Such amount may vary based 
on different levels of performance or improvement.
    (d) Administration.--
            (1) Use of quality improvement organizations.--The 
        Secretary shall contract with quality improvement 
        organizations or such other entities as the Secretary 
        deems appropriate to enroll physicians and evaluate 
        their performance under the demonstration program under 
        this section.
            (2) Technical assistance.--The Secretary shall 
        require in such contracts that the contractor be 
        responsible for technical assistance and education as 
        needed to physicians enrolled in the demonstration 
        program under this section for the purpose of aiding 
        their adoption of health information technology, 
        meeting practice standards, and implementing required 
        clinical and outcomes measures.
    (e) Funding.--
            (1) In general.--The Secretary shall provide for 
        the transfer from the Federal Supplementary Medical 
        Insurance Trust Fund established under section 1841 of 
        the Social Security Act (42 U.S.C. 1395t) of such funds 
        as are necessary for the costs of carrying out the 
        demonstration program under this section.
            (2) Budget neutrality.--In conducting the 
        demonstration program under this section, the Secretary 
        shall ensure that the aggregate payments made by the 
        Secretary do not exceed the amount which the Secretary 
        estimates would have been paid if the demonstration 
        program under this section was not implemented.
    (f) Waiver Authority.--The Secretary may waive such 
requirements of titles XI and XVIII of the Social Security Act 
(42 U.S.C. 1301 et seq.; 1395 et seq.) as may be necessary for 
the purpose of carrying out the demonstration program under 
this section.
    (g) Report.--Not later than 12 months after the date of 
completion of the demonstration program under this section, the 
Secretary shall submit to Congress a report on such program, 
together with recommendations for such legislation and 
administrative action as the Secretary determines to be 
appropriate.
    (h) Definitions.--In this section:
            (1) Eligible beneficiary.--The term ``eligible 
        beneficiary'' means any individual who--
                    (A) is entitled to benefits under part A 
                and enrolled for benefits under part B of title 
                XVIII of the Social Security Act and is not 
                enrolled in a plan under part C of such title; 
                and
                    (B) has one or more chronic medical 
                conditions specified by the Secretary (one of 
                which may be cognitive impairment).
            (2) Health information technology.--The term 
        ``health information technology'' means e-mail 
        communication, clinical alerts and reminders, and other 
        information technology that meets such functionality, 
        interoperability, and other standards as prescribed by 
        the Secretary.

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

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

SEC. 651. DEMONSTRATION OF COVERAGE OF CHIROPRACTIC SERVICES UNDER 
                    MEDICARE.

    (a) Definitions.--In this section:
            (1) Chiropractic services.--The term ``chiropractic 
        services'' has the meaning given that term by the 
        Secretary for purposes of the demonstration projects, 
        but shall include, at a minimum--
                    (A) care for neuromusculoskeletal 
                conditions typical among eligible 
                beneficiaries; and
                    (B) diagnostic and other services that a 
                chiropractor is legally authorized to perform 
                by the State or jurisdiction in which such 
                treatment is provided.
            (2) Demonstration project.--The term 
        ``demonstration project'' means a demonstration project 
        established by the Secretary under subsection (b)(1).
            (3) Eligible beneficiary.--The term ``eligible 
        beneficiary'' means an individual who is enrolled under 
        part B of the medicare program.
            (4) Medicare program.--The term ``medicare 
        program'' means the health benefits program under title 
        XVIII of the Social Security Act (42 U.S.C. 1395 et 
        seq.).
    (b) Demonstration of Coverage of Chiropractic Services 
Under Medicare.--
            (1) Establishment.--The Secretary shall establish 
        demonstration projects in accordance with the 
        provisions of this section for the purpose of 
        evaluating the feasibility and advisability of covering 
        chiropractic services under the medicare program (in 
        addition to the coverage provided for services 
        consisting of treatment by means of manual manipulation 
        of the spine to correct a subluxation described in 
        section 1861(r)(5) of the Social Security Act (42 
        U.S.C. 1395x(r)(5))).
            (2) No physician approval required.--In 
        establishing the demonstration projects, the Secretary 
        shall ensure that an eligible beneficiary who 
        participates in a demonstration project, including an 
        eligible beneficiary who is enrolled for coverage under 
        a Medicare+Choice plan (or, on and after January 1, 
        2006, under a Medicare Advantage plan), is not required 
        to receive approval from a physician or other health 
        care provider in order to receive a chiropractic 
        service under a demonstration project.
            (3) Consultation.--In establishing the 
        demonstration projects, the Secretary shall consult 
        with chiropractors, organizations representing 
        chiropractors, eligible beneficiaries, and 
        organizations representing eligible beneficiaries.
            (4) Participation.--Any eligible beneficiary may 
        participate in the demonstration projects on a 
        voluntary basis.
    (c) Conduct of Demonstration Projects.--
            (1) Demonstration sites.--
                    (A) Selection of demonstration sites.--The 
                Secretary shall conduct demonstration projects 
                at 4 demonstration sites.
                    (B) Geographic diversity.--Of the sites 
                described in subparagraph (A)--
                            (i) 2 shall be in rural areas; and
                            (ii) 2 shall be in urban areas.
                    (C) Sites located in hpsas.--At least 1 
                site described in clause (i) of subparagraph 
                (B) and at least 1 site described in clause 
                (ii) of such subparagraph shall be located in 
                an area that is designated under section 
                332(a)(1)(A) of the Public Health Service Act 
                (42 U.S.C. 254e(a)(1)(A)) as a health 
                professional shortage area.
            (2) Implementation; duration.--
                    (A) Implementation.--The Secretary shall 
                not implement the demonstration projects before 
                October 1, 2004.
                    (B) Duration.--The Secretary shall complete 
                the demonstration projects by the date that is 
                2 years after the date on which the first 
                demonstration project is implemented.
    (d) Evaluation and Report.--
            (1) Evaluation.--The Secretary shall conduct an 
        evaluation of the demonstration projects--
                    (A) to determine whether eligible 
                beneficiaries who use chiropractic services use 
                a lesser overall amount of items and services 
                for which payment is made under the medicare 
                program than eligible beneficiaries who do not 
                use such services;
                    (B) to determine the cost of providing 
                payment for chiropractic services under the 
                medicare program;
                    (C) to determine the satisfaction of 
                eligible beneficiaries participating in the 
                demonstration projects and the quality of care 
                received by such beneficiaries; and
                    (D) to evaluate such other matters as the 
                Secretary determines is appropriate.
            (2) Report.--Not later than the date that is 1 year 
        after the date on which the demonstration projects 
        conclude, the Secretary shall submit to Congress a 
        report on the evaluation conducted under paragraph (1) 
        together with such recommendations for legislation or 
        administrative action as the Secretary determines is 
        appropriate.
    (e) Waiver of Medicare Requirements.--The Secretary shall 
waive compliance with such requirements of the medicare program 
to the extent and for the period the Secretary finds necessary 
to conduct the demonstration projects.
    (f) Funding.--
            (1) Demonstration projects.--
                    (A) In general.--Subject to subparagraph 
                (B) and paragraph (2), the Secretary shall 
                provide for the transfer from the Federal 
                Supplementary Insurance Trust Fund under 
                section 1841 of the Social Security Act (42 
                U.S.C. 1395t) of such funds as are necessary 
                for the costs of carrying out the demonstration 
                projects under this section.
                    (B) Limitation.--In conducting the 
                demonstration projects under this section, the 
                Secretary shall ensure that the aggregate 
                payments made by the Secretary under the 
                medicare program do not exceed the amount which 
                the Secretary would have paid under the 
                medicare program if the demonstration projects 
                under this section were not implemented.
            (2) Evaluation and report.--There are authorized to 
        be appropriated such sums as are necessary for the 
        purpose of developing and submitting the report to 
        Congress under subsection (d).

            TITLE VII--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

SEC. 701. UPDATE IN HOME HEALTH SERVICES.

    (a) Change to Calendar Year Update.--Section 1895(b) (42 
U.S.C. 1395fff(b)(3)) is amended--
            (1) in paragraph (3)(B)(i)--
                    (A) by striking ``each fiscal year 
                (beginning with fiscal year 2002)'' and 
                inserting ``fiscal year 2002 and for fiscal 
                year 2003 and for each subsequent year 
                (beginning with 2004)''; and
                    (B) by inserting ``or year'' after ``the 
                fiscal year'';
            (2) in paragraph (3)(B)(ii)--
                    (A) in subclause (I), by striking ``or'' at 
                the end;
                    (B) by redesignating subclause (II) as 
                subclause (III);
                    (C) in subclause (III), as so redesignated, 
                by striking ``any subsequent fiscal year'' and 
                inserting ``2004 and any subsequent year''; and
                    (D) by inserting after subclause (I) the 
                following new subclause:
                                    ``(II) for the last 
                                calendar quarter of 2003 and 
                                the first calendar quarter of 
                                2004, the home health market 
                                basket percentage increase; 
                                or'';
            (3) in paragraph (3)(B)(iii), by inserting ``or 
        year'' after ``fiscal year'' each place it appears; and
            (4) in paragraph (3)(B)(iv)--
                    (A) by inserting ``or year'' after ``fiscal 
                year'' each place it appears; and
                    (B) by inserting ``or years'' after 
                ``fiscal years''; and
            (5) in paragraph (5), by inserting ``or year'' 
        after ``fiscal year''.
    (b) Adjustment to Updates for 2004, 2005, and 2006.--
Section 1895(b)(3)(B)(ii) (42 U.S.C. 1395fff(b)(3)(B)(ii)), as 
amended by subsection (a)(2), is amended--
            (1) by striking ``or'' at the end of subclause 
        (II);
            (2) by redesignating subclause (III) as subclause 
        (IV);
            (3) in subclause (IV), as so redesignated, by 
        striking ``2004'' and inserting ``2007''; and
            (4) by inserting after subclause (II) the following 
        new subclause:
                                    ``(III) the last 3 calendar 
                                quarters of 2004, and each of 
                                2005 and 2006 the home health 
                                market basket percentage 
                                increase minus 0.8 percentage 
                                points; or''.

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

    (a) Demonstration Project.--Not later than 180 days after 
the date of the enactment of this Act, the Secretary shall 
conduct a 2-year demonstration project under part B of title 
XVIII of the Social Security Act under which medicare 
beneficiaries with chronic conditions described in subsection 
(b) are deemed to be homebound for purposes of receiving home 
health services under the medicare program.
    (b) Medicare Beneficiary Described.--For purposes of 
subsection (a), a medicare beneficiary is eligible to be deemed 
to be homebound, without regard to the purpose, frequency, or 
duration of absences from the home, if--
            (1) the beneficiary has been certified by one 
        physician as an individual who has a permanent and 
        severe, disabling condition that is not expected to 
        improve;
            (2) the beneficiary is dependent upon assistance 
        from another individual with at least 3 out of the 5 
        activities of daily living for the rest of the 
        beneficiary's life;
            (3) the beneficiary requires skilled nursing 
        services for the rest of the beneficiary's life and the 
        skilled nursing is more than medication management;
            (4) an attendant is required to visit the 
        beneficiary on a daily basis to monitor and treat the 
        beneficiary's medical condition or to assist the 
        beneficiary with activities of daily living;
            (5) the beneficiary requires technological 
        assistance or the assistance of another person to leave 
        the home; and
            (6) the beneficiary does not regularly work in a 
        paid position full-time or part-time outside the home.
    (c) Demonstration Project Sites.--The demonstration project 
established under this section shall be conducted in 3 States 
selected by the Secretary to represent the Northeast, Midwest, 
and Western regions of the United States.
    (d) Limitation on Number of Participants.--The aggregate 
number of such beneficiaries that may participate in the 
project may not exceed 15,000.
    (e) Data.--The Secretary shall collect such data on the 
demonstration project with respect to the provision of home 
health services to medicare beneficiaries that relates to 
quality of care, patient outcomes, and additional costs, if 
any, to the medicare program.
    (f) Report to Congress.--Not later than 1 year after the 
date of the completion of the demonstration project under this 
section, the Secretary shall submit to Congress a report on the 
project using the data collected under subsection (e). The 
report shall include the following:
            (1) An examination of whether the provision of home 
        health services to medicare beneficiaries under the 
        project has had any of the following effects:
                    (A) Has adversely affected the provision of 
                home health services under the medicare 
                program.
                    (B) Has directly caused an increase of 
                expenditures under the medicare program for the 
                provision of such services that is directly 
                attributable to such clarification.
            (2) The specific data evidencing the amount of any 
        increase in expenditures that is directly attributable 
        to the demonstration project (expressed both in 
        absolute dollar terms and as a percentage) above 
        expenditures that would otherwise have been incurred 
        for home health services under the medicare program.
            (3) Specific recommendations to exempt permanently 
        and severely disabled homebound beneficiaries from 
        restrictions on the length, frequency, and purpose of 
        their absences from the home to qualify for home health 
        services without incurring additional costs to the 
        medicare program.
    (g) Waiver Authority.--The Secretary shall waive compliance 
with the requirements of title XVIII of the Social Security Act 
(42 U.S.C. 1395 et seq.) to such extent and for such period as 
the Secretary determines is necessary to conduct demonstration 
projects.
    (h) Construction.--Nothing in this section shall be 
construed as waiving any applicable civil monetary penalty, 
criminal penalty, or other remedy available to the Secretary 
under title XI or title XVIII of the Social Security Act for 
acts prohibited under such titles, including penalties for 
false certifications for purposes of receipt of items or 
services under the medicare program.
    (i) Authorization of Appropriations.--Payments for the 
costs of carrying out the demonstration project under this 
section shall be made from the Federal Supplementary Medical 
Insurance Trust Fund under section 1841 of such Act (42 U.S.C. 
1395t).
    (j) Definitions.--In this section:
            (1) Medicare beneficiary.--The term ``medicare 
        beneficiary'' means an individual who is enrolled under 
        part B of title XVIII of the Social Security Act.
            (2) Home health services.--The term ``home health 
        services'' has the meaning given such term in section 
        1861(m) of the Social Security Act (42 U.S.C. 
        1395x(m)).
            (3) Activities of daily living defined.--The term 
        ``activities of daily living'' means eating, toileting, 
        transferring, bathing, and dressing.

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

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

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

    (a) In General.--During the period described in subsection 
(b), the Secretary may not require, under section 4602(e) of 
the Balanced Budget Act of 1997 (Public Law 105-33; 111 Stat. 
467) or otherwise under OASIS, a home health agency to gather 
or submit information that relates to an individual who is not 
eligible for benefits under either title XVIII or title XIX of 
the Social Security Act (such information in this section 
referred to as ``non-medicare/medicaid OASIS information'').
    (b) Period of Suspension.--The period described in this 
subsection--
            (1) begins on the date of the enactment of this 
        Act; and
            (2) ends on the last day of the second month 
        beginning after the date as of which the Secretary has 
        published final regulations regarding the collection 
        and use by the Centers for Medicare & Medicaid Services 
        of non-medicare/medicaid OASIS information following 
        the submission of the report required under subsection 
        (c).
    (c) Report.--
            (1) Study.--The Secretary shall conduct a study on 
        how non-medicare/medicaid OASIS information is and can 
        be used by large home health agencies. Such study shall 
        examine--
                    (A) whether there are unique benefits from 
                the analysis of such information that cannot be 
                derived from other information available to, or 
                collected by, such agencies; and
                    (B) the value of collecting such 
                information by small home health agencies 
                compared to the administrative burden related 
                to such collection.
        In conducting the study the Secretary shall obtain 
        recommendations from quality assessment experts in the 
        use of such information and the necessity of small, as 
        well as large, home health agencies collecting such 
        information.
            (2) Report.--The Secretary shall submit to Congress 
        a report on the study conducted under paragraph (1) by 
        not later than 18 months after the date of the 
        enactment of this Act.
    (d) Construction.--Nothing in this section shall be 
construed as preventing home health agencies from collecting 
non-medicare/medicaid OASIS information for their own use.

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

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

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

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

    ``Extended Care in Religious Nonmedical Health Care Institutions

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

                 Subtitle B--Graduate Medical Education

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

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

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

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

SEC. 713. TREATMENT OF VOLUNTEER SUPERVISION.

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

                  Subtitle C--Chronic Care Improvement

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

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

                       ``CHRONIC CARE IMPROVEMENT

    ``Sec. 1807. (a) Implementation of Chronic Care Improvement 
Programs.--
            ``(1) In general.--The Secretary shall provide for 
        the phased-in development, testing, evaluation, and 
        implementation of chronic care improvement programs in 
        accordance with this section. Each such program shall 
        be designed to improve clinical quality and beneficiary 
        satisfaction and achieve spending targets with respect 
        to expenditures under this title for targeted 
        beneficiaries with one or more threshold conditions.
            ``(2) Definitions.--For purposes of this section:
                    ``(A) Chronic care improvement program.--
                The term `chronic care improvement program' 
                means a program described in paragraph (1) that 
                is offered under an agreement under subsection 
                (b) or (c).
                    ``(B) Chronic care improvement 
                organization.--The term `chronic care 
                improvement organization' means an entity that 
                has entered into an agreement under subsection 
                (b) or (c) to provide, directly or through 
                contracts with subcontractors, a chronic care 
                improvement program under this section. Such an 
                entity may be a disease management 
                organization, health insurer, integrated 
                delivery system, physician group practice, a 
                consortium of such entities, or any other legal 
                entity that the Secretary determines 
                appropriate to carry out a chronic care 
                improvement program under this section.
                    ``(C) Care management plan.--The term `care 
                management plan' means a plan established under 
                subsection (d) for a participant in a chronic 
                care improvement program.
                    ``(D) Threshold condition.--The term 
                `threshold condition' means a chronic 
                condition, such as congestive heart failure, 
                diabetes, chronic obstructive pulmonary disease 
                (COPD), or other diseases or conditions, as 
                selected by the Secretary as appropriate for 
                the establishment of a chronic care improvement 
                program.
                    ``(E) Targeted beneficiary.--The term 
                `targeted beneficiary' means, with respect to a 
                chronic care improvement program, an individual 
                who--
                            ``(i) is entitled to benefits under 
                        part A and enrolled under part B, but 
                        not enrolled in a plan under part C;
                            ``(ii) has one or more threshold 
                        conditions covered under such program; 
                        and
                            ``(iii) has been identified under 
                        subsection (d)(1) as a potential 
                        participant in such program.
            ``(3) Construction.--Nothing in this section shall 
        be construed as--
                    ``(A) expanding the amount, duration, or 
                scope of benefits under this title;
                    ``(B) providing an entitlement to 
                participate in a chronic care improvement 
                program under this section;
                    ``(C) providing for any hearing or appeal 
                rights under section 1869, 1878, or otherwise, 
                with respect to a chronic care improvement 
                program under this section; or
                    ``(D) providing benefits under a chronic 
                care improvement program for which a claim may 
                be submitted to the Secretary by any provider 
                of services or supplier (as defined in section 
                1861(d)).
    ``(b) Developmental Phase (Phase I).--
            ``(1) In general.--In carrying out this section, 
        the Secretary shall enter into agreements consistent 
        with subsection (f) with chronic care improvement 
        organizations for the development, testing, and 
        evaluation of chronic care improvement programs using 
        randomized controlled trials. The first such agreement 
        shall be entered into not later than 12 months after 
        the date of the enactment of this section.
            ``(2) Agreement period.--The period of an agreement 
        under this subsection shall be for 3 years.
            ``(3) Minimum participation.--
                    ``(A) In general.--The Secretary shall 
                enter into agreements under this subsection in 
                a manner so that chronic care improvement 
                programs offered under this section are offered 
                in geographic areas that, in the aggregate, 
                consist of areas in which at least 10 percent 
                of the aggregate number of medicare 
                beneficiaries reside.
                    ``(B) Medicare beneficiary defined.--In 
                this paragraph, the term `medicare beneficiary' 
                means an individual who is entitled to benefits 
                under part A, enrolled under part B, or both, 
                and who resides in the United States.
            ``(4) Site selection.--In selecting geographic 
        areas in which agreements are entered into under this 
        subsection, the Secretary shall ensure that each 
        chronic care improvement program is conducted in a 
        geographic area in which at least 10,000 targeted 
        beneficiaries reside among other individuals entitled 
        to benefits under part A, enrolled under part B, or 
        both to serve as a control population.
            ``(5) Independent evaluations of phase i 
        programs.--The Secretary shall contract for an 
        independent evaluation of the programs conducted under 
        this subsection. Such evaluation shall be done by a 
        contractor with knowledge of chronic care management 
        programs and demonstrated experience in the evaluation 
        of such programs. Each evaluation shall include an 
        assessment of the following factors of the programs:
                    ``(A) Quality improvement measures, such as 
                adherence to evidence-based guidelines and 
                rehospitalization rates.
                    ``(B) Beneficiary and provider 
                satisfaction.
                    ``(C) Health outcomes.
                    ``(D) Financial outcomes, including any 
                cost savings to the program under this title.
    ``(c) Expanded Implementation Phase (Phase II).--
            ``(1) In general.--With respect to chronic care 
        improvement programs conducted under subsection (b), if 
        the Secretary finds that the results of the independent 
        evaluation conducted under subsection (b)(6) indicate 
        that the conditions specified in paragraph (2) have 
        been met by a program (or components of such program), 
        the Secretary shall enter into agreements consistent 
        with subsection (f) to expand the implementation of the 
        program (or components) to additional geographic areas 
        not covered under the program as conducted under 
        subsection (b), which may include the implementation of 
        the program on a national basis. Such expansion shall 
        begin not earlier than 2 years after the program is 
        implemented under subsection (b) and not later than 6 
        months after the date of completion of such program.
            ``(2) Conditions for expansion of programs.--The 
        conditions specified in this paragraph are, with 
        respect to a chronic care improvement program conducted 
        under subsection (b) for a threshold condition, that 
        the program is expected to--
                    ``(A) improve the clinical quality of care;
                    ``(B) improve beneficiary satisfaction; and
                    ``(C) achieve targets for savings to the 
                program under this title specified by the 
                Secretary in the agreement within a range 
                determined to be appropriate by the Secretary, 
                subject to the application of budget neutrality 
                with respect to the program and not taking into 
                account any payments by the organization under 
                the agreement under the program for risk under 
                subsection (f)(3)(B).
            ``(3) Independent evaluations of phase ii 
        programs.--The Secretary shall carry out evaluations of 
        programs expanded under this subsection as the 
        Secretary determines appropriate. Such evaluations 
        shall be carried out in the similar manner as is 
        provided under subsection (b)(5).
    ``(d) Identification and Enrollment of Prospective Program 
Participants.--
            ``(1) Identification of prospective program 
        participants.--The Secretary shall establish a method 
        for identifying targeted beneficiaries who may benefit 
        from participation in a chronic care improvement 
        program.
            ``(2) Initial contact by secretary.--The Secretary 
        shall communicate with each targeted beneficiary 
        concerning participation in a chronic care improvement 
        program. Such communication may be made by the 
        Secretary and shall include information on the 
        following:
                    ``(A) A description of the advantages to 
                the beneficiary in participating in a program.
                    ``(B) Notification that the organization 
                offering a program may contact the beneficiary 
                directly concerning such participation.
                    ``(C) Notification that participation in a 
                program is voluntary.
                    ``(D) A description of the method for the 
                beneficiary to participate or for declining to 
                participate and the method for obtaining 
                additional information concerning such 
                participation.
            ``(3) Voluntary participation.--A targeted 
        beneficiary may participate in a chronic care 
        improvement program on a voluntary basis and may 
        terminate participation at any time.
    ``(e) Chronic Care Improvement Programs.--
            ``(1) In general.--Each chronic care improvement 
        program shall--
                    ``(A) have a process to screen each 
                targeted beneficiary for conditions other than 
                threshold conditions, such as impaired 
                cognitive ability and co-morbidities, for the 
                purposes of developing an individualized, goal-
                oriented care management plan under paragraph 
                (2);
                    ``(B) provide each targeted beneficiary 
                participating in the program with such plan; 
                and
                    ``(C) carry out such plan and other chronic 
                care improvement activities in accordance with 
                paragraph (3).
            ``(2) Elements of care management plans.--A care 
        management plan for a targeted beneficiary shall be 
        developed with the beneficiary and shall, to the extent 
        appropriate, include the following:
                    ``(A) A designated point of contact 
                responsible for communications with the 
                beneficiary and for facilitating communications 
                with other health care providers under the 
                plan.
                    ``(B) Self-care education for the 
                beneficiary (through approaches such as disease 
                management or medical nutrition therapy) and 
                education for primary caregivers and family 
                members.
                    ``(C) Education for physicians and other 
                providers and collaboration to enhance 
                communication of relevant clinical information.
                    ``(D) The use of monitoring technologies 
                that enable patient guidance through the 
                exchange of pertinent clinical information, 
                such as vital signs, symptomatic information, 
                and health self-assessment.
                    ``(E) The provision of information about 
                hospice care, pain and palliative care, and 
                end-of-life care.
            ``(3) Conduct of programs.--In carrying out 
        paragraph (1)(C) with respect to a participant, the 
        chronic care improvement organization shall--
                    ``(A) guide the participant in managing the 
                participant's health (including all co-
                morbidities, relevant health care services, and 
                pharmaceutical needs) and in performing 
                activities as specified under the elements of 
                the care management plan of the participant;
                    ``(B) use decision-support tools such as 
                evidence-based practice guidelines or other 
                criteria as determined by the Secretary; and
                    ``(C) develop a clinical information 
                database to track and monitor each participant 
                across settings and to evaluate outcomes.
            ``(4) Additional responsibilities.--
                    ``(A) Outcomes report.--Each chronic care 
                improvement organization offering a chronic 
                care improvement program shall monitor and 
                report to the Secretary, in a manner specified 
                by the Secretary, on health care quality, cost, 
                and outcomes.
                    ``(B) Additional requirements.--Each such 
                organization and program shall comply with such 
                additional requirements as the Secretary may 
                specify.
            ``(5) Accreditation.--The Secretary may provide 
        that chronic care improvement programs and chronic care 
        improvement organizations that are accredited by 
        qualified organizations (as defined by the Secretary) 
        may be deemed to meet such requirements under this 
        section as the Secretary may specify.
    ``(f) Terms of Agreements.--
            ``(1) Terms and conditions.--
                    ``(A) In general.--An agreement under this 
                section with a chronic care improvement 
                organization shall contain such terms and 
                conditions as the Secretary may specify 
                consistent with this section.
                    ``(B) Clinical, quality improvement, and 
                financial requirements.--The Secretary may not 
                enter into an agreement with such an 
                organization under this section for the 
                operation of a chronic care improvement program 
                unless--
                            ``(i) the program and organization 
                        meet the requirements of subsection (e) 
                        and such clinical, quality improvement, 
                        financial, and other requirements as 
                        the Secretary deems to be appropriate 
                        for the targeted beneficiaries to be 
                        served; and
                            ``(ii) the organization 
                        demonstrates to the satisfaction of the 
                        Secretary that the organization is able 
                        to assume financial risk for 
                        performance under the agreement (as 
                        applied under paragraph (3)(B)) with 
                        respect to payments made to the 
                        organization under such agreement 
                        through available reserves, 
                        reinsurance, withholds, or such other 
                        means as the Secretary determines 
                        appropriate.
            ``(2) Manner of payment.--Subject to paragraph 
        (3)(B), the payment under an agreement under--
                    ``(A) subsection (b) shall be computed on a 
                per-member per-month basis; or
                    ``(B) subsection (c) may be on a per-member 
                per-month basis or such other basis as the 
                Secretary and organization may agree.
            ``(3) Application of performance standards.--
                    ``(A) Specification of performance 
                standards.--Each agreement under this section 
                with a chronic care improvement organization 
                shall specify performance standards for each of 
                the factors specified in subsection (c)(2), 
                including clinical quality and spending targets 
                under this title, against which the performance 
                of the chronic care improvement organization 
                under the agreement is measured.
                    ``(B) Adjustment of payment based on 
                performance.--
                            ``(i) In general.--Each such 
                        agreement shall provide for adjustments 
                        in payment rates to an organization 
                        under the agreement insofar as the 
                        Secretary determines that the 
                        organization failed to meet the 
                        performance standards specified in the 
                        agreement under subparagraph (A).
                            ``(ii) Financial risk for 
                        performance.--In the case of an 
                        agreement under subsection (b) or (c), 
                        the agreement shall provide for a full 
                        recovery for any amount by which the 
                        fees paid to the organization under the 
                        agreement exceed the estimated savings 
                        to the programs under this title 
                        attributable to implementation of such 
                        agreement.
            ``(4) Budget neutral payment condition.--Under this 
        section, the Secretary shall ensure that the aggregate 
        sum of medicare program benefit expenditures for 
        beneficiaries participating in chronic care improvement 
        programs and funds paid to chronic care improvement 
        organizations under this section, shall not exceed the 
        medicare program benefit expenditures that the 
        Secretary estimates would have been made for such 
        targeted beneficiaries in the absence of such programs.
    ``(g) Funding.--(1) Subject to paragraph (2), there are 
appropriated to the Secretary, in appropriate part from the 
Federal Hospital Insurance Trust Fund and the Federal 
Supplementary Medical Insurance Trust Fund, such sums as may be 
necessary to provide for agreements with chronic care 
improvement programs under this section.
    ``(2) In no case shall the funding under this section 
exceed $100,000,000 in aggregate increased expenditures under 
this title (after taking into account any savings attributable 
to the operation of this section) over the 3-fiscal-year period 
beginning on October 1, 2003.''.
    (b) Reports.--The Secretary shall submit to Congress 
reports on the operation of section 1807 of the Social Security 
Act, as added by subsection (a), as follows:
            (1) Not later than 2 years after the date of the 
        implementation of such section, the Secretary shall 
        submit to Congress an interim report on the scope of 
        implementation of the programs under subsection (b) of 
        such section, the design of the programs, and 
        preliminary cost and quality findings with respect to 
        those programs based on the following measures of the 
        programs:
                    (A) Quality improvement measures, such as 
                adherence to evidence-based guidelines and 
                rehospitalization rates.
                    (B) Beneficiary and provider satisfaction.
                    (C) Health outcomes.
                    (D) Financial outcomes.
            (2) Not later than 3 years and 6 months after the 
        date of the implementation of such section the 
        Secretary shall submit to Congress an update to the 
        report required under paragraph (1) on the results of 
        such programs.
            (3) The Secretary shall submit to Congress 2 
        additional biennial reports on the chronic care 
        improvement programs conducted under such section. The 
        first such report shall be submitted not later than 2 
        years after the report is submitted under paragraph 
        (2). Each such report shall include information on--
                    (A) the scope of implementation (in terms 
                of both regions and chronic conditions) of the 
                chronic care improvement programs;
                    (B) the design of the programs; and
                    (C) the improvements in health outcomes and 
                financial efficiencies that result from such 
                implementation.

SEC. 722. MEDICARE ADVANTAGE QUALITY IMPROVEMENT PROGRAMS.

    (a) In General.--Section 1852(e) (42 U.S.C. 1395w-22(e)) is 
amended--
            (1) in the heading, by striking ``Assurance'' and 
        inserting ``Improvement'';
            (2) by amending paragraphs (1) through (3) to read 
        as follows:
            ``(1) In general.--Each MA organization shall have 
        an ongoing quality improvement program for the purpose 
        of improving the quality of care provided to enrollees 
        in each MA plan offered by such organization (other 
        than an MA private fee-for-service plan or an MSA 
        plan).
            ``(2) Chronic care improvement programs.--As part 
        of the quality improvement program under paragraph (1), 
        each MA organization shall have a chronic care 
        improvement program. Each chronic care improvement 
        program shall have a method for monitoring and 
        identifying enrollees with multiple or sufficiently 
        severe chronic conditions that meet criteria 
        established by the organization for participation under 
        the program.
            ``(3) Data.--
                    ``(A) Collection, analysis, and 
                reporting.--
                            ``(i) In general.--Except as 
                        provided in clauses (ii) and (iii) with 
                        respect to plans described in such 
                        clauses and subject to subparagraph 
                        (B), as part of the quality improvement 
                        program under paragraph (1), each MA 
                        organization shall provide for the 
                        collection, analysis, and reporting of 
                        data that permits the measurement of 
                        health outcomes and other indices of 
                        quality.
                            ``(ii) Application to ma regional 
                        plans.--The Secretary shall establish 
                        as appropriate by regulation 
                        requirements for the collection, 
                        analysis, and reporting of data that 
                        permits the measurement of health 
                        outcomes and other indices of quality 
                        for MA organizations with respect to MA 
                        regional plans. Such requirements may 
                        not exceed the requirements under this 
                        subparagraph with respect to MA local 
                        plans that are preferred provider 
                        organization plans.
                            ``(iii) Application to preferred 
                        provider organizations.--Clause (i) 
                        shall apply to MA organizations with 
                        respect to MA local plans that are 
                        preferred provider organization plans 
                        only insofar as services are furnished 
                        by providers or services, physicians, 
                        and other health care practitioners and 
                        suppliers that have contracts with such 
                        organization to furnish services under 
                        such plans.
                            ``(iv) Definition of preferred 
                        provider organization plan.--In this 
                        subparagraph, the term `preferred 
                        provider organization plan' means an MA 
                        plan that--
                                    ``(I) has a network of 
                                providers that have agreed to a 
                                contractually specified 
                                reimbursement for covered 
                                benefits with the organization 
                                offering the plan;
                                    ``(II) provides for 
                                reimbursement for all covered 
                                benefits regardless of whether 
                                such benefits are provided 
                                within such network of 
                                providers; and
                                    ``(III) is offered by an 
                                organization that is not 
                                licensed or organized under 
                                State law as a health 
                                maintenance organization.
                    ``(B) Limitations.--
                            ``(i) Types of data.--The Secretary 
                        shall not collect under subparagraph 
                        (A) data on quality, outcomes, and 
                        beneficiary satisfaction to facilitate 
                        consumer choice and program 
                        administration other than the types of 
                        data that were collected by the 
                        Secretary as of November 1, 2003.
                            ``(ii) Changes in types of data.--
                        Subject to subclause (iii), the 
                        Secretary may only change the types of 
                        data that are required to be submitted 
                        under subparagraph (A) after submitting 
                        to Congress a report on the reasons for 
                        such changes that was prepared in 
                        consultation with MA organizations and 
                        private accrediting bodies.
                            ``(iii) Construction.--Nothing in 
                        the subsection shall be construed as 
                        restricting the ability of the 
                        Secretary to carry out the duties under 
                        section 1851(d)(4)(D).'';
            (3) in paragraph (4)(B)--
                    (A) by amending clause (i) to read as 
                follows:
                            ``(i) Paragraphs (1) through (3) of 
                        this subsection (relating to quality 
                        improvement programs).''; and
                    (B) by adding at the end the following new 
                clause:
                            ``(vii) The requirements described 
                        in section 1860D-4(j), to the extent 
                        such requirements apply under section 
                        1860D-21(c).''; and
            (4) by striking paragraph (5).
    (b) Conforming Amendment.--Section 1852(c)(1)(I) (42 U.S.C. 
1395w-22(c)(1)(I)) is amended to read as follows:
                    ``(I) Quality improvement program.--A 
                description of the organization's quality 
                improvement program under subsection (e).''.
    (c) Effective Date.--The amendments made by this section 
shall apply with respect to contract years beginning on and 
after January 1, 2006.

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

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

                      Subtitle D--Other Provisions

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

    (a) National and Local Coverage Determination Process.--
            (1) In general.--Section 1862 (42 U.S.C. 1395y), as 
        amended by sections 948 and 950, is amended--
                    (A) in the third sentence of subsection 
                (a), by inserting ``consistent with subsection 
                (l)'' after ``the Secretary shall ensure''; and
                    (B) by adding at the end the following new 
                subsection:
    ``(l) National and Local Coverage Determination Process.--
            ``(1) Factors and evidence used in making national 
        coverage determinations.--The Secretary shall make 
        available to the public the factors considered in 
        making national coverage determinations of whether an 
        item or service is reasonable and necessary. The 
        Secretary shall develop guidance documents to carry out 
        this paragraph in a manner similar to the development 
        of guidance documents under section 701(h) of the 
        Federal Food, Drug, and Cosmetic Act (21 U.S.C. 
        371(h)).
            ``(2) Timeframe for decisions on requests for 
        national coverage determinations.--In the case of a 
        request for a national coverage determination that--
                    ``(A) does not require a technology 
                assessment from an outside entity or 
                deliberation from the Medicare Coverage 
                Advisory Committee, the decision on the request 
                shall be made not later than 6 months after the 
                date of the request; or
                    ``(B) requires such an assessment or 
                deliberation and in which a clinical trial is 
                not requested, the decision on the request 
                shall be made not later than 9 months after the 
                date of the request.
            ``(3) Process for public comment in national 
        coverage determinations.--
                    ``(A) Period for proposed decision.--Not 
                later than the end of the 6-month period (or 9-
                month period for requests described in 
                paragraph (2)(B)) that begins on the date a 
                request for a national coverage determination 
                is made, the Secretary shall make a draft of 
                proposed decision on the request available to 
                the public through the Internet website of the 
                Centers for Medicare & Medicaid Services or 
                other appropriate means.
                    ``(B) 30-day period for public comment.--
                Beginning on the date the Secretary makes a 
                draft of the proposed decision available under 
                subparagraph (A), the Secretary shall provide a 
                30-day period for public comment on such draft.
                    ``(C) 60-day period for final decision.--
                Not later than 60 days after the conclusion of 
                the 30-day period referred to under 
                subparagraph (B), the Secretary shall--
                            ``(i) make a final decision on the 
                        request;
                            ``(ii) include in such final 
                        decision summaries of the public 
                        comments received and responses to such 
                        comments;
                            ``(iii) make available to the 
                        public the clinical evidence and other 
                        data used in making such a decision 
                        when the decision differs from the 
                        recommendations of the Medicare 
                        Coverage Advisory Committee; and
                            ``(iv) in the case of a final 
                        decision under clause (i) to grant the 
                        request for the national coverage 
                        determination, the Secretary shall 
                        assign a temporary or permanent code 
                        (whether existing or unclassified) and 
                        implement the coding change.
            ``(4) Consultation with outside experts in certain 
        national coverage determinations.--With respect to a 
        request for a national coverage determination for which 
        there is not a review by the Medicare Coverage Advisory 
        Committee, the Secretary shall consult with appropriate 
        outside clinical experts.
            ``(5) Local coverage determination process.--
                    ``(A) Plan to promote consistency of 
                coverage determinations.--The Secretary shall 
                develop a plan to evaluate new local coverage 
                determinations to determine which 
                determinations should be adopted nationally and 
                to what extent greater consistency can be 
                achieved among local coverage determinations.
                    ``(B) Consultation.--The Secretary shall 
                require the fiscal intermediaries or carriers 
                providing services within the same area to 
                consult on all new local coverage 
                determinations within the area.
                    ``(C) Dissemination of information.--The 
                Secretary should serve as a center to 
                disseminate information on local coverage 
                determinations among fiscal intermediaries and 
                carriers to reduce duplication of effort.
            ``(6) National and local coverage determination 
        defined.--For purposes of this subsection--
                    ``(A) National coverage determination.--The 
                term `national coverage determination' means a 
                determination by the Secretary with respect to 
                whether or not a particular item or service is 
                covered nationally under this title.
                    ``(B) Local coverage determination.--The 
                term `local coverage determination' has the 
                meaning given that in section 1869(f)(2)(B).''.
            (2) Effective date.--The amendments made by 
        paragraph (1) shall apply to national coverage 
        determinations as of January 1, 2004, and section 
        1862(l)(5) of the Social Security Act, as added by such 
        paragraph, shall apply to local coverage determinations 
        made on or after July 1, 2004.
    (b) Medicare Coverage of Routine Costs Associated With 
Certain Clinical Trials of Category A Devices.--
            (1) In general.--Section 1862 (42 U.S.C. 1395y), as 
        amended by subsection (a), is amended by adding at the 
        end the following new subsection:
    ``(m) Coverage of Routine Costs Associated With Certain 
Clinical Trials of Category A Devices.--
            ``(1) In general.--In the case of an individual 
        entitled to benefits under part A, or enrolled under 
        part B, or both who participates in a category A 
        clinical trial, the Secretary shall not exclude under 
        subsection (a)(1) payment for coverage of routine costs 
        of care (as defined by the Secretary) furnished to such 
        individual in the trial.
            ``(2) Category a clinical trial.--For purposes of 
        paragraph (1), a `category A clinical trial' means a 
        trial of a medical device if--
                    ``(A) the trial is of an experimental/
                investigational (category A) medical device (as 
                defined in regulations under section 405.201(b) 
                of title 42, Code of Federal Regulations (as in 
                effect as of September 1, 2003));
                    ``(B) the trial meets criteria established 
                by the Secretary to ensure that the trial 
                conforms to appropriate scientific and ethical 
                standards; and
                    ``(C) in the case of a trial initiated 
                before January 1, 2010, the device involved in 
                the trial has been determined by the Secretary 
                to be intended for use in the diagnosis, 
                monitoring, or treatment of an immediately 
                life-threatening disease or condition.''.
            (2) Effective date.--The amendment made by 
        paragraph (1) shall apply to routine costs incurred on 
        and after January 1, 2005, and, as of such date, 
        section 411.15(o) of title 42, Code of Federal 
        Regulations, is superseded to the extent inconsistent 
        with section 1862(m) of the Social Security Act, as 
        added by such paragraph.
            (3) Rule of construction.--Nothing in the amendment 
        made by paragraph (1) shall be construed as applying 
        to, or affecting, coverage or payment for a 
        nonexperimental/investigational (category B) device.
    (c) Issuance of Temporary National Codes.--Not later than 
July 1, 2004, the Secretary shall implement revised procedures 
for the issuance of temporary national HCPCS codes under part B 
of title XVIII of the Social Security Act.

SEC. 732. EXTENSION OF TREATMENT OF CERTAIN PHYSICIAN PATHOLOGY 
                    SERVICES UNDER MEDICARE.

    Section 542(c) of BIPA (114 Stat. 2763A-551) is amended by 
inserting ``, and for services furnished during 2005 and 2006'' 
before the period at the end.

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

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

SEC. 734. RESTORATION OF MEDICARE TRUST FUNDS.

    (a) Definitions.--In this section:
            (1) Clerical error.--The term ``clerical error'' 
        means a failure that occurs on or after April 15, 2001, 
        to have transferred the correct amount from the general 
        fund of the Treasury to a Trust Fund.
            (2) Trust fund.--The term ``Trust Fund'' means the 
        Federal Hospital Insurance Trust Fund established under 
        section 1817 of the Social Security Act (42 U.S.C. 
        1395i) and the Federal Supplementary Medical Insurance 
        Trust Fund established under section 1841 of such Act 
        (42 U.S.C. 1395t).
    (b) Correction of Trust Fund Holdings.--
            (1) In general.--The Secretary of the Treasury 
        shall take the actions described in paragraph (2) with 
        respect to the Trust Fund with the goal being that, 
        after such actions are taken, the holdings of the Trust 
        Fund will replicate, to the extent practicable in the 
        judgment of the Secretary of the Treasury, in 
        consultation with the Secretary, the holdings that 
        would have been held by the Trust Fund if the clerical 
        error involved had not occurred.
            (2) Obligations issued and redeemed.--The Secretary 
        of the Treasury shall--
                    (A) issue to the Trust Fund obligations 
                under chapter 31 of title 31, United States 
                Code, that bear issue dates, interest rates, 
                and maturity dates that are the same as those 
                for the obligations that--
                            (i) would have been issued to the 
                        Trust Fund if the clerical error 
                        involved had not occurred; or
                            (ii) were issued to the Trust Fund 
                        and were redeemed by reason of the 
                        clerical error involved; and
                    (B) redeem from the Trust Fund obligations 
                that would have been redeemed from the Trust 
                Fund if the clerical error involved had not 
                occurred.
    (c) Appropriation.--There is appropriated to the Trust 
Fund, out of any money in the Treasury not otherwise 
appropriated, an amount determined by the Secretary of the 
Treasury, in consultation with the Secretary, to be equal to 
the interest income lost by the Trust Fund through the date on 
which the appropriation is being made as a result of the 
clerical error involved.
    (d) Congressional Notice.--In the case of a clerical error 
that occurs after April 15, 2001, the Secretary of the 
Treasury, before taking action to correct the error under this 
section, shall notify the appropriate committees of Congress 
concerning such error and the actions to be taken under this 
section in response to such error.
    (e) Deadline.--With respect to the clerical error that 
occurred on April 15, 2001, not later than 120 days after the 
date of the enactment of this Act--
            (1) the Secretary of the Treasury shall take the 
        actions under subsection (b)(1); and
            (2) the appropriation under subsection (c) shall be 
        made.

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

    (a) Examination of Budget Consequences.--Section 1805(b) 
(42 U.S.C. 1395b-6(b)) is amended by adding at the end the 
following new paragraph:
            ``(8) Examination of budget consequences.--Before 
        making any recommendations, the Commission shall 
        examine the budget consequences of such 
        recommendations, directly or through consultation with 
        appropriate expert entities.''.
    (b) Consideration of Efficient Provision of Services.--
Section 1805(b)(2)(B)(i) (42 U.S.C. 1395b-6(b)(2)(B)(i)) is 
amended by inserting ``the efficient provision of'' after 
``expenditures for''.
    (c) Application of Disclosure Requirements.--
            (1) In general.--Section 1805(c)(2)(D) (42 U.S.C. 
        1395b-6(c)(2)(D)) is amended by adding at the end the 
        following: ``Members of the Commission shall be treated 
        as employees of Congress for purposes of applying title 
        I of the Ethics in Government Act of 1978 (Public Law 
        95-521).''.
            (2) Effective date.--The amendment made by 
        paragraph (1) shall take effect on January 1, 2004.
    (d) Additional Reports.--
            (1) Data needs and sources.--The Medicare Payment 
        Advisory Commission shall conduct a study, and submit a 
        report to Congress by not later than June 1, 2004, on 
        the need for current data, and sources of current data 
        available, to determine the solvency and financial 
        circumstances of hospitals and other medicare providers 
        of services.
            (2) Use of tax-related returns.--Using return 
        information provided under Form 990 of the Internal 
        Revenue Service, the Commission shall submit to 
        Congress, by not later than June 1, 2004, a report on 
        the following:
                    (A) Investments, endowments, and 
                fundraising of hospitals participating under 
                the medicare program and related foundations.
                    (B) Access to capital financing for private 
                and for not-for-profit hospitals.
    (e) Representation of Experts in Prescription Drugs.--
            (1) In general.--Section 1805(c)(2)(B) (42 U.S.C. 
        1395b-6(c)(2)(B)) is amended by inserting ``experts in 
        the area of pharmaco-economics or prescription drug 
        benefit programs,'' after ``other health 
        professionals,''.
            (2) Appointment.--The Comptroller General of the 
        United States shall ensure that the membership of the 
        Commission complies with the amendment made by 
        paragraph (1) with respect to appointments made on or 
        after the date of the enactment of this Act.

SEC. 736. TECHNICAL AMENDMENTS.

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

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

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

                      TITLE VIII--COST CONTAINMENT

                      Subtitle A--Cost Containment

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

    (a) Determinations of Excess General Revenue Medicare 
Funding.--
            (1) In general.--The Board of Trustees of each 
        medicare trust fund shall include in the annual reports 
        submitted under subsection (b)(2) of sections 1817 and 
        1841 of the Social Security Act (42 U.S.C. 1395i and 
        1395t)--
                    (A) the information described in subsection 
                (b); and
                    (B) a determination as to whether there is 
                projected to be excess general revenue medicare 
                funding (as defined in subsection (c)) for the 
                fiscal year in which the report is submitted or 
                for any of the succeeding 6 fiscal years.
            (2) Medicare funding warning.--For purposes of 
        section 1105(h) of title 31, United States Code, and 
        this subtitle, an affirmative determination under 
        paragraph (1)(B) in 2 consecutive annual reports shall 
        be treated as a medicare funding warning in the year in 
        which the second such report is made.
            (3) 7-fiscal-year reporting period.--For purposes 
        of this subtitle, the term ``7-fiscal-year reporting 
        period'' means, with respect to a year in which an 
        annual report described in paragraph (1) is made, the 
        period of 7 consecutive fiscal years beginning with the 
        fiscal year in which the report is submitted.
    (b) Information.--The information described in this 
subsection for an annual report in a year is as follows:
            (1) Projections of growth of general revenue 
        spending.--A statement of the general revenue medicare 
        funding as a percentage of the total medicare outlays 
        for each of the following:
                    (A) Each fiscal year within the 7-fiscal-
                year reporting period.
                    (B) Previous fiscal years and as of 10, 50, 
                and 75 years after such year.
            (2) Comparison with other growth trends.--A 
        comparison of the trend of such percentages with the 
        annual growth rate in the following:
                    (A) The gross domestic product.
                    (B) Private health costs.
                    (C) National health expenditures.
                    (D) Other appropriate measures.
            (3) Part d spending.--Expenditures, including 
        trends in expenditures, under part D of title XVIII of 
        the Social Security Act, as added by section 101.
            (4) Combined medicare trust fund analysis.--A 
        financial analysis of the combined medicare trust funds 
        if general revenue medicare funding were limited to the 
        percentage specified in subsection (c)(1)(B) of total 
        medicare outlays.
    (c) Definitions.--For purposes of this section:
            (1) Excess general revenue medicare funding.--The 
        term ``excess general revenue medicare funding'' means, 
        with respect to a fiscal year, that--
                    (A) general revenue medicare funding (as 
                defined in paragraph (2)), expressed as a 
                percentage of total medicare outlays (as 
                defined in paragraph (4)) for the fiscal year; 
                exceeds
                    (B) 45 percent.
            (2) General revenue medicare funding.--The term 
        ``general revenue medicare funding'' means for a year--
                    (A) the total medicare outlays (as defined 
                in paragraph (4)) for the year; minus
                    (B) the dedicated medicare financing 
                sources (as defined in paragraph (3)) for the 
                year.
            (3) Dedicated medicare financing sources.--The term 
        ``dedicated medicare financing sources'' means the 
        following:
                    (A) Hospital insurance tax.--Amounts 
                appropriated to the Hospital Insurance Trust 
                Fund under the third sentence of section 
                1817(a) of the Social Security Act (42 U.S.C. 
                1395i(a)) and amounts transferred to such Trust 
                Fund under section 7(c)(2) of the Railroad 
                Retirement Act of 1974 (45 U.S.C. 231f(c)(2)).
                    (B) Taxation of certain oasdi benefits.--
                Amounts appropriated to the Hospital Insurance 
                Trust Fund under section 121(e)(1)(B) of the 
                Social Security Amendments of 1983 (Public Law 
                98-21), as inserted by section 13215(c) of the 
                Omnibus Budget Reconciliation Act of 1993 
                (Public Law 103-66).
                    (C) State transfers.--The State share of 
                amounts paid to the Federal Government by a 
                State under section 1843 of the Social Security 
                Act (42 U.S.C. 1395v) or pursuant to section 
                1935(c) of such Act.
                    (D) Premiums.--The following premiums:
                            (i) Part a.--Premiums paid by non-
                        Federal sources under sections 1818 and 
                        section 1818A (42 U.S.C. 1395i-2 and 
                        1395i-2a) of such Act.
                            (ii) Part b.--Premiums paid by non-
                        Federal sources under section 1839 of 
                        such Act (42 U.S.C. 1395r), including 
                        any adjustments in premiums under such 
                        section.
                            (iii) Part d.--Monthly beneficiary 
                        premiums paid under part D of title 
                        XVIII of such Act, as added by section 
                        101, and MA monthly prescription drug 
                        beneficiary premiums paid under part C 
                        of such title insofar as they are 
                        attributable to basic prescription drug 
                        coverage.
        Premiums under clauses (ii) and (iii) shall be 
        determined without regard to any reduction in such 
        premiums attributable to a beneficiary rebate under 
        section 1854(b)(1)(C) of such title, as amended by 
        section 222(b)(1), and premiums under clause (iii) are 
        deemed to include any amounts paid under section 1860D-
        13(b) of such title, as added by section 101.
                    (E) Gifts.--Amounts received by the 
                medicare trust funds under section 201(i) of 
                the Social Security Act (42 U.S.C. 401(i)).
            (4) Total medicare outlays.--The term ``total 
        medicare outlays'' means total outlays from the 
        medicare trust funds and shall--
                    (A) include payments made to plans under 
                part C of title XVIII of the Social Security 
                Act that are attributable to any rebates under 
                section 1854(b)(1)(C) of such Act (42 U.S.C. 
                1395w-24(b)(1)(C)), as amended by section 
                222(b)(1);
                    (B) include administrative expenditures 
                made in carrying out title XVIII of such Act 
                and Federal outlays under section 1935(b) of 
                such Act, as added by section 103(a)(2); and
                    (C) offset outlays by the amount of fraud 
                and abuse collections insofar as they are 
                applied or deposited into a medicare trust 
                fund.
            (5) Medicare trust fund.--The term ``medicare trust 
        fund'' means--
                    (A) the Federal Hospital Insurance Trust 
                Fund established under section 1817 of the 
                Social Security Act (42 U.S.C. 1395i); and
                    (B) the Federal Supplementary Medical 
                Insurance Trust Fund established under section 
                1841 of such Act (42 U.S.C. 1395t), including 
                the Medicare Prescription Drug Account under 
                such Trust Fund.
    (d) Conforming Amendments.--
            (1) Federal hospital insurance trust fund.--Section 
        1817(b)(2) (42 U.S.C. 1395i(b)(2)) is amended by adding 
        at the end the following: ``Each report provided under 
        paragraph (2) beginning with the report in 2005 shall 
        include the information specified in section 801(a) of 
        Medicare Prescription Drug, Improvement, and 
        Modernization Act of 2003.''.
            (2) Federal supplementary medical insurance trust 
        fund.--Section 1841(b)(2) (42 U.S.C. 1395t(b)(2)) is 
        amended by adding at the end the following: ``Each 
        report provided under paragraph (2) beginning with the 
        report in 2005 shall include the information specified 
        in section 801(a) of Medicare Prescription Drug, 
        Improvement, and Modernization Act of 2003.''.
    (e) Notice of Medicare Funding Warning.--Whenever any 
report described in subsection (a) contains a determination 
that for any fiscal year within the 7-fiscal-year reporting 
period there will be excess general revenue medicare funding, 
Congress and the President should address the matter under 
existing rules and procedures.

SEC. 802. PRESIDENTIAL SUBMISSION OF LEGISLATION.

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

SEC. 803. PROCEDURES IN THE HOUSE OF REPRESENTATIVES.

    (a) Introduction and Referral of President's Legislative 
Proposal.--
            (1) Introduction.--In the case of a legislative 
        proposal submitted by the President pursuant to section 
        1105(h) of title 31, United States Code, within the 15-
        day period specified in paragraph (1) of such section, 
        the Majority Leader of the House of Representatives (or 
        his designee) and the Minority Leader of the House of 
        Representatives (or his designee) shall introduce such 
        proposal (by request), the title of which is as 
        follows: ``A bill to respond to a medicare funding 
        warning.'' Such bill shall be introduced within 3 
        legislative days after Congress receives such proposal.
            (2) Referral.--Any legislation introduced pursuant 
        to paragraph (1) shall be referred to the appropriate 
        committees of the House of Representatives.
    (b) Direction to the Appropriate House Committees.--
            (1) In general.--In the House, in any year during 
        which the President is required to submit proposed 
        legislation to Congress under section 1105(h) of title 
        31, United States Code, the appropriate committees 
        shall report medicare funding legislation by not later 
        than June 30 of such year.
            (2) Medicare funding legislation.--For purposes of 
        this section, the term ``medicare funding legislation'' 
        means--
                    (A) legislation introduced pursuant to 
                subsection (a)(1), but only if the legislative 
                proposal upon which the legislation is based 
                was submitted within the 15-day period referred 
                to in such subsection; or
                    (B) any bill the title of which is as 
                follows: ``A bill to respond to a medicare 
                funding warning.''.
            (3) Certification.--With respect to any medicare 
        funding legislation or any amendment to such 
        legislation to respond to a medicare funding warning, 
        the chairman of the Committee on the Budget of the 
        House shall certify--
                    (A) whether or not such legislation 
                eliminates excess general revenue medicare 
                funding (as defined in section 801(c)) for each 
                fiscal year in the 7-fiscal-year reporting 
                period; and
                    (B) with respect to such an amendment, 
                whether the legislation, as amended, would 
                eliminate excess general revenue medicare 
                funding (as defined in section 801(c)) for each 
                fiscal year in such 7-fiscal-year reporting 
                period.
    (c) Fallback Procedure for Floor Consideration if the House 
Fails To Vote on Final Passage by July 30.--
            (1) After July 30 of any year during which the 
        President is required to submit proposed legislation to 
        Congress under section 1105(h) of title 31, United 
        States Code, unless the House of Representatives has 
        voted on final passage of any medicare funding 
        legislation for which there is an affirmative 
        certification under subsection (b)(3)(A), then, after 
        the expiration of not less than 30 calendar days (and 
        concurrently 5 legislative days), it is in order to 
        move to discharge any committee to which medicare 
        funding legislation which has such a certification and 
        which has been referred to such committee for 30 
        calendar days from further consideration of the 
        legislation.
            (2) A motion to discharge may be made only by an 
        individual favoring the legislation, may be made only 
        if supported by one-fifth of the total membership of 
        the House (a quorum being present), and is highly 
        privileged in the House. Debate thereon shall be 
        limited to not more than one hour, the time to be 
        divided in the House equally between those favoring and 
        those opposing the motion. An amendment to the motion 
        is not in order, and it is not in order to move to 
        reconsider the vote by which the motion is agreed to or 
        disagreed to.
            (3) Only one motion to discharge a particular 
        committee may be adopted under this subsection in any 
        session of a Congress.
            (4) Notwithstanding paragraph (1), it shall not be 
        in order to move to discharge a committee from further 
        consideration of medicare funding legislation pursuant 
        to this subsection during a session of a Congress if, 
        during the previous session of the Congress, the House 
        passed medicare funding legislation for which there is 
        an affirmative certification under subsection 
        (b)(3)(A).
    (d) Floor Consideration in the House of Discharged 
Legislation.--
            (1) In the House, not later than 3 legislative days 
        after any committee has been discharged from further 
        consideration of legislation under subsection (c), the 
        Speaker shall resolve the House into the Committee of 
        the Whole for consideration of the legislation.
            (2) The first reading of the legislation shall be 
        dispensed with. All points of order against 
        consideration of the legislation are waived. General 
        debate shall be confined to the legislation and shall 
        not exceed five hours, which shall be divided equally 
        between those favoring and those opposing the 
        legislation. After general debate the legislation shall 
        be considered for amendment under the five-minute rule. 
        During consideration of the legislation, no amendments 
        shall be in order in the House or in the Committee of 
        the Whole except those for which there has been an 
        affirmative certification under subsection (b)(3)(B). 
        All points of order against consideration of any such 
        amendment in the Committee of the Whole are waived. The 
        legislation, together with any amendments which shall 
        be in order, shall be considered as read. During the 
        consideration of the bill for amendment, the Chairman 
        of the Committee of the Whole may accord priority in 
        recognition on the basis of whether the Member offering 
        an amendment has caused it to be printed in the portion 
        of the Congressional Record designated for that purpose 
        in clause 8 of Rule XVIII of the Rules of the House of 
        Representatives. Debate on any amendment shall not 
        exceed one hour, which shall be divided equally between 
        those favoring and those opposing the amendment, and no 
        pro forma amendments shall be offered during the 
        debate. The total time for debate on all amendments 
        shall not exceed 10 hours. At the conclusion of 
        consideration of the legislation for amendment, the 
        Committee shall rise and report the legislation to the 
        House with such amendments as may have been adopted. 
        The previous question shall be considered as ordered on 
        the legislation and amendments thereto to final passage 
        without intervening motion except one motion to 
        recommit with or without instructions. If the Committee 
        of the Whole rises and reports that it has come to no 
        resolution on the bill, then on the next legislative 
        day the House shall, immediately after the third daily 
        order of business under clause 1 of Rule XIV of the 
        Rules of the House of Representatives, resolve into the 
        Committee of the Whole for further consideration of the 
        bill.
            (3) All appeals from the decisions of the Chair 
        relating to the application of the Rules of the House 
        of Representatives to the procedure relating to any 
        such legislation shall be decided without debate.
            (4) Except to the extent specifically provided in 
        the preceding provisions of this subsection, 
        consideration of any such legislation and amendments 
        thereto (or any conference report thereon) shall be 
        governed by the Rules of the House of Representatives 
        applicable to other bills and resolutions, amendments, 
        and conference reports in similar circumstances.
    (e) Legislative Day Defined.--As used in this section, the 
term ``legislative day'' means a day on which the House of 
Representatives is in session.
    (f) Restriction on Waiver.--In the House, the provisions of 
this section may be waived only by a rule or order proposing 
only to waive such provisions.
    (g) Rulemaking Power.--The provisions of this section are 
enacted by the Congress--
            (1) as an exercise of the rulemaking power of the 
        House of Representatives and, as such, shall be 
        considered as part of the rules of that House and shall 
        supersede other rules only to the extent that they are 
        inconsistent therewith; and
            (2) with full recognition of the constitutional 
        right of that House to change the rules (so far as they 
        relate to the procedures of that House) at any time, in 
        the same manner, and to the same extent as in the case 
        of any other rule of that House.

SEC. 804. PROCEDURES IN THE SENATE.

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

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

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

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

   ``If the modified adjusted gross income     The applicable percentage
                    is:                                  is:
  
More than $80,000 but not more than             35 percent
More than $100,000 but not more than            50 percent
 $150,000.
More than $150,000 but not more than            65 percent
 $200,000.
More than $200,000........................      80 percent.
                             ``(ii) Joint returns.--In the case 
                        of a joint return, clause (i) shall be 
                        applied by substituting dollar amounts 
                        which are twice the dollar amounts 
                        otherwise applicable under clause (i) 
                        for the calendar year.
                            ``(iii) Married individuals filing 
                        separate returns.--In the case of an 
                        individual who--
                                    ``(I) is married as of the 
                                close of the taxable year 
                                (within the meaning of section 
                                7703 of the Internal Revenue 
                                Code of 1986) but does not file 
                                a joint return for such year, 
                                and
                                    ``(II) does not live apart 
                                from such individual's spouse 
                                at all times during the taxable 
                                year,
                        clause (i) shall be applied by reducing 
                        each of the dollar amounts otherwise 
                        applicable under such clause for the 
                        calendar year by the threshold amount 
                        for such year applicable to an 
                        unmarried individual.
            ``(4) Modified adjusted gross income.--
                    ``(A) In general.--For purposes of this 
                subsection, the term `modified adjusted gross 
                income' means adjusted gross income (as defined 
                in section 62 of the Internal Revenue Code of 
                1986)--
                            ``(i) determined without regard to 
                        sections 135, 911, 931, and 933 of such 
                        Code; and
                            ``(ii) increased by the amount of 
                        interest received or accrued during the 
                        taxable year which is exempt from tax 
                        under such Code.
                In the case of an individual filing a joint 
                return, any reference in this subsection to the 
                modified adjusted gross income of such 
                individual shall be to such return's modified 
                adjusted gross income.
                    ``(B) Taxable year to be used in 
                determining modified adjusted gross income.--
                            ``(i) In general.--In applying this 
                        subsection for an individual's premiums 
                        in a month in a year, subject to clause 
                        (ii) and subparagraph (C), the 
                        individual's modified adjusted gross 
                        income shall be such income determined 
                        for the individual's last taxable year 
                        beginning in the second calendar year 
                        preceding the year involved.
                            ``(ii) Temporary use of other 
                        data.--If, as of October 15 before a 
                        calendar year, the Secretary of the 
                        Treasury does not have adequate data 
                        for an individual in appropriate 
                        electronic form for the taxable year 
                        referred to in clause (i), the 
                        individual's modified adjusted gross 
                        income shall be determined using the 
                        data in such form from the previous 
                        taxable year. Except as provided in 
                        regulations prescribed by the 
                        Commissioner of Social Security in 
                        consultation with the Secretary, the 
                        preceding sentence shall cease to apply 
                        when adequate data in appropriate 
                        electronic form are available for the 
                        individual for the taxable year 
                        referred to in clause (i), and proper 
                        adjustments shall be made to the extent 
                        that the premium adjustments determined 
                        under the preceding sentence were 
                        inconsistent with those determined 
                        using such taxable year.
                            ``(iii) Non-filers.--In the case of 
                        individuals with respect to whom the 
                        Secretary of the Treasury does not have 
                        adequate data in appropriate electronic 
                        form for either taxable year referred 
                        to in clause (i) or clause (ii), the 
                        Commissioner of Social Security, in 
                        consultation with the Secretary, shall 
                        prescribe regulations which provide for 
                        the treatment of the premium adjustment 
                        with respect to such individual under 
                        this subsection, including regulations 
                        which provide for--
                                    ``(I) the application of 
                                the highest applicable 
                                percentage under paragraph 
                                (3)(C) to such individual if 
                                the Commissioner has 
                                information which indicates 
                                that such individual's modified 
                                adjusted gross income might 
                                exceed the threshold amount for 
                                the taxable year referred to in 
                                clause (i), and
                                    ``(II) proper adjustments 
                                in the case of the application 
                                of an applicable percentage 
                                under subclause (I) to such 
                                individual which is 
                                inconsistent with such 
                                individual's modified adjusted 
                                gross income for such taxable 
                                year.
                    ``(C) Use of more recent taxable year.--
                            ``(i) In general.--The Commissioner 
                        of Social Security in consultation with 
                        the Secretary of the Treasury shall 
                        establish a procedures under which an 
                        individual's modified adjusted gross 
                        income shall, at the request of such 
                        individual, be determined under this 
                        subsection--
                                    ``(I) for a more recent 
                                taxable year than the taxable 
                                year otherwise used under 
                                subparagraph (B), or
                                    ``(II) by such methodology 
                                as the Commissioner, in 
                                consultation with such 
                                Secretary, determines to be 
                                appropriate, which may include 
                                a methodology for aggregating 
                                or disaggregating information 
                                from tax returns in the case of 
                                marriage or divorce.
                            ``(ii) Standard for granting 
                        requests.--A request under clause 
                        (i)(I) to use a more recent taxable 
                        year may be granted only if--
                                    ``(I) the individual 
                                furnishes to such Commissioner 
                                with respect to such year such 
                                documentation, such as a copy 
                                of a filed Federal income tax 
                                return or an equivalent 
                                document, as the Commissioner 
                                specifies for purposes of 
                                determining the premium 
                                adjustment (if any) under this 
                                subsection; and
                                    ``(II) the individual's 
                                modified adjusted gross income 
                                for such year is significantly 
                                less than such income for the 
                                taxable year determined under 
                                subparagraph (B) by reason of 
                                the death of such individual's 
                                spouse, the marriage or divorce 
                                of such individual, or other 
                                major life changing events 
                                specified in regulations 
                                prescribed by the Commissioner 
                                in consultation with the 
                                Secretary.
            ``(5) Inflation adjustment.--
                    ``(A) In general.--In the case of any 
                calendar year beginning after 2007, each dollar 
                amount in paragraph (2) or (3) shall be 
                increased by an amount equal to--
                            ``(i) such dollar amount, 
                        multiplied by
                            ``(ii) the percentage (if any) by 
                        which the average of the Consumer Price 
                        Index for all urban consumers (United 
                        States city average) for the 12-month 
                        period ending with August of the 
                        preceding calendar year exceeds such 
                        average for the 12-month period ending 
                        with August 2006.
                    ``(B) Rounding.--If any dollar amount after 
                being increased under subparagraph (A) is not a 
                multiple of $1,000, such dollar amount shall be 
                rounded to the nearest multiple of $1,000.
            ``(6) Joint return defined.--For purposes of this 
        subsection, the term `joint return' has the meaning 
        given to such term by section 7701(a)(38) of the 
        Internal Revenue Code of 1986.''.
    (b) Conforming Amendments.--
            (1) Section 1839 (42 U.S.C. 1395r) is amended--
                    (A) in subsection (a)(2), by striking ``and 
                (f)'' and inserting ``(f), and (i)'';
                    (B) in subsection (b), inserting ``(without 
                regard to any adjustment under subsection 
                (i))'' after ``subsection (a)''; and
                    (C) in subsection (f)--
                            (i) by striking ``and if'' and 
                        inserting ``if''; and
                            (ii) by inserting ``and if the 
                        amount of the individual's premium is 
                        not adjusted for such January under 
                        subsection (i),'' after ``section 
                        1840(b)(1),''.
            (2) Section 1844 (42 U.S.C. 1395w) is amended--
                    (A) in subsection (a)(1)--
                            (i) in subparagraph (B), by 
                        striking ``plus'' at the end and 
                        inserting ``minus''; and
                            (ii) by adding at the end the 
                        following new subparagraph:
            ``(C) the aggregate amount of additional premium 
        payments attributable to the application of section 
        1839(i); plus''; and
                    (B) in subsection (c), by inserting before 
                the period at the end the following: ``and 
                without regard to any premium adjustment under 
                section 1839(i)''.
    (c) Reporting Requirements for Secretary of the Treasury.--
            (1) In general.--Subsection (l) of section 6103 of 
        the Internal Revenue Code of 1986 (relating to 
        disclosure of returns and return information for 
        purposes other than tax administration), as amended by 
        section 105(e), is amended by adding at the end the 
        following new paragraph:
            ``(20) Disclosure of return information to carry 
        out medicare part b premium subsidy adjustment.--
                    ``(A) In general.--The Secretary shall, 
                upon written request from the Commissioner of 
                Social Security, disclose to officers, 
                employees, and contractors of the Social 
                Security Administration return information of a 
                taxpayer whose premium (according to the 
                records of the Secretary) may be subject to 
                adjustment under section 1839(i) of the Social 
                Security Act. Such return information shall be 
                limited to--
                            ``(i) taxpayer identity information 
                        with respect to such taxpayer,
                            ``(ii) the filing status of such 
                        taxpayer,
                            ``(iii) the adjusted gross income 
                        of such taxpayer,
                            ``(iv) the amounts excluded from 
                        such taxpayer's gross income under 
                        sections 135 and 911 to the extent such 
                        information is available,
                            ``(v) the interest received or 
                        accrued during the taxable year which 
                        is exempt from the tax imposed by 
                        chapter 1 to the extent such 
                        information is available,
                            ``(vi) the amounts excluded from 
                        such taxpayer's gross income by 
                        sections 931 and 933 to the extent such 
                        information is available,
                            ``(vii) such other information 
                        relating to the liability of the 
                        taxpayer as is prescribed by the 
                        Secretary by regulation as might 
                        indicate in the case of a taxpayer who 
                        is an individual described in 
                        subsection (i)(4)(B)(iii) of section 
                        1839 of the Social Security Act that 
                        the amount of the premium of the 
                        taxpayer under such section may be 
                        subject to adjustment under subsection 
                        (i) of such section and the amount of 
                        such adjustment, and
                            ``(viii) the taxable year with 
                        respect to which the preceding 
                        information relates.
                    ``(B) Restriction on use of disclosed 
                information.--Return information disclosed 
                under subparagraph (A) may be used by officers, 
                employees, and contractors of the Social 
                Security Administration only for the purposes 
                of, and to the extent necessary in, 
                establishing the appropriate amount of any 
                premium adjustment under such section 
                1839(i).''
            (2) Conforming amendments.--
                    (A) Paragraph (3) of section 6103(a) of 
                such Code, as amended by section 105(e)(1), is 
                amended by striking ``or (19)'' and inserting 
                ``(19), or (20)''.
                    (B) Paragraph (4) of section 6103(p) of 
                such Code, as amended by section 105(e)(3), is 
                amended by striking ``(l)(16), (17), or (19)'' 
                each place it appears and inserting ``(l)(16), 
                (17), (19), or (20)''.
                    (C) Paragraph (2) of section 7213(a) of 
                such Code, as amended by section 105(e)(4), is 
                amended by striking ``or (19)'' and inserting 
                ``(19), or (20)''.

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

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

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

                ``PROVISIONS RELATING TO ADMINISTRATION

    ``Sec. 1808. (a) Coordinated Administration of Medicare 
Prescription Drug and Medicare Advantage Programs.--
            ``(1) In general.--There is within the Centers for 
        Medicare & Medicaid Services a center to carry out the 
        duties described in paragraph (3).
            ``(2) Director.--Such center shall be headed by a 
        director who shall report directly to the Administrator 
        of the Centers for Medicare & Medicaid Services.
            ``(3) Duties.--The duties described in this 
        paragraph are the following:
                    ``(A) The administration of parts C and D.
                    ``(B) The provision of notice and 
                information under section 1804.
                    ``(C) Such other duties as the Secretary 
                may specify.
            ``(4) Deadline.--The Secretary shall ensure that 
        the center is carrying out the duties described in 
        paragraph (3) by not later than January 1, 2008.''.
    (b) Management Staff for the Centers for Medicare & 
Medicaid Services.--Such section is further amended by adding 
at the end the following new subsection:
    ``(b) Employment of Management Staff.--
            ``(1) In general.--The Secretary may employ, within 
        the Centers for Medicare & Medicaid Services, such 
        individuals as management staff as the Secretary 
        determines to be appropriate. With respect to the 
        administration of parts C and D, such individuals shall 
        include individuals with private sector expertise in 
        negotiations with health benefits plans.
            ``(2) Eligibility.--To be eligible for employment 
        under paragraph (1) an individual shall be required to 
        have demonstrated, by their education and experience 
        (either in the public or private sector), superior 
        expertise in at least one of the following areas:
                    ``(A) The review, negotiation, and 
                administration of health care contracts.
                    ``(B) The design of health care benefit 
                plans.
                    ``(C) Actuarial sciences.
                    ``(D) Compliance with health plan 
                contracts.
                    ``(E) Consumer education and decision 
                making.
                    ``(F) Any other area specified by the 
                Secretary that requires specialized management 
                or other expertise.
            ``(3) Rates of payment.--
                    ``(A) Performance-related pay.--Subject to 
                subparagraph (B), the Secretary shall establish 
                the rate of pay for an individual employed 
                under paragraph (1). Such rate shall take into 
                account expertise, experience, and performance.
                    ``(B) Limitation.--In no case may the rate 
                of compensation determined under subparagraph 
                (A) exceed the highest rate of basic pay for 
                the Senior Executive Service under section 
                5382(b) of title 5, United States Code.''.
    (c) Requirement for Dedicated Actuary for Private Health 
Plans.--Section 1117(b) (42 U.S.C. 1317(b)) is amended by 
adding at the end the following new paragraph:
    ``(3) In the office of the Chief Actuary there shall be an 
actuary whose duties relate exclusively to the programs under 
parts C and D of title XVIII and related provisions of such 
title.''.
    (d) Increase in Grade to Executive Level III for the 
Administrator of the Centers for Medicare & Medicaid 
Services.--
            (1) In general.--Section 5314 of title 5, United 
        States Code, is amended by adding at the end the 
        following:
            ``Administrator of the Centers for Medicare & 
        Medicaid Services.''.
            (2) Conforming amendment.--Section 5315 of such 
        title is amended by striking ``Administrator of the 
        Health Care Financing Administration.''.
            (3) Effective date.--The amendments made by this 
        subsection take effect on January 1, 2004.
    (e) Conforming Amendments Relating to Health Care Financing 
Administration.--
            (1) Amendments to the social security act.--The 
        Social Security Act is amended--
                    (A) in section 1117 (42 U.S.C. 1317)--
                            (i) in the heading to read as 
                        follows:

``APPOINTMENT OF THE ADMINISTRATOR AND CHIEF ACTUARY OF THE CENTERS FOR 
                    MEDICARE & MEDICAID SERVICES'';

                            (ii) in subsection (a), by striking 
                        ``Health Care Financing 
                        Administration'' and inserting 
                        ``Centers for Medicare & Medicaid 
                        Services''; and
                            (iii) in subsection (b)(1)--
                                    (I) by striking ``Health 
                                Care Financing Administration'' 
                                and inserting ``Centers for 
                                Medicare & Medicaid Services''; 
                                and
                                    (II) by striking 
                                ``Administration'' and 
                                inserting ``Centers'';
                    (B) in section 1140(a) (42 U.S.C. 1320b-
                10(a))--
                            (i) in paragraph (1), by striking 
                        ``Health Care Financing 
                        Administration'' both places it appears 
                        in the matter following subparagraph 
                        (B) and inserting ``Centers for 
                        Medicare & Medicaid Services'';
                            (ii) in paragraph (1)(A)--
                                    (I) by striking ``Health 
                                Care Financing Administration'' 
                                and inserting ``Centers for 
                                Medicare & Medicaid Services''; 
                                and
                                    (II) by striking ``HCFA'' 
                                and inserting ``CMS''; and
                            (iii) in paragraph (1)(B), by 
                        striking ``Health Care Financing 
                        Administration'' both places it appears 
                        and inserting ``Centers for Medicare & 
                        Medicaid Services'';
                    (C) in section 1142(b)(3) (42 U.S.C. 1320b-
                12(b)(3)), by striking ``Health Care Financing 
                Administration'' and inserting ``Centers for 
                Medicare & Medicaid Services'';
                    (D) in section 1817(b) (42 U.S.C. 
                1395i(b))--
                            (i) by striking ``Health Care 
                        Financing Administration'', both in the 
                        fifth sentence of the matter preceding 
                        paragraph (1) and in the second 
                        sentence of the matter following 
                        paragraph (4), and inserting ``Centers 
                        for Medicare & Medicaid Services''; and
                            (ii) by striking ``Chief Actuarial 
                        Officer'' in the second sentence of the 
                        matter following paragraph (4) and 
                        inserting ``Chief Actuary'';
                    (E) in section 1841(b) (42 U.S.C. 
                1395t(b))--
                            (i) by striking ``Health Care 
                        Financing Administration'', both in the 
                        fifth sentence of the matter preceding 
                        paragraph (1) and in the second 
                        sentence of the matter following 
                        paragraph (4), and inserting ``Centers 
                        for Medicare & Medicaid Services''; and
                            (ii) by striking ``Chief Actuarial 
                        Officer'' in the second sentence of the 
                        matter following paragraph (4) and 
                        inserting ``Chief Actuary'';
                    (F) in section 1852(a)(5) (42 U.S.C. 1395w-
                22(a)(5)), by striking ``Health Care Financing 
                Administration'' in the matter following 
                subparagraph (B) and inserting ``Centers for 
                Medicare & Medicaid Services'';
                    (G) in section 1853 (42 U.S.C. 1395w-23)--
                            (i) in subsection (b)(4), by 
                        striking ``Health Care Financing 
                        Administration'' in the first sentence 
                        and inserting ``Centers for Medicare & 
                        Medicaid Services''; and
                            (ii) in subsection (c)(7), by 
                        striking ``Health Care Financing 
                        Administration'' in the last sentence 
                        and inserting ``Centers for Medicare & 
                        Medicaid Services'';
                    (H) in section 1854(a)(5)(A) (42 U.S.C. 
                1395w-24(a)(5)(A)), by striking ``Health Care 
                Financing Administration'' and inserting 
                ``Centers for Medicare & Medicaid Services'';
                    (I) in section 1857(d)(4)(A)(ii) (42 U.S.C. 
                1395w-27(d)(4)(A)(ii)), by striking ``Health 
                Care Financing Administration'' and inserting 
                ``Secretary'';
                    (J) in section 1862(b)(5)(A)(ii) (42 U.S.C. 
                1395y(b)(5)(A)(ii)), by striking ``Health Care 
                Financing Administration'' and inserting 
                ``Centers for Medicare & Medicaid Services'';
                    (K) in section 1927(e)(4) (42 U.S.C. 1396r-
                8(e)(4)), by striking ``HCFA'' and inserting 
                ``The Secretary'';
                    (L) in section 1927(f)(2) (42 U.S.C. 1396r-
                8(f)(2)), by striking ``HCFA'' and inserting 
                ``The Secretary''; and
                    (M) in section 2104(g)(3) (42 U.S.C. 
                1397dd(g)(3)) by inserting ``or CMS Form 64 or 
                CMS Form 21, as the case may be,'' after ``HCFA 
                Form 64 or HCFA Form 21''.
            (2) Amendments to the public health service act.--
        The Public Health Service Act is amended--
                    (A) in section 501(d)(18) (42 U.S.C. 
                290aa(d)(18)), by striking ``Health Care 
                Financing Administration'' and inserting 
                ``Centers for Medicare & Medicaid Services'';
                    (B) in section 507(b)(6) (42 U.S.C. 
                290bb(b)(6)), by striking ``Health Care 
                Financing Administration'' and inserting 
                ``Centers for Medicare & Medicaid Services'';
                    (C) in section 916 (42 U.S.C. 299b-5)--
                            (i) in subsection (b)(2), by 
                        striking ``Health Care Financing 
                        Administration'' and inserting 
                        ``Centers for Medicare & Medicaid 
                        Services''; and
                            (ii) in subsection (c)(2), by 
                        striking ``Health Care Financing 
                        Administration'' and inserting 
                        ``Centers for Medicare & Medicaid 
                        Services'';
                    (D) in section 921(c)(3)(A) (42 U.S.C. 
                299c(c)(3)(A)), by striking ``Health Care 
                Financing Administration'' and inserting 
                ``Centers for Medicare & Medicaid Services'';
                    (E) in section 1318(a)(2) (42 U.S.C. 300e-
                17(a)(2)), by striking ``Health Care Financing 
                Administration'' and inserting ``Centers for 
                Medicare & Medicaid Services'';
                    (F) in section 2102(a)(7) (42 U.S.C. 300aa-
                2(a)(7)), by striking ``Health Care Financing 
                Administration'' and inserting ``Centers for 
                Medicare & Medicaid Services''; and
                    (G) in section 2675(a) (42 U.S.C. 300ff-
                75(a)), by striking ``Health Care Financing 
                Administration'' in the first sentence and 
                inserting ``Centers for Medicare & Medicaid 
                Services''.
            (3) Amendments to the internal revenue code of 
        1986.--Section 6103(l)(12) of the Internal Revenue Code 
        of 1986 is amended--
                    (A) in subparagraph (B), by striking 
                ``Health Care Financing Administration'' in the 
                matter preceding clause (i) and inserting 
                ``Centers for Medicare & Medicaid Services''; 
                and
                    (B) in subparagraph (C)--
                            (i) by striking ``health care 
                        financing administration'' in the 
                        heading and inserting ``centers for 
                        medicare & medicaid services''; and
                            (ii) by striking ``Health Care 
                        Financing Administration'' in the 
                        matter preceding clause (i) and 
                        inserting ``Centers for Medicare & 
                        Medicaid Services''.
            (4) Amendments to title 10, united states code.--
        Title 10, United States Code, is amended--
                    (A) in section 1086(d)(4), by striking 
                ``administrator of the Health Care Financing 
                Administration'' in the last sentence and 
                inserting ``Administrator of the Centers for 
                Medicare & Medicaid Services''; and
                    (B) in section 1095(k)(2), by striking 
                ``Health Care Financing Administration'' in the 
                second sentence and inserting ``Centers for 
                Medicare & Medicaid Services''.
            (5) Amendments to the alzheimer's disease and 
        related dementias services research act of 1992.--The 
        Alzheimer's Disease and Related Dementias Research Act 
        of 1992 (42 U.S.C. 11271 et seq.) is amended--
                    (A) in the heading of subpart 3 of part D 
                to read as follows:

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

                    (B) in section 937 (42 U.S.C. 11271)--
                            (i) in subsection (a), by striking 
                        ``National Health Care Financing 
                        Administration'' and inserting 
                        ``Centers for Medicare & Medicaid 
                        Services'';
                            (ii) in subsection (b)(1), by 
                        striking ``Health Care Financing 
                        Administration'' and inserting 
                        ``Centers for Medicare & Medicaid 
                        Services'';
                            (iii) in subsection (b)(2), by 
                        striking ``Health Care Financing 
                        Administration'' and inserting 
                        ``Centers for Medicare & Medicaid 
                        Services''; and
                            (iv) in subsection (c), by striking 
                        ``Health Care Financing 
                        Administration'' and inserting 
                        ``Centers for Medicare & Medicaid 
                        Services''; and
                    (C) in section 938 (42 U.S.C. 11272), by 
                striking ``Health Care Financing 
                Administration'' and inserting ``Centers for 
                Medicare & Medicaid Services''.
            (6) Miscellaneous amendments.--
                    (A) Rehabilitation act of 1973.--Section 
                202(b)(8) of the Rehabilitation Act of 1973 (29 
                U.S.C. 762(b)(8)) is amended by striking 
                ``Health Care Financing Administration'' and 
                inserting ``Centers for Medicare & Medicaid 
                Services''.
                    (B) Indian health care improvement act.--
                Section 405(d)(1) of the Indian Health Care 
                Improvement Act (25 U.S.C. 1645(d)(1)) is 
                amended by striking ``Health Care Financing 
                Administration'' in the matter preceding 
                subparagraph (A) and inserting ``Centers for 
                Medicare & Medicaid Services''.
                    (C) Individuals with disabilities education 
                act.--Section 644(b)(5) of the Individuals with 
                Disabilities Education Act (20 U.S.C. 
                1444(b)(5)) is amended by striking ``Health 
                Care Financing Administration'' and inserting 
                ``Centers for Medicare & Medicaid Services''.
                    (D) The home health care and alzheimer's 
                disease amendments of 1990.--Section 302(a)(9) 
                of the Home Health Care and Alzheimer's Disease 
                Amendments of 1990 (42 U.S.C. 242q-1(a)(9)) is 
                amended by striking ``Health Care Financing 
                Administration'' and inserting ``Centers for 
                Medicare & Medicaid Services''.
                    (E) The children's health act of 2000.--
                Section 2503(a) of the Children's Health Act of 
                2000 (42 U.S.C. 247b-3a(a)) is amended by 
                striking ``Health Care Financing 
                Administration'' and inserting ``Centers for 
                Medicare & Medicaid Services''.
                    (F) The national institutes of health 
                revitalization act of 1993.--Section 1909 of 
                the National Institutes of Health 
                Revitalization Act of 1993 (42 U.S.C. 299a 
                note) is amended by striking ``Health Care 
                Financing Administration'' and inserting 
                ``Centers for Medicare & Medicaid Services''.
                    (G) The omnibus budget reconciliation act 
                of 1990.--Section 4359(d) of the Omnibus Budget 
                Reconciliation Act of 1990 (42 U.S.C. 1395b-
                3(d)) is amended by striking ``Health Care 
                Financing Administration'' and inserting 
                ``Centers for Medicare & Medicaid Services''.
                    (H) The medicare, medicaid, and schip 
                benefits improvement and protection act of 
                2000.--Section 104(d)(4) of the Medicare, 
                Medicaid, and SCHIP Benefits Improvement and 
                Protection Act of 2000 (42 U.S.C. 1395m note) 
                is amended by striking ``Health Care Financing 
                Administration'' and inserting ``Health Care''.
            (7) Additional amendment.--Section 403 of the Act 
        entitled, ``An Act to authorize certain appropriations 
        for the territories of the United States, to amend 
        certain Acts relating thereto, and for other 
        purposes'', enacted October 15, 1977 (48 U.S.C. 1574-1; 
        48 U.S.C. 1421q-1), is amended by striking ``Health 
        Care Financing Administration'' and inserting ``Centers 
        for Medicare & Medicaid Services''.

                     Subtitle A--Regulatory Reform

SEC. 901. CONSTRUCTION; DEFINITION OF SUPPLIER.

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

                               ``Supplier

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

SEC. 902. ISSUANCE OF REGULATIONS.

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

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

    (a) No Retroactive Application of Substantive Changes.--
            (1) In general.--Section 1871 (42 U.S.C. 1395hh), 
        as amended by section 902(a), is amended by adding at 
        the end the following new subsection:
    ``(e)(1)(A) A substantive change in regulations, manual 
instructions, interpretative rules, statements of policy, or 
guidelines of general applicability under this title shall not 
be applied (by extrapolation or otherwise) retroactively to 
items and services furnished before the effective date of the 
change, unless the Secretary determines that--
            ``(i) such retroactive application is necessary to 
        comply with statutory requirements; or
            ``(ii) failure to apply the change retroactively 
        would be contrary to the public interest.''.
            (2) Effective date.--The amendment made by 
        paragraph (1) shall apply to substantive changes issued 
        on or after the date of the enactment of this Act.
    (b) Timeline for Compliance With Substantive Changes After 
Notice.--
            (1) In general.--Section 1871(e)(1), as added by 
        subsection (a), is amended by adding at the end the 
        following:
    ``(B)(i) Except as provided in clause (ii), a substantive 
change referred to in subparagraph (A) shall not become 
effective before the end of the 30-day period that begins on 
the date that the Secretary has issued or published, as the 
case may be, the substantive change.
    ``(ii) The Secretary may provide for such a substantive 
change to take effect on a date that precedes the end of the 
30-day period under clause (i) if the Secretary finds that 
waiver of such 30-day period is necessary to comply with 
statutory requirements or that the application of such 30-day 
period is contrary to the public interest. If the Secretary 
provides for an earlier effective date pursuant to this clause, 
the Secretary shall include in the issuance or publication of 
the substantive change a finding described in the first 
sentence, and a brief statement of the reasons for such 
finding.
    ``(C) No action shall be taken against a provider of 
services or supplier with respect to noncompliance with such a 
substantive change for items and services furnished before the 
effective date of such a change.''.
            (2) Effective date.--The amendment made by 
        paragraph (1) shall apply to compliance actions 
        undertaken on or after the date of the enactment of 
        this Act.
    (c) Reliance on Guidance.--
            (1) In general.--Section 1871(e), as added by 
        subsection (a), is further amended by adding at the end 
        the following new paragraph:
    ``(2)(A) If--
            ``(i) a provider of services or supplier follows 
        the written guidance (which may be transmitted 
        electronically) provided by the Secretary or by a 
        medicare contractor (as defined in section 1889(g)) 
        acting within the scope of the contractor's contract 
        authority, with respect to the furnishing of items or 
        services and submission of a claim for benefits for 
        such items or services with respect to such provider or 
        supplier;
            ``(ii) the Secretary determines that the provider 
        of services or supplier has accurately presented the 
        circumstances relating to such items, services, and 
        claim to the contractor in writing; and
            ``(iii) the guidance was in error;
the provider of services or supplier shall not be subject to 
any penalty or interest under this title or the provisions of 
title XI insofar as they relate to this title (including 
interest under a repayment plan under section 1893 or 
otherwise) relating to the provision of such items or service 
or such claim if the provider of services or supplier 
reasonably relied on such guidance.
    ``(B) Subparagraph (A) shall not be construed as preventing 
the recoupment or repayment (without any additional penalty) 
relating to an overpayment insofar as the overpayment was 
solely the result of a clerical or technical operational 
error.''.
            (2) Effective date.--The amendment made by 
        paragraph (1) shall take effect on the date of the 
        enactment of this Act and shall only apply to a penalty 
        or interest imposed with respect to guidance provided 
        on or after July 24, 2003.

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

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

                     Subtitle B--Contracting Reform

SEC. 911. INCREASED FLEXIBILITY IN MEDICARE ADMINISTRATION.

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

          ``CONTRACTS WITH MEDICARE ADMINISTRATIVE CONTRACTORS

    ``Sec. 1874A. (a) Authority.--
            ``(1) Authority to enter into contracts.--The 
        Secretary may enter into contracts with any eligible 
        entity to serve as a medicare administrative contractor 
        with respect to the performance of any or all of the 
        functions described in paragraph (4) or parts of those 
        functions (or, to the extent provided in a contract, to 
        secure performance thereof by other entities).
            ``(2) Eligibility of entities.--An entity is 
        eligible to enter into a contract with respect to the 
        performance of a particular function described in 
        paragraph (4) only if--
                    ``(A) the entity has demonstrated 
                capability to carry out such function;
                    ``(B) the entity complies with such 
                conflict of interest standards as are generally 
                applicable to Federal acquisition and 
                procurement;
                    ``(C) the entity has sufficient assets to 
                financially support the performance of such 
                function; and
                    ``(D) the entity meets such other 
                requirements as the Secretary may impose.
            ``(3) Medicare administrative contractor defined.--
        For purposes of this title and title XI--
                    ``(A) In general.--The term `medicare 
                administrative contractor' means an agency, 
                organization, or other person with a contract 
                under this section.
                    ``(B) Appropriate medicare administrative 
                contractor.--With respect to the performance of 
                a particular function in relation to an 
                individual entitled to benefits under part A or 
                enrolled under part B, or both, a specific 
                provider of services or supplier (or class of 
                such providers of services or suppliers), the 
                `appropriate' medicare administrative 
                contractor is the medicare administrative 
                contractor that has a contract under this 
                section with respect to the performance of that 
                function in relation to that individual, 
                provider of services or supplier or class of 
                provider of services or supplier.
            ``(4) Functions described.--The functions referred 
        to in paragraphs (1) and (2) are payment functions 
        (including the function of developing local coverage 
        determinations, as defined in section 1869(f)(2)(B)), 
        provider services functions, and functions relating to 
        services furnished to individuals entitled to benefits 
        under part A or enrolled under part B, or both, as 
        follows:
                    ``(A) Determination of payment amounts.--
                Determining (subject to the provisions of 
                section 1878 and to such review by the 
                Secretary as may be provided for by the 
                contracts) the amount of the payments required 
                pursuant to this title to be made to providers 
                of services, suppliers and individuals.
                    ``(B) Making payments.--Making payments 
                described in subparagraph (A) (including 
                receipt, disbursement, and accounting for funds 
                in making such payments).
                    ``(C) Beneficiary education and 
                assistance.--Providing education and outreach 
                to individuals entitled to benefits under part 
                A or enrolled under part B, or both, and 
                providing assistance to those individuals with 
                specific issues, concerns, or problems.
                    ``(D) Provider consultative services.--
                Providing consultative services to 
                institutions, agencies, and other persons to 
                enable them to establish and maintain fiscal 
                records necessary for purposes of this title 
                and otherwise to qualify as providers of 
                services or suppliers.
                    ``(E) Communication with providers.--
                Communicating to providers of services and 
                suppliers any information or instructions 
                furnished to the medicare administrative 
                contractor by the Secretary, and facilitating 
                communication between such providers and 
                suppliers and the Secretary.
                    ``(F) Provider education and technical 
                assistance.--Performing the functions relating 
                to provider education, training, and technical 
                assistance.
                    ``(G) Additional functions.--Performing 
                such other functions, including (subject to 
                paragraph (5)) functions under the Medicare 
                Integrity Program under section 1893, as are 
                necessary to carry out the purposes of this 
                title.
            ``(5) Relationship to mip contracts.--
                    ``(A) Nonduplication of duties.--In 
                entering into contracts under this section, the 
                Secretary shall assure that functions of 
                medicare administrative contractors in carrying 
                out activities under parts A and B do not 
                duplicate activities carried out under a 
                contract entered into under the Medicare 
                Integrity Program under section 1893. The 
                previous sentence shall not apply with respect 
                to the activity described in section 1893(b)(5) 
                (relating to prior authorization of certain 
                items of durable medical equipment under 
                section 1834(a)(15)).
                    ``(B) Construction.--An entity shall not be 
                treated as a medicare administrative contractor 
                merely by reason of having entered into a 
                contract with the Secretary under section 1893.
            ``(6) Application of federal acquisition 
        regulation.--Except to the extent inconsistent with a 
        specific requirement of this section, the Federal 
        Acquisition Regulation applies to contracts under this 
        section.
    ``(b) Contracting Requirements.--
            ``(1) Use of competitive procedures.--
                    ``(A) In general.--Except as provided in 
                laws with general applicability to Federal 
                acquisition and procurement or in subparagraph 
                (B), the Secretary shall use competitive 
                procedures when entering into contracts with 
                medicare administrative contractors under this 
                section, taking into account performance 
                quality as well as price and other factors.
                    ``(B) Renewal of contracts.--The Secretary 
                may renew a contract with a medicare 
                administrative contractor under this section 
                from term to term without regard to section 5 
                of title 41, United States Code, or any other 
                provision of law requiring competition, if the 
                medicare administrative contractor has met or 
                exceeded the performance requirements 
                applicable with respect to the contract and 
                contractor, except that the Secretary shall 
                provide for the application of competitive 
                procedures under such a contract not less 
                frequently than once every 5 years.
                    ``(C) Transfer of functions.--The Secretary 
                may transfer functions among medicare 
                administrative contractors consistent with the 
                provisions of this paragraph. The Secretary 
                shall ensure that performance quality is 
                considered in such transfers. The Secretary 
                shall provide public notice (whether in the 
                Federal Register or otherwise) of any such 
                transfer (including a description of the 
                functions so transferred, a description of the 
                providers of services and suppliers affected by 
                such transfer, and contact information for the 
                contractors involved).
                    ``(D) Incentives for quality.--The 
                Secretary shall provide incentives for medicare 
                administrative contractors to provide quality 
                service and to promote efficiency.
            ``(2) Compliance with requirements.--No contract 
        under this section shall be entered into with any 
        medicare administrative contractor unless the Secretary 
        finds that such medicare administrative contractor will 
        perform its obligations under the contract efficiently 
        and effectively and will meet such requirements as to 
        financial responsibility, legal authority, quality of 
        services provided, and other matters as the Secretary 
        finds pertinent.
            ``(3) Performance requirements.--
                    ``(A) Development of specific performance 
                requirements.--
                            ``(i) In general.--The Secretary 
                        shall develop contract performance 
                        requirements to carry out the specific 
                        requirements applicable under this 
                        title to a function described in 
                        subsection (a)(4) and shall develop 
                        standards for measuring the extent to 
                        which a contractor has met such 
                        requirements.
                            ``(ii) Consultation.--In developing 
                        such performance requirements and 
                        standards for measurement, the 
                        Secretary shall consult with providers 
                        of services, organizations 
                        representative of beneficiaries under 
                        this title, and organizations and 
                        agencies performing functions necessary 
                        to carry out the purposes of this 
                        section with respect to such 
                        performance requirements.
                            ``(iii) Publication of standards.--
                        The Secretary shall make such 
                        performance requirements and 
                        measurement standards available to the 
                        public.
                    ``(B) Considerations.--The Secretary shall 
                include, as one of the standards developed 
                under subparagraph (A), provider and 
                beneficiary satisfaction levels.
                    ``(C) Inclusion in contracts.--All 
                contractor performance requirements shall be 
                set forth in the contract between the Secretary 
                and the appropriate medicare administrative 
                contractor. Such performance requirements--
                            ``(i) shall reflect the performance 
                        requirements published under 
                        subparagraph (A), but may include 
                        additional performance requirements;
                            ``(ii) shall be used for evaluating 
                        contractor performance under the 
                        contract; and
                            ``(iii) shall be consistent with 
                        the written statement of work provided 
                        under the contract.
            ``(4) Information requirements.--The Secretary 
        shall not enter into a contract with a medicare 
        administrative contractor under this section unless the 
        contractor agrees--
                    ``(A) to furnish to the Secretary such 
                timely information and reports as the Secretary 
                may find necessary in performing his functions 
                under this title; and
                    ``(B) to maintain such records and afford 
                such access thereto as the Secretary finds 
                necessary to assure the correctness and 
                verification of the information and reports 
                under subparagraph (A) and otherwise to carry 
                out the purposes of this title.
            ``(5) Surety bond.--A contract with a medicare 
        administrative contractor under this section may 
        require the medicare administrative contractor, and any 
        of its officers or employees certifying payments or 
        disbursing funds pursuant to the contract, or otherwise 
        participating in carrying out the contract, to give 
        surety bond to the United States in such amount as the 
        Secretary may deem appropriate.
    ``(c) Terms and Conditions.--
            ``(1) In general.--A contract with any medicare 
        administrative contractor under this section may 
        contain such terms and conditions as the Secretary 
        finds necessary or appropriate and may provide for 
        advances of funds to the medicare administrative 
        contractor for the making of payments by it under 
        subsection (a)(4)(B).
            ``(2) Prohibition on mandates for certain data 
        collection.--The Secretary may not require, as a 
        condition of entering into, or renewing, a contract 
        under this section, that the medicare administrative 
        contractor match data obtained other than in its 
        activities under this title with data used in the 
        administration of this title for purposes of 
        identifying situations in which the provisions of 
        section 1862(b) may apply.
    ``(d) Limitation on Liability of Medicare Administrative 
Contractors and Certain Officers.--
            ``(1) Certifying officer.--No individual designated 
        pursuant to a contract under this section as a 
        certifying officer shall, in the absence of the 
        reckless disregard of the individual's obligations or 
        the intent by that individual to defraud the United 
        States, be liable with respect to any payments 
        certified by the individual under this section.
            ``(2) Disbursing officer.--No disbursing officer 
        shall, in the absence of the reckless disregard of the 
        officer's obligations or the intent by that officer to 
        defraud the United States, be liable with respect to 
        any payment by such officer under this section if it 
        was based upon an authorization (which meets the 
        applicable requirements for such internal controls 
        established by the Comptroller General of the United 
        States) of a certifying officer designated as provided 
        in paragraph (1) of this subsection.
            ``(3) Liability of medicare administrative 
        contractor.--
                    ``(A) In general.--No medicare 
                administrative contractor shall be liable to 
                the United States for a payment by a certifying 
                or disbursing officer unless, in connection 
                with such payment, the medicare administrative 
                contractor acted with reckless disregard of its 
                obligations under its medicare administrative 
                contract or with intent to defraud the United 
                States.
                    ``(B) Relationship to false claims act.--
                Nothing in this subsection shall be construed 
                to limit liability for conduct that would 
                constitute a violation of sections 3729 through 
                3731 of title 31, United States Code.
            ``(4) Indemnification by secretary.--
                    ``(A) In general.--Subject to subparagraphs 
                (B) and (D), in the case of a medicare 
                administrative contractor (or a person who is a 
                director, officer, or employee of such a 
                contractor or who is engaged by the contractor 
                to participate directly in the claims 
                administration process) who is made a party to 
                any judicial or administrative proceeding 
                arising from or relating directly to the claims 
                administration process under this title, the 
                Secretary may, to the extent the Secretary 
                determines to be appropriate and as specified 
                in the contract with the contractor, indemnify 
                the contractor and such persons.
                    ``(B) Conditions.--The Secretary may not 
                provide indemnification under subparagraph (A) 
                insofar as the liability for such costs arises 
                directly from conduct that is determined by the 
                judicial proceeding or by the Secretary to be 
                criminal in nature, fraudulent, or grossly 
                negligent. If indemnification is provided by 
                the Secretary with respect to a contractor 
                before a determination that such costs arose 
                directly from such conduct, the contractor 
                shall reimburse the Secretary for costs of 
                indemnification.
                    ``(C) Scope of indemnification.--
                Indemnification by the Secretary under 
                subparagraph (A) may include payment of 
                judgments, settlements (subject to subparagraph 
                (D)), awards, and costs (including reasonable 
                legal expenses).
                    ``(D) Written approval for settlements or 
                compromises.--A contractor or other person 
                described in subparagraph (A) may not propose 
                to negotiate a settlement or compromise of a 
                proceeding described in such subparagraph 
                without the prior written approval of the 
                Secretary to negotiate such settlement or 
                compromise. Any indemnification under 
                subparagraph (A) with respect to amounts paid 
                under a settlement or compromise of a 
                proceeding described in such subparagraph are 
                conditioned upon prior written approval by the 
                Secretary of the final settlement or 
                compromise.
                    ``(E) Construction.--Nothing in this 
                paragraph shall be construed--
                            ``(i) to change any common law 
                        immunity that may be available to a 
                        medicare administrative contractor or 
                        person described in subparagraph (A); 
                        or
                            ``(ii) to permit the payment of 
                        costs not otherwise allowable, 
                        reasonable, or allocable under the 
                        Federal Acquisition Regulation.''.
            (2) Consideration of incorporation of current law 
        standards.--In developing contract performance 
        requirements under section 1874A(b) of the Social 
        Security Act, as inserted by paragraph (1), the 
        Secretary shall consider inclusion of the performance 
        standards described in sections 1816(f)(2) of such Act 
        (relating to timely processing of reconsiderations and 
        applications for exemptions) and section 1842(b)(2)(B) 
        of such Act (relating to timely review of 
        determinations and fair hearing requests), as such 
        sections were in effect before the date of the 
        enactment of this Act.
    (b) Conforming Amendments to Section 1816 (Relating to 
Fiscal Intermediaries).--Section 1816 (42 U.S.C. 1395h) is 
amended as follows:
            (1) The heading is amended to read as follows:

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

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

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

            (2) Subsection (a) is amended to read as follows:
    ``(a) The administration of this part shall be conducted 
through contracts with medicare administrative contractors 
under section 1874A.''.
            (3) Subsection (b) is amended--
                    (A) by striking paragraph (1);
                    (B) in paragraph (2)--
                            (i) by striking subparagraphs (A) 
                        and (B);
                            (ii) in subparagraph (C), by 
                        striking ``carriers'' and inserting 
                        ``medicare administrative 
                        contractors''; and
                            (iii) by striking subparagraphs (D) 
                        and (E);
                    (C) in paragraph (3)--
                            (i) in the matter before 
                        subparagraph (A), by striking ``Each 
                        such contract shall provide that the 
                        carrier'' and inserting ``The 
                        Secretary'';
                            (ii) by striking ``will'' the first 
                        place it appears in each of 
                        subparagraphs (A), (B), (F), (G), (H), 
                        and (L) and inserting ``shall'';
                            (iii) in subparagraph (B), in the 
                        matter before clause (i), by striking 
                        ``to the policyholders and subscribers 
                        of the carrier'' and inserting ``to the 
                        policyholders and subscribers of the 
                        medicare administrative contractor'';
                            (iv) by striking subparagraphs (C), 
                        (D), and (E);
                            (v) in subparagraph (H)--
                                    (I) by striking ``if it 
                                makes determinations or 
                                payments with respect to 
                                physicians' services,'' in the 
                                matter preceding clause (i); 
                                and
                                    (II) by striking 
                                ``carrier'' and inserting 
                                ``medicare administrative 
                                contractor'' in clause (i);
                            (vi) by striking subparagraph (I);
                            (vii) in subparagraph (L), by 
                        striking the semicolon and inserting a 
                        period;
                            (viii) in the first sentence, after 
                        subparagraph (L), by striking ``and 
                        shall contain'' and all that follows 
                        through the period; and
                            (ix) in the seventh sentence, by 
                        inserting ``medicare administrative 
                        contractor,'' after ``carrier,'';
                    (D) by striking paragraph (5);
                    (E) in paragraph (6)(D)(iv), by striking 
                ``carrier'' and inserting ``medicare 
                administrative contractor''; and
                    (F) in paragraph (7), by striking ``the 
                carrier'' and inserting ``the Secretary'' each 
                place it appears.
            (4) Subsection (c) is amended--
                    (A) by striking paragraph (1);
                    (B) in paragraph (2)(A), by striking 
                ``contract under this section which provides 
                for the disbursement of funds, as described in 
                subsection (a)(1)(B),'' and inserting 
                ``contract under section 1874A that provides 
                for making payments under this part'';
                    (C) in paragraph (3)(A), by striking 
                ``subsection (a)(1)(B)'' and inserting 
                ``section 1874A(a)(3)(B)'';
                    (D) in paragraph (4), in the matter 
                preceding subparagraph (A), by striking 
                ``carrier'' and inserting ``medicare 
                administrative contractor''; and
                    (E) by striking paragraphs (5) and (6).
            (5) Subsections (d), (e), and (f) are repealed.
            (6) Subsection (g) is amended by striking ``carrier 
        or carriers'' and inserting ``medicare administrative 
        contractor or contractors''.
            (7) Subsection (h) is amended--
                    (A) in paragraph (2)--
                            (i) by striking ``Each carrier 
                        having an agreement with the Secretary 
                        under subsection (a)'' and inserting 
                        ``The Secretary''; and
                            (ii) by striking ``Each such 
                        carrier'' and inserting ``The 
                        Secretary'';
                    (B) in paragraph (3)(A)--
                            (i) by striking ``a carrier having 
                        an agreement with the Secretary under 
                        subsection (a)'' and inserting 
                        ``medicare administrative contractor 
                        having a contract under section 1874A 
                        that provides for making payments under 
                        this part''; and
                            (ii) by striking ``such carrier'' 
                        and inserting ``such contractor'';
                    (C) in paragraph (3)(B)--
                            (i) by striking ``a carrier'' and 
                        inserting ``a medicare administrative 
                        contractor'' each place it appears; and
                            (ii) by striking ``the carrier'' 
                        and inserting ``the contractor'' each 
                        place it appears; and
                    (D) in paragraphs (5)(A) and (5)(B)(iii), 
                by striking ``carriers'' and inserting 
                ``medicare administrative contractors'' each 
                place it appears.
            (8) Subsection (l) is amended--
                    (A) in paragraph (1)(A)(iii), by striking 
                ``carrier'' and inserting ``medicare 
                administrative contractor''; and
                    (B) in paragraph (2), by striking 
                ``carrier'' and inserting ``medicare 
                administrative contractor''.
            (9) Subsection (p)(3)(A) is amended by striking 
        ``carrier'' and inserting ``medicare administrative 
        contractor''.
            (10) Subsection (q)(1)(A) is amended by striking 
        ``carrier''.
    (d) Effective Date; Transition Rule.--
            (1) Effective date.--
                    (A) In general.--Except as otherwise 
                provided in this subsection, the amendments 
                made by this section shall take effect on 
                October 1, 2005, and the Secretary is 
                authorized to take such steps before such date 
                as may be necessary to implement such 
                amendments on a timely basis.
                    (B) Construction for current contracts.--
                Such amendments shall not apply to contracts in 
                effect before the date specified under 
                subparagraph (A) that continue to retain the 
                terms and conditions in effect on such date 
                (except as otherwise provided under this Act, 
                other than under this section) until such date 
                as the contract is let out for competitive 
                bidding under such amendments.
                    (C) Deadline for competitive bidding.--The 
                Secretary shall provide for the letting by 
                competitive bidding of all contracts for 
                functions of medicare administrative 
                contractors for annual contract periods that 
                begin on or after October 1, 2011.
            (2) General transition rules.--
                    (A) Authority to continue to enter into new 
                agreements and contracts and waiver of provider 
                nomination provisions during transition.--Prior 
                to October 1, 2005, the Secretary may, 
                consistent with subparagraph (B), continue to 
                enter into agreements under section 1816 and 
                contracts under section 1842 of the Social 
                Security Act (42 U.S.C. 1395h, 1395u). The 
                Secretary may enter into new agreements under 
                section 1816 prior to October 1, 2005, without 
                regard to any of the provider nomination 
                provisions of such section.
                    (B) Appropriate transition.--The Secretary 
                shall take such steps as are necessary to 
                provide for an appropriate transition from 
                agreements under section 1816 and contracts 
                under section 1842 of the Social Security Act 
                (42 U.S.C. 1395h, 1395u) to contracts under 
                section 1874A, as added by subsection (a)(1).
            (3) Authorizing continuation of mip functions under 
        current contracts and agreements and under transition 
        contracts.--Notwithstanding the amendments made by this 
        section, the provisions contained in the exception in 
        section 1893(d)(2) of the Social Security Act (42 
        U.S.C. 1395ddd(d)(2)) shall continue to apply during 
        the period that begins on the date of the enactment of 
        this Act and ends on October 1, 2011, and any reference 
        in such provisions to an agreement or contract shall be 
        deemed to include a contract under section 1874A of 
        such Act, as inserted by subsection (a)(1), that 
        continues the activities referred to in such 
        provisions.
    (e) References.--On and after the effective date provided 
under subsection (d)(1), any reference to a fiscal intermediary 
or carrier under title XI or XVIII of the Social Security Act 
(or any regulation, manual instruction, interpretative rule, 
statement of policy, or guideline issued to carry out such 
titles) shall be deemed a reference to a medicare 
administrative contractor (as provided under section 1874A of 
the Social Security Act).
    (f) Secretarial Submission of Legislative Proposal.--Not 
later than 6 months after the date of the enactment of this 
Act, the Secretary shall submit to the appropriate committees 
of Congress a legislative proposal providing for such technical 
and conforming amendments in the law as are required by the 
provisions of this section.
    (g) Reports on Implementation.--
            (1) Plan for implementation.--By not later than 
        October 1, 2004, the Secretary shall submit a report to 
        Congress and the Comptroller General of the United 
        States that describes the plan for implementation of 
        the amendments made by this section. The Comptroller 
        General shall conduct an evaluation of such plan and 
        shall submit to Congress, not later than 6 months after 
        the date the report is received, a report on such 
        evaluation and shall include in such report such 
        recommendations as the Comptroller General deems 
        appropriate.
            (2) Status of implementation.--The Secretary shall 
        submit a report to Congress not later than October 1, 
        2008, that describes the status of implementation of 
        such amendments and that includes a description of the 
        following:
                    (A) The number of contracts that have been 
                competitively bid as of such date.
                    (B) The distribution of functions among 
                contracts and contractors.
                    (C) A timeline for complete transition to 
                full competition.
                    (D) A detailed description of how the 
                Secretary has modified oversight and management 
                of medicare contractors to adapt to full 
                competition.

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

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

                   Subtitle C--Education and Outreach

SEC. 921. PROVIDER EDUCATION AND TECHNICAL ASSISTANCE.

    (a) Coordination of Education Funding.--
            (1) In general.--Title XVIII is amended by 
        inserting after section 1888 the following new section:

             ``PROVIDER EDUCATION AND TECHNICAL ASSISTANCE

    ``Sec. 1889. (a) Coordination of Education Funding.--The 
Secretary shall coordinate the educational activities provided 
through medicare contractors (as defined in subsection (g), 
including under section 1893) in order to maximize the 
effectiveness of Federal education efforts for providers of 
services and suppliers.''.
            (2) Effective date.--The amendment made by 
        paragraph (1) shall take effect on the date of the 
        enactment of this Act.
            (3) Report.--Not later than October 1, 2004, the 
        Secretary shall submit to Congress a report that 
        includes a description and evaluation of the steps 
        taken to coordinate the funding of provider education 
        under section 1889(a) of the Social Security Act, as 
        added by paragraph (1).
    (b) Incentives To Improve Contractor Performance.--
            (1) In general.--Section 1874A, as added by section 
        911(a)(1) and as amended by section 912(a), is amended 
        by adding at the end the following new subsection:
    ``(f) Incentives To Improve Contractor Performance in 
Provider Education and Outreach.--The Secretary shall use 
specific claims payment error rates or similar methodology of 
medicare administrative contractors in the processing or 
reviewing of medicare claims in order to give such contractors 
an incentive to implement effective education and outreach 
programs for providers of services and suppliers.''.
            (2) Application to fiscal intermediaries and 
        carriers.--The provisions of section 1874A(f) of the 
        Social Security Act, as added by paragraph (1), shall 
        apply to each fiscal intermediary under section 1816 of 
        the Social Security Act (42 U.S.C. 1395h) and each 
        carrier under section 1842 of such Act (42 U.S.C. 
        1395u) in the same manner as they apply to medicare 
        administrative contractors under such provisions.
            (3) GAO report on adequacy of methodology.--Not 
        later than October 1, 2004, the Comptroller General of 
        the United States shall submit to Congress and to the 
        Secretary a report on the adequacy of the methodology 
        under section 1874A(f) of the Social Security Act, as 
        added by paragraph (1), and shall include in the report 
        such recommendations as the Comptroller General 
        determines appropriate with respect to the methodology.
            (4) Report on use of methodology in assessing 
        contractor performance.--Not later than October 1, 
        2004, the Secretary shall submit to Congress a report 
        that describes how the Secretary intends to use such 
        methodology in assessing medicare contractor 
        performance in implementing effective education and 
        outreach programs, including whether to use such 
        methodology as a basis for performance bonuses. The 
        report shall include an analysis of the sources of 
        identified errors and potential changes in systems of 
        contractors and rules of the Secretary that could 
        reduce claims error rates.
    (c) Provision of Access to and Prompt Responses From 
Medicare Administrative Contractors.--
            (1) In general.--Section 1874A, as added by section 
        911(a)(1) and as amended by section 912(a) and 
        subsection (b), is further amended by adding at the end 
        the following new subsection:
    ``(g) Communications With Beneficiaries, Providers of 
Services and Suppliers.--
            ``(1) Communication strategy.--The Secretary shall 
        develop a strategy for communications with individuals 
        entitled to benefits under part A or enrolled under 
        part B, or both, and with providers of services and 
        suppliers under this title.
            ``(2) Response to written inquiries.--Each medicare 
        administrative contractor shall, for those providers of 
        services and suppliers which submit claims to the 
        contractor for claims processing and for those 
        individuals entitled to benefits under part A or 
        enrolled under part B, or both, with respect to whom 
        claims are submitted for claims processing, provide 
        general written responses (which may be through 
        electronic transmission) in a clear, concise, and 
        accurate manner to inquiries of providers of services, 
        suppliers, and individuals entitled to benefits under 
        part A or enrolled under part B, or both, concerning 
        the programs under this title within 45 business days 
        of the date of receipt of such inquiries.
            ``(3) Response to toll-free lines.--The Secretary 
        shall ensure that each medicare administrative 
        contractor shall provide, for those providers of 
        services and suppliers which submit claims to the 
        contractor for claims processing and for those 
        individuals entitled to benefits under part A or 
        enrolled under part B, or both, with respect to whom 
        claims are submitted for claims processing, a toll-free 
        telephone number at which such individuals, providers 
        of services, and suppliers may obtain information 
        regarding billing, coding, claims, coverage, and other 
        appropriate information under this title.
            ``(4) Monitoring of contractor responses.--
                    ``(A) In general.--Each medicare 
                administrative contractor shall, consistent 
                with standards developed by the Secretary under 
                subparagraph (B)--
                            ``(i) maintain a system for 
                        identifying who provides the 
                        information referred to in paragraphs 
                        (2) and (3); and
                            ``(ii) monitor the accuracy, 
                        consistency, and timeliness of the 
                        information so provided.
                    ``(B) Development of standards.--
                            ``(i) In general.--The Secretary 
                        shall establish and make public 
                        standards to monitor the accuracy, 
                        consistency, and timeliness of the 
                        information provided in response to 
                        written and telephone inquiries under 
                        this subsection. Such standards shall 
                        be consistent with the performance 
                        requirements established under 
                        subsection (b)(3).
                            ``(ii) Evaluation.--In conducting 
                        evaluations of individual medicare 
                        administrative contractors, the 
                        Secretary shall take into account the 
                        results of the monitoring conducted 
                        under subparagraph (A) taking into 
                        account as performance requirements the 
                        standards established under clause (i). 
                        The Secretary shall, in consultation 
                        with organizations representing 
                        providers of services, suppliers, and 
                        individuals entitled to benefits under 
                        part A or enrolled under part B, or 
                        both, establish standards relating to 
                        the accuracy, consistency, and 
                        timeliness of the information so 
                        provided.
                    ``(C) Direct monitoring.--Nothing in this 
                paragraph shall be construed as preventing the 
                Secretary from directly monitoring the 
                accuracy, consistency, and timeliness of the 
                information so provided.
            ``(5) Authorization of appropriations.--There are 
        authorized to be appropriated such sums as are 
        necessary to carry out this subsection.''.
            (2) Effective date.--The amendment made by 
        paragraph (1) shall take effect October 1, 2004.
            (3) Application to fiscal intermediaries and 
        carriers.--The provisions of section 1874A(g) of the 
        Social Security Act, as added by paragraph (1), shall 
        apply to each fiscal intermediary under section 1816 of 
        the Social Security Act (42 U.S.C. 1395h) and each 
        carrier under section 1842 of such Act (42 U.S.C. 
        1395u) in the same manner as they apply to medicare 
        administrative contractors under such provisions.
    (d) Improved Provider Education and Training.--
            (1) In general.--Section 1889, as added by 
        subsection (a), is amended by adding at the end the 
        following new subsections:
    ``(b) Enhanced Education and Training.--
            ``(1) Additional resources.--There are authorized 
        to be appropriated to the Secretary (in appropriate 
        part from the Federal Hospital Insurance Trust Fund and 
        the Federal Supplementary Medical Insurance Trust Fund) 
        such sums as may be necessary for fiscal years 
        beginning with fiscal year 2005.
            ``(2) Use.--The funds made available under 
        paragraph (1) shall be used to increase the conduct by 
        medicare contractors of education and training of 
        providers of services and suppliers regarding billing, 
        coding, and other appropriate items and may also be 
        used to improve the accuracy, consistency, and 
        timeliness of contractor responses.
    ``(c) Tailoring Education and Training Activities for Small 
Providers or Suppliers.--
            ``(1) In general.--Insofar as a medicare contractor 
        conducts education and training activities, it shall 
        tailor such activities to meet the special needs of 
        small providers of services or suppliers (as defined in 
        paragraph (2)). Such education and training activities 
        for small providers of services and suppliers may 
        include the provision of technical assistance (such as 
        review of billing systems and internal controls to 
        determine program compliance and to suggest more 
        efficient and effective means of achieving such 
        compliance).
            ``(2) Small provider of services or supplier.--In 
        this subsection, the term `small provider of services 
        or supplier' means--
                    ``(A) a provider of services with fewer 
                than 25 full-time-equivalent employees; or
                    ``(B) a supplier with fewer than 10 full-
                time-equivalent employees.''.
            (2) Effective date.--The amendment made by 
        paragraph (1) shall take effect on October 1, 2004.
    (e) Requirement To Maintain Internet Websites.--
            (1) In general.--Section 1889, as added by 
        subsection (a) and as amended by subsection (d), is 
        further amended by adding at the end the following new 
        subsection:
    ``(d) Internet Websites; FAQs.--The Secretary, and each 
medicare contractor insofar as it provides services (including 
claims processing) for providers of services or suppliers, 
shall maintain an Internet website which--
            ``(1) provides answers in an easily accessible 
        format to frequently asked questions, and
            ``(2) includes other published materials of the 
        contractor,
that relate to providers of services and suppliers under the 
programs under this title (and title XI insofar as it relates 
to such programs).''.
            (2) Effective date.--The amendment made by 
        paragraph (1) shall take effect on October 1, 2004.
    (f) Additional Provider Education Provisions.--
            (1) In general.--Section 1889, as added by 
        subsection (a) and as amended by subsections (d) and 
        (e), is further amended by adding at the end the 
        following new subsections:
    ``(e) Encouragement of Participation in Education Program 
Activities.--A medicare contractor may not use a record of 
attendance at (or failure to attend) educational activities or 
other information gathered during an educational program 
conducted under this section or otherwise by the Secretary to 
select or track providers of services or suppliers for the 
purpose of conducting any type of audit or prepayment review.
    ``(f) Construction.--Nothing in this section or section 
1893(g) shall be construed as providing for disclosure by a 
medicare contractor--
            ``(1) of the screens used for identifying claims 
        that will be subject to medical review; or
            ``(2) of information that would compromise pending 
        law enforcement activities or reveal findings of law 
        enforcement-related audits.
    ``(g) Definitions.--For purposes of this section, the term 
`medicare contractor' includes the following:
            ``(1) A medicare administrative contractor with a 
        contract under section 1874A, including a fiscal 
        intermediary with a contract under section 1816 and a 
        carrier with a contract under section 1842.
            ``(2) An eligible entity with a contract under 
        section 1893.
Such term does not include, with respect to activities of a 
specific provider of services or supplier an entity that has no 
authority under this title or title IX with respect to such 
activities and such provider of services or supplier.''.
            (2) Effective date.--The amendment made by 
        paragraph (1) shall take effect on the date of the 
        enactment of this Act.

SEC. 922. SMALL PROVIDER TECHNICAL ASSISTANCE DEMONSTRATION PROGRAM.

    (a) Establishment.--
            (1) In general.--The Secretary shall establish a 
        demonstration program (in this section referred to as 
        the ``demonstration program'') under which technical 
        assistance described in paragraph (2) is made 
        available, upon request and on a voluntary basis, to 
        small providers of services or suppliers in order to 
        improve compliance with the applicable requirements of 
        the programs under medicare program under title XVIII 
        of the Social Security Act (including provisions of 
        title XI of such Act insofar as they relate to such 
        title and are not administered by the Office of the 
        Inspector General of the Department of Health and Human 
        Services).
            (2) Forms of technical assistance.--The technical 
        assistance described in this paragraph is--
                    (A) evaluation and recommendations 
                regarding billing and related systems; and
                    (B) information and assistance regarding 
                policies and procedures under the medicare 
                program, including coding and reimbursement.
            (3) Small providers of services or suppliers.--In 
        this section, the term ``small providers of services or 
        suppliers'' means--
                    (A) a provider of services with fewer than 
                25 full-time-equivalent employees; or
                    (B) a supplier with fewer than 10 full-
                time-equivalent employees.
    (b) Qualification of Contractors.--In conducting the 
demonstration program, the Secretary shall enter into contracts 
with qualified organizations (such as peer review organizations 
or entities described in section 1889(g)(2) of the Social 
Security Act, as inserted by section 921(f)(1)) with 
appropriate expertise with billing systems of the full range of 
providers of services and suppliers to provide the technical 
assistance. In awarding such contracts, the Secretary shall 
consider any prior investigations of the entity's work by the 
Inspector General of Department of Health and Human Services or 
the Comptroller General of the United States.
    (c) Description of Technical Assistance.--The technical 
assistance provided under the demonstration program shall 
include a direct and in-person examination of billing systems 
and internal controls of small providers of services or 
suppliers to determine program compliance and to suggest more 
efficient or effective means of achieving such compliance.
    (d) GAO Evaluation.--Not later than 2 years after the date 
the demonstration program is first implemented, the Comptroller 
General, in consultation with the Inspector General of the 
Department of Health and Human Services, shall conduct an 
evaluation of the demonstration program. The evaluation shall 
include a determination of whether claims error rates are 
reduced for small providers of services or suppliers who 
participated in the program and the extent of improper payments 
made as a result of the demonstration program. The Comptroller 
General shall submit a report to the Secretary and the Congress 
on such evaluation and shall include in such report 
recommendations regarding the continuation or extension of the 
demonstration program.
    (e) Financial Participation by Providers.--The provision of 
technical assistance to a small provider of services or 
supplier under the demonstration program is conditioned upon 
the small provider of services or supplier paying an amount 
estimated (and disclosed in advance of a provider's or 
supplier's participation in the program) to be equal to 25 
percent of the cost of the technical assistance.
    (f) Authorization of Appropriations.--There are authorized 
to be appropriated, from amounts not otherwise appropriated in 
the Treasury, such sums as may be necessary to carry out this 
section.

SEC. 923. MEDICARE BENEFICIARY OMBUDSMAN.

    (a) In General.--Section 1808, as added and amended by 
section 900, is amended by adding at the end the following new 
subsection:
    ``(c) Medicare Beneficiary Ombudsman.--
            ``(1) In general.--The Secretary shall appoint 
        within the Department of Health and Human Services a 
        Medicare Beneficiary Ombudsman who shall have expertise 
        and experience in the fields of health care and 
        education of (and assistance to) individuals entitled 
        to benefits under this title.
            ``(2) Duties.--The Medicare Beneficiary Ombudsman 
        shall--
                    ``(A) receive complaints, grievances, and 
                requests for information submitted by 
                individuals entitled to benefits under part A 
                or enrolled under part B, or both, with respect 
                to any aspect of the medicare program;
                    ``(B) provide assistance with respect to 
                complaints, grievances, and requests referred 
                to in subparagraph (A), including--
                            ``(i) assistance in collecting 
                        relevant information for such 
                        individuals, to seek an appeal of a 
                        decision or determination made by a 
                        fiscal intermediary, carrier, MA 
                        organization, or the Secretary;
                            ``(ii) assistance to such 
                        individuals with any problems arising 
                        from disenrollment from an MA plan 
                        under part C; and
                            ``(iii) assistance to such 
                        individuals in presenting information 
                        under section 1839(i)(4)(C) (relating 
                        to income-related premium adjustment); 
                        and
                    ``(C) submit annual reports to Congress and 
                the Secretary that describe the activities of 
                the Office and that include such 
                recommendations for improvement in the 
                administration of this title as the Ombudsman 
                determines appropriate.
        The Ombudsman shall not serve as an advocate for any 
        increases in payments or new coverage of services, but 
        may identify issues and problems in payment or coverage 
        policies.
            ``(3) Working with health insurance counseling 
        programs.--To the extent possible, the Ombudsman shall 
        work with health insurance counseling programs 
        (receiving funding under section 4360 of Omnibus Budget 
        Reconciliation Act of 1990) to facilitate the provision 
        of information to individuals entitled to benefits 
        under part A or enrolled under part B, or both 
        regarding MA plans and changes to those plans. Nothing 
        in this paragraph shall preclude further collaboration 
        between the Ombudsman and such programs.''.
    (b) Deadline for Appointment.--By not later than 1 year 
after the date of the enactment of this Act, the Secretary 
shall appoint the Medicare Beneficiary Ombudsman under section 
1808(c) of the Social Security Act, as added by subsection (a).
    (c) Funding.--There are authorized to be appropriated to 
the Secretary (in appropriate part from the Federal Hospital 
Insurance Trust Fund, established under section 1817 of the 
Social Security Act (42 U.S.C. 1395i), and the Federal 
Supplementary Medical Insurance Trust Fund, established under 
section 1841 of such Act (42 U.S.C. 1395t)) to carry out 
section 1808(c) of such Act (relating to the Medicare 
Beneficiary Ombudsman), as added by subsection (a), such sums 
as are necessary for fiscal year 2004 and each succeeding 
fiscal year.
    (d) Use of Central, Toll-Free Number (1-800-MEDICARE).--
            (1) Phone triage system; listing in medicare 
        handbook instead of other toll-free numbers.--Section 
        1804(b) (42 U.S.C. 1395b-2(b)) is amended by adding at 
        the end the following: ``The Secretary shall provide, 
        through the toll-free telephone number 1-800-MEDICARE, 
        for a means by which individuals seeking information 
        about, or assistance with, such programs who phone such 
        toll-free number are transferred (without charge) to 
        appropriate entities for the provision of such 
        information or assistance. Such toll-free number shall 
        be the toll-free number listed for general information 
        and assistance in the annual notice under subsection 
        (a) instead of the listing of numbers of individual 
        contractors.''.
            (2) Monitoring accuracy.--
                    (A) Study.--The Comptroller General of the 
                United States shall conduct a study to monitor 
                the accuracy and consistency of information 
                provided to individuals entitled to benefits 
                under part A or enrolled under part B, or both, 
                through the toll-free telephone number 1-800-
                MEDICARE, including an assessment of whether 
                the information provided is sufficient to 
                answer questions of such individuals. In 
                conducting the study, the Comptroller General 
                shall examine the education and training of the 
                individuals providing information through such 
                number.
                    (B) Report.--Not later than 1 year after 
                the date of the enactment of this Act, the 
                Comptroller General shall submit to Congress a 
                report on the study conducted under 
                subparagraph (A).

SEC. 924. BENEFICIARY OUTREACH DEMONSTRATION PROGRAM.

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

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

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

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

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

                    Subtitle D--Appeals and Recovery

SEC. 931. TRANSFER OF RESPONSIBILITY FOR MEDICARE APPEALS.

    (a) Transition Plan.--
            (1) In general.--Not later than April 1, 2004, the 
        Commissioner of Social Security and the Secretary shall 
        develop and transmit to Congress and the Comptroller 
        General of the United States a plan under which the 
        functions of administrative law judges responsible for 
        hearing cases under title XVIII of the Social Security 
        Act (and related provisions in title XI of such Act) 
        are transferred from the responsibility of the 
        Commissioner and the Social Security Administration to 
        the Secretary and the Department of Health and Human 
        Services.
            (2) Contents.--The plan shall include information 
        on the following:
                    (A) Workload.--The number of such 
                administrative law judges and support staff 
                required now and in the future to hear and 
                decide such cases in a timely manner, taking 
                into account the current and anticipated claims 
                volume, appeals, number of beneficiaries, and 
                statutory changes.
                    (B) Cost projections and financing.--
                Funding levels required for fiscal year 2005 
                and subsequent fiscal years to carry out the 
                functions transferred under the plan.
                    (C) Transition timetable.--A timetable for 
                the transition.
                    (D) Regulations.--The establishment of 
                specific regulations to govern the appeals 
                process.
                    (E) Case tracking.--The development of a 
                unified case tracking system that will 
                facilitate the maintenance and transfer of case 
                specific data across both the fee-for-service 
                and managed care components of the medicare 
                program.
                    (F) Feasibility of precedential 
                authority.--The feasibility of developing a 
                process to give decisions of the Departmental 
                Appeals Board in the Department of Health and 
                Human Services addressing broad legal issues 
                binding, precedential authority.
                    (G) Access to administrative law judges.--
                The feasibility of--
                            (i) filing appeals with 
                        administrative law judges 
                        electronically; and
                            (ii) conducting hearings using 
                        tele- or video-conference technologies.
                    (H) Independence of administrative law 
                judges.--The steps that should be taken to 
                ensure the independence of administrative law 
                judges consistent with the requirements of 
                subsection (b)(2).
                    (I) Geographic distribution.--The steps 
                that should be taken to provide for an 
                appropriate geographic distribution of 
                administrative law judges throughout the United 
                States to carry out subsection (b)(3).
                    (J) Hiring.--The steps that should be taken 
                to hire administrative law judges (and support 
                staff) to carry out subsection (b)(4).
                    (K) Performance standards.--The 
                appropriateness of establishing performance 
                standards for administrative law judges with 
                respect to timelines for decisions in cases 
                under title XVIII of the Social Security Act 
                taking into account requirements under 
                subsection (b)(2) for the independence of such 
                judges and consistent with the applicable 
                provisions of title 5, United States Code 
                relating to impartiality.
                    (L) Shared resources.--The steps that 
                should be taken to carry out subsection (b)(6) 
                (relating to the arrangements with the 
                Commissioner of Social Security to share office 
                space, support staff, and other resources, with 
                appropriate reimbursement).
                    (M) Training.--The training that should be 
                provided to administrative law judges with 
                respect to laws and regulations under title 
                XVIII of the Social Security Act.
            (3) Additional information.--The plan may also 
        include recommendations for further congressional 
        action, including modifications to the requirements and 
        deadlines established under section 1869 of the Social 
        Security Act (42 U.S.C. 1395ff) (as amended by this 
        Act).
            (4) GAO evaluation.--The Comptroller General of the 
        United States shall evaluate the plan and, not later 
        than the date that is 6 months after the date on which 
        the plan is received by the Comptroller General, shall 
        submit to Congress a report on such evaluation.
    (b) Transfer of Adjudication Authority.--
            (1) In general.--Not earlier than July 1, 2005, and 
        not later than October 1, 2005, the Commissioner of 
        Social Security and the Secretary shall implement the 
        transition plan under subsection (a) and transfer the 
        administrativelaw judge functions described in such 
subsection from the Social Security Administration to the Secretary.
            (2) Assuring independence of judges.--The Secretary 
        shall assure the independence of administrative law 
        judges performing the administrative law judge 
        functions transferred under paragraph (1) from the 
        Centers for Medicare & Medicaid Services and its 
        contractors. In order to assure such independence, the 
        Secretary shall place such judges in an administrative 
        office that is organizationally and functionally 
        separate from such Centers. Such judges shall report 
        to, and be under the general supervision of, the 
        Secretary, but shall not report to, or be subject to 
        supervision by, another officer of the Department of 
        Health and Human Services.
            (3) Geographic distribution.--The Secretary shall 
        provide for an appropriate geographic distribution of 
        administrative law judges performing the administrative 
        law judge functions transferred under paragraph (1) 
        throughout the United States to ensure timely access to 
        such judges.
            (4) Hiring authority.--Subject to the amounts 
        provided in advance in appropriations Acts, the 
        Secretary shall have authority to hire administrative 
        law judges to hear such cases, taking into 
        consideration those judges with expertise in handling 
        medicare appeals and in a manner consistent with 
        paragraph (3), and to hire support staff for such 
        judges.
            (5) Financing.--Amounts payable under law to the 
        Commissioner for administrative law judges performing 
        the administrative law judge functions transferred 
        under paragraph (1) from the Federal Hospital Insurance 
        Trust Fund and the Federal Supplementary Medical 
        Insurance Trust Fund shall become payable to the 
        Secretary for the functions so transferred.
            (6) Shared resources.--The Secretary shall enter 
        into such arrangements with the Commissioner as may be 
        appropriate with respect to transferred functions of 
        administrative law judges to share office space, 
        support staff, and other resources, with appropriate 
        reimbursement from the Trust Funds described in 
        paragraph (5).
    (c) Increased Financial Support.--In addition to any 
amounts otherwise appropriated, to ensure timely action on 
appeals before administrative law judges and the Departmental 
Appeals Board consistent with section 1869 of the Social 
Security Act (42 U.S.C. 1395ff) (as amended by this Act), there 
are authorized to be appropriated (in appropriate part from the 
Federal Hospital Insurance Trust Fund, established under 
section 1817 of the Social Security Act (42 U.S.C. 1395i), and 
the Federal Supplementary Medical Insurance Trust Fund, 
established under section 1841 of such Act (42 U.S.C. 1395t)) 
to the Secretary such sums as are necessary for fiscal year 
2005 and each subsequent fiscal year to--
            (1) increase the number of administrative law 
        judges (and their staffs) under subsection (b)(4);
            (2) improve education and training opportunities 
        for administrative law judges (and their staffs); and
            (3) increase the staff of the Departmental Appeals 
        Board.
    (d) Conforming Amendment.--Section 1869(f)(2)(A)(i) (42 
U.S.C. 1395ff(f)(2)(A)(i)) is amended by striking ``of the 
Social Security Administration''.

SEC. 932. PROCESS FOR EXPEDITED ACCESS TO REVIEW.

    (a) Expedited Access to Judicial Review.--
            (1) In general.--Section 1869(b) (42 U.S.C. 
        1395ff(b)) is amended--
                    (A) in paragraph (1)(A), by inserting ``, 
                subject to paragraph (2),'' before ``to 
                judicial review of the Secretary's final 
                decision''; and
                    (B) by adding at the end the following new 
                paragraph:
            ``(2) Expedited access to judicial review.--
                    ``(A) In general.--The Secretary shall 
                establish a process under which a provider of 
                services or supplier that furnishes an item or 
                service or an individual entitled to benefits 
                under part A or enrolled under part B, or both, 
                who has filed an appeal under paragraph (1) 
                (other than an appeal filed under paragraph 
                (1)(F)(i)) may obtain access to judicial review 
                when a review entity (described in subparagraph 
                (D)), on its own motion or at the request of 
                the appellant, determines that the Departmental 
                Appeals Board does not have the authority to 
                decide the question of law or regulation 
                relevant to the matters in controversy and that 
                there is no material issue of fact in dispute. 
                The appellant may make such request only once 
                with respect to a question of law or regulation 
                for a specific matter in dispute in a case of 
                an appeal.
                    ``(B) Prompt determinations.--If, after or 
                coincident with appropriately filing a request 
                for an administrative hearing, the appellant 
                requests a determination by the appropriate 
                review entity that the Departmental Appeals 
                Board does not have the authority to decide the 
                question of law or regulations relevant to the 
                matters in controversy and that there is no 
                material issue of fact in dispute, and if such 
                request is accompanied by the documents and 
                materials as the appropriate review entity 
                shall require for purposes of making such 
                determination, such review entity shall make a 
                determination on the request in writing within 
                60 days after the date such review entity 
                receives the request and such accompanying 
                documents and materials. Such a determination 
                by such review entity shall be considered a 
                final decision and not subject to review by the 
                Secretary.
                    ``(C) Access to judicial review.--
                            ``(i) In general.--If the 
                        appropriate review entity--
                                    ``(I) determines that there 
                                are no material issues of fact 
                                in dispute and that the only 
                                issues to be adjudicated are 
                                ones of law or regulation that 
                                the Departmental Appeals Board 
                                does not have authority to 
                                decide; or
                                    ``(II) fails to make such 
                                determination within the period 
                                provided under subparagraph 
                                (B),
                        then the appellant may bring a civil 
                        action as described in this 
                        subparagraph.
                            ``(ii) Deadline for filing.--Such 
                        action shall be filed, in the case 
                        described in--
                                    ``(I) clause (i)(I), within 
                                60 days of the date of the 
                                determination described in such 
                                clause; or
                                    ``(II) clause (i)(II), 
                                within 60 days of the end of 
                                the period provided under 
                                subparagraph (B) for the 
                                determination.
                            ``(iii) Venue.--Such action shall 
                        be brought in the district court of the 
                        United States for the judicial district 
                        in which the appellant is located (or, 
                        in the case of an action brought 
                        jointly by more than one applicant, the 
                        judicial district in which the greatest 
                        number of applicants are located) or in 
                        the District Court for the District of 
                        Columbia.
                            ``(iv) Interest on any amounts in 
                        controversy.--Where a provider of 
                        services or supplier is granted 
                        judicial review pursuant to this 
                        paragraph, the amount in controversy 
                        (if any) shall be subject to annual 
                        interest beginning on the first day of 
                        the first month beginning after the 60-
                        day period as determined pursuant to 
                        clause (ii) and equal to the rate of 
                        interest on obligations issued for 
                        purchase by the Federal Supplementary 
                        Medical Insurance Trust Fund for the 
                        month in which the civil action 
                        authorized under this paragraph is 
                        commenced, to be awarded by the 
                        reviewing court in favor of the 
                        prevailing party. No interest awarded 
                        pursuant to the preceding sentence 
                        shall be deemed income or cost for the 
                        purposes of determining reimbursement 
                        due providers of services or suppliers 
                        under this title.
                    ``(D) Review entity defined.--For purposes 
                of this subsection, the term `review entity' 
                means an entity of up to three reviewers who 
                are administrative law judges or members of the 
                Departmental Appeals Board selected for 
                purposes of making determinations under this 
                paragraph.''.
            (2) Conforming amendment.--Section 
        1869(b)(1)(F)(ii) (42 U.S.C. 1395ff(b)(1)(F)(ii)) is 
        amended to read as follows:
                            ``(ii) Reference to expedited 
                        access to judicial review.--For the 
                        provision relating to expedited access 
                        to judicial review, see paragraph 
                        (2).''.
    (b) Application to Provider Agreement Determinations.--
Section 1866(h)(1) (42 U.S.C. 1395cc(h)(1)) is amended--
            (1) by inserting ``(A)'' after ``(h)(1)''; and
            (2) by adding at the end the following new 
        subparagraph:
    ``(B) An institution or agency described in subparagraph 
(A) that has filed for a hearing under subparagraph (A) shall 
have expedited access to judicial review under this 
subparagraph in the same manner as providers of services, 
suppliers, and individuals entitled to benefits under part A or 
enrolled under part B, or both, may obtain expedited access to 
judicial review under the process established under section 
1869(b)(2). Nothing in this subparagraph shall be construed to 
affect the application of any remedy imposed under section 1819 
during the pendency of an appeal under this subparagraph.''.
    (c) Expedited Review of Certain Provider Agreement 
Determinations.--
            (1) Termination and certain other immediate 
        remedies.--Section 1866(h)(1) (42 U.S.C. 1395cc(h)(1)), 
        as amended by subsection (b), is amended by adding at 
        the end the following new subparagraph:
    ``(C)(i) The Secretary shall develop and implement a 
process to expedite proceedings under this subsection in 
which--
            ``(I) the remedy of termination of participation 
        has been imposed;
            ``(II) a remedy described in clause (i) or (iii) of 
        section 1819(h)(2)(B) has been imposed, but only if 
        such remedy has been imposed on an immediate basis; or
            ``(III) a determination has been made as to a 
        finding of substandard quality of care that results in 
        the loss of approval of a skilled nursing facility's 
        nurse aide training program.
    ``(ii) Under such process under clause (i), priority shall 
be provided in cases of termination described in clause (i)(I).
    ``(iii) Nothing in this subparagraph shall be construed to 
affect the application of any remedy imposed under section 1819 
during the pendency of an appeal under this subparagraph.''.
            (2) Waiver of disapproval of nurse-aide training 
        programs.--Sections 1819(f)(2) and section 1919(f)(2) 
        (42 U.S.C. 1395i-3(f)(2) and 1396r(f)(2)) are each 
        amended--
                    (A) in subparagraph (B)(iii), by striking 
                ``subparagraph (C)'' and inserting 
                ``subparagraphs (C) and (D)''; and
                    (B) by adding at the end the following new 
                subparagraph:
                    ``(D) Waiver of disapproval of nurse-aide 
                training programs.--Upon application of a 
                nursing facility, the Secretary may waive the 
                application of subparagraph (B)(iii)(I)(c) if 
                the imposition of the civil monetary penalty 
                was not related to the quality of care provided 
                to residents of the facility. Nothing in this 
                subparagraph shall be construed as eliminating 
                any requirement upon a facility to pay a civil 
                monetary penalty described in the preceding 
                sentence.''.
            (3) Increased financial support.--In addition to 
        any amounts otherwise appropriated, to reduce by 50 
        percent the average time for administrative 
        determinations on appeals under section 1866(h) of the 
        Social Security Act (42 U.S.C. 1395cc(h)), there are 
        authorized to be appropriated (in appropriate part from 
        the Federal Hospital Insurance Trust Fund, established 
        under section 1817 of the Social Security Act (42 
        U.S.C. 1395i), and the Federal Supplementary Medical 
        Insurance Trust Fund, established under section 1841 of 
        such Act (42 U.S.C. 1395t)) to the Secretary such 
        additional sums for fiscal year 2004 and each 
        subsequent fiscal year as may be necessary. The 
        purposes for which such amounts are available include 
        increasing the number of administrative law judges (and 
        their staffs) and the appellate level staff at the 
        Departmental Appeals Board of the Department of Health 
        and Human Services and educating such judges and staffs 
        on long-term care issues.
    (d) Effective Date.--The amendments made by this section 
shall apply to appeals filed on or after October 1, 2004.

SEC. 933. REVISIONS TO MEDICARE APPEALS PROCESS.

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

SEC. 934. PREPAYMENT REVIEW.

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

SEC. 935. RECOVERY OF OVERPAYMENTS.

    (a) In General.--Section 1893 (42 U.S.C. 1395ddd) is 
amended by adding at the end the following new subsection:
    ``(f) Recovery of Overpayments.--
            ``(1) Use of repayment plans.--
                    ``(A) In general.--If the repayment, within 
                30 days by a provider of services or supplier, 
                of an overpayment under this title would 
                constitute a hardship (as described in 
                subparagraph (B)), subject to subparagraph (C), 
                upon request of the provider of services or 
                supplier the Secretary shall enter into a plan 
                with the provider of services or supplier for 
                the repayment (through offset or otherwise) of 
                such overpayment over a period of at least 6 
                months but not longer than 3 years (or not 
                longer than 5 years in the case of extreme 
                hardship, as determined by the Secretary). 
                Interest shall accrue on the balance through 
                the period of repayment. Such plan shall meet 
                terms and conditions determined to be 
                appropriate by the Secretary.
                    ``(B) Hardship.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A), the repayment of an 
                        overpayment (or overpayments) within 30 
                        days is deemed to constitute a hardship 
                        if--
                                    ``(I) in the case of a 
                                provider of services that files 
                                cost reports, the aggregate 
                                amount of the overpayments 
                                exceeds 10 percent of the 
                                amount paid under this title to 
                                the provider of services for 
                                the cost reporting period 
                                covered by the most recently 
                                submitted cost report; or
                                    ``(II) in the case of 
                                another provider of services or 
                                supplier, the aggregate amount 
                                of the overpayments exceeds 10 
                                percent of the amount paid 
                                under this title to the 
                                provider of services or 
                                supplier for the previous 
                                calendar year.
                            ``(ii) Rule of application.--The 
                        Secretary shall establish rules for the 
                        application of this subparagraph in the 
                        case of a provider of services or 
                        supplier that was not paid under this 
                        title during the previous year or was 
                        paid under this title only during a 
                        portion of that year.
                            ``(iii) Treatment of previous 
                        overpayments.--If a provider of 
                        services or supplier has entered into a 
                        repayment plan under subparagraph (A) 
                        with respect to a specific overpayment 
                        amount, such payment amount under the 
                        repayment plan shall not be taken into 
                        account under clause (i) with respect 
                        to subsequent overpayment amounts.
                    ``(C) Exceptions.--Subparagraph (A) shall 
                not apply if--
                            ``(i) the Secretary has reason to 
                        suspect that the provider of services 
                        or supplier may file for bankruptcy or 
                        otherwise cease to do business or 
                        discontinue participation in the 
                        program under this title; or
                            ``(ii) there is an indication of 
                        fraud or abuse committed against the 
                        program.
                    ``(D) Immediate collection if violation of 
                repayment plan.--If a provider of services or 
                supplier fails to make a payment in accordance 
                with a repayment plan under this paragraph, the 
                Secretary may immediately seek to offset or 
                otherwise recover the total balance outstanding 
                (including applicable interest) under the 
                repayment plan.
                    ``(E) Relation to no fault provision.--
                Nothing in this paragraph shall be construed as 
                affecting the application of section 1870(c) 
                (relating to no adjustment in the cases of 
                certain overpayments).
            ``(2) Limitation on recoupment.--
                    ``(A) In general.--In the case of a 
                provider of services or supplier that is 
                determined to have received an overpayment 
                under this title and that seeks a 
                reconsideration by a qualified independent 
                contractor on such determination under section 
                1869(b)(1), the Secretary may not take any 
                action (or authorize any other person, 
                including any medicare contractor, as defined 
                in subparagraph (C)) to recoup the overpayment 
                until the date the decision on the 
                reconsideration has been rendered. If the 
                provisions of section 1869(b)(1) (providing for 
                such a reconsideration by a qualified 
                independent contractor) are not in effect, in 
                applying the previous sentence any reference to 
                such a reconsideration shall be treated as a 
                reference to a redetermination by the fiscal 
                intermediary or carrier involved.
                    ``(B) Collection with interest.--Insofar as 
                the determination on such appeal is against the 
                provider of services or supplier, interest on 
                the overpayment shall accrue on and after the 
                date of the original notice of overpayment. 
                Insofar as such determination against the 
                provider of services or supplier is later 
                reversed, the Secretary shall provide for 
                repayment of the amount recouped plus interest 
                at the same rate as would apply under the 
                previous sentence for the period in which the 
                amount was recouped.
                    ``(C) Medicare contractor defined.--For 
                purposes of this subsection, the term `medicare 
                contractor' has the meaning given such term in 
                section 1889(g).
            ``(3) Limitation on use of extrapolation.--A 
        medicare contractor may not use extrapolation to 
        determine overpayment amounts to be recovered by 
        recoupment, offset, or otherwise unless the Secretary 
        determines that--
                    ``(A) there is a sustained or high level of 
                payment error; or
                    ``(B) documented educational intervention 
                has failed to correct the payment error.
There shall be no administrative or judicial review under 
section 1869, section 1878, or otherwise, of determinations by 
the Secretary of sustained or high levels of payment errors 
under this paragraph.
            ``(4) Provision of supporting documentation.--In 
        the case of a provider of services or supplier with 
        respect to which amounts were previously overpaid, a 
        medicare contractor may request the periodic production 
        of records or supporting documentation for a limited 
        sample of submitted claims to ensure that the previous 
        practice is not continuing.
            ``(5) Consent settlement reforms.--
                    ``(A) In general.--The Secretary may use a 
                consent settlement (as defined in subparagraph 
                (D)) to settle a projected overpayment.
                    ``(B) Opportunity to submit additional 
                information before consent settlement offer.--
                Before offering a provider of services or 
                supplier a consent settlement, the Secretary 
                shall--
                            ``(i) communicate to the provider 
                        of services or supplier--
                                    ``(I) that, based on a 
                                review of the medical records 
                                requested by the Secretary, a 
                                preliminary evaluation of those 
                                records indicates that there 
                                would be an overpayment;
                                    ``(II) the nature of the 
                                problems identified in such 
                                evaluation; and
                                    ``(III) the steps that the 
                                provider of services or 
                                supplier should take to address 
                                the problems; and
                            ``(ii) provide for a 45-day period 
                        during which the provider of services 
                        or supplier may furnish additional 
                        information concerning the medical 
                        records for the claims that had been 
                        reviewed.
                    ``(C) Consent settlement offer.--The 
                Secretary shall review any additional 
                information furnished by the provider of 
                services or supplier under subparagraph 
                (B)(ii). Taking into consideration such 
                information, the Secretary shall determine if 
                there still appears to be an overpayment. If 
                so, the Secretary--
                            ``(i) shall provide notice of such 
                        determination to the provider of 
                        services or supplier, including an 
                        explanation of the reason for such 
                        determination; and
                            ``(ii) in order to resolve the 
                        overpayment, may offer the provider of 
                        services or supplier--
                                    ``(I) the opportunity for a 
                                statistically valid random 
                                sample; or
                                    ``(II) a consent 
                                settlement.
                The opportunity provided under clause (ii)(I) 
                does not waive any appeal rights with respect 
                to the alleged overpayment involved.
                    ``(D) Consent settlement defined.--For 
                purposes of this paragraph, the term `consent 
                settlement' means an agreement between the 
                Secretary and a provider of services or 
                supplier whereby both parties agree to settle a 
                projected overpayment based on less than a 
                statistically valid sample of claims and the 
                provider of services or supplier agrees not to 
                appeal the claims involved.
            ``(6) Notice of over-utilization of codes.--The 
        Secretary shall establish, in consultation with 
        organizations representing the classes of providers of 
        services and suppliers, a process under which the 
        Secretary provides for notice to classes of providers 
        of services and suppliers served by the contractor in 
        cases in which the contractor has identified that 
        particular billing codes may be overutilized by that 
        class of providers of services or suppliers under the 
        programs under this title (or provisions of title XI 
        insofar as they relate to such programs).
            ``(7) Payment audits.--
                    ``(A) Written notice for post-payment 
                audits.--Subject to subparagraph (C), if a 
                medicare contractor decides to conduct a post-
                payment audit of a provider of services or 
                supplier under this title, the contractor shall 
                provide the provider of services or supplier 
                with written notice (which may be in electronic 
                form) of the intent to conduct such an audit.
                    ``(B) Explanation of findings for all 
                audits.--Subject to subparagraph (C), if a 
                medicare contractor audits a provider of 
                services or supplier under this title, the 
                contractor shall--
                            ``(i) give the provider of services 
                        or supplier a full review and 
                        explanation of the findings of the 
                        audit in a manner that is 
                        understandable to the provider of 
                        services or supplier and permits the 
                        development of an appropriate 
                        corrective action plan;
                            ``(ii) inform the provider of 
                        services or supplier of the appeal 
                        rights under this title as well as 
                        consent settlement options (which are 
                        at the discretion of the Secretary);
                            ``(iii) give the provider of 
                        services or supplier an opportunity to 
                        provide additional information to the 
                        contractor; and
                            ``(iv) take into account 
                        information provided, on a timely 
                        basis, by the provider of services or 
                        supplier under clause (iii).
                    ``(C) Exception.--Subparagraphs (A) and (B) 
                shall not apply if the provision of notice or 
                findings would compromise pending law 
                enforcement activities, whether civil or 
                criminal, or reveal findings of law 
                enforcement-related audits.
            ``(8) Standard methodology for probe sampling.--The 
        Secretary shall establish a standard methodology for 
        medicare contractors to use in selecting a sample of 
        claims for review in the case of an abnormal billing 
        pattern.''.
    (b) Effective Dates and Deadlines.--
            (1) Use of repayment plans.--Section 1893(f)(1) of 
        the Social Security Act, as added by subsection (a), 
        shall apply to requests for repayment plans made after 
        the date of the enactment of this Act.
            (2) Limitation on recoupment.--Section 1893(f)(2) 
        of the Social Security Act, as added by subsection (a), 
        shall apply to actions taken after the date of the 
        enactment of this Act.
            (3) Use of extrapolation.--Section 1893(f)(3) of 
        the Social Security Act, as added by subsection (a), 
        shall apply to statistically valid random samples 
        initiated after the date that is 1 year after the date 
        of the enactment of this Act.
            (4) Provision of supporting documentation.--Section 
        1893(f)(4) of the Social Security Act, as added by 
        subsection (a), shall take effect on the date of the 
        enactment of this Act.
            (5) Consent settlement.--Section 1893(f)(5) of the 
        Social Security Act, as added by subsection (a), shall 
        apply to consent settlements entered into after the 
        date of the enactment of this Act.
            (6) Notice of overutilization.--Not later than 1 
        year after the date of the enactment of this Act, the 
        Secretary shall first establish the process for notice 
        of overutilization of billing codes under section 
        1893A(f)(6) of the Social Security Act, as added by 
        subsection (a).
            (7) Payment audits.--Section 1893A(f)(7) of the 
        Social Security Act, as added by subsection (a), shall 
        apply to audits initiated after the date of the 
        enactment of this Act.
            (8) Standard for abnormal billing patterns.--Not 
        later than 1 year after the date of the enactment of 
        this Act, the Secretary shall first establish a 
        standard methodology for selection of sample claims for 
        abnormal billing patterns under section 1893(f)(8) of 
        the Social Security Act, as added by subsection (a).

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

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

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

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

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

    (a) In General.--Section 1869 (42 U.S.C. 1395ff(b)), as 
amended by section 933(d)(2)(B), is further amended by adding 
at the end the following new subsection:
    ``(h) Prior Determination Process for Certain Items and 
Services.--
            ``(1) Establishment of process.--
                    ``(A) In general.--With respect to a 
                medicare administrative contractor that has a 
                contract under section 1874A that provides for 
                making payments under this title with respect 
                to physicians' services (as defined in section 
                1848(j)(3)), the Secretary shall establish a 
                prior determination process that meets the 
                requirements of this subsection and that shall 
                be applied by such contractor in the case of 
                eligible requesters.
                    ``(B) Eligible requester.--For purposes of 
                this subsection, each of the following shall be 
                an eligible requester:
                            ``(i) A participating physician, 
                        but only with respect to physicians' 
                        services to be furnished to an 
                        individual who is entitled to benefits 
                        under this title and who has consented 
                        to the physician making the request 
                        under this subsection for those 
                        physicians' services.
                            ``(ii) An individual entitled to 
                        benefits under this title, but only 
                        with respect to a physicians' service 
                        for which the individual receives, from 
                        a physician, an advance beneficiary 
                        notice under section 1879(a).
            ``(2) Secretarial flexibility.--The Secretary shall 
        establish by regulation reasonable limits on the 
        physicians' services for which a prior determination of 
        coverage may be requested under this subsection. In 
        establishing such limits, the Secretary may consider 
        the dollar amount involved with respect to the 
        physicians' service, administrative costs and burdens, 
        and other relevant factors.
            ``(3) Request for prior determination.--
                    ``(A) In general.--Subject to paragraph 
                (2), under the process established under this 
                subsection an eligible requester may submit to 
                the contractor a request for a determination, 
                before the furnishing of a physicians' service, 
                as to whether the physicians' service is 
                covered under this title consistent with the 
                applicable requirements of section 
                1862(a)(1)(A) (relating to medical necessity).
                    ``(B) Accompanying documentation.--The 
                Secretary may require that the request be 
                accompanied by a description of the physicians' 
                service, supporting documentation relating to 
                the medical necessity for the physicians' 
                service, and any other appropriate 
                documentation. In the case of a request 
                submitted by an eligible requester who is 
                described in paragraph (1)(B)(ii), the 
                Secretary may require that the request also be 
                accompanied by a copy of the advance 
                beneficiary notice involved.
            ``(4) Response to request.--
                    ``(A) In general.--Under such process, the 
                contractor shall provide the eligible requester 
                with written notice of a determination as to 
                whether--
                            ``(i) the physicians' service is so 
                        covered;
                            ``(ii) the physicians' service is 
                        not so covered; or
                            ``(iii) the contractor lacks 
                        sufficient information to make a 
                        coverage determination with respect to 
                        the physicians' service.
                    ``(B) Contents of notice for certain 
                determinations.--
                            ``(i) Noncoverage.--If the 
                        contractor makes the determination 
                        described in subparagraph (A)(ii), the 
                        contractor shall include in the notice 
                        a brief explanation of the basis for 
                        the determination, including on what 
                        national or local coverage or 
                        noncoverage determination (if any) the 
                        determination is based, and a 
                        description of any applicable rights 
                        under subsection (a).
                            ``(ii) Insufficient information.--
                        If the contractor makes the 
                        determination described in subparagraph 
                        (A)(iii), the contractor shall include 
                        in the notice a description of the 
                        additional information required to make 
                        the coverage determination.
                    ``(C) Deadline to respond.--Such notice 
                shall be provided within the same time period 
                as the time period applicable to the contractor 
                providing notice of initial determinations on a 
                claim for benefits under subsection (a)(2)(A).
                    ``(D) Informing beneficiary in case of 
                physician request.--In the case of a request by 
                a participating physician under paragraph 
                (1)(B)(i), the process shall provide that the 
                individual to whom the physicians' service is 
                proposed to be furnished shall be informed of 
                any determination described in subparagraph 
                (A)(ii) (relating to a determination of non-
                coverage) and the right (referred to in 
                paragraph (6)(B)) to obtain the physicians' 
                service and have a claim submitted for the 
                physicians' service.
            ``(5) Binding nature of positive determination.--If 
        the contractor makes the determination described in 
        paragraph (4)(A)(i), such determination shall be 
        binding on the contractor in the absence of fraud or 
        evidence of misrepresentation of facts presented to the 
        contractor.
            ``(6) Limitation on further review.--
                    ``(A) In general.--Contractor 
                determinations described in paragraph 
                (4)(A)(ii) or (4)(A)(iii) (relating to pre-
                service claims) are not subject to further 
                administrative appeal or judicial review under 
                this section or otherwise.
                    ``(B) Decision not to seek prior 
                determination or negative determination does 
                not impact right to obtain services, seek 
                reimbursement, or appeal rights.--Nothing in 
                this subsection shall be construed as affecting 
                the right of an individual who--
                            ``(i) decides not to seek a prior 
                        determination under this subsection 
                        with respect to physicians' services; 
                        or
                            ``(ii) seeks such a determination 
                        and has received a determination 
                        described in paragraph (4)(A)(ii),
                from receiving (and submitting a claim for) 
                such physicians' services and from obtaining 
                administrative or judicial review respecting 
                such claim under the other applicable 
                provisions of this section. Failure to seek a 
                prior determination under this subsection with 
                respect to physicians' service shall not be 
                taken into account in such administrative or 
                judicial review.
                    ``(C) No prior determination after receipt 
                of services.--Once an individual is provided 
                physicians' services, there shall be no prior 
                determination under this subsection with 
                respect to such physicians' services.''.
    (b) Effective Date; Sunset; Transition.--
            (1) Effective date.--The Secretary shall establish 
        the prior determination process under the amendment 
        made by subsection (a) in such a manner as to provide 
        for the acceptance of requests for determinations under 
        such process filed not later than 18 months after the 
        date of the enactment of this Act.
            (2) Sunset.--Such prior determination process shall 
        not apply to requests filed after the end of the 5-year 
        period beginning on the first date on which requests 
        for determinations under such process are accepted.
            (3) Transition.--During the period in which the 
        amendment made by subsection (a) has become effective 
        but contracts are not provided under section 1874A of 
        the Social Security Act with medicare administrative 
        contractors, any reference in section 1869(g) of such 
        Act (as added by such amendment) to such a contractor 
        is deemed a reference to a fiscal intermediary or 
        carrier with an agreement under section 1816, or 
        contract under section 1842, respectively, of such Act.
            (4) Limitation on application to sgr.--For purposes 
        of applying section 1848(f)(2)(D) of the Social 
        Security Act (42 U.S.C. 1395w-4(f)(2)(D)), the 
        amendment made by subsection (a) shall not be 
        considered to be a change in law or regulation.
    (c) Provisions Relating to Advance Beneficiary Notices; 
Report on Prior Determination Process.--
            (1) Data collection.--The Secretary shall establish 
        a process for the collection of information on the 
        instances in which an advance beneficiary notice (as 
        defined in paragraph (5)) has been provided and on 
        instances in which a beneficiary indicates on such a 
        notice that the beneficiary does not intend to seek to 
        have the item or service that is the subject of the 
        notice furnished.
            (2) Outreach and education.--The Secretary shall 
        establish a program of outreach and education for 
        beneficiaries and providers of services and other 
        persons on the appropriate use of advance beneficiary 
        notices and coverage policies under the medicare 
        program.
            (3) GAO report on use of advance beneficiary 
        notices.--Not later than 18 months after the date on 
        which section 1869(h) of the Social Security Act (as 
        added by subsection (a)) takes effect, the Comptroller 
        General of the United States shall submit to Congress a 
        report on the use of advance beneficiary notices under 
        title XVIII of such Act. Such report shall include 
        information concerning the providers of services and 
        other persons that have provided such notices and the 
        response of beneficiaries to such notices.
            (4) GAO report on use of prior determination 
        process.--Not later than 36 months after the date on 
        which section 1869(h) of the Social Security Act (as 
        added by subsection (a)) takes effect, the Comptroller 
        General of the United States shall submit to Congress a 
        report on the use of the prior determination process 
        under such section. Such report shall include--
                    (A) information concerning--
                            (i) the number and types of 
                        procedures for which a prior 
                        determination has been sought;
                            (ii) determinations made under the 
                        process;
                            (iii) the percentage of 
                        beneficiaries prevailing;
                            (iv) in those cases in which the 
                        beneficiaries do not prevail, the 
                        reasons why such beneficiaries did not 
                        prevail; and
                            (v) changes in receipt of services 
                        resulting from the application of such 
                        process;
                    (B) an evaluation of whether the process 
                was useful for physicians (and other suppliers) 
                and beneficiaries, whether it was timely, and 
                whether the amount of information required was 
                burdensome to physicians and beneficiaries; and
                    (C) recommendations for improvements or 
                continuation of such process.
            (5) Advance beneficiary notice defined.--In this 
        subsection, the term ``advance beneficiary notice'' 
        means a written notice provided under section 1879(a) 
        of the Social Security Act (42 U.S.C. 1395pp(a)) to an 
        individual entitled to benefits under part A or 
        enrolled under part B of title XVIII of such Act before 
        items or services are furnished under such part in 
        cases where a provider of services or other person that 
        would furnish the item or service believes that payment 
        will not be made for some or all of such items or 
        services under such title.

SEC. 939. APPEALS BY PROVIDERS WHEN THERE IS NO OTHER PARTY AVAILABLE.

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

SEC. 940. REVISIONS TO APPEALS TIMEFRAMES AND AMOUNTS.

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

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

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

                  Subtitle E--Miscellaneous Provisions

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

    (a) In General.--The Secretary may not implement any new or 
modified documentation guidelines (which for purposes of this 
section includes clinical examples) for evaluation and 
management physician services under the title XVIII of the 
Social Security Act on or after the date of the enactment of 
this Act unless the Secretary--
            (1) has developed the guidelines in collaboration 
        with practicing physicians (including both generalists 
        and specialists) and provided for an assessment of the 
        proposed guidelines by the physician community;
            (2) has established a plan that contains specific 
        goals, including a schedule, for improving the use of 
        such guidelines;
            (3) has conducted appropriate and representative 
        pilot projects under subsection (b) to test such 
        guidelines;
            (4) finds, based on reports submitted under 
        subsection (b)(5) with respect to pilot projects 
        conducted for such or related guidelines, that the 
        objectives described in subsection (c) will be met in 
        the implementation of such guidelines; and
            (5) has established, and is implementing, a program 
        to educate physicians on the use of such guidelines and 
        that includes appropriate outreach.
The Secretary shall make changes to the manner in which 
existing evaluation and management documentation guidelines are 
implemented to reduce paperwork burdens on physicians.
    (b) Pilot Projects To Test Modified or New Evaluation and 
Management Documentation Guidelines.--
            (1) In general.--With respect to proposed new or 
        modified documentation guidelines referred to in 
        subsection (a), the Secretary shall conduct under this 
        subsection appropriate and representative pilot 
        projects to test the proposed guidelines.
            (2) Length and consultation.--Each pilot project 
        under this subsection shall--
                    (A) be voluntary;
                    (B) be of sufficient length as determined 
                by the Secretary (but in no case to exceed 1 
                year) to allow for preparatory physician and 
                medicare contractor education, analysis, and 
                use and assessment of potential evaluation and 
                management guidelines; and
                    (C) be conducted, in development and 
                throughout the planning and operational stages 
                of the project, in consultation with practicing 
                physicians (including both generalists and 
                specialists).
            (3) Range of pilot projects.--Of the pilot projects 
        conducted under this subsection with respect to 
        proposed new or modified documentation guidelines--
                    (A) at least one shall focus on a peer 
                review method by physicians (not employed by a 
                medicare contractor) which evaluates medical 
                record information for claims submitted by 
                physicians identified as statistical outliers 
                relative to codes used for billing purposes for 
                such services;
                    (B) at least one shall focus on an 
                alternative method to detailed guidelines based 
                on physician documentation of face to face 
                encounter time with a patient;
                    (C) at least one shall be conducted for 
                services furnished in a rural area and at least 
                one for services furnished outside such an 
                area; and
                    (D) at least one shall be conducted in a 
                setting where physicians bill under physicians' 
                services in teaching settings and at least one 
                shall be conducted in a setting other than a 
                teaching setting.
            (4) Study of impact.--Each pilot project shall 
        examine the effect of the proposed guidelines on--
                    (A) different types of physician practices, 
                including those with fewer than 10 full-time-
                equivalent employees (including physicians); 
                and
                    (B) the costs of physician compliance, 
                including education, implementation, auditing, 
                and monitoring.
            (5) Report on pilot projects.--Not later than 6 
        months after the date of completion of pilot projects 
        carried out under this subsection with respect to a 
        proposed guideline described in paragraph (1), the 
        Secretary shall submit to Congress a report on the 
        pilot projects. Each such report shall include a 
        finding by the Secretary of whether the objectives 
        described in subsection (c) will be met in the 
        implementation of such proposed guideline.
    (c) Objectives for Evaluation and Management Guidelines.--
The objectives for modified evaluation and management 
documentation guidelines developed by the Secretary shall be 
to--
            (1) identify clinically relevant documentation 
        needed to code accurately and assess coding levels 
        accurately;
            (2) decrease the level of non-clinically pertinent 
        and burdensome documentation time and content in the 
        physician's medical record;
            (3) increase accuracy by reviewers; and
            (4) educate both physicians and reviewers.
    (d) Study of Simpler, Alternative Systems of Documentation 
for Physician Claims.--
            (1) Study.--The Secretary shall carry out a study 
        of the matters described in paragraph (2).
            (2) Matters described.--The matters referred to in 
        paragraph (1) are--
                    (A) the development of a simpler, 
                alternative system of requirements for 
                documentation accompanying claims for 
                evaluation and management physician services 
                for which payment is made under title XVIII of 
                the Social Security Act; and
                    (B) consideration of systems other than 
                current coding and documentation requirements 
                for payment for such physician services.
            (3) Consultation with practicing physicians.--In 
        designing and carrying out the study under paragraph 
        (1), the Secretary shall consult with practicing 
        physicians, including physicians who are part of group 
        practices and including both generalists and 
        specialists.
            (4) Application of hipaa uniform coding 
        requirements.--In developing an alternative system 
        under paragraph (2), the Secretary shall consider 
        requirements of administrative simplification under 
        part C of title XI of the Social Security Act.
            (5) Report to congress.--(A) Not later than October 
        1, 2005, the Secretary shall submit to Congress a 
        report on the results of the study conducted under 
        paragraph (1).
            (B) The Medicare Payment Advisory Commission shall 
        conduct an analysis of the results of the study 
        included in the report under subparagraph (A) and shall 
        submit a report on such analysis to Congress.
    (e) Study on Appropriate Coding of Certain Extended Office 
Visits.--The Secretary shall conduct a study of the 
appropriateness of coding in cases of extended office visits in 
which there is no diagnosis made. Not later than October 1, 
2005, the Secretary shall submit a report to Congress on such 
study and shall include recommendations on how to code 
appropriately for such visits in a manner that takes into 
account the amount of time the physician spent with the 
patient.
    (f) Definitions.--In this section--
            (1) the term ``rural area'' has the meaning given 
        that term in section 1886(d)(2)(D) of the Social 
        Security Act (42 U.S.C. 1395ww(d)(2)(D)); and
            (2) the term ``teaching settings'' are those 
        settings described in section 415.150 of title 42, Code 
        of Federal Regulations.

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

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

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

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

SEC. 944. EMTALA IMPROVEMENTS.

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

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

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

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

    (a) In General.--Section 1861(dd)(5) (42 U.S.C. 
1395x(dd)(5)) is amended by adding at the end the following:
    ``(D) In extraordinary, exigent, or other non-routine 
circumstances, such as unanticipated periods of high patient 
loads, staffing shortages due to illness or other events, or 
temporary travel of a patient outside a hospice program's 
service area, a hospice program may enter into arrangements 
with another hospice program for the provision by that other 
program of services described in paragraph (2)(A)(ii)(I). The 
provisions of paragraph (2)(A)(ii)(II) shall apply with respect 
to the services provided under such arrangements.
    ``(E) A hospice program may provide services described in 
paragraph (1)(A) other than directly by the program if the 
services are highly specialized services of a registered 
professional nurse and are provided non-routinely and so 
infrequently so that the provision of such services directly 
would be impracticable and prohibitively expensive.''.
    (b) Conforming Payment Provision.--Section 1814(i) (42 
U.S.C. 1395f(i)), as amended by section 512(b), is amended by 
adding at the end the following new paragraph:
    ``(5) In the case of hospice care provided by a hospice 
program under arrangements under section 1861(dd)(5)(D) made by 
another hospice program, the hospice program that made the 
arrangements shall bill and be paid for the hospice care.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to hospice care provided on or after the date of 
the enactment of this Act.

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

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

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

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

SEC. 949. CONFORMING AUTHORITY TO WAIVE A PROGRAM EXCLUSION.

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

SEC. 950. TREATMENT OF CERTAIN DENTAL CLAIMS.

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

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

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

SEC. 952. REVISIONS TO REASSIGNMENT PROVISIONS.

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

SEC. 953. OTHER PROVISIONS.

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

             TITLE X--MEDICAID AND MISCELLANEOUS PROVISIONS

                    Subtitle A--Medicaid Provisions

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

    (a) Temporary Increase.--Section 1923(f)(3) (42 U.S.C. 
1396r-4(f)(3)) is amended--
            (1) in subparagraph (A), by striking ``subparagraph 
        (B)'' and inserting ``subparagraphs (B) and (C)''; and
            (2) by adding at the end the following new 
        subparagraphs:
                    ``(C) Special, temporary increase in 
                allotments on a one-time, non-cumulative 
                basis.--The DSH allotment for any State (other 
                than a State with a DSH allotment determined 
                under paragraph (5))--
                            ``(i) for fiscal year 2004 is equal 
                        to 116 percent of the DSH allotment for 
                        the State for fiscal year 2003 under 
                        this paragraph, notwithstanding 
                        subparagraph (B); and
                            ``(ii) for each succeeding fiscal 
                        year is equal to the DSH allotment for 
                        the State for fiscal year 2004 or, in 
                        the case of fiscal years beginning with 
                        the fiscal year specified in 
                        subparagraph (D) for that State, the 
                        DSH allotment for the State for the 
                        previous fiscal year increased by the 
                        percentage change in the consumer price 
                        index for all urban consumers (all 
                        items; U.S. city average), for the 
                        previous fiscal year.
                    ``(D) Fiscal year specified.--For purposes 
                of subparagraph (C)(ii), the fiscal year 
                specified in this subparagraph for a State is 
                the first fiscal year for which the Secretary 
                estimates that the DSH allotment for that State 
                will equal (or no longer exceed) the DSH 
                allotment for that State under the law as in 
                effect before the date of the enactment of this 
                subparagraph.''.
    (b) Increase in Floor for Treatment as a Low DSH State.--
Section 1923(f)(5) (42 U.S.C. 1396r-4(f)(5)) is amended--
            (1) in the paragraph heading, by striking 
        ``extremely'';
            (2) by striking ``In the case of'' and inserting 
        the following:
                    ``(A) For fiscal years 2001 through 2003 
                for extremely low dsh states.--In the case 
                of'';
            (3) by inserting ``before fiscal year 2004'' after 
        ``In subsequent years''; and
            (4) by adding at the end the following:
                    ``(B) For fiscal year 2004 and subsequent 
                fiscal years.--In the case of a State in which 
                the total expenditures under the State plan 
                (including Federal and State shares) for 
                disproportionate share hospital adjustments 
                under this section for fiscal year 2000, as 
                reported to the Administrator of the Centers 
                for Medicare & Medicaid Services as of August 
                31, 2003, is greater than 0 but less than 3 
                percent of the State's total amount of 
                expenditures under the State plan for medical 
                assistance during the fiscal year, the DSH 
                allotment for the State with respect to--
                            ``(i) fiscal year 2004 shall be the 
                        DSH allotment for the State for fiscal 
                        year 2003 increased by 16 percent;
                            ``(ii) each succeeding fiscal year 
                        before fiscal year 2009 shall be the 
                        DSH allotment for the State for the 
                        previous fiscal year increased by 16 
                        percent; and
                            ``(iii) fiscal year 2009 and any 
                        subsequent fiscal year, shall be the 
                        DSH allotment for the State for the 
                        previous year subject to an increase 
                        for inflation as provided in paragraph 
                        (3)(A).''.
    (c) Allotment Adjustment.--Section 1923(f) (42 U.S.C. 
1396r-4(f)) is amended--
            (1) in paragraph (3)(A), by striking ``The DSH'' 
        and inserting ``Except as provided in paragraph (6), 
        the DSH'';
            (2) by redesignating paragraph (6) as paragraph 
        (7); and
            (3) by inserting after paragraph (5) the following:
            ``(6) Allotment adjustment.--Only with respect to 
        fiscal year 2004 or 2005, if a statewide waiver under 
        section 1115 is revoked or terminated before the end of 
        either such fiscal year and there is no DSH allotment 
        for the State, the Secretary shall--
                    ``(A) permit the State whose waiver was 
                revoked or terminated to submit an amendment to 
                its State plan that would describe the 
                methodology to be used by the State (after the 
                effective date of such revocation or 
                termination) to identify and make payments to 
                disproportionate share hospitals, including 
                children's hospitals and institutions for 
                mental diseases or other mental health 
                facilities (other than State-owned institutions 
                or facilities), on the basis of the proportion 
                of patients served by such hospitals that are 
                low-income patients with special needs; and
                    ``(B) provide for purposes of this 
                subsection for computation of an appropriate 
                DSH allotment for the State for fiscal year 
                2004 or 2005 (or both) that would not exceed 
                the amount allowed under paragraph (3)(B)(ii) 
                and that does not result in greater 
                expenditures under this title than would have 
                been made if such waiver had not been revoked 
                or terminated.
        In determining the amount of an appropriate DSH 
        allotment under subparagraph (B) for a State, the 
        Secretary shall take into account the level of DSH 
        expenditures for the State for the fiscal year 
        preceding the fiscal year in which the waiver 
        commenced.''.
    (d) Increased Reporting and Other Requirements To Ensure 
the Appropriate Use of Medicaid DSH Payment Adjustments.--
Section 1923 (42 U.S.C. 1396r-4) is amended by adding at the 
end the following new subsection:
    ``(j) Annual Reports and Other Requirements Regarding 
Payment Adjustments.--With respect to fiscal year 2004 and each 
fiscal year thereafter, the Secretary shall require a State, as 
a condition of receiving a payment under section 1903(a)(1) 
with respect to a payment adjustment made under this section, 
to do the following:
            ``(1) Report.--The State shall submit an annual 
        report that includes the following:
                    ``(A) An identification of each 
                disproportionate share hospital that received a 
                payment adjustment under this section for the 
                preceding fiscal year and the amount of the 
                payment adjustment made to such hospital for 
                the preceding fiscal year.
                    ``(B) Such other information as the 
                Secretary determines necessary to ensure the 
                appropriateness of the payment adjustments made 
                under this section for the preceding fiscal 
                year.
            ``(2) Independent certified audit.--The State shall 
        annually submit to the Secretary an independent 
        certified audit that verifies each of the following:
                    ``(A) The extent to which hospitals in the 
                State have reduced their uncompensated care 
                costs to reflect the total amount of claimed 
                expenditures made under this section.
                    ``(B) Payments under this section to 
                hospitals that comply with the requirements of 
                subsection (g).
                    ``(C) Only the uncompensated care costs of 
                providing inpatient hospital and outpatient 
                hospital services to individuals described in 
                paragraph (1)(A) of such subsection are 
                included in the calculation of the hospital-
                specific limits under such subsection.
                    ``(D) The State included all payments under 
                this title, including supplemental payments, in 
                the calculation of such hospital-specific 
                limits.
                    ``(E) The State has separately documented 
                and retained a record of all of its costs under 
                this title, claimed expenditures under this 
                title, uninsured costs in determining payment 
                adjustments under this section, and any 
                payments made on behalf of the uninsured from 
                payment adjustments under this section.''.
      (e) Clarification Regarding Non-Regulation of 
Transfers.--
            (1) In general.--Nothing in section 1903(w) of the 
        Social Security Act (42 U.S.C. 1396b(w)) shall be 
        construed by the Secretary as prohibiting a State's use 
        of funds as the non-Federal share of expenditures under 
        title XIX of such Act where such funds are transferred 
        from or certified by a publicly-owned regional medical 
        center located in another State and described in 
        paragraph (2), so long as the Secretary determines that 
        such use of funds is proper and in the interest of the 
        program under title XIX.
            (2) Center described.--A center described in this 
        paragraph is a publicly-owned regional medical center 
        that--
                    (A) provides level 1 trauma and burn care 
                service;
                    (B) provides level 3 neonatal care 
                services;
                    (C) is obligated to serve all patients, 
                regardless of State of origin;
                    (D) is located within a Standard 
                Metropolitan Statistical Area (SMSA) that 
                includes at least 3 States, including the 
                States described in paragraph (1);
                    (E) serves as a tertiary care provider for 
                patients residing within a 125 mile radius; and
                    (F) meets the criteria for a 
                disproportionate share hospital under section 
                1923 of such Act in at least one State other 
                than the one in which the center is located.
            (3) Effective period.--This subsection shall apply 
        through December 31, 2005.

SEC. 1002. CLARIFICATION OF INCLUSION OF INPATIENT DRUG PRICES CHARGED 
                    TO CERTAIN PUBLIC HOSPITALS IN THE BEST PRICE 
                    EXEMPTIONS FOR THE MEDICAID DRUG REBATE PROGRAM.

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

SEC. 1003. EXTENSION OF MORATORIUM.

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

                  Subtitle B--Miscellaneous Provisions

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

    (a) Total Amount Available for Allotment.--
            (1) In general.--Out of any funds in the Treasury 
        not otherwise appropriated, there are appropriated to 
        the Secretary $250,000,000 for each of fiscal years 
        2005 through 2008 for the purpose of making allotments 
        under this section for payments to eligible providers 
        in States described in paragraph (1) or (2) of 
        subsection (b).
            (2) Availability.--Funds appropriated under 
        paragraph (1) shall remain available until expended.
    (b) State Allotments.--
            (1) Based on percentage of undocumented aliens.--
                    (A) In general.--Out of the amount 
                appropriated under subsection (a) for a fiscal 
                year, the Secretary shall use $167,000,000 of 
                such amount to make allotments for such fiscal 
                year in accordance with subparagraph (B).
                    (B) Formula.--The amount of the allotment 
                for payments to eligible providers in each 
                State for a fiscal year shall be equal to the 
                product of--
                            (i) the total amount available for 
                        allotments under this paragraph for the 
                        fiscal year; and
                            (ii) the percentage of undocumented 
                        aliens residing in the State as 
                        compared to the total number of such 
                        aliens residing in all States, as 
                        determined by the Statistics Division 
                        of the Immigration and Naturalization 
                        Service, as of January 2003, based on 
                        the 2000 decennial census.
            (2) Based on number of undocumented alien 
        apprehension states.--
                    (A) In general.--Out of the amount 
                appropriated under subsection (a) for a fiscal 
                year, the Secretary shall use $83,000,000 of 
                such amount to make allotments, in addition to 
                amounts allotted under paragraph (1), for such 
                fiscal year for each of the 6 States with the 
                highest number of undocumented alien 
                apprehensions for such fiscal year.
                    (B) Determination of allotments.--The 
                amount of the allotment for each State 
                described in subparagraph (A) for a fiscal year 
                shall be equal to the product of--
                            (i) the total amount available for 
                        allotments under this paragraph for the 
                        fiscal year; and
                            (ii) the percentage of undocumented 
                        alien apprehensions in the State in 
                        that fiscal year as compared to the 
                        total of such apprehensions for all 
                        such States for the preceding fiscal 
                        year.
                    (C) Data.--For purposes of this paragraph, 
                the highest number of undocumented alien 
                apprehensions for a fiscal year shall be based 
                on the apprehension rates for the 4-
                consecutive-quarter period ending before the 
                beginning of the fiscal year for which 
                information is available for undocumented 
                aliens in such States, as reported by the 
                Department of Homeland Security.
    (c) Use of Funds.--
            (1) Authority to make payments.--From the 
        allotments made for a State under subsection (b) for a 
        fiscal year, the Secretary shall pay the amount 
        (subject to the total amount available from such 
        allotments) determined under paragraph (2) directly to 
        eligible providers located in the State for the 
        provision of eligible services to aliens described in 
        paragraph (5) to the extent that the eligible provider 
        was not otherwise reimbursed (through insurance or 
        otherwise) for such services during that fiscal year.
            (2) Determination of payment amounts.--
                    (A) In general.--Subject to subparagraph 
                (B), the payment amount determined under this 
                paragraph shall be an amount determined by the 
                Secretary that is equal to the lesser of--
                            (i) the amount that the provider 
                        demonstrates was incurred for the 
                        provision of such services; or
                            (ii) amounts determined under a 
                        methodology established by the 
                        Secretary for purposes of this 
                        subsection.
                    (B) Pro-rata reduction.--If the amount of 
                funds allotted to a State under subsection (b) 
                for a fiscal year is insufficient to ensure 
                that each eligible provider in that State 
                receives the amount of payment calculated under 
                subparagraph (A), the Secretary shall reduce 
                that amount of payment with respect to each 
                eligible provider to ensure that the entire 
                amount allotted to the State for that fiscal 
                year is paid to such eligible providers.
            (3) Methodology.--In establishing a methodology 
        under paragraph (2)(A)(ii), the Secretary--
                    (A) may establish different methodologies 
                for types of eligible providers;
                    (B) may base payments for hospital services 
                on estimated hospital charges, adjusted to 
                estimated cost, through the application of 
                hospital-specific cost-to-charge ratios;
                    (C) shall provide for the election by a 
                hospital to receive either payments to the 
                hospital for--
                            (i) hospital and physician 
                        services; or
                            (ii) hospital services and for a 
                        portion of the on-call payments made by 
                        the hospital to physicians; and
                    (D) shall make quarterly payments under 
                this section to eligible providers.
        If a hospital makes the election under subparagraph 
        (C)(i), the hospital shall pass on payments for 
        services of a physician to the physician and may not 
        charge any administrative or other fee with respect to 
        such payments.
            (4) Limitation on use of funds.--Payments made to 
        eligible providers in a State from allotments made 
        under subsection (b) for a fiscal year may only be used 
        for costs incurred in providing eligible services to 
        aliens described in paragraph (5).
            (5) Aliens described.--For purposes of paragraphs 
        (1) and (2), aliens described in this paragraph are any 
        of the following:
                    (A) Undocumented aliens.
                    (B) Aliens who have been paroled into the 
                United States at a United States port of entry 
                for the purpose of receiving eligible services.
                    (C) Mexican citizens permitted to enter the 
                United States for not more than 72 hours under 
                the authority of a biometric machine readable 
                border crossing identification card (also 
                referred to as a ``laser visa'') issued in 
                accordance with the requirements of regulations 
                prescribed under section 101(a)(6) of the 
                Immigration and Nationality Act (8 U.S.C. 
                1101(a)(6)).
    (d) Applications; Advance Payments.--
            (1) Deadline for establishment of application 
        process.--
                    (A) In general.--Not later than September 
                1, 2004, the Secretary shall establish a 
                process under which eligible providers located 
                in a State may request payments under 
                subsection (c).
                    (B) Inclusion of measures to combat fraud 
                and abuse.--The Secretary shall include in the 
                process established under subparagraph (A) 
                measures to ensure that inappropriate, 
                excessive, or fraudulent payments are not made 
                from the allotments determined under subsection 
                (b), including certification by the eligible 
                provider of the veracity of the payment 
                request.
            (2) Advance payment; retrospective adjustment.--The 
        process established under paragraph (1) may provide for 
        making payments under this section for each quarter of 
        a fiscal year on the basis of advance estimates of 
        expenditures submitted by applicants for such payments 
        and such other investigation as the Secretary may find 
        necessary, and for making reductions or increases in 
        the payments as necessary to adjust for any overpayment 
        or underpayment for prior quarters of such fiscal year.
    (e) Definitions.--In this section:
            (1) Eligible provider.--The term ``eligible 
        provider'' means a hospital, physician, or provider of 
        ambulance services (including an Indian Health Service 
        facility whether operated by the Indian Health Service 
        or by an Indian tribe or tribal organization).
            (2) Eligible services.--The term ``eligible 
        services'' means health care services required by the 
        application of section 1867 of the Social Security Act 
        (42 U.S.C. 1395dd), and related hospital inpatient and 
        outpatient services and ambulance services (as defined 
        by the Secretary).
            (3) Hospital.--The term ``hospital'' has the 
        meaning given such term in section 1861(e) of the 
        Social Security Act (42 U.S.C. 1395x(e)), except that 
        such term shall include a critical access hospital (as 
        defined in section 1861(mm)(1) of such Act (42 U.S.C. 
        1395x(mm)(1)).
            (4) Physician.--The term ``physician'' has the 
        meaning given that term in section 1861(r) of the 
        Social Security Act (42 U.S.C. 1395x(r)).
            (5) Indian tribe; tribal organization.--The terms 
        ``Indian tribe'' and ``tribal organization'' have the 
        meanings given such terms in section 4 of the Indian 
        Health Care Improvement Act (25 U.S.C. 1603).
            (6) State.--The term ``State'' means the 50 States 
        and the District of Columbia.

SEC. 1012. COMMISSION ON SYSTEMIC INTEROPERABILITY.

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

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

    (a) Research, Demonstrations, and Evaluations.--
            (1) Improvement of effectiveness and efficiency.--
                    (A) In general.--To improve the quality, 
                effectiveness, and efficiency of health care 
                delivered pursuant to the programs established 
                under titles XVIII, XIX, and XXI of the Social 
                Security Act, the Secretary acting through the 
                Director of the Agency for Healthcare Research 
                and Quality (in this section referred to as the 
                ``Director''), shall conduct and support 
                research to meet the priorities and requests 
                for scientific evidence and information 
                identified by such programs with respect to--
                            (i) the outcomes, comparative 
                        clinical effectiveness, and 
                        appropriateness of health care items 
                        and services (including prescription 
                        drugs); and
                            (ii) strategies for improving the 
                        efficiency and effectiveness of such 
                        programs, including the ways in which 
                        such items and services are organized, 
                        managed, and delivered under such 
                        programs.
                    (B) Specification.--To respond to 
                priorities and information requests in 
                subparagraph (A), the Secretary may conduct or 
                support, by grant, contract, or interagency 
                agreement, research, demonstrations, 
                evaluations, technology assessments, or other 
                activities, including the provision of 
                technical assistance, scientific expertise, or 
                methodological assistance.
            (2) Priorities.--
                    (A) In general.--The Secretary shall 
                establish a process to develop priorities that 
                will guide the research, demonstrations, and 
                evaluation activities undertaken pursuant to 
                this section.
                    (B) Initial list.--Not later than 6 months 
                after the date of the enactment of this Act, 
                the Secretary shall establish an initial list 
                of priorities for research related to health 
                care items and services (including prescription 
                drugs).
                    (C) Process.--In carrying out subparagraph 
                (A), the Secretary--
                            (i) shall ensure that there is 
                        broad and ongoing consultation with 
                        relevant stakeholders in identifying 
                        the highest priorities for research, 
                        demonstrations, and evaluations to 
                        support and improve the programs 
                        established under titles XVIII, XIX, 
                        and XXI of the Social Security Act;
                            (ii) may include health care items 
                        and services which impose a high cost 
                        on such programs, as well as those 
                        which may be underutilized or 
                        overutilized and which may 
                        significantly improve the prevention, 
                        treatment, or cure of diseases and 
                        conditions (including chronic 
                        conditions) which impose high direct or 
                        indirect costs on patients or society; 
                        and
                            (iii) shall ensure that the 
                        research and activities undertaken 
                        pursuant to this section are responsive 
                        to the specified priorities and are 
                        conducted in a timely manner.
            (3) Evaluation and synthesis of scientific 
        evidence.--
                    (A) In general.--The Secretary shall--
                            (i) evaluate and synthesize 
                        available scientific evidence related 
                        to health care items and services 
                        (including prescription drugs) 
                        identified as priorities in accordance 
                        with paragraph (2) with respect to the 
                        comparative clinical effectiveness, 
                        outcomes, appropriateness, and 
                        provision of such items and services 
                        (including prescription drugs);
                            (ii) identify issues for which 
                        existing scientific evidence is 
                        insufficient with respect to such 
                        health care items and services 
                        (including prescription drugs);
                            (iii) disseminate to prescription 
                        drug plans and MA-PD plans under part D 
                        of title XVIII of the Social Security 
                        Act, other health plans, and the public 
                        the findings made under clauses (i) and 
                        (ii); and
                            (iv) work in voluntary 
                        collaboration with public and private 
                        sector entities to facilitate the 
                        development of new scientific knowledge 
                        regarding health care items and 
                        services (including prescription 
                        drugs).
                    (B) Initial research.--The Secretary shall 
                complete the evaluation and synthesis of the 
                initial research required by the priority list 
                developed under paragraph (2)(B) not later than 
                18 months after the development of such list.
                    (C) Dissemination.--
                            (i) In general.--To enhance patient 
                        safety and the quality of health care, 
                        the Secretary shall make available and 
                        disseminate in appropriate formats to 
                        prescription drugs plans under part D, 
                        and MA-PD plans under part C, of title 
                        XVIII of the Social Security Act, other 
                        health plans, and the public the 
                        evaluations and syntheses prepared 
                        pursuant to subparagraph (A) and the 
                        findings of research conducted pursuant 
                        to paragraph (1). In carrying out this 
                        clause the Secretary, in order to 
                        facilitate the availability of such 
                        evaluations and syntheses or findings 
                        at every decision point in the health 
                        care system, shall--
                                    (I) present such 
                                evaluations and syntheses or 
                                findings in a form that is 
                                easily understood by the 
                                individuals receiving health 
                                care items and services 
                                (including prescription drugs) 
                                under such plans and 
                                periodically assess that the 
                                requirements of this subclause 
                                have been met; and
                                    (II) provide such 
                                evaluations and syntheses or 
                                findings and other relevant 
                                information through easily 
                                accessible and searchable 
                                electronic mechanisms, and in 
                                hard copy formats as 
                                appropriate.
                            (ii) Rule of construction.--Nothing 
                        in this section shall be construed as--
                                    (I) affecting the authority 
                                of the Secretary or the 
                                Commissioner of Food and Drugs 
                                under the Federal Food, Drug, 
                                and Cosmetic Act or the Public 
                                Health Service Act; or
                                    (II) conferring any 
                                authority referred to in 
                                subclause (I) to the Director.
                    (D) Accountability.--In carrying out this 
                paragraph, the Secretary shall implement 
                activities in a manner that--
                            (i) makes publicly available all 
                        scientific evidence relied upon and the 
                        methodologies employed, provided such 
                        evidence and method are not protected 
                        from public disclosure by section 1905 
                        of title 18, United States Code, or 
                        other applicable law so that the 
                        results of the research, analyses, or 
                        syntheses can be evaluated or 
                        replicated; and
                            (ii) ensures that any information 
                        needs and unresolved issues identified 
                        in subparagraph (A)(ii) are taken into 
                        account in priority-setting for future 
                        research conducted by the Secretary.
            (4) Confidentiality.--
                    (A) In general.--In making use of 
                administrative, clinical, and program data and 
                information developed or collected with respect 
                to the programs established under titles XVIII, 
                XIX, and XXI of the Social Security Act, for 
                purposes of carrying out the requirements of 
                this section or the activities authorized under 
                title IX of the Public Health Service Act (42 
                U.S.C. 299 et seq.), such data and information 
                shall be protected in accordance with the 
                confidentiality requirements of title IX of the 
                Public Health Service Act.
                    (B) Rule of construction.--Nothing in this 
                section shall be construed to require or permit 
                the disclosure of data provided to the 
                Secretary that is otherwise protected from 
                disclosure under the Federal Food, Drug, and 
                Cosmetic Act, section 1905 of title 18, United 
                States Code, or other applicable law.
            (5) Evaluations.--The Secretary shall conduct and 
        support evaluations of the activities carried out under 
        this section to determine the extent to which such 
        activities have had an effect on outcomes and 
        utilization of health care items and services.
            (6) Improving information available to health care 
        providers, patients, and policymakers.--Not later than 
        18 months after the date of enactment of this Act, the 
        Secretary shall identify options that could be 
        undertaken in voluntary collaboration with private and 
        public entities (as appropriate) for the--
                    (A) provision of more timely information 
                through the programs established under titles 
                XVIII, XIX, and XXI of the Social Security Act, 
                regarding the outcomes and quality of patient 
                care, including clinical and patient-reported 
                outcomes, especially with respect to 
                interventions and conditions for which clinical 
                trials would not be feasible or raise ethical 
                concerns that are difficult to address;
                    (B) acceleration of the adoption of 
                innovation and quality improvement under such 
                programs; and
                    (C) development of management tools for the 
                programs established under titles XIX and XXI 
                of the Social Security Act, and with respect to 
                the programs established under such titles, 
                assess the feasibility of using administrative 
                or claims data, to--
                            (i) improve oversight by State 
                        officials;
                            (ii) support Federal and State 
                        initiatives to improve the quality, 
                        safety, and efficiency of services 
                        provided under such programs; and
                            (iii) provide a basis for 
                        estimating the fiscal and coverage 
                        impact of Federal or State program and 
                        policy changes.
    (b) Recommendations.--
            (1) Disclaimer.--In carrying out this section, the 
        Director shall--
                    (A) not mandate national standards of 
                clinical practice or quality health care 
                standards; and
                    (B) include in any recommendations 
                resulting from projects funded and published by 
                the Director, a corresponding reference to the 
                prohibition described in subparagraph (A).
            (2) Requirement for implementation.--Research, 
        evaluation, and communication activities performed 
        pursuant to this section shall reflect the principle 
        that clinicians and patients should have the best 
        available evidence upon which to make choices in health 
        care items and services, in providers, and in health 
        care delivery systems, recognizing that patient 
        subpopulations and patient and physician preferences 
        may vary.
            (3) Rule of construction.--Nothing in this section 
        shall be construed to provide the Director with 
        authority to mandate a national standard or require a 
        specific approach to quality measurement and reporting.
    (c) Research With Respect to Dissemination.--The Secretary, 
acting through the Director, may conduct or support research 
with respect to improving methods of disseminating information 
in accordance with subsection (a)(3)(C).
    (d) Limitation on CMS.--The Administrator of the Centers 
for Medicare & Medicaid Services may not use data obtained in 
accordance with this section to withhold coverage of a 
prescription drug.
    (e) Authorization of Appropriations.--There is authorized 
to be appropriated to carry out this section, $50,000,000 for 
fiscal year 2004, and such sums as may be necessary for each 
fiscal year thereafter.

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

    (a) Findings.--Congress finds the following:
            (1) In order to improve the health care system, the 
        American public must engage in an informed national 
        public debate to make choices about the services they 
        want covered, what health care coverage they want, and 
        how they are willing to pay for coverage.
            (2) More than a trillion dollars annually is spent 
        on the health care system, yet--
                    (A) 41,000,000 Americans are uninsured;
                    (B) insured individuals do not always have 
                access to essential, effective services to 
                improve and maintain their health; and
                    (C) employers, who cover over 170,000,000 
                Americans, find providing coverage increasingly 
                difficult because of rising costs and double 
                digit premium increases.
            (3) Despite increases in medical care spending that 
        are greater than the rate of inflation, population 
        growth, and Gross Domestic Product growth, there has 
        not been a commensurate improvement in our health 
        status as a nation.
            (4) Health care costs for even just 1 member of a 
        family can be catastrophic, resulting in medical bills 
        potentially harming the economic stability of the 
        entire family.
            (5) Common life occurrences can jeopardize the 
        ability of a family to retain private coverage or 
        jeopardize access to public coverage.
            (6) Innovations in health care access, coverage, 
        and quality of care, including the use of technology, 
        have often come from States, local communities, and 
        private sector organizations, but more creative 
        policies could tap this potential.
            (7) Despite our Nation's wealth, the health care 
        system does not provide coverage to all Americans who 
        want it.
    (b) Purposes.--The purposes of this section are--
            (1) to provide for a nationwide public debate about 
        improving the health care system to provide every 
        American with the ability to obtain quality, affordable 
        health care coverage; and
            (2) to provide for a vote by Congress on the 
        recommendations that result from the debate.
    (c) Establishment.--The Secretary, acting through the 
Agency for Healthcare Research and Quality, shall establish an 
entity to be known as the Citizens' Health Care Working Group 
(referred to in this section as the ``Working Group'').
    (d) Membership.--
            (1) Number and appointment.--The Working Group 
        shall be composed of 15 members. One member shall be 
        the Secretary. The Comptroller General of the United 
        States shall appoint 14 members.
            (2) Qualifications.--
                    (A) In general.--The membership of the 
                Working Group shall include--
                            (i) consumers of health services 
                        that represent those individuals who 
                        have not had insurance within 2 years 
                        of appointment, that have had chronic 
                        illnesses, including mental illness, 
                        are disabled, and those who receive 
                        insurance coverage through medicare and 
                        medicaid; and
                            (ii) individuals with expertise in 
                        financing and paying for benefits and 
                        access to care, business and labor 
                        perspectives, and providers of health 
                        care.
                The membership shall reflect a broad geographic 
                representation and a balance between urban and 
                rural representatives.
                    (B) Prohibited appointments.--Members of 
                the Working Group shall not include Members of 
                Congress or other elected government officials 
                (Federal, State, or local). Individuals 
                appointed to the Working Group shall not be 
                paid employees or representatives of 
                associations or advocacy organizations involved 
                in the health care system.
    (e) Period of Appointment.--Members of the Working Group 
shall be appointed for a life of the Working Group. Any 
vacancies shall not affect the power and duties of the Working 
Group but shall be filled in the same manner as the original 
appointment.
    (f) Designation of the Chairperson.--Not later than 15 days 
after the date on which all members of the Working Group have 
been appointed under subsection (d)(1), the Comptroller General 
shall designate the chairperson of the Working Group.
    (g) Subcommittees.--The Working Group may establish 
subcommittees if doing so increases the efficiency of the 
Working Group in completing its tasks.
    (h) Duties.--
            (1) Hearings.--Not later than 90 days after the 
        date of the designation of the chairperson under 
        subsection (f), the Working Group shall hold hearings 
        to examine--
                    (A) the capacity of the public and private 
                health care systems to expand coverage options;
                    (B) the cost of health care and the 
                effectiveness of care provided at all stages of 
                disease;
                    (C) innovative State strategies used to 
                expand health care coverage and lower health 
                care costs;
                    (D) local community solutions to accessing 
                health care coverage;
                    (E) efforts to enroll individuals currently 
                eligible for public or private health care 
                coverage;
                    (F) the role of evidence-based medical 
                practices that can be documented as restoring, 
                maintaining, or improving a patient's health, 
                and the use of technology in supporting 
                providers in improving quality of care and 
                lowering costs; and
                    (G) strategies to assist purchasers of 
                health care, including consumers, to become 
                more aware of the impact of costs, and to lower 
                the costs of health care.
            (2) Additional hearings.--The Working Group may 
        hold additional hearings on subjects other than those 
        listed in paragraph (1) so long as such hearings are 
        determined to be necessary by the Working Group in 
        carrying out the purposes of this section. Such 
        additional hearings do not have to be completed within 
        the time period specified in paragraph (1) but shall 
        not delay the other activities of the Working Group 
        under this section.
            (3) The health report to the american people.--Not 
        later than 90 days after the hearings described in 
        paragraphs (1) and (2) are completed, the Working Group 
        shall prepare and make available to health care 
        consumers through the Internet and other appropriate 
        public channels, a report to be entitled, ``The Health 
        Report to the American People''. Such report shall be 
        understandable to the general public and include--
                    (A) a summary of--
                            (i) health care and related 
                        services that may be used by 
                        individuals throughout their life span;
                            (ii) the cost of health care 
                        services and their medical 
                        effectiveness in providing better 
                        quality of care for different age 
                        groups;
                            (iii) the source of coverage and 
                        payment, including reimbursement, for 
                        health care services;
                            (iv) the reasons people are 
                        uninsured or underinsured and the cost 
                        to taxpayers, purchasers of health 
                        services, and communities when 
                        Americans are uninsured or 
                        underinsured;
                            (v) the impact on health care 
                        outcomes and costs when individuals are 
                        treated in all stages of disease;
                            (vi) health care cost containment 
                        strategies; and
                            (vii) information on health care 
                        needs that need to be addressed;
                    (B) examples of community strategies to 
                provide health care coverage or access;
                    (C) information on geographic-specific 
                issues relating to health care;
                    (D) information concerning the cost of care 
                in different settings, including institutional-
                based care and home and community-based care;
                    (E) a summary of ways to finance health 
                care coverage; and
                    (F) the role of technology in providing 
                future health care including ways to support 
                the information needs of patients and 
                providers.
            (4) Community meetings.--
                    (A) In general.--Not later than 1 year 
                after the date on which all the members of the 
                Working Group have been appointed under 
                subsection (d)(1) and appropriations are first 
                made available to carry out this section, the 
                Working Group shall initiate health care 
                community meetings throughout the United States 
                (in this paragraph referred to as ``community 
                meetings''). Such community meetings may be 
                geographically or regionally based and shall be 
                completed within 180 days after the initiation 
                of the first meeting.
                    (B) Number of meetings.--The Working Group 
                shall hold a sufficient number of community 
                meetings in order to receive information that 
                reflects--
                            (i) the geographic differences 
                        throughout the United States;
                            (ii) diverse populations; and
                            (iii) a balance among urban and 
                        rural populations.
                    (C) Meeting requirements.--
                            (i) Facilitator.--A State health 
                        officer may be the facilitator at the 
                        community meetings.
                            (ii) Attendance.--At least 1 member 
                        of the Working Group shall attend and 
                        serve as chair of each community 
                        meeting. Other members may participate 
                        through interactive technology.
                            (iii) Topics.--The community 
                        meetings shall, at a minimum, address 
                        the following questions:
                                    (I) What health care 
                                benefits and services should be 
                                provided?
                                    (II) How does the American 
                                public want health care 
                                delivered?
                                    (III) How should health 
                                care coverage be financed?
                                    (IV) What trade-offs are 
                                the American public willing to 
                                make in either benefits or 
                                financing to ensure access to 
                                affordable, high quality health 
                                care coverage and services?
                            (iv) Interactive technology.--The 
                        Working Group may encourage public 
                        participation in community meetings 
                        through interactive technology and 
                        other means as determined appropriate 
                        by the Working Group.
                    (D) Interim requirements.--Not later than 
                180 days after the date of completion of the 
                community meetings, the Working Group shall 
                prepare and make available to the public 
                through the Internet and other appropriate 
                public channels, an interim set of 
                recommendations on health care coverage and 
                ways to improve and strengthen the health care 
                system based on the information and preferences 
                expressed at the community meetings. There 
                shall be a 90-day public comment period on such 
                recommendations.
    (i) Recommendations.--Not later than 120 days after the 
expiration of the public comment period described in subsection 
(h)(4)(D), the Working Group shall submit to Congress and the 
President a final set of recommendations.
    (j) Administration.--
            (1) Executive director.--There shall be an 
        Executive Director of the Working Group who shall be 
        appointed by the chairperson of the Working Group in 
        consultation with the members of the Working Group.
            (2) Compensation.--While serving on the business of 
        the Working Group (including travel time), a member of 
        the Working Group shall be entitled to compensation at 
        the per diem equivalent of the rate provided for level 
        IV of the Executive Schedule under section 5315 of 
        title 5, United States Code, and while so serving away 
        from home and the member's regular place of business, a 
        member may be allowed travel expenses, as authorized by 
        the chairperson of the Working Group. For purposes of 
        pay and employment benefits, rights, and privileges, 
        all personnel of the Working Group shall be treated as 
        if they were employees of the Senate.
            (3) Information from federal agencies.--The Working 
        Group may secure directly from any Federal department 
        or agency such information as the Working Group 
        considers necessary to carry out this section. Upon 
        request of the Working Group, the head of such 
        department or agency shall furnish such information.
            (4) Postal services.--The Working Group may use the 
        United States mails in thesame manner and under the 
same conditions as other departments and agencies of the Federal 
Government.
    (k) Detail.--Not more than 10 Federal Government employees 
employed by the Department of Labor and 10 Federal Government 
employees employed by the Department of Health and Human 
Services may be detailed to the Working Group under this 
section without further reimbursement. Any detail of an 
employee shall be without interruption or loss of civil service 
status or privilege.
    (l) Temporary and Intermittent Services.--The chairperson 
of the Working Group may procure temporary and intermittent 
services under section 3109(b) of title 5, United States Code, 
at rates for individuals which do not exceed the daily 
equivalent of the annual rate of basic pay prescribed for level 
V of the Executive Schedule under section 5316 of such title.
    (m) Annual Report.--Not later than 1 year after the date of 
enactment of this Act, and annually thereafter during the 
existence of the Working Group, the Working Group shall report 
to Congress and make public a detailed description of the 
expenditures of the Working Group used to carry out its duties 
under this section.
    (n) Sunset of Working Group.--The Working Group shall 
terminate on the date that is 2 years after the date on which 
all the members of the Working Group have been appointed under 
subsection (d)(1) and appropriations are first made available 
to carry out this section.
    (o) Administration Review and Comments.--Not later than 45 
days after receiving the final recommendations of the Working 
Group under subsection (i), the President shall submit a report 
to Congress which shall contain--
            (1) additional views and comments on such 
        recommendations; and
            (2) recommendations for such legislation and 
        administrative actions as the President considers 
        appropriate.
    (p) Required Congressional Action.--Not later than 45 days 
after receiving the report submitted by the President under 
subsection (o), each committee of jurisdiction of Congress, the 
Committee on Finance of the Senate, the Committee on Health, 
Education, Labor, and Pensions of the Senate, the Committee on 
Ways and Means of the House of Representatives, the Committee 
on Energy and Commerce of the House of Representatives, the 
Committee on Education and the Workforce of the House of 
Representatives, shall hold at least 1 hearing on such report 
and on the final recommendations of the Working Group submitted 
under subsection (i).
    (q) Authorization of Appropriations.--
            (1) In general.--There are authorized to be 
        appropriated to carry out this section, other than 
        subsection (h)(3), $3,000,000 for each of fiscal years 
        2005 and 2006.
            (2) Health report to the american people.--There 
        are authorized to be appropriated for the preparation 
        and dissemination of the Health Report to the American 
        People described in subsection (h)(3), such sums as may 
        be necessary for the fiscal year in which the report is 
        required to be submitted.

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

    (a) In General.--There are appropriated to carry out this 
Act (including the amendments made by this Act), to be 
transferred from the Federal Hospital Insurance Trust Fund and 
the Federal Supplementary Medical Insurance Trust Fund--
            (1) not to exceed $1,000,000,000 for the Centers 
        for Medicare & Medicaid Services; and
            (2) not to exceed $500,000,000 for the Social 
        Security Administration.
    (b) Availability.--Amounts provided under subsection (a) 
shall remain available until September 30, 2005.
    (c) Application.--From amounts provided under subsection 
(a)(2), the Social Security Administration may reimburse the 
Internal Revenue Service for expenses in carrying out this Act 
(and the amendments made by this Act).
    (d) Transfer.--The President may transfer amounts provided 
under subsection (a) between the Centers for Medicare & 
Medicaid Services and the Social Security Administration. 
Notice of such transfers shall be transmitted within 15 days to 
the authorizing committees of the House of Representatives and 
of the Senate.

SEC. 1016. HEALTH CARE INFRASTRUCTURE IMPROVEMENT PROGRAM.

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

            ``HEALTH CARE INFRASTRUCTURE IMPROVEMENT PROGRAM

    ``Sec. 1897. (a) Establishment.--The Secretary shall 
establish a loan program that provides loans to qualifying 
hospitals for payment of the capital costs of projects 
described in subsection (d).
    ``(b) Application.--No loan may be provided under this 
section to a qualifying hospital except pursuant to an 
application that is submitted and approved in a time, manner, 
and form specified by the Secretary. A loan under this section 
shall be on such terms and conditions and meet such 
requirements as the Secretary determines appropriate.
    ``(c) Selection Criteria.--
            ``(1) In general.--The Secretary shall establish 
        criteria for selecting among qualifying hospitals that 
        apply for a loan under this section. Such criteria 
        shall consider the extent to which the project for 
        which loan is sought is nationally or regionally 
        significant, in terms of expanding or improving the 
        health care infrastructure of the United States or the 
        region or in terms of the medical benefit that the 
        project will have.
            ``(2) Qualifying hospital defined.--For purposes of 
        this section, the term `qualifying hospital' means a 
        hospital that--
                    ``(A) is engaged in research in the causes, 
                prevention, and treatment of cancer; and
                    ``(B) is designated as a cancer center for 
                the National Cancer Institute or is designated 
                by the State as the official cancer institute 
                of the State.
    ``(d) Projects.--A project described in this subsection is 
a project of a qualifying hospital that is designed to improve 
the health care infrastructure of the hospital, including 
construction, renovation, or other capital improvements.
    ``(e) State and Local Permits.--The provision of a loan 
under this section with respect to a project shall not--
            ``(1) relieve any recipient of the loan of any 
        obligation to obtain any required State or local permit 
        or approval with respect to the project;
            ``(2) limit the right of any unit of State or local 
        government to approve or regulate any rate of return on 
        private equity invested in the project; or
            ``(3) otherwise supersede any State or local law 
        (including any regulation) applicable to the 
        construction or operation of the project.
    ``(f) Forgiveness of Indebtedness.--The Secretary may 
forgive a loan provided to a qualifying hospital under this 
section under terms and conditions that are analogous to the 
loan forgiveness provision for student loans under part D of 
title IV of the Higher Education Act of 1965 (20 U.S.C. 1087a 
et seq.), except that the Secretary shall condition such 
forgiveness on the establishment by the hospital of--
                    ``(A) an outreach program for cancer 
                prevention, early diagnosis, and treatment that 
                provides services to a substantial majority of 
                the residents of a State or region, including 
                residents of rural areas;
                    ``(B) an outreach program for cancer 
                prevention, early diagnosis, and treatment that 
                provides services to multiple Indian tribes; 
                and
                    ``(C)(i) unique research resources (such as 
                population databases); or
                    ``(ii) an affiliation with an entity that 
                has unique research resources.
    ``(g) Funding.--
            ``(1) In general.--There are appropriated, out of 
        amounts in the Treasury not otherwise appropriated, to 
        carry out this section, $200,000,000, to remain 
        available during the period beginning on July 1, 2004, 
        and ending on September 30, 2008.
            ``(2) Administrative costs.--From funds made 
        available under paragraph (1), the Secretary may use, 
        for the administration of this section, not more than 
        $2,000,000 for each of fiscal years 2004 through 2008.
            ``(3) Availability.--Amounts appropriated under 
        this section shall be available for obligation on July 
        1, 2004.
    ``(h) Report to Congress.--Not later than 4 years after the 
date of the enactment of this section, the Secretary shall 
submit to Congress a report on the projects for which loans are 
provided under this section and a recommendation as to whether 
the Congress should authorize the Secretary to continue loans 
under this section beyond fiscal year 2008.''.

             TITLE XI--ACCESS TO AFFORDABLE PHARMACEUTICALS

            Subtitle A--Access to Affordable Pharmaceuticals

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

    (a) Abbreviated New Drug Applications.--Section 505(j) of 
the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)) is 
amended--
            (1) in paragraph (2)--
                    (A) by striking subparagraph (B) and 
                inserting the following:
    ``(B) Notice of opinion that patent is invalid or will not 
be infringed.--
            ``(i) Agreement to give notice.--An applicant that 
        makes a certification described in subparagraph 
        (A)(vii)(IV) shall include in the application a 
        statement that the applicant will give notice as 
        required by this subparagraph.
            ``(ii) Timing of notice.--An applicant that makes a 
        certification described in subparagraph (A)(vii)(IV) 
        shall give notice as required under this subparagraph--
                    ``(I) if the certification is in the 
                application, not later than 20 days after the 
                date of the postmark on the notice with which 
                the Secretary informs the applicant that the 
                application has been filed; or
                    ``(II) if the certification is in an 
                amendment or supplement to the application, at 
                the time at which the applicant submits the 
                amendment or supplement, regardless of whether 
                the applicant has already given notice with 
                respect to another such certification contained 
                in the application or in an amendment or 
                supplement to the application.
            ``(iii) Recipients of notice.--An applicant 
        required under this subparagraph to give notice shall 
        give notice to--
                    ``(I) each owner of the patent that is the 
                subject of the certification (or a 
                representative of the owner designated to 
                receive such a notice); and
                    ``(II) the holder of the approved 
                application under subsection (b) for the drug 
                that is claimed by the patent or a use of which 
                is claimed by the patent (or a representative 
                of the holder designated to receive such a 
                notice).
            ``(iv) Contents of notice.--A notice required under 
        this subparagraph shall--
                    ``(I) state that an application that 
                contains data from bioavailability or 
                bioequivalence studies has been submitted under 
                this subsection for the drug with respect to 
                which the certification is made to obtain 
                approval to engage in the commercial 
                manufacture, use, or sale of the drug before 
                the expiration of the patent referred to in the 
                certification; and
                    ``(II) include a detailed statement of the 
                factual and legal basis of the opinion of the 
                applicant that the patent is invalid or will 
                not be infringed.''; and
                    (B) by adding at the end the following 
                subparagraph:
    ``(D)(i) An applicant may not amend or supplement an 
application to seek approval of a drug referring to a different 
listed drug from the listed drug identified in the application 
as submitted to the Secretary.
    ``(ii) With respect to the drug for which an application is 
submitted, nothing in this subsection prohibits an applicant 
from amending or supplementing the application to seek approval 
of a different strength.
    ``(iii) Within 60 days after the date of the enactment of 
the Medicare Prescription Drug, Improvement, and Modernization 
Act of 2003, the Secretary shall issue guidance defining the 
term `listed drug' for purposes of this subparagraph.''; and
            (2) in paragraph (5)--
                    (A) in subparagraph (B)--
                            (i) by striking ``under the 
                        following'' and inserting ``by applying 
                        the following to each certification 
                        made under paragraph (2)(A)(vii)''; and
                            (ii) in clause (iii)--
                                    (I) in the first sentence, 
                                by striking ``unless'' and all 
                                that follows and inserting 
                                ``unless, before the expiration 
                                of 45 days after the date on 
                                which the notice described in 
                                paragraph (2)(B) is received, 
                                an action is brought for 
                                infringement of the patent that 
                                is the subject of the 
                                certification and for which 
                                information was submitted to 
                                the Secretary under subsection 
                                (b)(1) or (c)(2) before the 
                                date on which the application 
                                (excluding an amendment or 
                                supplement to the application), 
                                which the Secretary later 
                                determines to be substantially 
                                complete, was submitted.''; and
                                    (II) in the second 
                                sentence--
                                            (aa) by striking 
                                        subclause (I) and 
                                        inserting the 
                                        following:
                    ``(I) if before the expiration of such 
                period the district court decides that the 
                patent is invalid or not infringed (including 
                any substantive determination that there is no 
                cause of action for patent infringement or 
                invalidity), the approval shall be made 
                effective on--
                            ``(aa) the date on which the court 
                        enters judgment reflecting the 
                        decision; or
                            ``(bb) the date of a settlement 
                        order or consent decree signed and 
                        entered by the court stating that the 
                        patent that is the subject of the 
                        certification is invalid or not 
                        infringed;'';
                                            (bb) by striking 
                                        subclause (II) and 
                                        inserting the 
                                        following:
                    ``(II) if before the expiration of such 
                period the district court decides that the 
                patent has been infringed--
                            ``(aa) if the judgment of the 
                        district court is appealed, the 
                        approval shall be made effective on--
                                    ``(AA) the date on which 
                                the court of appeals decides 
                                that the patent is invalid or 
                                not infringed (including any 
                                substantive determination that 
                                there is no cause of action for 
                                patent infringement or 
                                invalidity); or
                                    ``(BB) the date of a 
                                settlement order or consent 
                                decree signed and entered by 
                                the court of appeals stating 
                                that the patent that is the 
                                subject of the certification is 
                                invalid or not infringed; or
                            ``(bb) if the judgment of the 
                        district court is not appealed or is 
                        affirmed, the approval shall be made 
                        effective on the date specified by the 
                        district court in a court order under 
                        section 271(e)(4)(A) of title 35, 
                        United States Code;'';
                                            (cc) in subclause 
                                        (III), by striking ``on 
                                        the date of such court 
                                        decision.'' and 
                                        inserting ``as provided 
                                        in subclause (I); or'';
                                            (dd) by inserting 
                                        after subclause (III) 
                                        the following:
                    ``(IV) if before the expiration of such 
                period the court grants a preliminary 
                injunction prohibiting the applicant from 
                engaging in the commercial manufacture or sale 
                of the drug until the court decides the issues 
                of patent validity and infringement and if the 
                court decides that such patent has been 
                infringed, the approval shall be made effective 
                as provided in subclause (II).''; and
                                            (ee) in the matter 
                                        after and below 
                                        subclause (IV) (as 
                                        added by item (dd)), by 
                                        striking ``Until the 
                                        expiration'' and all 
                                        that follows;
                    (B) by redesignating subparagraphs (C) and 
                (D) as subparagraphs (E) and (F), respectively; 
                and
                    (C) by inserting after subparagraph (B) the 
                following:
                    ``(C) Civil action to obtain patent 
                certainty.--
                            ``(i) Declaratory judgment absent 
                        infringement action.--
                                    ``(I) In general.--No 
                                action may be brought under 
                                section 2201 of title 28, 
                                United States Code, by an 
                                applicant under paragraph (2) 
                                for a declaratory judgment with 
                                respect to a patent which is 
                                the subject of the 
                                certification referred to in 
                                subparagraph (B)(iii) unless--
                                            ``(aa) the forty-
                                        five day period 
                                        referred to in such 
                                        subparagraph has 
                                        expired;
                                            ``(bb) neither the 
                                        owner of such patent 
                                        nor the holder of the 
                                        approved application 
                                        under subsection (b) 
                                        for the drug that is 
                                        claimed by the patent 
                                        or a use of which is 
                                        claimed by the patent 
                                        brought a civil action 
                                        against the applicant 
                                        for infringement of the 
                                        patent before the 
                                        expiration of such 
                                        period; and
                                            ``(cc) in any case 
                                        in which the notice 
                                        provided under 
                                        paragraph (2)(B) 
                                        relates to 
                                        noninfringement, the 
                                        notice was accompanied 
                                        by a document described 
                                        in subclause (III).
                                    ``(II) Filing of civil 
                                action.--If the conditions 
                                described in items (aa), (bb), 
                                and as applicable, (cc) of 
                                subclause (I) have been met, 
                                the applicant referred to in 
                                such subclause may, in 
                                accordance with section 2201 of 
                                title 28, United States Code, 
                                bring a civil action under such 
                                section against the owner or 
                                holder referred to in such 
                                subclause (but not against any 
                                owner or holder that has 
                                brought such a civil action 
                                against the applicant, unless 
                                that civil action was dismissed 
                                without prejudice) for a 
                                declaratory judgment that the 
                                patent is invalid or will not 
                                be infringed by the drug for 
                                which the applicant seeks 
                                approval, except that such 
                                civil action may be brought for 
                                a declaratory judgment that the 
                                patent will not be infringed 
                                only in a case in which the 
                                condition described in 
                                subclause (I)(cc) is 
                                applicable. A civil action 
                                referred to in this subclause 
                                shall be brought in the 
                                judicial district where the 
                                defendant has its principal 
                                place of business or a regular 
                                and established place of 
                                business.
                                    ``(III) Offer of 
                                confidential access to 
                                application.--For purposes of 
                                subclause (I)(cc), the document 
                                described in this subclause is 
                                a document providing an offer 
                                of confidential access to the 
                                application that is in the 
                                custody of the applicant under 
                                paragraph (2) for the purpose 
                                of determining whether an 
                                action referred to in 
                                subparagraph (B)(iii) should be 
                                brought. The document providing 
                                the offer of confidential 
                                access shall contain such 
                                restrictions as to persons 
                                entitled to access, and on the 
                                use and disposition of any 
                                informationaccessed, as would 
apply had a protective order been entered for the purpose of protecting 
trade secrets and other confidential business information. A request 
for access to an application under an offer of confidential access 
shall be considered acceptance of the offer of confidential access with 
the restrictions as to persons entitled to access, and on the use and 
disposition of any information accessed, contained in the offer of 
confidential access, and those restrictions and other terms of the 
offer of confidential access shall be considered terms of an 
enforceable contract. Any person provided an offer of confidential 
access shall review the application for the sole and limited purpose of 
evaluating possible infringement of the patent that is the subject of 
the certification under paragraph (2)(A)(vii)(IV) and for no other 
purpose, and may not disclose information of no relevance to any issue 
of patent infringement to any person other than a person provided an 
offer of confidential access. Further, the application may be redacted 
by the applicant to remove any information of no relevance to any issue 
of patent infringement.
                            ``(ii) Counterclaim to infringement 
                        action.--
                                    ``(I) In general.--If an 
                                owner of the patent or the 
                                holder of the approved 
                                application under subsection 
                                (b) for the drug that is 
                                claimed by the patent or a use 
                                of which is claimed by the 
                                patent brings a patent 
                                infringement action against the 
                                applicant, the applicant may 
                                assert a counterclaim seeking 
                                an order requiring the holder 
                                to correct or delete the patent 
                                information submitted by the 
                                holder under subsection (b) or 
                                (c) on the ground that the 
                                patent does not claim either--
                                            ``(aa) the drug for 
                                        which the application 
                                        was approved; or
                                            ``(bb) an approved 
                                        method of using the 
                                        drug.
                                    ``(II) No independent cause 
                                of action.--Subclause (I) does 
                                not authorize the assertion of 
                                a claim described in subclause 
                                (I) in any civil action or 
                                proceeding other than a 
                                counterclaim described in 
                                subclause (I).
                            ``(iii) No damages.--An applicant 
                        shall not be entitled to damages in a 
                        civil action under clause (i) or a 
                        counterclaim under clause (ii).''.
    (b) Applications Generally.--Section 505 of the Federal 
Food, Drug, and Cosmetic Act (21 U.S.C. 355) is amended--
            (1) in subsection (b)--
                    (A) by striking paragraph (3) and inserting 
                the following:
    ``(3) Notice of opinion that patent is invalid or will not 
be infringed.--
            ``(A) Agreement to give notice.--An applicant that 
        makes a certification described in paragraph (2)(A)(iv) 
        shall include in the application a statement that the 
        applicant will give notice as required by this 
        paragraph.
            ``(B) Timing of notice.--An applicant that makes a 
        certification described in paragraph (2)(A)(iv) shall 
        give notice as required under this paragraph--
                    ``(i) if the certification is in the 
                application, not later than 20 days after the 
                date of the postmark on the notice with which 
                the Secretary informs the applicant that the 
                application has been filed; or
                    ``(ii) if the certification is in an 
                amendment or supplement to the application, at 
                the time at which the applicant submits the 
                amendment or supplement, regardless of whether 
                the applicant has already given notice with 
                respect to another such certification contained 
                in the application or in an amendment or 
                supplement to the application.
            ``(C) Recipients of notice.--An applicant required 
        under this paragraph to give notice shall give notice 
        to--
                    ``(i) each owner of the patent that is the 
                subject of the certification (or a 
                representative of the owner designated to 
                receive such a notice); and
                    ``(ii) the holder of the approved 
                application under this subsection for the drug 
                that is claimed by the patent or a use of which 
                is claimed by the patent (or a representative 
                of the holder designated to receive such a 
                notice).
            ``(D) Contents of notice.--A notice required under 
        this paragraph shall--
                    ``(i) state that an application that 
                contains data from bioavailability or 
                bioequivalence studies has been submitted under 
                this subsection for the drug with respect to 
                which the certification is made to obtain 
                approval to engage in the commercial 
                manufacture, use, or sale of the drug before 
                the expiration of the patent referred to in the 
                certification; and
                    ``(ii) include a detailed statement of the 
                factual and legal basis of the opinion of the 
                applicant that the patent is invalid or will 
                not be infringed.''; and
                    (B)(i) by redesignating paragraph (4) as 
                paragraph (5); and
                    (ii) by inserting after paragraph (3) the 
                following paragraph:
    ``(4)(A) An applicant may not amend or supplement an 
application referred to in paragraph (2) to seek approval of a 
drug that is a different drug than the drug identified in the 
application as submitted to the Secretary.
    ``(B) With respect to the drug for which such an 
application is submitted, nothing in this subsection or 
subsection (c)(3) prohibits an applicant from amending or 
supplementing the application to seek approval of a different 
strength.''; and
            (2) in subsection (c)(3)--
                    (A) in the first sentence, by striking 
                ``under the following'' and inserting ``by 
                applying the following to each certification 
                made under subsection (b)(2)(A)'';
                    (B) in subparagraph (C)--
                            (i) in the first sentence, by 
                        striking ``unless'' and all that 
                        follows and inserting ``unless, before 
                        the expiration of 45 days after the 
                        date on which the notice described in 
                        subsection (b)(3) is received, an 
                        action is brought for infringement of 
                        the patent that is the subject of the 
                        certification and for which information 
                        was submitted to the Secretary under 
                        paragraph (2) or subsection (b)(1) 
                        before the date on which the 
                        application (excluding an amendment or 
                        supplement to the application) was 
                        submitted.'';
                            (ii) in the second sentence--
                                    (I) by striking ``paragraph 
                                (3)(B)'' and inserting 
                                ``subsection (b)(3)'';
                                    (II) by striking clause (i) 
                                and inserting the following:
                    ``(i) if before the expiration of such 
                period the district court decides that the 
                patent is invalid or not infringed (including 
                any substantive determination that there is no 
                cause of action for patent infringement or 
                invalidity), the approval shall be made 
                effective on--
                            ``(I) the date on which the court 
                        enters judgment reflecting the 
                        decision; or
                            ``(II) the date of a settlement 
                        order or consent decree signed and 
                        entered by the court stating that the 
                        patent that is the subject of the 
                        certification is invalid or not 
                        infringed;'';
                                    (III) by striking clause 
                                (ii) and inserting the 
                                following:
                    ``(ii) if before the expiration of such 
                period the district court decides that the 
                patent has been infringed--
                            ``(I) if the judgment of the 
                        district court is appealed, the 
                        approval shall be made effective on--
                                    ``(aa) the date on which 
                                the court of appeals decides 
                                that the patent is invalid or 
                                not infringed (including any 
                                substantive determination that 
                                there is no cause of action for 
                                patent infringement or 
                                invalidity); or
                                    ``(bb) the date of a 
                                settlement order or consent 
                                decree signed and entered by 
                                the court of appeals stating 
                                that the patent that is the 
                                subject of the certification is 
                                invalid or not infringed; or
                            ``(II) if the judgment of the 
                        district court is not appealed or is 
                        affirmed, the approval shall be made 
                        effective on the date specified by the 
                        district court in a court order under 
                        section 271(e)(4)(A) of title 35, 
                        United States Code;'';
                                    (IV) in clause (iii), by 
                                striking ``on the date of such 
                                court decision.'' and inserting 
                                ``as provided in clause (i); 
                                or'';
                                    (V) by inserting after 
                                clause (iii), the following:
                    ``(iv) if before the expiration of such 
                period the court grants a preliminary 
                injunction prohibiting the applicant from 
                engaging in the commercial manufacture or sale 
                of the drug until the court decides the issues 
                of patent validity and infringement and if the 
                court decides that such patent has been 
                infringed, the approval shall be made effective 
                as provided in clause (ii).''; and
                                    (VI) in the matter after 
                                and below clause (iv) (as added 
                                by subclause (V)), by striking 
                                ``Until the expiration'' and 
                                all that follows; and
                            (iii) in the third sentence, by 
                        striking ``paragraph (3)(B)'' and 
                        inserting ``subsection (b)(3)'';
                    (C) by redesignating subparagraph (D) as 
                subparagraph (E); and
                    (D) by inserting after subparagraph (C) the 
                following:
                    ``(D) Civil action to obtain patent 
                certainty.--
                            ``(i) Declaratory judgment absent 
                        infringement action.--
                                    ``(I) In general.--No 
                                action may be brought under 
                                section 2201 of title 28, 
                                United States Code, by an 
                                applicant referred to in 
                                subsection (b)(2) for a 
                                declaratory judgment with 
                                respect to a patent which is 
                                the subject of the 
                                certification referred to in 
                                subparagraph (C) unless--
                                            ``(aa) the forty-
                                        five day period 
                                        referred to in such 
                                        subparagraph has 
                                        expired;
                                            ``(bb) neither the 
                                        owner of such patent 
                                        nor the holder of the 
                                        approved application 
                                        under subsection (b) 
                                        for the drug that is 
                                        claimed by the patent 
                                        or a use of which is 
                                        claimed by the patent 
                                        brought a civil action 
                                        against the applicant 
                                        for infringement of the 
                                        patent before the 
                                        expiration of such 
                                        period; and
                                            ``(cc) in any case 
                                        in which the notice 
                                        provided under 
                                        paragraph (2)(B) 
                                        relates to 
                                        noninfringement, the 
                                        notice was accompanied 
                                        by a document described 
                                        in subclause (III).
                                    ``(II) Filing of civil 
                                action.--If the conditions 
                                described in items (aa), (bb), 
                                and as applicable, (cc) of 
                                subclause (I) have been met, 
                                the applicant referred to in 
                                such subclause may, in 
                                accordance with section 2201 of 
                                title 28, United States Code, 
                                bring a civil action under such 
                                section against the owner or 
                                holder referred to in such 
                                subclause (but not against any 
                                owner or holder that has 
                                brought such a civil action 
                                against the applicant, unless 
                                that civil action was dismissed 
                                without prejudice) for a 
                                declaratory judgment that the 
                                patent is invalid or will not 
                                be infringed by the drug for 
                                which the applicant seeks 
                                approval, except that such 
                                civil action may be brought for 
                                a declaratory judgment that the 
                                patent will not be infringed 
                                only in a case in which the 
                                condition described in 
                                subclause (I)(cc) is 
                                applicable. A civil action 
                                referred to in this subclause 
                                shall be brought in the 
                                judicial district where the 
                                defendant has its principal 
                                place of business or a regular 
                                and established place of 
                                business.
                                    ``(III) Offer of 
                                confidential access to 
                                application.--For purposes of 
                                subclause (I)(cc), the document 
                                described in this subclause is 
                                a document providing an offer 
                                of confidential access to the 
                                application that is in the 
                                custody of the applicant 
                                referred to in subsection 
                                (b)(2) for the purpose of 
                                determining whether an action 
                                referred to in subparagraph (C) 
                                should be brought. The document 
                                providing the offer of 
                                confidential access shall 
                                contain such restrictions as to 
                                persons entitled to access, and 
                                on the use and disposition of 
                                any information accessed, as 
                                would apply had a protective 
                                order been entered for the 
                                purpose of protecting trade 
                                secrets and other confidential 
                                business information. A request 
                                for access to an application 
                                under an offer of confidential 
                                access shall be considered 
                                acceptance of the offer of 
                                confidential access with the 
                                restrictions as to persons 
                                entitled to access, and on the 
                                use and disposition of any 
                                information accessed, contained 
                                in the offer of confidential 
                                access, and those restrictions 
                                and other terms of the offer of 
                                confidential access shall be 
                                considered terms of an 
                                enforceable contract. Any 
                                person provided an offer of 
                                confidential access shall 
                                review the application for the 
                                sole and limited purpose of 
                                evaluating possible 
                                infringement of the patent that 
                                is the subject of the 
                                certification under subsection 
                                (b)(2)(A)(iv) and for no other 
                                purpose, and may not disclose 
                                information of no relevance to 
                                any issue of patent 
                                infringement to any person 
                                other than a person provided an 
                                offer of confidential access. 
                                Further, the application may be 
                                redacted by the applicant to 
                                remove any information of no 
                                relevance to any issue of 
                                patent infringement.
                            ``(ii) Counterclaim to infringement 
                        action.--
                                    ``(I) In general.--If an 
                                owner of the patent or the 
                                holder of the approved 
                                application under subsection 
                                (b) for the drug that is 
                                claimed by the patent or a use 
                                of which is claimed by the 
                                patent brings a patent 
                                infringement action against the 
                                applicant, the applicant may 
                                assert a counterclaim seeking 
                                an order requiring the holder 
                                to correct or delete the patent 
                                information submitted by the 
                                holder under subsection (b) or 
                                this subsection on the ground 
                                that the patent does not claim 
                                either--
                                            ``(aa) the drug for 
                                        which the application 
                                        was approved; or
                                            ``(bb) an approved 
                                        method of using the 
                                        drug.
                                    ``(II) No independent cause 
                                of action.--Subclause (I) does 
                                not authorize the assertion of 
                                a claim described in subclause 
                                (I) in any civil action or 
                                proceeding other than a 
                                counterclaim described in 
                                subclause (I).
                            ``(iii) No damages.--An applicant 
                        shall not be entitled to damages in a 
                        civil action under clause (i) or a 
                        counterclaim under clause (ii).''.
    (c) Applicability.--
            (1) In general.--Except as provided in paragraphs 
        (2) and (3), the amendments made by subsections (a) and 
        (b), apply to any proceeding under section 505 of the 
        Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355) 
        that is pending on or after the date of the enactment 
        of this Act regardless of the date on which the 
        proceeding was commenced or is commenced.
            (2) Notice of opinion that patent is invalid or 
        will not be infringed.--The amendments made by 
        subsections (a)(1) and (b)(1) apply with respect to any 
        certification under subsection (b)(2)(A)(iv) or 
        (j)(2)(A)(vii)(IV) of section 505 of the Federal Food, 
        Drug, and Cosmetic Act (21 U.S.C. 355) submitted on or 
        after August 18, 2003, in an application filed under 
        subsection (b) or (j) of that section or in an 
        amendment or supplement to an application filed under 
        subsection (b) or (j) of that section.
            (3) Effective date of approval.--The amendments 
        made by subsections (a)(2)(A)(ii)(I) and (b)(2)(B)(i) 
        apply with respect to any patent information submitted 
        under subsection (b)(1) or (c)(2) of section 505 of the 
        Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355) on 
        or after August 18, 2003.
    (d) Infringement Actions.--Section 271(e) of title 35, 
United States Code, is amended by adding at the end the 
following:
    ``(5) Where a person has filed an application described in 
paragraph (2) that includes a certification under subsection 
(b)(2)(A)(iv) or (j)(2)(A)(vii)(IV) of section 505 of the 
Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355), and 
neither the owner of the patent that is the subject of the 
certification nor the holder of the approved application under 
subsection (b) of such section for the drug that is claimed by 
the patent or a use of which is claimed by the patent brought 
an action for infringement of such patent before the expiration 
of 45 days after the date on which the notice given under 
subsection (b)(3) or (j)(2)(B) of such section was received, 
the courts of the United States shall, to the extent consistent 
with the Constitution, have subject matter jurisdiction in any 
action brought by such person under section 2201 of title 28 
for a declaratory judgment that such patent is invalid or not 
infringed.''.

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

    (a) In General.--Section 505(j)(5) of the Federal Food, 
Drug, and Cosmetic Act (21 U.S.C. 355(j)(5)) (as amended by 
section 1101) is amended--
            (1) in subparagraph (B), by striking clause (iv) 
        and inserting the following:
            ``(iv) 180-day exclusivity period.--
                    ``(I) Effectiveness of application.--
                Subject to subparagraph (D), if the application 
                contains a certification described in paragraph 
                (2)(A)(vii)(IV) and is for a drug for which a 
                first applicant has submitted an application 
                containing such a certification, the 
                application shall be made effective on the date 
                that is 180 days after the date of the first 
                commercial marketing of the drug (including the 
                commercial marketing of the listed drug) by any 
                first applicant.
                    ``(II) Definitions.--In this paragraph:
                            ``(aa) 180-day exclusivity 
                        period.--The term `180-day exclusivity 
                        period' means the 180-day period ending 
                        on the day before the date on which an 
                        application submitted by an applicant 
                        other than a first applicant could 
                        become effective under this clause.
                            ``(bb) First applicant.--As used in 
                        this subsection, the term `first 
                        applicant' means an applicant that, on 
                        the first day on which a substantially 
                        complete application containing a 
                        certification described in paragraph 
                        (2)(A)(vii)(IV) is submitted for 
                        approval of a drug, submits a 
                        substantially complete application that 
                        contains and lawfully maintains a 
                        certification described in paragraph 
                        (2)(A)(vii)(IV) for the drug.
                            ``(cc) Substantially complete 
                        application.--As used in this 
                        subsection, the term `substantially 
                        complete application' means an 
                        application under this subsection that 
                        on its face is sufficiently complete to 
                        permit a substantive review and 
                        contains all the information required 
                        by paragraph (2)(A).
                            ``(dd) Tentative approval.--
                                    ``(AA) In general.--The 
                                term `tentative approval' means 
                                notification to an applicant by 
                                the Secretary that an 
                                application under this 
                                subsection meets the 
                                requirements of paragraph 
                                (2)(A), but cannot receive 
                                effective approval because the 
                                application does not meet the 
                                requirements of this 
                                subparagraph, there is a period 
                                of exclusivity for the listed 
                                drug under subparagraph (F) or 
                                section 505A, or there is a 7-
                                year period of exclusivity for 
                                the listed drug under section 
                                527.
                                    ``(BB) Limitation.--A drug 
                                that is granted tentative 
                                approval by the Secretary is 
                                not an approved drug and shall 
                                not have an effective approval 
                                until the Secretary issues an 
                                approval after any necessary 
                                additional review of the 
                                application.''; and
            (2) by inserting after subparagraph (C) the 
        following:
                    ``(D) Forfeiture of 180-day exclusivity 
                period.--
                            ``(i) Definition of forfeiture 
                        event.--In this subparagraph, the term 
                        `forfeiture event', with respect to an 
                        application under this subsection, 
                        means the occurrence of any of the 
                        following:
                                    ``(I) Failure to market.--
                                The first applicant fails to 
                                market the drug by the later 
                                of--
                                            ``(aa) the earlier 
                                        of the date that is--
                                                    ``(AA) 75 
                                                days after the 
                                                date on which 
                                                the approval of 
                                                the application 
                                                of the first 
                                                applicant is 
                                                made effective 
                                                under 
                                                subparagraph 
                                                (B)(iii); or
                                                    ``(BB) 30 
                                                months after 
                                                the date of 
                                                submission of 
                                                the application 
                                                of the first 
                                                applicant; or
                                            ``(bb) with respect 
                                        to the first applicant 
                                        or any other applicant 
                                        (which other applicant 
                                        has received tentative 
                                        approval), the date 
                                        that is 75 days after 
                                        the date as of which, 
                                        as to each of the 
                                        patents with respect to 
                                        which the first 
                                        applicant submitted and 
                                        lawfully maintained a 
                                        certification 
                                        qualifying the first 
                                        applicant for the 180-
                                        day exclusivity period 
                                        under subparagraph 
                                        (B)(iv), at least 1 of 
                                        the following has 
                                        occurred:
                                                    ``(AA) In 
                                                an infringement 
                                                action brought 
                                                against that 
                                                applicant with 
                                                respect to the 
                                                patent or in a 
                                                declaratory 
                                                judgment action 
                                                brought by that 
                                                applicant with 
                                                respect to the 
                                                patent, a court 
                                                enters a final 
                                                decision from 
                                                which no appeal 
                                                (other than a 
                                                petition to the 
                                                Supreme Court 
                                                for a writ of 
                                                certiorari) has 
                                                been or can be 
                                                taken that the 
                                                patent is 
                                                invalid or not 
                                                infringed.
                                                    ``(BB) In 
                                                an infringement 
                                                action or a 
                                                declaratory 
                                                judgment action 
                                                described in 
                                                subitem (AA), a 
                                                court signs a 
                                                settlement 
                                                order or 
                                                consent decree 
                                                that enters a 
                                                final judgment 
                                                that includes a 
                                                finding that 
                                                the patent is 
                                                invalid or not 
                                                infringed.
                                                    ``(CC) The 
                                                patent 
                                                information 
                                                submitted under 
                                                subsection (b) 
                                                or (c) is 
                                                withdrawn by 
                                                the holder of 
                                                the application 
                                                approved under 
                                                subsection (b).
                                    ``(II) Withdrawal of 
                                application.--The first 
                                applicant withdraws the 
                                application or the Secretary 
                                considers the application to 
                                have been withdrawn as a result 
                                of a determination by the 
                                Secretary that the application 
                                does not meet the requirements 
                                for approval under paragraph 
                                (4).
                                    ``(III) Amendment of 
                                certification.--The first 
                                applicant amends or withdraws 
                                the certification for all of 
                                the patents with respect to 
                                which that applicant submitted 
                                a certification qualifying the 
                                applicant for the 180-day 
                                exclusivity period.
                                    ``(IV) Failure to obtain 
                                tentative approval.--The first 
                                applicant fails to obtain 
                                tentative approval of the 
                                application within 30 months 
                                after the date on which the 
                                application is filed, unless 
                                the failure is caused by a 
                                change in or a review of the 
                                requirements for approval of 
                                the application imposed after 
                                the date on which the 
                                application is filed.
                                    ``(V) Agreement with 
                                another applicant, the listed 
                                drug application holder, or a 
                                patent owner.--The first 
                                applicant enters into an 
                                agreement with another 
                                applicant under this subsection 
                                for the drug, the holder of the 
                                application for the listed 
                                drug, or an owner of the patent 
                                that is the subject of the 
                                certification under paragraph 
                                (2)(A)(vii)(IV), the Federal 
                                Trade Commission or the 
                                Attorney General files a 
                                complaint, and there is a final 
                                decision of the Federal Trade 
                                Commission or the court with 
                                regard to the complaint from 
                                which no appeal (other than a 
                                petition to the Supreme Court 
                                for a writ of certiorari) has 
                                been or can be taken that the 
                                agreement has violated the 
                                antitrust laws (as defined in 
                                section 1 of the Clayton Act 
                                (15 U.S.C. 12), except that the 
                                term includes section 5 of the 
                                Federal Trade Commission Act 
                                (15 U.S.C. 45) to the extent 
                                that that section applies to 
                                unfair methods of competition).
                                    ``(VI) Expiration of all 
                                patents.--All of the patents as 
                                to which the applicant 
                                submitted a certification 
                                qualifying it for the 180-day 
                                exclusivity period have 
                                expired.
                            ``(ii) Forfeiture.--The 180-day 
                        exclusivity period described in 
                        subparagraph (B)(iv) shall be forfeited 
                        by a first applicant if a forfeiture 
                        event occurs with respect to that first 
                        applicant.
                            ``(iii) Subsequent applicant.--If 
                        all first applicants forfeit the 180-
                        day exclusivity period under clause 
                        (ii)--
                                    ``(I) approval of any 
                                application containing a 
                                certification described in 
                                paragraph (2)(A)(vii)(IV) shall 
                                be made effective in accordance 
                                with subparagraph (B)(iii); and
                                    ``(II) no applicant shall 
                                be eligible for a 180-day 
                                exclusivity period.''.
    (b) Effective Date.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendment made by subsection (a) shall be 
        effective only with respect to an application filed 
        under section 505(j) of the Federal Food, Drug, and 
        Cosmetic Act (21 U.S.C. 355(j)) after the date of the 
        enactment of this Act for a listed drug for which no 
        certification under section 505(j)(2)(A)(vii)(IV) of 
        that Act was made before the date of the enactment of 
        this Act.
            (2) Collusive agreements.--If a forfeiture event 
        described in section 505(j)(5)(D)(i)(V) of that Act 
        occurs in the case of an applicant, the applicant shall 
        forfeit the 180-day period under section 
        505(j)(5)(B)(iv) of that Act without regard to when the 
        first certification under section 505(j)(2)(A)(vii)(IV) 
        of that Act for the listed drug was made.
            (3) Decision of a court when the 180-day 
        exclusivity period has not been triggered.--With 
        respect to an application filed before, on, or after 
        the date of the enactment of this Act for a listed drug 
        for which a certification under section 
        505(j)(2)(A)(vii)(IV) of that Act was made before the 
        date of the enactment of this Act and for which neither 
        of the events described in subclause (I) or (II) of 
        section 505(j)(5)(B)(iv) of that Act (as in effect on 
        the day before the date of the enactment of this Act) 
        has occurred on or before the date of the enactment of 
        this Act, the term ``decision of a court'' as used in 
        clause (iv) of section 505(j)(5)(B) of that Act means a 
        final decision of a court from which no appeal (other 
        than a petition to the Supreme Court for a writ of 
        certiorari) has been or can be taken.

SEC. 1103. BIOAVAILABILITY AND BIOEQUIVALENCE.

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

SEC. 1104. CONFORMING AMENDMENTS.

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

              Subtitle B--Federal Trade Commission Review

SEC. 1111. DEFINITIONS.

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

SEC. 1112. NOTIFICATION OF AGREEMENTS.

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

SEC. 1113. FILING DEADLINES.

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

SEC. 1114. DISCLOSURE EXEMPTION.

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

SEC. 1115. ENFORCEMENT.

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

SEC. 1116. RULEMAKING.

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

SEC. 1117. SAVINGS CLAUSE.

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

SEC. 1118. EFFECTIVE DATE.

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

             Subtitle C--Importation of Prescription Drugs

SEC. 1121. IMPORTATION OF PRESCRIPTION DRUGS.

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

``SEC. 804. IMPORTATION OF PRESCRIPTION DRUGS.

    ``(a) Definitions.--In this section:
            ``(1) Importer.--The term `importer' means a 
        pharmacist or wholesaler.
            ``(2) Pharmacist.--The term `pharmacist' means a 
        person licensed by a State to practice pharmacy, 
        including the dispensing and selling of prescription 
        drugs.
            ``(3) Prescription drug.--The term `prescription 
        drug' means a drug subject to section 503(b), other 
        than--
                    ``(A) a controlled substance (as defined in 
                section 102 of the Controlled Substances Act 
                (21 U.S.C. 802));
                    ``(B) a biological product (as defined in 
                section 351 of the Public Health Service Act 
                (42 U.S.C. 262));
                    ``(C) an infused drug (including a 
                peritoneal dialysis solution);
                    ``(D) an intravenously injected drug;
                    ``(E) a drug that is inhaled during 
                surgery; or
                    ``(F) a drug which is a parenteral drug, 
                the importation of which pursuant to subsection 
                (b) is determined by the Secretary to pose a 
                threat to the public health, in which case 
                section 801(d)(1) shall continue to apply.
            ``(4) Qualifying laboratory.--The term `qualifying 
        laboratory' means a laboratory in the United States 
        that has been approved by the Secretary for the 
        purposes of this section.
            ``(5) Wholesaler.--
                    ``(A) In general.--The term `wholesaler' 
                means a person licensed as a wholesaler or 
                distributor of prescription drugs in the United 
                States under section 503(e)(2)(A).
                    ``(B) Exclusion.--The term `wholesaler' 
                does not include a person authorized to import 
                drugs under section 801(d)(1).
    ``(b) Regulations.--The Secretary, after consultation with 
the United States Trade Representative and the Commissioner of 
Customs, shall promulgate regulations permitting pharmacists 
and wholesalers to import prescription drugs from Canada into 
the United States.
    ``(c) Limitation.--The regulations under subsection (b) 
shall--
            ``(1) require that safeguards be in place to ensure 
        that each prescription drug imported under the 
        regulations complies with section 505 (including with 
        respect to being safe and effective for the intended 
        use of the prescription drug), with sections 501 and 
        502, and with other applicable requirements of this 
        Act;
            ``(2) require that an importer of a prescription 
        drug under the regulations comply with subsections 
        (d)(1) and (e); and
            ``(3) contain any additional provisions determined 
        by the Secretary to be appropriate as a safeguard to 
        protect the public health or as a means to facilitate 
        the importation of prescription drugs.
    ``(d) Information and Records.--
            ``(1) In general.--The regulations under subsection 
        (b) shall require an importer of a prescription drug 
        under subsection (b) to submit to the Secretary the 
        following information and documentation:
                    ``(A) The name and quantity of the active 
                ingredient of the prescription drug.
                    ``(B) A description of the dosage form of 
                the prescription drug.
                    ``(C) The date on which the prescription 
                drug is shipped.
                    ``(D) The quantity of the prescription drug 
                that is shipped.
                    ``(E) The point of origin and destination 
                of the prescription drug.
                    ``(F) The price paid by the importer for 
                the prescription drug.
                    ``(G) Documentation from the foreign seller 
                specifying--
                            ``(i) the original source of the 
                        prescription drug; and
                            ``(ii) the quantity of each lot of 
                        the prescription drug originally 
                        received by the seller from that 
                        source.
                    ``(H) The lot or control number assigned to 
                the prescription drug by the manufacturer of 
                the prescription drug.
                    ``(I) The name, address, telephone number, 
                and professional license number (if any) of the 
                importer.
                    ``(J)(i) In the case of a prescription drug 
                that is shipped directly from the first foreign 
                recipient of the prescription drug from the 
                manufacturer:
                            ``(I) Documentation demonstrating 
                        that the prescription drug was received 
                        by the recipient from the manufacturer 
                        and subsequently shipped by the first 
                        foreign recipient to the importer.
                            ``(II) Documentation of the 
                        quantity of each lot of the 
                        prescription drug received by the first 
                        foreign recipient demonstrating that 
                        the quantity being imported into the 
                        United States is not more than the 
                        quantity that was received by the first 
                        foreign recipient.
                            ``(III)(aa) In the case of an 
                        initial imported shipment, 
                        documentation demonstrating that each 
                        batch of the prescription drug in the 
                        shipment was statistically sampled and 
                        tested for authenticity and 
                        degradation.
                            ``(bb) In the case of any 
                        subsequent shipment, documentation 
                        demonstrating that a statistically 
                        valid sample of the shipment was tested 
                        for authenticity and degradation.
                    ``(ii) In the case of a prescription drug 
                that is not shipped directly from the first 
                foreign recipient of the prescription drug from 
                the manufacturer, documentation demonstrating 
                that each batch in each shipment offered for 
                importation into the United States was 
                statistically sampled and tested for 
                authenticity and degradation.
                    ``(K) Certification from the importer or 
                manufacturer of the prescription drug that the 
                prescription drug--
                            ``(i) is approved for marketing in 
                        the United States and is not 
                        adulterated or misbranded; and
                            ``(ii) meets all labeling 
                        requirements under this Act.
                    ``(L) Laboratory records, including 
                complete data derived from all tests necessary 
                to ensure that the prescription drug is in 
                compliance with established specifications and 
                standards.
                    ``(M) Documentation demonstrating that the 
                testing required by subparagraphs (J) and (L) 
                was conducted at a qualifying laboratory.
                    ``(N) Any other information that the 
                Secretary determines is necessary to ensure the 
                protection of the public health.
            ``(2) Maintenance by the secretary.--The Secretary 
        shall maintain information and documentation submitted 
        under paragraph (1) for such period of time as the 
        Secretary determines to be necessary.
    ``(e) Testing.--The regulations under subsection (b) shall 
require--
            ``(1) that testing described in subparagraphs (J) 
        and (L) of subsection (d)(1) be conducted by the 
        importer or by the manufacturer of the prescription 
        drug at a qualified laboratory;
            ``(2) if the tests are conducted by the importer--
                    ``(A) that information needed to--
                            ``(i) authenticate the prescription 
                        drug being tested; and
                            ``(ii) confirm that the labeling of 
                        the prescription drug complies with 
                        labeling requirements under this Act;
                be supplied by the manufacturer of the 
                prescription drug to the pharmacist or 
                wholesaler; and
                    ``(B) that the information supplied under 
                subparagraph (A) be kept in strict confidence 
                and used only for purposes of testing or 
                otherwise complying with this Act; and
            ``(3) may include such additional provisions as the 
        Secretary determines to be appropriate to provide for 
        the protection of trade secrets and commercial or 
        financial information that is privileged or 
        confidential.
    ``(f) Registration of Foreign Sellers.--Any establishment 
within Canada engaged in the distribution of a prescription 
drug that is imported or offered for importation into the 
United States shall register with the Secretary the name and 
place of business of the establishment and the name of the 
United States agent for the establishment.
    ``(g) Suspension of Importation.--The Secretary shall 
require that importations of a specific prescription drug or 
importations by a specific importer under subsection (b) be 
immediately suspended on discovery of a pattern of importation 
of that specific prescription drug or by that specific importer 
of drugs that are counterfeit or in violation of any 
requirement under this section, until an investigation is 
completed and the Secretary determines that the public is 
adequately protected from counterfeit and violative 
prescription drugs being imported under subsection (b).
    ``(h) Approved Labeling.--The manufacturer of a 
prescription drug shall provide an importer written 
authorization for the importer to use, at no cost, the approved 
labeling for the prescription drug.
    ``(i) Charitable Contributions.--Notwithstanding any other 
provision of this section, section 801(d)(1) continues to apply 
to a prescription drug that is donated or otherwise supplied at 
no charge by the manufacturer of the drug to a charitable or 
humanitarian organization (including the United Nations and 
affiliates) or to a government of a foreign country.
    ``(j) Waiver Authority for Importation by Individuals.--
            ``(1) Declarations.--Congress declares that in the 
        enforcement against individuals of the prohibition of 
        importation of prescription drugs and devices, the 
        Secretary should--
                    ``(A) focus enforcement on cases in which 
                the importation by an individual poses a 
                significant threat to public health; and
                    ``(B) exercise discretion to permit 
                individuals to make such importations in 
                circumstances in which--
                            ``(i) the importation is clearly 
                        for personal use; and
                            ``(ii) the prescription drug or 
                        device imported does not appear to 
                        present an unreasonable risk to the 
                        individual.
            ``(2) Waiver authority.--
                    ``(A) In general.--The Secretary may grant 
                to individuals, by regulation or on a case-by-
                case basis, a waiver of the prohibition of 
                importation of a prescription drug or device or 
                class of prescription drugs or devices, under 
                such conditions as the Secretary determines to 
                be appropriate.
                    ``(B) Guidance on case-by-case waivers.--
                The Secretary shall publish, and update as 
                necessary, guidance that accurately describes 
                circumstances in which the Secretary will 
                consistently grant waivers on a case-by-case 
                basis under subparagraph (A), so that 
                individuals may know with the greatest 
                practicable degree of certainty whether a 
                particular importation for personal use will be 
                permitted.
            ``(3) Drugs imported from canada.--In particular, 
        the Secretary shall by regulation grant individuals a 
        waiver to permit individuals to import into the United 
        States a prescription drug that--
                    ``(A) is imported from a licensed pharmacy 
                for personal use by an individual, not for 
                resale, in quantities that do not exceed a 90-
                day supply;
                    ``(B) is accompanied by a copy of a valid 
                prescription;
                    ``(C) is imported from Canada, from a 
                seller registered with the Secretary;
                    ``(D) is a prescription drug approved by 
                the Secretary under chapter V;
                    ``(E) is in the form of a final finished 
                dosage that was manufactured in an 
                establishment registered under section 510; and
                    ``(F) is imported under such other 
                conditions as the Secretary determines to be 
                necessary to ensure public safety.
    ``(k) Construction.--Nothing in this section limits the 
authority of the Secretary relating to the importation of 
prescription drugs, other than with respect to section 
801(d)(1) as provided in this section.
    ``(l) Effectiveness of Section.--
            ``(1) Commencement of program.--This section shall 
        become effective only if the Secretary certifies to the 
        Congress that the implementation of this section will--
                    (A) pose no additional risk to the public's 
                health and safety; and
                    (B) result in a significant reduction in 
                the cost of covered products to the American 
                consumer.
            ``(2) Termination of program.--
                    ``(A) In general.--If, after the date that 
                is 1 year after the effective date of the 
                regulations under subsection (b) and before the 
                date that is 18 months after the effective 
                date, the Secretary submits to Congress a 
                certification that, in the opinion of the 
                Secretary, based on substantial evidence 
                obtained after the effective date, the benefits 
                of implementation of this section do not 
                outweigh any detriment of implementation of 
                this section, this section shall cease to be 
                effective as of the date that is 30 days after 
                the date on which the Secretary submits the 
                certification.
                    ``(B) Procedure.--The Secretary shall not 
                submit a certification under subparagraph (A) 
                unless, after a hearing on the record under 
                sections 556 and 557 of title 5, United States 
                Code, the Secretary--
                            ``(i)(I) determines that it is more 
                        likely than not that implementation of 
                        this section would result in an 
                        increase in the risk to the public 
                        health and safety;
                            ``(II) identifies specifically, in 
                        qualitative and quantitative terms, the 
                        nature of the increased risk;
                            ``(III) identifies specifically the 
                        causes of the increased risk; and
                            ``(IV)(aa) considers whether any 
                        measures can be taken to avoid, reduce, 
                        or mitigate the increased risk; and
                            ``(bb) if the Secretary determines 
                        that any measures described in item 
                        (aa) would require additional statutory 
                        authority, submits to Congress a report 
                        describing the legislation that would 
                        be required;
                            ``(ii) identifies specifically, in 
                        qualitative and quantitative terms, the 
                        benefits that would result from 
                        implementation of this section 
                        (including the benefit of reductions in 
                        the cost of covered products to 
                        consumers in the United States, 
                        allowing consumers to procure needed 
                        medication that consumers might not 
                        otherwise be able to procure without 
                        foregoing other necessities of life); 
                        and
                            ``(iii)(I) compares in specific 
                        terms the detriment identified under 
                        clause (i) with the benefits identified 
                        under clause (ii); and
                            ``(II) determines that the benefits 
                        do not outweigh the detriment.
    ``(m) Authorization of Appropriations.--There are 
authorized to be appropriated such sums as are necessary to 
carry out this section.''.
    (b) Conforming Amendments.--The Federal Food, Drug, and 
Cosmetic Act is amended--
            (1) in section 301(aa) (21 U.S.C. 331(aa)), by 
        striking ``covered product in violation of section 
        804'' and inserting ``prescription drug in violation of 
        section 804''; and
            (2) in section 303(a)(6) (21 U.S.C. 333(a)(6), by 
        striking ``covered product pursuant to section 804(a)'' 
        and inserting ``prescription drug under section 
        804(b)''.

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

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

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

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

      TITLE XII--TAX INCENTIVES FOR HEALTH AND RETIREMENT SECURITY

SEC. 1201. HEALTH SAVINGS ACCOUNTS.

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

``SEC. 223. HEALTH SAVINGS ACCOUNTS.

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

``For taxable years                                       The additional
beginning in:                                    contribution amount is:
    2004......................................................     $500 
    2005......................................................     $600 
    2006......................................................     $700 
    2007......................................................     $800 
    2008......................................................     $900 
    2009 and thereafter.......................................   $1,000.

            ``(4) Coordination with other contributions.--The 
        limitation which would (but for this paragraph) apply 
        under this subsection to an individual for any taxable 
        year shall be reduced (but not below zero) by the sum 
        of--
                    ``(A) the aggregate amount paid for such 
                taxable year to Archer MSAs of such individual, 
                and
                    ``(B) the aggregate amount contributed to 
                health savings accounts of such individual 
                which is excludable from the taxpayer's gross 
                income for such taxable year under section 
                106(d) (and such amount shall not be allowed as 
                a deduction under subsection (a)).
        Subparagraph (A) shall not apply with respect to any 
        individual to whom paragraph (5) applies.
            ``(5) Special rule for married individuals.--In the 
        case of individuals who are married to each other, if 
        either spouse has family coverage--
                    ``(A) both spouses shall be treated as 
                having only such family coverage (and if such 
                spouses each have family coverage under 
                different plans, as having the family coverage 
                with the lowest annual deductible), and
                    ``(B) the limitation under paragraph (1) 
                (after the application of subparagraph (A) and 
                without regard to any additional contribution 
                amount under paragraph (3))--
                            ``(i) shall be reduced by the 
                        aggregate amount paid to Archer MSAs of 
                        such spouses for the taxable year, and
                            ``(ii) after such reduction, shall 
                        be divided equally between them unless 
                        they agree on a different division.
            ``(6) Denial of deduction to dependents.--No 
        deduction shall be allowed under this section to any 
        individual with respect to whom a deduction under 
        section 151 is allowable to another taxpayer for a 
        taxable year beginning in the calendar year in which 
        such individual's taxable year begins.
            ``(7) Medicare eligible individuals.--The 
        limitation under this subsection for any month with 
        respect to an individual shall be zero for the first 
        month such individual is entitled to benefits under 
        title XVIII of the Social Security Act and for each 
        month thereafter.
    ``(c) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Eligible individual.--
                    ``(A) In general.--The term `eligible 
                individual' means, with respect to any month, 
                any individual if--
                            ``(i) such individual is covered 
                        under a high deductible health plan as 
                        of the 1st day of such month, and
                            ``(ii) such individual is not, 
                        while covered under a high deductible 
                        health plan, covered under any health 
                        plan--
                                    ``(I) which is not a high 
                                deductible health plan, and
                                    ``(II) which provides 
                                coverage for any benefit which 
                                is covered under the high 
                                deductible health plan.
                    ``(B) Certain coverage disregarded.--
                Subparagraph (A)(ii) shall be applied without 
                regard to--
                            ``(i) coverage for any benefit 
                        provided by permitted insurance, and
                            ``(ii) coverage (whether through 
                        insurance or otherwise) for accidents, 
                        disability, dental care, vision care, 
                        or long-term care.
            ``(2) High deductible health plan.--
                    ``(A) In general.--The term `high 
                deductible health plan' means a health plan--
                            ``(i) which has an annual 
                        deductible which is not less than--
                                    ``(I) $1,000 for self-only 
                                coverage, and
                                    ``(II) twice the dollar 
                                amount in subclause (I) for 
                                family coverage, and
                            ``(ii) the sum of the annual 
                        deductible and the other annual out-of-
                        pocket expenses required to be paid 
                        under the plan (other than for 
                        premiums) for covered benefits does not 
                        exceed--
                                    ``(I) $5,000 for self-only 
                                coverage, and
                                    ``(II) twice the dollar 
                                amount in subclause (I) for 
                                family coverage.
                    ``(B) Exclusion of certain plans.--Such 
                term does not include a health plan if 
                substantially all of its coverage is coverage 
                described in paragraph (1)(B).
                    ``(C) Safe harbor for absence of preventive 
                care deductible.--A plan shall not fail to be 
                treated as a high deductible health plan by 
                reason of failing to have a deductible for 
                preventive care (within the meaning of section 
                1871 of the Social Security Act, except as 
                otherwise provided by the Secretary).
                    ``(D) Special rules for network plans.--In 
                the case of a plan using a network of 
                providers--
                            ``(i) Annual out-of-pocket 
                        limitation.--Such plan shall not fail 
                        to be treated as a high deductible 
                        health plan by reason of having an out-
                        of-pocket limitation for services 
                        provided outside of such network which 
                        exceeds the applicable limitation under 
                        subparagraph (A)(ii).
                            ``(ii) Annual deductible.--Such 
                        plan's annual deductible for services 
                        provided outside of such network shall 
                        not be taken into account for purposes 
                        of subsection (b)(2).
            ``(3) Permitted insurance.--The term `permitted 
        insurance' means--
                    ``(A) insurance if substantially all of the 
                coverage provided under such insurance relates 
                to--
                            ``(i) liabilities incurred under 
                        workers' compensation laws,
                            ``(ii) tort liabilities,
                            ``(iii) liabilities relating to 
                        ownership or use of property, or
                            ``(iv) such other similar 
                        liabilities as the Secretary may 
                        specify by regulations,
                    ``(B) insurance for a specified disease or 
                illness, and
                    ``(C) insurance paying a fixed amount per 
                day (or other period) of hospitalization.
            ``(4) Family coverage.--The term `family coverage' 
        means any coverage other than self-only coverage.
            ``(5) Archer msa.--The term `Archer MSA' has the 
        meaning given such term in section 220(d).
    ``(d) Health Savings Account.--For purposes of this 
section--
            ``(1) In general.--The term `health savings 
        account' means a trust created or organized in the 
        United States as a health savings account exclusively 
        for the purpose of paying the qualified medical 
        expenses of the account beneficiary, but only if the 
        written governing instrument creating the trust meets 
        the following requirements:
                    ``(A) Except in the case of a rollover 
                contribution described in subsection (f)(5) or 
                section 220(f)(5), no contribution will be 
                accepted--
                            ``(i) unless it is in cash, or
                            ``(ii) to the extent such 
                        contribution, when added to previous 
                        contributions to the trust for the 
                        calendar year, exceeds the sum of--
                                    ``(I) the dollar amount in 
                                effect under subsection 
                                (b)(2)(B)(ii), and
                                    ``(II) the dollar amount in 
                                effect under subsection 
                                (b)(3)(B).
                    ``(B) The trustee is a bank (as defined in 
                section 408(n)), an insurance company (as 
                defined in section 816), or another person who 
                demonstrates to the satisfaction of the 
                Secretary that the manner in which such person 
                will administer the trust will be consistent 
                with the requirements of this section.
                    ``(C) No part of the trust assets will be 
                invested in life insurance contracts.
                    ``(D) The assets of the trust will not be 
                commingled with other property except in a 
                common trust fund or common investment fund.
                    ``(E) The interest of an individual in the 
                balance in his account is nonforfeitable.
            ``(2) Qualified medical expenses.--
                    ``(A) In general.--The term `qualified 
                medical expenses' means, with respect to an 
                account beneficiary, amounts paid by such 
                beneficiary for medical care (as defined in 
                section 213(d) for such individual, the spouse 
                of such individual, and any dependent (as 
                defined in section 152) of such individual, but 
                only to the extent such amounts are not 
                compensated for by insurance or otherwise.
                    ``(B) Health insurance may not be purchased 
                from account.--Subparagraph (A) shall not apply 
                to any payment for insurance.
                    ``(C) Exceptions.--Subparagraph (B) shall 
                not apply to any expense for coverage under--
                            ``(i) a health plan during any 
                        period of continuation coverage 
                        required under any Federal law,
                            ``(ii) a qualified long-term care 
                        insurance contract (as defined in 
                        section 7702B(b)),
                            ``(iii) a health plan during a 
                        period in which the individual is 
                        receiving unemployment compensation 
                        under any Federal or State law, or
                            ``(iv) in the case of an account 
                        beneficiary who has attained the age 
                        specified in section 1811 of the Social 
                        Security Act, any health insurance 
                        other than a medicare supplemental 
                        policy (as defined in section 1882 of 
                        the Social Security Act).
            ``(3) Account beneficiary.--The term `account 
        beneficiary' means the individual on whose behalf the 
        health savings account was established.
            ``(4) Certain rules to apply.--Rules similar to the 
        following rules shall apply for purposes of this 
        section:
                    ``(A) Section 219(d)(2) (relating to no 
                deduction for rollovers).
                    ``(B) Section 219(f)(3) (relating to time 
                when contributions deemed made).
                    ``(C) Except as provided in section 106(d), 
                section 219(f)(5) (relating to employer 
                payments).
                    ``(D) Section 408(g) (relating to community 
                property laws).
                    ``(E) Section 408(h) (relating to custodial 
                accounts).
    ``(e) Tax Treatment of Accounts.--
            ``(1) In general.--A health savings account is 
        exempt from taxation under this subtitle unless such 
        account has ceased to be a health savings account. 
        Notwithstanding the preceding sentence, any such 
        account is subject to the taxes imposed by section 511 
        (relating to imposition of tax on unrelated business 
        income of charitable, etc. organizations).
            ``(2) Account terminations.--Rules similar to the 
        rules of paragraphs (2) and (4) of section 408(e) shall 
        apply to health savings accounts, and any amount 
        treated as distributed under such rules shall be 
        treated as not used to pay qualified medical expenses.
    ``(f) Tax Treatment of Distributions.--
            ``(1) Amounts used for qualified medical 
        expenses.--Any amount paid or distributed out of a 
        health savings account which is used exclusively to pay 
        qualified medical expenses of any account beneficiary 
        shall not be includible in gross income.
            ``(2) Inclusion of amounts not used for qualified 
        medical expenses.--Any amount paid or distributed out 
        of a health savings account which is not used 
        exclusively to pay the qualified medical expenses of 
        the account beneficiary shall be included in the gross 
        income of such beneficiary.
            ``(3) Excess contributions returned before due date 
        of return.--
                    ``(A) In general.--If any excess 
                contribution is contributed for a taxable year 
                to any health savings account of an individual, 
                paragraph (2) shall not apply to distributions 
                from the health savings accounts of such 
                individual (to the extent such distributions do 
                not exceed the aggregate excess contributions 
                to all such accounts of such individual for 
                such year) if--
                            ``(i) such distribution is received 
                        by the individual on or before the last 
                        day prescribed by law (including 
                        extensions of time) for filing such 
                        individual's return for such taxable 
                        year, and
                            ``(ii) such distribution is 
                        accompanied by the amount of net income 
                        attributable to such excess 
                        contribution.
                Any net income described in clause (ii) shall 
                be included in the gross income of the 
                individual for the taxable year in which it is 
                received.
                    ``(B) Excess contribution.--For purposes of 
                subparagraph (A), the term `excess 
                contribution' means any contribution (other 
                than a rollover contribution described in 
                paragraph (5) or section 220(f)(5)) which is 
                neither excludable from gross income under 
                section 106(d) nor deductible under this 
                section.
            ``(4) Additional tax on distributions not used for 
        qualified medical expenses.--
                    ``(A) In general.--The tax imposed by this 
                chapter on the account beneficiary for any 
                taxable year in which there is a payment or 
                distribution from a health savings account of 
                such beneficiary which is includible in gross 
                income under paragraph (2) shall be increased 
                by 10 percent of the amount which is so 
                includible.
                    ``(B) Exception for disability or death.--
                Subparagraph (A) shall not apply if the payment 
                or distribution is made after the account 
                beneficiary becomes disabled within the meaning 
                of section 72(m)(7) or dies.
                    ``(C) Exception for distributions after 
                medicare eligibility.--Subparagraph (A) shall 
                not apply to any payment or distribution after 
                the date on which the account beneficiary 
                attains the age specified in section 1811 of 
                the Social Security Act.
            ``(5) Rollover contribution.--An amount is 
        described in this paragraph as a rollover contribution 
        if it meets the requirements of subparagraphs (A) and 
        (B).
                    ``(A) In general.--Paragraph (2) shall not 
                apply to any amount paid or distributed from a 
                health savings account to the account 
                beneficiary to the extent the amount received 
                is paid into a health savings account for the 
                benefit of such beneficiary not later than the 
                60th day after the day on which the beneficiary 
                receives the payment or distribution.
                    ``(B) Limitation.--This paragraph shall not 
                apply to any amount described in subparagraph 
                (A) received by an individual from a health 
                savings account if, at any time during the 1-
                year period ending on the day of such receipt, 
                such individual received any other amount 
                described in subparagraph (A) from a health 
                savings account which was not includible in the 
                individual's gross income because of the 
                application of this paragraph.
            ``(6) Coordination with medical expense 
        deduction.--For purposes of determining the amount of 
        the deduction under section 213, any payment or 
        distribution out of a health savings account for 
        qualified medical expenses shall not be treated as an 
        expense paid for medical care.
            ``(7) Transfer of account incident to divorce.--The 
        transfer of an individual's interest in a health 
        savings account to an individual's spouse or former 
        spouse under a divorce or separation instrument 
        described in subparagraph (A) of section 71(b)(2) shall 
        not be considered a taxable transfer made by such 
        individual notwithstanding any other provision of this 
        subtitle, and such interest shall, after such transfer, 
        be treated as a health savings account with respect to 
        which such spouse is the account beneficiary.
            ``(8) Treatment after death of account 
        beneficiary.--
                    ``(A) Treatment if designated beneficiary 
                is spouse.--If the account beneficiary's 
                surviving spouse acquires such beneficiary's 
                interest in a health savings account by reason 
                of being the designated beneficiary of such 
                account at the death of the account 
                beneficiary, such health savings account shall 
                be treated as if the spouse were the account 
                beneficiary.
                    ``(B) Other cases.--
                            ``(i) In general.-- If, by reason 
                        of the death of the account 
                        beneficiary, any person acquires the 
                        account beneficiary's interest in a 
                        health savings account in a case to 
                        which subparagraph (A) does not apply--
                                    ``(I) such account shall 
                                cease to be a health savings 
                                account as of the date of 
                                death, and
                                    ``(II) an amount equal to 
                                the fair market value of the 
                                assets in such account on such 
                                date shall be includible if 
                                such person is not the estate 
                                of such beneficiary, in such 
                                person's gross income for the 
                                taxable year which includes 
                                such date, or if such person is 
                                the estate of such beneficiary, 
                                in such beneficiary's gross 
                                income for the last taxable 
                                year of such beneficiary.
                            ``(ii) Special rules.--
                                    ``(I) Reduction of 
                                inclusion for predeath 
                                expenses.--The amount 
                                includible in gross income 
                                under clause (i) by any person 
                                (other than the estate) shall 
                                be reduced by the amount of 
                                qualified medical expenses 
                                which were incurred by the 
                                decedent before the date of the 
                                decedent's death and paid by 
                                such person within 1 year after 
                                such date.
                                    ``(II) Deduction for estate 
                                taxes.-- An appropriate 
                                deduction shall be allowed 
                                under section 691(c) to any 
                                person (other than the decedent 
                                or the decedent's spouse) with 
                                respect to amounts included in 
                                gross income under clause (i) 
                                by such person.
    ``(g) Cost-of-Living Adjustment.--
            ``(1) In general.--Each dollar amount in 
        subsections (b)(2) and (c)(2)(A) shall be increased by 
        an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment 
                determined under section 1(f)(3) for the 
                calendar year in which such taxable year begins 
                determined by substituting for `calendar year 
                1992' in subparagraph (B) thereof--
                            ``(i) except as provided in clause 
                        (ii), `calendar year 1997', and
                            ``(ii) in the case of each dollar 
                        amount in subsection (c)(2)(A), 
                        `calendar year 2003'.
            ``(2) Rounding.--If any increase under paragraph 
        (1) is not a multiple of $50, such increase shall be 
        rounded to the nearest multiple of $50.
    ``(h) Reports.--The Secretary may require--
            ``(1) the trustee of a health savings account to 
        make such reports regarding such account to the 
        Secretary and to the account beneficiary with respect 
        to contributions, distributions, the return of excess 
        contributions, and such other matters as the Secretary 
        determines appropriate, and
            ``(2) any person who provides an individual with a 
        high deductible health plan to make such reports to the 
        Secretary and to the account beneficiary with respect 
        to such plan as the Secretary determines appropriate.
The reports required by this subsection shall be filed at such 
time and in such manner and furnished to such individuals at 
such time and in such manner as may be required by the 
Secretary.''.
    (b) Deduction Allowed Whether or Not Individual Itemizes 
Other Deductions.--Subsection (a) of section 62 of such Code is 
amended by inserting after paragraph (18) the following new 
paragraph:
            ``(19) Health savings accounts.--The deduction 
        allowed by section 223.''.
    (c) Rollovers From Archer MSAs Permitted.--Subparagraph (A) 
of section 220(f)(5) of such Code (relating to rollover 
contribution) is amended by inserting ``or a health savings 
account (as defined in section 223(d))'' after ``paid into an 
Archer MSA''.
    (d) Exclusions for Employer Contributions to Health Savings 
Accounts.--
            (1) Exclusion from income tax.--Section 106 of such 
        Code (relating to contributions by employer to accident 
        and health plans) is amended by adding at the end the 
        following new subsection:
    ``(d) Contributions to Health Savings Accounts.--
            ``(1) In general.--In the case of an employee who 
        is an eligible individual (as defined in section 
        223(c)(1)), amounts contributed by such employee's 
        employer to any health savings account (as defined in 
        section 223(d)) of such employee shall be treated as 
        employer-provided coverage for medical expenses under 
        an accident or health plan to the extent such amounts 
        do not exceed the limitation under section 223(b) 
        (determined without regard to this subsection) which is 
        applicable to such employee for such taxable year.
            ``(2) Special rules.--Rules similar to the rules of 
        paragraphs (2), (3), (4), and (5) of subsection (b) 
        shall apply for purposes of this subsection.
            ``(3) Cross reference.--

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

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

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

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

    (e) Tax on Excess Contributions.--Section 4973 of such Code 
(relating to tax on excess contributions to certain tax-favored 
accounts and annuities) is amended--
            (1) by striking ``or'' at the end of subsection 
        (a)(3), by inserting ``or'' at the end of subsection 
        (a)(4), and by inserting after subsection (a)(4) the 
        following new paragraph:
            ``(5) a health savings account (within the meaning 
        of section 223(d)),'', and
            (2) by adding at the end the following new 
        subsection:
    ``(g) Excess Contributions to Health Savings Accounts.--For 
purposes of this section, in the case of health savings 
accounts (within the meaning of section 223(d)), the term 
`excess contributions' means the sum of--
            ``(1) the aggregate amount contributed for the 
        taxable year to the accounts (other than a rollover 
        contribution described in section 220(f)(5) or 
        223(f)(5)) which is neither excludable from gross 
        income under section 106(d) nor allowable as a 
        deduction under section 223 for such year, and
            ``(2) the amount determined under this subsection 
        for the preceding taxable year, reduced by the sum of--
                    ``(A) the distributions out of the accounts 
                which were included in gross income under 
                section 223(f)(2), and
                    ``(B) the excess (if any) of--
                            ``(i) the maximum amount allowable 
                        as a deduction under section 223(b) 
                        (determined without regard to section 
                        106(d)) for the taxable year, over
                            ``(ii) the amount contributed to 
                        the accounts for the taxable year.
For purposes of this subsection, any contribution which is 
distributed out of the health savings account in a distribution 
to which section 223(f)(3) applies shall be treated as an 
amount not contributed.''.
    (f) Tax on Prohibited Transactions.--
            (1) Section 4975 of such Code (relating to tax on 
        prohibited transactions) is amended by adding at the 
        end of subsection (c) the following new paragraph:
            ``(6) Special rule for health savings accounts.--An 
        individual for whose benefit a health savings account 
        (within the meaning of section 223(d)) is established 
        shall be exempt from the tax imposed by this section 
        with respect to any transaction concerning such account 
        (which would otherwise be taxable under this section) 
        if, with respect to such transaction, the account 
        ceases to be a health savings account by reason of the 
        application of section 223(e)(2) to such account.''.
            (2) Paragraph (1) of section 4975(e) of such Code 
        is amended by redesignating subparagraphs (E) and (F) 
        as subparagraphs (F) and (G), respectively, and by 
        inserting after subparagraph (D) the following new 
        subparagraph:
                    ``(E) a health savings account described in 
                section 223(d),''.
    (g) Failure To Provide Reports on Health Savings 
Accounts.--Paragraph (2) of section 6693(a) of such Code 
(relating to reports) is amended by redesignating subparagraphs 
(C) and (D) as subparagraphs (D) and (E), respectively, and by 
inserting after subparagraph (B) the following new 
subparagraph:
                    ``(C) section 223(h) (relating to health 
                savings accounts),''.
    (h) Exception From Capitalization of Policy Acquisition 
Expenses.--Subparagraph (B) of section 848(e)(1) of such Code 
(defining specified insurance contract) is amended by striking 
``and'' at the end of clause (iii), by striking the period at 
the end of clause (iv) and inserting ``, and'', and by adding 
at the end the following new clause:
                            ``(v) any contract which is a 
                        health savings account (as defined in 
                        section 223(d)).''.
    (i) Health Savings Accounts May Be Offered Under Cafeteria 
Plans.--Paragraph (2) of section 125(d) (relating to cafeteria 
plan defined) is amended by adding at the end the following new 
subparagraph:
                    ``(D) Exception for health savings 
                accounts.--Subparagraph (A) shall not apply to 
                a plan to the extent of amounts which a covered 
                employee may elect to have the employer pay as 
                contributions to a health savings account 
                established on behalf of the employee.''.
    (j) Clerical Amendment.--The table of sections for part VII 
of subchapter B of chapter 1 of such Code is amended by 
striking the last item and inserting the following:

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

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

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

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

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

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

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

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

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

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

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

                                   Chuck Grassley,
                                   Orrin Hatch,
                                   Don Nickles,
                                   Bill Frist,
                                   Jon Kyl,
                                   Max Baucus,
                                   John Breaux,
                                Managers on the Part of the Senate.
       JOINT EXPLANATION STATEMENT OF THE COMMITTEE OF CONFERENCE

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

 MEDICARE PRESCRIPTION DRUG, IMPROVEMENT, AND MODERNIZATION ACT OF 2003

                              ----------                              


                                CONTENTS

                                                                   Page
Title I--Medicare Prescription Drug Benefit......................   426
Title II--Medicare Advantage.....................................   523
Title III--Combating Waste, Fraud, and Abuse.....................   571
Title IV--Rural Provisions.......................................   608
Title V--Provisions Relating to Part A...........................   648
Title VI--Provisions Relating to Part B..........................   664
Title VII--Provisions Relating to Parts A and B..................   711
Title VIII--Cost Containment.....................................   740
Title IX--Administrative Improvements, Regulatory Reduction, and 
  Contracting Reform.............................................   747
Title X--Medicaid and Miscellaneous Provisions...................   807
Title XI--Access to Affordable Pharmaceuticals...................   832
Title XII--Tax Incentives for Health and Retirement Security.....   836

Short Title; Amendments to Social Security Act; References to BIPA and 
        Secretary; Table of Contents. (Section 1 of Conference 
        Agreement; Section 1 of House bill; Section 1 of Senate bill).

Present Law 

      No provision.

House Provision

      The provision specifies the title of the Act as the 
``Medicare Prescription Drug and Modernization Act of 2003''. 
The provision also includes a table of contents.

Senate Provision

      The provision specifies the title of the Act as the 
``Prescription Drug and Medicare Improvement Act of 2003''. The 
provision also includes a table of contents.

Conference Agreement

      The provision specifies the title of the Act as the 
``Medicare Prescription Drug, Improvement and Modernization Act 
of 2003''. The provision also includes a table of contents.

              TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

Voluntary Prescription Drug Benefit Program (Section 101 of Conference 
        agreement, Section 101 of House bill; Section 101 of Senate 
        bill).
Present Law
      Medicare does not cover most outpatient prescription 
drugs. Beneficiaries who are inpatients of hospitals or skilled 
nursing facilities may receive drugs as part of their 
treatment. Medicare payments made to the facilities cover these 
costs. Medicare also makes payments to physicians for drugs or 
biologicals, which cannot be self-administered. This means that 
coverage is generally limited to drugs or biologicals 
administered by infusion or injection. However, if the 
injection is generally self-administered (e.g., insulin), it is 
not covered.
      Despite the general limitation on coverage for outpatient 
drugs, the law specifically authorizes coverage for the 
following: (1) drugs used in immunosuppressive therapy (such as 
cyclosporin) following discharge from a hospital for a Medicare 
covered organ transplant; (2) erythropoietin (EPO) for the 
treatment of anemia for persons with chronic renal failure who 
are on dialysis; (3) drugs taken orally during cancer 
chemotherapy providing they have the same active ingredients 
and are used for the same indications as chemotherapy drugs 
which would be covered if they were not self-administered and 
were administered as incident to a physician's professional 
service; and (4) hemophilia clotting factors for hemophilia 
patients competent to use such factors to control bleeding 
without medical supervision, and items related to the 
administration of such factors. The program also pays for 
supplies (including drugs) that are necessary for the effective 
use of covered durable medical equipment, including those which 
must be put directly into the equipment (e.g., tumor 
chemotherapy agents used with an infusion pump). Medicare also 
covers pneumococcal pneumonia vaccines, hepatitis B vaccines, 
and influenza virus vaccines.
      The Committee on Ways and Means, the Committee on Energy 
and Commerce and the Senate Finance Committee have held 
numerous hearings on providing prescription drug benefits to 
seniors, modernizing the program by making benefits, cost 
sharing and the delivery of care more rational, and 
strengthening Medicare financially for current and future 
generations.
      The typical senior now takes more than 20 prescriptions a 
year to improve their health or manage their diseases. While 
seniors are taking more drugs than any other demographic group, 
they are often paying the highest prices because about twenty-
five percent of seniors have no prescription drug coverage. 
Similarly, low-income beneficiaries must often make 
unacceptable choices between life-saving medicines and other 
essentials.
      The addition of a prescription drug benefit to Medicare, 
while providing seniors additional choices in how they receive 
their health services, is a critical modernization of the 
program.
      Legislation to achieve these goals passed the House in 
2000 (H.R. 4680, the Medicare Rx 2000 Act), in 2002 (H.R. 4954, 
the Medicare Modernization and Prescription Drug Act), and in 
2003 (H.R. 1, the Medicare Prescription Drug and Modernization 
Act). The Senate passed legislation (S.1, the Prescription Drug 
and Medicare Improvement Act) to modernize the program and 
provide prescription drugs in 2003.
      The conference report is the culmination of this 
legislative process.
House Bill
      The provision would establish a new Voluntary 
Prescription Drug Benefit Program under a new Part D of Title 
XVIII of the Social Security Act. Effective January 1, 2006, a 
new optional benefit would be established under a new Part D. 
Beneficiaries could purchase either ``standard coverage'' or 
actuarially equivalent coverage. In 2006, ``standard coverage'' 
would have a $250 deductible, 20% cost-sharing for costs 
between $251 and $2,000, then no coverage until the beneficiary 
had out-of-pocket costs of $3,500 when full coverage would be 
provided. The out-of-pocket limit would be higher for higher 
income beneficiaries. Low-income subsidies would be provided 
for persons with incomes below 150% of poverty. Coverage would 
be provided through prescription drug plans (PDPs) or Medicare 
Advantage (MA) Rx plans or Enhanced Fee-For-Service (EFFS) Rx 
plans. The program would rely on private plans to provide 
coverage and to bear some of the financial risk for drug costs; 
federal subsidies would be provided to encourage participation. 
Plans would determine payments and would be expected to 
negotiate prices. The new Medicare Benefits Administration 
(MBA), within the Department of Health and Human Services (HHS) 
would administer the benefit.
Senate Bill
      Effective January 1, 2006, a new optional benefit would 
be established under a new Part D. Beneficiaries could purchase 
either ``standard coverage'' or actuarially equivalent 
coverage. In 2006, ``standard coverage'' would have a $275 
deductible, 50% cost-sharing for costs between $276 and $4,500, 
then no coverage until the beneficiary had out-of-pocket costs 
of $3,700; and 10% cost-sharing thereafter. Individuals with 
incomes below 160% of poverty would receive additional 
assistance. The bill would rely on private plans to provide 
coverage and to bear a portion of the financial risk for drug 
costs. Federal subsidies would be provided to encourage 
participation. (A fallback mechanism would be provided in areas 
where private risk bearing plans were not available. Under the 
fallback mechanism, Medicare would contract with a private plan 
to provide the benefit in the area; the plan would not be at 
financial risk, except for a small portion of management fees 
tied to performance). Coverage would be provided through 
Medicare Prescription Drug Plans (PDPs) or MedicareAdvantage 
plans (MAs). A new Center for Medicare Choices (CMC) would be 
established within the Department of Health and Human Services 
(HHS) to administer the Part D benefit and the new MA program.
Conference Agreement
      The provision establishes a new voluntary prescription 
drug benefit under a new Part D of Title XVIII of the Social 
Security Act. Effective January 1, 2006, a new optional benefit 
will be established under a new Part D. Beneficiaries could 
purchase either ``standard coverage'' or alternative coverage 
with actuarially equivalent benefits. In 2006, ``standard 
coverage'' will have a $250 deductible, 25% coinsurance for 
costs between $251 and $2,250, and catastrophic coverage after 
out of pocket expenses of $3,600. Once the beneficiary reached 
the catastrophic limit, the program would pay all costs except 
for nominal cost-sharing. Low-income subsidieswould be provided 
for persons with incomes below 150% of poverty. Coverage would be 
provided through prescription drug plans or Medicare Advantage 
prescription drug (MA-PD) plans. The program will rely on private plans 
to provide coverage and to bear some of the financial risk for drug 
costs; federal subsidies will be provided to encourage participation. 
Plans will determine premiums through a bid process and will compete 
based on premiums and negotiated prices.

          Part D--Voluntary Prescription Drug Benefit Program

      Subpart 1--Eligible Beneficiaries and Prescription Drug 
Benefits.
Eligibility, Enrollment and Information (New Section 1860D-1 of 
        conference agreement; New Section 1860D-1 and New Section 
        1860D-5 of House bill; new sections 1860D-1, 1860D-2, 1860D-3, 
        and 1860D-4 of Senate bill).
Present Law
      People generally enroll in Part B when they turn 65. 
Persons who have applied for Social Security or railroad 
retirement benefits automatically receive a Medicare card when 
they turn 65. Persons who have not applied for Social Security 
or railroad retirement benefits must file an application for 
Medicare benefits. An individual who becomes entitled to 
Medicare Part A is automatically enrolled in Part B unless he 
or she specifically opts out of this coverage. An aged person 
not entitled to Part A may still enroll in Part B.
House Bill
      The new Section 1860D-1 would specify that each 
individual entitled to Medicare Part A or enrolled in Medicare 
Part B would be entitled to obtain qualified prescription drug 
coverage. The benefit is completely voluntary. MA organizations 
and EFFS plans would be required to offer plans that included 
qualified prescription drug coverage. An individual enrolled in 
an MA Rx plan or EFFS Rx plan would obtain their drug coverage 
through the plan. An individual not enrolled in either an MA or 
EFFS plan could enroll in a new prescription drug plan (PDP). 
The provision would specify that an individual eligible to make 
an election to enroll in a PDP, or with an MA Rx or EFFS Rx 
plan, would do so in accordance with regulations issued by the 
Administrator of the new Medicare Benefits Administration 
(MBA). Enrollments and changes in enrollment could occur only 
during a specified election period. The election periods would 
generally be the same as those established for MA and EFFS 
programs including annual coordinated election periods and 
special election periods. An individual discontinuing an MA 
election during the first year of eligibility would be 
permitted to enroll in a PDP at the same time as the election 
of coverage under the original fee-for-service plan.
      The provision would establish initial election periods. A 
six month election period, beginning on October 1, 2005, would 
be established for persons entitled to Part A or enrolled under 
Part B on that date. For persons first entitled to Part A or 
enrolled in Part B after that date, an initial election period, 
which was the same as that for initial part B enrollment, would 
be established. The Administrator would be required to 
establish special election periods for persons in special 
circumstances to ensure no or little disruption in coverage. 
Specifically these would apply to: persons having and 
involuntarily losing prescription drug coverage; in cases of 
enrollment delays or non-enrollment attributable to government 
action; in the case of an individual meeting exceptional 
circumstances specified by the Administrator (including 
circumstances identified by the Administrator for MA 
enrollment); and in cases of individuals who become eligible 
for Medicaid drug coverage.
      General information on PDP, MA Rx and EFFS Rx plans would 
be made available during election periods. The Administrator 
could provide information on individuals eligible to enroll in 
plans to plan sponsors and organizations.
      The provision would provide that elections would take 
effect at the same time that elections take effect for MA 
plans. However, no election could take effect before January 1, 
2006. The Administrator would provide for the termination of an 
election in the case of termination of Part A and Part B 
coverage or termination of an election for cause (including 
failure to pay the required premium).
      The new Section 1860D-5 would require the Administrator 
to establish a process for the selection of a PDP plan or an MA 
Rx or EFFS Rx plan that provided qualified prescription drug 
coverage. The process would include the conduct of annual 
coordinated election periods under which individuals could 
change the qualifying plans through which they obtained 
coverage. The process would also include the active 
dissemination of information to promote an informed selection 
among qualifying plans (based on price, quality, and other 
features) in a manner consistent with and in coordination with 
the dissemination of information under MA. Further, the process 
would provide for the coordination of elections through filing 
with an entity offering a MA Rx or EFFS Rx plan or a PDP 
sponsor in a manner consistent with that provided under MA. The 
plan would have to inform each enrollee at the beginning of the 
year of the enrollee's annual out-of-pocket threshold.
      In order to ensure no duplication of coverage, the 
section would specify that an MA Rx or EFFS Rx enrollee could 
only elect to receive drug coverage through the plan.
Senate Bill
      Under the New Section 1860D-1, the Administrator would 
provide for and administer a voluntary prescription drug 
delivery program under which each Part D eligible individual 
enrolled in Part D would be provided access to drug coverage. 
In general, MedicareAdvantage enrollees would obtain drug 
benefits through their MedicareAdvantage plan. Other Part D 
enrollees would receive their drug coverage through enrollment 
in a Medicare Prescription Drug Plan offered in the geographic 
area in which the beneficiary resides. MedicareAdvantage 
enrollees in MSA plans would also receive drug coverage through 
enrollment in a Medicare Prescription Drug plan. 
MedicareAdvantage enrollees in private fee-for-service plans 
would receive drug benefits through such plan if the plan 
provided qualified prescription drug coverage; otherwise they 
would enroll in a Medicare Prescription Drug plan. The program 
would begin January 1, 2006.
      Under the New Section 1860D-2, the Administrator would 
establish an enrollment process, which would be similar to that 
for Part B. An initial open enrollment period would be 
established. For beneficiaries eligible as of November 1, 2005, 
this would be the 6-month period beginning November 1, 2005. 
Persons becoming eligible after this date would have an initial 
7-month enrollment period similar to that established for Part 
B.
      The New Section 1860D-3 would require the Administrator 
to establish a process through which a Part D eligible 
individual who was not enrolled in a MedicareAdvantage Plan 
(except for an MSA plan or private-fee-for-service plan not 
offering qualified drug coverage) could enroll in a Medicare 
Prescription Drug plan serving the geographic area where the 
beneficiary resides. The beneficiary could make an annual 
election to change enrollment to another plan. A beneficiary in 
Part D who failed to enroll in a plan would be enrolled in a 
plan designated by the Administrator.
      The Administrator would use rules similar to the rules 
established for enrollment, disenrollment and termination of 
enrollment with MedicareAdvantage plans. Included would be 
requirements relating to establishment of special election 
periods and application of the guaranteed issue and renewal 
provisions. The Administrator would also coordinate 
enrollments, disenrollments, and terminations of enrollments 
under Part C with those under Part D.
      The enrollment process established by the Administrator 
would ensure that beneficiaries who enrolled in the first open 
enrollment period (beginning November 2005) would be permitted 
to elect an eligible entity prior to January 1, 2006, in order 
to assure coverage was effective on that date.
      In general, persons enrolled in MedicareAdvantage Plans 
would receive drug coverage through their MedicareAdvantage 
Plans and be subject to their enrollment rules. Persons 
enrolled in MSA plans or private-fee-for-service plans not 
offering qualified drug coverage would be subject to Part D 
enrollment rules.
      The Administrator would be authorized to provide 
information about eligible beneficiaries to eligible entities 
with contracts under Part D. Such information would be provided 
as the Administrator determined necessary to facilitate 
enrollment with such entities and for only so long and to the 
extent necessary to carry out this objective.
      The new Section 1860D-4 would require the Administrator 
to broadly disseminate information to beneficiaries regarding 
Part D coverage. Current beneficiaries would be provided such 
information at least 30 days prior to beginning of the first 
enrollment period.
      Information activities would be similar to those 
performed for MedicareAdvantage and be coordinated with such 
activities. Comparative plan information would include a 
comparison of benefits, monthly beneficiary obligation, quality 
and performance, beneficiary cost-sharing, consumer 
satisfaction surveys, and other information specified by the 
Secretary.
Conference agreement
      The New Section 1860D-1 of the conference agreement 
specifies that each individual entitled to Medicare Part A or 
enrolled in Medicare Part B would be entitled to obtain 
qualified prescription drug coverage through enrollment in a 
prescription drug plan. A beneficiary enrolled in a Medicare 
Advantage (MA) plan providing qualified prescription drug 
coverage (MA-PD plan) will obtain coverage through that plan. 
MA enrollees may not enroll in a prescription drug plan (PDP) 
under Part D except for: (1) Enrollees in private fee-for-
service MA plans not offering qualified prescription drug 
coverage; and (2) Enrollees in Medicare medical savings 
accounts (MSAs). Coverage first begins January 1, 2006.
      The Secretary is required to establish a process for 
enrollment, disenrollment, termination, and change of 
enrollment of eligible beneficiaries in prescription drug 
plans. The Secretary is required to use rules similar to, and 
coordinated with, rules established for MA-PD plans relating 
to: Residency requirements; exercise of choice, coverage 
election periods (including initial periods, annual coordinated 
election periods, special election periods, and election 
periods for exceptional circumstances); coverage periods 
(relating to effectiveness of elections and changes of 
elections); guaranteed issue and renewal; and marketing 
material and application forms.
      The agreement establishes a default election process for 
full-benefit dual eligible beneficiaries, that is, persons 
eligible for both Medicare and full benefits (including 
prescription drugs) under the state's Medicaid program. The 
Secretary will enroll any full-benefit dual eligible who has 
not enrolled in a prescription drug plan or MA-PD plan, in a 
plan that has a premium equal to or below the premium subsidy 
amount available to persons with incomes below 135% of poverty. 
If more than one plan is available, the Secretary will enroll 
the beneficiary on a random basis among all such plans in the 
PDP region. Nothing prevents the beneficiary from declining 
enrollment or changing such enrollment.
      The provision would establish a six-month initial 
enrollment period, beginning November 15, 2005, for all persons 
who are eligible beneficiaries on that date; it is the same 
period established for enrollment period established for MA 
plans for that year. An initial enrollment period will apply 
for individuals becoming eligible after that date; in no case 
can such period be less than six months, which follows the 
current enrollment process for Part B. Conferees intend the 
enrollment process to be administratively simple to encourage 
enrollment in the new plans.
      The Secretary will establish enrollment periods for 
special circumstances. These include the involuntary loss of 
creditable prescription drug coverage such as under a group 
health plan, or a reduction in coverage such that it no longer 
meets the actuarial equivalence test. Failure to pay the 
required premium does not meet the definition of involuntary 
loss of coverage. A special enrollment period is also 
established for persons who discontinue their enrollment in a 
MA-PD plan during their first year of eligibility.
      The Secretary is authorized to provide each PDP sponsor 
and MA organization such identifying information about eligible 
individuals as the Secretary determines to be necessary to 
facilitate efficient marketing of plans and enrollment of 
beneficiaries in plans. The Secretary may provide such 
information only to the extent necessary to carry out these 
activities and such PDP sponsor or MA organization may only use 
it to facilitate marketing and enrollment of beneficiaries in 
PDP and MA-PD plans. Conferees intend this provision to 
facilitate outreach to beneficiaries to ensure participation in 
the program. A consistent barrier to encouraging enrollment in 
the existing Medicare+Choice program is the high cost of 
marketing to individuals. With Secretarial assistance, 
Conferees expect these costs to be reduced so that plans can 
readily identify eligible beneficiaries and target information 
effectively.
      The Secretary is required to conduct activities that are 
designed to broadly disseminate information to eligible 
beneficiaries and prospective eligible beneficiaries. It must 
be available at least 30 days prior to the initial enrollment 
period. The information dissemination requirements are similar 
to and are to be coordinated with the activities the Secretary 
is required to perform for MA plans.
      The Conferees expect that in carrying out the annual 
dissemination of information requirement that the Secretary 
will conduct a significant public information campaign to 
educate beneficiaries about the new Medicare drug benefit to 
ensure the broad dissemination of accurate and timely 
information. In particular, the Conferees expect that in 
carrying out this public information campaign that HHS will 
place a priority on, and make a best and concerted effort to, 
ensuring that the lower income seniors are aware of the 
additional benefits available to them and how to enroll. 
Therefore, the public information campaign should include a 
program of outreach, information, appropriate mailings, and 
enrollment assistance with and through appropriate state and 
federal agencies, including State health insurance counseling 
and assistance programs, in coordination with other federal 
programs of assistance to low-income individuals, to maximize 
enrollment of eligible individuals. In addition, special 
outreach efforts shall be made for disadvantaged and hard-to-
reach populations, including targeted efforts in historically 
underserved populations, and working with low-income assistance 
sites and a broad array of public, voluntary, and private 
community organizations serving Medicare beneficiaries. 
Materials and information shall be made available in languages 
other than English, where appropriate.
      It is also critical that eligibility determination forms 
and paperwork should be as simple as possible, with mail-in or 
electronic filings possible. In addition, face-to-face 
interviews should not be required except where necessary. The 
Secretary shall encourage multi-year enrollment (provided 
eligible individuals will be required to report disqualifying 
income and asset changes on a timely basis). It is the desire 
of the Conferees that, within three years after program 
enactment, the Secretary shall report on best practices in the 
successful enrollment of low-income beneficiaries.
      The Secretary is also required to disseminate comparative 
information to beneficiaries for the annual open enrollment 
period. Comparative information is to include information on 
benefits and formularies under a plan; monthly beneficiary 
premium; quality and performance; beneficiary cost-sharing; and 
consumer satisfaction surveys. The Secretary is not required to 
provide information on quality and performance or consumer 
satisfaction during the first plan year or the next plan year 
if the information is not available. The Secretary is also 
required to provide information concerning the methodology for 
determining late enrollment penalties.
      To promote informed decisions, comparative information is 
to include information on benefits and formularies under a 
plan; monthly beneficiary premium; quality and performance; 
beneficiary cost-sharing; and consumer satisfaction surveys. 
The Secretary is not required to provide information on quality 
and performance or consumer satisfaction during the first plan 
year or the next plan year if the information is not available. 
The Secretary is also required to provide information 
concerning the methodology for determining late enrollment 
penalties.
Prescription Drug Benefits (New Section 1860D-2 of conference 
        agreement; New Section 1860D-2 of House bill; New Sections 
        1860D-6, 1860D, and 1860D-1 of Senate bill).
Present Law
      No provision.
House Bill
      a. Benefits. The new Section 1860D-2 would specify the 
requirements for qualified prescription drug coverage. 
Qualified coverage would be defined as either ``standard 
coverage'' or actuarially equivalent coverage. In both cases, 
access would have to be provided to negotiated prices.
      For 2006, ``standard coverage'' would be defined as 
having a $250 deductible; 20% coinsurance up to the initial 
coverage limit ($2,000); catastrophic coverage would begin 
after an individual incurred $3,500 in out of pocket costs. 
Beginning in 2007, the annual dollar amounts would be increased 
by the annual percentage increase in average per capita 
aggregate expenditures for covered outpatient drugs for 
Medicare beneficiaries for the 12-month period ending in July 
of the previous year.
      Plans would be permitted to substitute cost-sharing 
requirements, for costs up to the initial coverage limit that 
were actuarially consistent with an average expected 20% 
coinsurance for costs up to the initial coverage limit. They 
could also apply tiered copayments, provided such copayments 
were actuarially consistent with the average 20% cost-sharing 
requirements.
      The provision would specify incurred costs that would 
count toward meeting the catastrophic limit. Costs would be 
treated as incurred costs only if they were paid by the 
individual (or by another family member on behalf of the 
individual), paid on behalf of a low-income individual under 
the subsidy provisions, under the Medicaid program, or under a 
state pharmaceutical assistance program. Any costs for which 
the individual was reimbursed by insurance or otherwise would 
not count toward incurred costs. The Administrator would be 
authorized to establish procedures, in coordination with the 
Secretary of the Treasury and the Secretary of Labor, for 
determining whether costs were being reimbursed by insurance or 
other third-party arrangement. The procedures would provide for 
alerting entities in which such individuals were enrolled. 
Entities could also periodically ask enrolled individuals about 
such arrangements. A material misrepresentation by an 
individual (as defined in standards set by the Administrator 
through a process established by the Administrator) would 
constitute grounds for termination of Part D enrollment.
      The provision would permit a PDP or MA Rx or EFFS Rx plan 
to offer, subject to approval by the Administrator, alternative 
coverage providing certain requirements were met. The actuarial 
value of total coverage would have to be at least equal to the 
actuarial value of standard coverage. The unsubsidized value of 
the coverage (i.e. the value of the coverage exceeding subsidy 
payments) would have to be equal to the unsubsidized value of 
standard coverage. The coverage would be designed (based on 
actuarially representative patterns of utilization) to provide 
for payment of incurred costs up to the initial coverage limit 
of at least the same percentage of costs provided under 
standard coverage. Further, stop loss protection would be the 
same as that under standard coverage.
      Both standard coverage and actuarially equivalent 
coverage would have to offer access to negotiated prices. 
Coverage offered by a PDP plan sponsor or a MA or EFFS entity 
would be required to provide beneficiaries with access to 
negotiated prices (including applicable discounts). Access 
would be provided even when no benefits were payable because of 
the application of cost-sharing or initial coverage limits. 
Insofar as a state elected to use these negotiated prices for 
its Medicaid program, the Medicaid drug payment provisions 
would not apply. (Further, the negotiated prices would not be 
taken into account in making ``best price''determinations under 
Medicaid.) The PDP sponsor or MA or EFFS entity would be required to 
disclose to the Administrator the extent to which manufacturer 
discounts or rebates or other remunerations or price concessions were 
made available to the sponsor or organization and passed through to 
enrollees through pharmacies and other dispensers. Manufacturers would 
be required to disclose pricing information to the Administrator under 
the same conditions currently required for Medicaid.
      Qualified prescription drug coverage could include 
coverage exceeding that specified for standard coverage or 
actuarially equivalent coverage. However, any additional 
coverage would be limited to covered outpatient drugs. The 
Administrator could terminate a contract with a PDP sponsor or 
MA or EFFS entity if a determination was made that the sponsor 
or organizations engaged in activities intended to discourage 
enrollment of classes of eligible Medicare beneficiaries 
obtaining coverage through the plan on the basis of their 
higher likelihood of utilizing prescription drug coverage.
      b. Income-Related Out-of-Pocket threshold. The provision 
would increase the annual out-of-pocket threshold for each 
enrollee whose adjusted gross income exceeded a specified 
income threshold. The portion of income exceeding this income 
threshold ($60,000 in 2006), but below an income threshold 
limit ($200,000 in 2006), would be considered in making this 
calculation. The increase would be calculated as follows. 
First, the ratio of the annual out-of- pocket limit to the 
income limit would be calculated and expressed as a percent. 
For 2006, this would be $3,500 divided by $60,000 equaling 
5.8%. This percentage would be multiplied by any excess income 
over $60,000, or, if less, by the difference between income 
threshold limit and the income threshold ($140,000 in 2006). 
Thus, the catastrophic out-of-pocket limit would be $5,820 for 
an enrollee with an income of $100,000 and $11,620 for persons 
with incomes at $200,000 or above. Beginning in 2007, the 
income threshold and income threshold limits would be increased 
by the percentage increase in the consumer price index (CPI) 
for all urban consumers, rounding to the nearest $100.
      The income used for making the income determination would 
be adjusted gross income. (Individuals filing joint returns 
would each be treated separately with each person considered to 
have an adjusted gross income equal to one-half of the total.) 
The determination would be the most recent return information 
disclosed by the Secretary of the Treasury to the Secretary of 
HHS, (as provided for under Section 106 of this Act) before the 
beginning of the year. The Secretary, in coordination with the 
Secretary of the Treasury, would provide a procedure under 
which an enrollee could elect to use more recent information, 
including information for a taxable year ending in the current 
calendar year. The process would require: (1) the enrollee to 
provide the Secretary with the relevant portion of the more 
recent return; (2) the Medicare Beneficiary Ombudsman offering 
assistance to the enrollees in presenting such information and 
the toll-free number being a point of contact for beneficiaries 
to inquire how to present the information; (3) verification by 
the Secretary of the Treasury; and (4) payment by the Secretary 
to the enrollee equal to the benefit payments that would have 
been payable under the plan if more recent information had been 
used. If such payments were made, the PDP sponsor would pay the 
Secretary the requisite amount, less the applicable reinsurance 
that would have applied. The payment would be credited to the 
Prescription Drug Account.
      The Secretary would be required to provide, through the 
annual Medicare handbook, general information on the 
calculation of out-of-pocket thresholds. The Secretary would 
periodically transmit to the Secretary of the Treasury the 
names and TINs of enrollees in PDPs or MA Rx or EFFS Rx plans 
and request that the Secretary of the Treasury disclose 
information as provided for under Section 106 of this Act. The 
Secretary would disclose to entities offering the plan the 
amount of the out-of-pocket threshold that would apply to a 
specified taxpayer. Individuals could opt out of the 
Secretarial disclosure requirements, if they elected to have 
the maximum out-of-pocket threshold applied in a year. Criminal 
and civil penalties would apply to any unauthorized disclosure 
of information obtained pursuant to Section 106. In disclosing 
such information, stringent new confidentiality protections 
would apply.
      c. Covered Drugs. Covered outpatient drugs would be 
defined to include: (1) a drug which could only be dispensed 
subject to a prescription and which was described in 
subparagraph (A)(i) or (A)(ii) of Section 1927(k)(2) of the 
Social Security Act (relating to drugs covered under Medicaid); 
(2) a biological product described in paragraph B of such 
subsection; (3) insulin described in subparagraph C of such 
section and medical supplies associated with the injection of 
insulin; and (4) vaccines licensed under section 351 of the 
Public Health Service Act. Drugs excluded from Medicaid 
coverage would be excluded from the definition except for 
smoking cessation drugs. The definition would include any use 
of a covered outpatient drug for a medically accepted 
indication. Drugs, which could be paid for under Medicare Part 
B, would not be covered under Part D. A plan could elect to 
exclude a drug, which would otherwise be covered, if the drug 
was excluded under the formulary and the exclusion was not 
successfully appealed under the new Section 1860D-3. In 
addition, a PDP or MA Rx or EFFS Rx plan could exclude from 
coverage, subject to reconsideration and appeals provisions, 
any drug, which would not meet Medicare's definition of 
medically necessary or was not prescribed in accordance with 
the plan or Part D.
Senate Bill
      a. Benefits. Under the new Section 1860D-6 of the Senate 
bill, plans would be required to offer ``qualified coverage.'' 
``Qualified coverage'' would be either ``standard coverage'' or 
``actuarially equivalent coverage.'' Both would require access 
to negotiated prices. In 2006, standard coverage would be 
defined as having a $275 deductible, 50% cost-sharing for drug 
costs between $276 and the initial coverage limit of $4,500, 
then no coverage, except that beneficiaries would have access 
to negotiated drug prices, until the beneficiary had out-of-
pocket costs of $3,700 ($5813 in total spending); and 10% cost-
sharing thereafter. These amounts would be increased in future 
years by the percentage increase in average per capita 
expenditures for covered drugs for the year ending the previous 
July.
      Out-of-pocket costs counting toward the limit would 
include costs paid by the individual (or by another individual 
such as a family member), paid on behalf of a low-income 
individual under the low-income provisions, paid under 
Medicaid, or paid under a state pharmaceutical assistance 
program. Any costs for which the individual was reimbursed by 
insurance or otherwise could not be counted. The Administrator 
would be authorized to establish procedures, in coordination 
with the Secretary of the Treasury and the Secretary of Labor, 
for determining whether costs were being reimbursed by 
insurance or other third-party arrangement. The procedures 
would provide for alerting entities in which such individuals 
were enrolled. Entities could also periodically ask enrolled 
individuals about such arrangements. A material 
misrepresentation by an individual (as defined in standards set 
by the Administrator through a process established by the 
Administrator) would constitute grounds for termination of Part 
D enrollment.
      Entities could offer more generous drug coverage, if 
approved by the Administrator, but only if they also offered a 
plan providing standard coverage. Entities could offer a plan 
design different from standard coverage provided certain 
conditions were met. The actuarial value of total coverage 
would have to be at least equal to the actuarial value of 
standard coverage. The unsubsidized value of coverage would 
have to be at least equal to the unsubsidized value of standard 
coverage. Further, the coverage would be designed, based on a 
representative pattern of utilization, to cover the same 
percentage of costs up to the initial benefit limit as provided 
under the standard plan. The limitation on the deductible and 
out-of-pocket expenditures would be the same as under standard 
coverage. The entity would have to apply for and receive 
approval from the Administrator for an alternative benefit 
design.
      The Administrator would establish processes for 
determining the actuarial value of prescription drug coverage. 
The processes would take into account any effect that providing 
actuarially equivalent rather than standard coverage would have 
on utilization.
      Qualified drug plans would be required to provide 
beneficiaries with access to negotiated prices (including all 
discounts, direct or indirect subsidies, rebates, other price 
concessions, or direct or indirect remunerations), regardless 
of the fact that no benefits may be payable. The entity would 
be required to issue a card or other technology for this 
purpose. The Administrator would be required to provide for 
development of national standards relating to a standardized 
format for the card or other technology. The standards would be 
compatible with those provided for under the administrative 
simplification and electronic prescribing requirements of Title 
XI. The standards would be implemented no later than January 1, 
2008.
      The bill would exempt any prices negotiated by a Medicare 
Prescription Drug plan, MedicareAdvantage plan, or qualified 
retiree program from Medicaid's determination of ``best price'' 
for purposes of the Medicaid drug rebate program.
      b. Income-Related Out-of-Pocket Threshold. No provision.
      c. Covered Drugs. The New Section 1860D would define 
covered drugs as drugs, biological products, and insulin 
(including syringes, and necessary medical supplies associated 
with the administration of insulin, as defined by the 
Administrator) which are covered under Medicaid and vaccines 
licensed under Section 351 of the Public Health Service Act. 
Coverage would be extended to any use of a covered drug for a 
medically accepted indication. The term would not include drugs 
or classes of drugs, or their medical uses, which could be 
excluded from coverage under Medicaid, except for smoking 
cessation agents. The term would not include drugs currently 
covered under Medicare Part A or Medicare Part B to the extent 
payment is available under those Parts. A drug prescribed for 
an individual, which would ordinarily be a covered drug, would 
not be covered if a plan's formulary excluded the drug and the 
exclusion was not successfully resolved. Further, a Medicare 
Prescription Drug plan or a MedicareAdvantage plan could 
exclude drugs which did not meet Medicare's definition of 
``reasonable and necessary'' under Section 1862(a) of the Act 
or which were not prescribed in accordance with the 
requirements of the plan or Part D.
      New Section 1860D-1 would specify that the program would 
provide coverage for all therapeutic categories and classes of 
covered drugs (though not necessarily for all drugs within such 
categories and classes).
Conference Agreement
      a. Benefits. The New Section 1860D-2 specifies the 
requirements for qualified prescription drug coverage. 
Qualified coverage would be defined as either ``standard 
prescription drug coverage'' or ``alternative prescription drug 
coverage'' with at least actuarially equivalent benefits. In 
both cases, access would have to be provided to negotiated 
prices.
      Qualified drug plans would be required to provide 
beneficiaries with access to negotiated prices (including all 
discounts, direct or indirect subsidies, rebates, other price 
concessions, or direct or indirect remunerations), regardless 
of the fact that no benefits may be payable. The entity would 
be required to issue a card or other technology for this 
purpose. The Administrator would be required to provide for 
development of national standards relating to a standardized 
format for the card or other technology. The standards would be 
compatible with those provided for under the administrative 
simplification and electronic prescribing requirements of Title 
XI.
      Plans are permitted to provide supplemental prescription 
coverage consisting of either certain reductions in cost-
sharing (i.e. reduction in deductible, reduction in coinsurance 
percentage, and increase in initial coverage limit) or coverage 
of drugs which are excluded because of application of the 
Medicaid definition of covered drugs. A PDP sponsor may not 
offer a plan that provides supplemental benefits unless it also 
offers a basic plan in the area.
      For 2006, ``standard prescription drug coverage'' is 
defined as having a $250 deductible; 25% coinsurance up to the 
initial coverage limit ($2,250); and catastrophic coverage 
after an individual incurred $3,600 in out of pocket expenses. 
Once the beneficiary reached the catastrophic limit, the 
program would pay all costs except for nominal cost-sharing.
      Once the beneficiary reached the catastrophic (``stop 
loss'') limit, the program would pay all costs, except for 
nominal cost-sharing. Low-income beneficiaries would have no 
cost-sharing. The cost-sharing is equal to the greater of: (1) 
a copayment of $2 for a generic drug or preferred multiple 
source and $5 for any other drug; or (2) five percent 
coinsurance. Nothing is to be construed as preventing a PDP 
sponsor or MA organization from reducing the cost-sharing for 
preferred or generic drugs. Beginning in 2007, the annual 
dollar amounts would be increased by the annual percentage 
increase in average per capita aggregate expenditures for 
covered outpatient drugs for Medicare beneficiaries for the 12-
month period ending in July of the previous year.
      Plans would be permitted to substitute cost-sharing 
requirements, for costs up to the initial coverage limit that 
were actuarially consistent with an average expected 25% 
coinsurance for costs up to the initial coverage limit. They 
could also apply tiered copayments, provided such copayments 
were actuarially consistent with the average 25% cost-sharing 
requirements.
      The agreement specifies incurred costs that count toward 
meeting the catastrophic limit. Costs are only considered 
incurred if they are incurred for the deductible, cost-sharing, 
benefits not paid because of application of the initial 
coverage limit. Incurred costs do not include amounts for which 
no benefits are provided because of the application of a 
formulary. Costs would be treated as incurred costs only if 
they were paid by the individual (or by another family member 
on behalf of the individual), paid on behalf of a low-income 
individual under the subsidy provisions, or under a state 
pharmaceutical assistance program (SPAP). Conferees intend SPAP 
spending to fill in beneficiary cost sharing and deductibles 
and have that spending count against the catastrophic. State 
liability will be limited to spending below the 
catastrophiclimit, and for which there is no coverage. The state 
pharmacy assistance programs could use money saved from the Medicare 
drug benefit to extend their assistance to persons with incomes above 
150% of poverty. For example, 200% of poverty or even 300% of poverty.
      Any costs for which the individual was reimbursed by 
insurance or otherwise would not count toward incurred costs. 
The Secretary is authorized to establish procedures, in 
coordination with the Secretary of the Treasury and the 
Secretary of Labor, for determining whether costs were being 
reimbursed by insurance or other third-party arrangement. The 
procedures would provide for alerting entities in which such 
individuals were enrolled. Entities could also periodically ask 
enrolled individuals about such arrangements. A material 
misrepresentation by an individual (as defined in standards set 
by the Secretary through a process established by the 
Secretary) would constitute grounds for termination of Part D 
enrollment.
      The provision permits a prescription drug plan or MA-PD 
plan to offer, subject to approval by the Secretary alternative 
prescription drug coverage providing certain requirements are 
met. The actuarial value of total coverage would have to be at 
least equal to the actuarial value of standard coverage. The 
unsubsidized value of the coverage (i.e. the value of the 
coverage exceeding subsidy payments) would have to be equal to 
the unsubsidized value of standard coverage. The coverage would 
be designed (based on actuarially representative patterns of 
utilization) to provide for payment of incurred costs up to the 
initial coverage limit of at least the same percentage of costs 
provided under standard coverage. Further, stop loss protection 
would be the same as that under standard coverage. The 
deductible could not exceed that under standard coverage.
      Under the conference agreement, prescription drug plans 
and MA-PD plans are permitted to offer alternative coverage 
that is at least actuarially equivalent to the standard Part D 
benefit, provided that the alternative coverage includes an 
initial deductible that is no more than the deductible in the 
standard plan and provides the same threshold for catastrophic 
coverage under the standard Part D benefit. Within these 
requirements plans may change the cost sharing for the drug 
benefit, implement different formularies, and the benefit limit 
can be modified while still maintaining actuarial equivalence.
      For beneficiaries who desire additional drug coverage 
beyond that offered in the basic Medicare benefit, MA-PD and 
PDP plans may also provide supplemental prescription drug 
coverage. Supplemental policies may be offered by a plan to its 
own enrollees and may provide for a reduction in the annual 
deductible, reductions in coinsurance or cost-sharing required, 
or increases in drug coverage above the benefit limit. However, 
the conferees recognize that the conditions under which the 
government provides reinsurance subsidies may create 
significant disincentives for private sector plans to provide 
supplemental prescription drug coverage.
      To address this concern, the conference agreement 
clarifies the Secretary's current Medicare demonstration 
authority to include Part C and Part D with the intent that 
this authority be used to conduct demonstration projects to 
allow private sector plans maximum flexibility to design 
alternative prescription drug coverage. CMS's authority to 
conduct Medicare demonstrations is provided in section 402 of 
the Social Security Amendments of 1967 (42 U.S.C. Sec. 1395b-
1). Under section 402(b), the Secretary is authorized to waive 
requirements in Title XVIII that relate to reimbursement and 
payment. Consistent with the Secretary's current-law 
demonstration authority, the Conference committee intends that 
any demonstration of benefit flexibility be limited to evaluate 
innovations in drug benefit design and to not increase total 
prescription drug outlays as a result of the demonstrations.
      Under this authority, CMS could alter the payments to 
prescription drug plans, Medicare Advantage plans and regional 
PPOs, or some subset thereof. A number of subsections of 402 
could be used as authority to demonstrate the impact of 
providing additional drug coverage to filling in the gap in 
coverage or for providing benefit flexibility, as long as the 
provisions being waived could reasonably be characterized as 
related to payment provisions.
      Specifically, CMS should demonstrate the effect of 
filling in the gap in coverage by reimbursing participating 
plans a capitated payment that is actuarially equivalent to the 
amount that plans would otherwise receive from the government 
in the form of specific reinsurance when an individual plan 
enrollee reaches the catastrophic attachment point ($3,600). In 
order to demonstrate the impact of plans offering flexible 
benefits, CMS could alter reinsurance payments for MA plans, 
regional PPOs, or prescription drug plans participating in a 
waiver program. For example, it is expected that CMS would 
change the reinsurance payment methodology for a group of plans 
and compare spending under this alternative methodology to 
those plans that continue to receive payments as outlined in 
Title I. However, all plans would be required to at least offer 
the required benefits, including those required under Part D. 
CMS is not permitted to waive the minimum benefits provided by 
the plans. The conferees anticipate that CMS would use this 
authority to demonstrate that paying MA plans, regional PPOs or 
PDPs a capitated payment in lieu of specific reinsurance for 
prescription drug coverage increases plan efficiency and 
improves the quality of the services.
      Consistent with current law, CMS also is also permitted 
to develop and engage in demonstrations to determine whether 
payments for non-Medicare services would result in more 
economical provision and more effective utilization of Medicare 
services provided by MA plans, regional PPOs, or prescription 
drug plans as long as the additional services are incident to 
Medicare covered services, and provided by entities that meet 
certain requirements (MA plans and regional PPOs would meet 
these conditions). Under this subsection, CMS could demonstrate 
that paying MA plans or regional PPOs a payment to provide non-
Medicare benefits (including prescription drug coverage or 
preventative services not provided under Part C or Part D) 
results in more economical provision and more effective 
utilization of comprehensive health care services. Any 
additional benefits must be determined to be budget neutral, 
and it is the intention of the Conference committee that any 
demonstration authority be used in a manner as to not increase 
Medicare outlays.
      The conferees fully expect that the Secretary will use 
this demonstration authority to conduct projects to evaluate 
new methods of providing reinsurance payments that remove 
disincentives for private sector plans to offer additional 
prescription drug benefits to their enrollees. In order to meet 
the budget neutrality requirement, it may be necessary to 
implement such a demonstration after implementation of the new 
Part D benefit for one to two years. Using the results of this 
type of demonstration, the Conferees would expect the Secretary 
to submit to Congress any recommend changes in the drug payment 
methodology under this Part. Both standard coverage and 
alternative coverage would have to offer access to negotiated 
prices. Coverage offered by a PDP plan sponsor or a MA-PD 
entity would be required to provide beneficiaries with access 
to negotiated prices. Access would be provided even when no 
benefits were payable because of the application of cost-
sharing or an initial coverage limits. Negotiated prices are to 
take into account negotiated price concessions, such as 
discounts, direct or indirectsubsidies, rebates, and direct or 
indirect remunerations, for covered Part D drugs, and include 
dispensing fees. The negotiated prices would not be taken into account 
in making ``best price'' determinations under Medicaid. Under the 
current Medicaid best price policy, the largest discount a 
pharmaceutical manufacturer negotiates in the private market must be 
passed along to the Medicaid program as well. As GAO and CBO have 
noted, because manufacturers can only influence market share and volume 
in the private sector, not Medicaid, the ``best price'' policy has led 
to less discounting by manufacturers.
      The PDP sponsor or MA-PD entity is required to disclose 
to the Secretary the aggregate negotiated price concessions 
made available to the sponsor or organization and passed 
through in the form of lower subsidies, lower monthly 
beneficiary premiums, and lower prices through pharmacies and 
other dispensers. Manufacturers would be required to disclose 
pricing information to the Secretary, but that information 
would remain confidential.
      b. Income-Related Out-of-Pocket Threshold. No provision.
      c. Covered Drugs. Covered outpatient drugs are defined to 
include: (1) a drug which could only be dispensed subject to a 
prescription and which was described in subparagraph A of 
Section 1927(k)(2) of the Social Security Act (relating to 
drugs covered under Medicaid); (2) a biological product 
described in paragraph B of such subsection; (3) insulin 
described in subparagraph C of such section and medical 
supplies associated with the injection of insulin (as defined 
in regulations of the Secretary); and (4) vaccines licensed 
under section 351 of the Public Health Service Act. It is the 
intent of conferees that the definition of insulin, and medical 
supplies associated with the administration of insulin, as a 
covered prescription drug shall include medical supplies that 
the Secretary determines to be reasonable and necessary, such 
as insulin, insulin syringes, and insulin delivery devices that 
are not otherwise covered under the durable medical equipment 
benefit. Drugs excluded from Medicaid coverage are excluded 
from the definition except for smoking cessation drugs. The 
definition would include any use of a covered outpatient drug 
for a medically accepted indication. Drugs, which can be paid 
for under Medicare Part B, are not covered under Part D. A PDP 
plan or MA-PD plan could exclude from coverage, subject to 
reconsideration and appeals provisions, any drug which would 
not meet Medicare's definition of medically necessary or was 
not prescribed in accordance with the plan or Part D.
Access to a Choice of Qualified Prescription Drug Coverage (New Section 
        1860D-3 of Conference agreement; New Section 1860D-5 of House 
        bill; New Section 1860d-13 of Senate bill).
Present Law
      No provision.
House Bill
      New Section 1860D-5 would require the Administrator to 
assure that all eligible individuals residing in the U.S. would 
have a choice of enrollment in at least two qualifying plan 
options, at least one of which was a PDP, in their area of 
residence. The requirement would not be satisfied if only one 
PDP sponsor or one MA or EFFS organization offered all the 
qualifying plans in the area. If necessary to ensure such 
access, the Administrator would be authorized to provide 
partial underwriting of risk for a PDP sponsor to expand its 
service area under an existing prescription drug plan to 
adjoining or additional areas, or to establish such a plan, 
including offering such plan on a regional or nationwide basis. 
The assistance would be available only so long as, and to the 
extent, necessary to assure the guaranteed access. However, the 
Administrator could never provide for the full underwriting of 
financial risk for any PDP sponsor. Additionally, the 
Administrator would be directed to seek to maximize the 
assumption of financial risk by PDP sponsors and entities 
offering MA Rx or EFFS Rx plans. The Administrator would be 
required to report to Congress annually on the exercise of this 
authority and recommendations to minimize the exercise of such 
authority.
Senate Bill
      New Section 1860D-13 of the Senate bill would require the 
Administrator to approve at least 2 contracts to offer a 
Medicare Prescription drug Plan in an area. If the 
Administrator determined that at least 2 plans were not going 
to be available in the subsequent year, the Administrator would 
reduce the amount of risk required by plans in a region. This 
would be achieved by adjusting the percentages applicable to 
risk corridors established under the bill. Alternatively, the 
reinsurance percentage could be increased. The Administrator 
could not provide for the full underwriting of financial risk 
for any entity and could not provide for the underwriting of 
any financial risk for a public entity. The Administrator would 
seek to maximize the assumption of financial risk to ensure 
fair competition among plans. The authority would be used only 
so long as, and to the extent necessary, to assure access. The 
authority could not be used if 2 or more qualified bids were 
submitted in an area by qualified entities.
      Not later than September 1 of each year, beginning in 
2005, the Administrator would make a determination as to 
whether there were 2 approved bids. If not, the Administrator 
would enter into an annual fallback contract with an entity to 
provide Part D enrollees in the area with standard coverage 
(including access to negotiated prices) for the following year.
      In the case of an area with only one competitively bid 
contract, the plan (at the plan's option) could be offered 
under the rules established for risk-bearing plans. 
Beneficiaries could enroll with such plan or with the fallback 
plan.
Conference Agreement
      New Section 1860D-3 of the conference agreement requires 
the Secretary to assure that each beneficiary has available a 
choice of enrollment in at least 2 qualifying plans in the area 
in which the beneficiary resides. At least one plan has to be a 
prescription drug plan. The requirement is not satisfied for an 
area if only one PDP sponsor or one MA organization offering a 
MA-PD plan offers all the qualifying plans for the area. A 
qualifying plan is defined as a prescription drug plan or an 
MA-PD plan that provides either: (1) basic prescription drug 
coverage; or (2) qualified prescription drug coverage, so long 
as there is no MA monthly supplemental beneficiary premium 
applied (due to the application of a credit against the premium 
of a rebate). In any case where plans are not available, the 
beneficiary is given the opportunity to enroll in a fallback 
plan.
      The conference agreement permits the Secretary, in order 
to assure access, to approve limited risk contracts as 
specified under the new Section 1860D-11. Only if access is 
still not provided will the Secretary provide for the offering 
of a fallback plan.
Beneficiary Protections for Qualified Prescription Drug Coverage (New 
        Section 1860D-4 of conference agreement; New Section 1860D-3 of 
        House bill; New Section 1860D-5 and Section 121 of Senate 
        bill).
Present Law
      a. Beneficiary Protections. Medicare+Choice plans are 
required to meet a number of beneficiary protection 
requirements. They are required to disclose plan information to 
enrollees. They are required to have procedures relating to 
coverage decisions, reconsiderations, and appeals. Further, 
they are required to assure the confidentiality and accuracy of 
enrollee records.
      Marketing material used by Medicare+Choice plans must be 
approved by the Secretary.
      b. Electronic Prescription Program. Part C 
(Administrative Simplification) in Title XI of the Social 
Security Act requires the Secretary to develop transaction and 
security standards to support the growth of electronic record 
keeping and claims processing in the nation's health care 
system.
      Section 1171 defines health care clearinghouse, health 
care provider, health plan, personally identifiable health 
information, and standard setting organization. Section 1172 
specifies that the administrative simplification standards 
apply to individual and group health plans, health care 
clearinghouses, and health care providers who transmit health 
information electronically in a standard format in connection 
with one of the transactions specified in Section 1173, or who 
rely on third-party billing services to conduct such 
transactions. The Secretary is required either to adopt 
standards that have already been developed by standard setting 
organizations or to develop different standards, provided they 
substantially reduce administrative costs to health plans and 
providers. If no standard has been adopted by a standard 
setting organization, the Secretary must develop a new standard 
based on the recommendations of various specified organizations 
and agencies.
      Section 1173 instructs the Secretary to adopt the 
following standards: (1) uniform electronic formats for various 
common transactions between health care providers and health 
plans (e.g., health claims, eligibility and enrollment); (2) 
code sets for data elements in standard electronic 
transactions; (3) unique health identifiers for individuals, 
employers, plans, and providers; (4) security standards to 
safeguard confidential patient information against unauthorized 
access, use, or disclosure; and (5) electronic signatures to 
verify the authenticity of transactions. Section 1174 provides 
a timetable for the adoption of the administrative 
simplification standards and permits the Secretary to modify 
the standards as frequently as once every 12 months.
      Section 1175 requires health plans and providers that 
process electronic transactions to use standard formats and 
data elements. Plans and providers may transmit and receive 
such data either directly or by contracting with a 
clearinghouse to convert nonstandard data elements into 
standard transactions. Most entities covered by the 
administrative simplification standards have 24 months to 
comply. Small health plans have 36 months to comply.
      Section 1176 establishes civil monetary penalties of up 
to $25,000 per person for violations of the standards. Section 
1177 establishes criminal penalties for wrongfully obtaining or 
disclosing personally identifiable health information. 
Penalties range from a $50,000 fine and/or 1 year in prison, up 
to a $250,000 fine and/or up to 10 years in prison if the 
offense is committed with the intent to sell, transfer, or use 
the information for commercial advantage, personal gain, or to 
inflict malicious harm. Section 1178 specifies that the 
standards preempt contrary provisions in state law pertaining 
to health information. However, the standards may not preempt 
or limit state laws that are necessary to prevent fraud and 
abuse, regulate health insurance companies, or report on health 
care delivery and costs. Also, the standards may not limit the 
authority of the state to collect and report for public health 
purposes.
House Bill
      a. Beneficiary Protections. The New Section 1860D-1 would 
establish guaranteed issue and community-rating requirements. 
The provision would specify that individuals electing qualified 
prescription drug coverage under a PDP plan or MA Rx or EFFS Rx 
plan could not be denied enrollment based on health status or 
other factors. MA provisions relating to priority enrollment 
(where capacity limits have been reached) and limitations on 
terminations of elections would apply to PDP sponsors. The 
provision would require PDP sponsors to make drug coverage 
available to all eligible individuals residing in the area 
without regard to their health or economic status or their 
place of residence in the area.
      The New Section 1860D-3 would specify required 
beneficiary protections. Plans would have to comply with 
guaranteed issue and community-rated premium requirements 
specified in the new Section 1860D-1, access to negotiated 
prices as specified in the new Section 1860D-2, and the non-
discrimination provisions specified in the new Section 1860D-6.
      PDP plan sponsors would be required to disclose, to each 
enrolling beneficiary, information about the plan's benefit 
structure. The plan would have to disclose information on: (1) 
access to specific covered drugs, including access through 
pharmacy networks; (2) how any formulary used by the sponsor 
functioned; (3) copayment and deductible requirements 
(including any applicable tiered copayment requirements); and 
(4) grievance and appeals procedures. In addition, 
beneficiaries would have the right to obtain more detailed plan 
information. Plans would be required to have a mechanism for 
providing specific information to enrollees on request. The 
sponsor would be required to make available, through an 
Internet web site and, on request, in writing, information on 
specific changes in the formulary. Plans would be required to 
furnish to enrollees, at least monthly, a detailed explanation 
of benefits when drug benefits were provided, including 
information on benefits compared to the initial coverage limit 
and the applicable out-of-pocket threshold.
      PDP sponsors and entities offering an MA Rx or EFFS Rx 
plan would be required to permit the participation of any 
pharmacy that met the plan's terms and conditions. A PDP and an 
MA Rx or EFFS Rx plan could reduce copayments for its enrolled 
beneficiaries below the otherwise applicable level for drugs 
dispensed through in-network pharmacies; in no case could the 
reduction result in an increase in subsidy payments made by the 
Administrator to the plan. PDP sponsors and entities offering 
an MA Rx or EFFS Rx plan would be required to secure 
participation in its network of a sufficient number of 
pharmacies that dispense drugs directly to patients (other than 
by mail order) to assure convenient access. The Administrator 
would establish convenient access rules that were no less 
favorable to enrollees than rules for convenient access 
established by the Secretary of Defense on June 1, 2003, for 
purposes of the TRICARE Retail Pharmacy program. The rules 
would include adequate emergency access forenrolled 
beneficiaries. Sponsors would permit enrollees to receive benefits 
through a community pharmacy, rather than through mail-order, with any 
differential in cost paid by enrollees. Pharmacies could not be 
required to accept insurance risk as a condition of participation.
      PDP sponsors and entities offering an MA Rx or EFFS Rx 
plan would be required to issue (and reissue as appropriate) a 
card or other technology that could be used by an enrolled 
beneficiary to assure access to negotiated prices for drugs 
when coverage was not otherwise provided under the plan. The 
Administrator would provide for the development of uniform 
standards relating to a standardized format for the card or 
other technology. These standards would be compatible with the 
administrative simplification requirements of Title XI of the 
Social Security Act.
      The provision would specify that if a PDP sponsor or an 
MA or EFFS entity used a formulary, it would have to meet 
certain requirements. It would be required to establish a 
pharmaceutical and therapeutic committee to develop and review 
the formulary. The committee would include at least one 
physician and one pharmacist, independent and free of conflict 
with respect to the committee, both with expertise in the care 
of elderly or disabled persons. The majority of members would 
be physicians or pharmacists. The committee would be required, 
when developing and reviewing the formulary, to base clinical 
decisions on the strength of scientific evidence and standards 
of practice. This would include assessing peer-reviewed medical 
literature, such as randomized clinical trials, 
pharmacoeconomic studies, outcomes research data, and such 
other information the committee determined appropriate. The 
committee would also take into account whether including a 
particular covered drug had therapeutic advantages in terms of 
safety and efficacy. The formulary would have to include drugs 
within each therapeutic category and class of covered 
outpatient drugs, although not necessarily all drugs within 
such categories or classes. When establishing such classes, the 
committee would take into account the standards published in 
the United States Pharmacopeia Drug Information. It would be 
required to make available to plan enrollees, through the 
Internet or otherwise, the bases for the exclusion of coverage 
of any drug on the formulary. The committee would be required 
to establish policies and procedures to educate and inform 
health care providers and enrollees concerning the formulary. 
Any removal of a drug from the formulary, and any change in the 
preferred or tier cost-sharing status of a drug, could not 
occur until appropriate notice had been provided to 
beneficiaries and physicians. The plan would provide for 
periodic evaluation and analysis of treatment protocols and 
procedures. Further, the PDP sponsor or entity offering an MA 
Rx or EFFS Rx plan would be required to have, as part of its 
appeals process, a process for appeals of coverage denials 
based on application of the formulary.
      The PDP sponsor would be required to have (directly, or 
indirectly through arrangements) an effective cost and drug 
utilization management program; quality assurance measures 
including a medication therapy management program; and a 
program to control waste, fraud, and abuse. Utilization 
management programs would be required to include medically 
appropriate incentives to use generic drugs and therapeutic 
interchange where appropriate. Medication therapy management 
programs would be designed to assure, for beneficiaries at risk 
for potential medication problems such as beneficiaries with 
complex or chronic diseases (such as diabetes, asthma, 
hypertension, and congestive heart failure) or multiple 
prescriptions, that drugs under the plan were appropriately 
used to optimize therapeutic outcomes through improved 
medication use and to reduce the risk of adverse events, 
including adverse drug interactions. The program would be 
developed in cooperation with licensed pharmacists and 
physicians. The PDP sponsor would be required, when 
establishing fees for pharmacists and other providers, to take 
into account the resources and time associated with the 
medication therapy management program. The sponsor or entity 
would disclose the amount of such fees to the Administrator 
upon request; the fees would be confidential.
      Each PDP sponsor and entity offering an MA Rx or EFFS Rx 
plan would ensure that each pharmacy or other dispenser 
informed enrolled beneficiaries at the time of purchase, of any 
price differential between their prescribed drug and the price 
of the lowest cost generic drug covered under the plan that was 
therapeutically equivalent and bioequivalent.
      Each PDP sponsor would be required to have meaningful 
procedures for the hearing and resolving of any grievances 
between the organization (including any entity or individual 
through which the organization provided covered benefits) and 
enrollees. Enrollees would be afforded access to expedited 
determinations and reconsiderations, in the same manner 
afforded under MA. A beneficiary in a plan that provided for 
tiered cost-sharing could request coverage of a non-preferred 
drug on the same conditions applicable to preferred drugs, if 
the prescribing physician determined that the preferred drug 
for the treatment of the same condition was not as effective 
for the enrollee or had adverse effects for the enrollee.
      In general, PDP plan sponsors would be required to meet 
the requirements for independent review and appeals of coverage 
denials and tiered cost-sharing in the same manner that such 
requirements applied to MA organizations. An individual 
enrolled in a PDP plan could appeal to obtain coverage for a 
drug not on the formulary if the prescribing physician 
determined that the formulary drug for treatment of the same 
condition was not as effective for the individual or had 
adverse effects for the individual. The PDP sponsor would be 
required to meet requirements related to confidentiality and 
accuracy of enrollee records in the same manner that such 
requirements applied to MA organizations.
      b. Electronic Prescription Program. PDP sponsors and 
entities offering an MA Rx or EFFS Rx plan would be required, 
effective January 1, 2007, to have in place an electronic 
prescription program. The program would have to be consistent 
with national standards developed by the Administrator. The 
program would be required to provide for electronic transmittal 
of prescriptions (except in emergencies and exceptional cases). 
It would also have to provide for the electronic transmittal of 
information to the prescribing health professional of 
information that included: (1) information (to the extent 
available and feasible) on the drugs being prescribed for that 
patient and other information relating to the medical history 
or condition of the patient that may be relevant to the 
appropriate prescription for the patient; (2) cost-effective 
alternatives (if any) for the prescribed drug; and (3) 
information on drugs included in the applicable formulary. To 
the extent feasible, the program would permit the prescribing 
health professional to provide, and be provided, information on 
an interactive real time basis.
      The Administrator would provide for the development of 
uniform standards relating to the electronic prescription drug 
program. These standards would be compatible with the 
administrative simplification requirements of Title XI of the 
Social Security Act. The Administrator would be required to 
establish an advisory task force that included representatives 
of physicians, hospitals, pharmacies, beneficiaries, pharmacy 
benefit managers, individuals with expertise in information 
technology, and pharmacy benefit experts of the Departments of 
Veterans Affairs and Defense and other appropriate Federal 
agencies to provide recommendations to the administrator on 
such standards, including recommendations relating to:(1) the 
range of available computerized prescribing software and hardware and 
their costs to develop and implement; (2) the extent to which such 
standards and systems could be readily implemented by physicians, 
pharmacies, and hospitals; (3) efforts to develop uniform standards and 
a common software platform for the secure electronic communication of 
medication history, eligibility, benefit, and prescription information; 
(4) efforts to develop and promote universal connectivity and 
interoperability for the secure electronic exchange of such 
information; (5) the cost of implementing such systems; (6) 
implementation issues as they relate to the administrative 
simplification provisions of Title XI and current Federal and State 
prescribing laws and regulations and their impact on implementation of 
computerized prescribing. The Administrator would constitute the task 
force by April 1, 2004; it would submit recommendations to the 
Administrator by January 1, 2005. The Administrator would provide for 
the development and promulgation of national standards by January 1, 
2006. The standards would be issued by a standards organization 
accredited by the American National Standards Institute and be 
compatible with administrative simplification standards.
Senate Bill
      a. Beneficiary Protections. Eligible entities offering 
Medicare Prescription Drug Plans would be required to disclose 
plan information comparable to that required for 
MedicareAdvantage plans. Entities would have to disclose 
information on access, operation of any formulary, beneficiary 
cost-sharing, and grievance and appeals procedures. Further, 
upon request of an individual, they would be required to 
disclose general information on coverage, utilization, and 
grievance procedures. An eligible entity would be required to 
have a mechanism for providing specific information to 
enrollees, upon request, including information on coverage of 
specific drugs and changes in its formulary. Entities would be 
required to provide easily understandable explanation of 
benefits and a notice of benefits in relation to the initial 
coverage limit and the annual out-of-pocket limit. The 
MedicareAdvantage requirements relating to approval of 
marketing materials would apply to information provided by 
entities on drug plans.
      The bill would include several provisions designed to 
assure beneficiary access to drugs. Eligible entities would be 
required to have in place procedures to ensure that 
beneficiaries were not charged more than the negotiated price 
of a covered drug. The procedures would include the issuance of 
a card or other technology that could be used by a beneficiary 
to assure access to negotiated prices for which coverage was 
not otherwise provided under the plan. Entities would be 
required to secure the participation in the network of a 
sufficient number of pharmacies that dispensed drugs directly 
to patients (other than by mail order) to ensure convenient 
access for beneficiaries. The Administrator would be required 
to establish standards to ensure convenient access, including 
emergency access. The standards would take into account 
reasonable distances to pharmacy services in both urban and 
rural areas and to pharmacy services and access to pharmacy 
services of the Indian health service and Indian tribes and 
tribal organizations.
      An entity would be required to establish a point-of-
service method of operation under which the plan would provide 
access to any or all pharmacies not participating in the 
network and could charge beneficiaries, through adjustments in 
cost sharing, the additional costs associated with this option. 
This additional cost sharing would not count toward the 
program's cost-sharing requirements or benefit limits. Entities 
would be required to permit enrollees receiving benefits (which 
may include a 90-day supply of drugs or biologicals) through a 
community pharmacy, rather than through mail order and may 
permit a differential amount to be paid by enrollees.
      New Section 1860D-6 would permit entities to use a 
variety of cost control mechanisms including formularies, 
tiered copayments, selective contracting with drug providers, 
and mail order pharmacies. Under New Section 1860D-5, plans 
electing to use a formulary would be required to establish a 
pharmacy and therapeutic committee to develop and review the 
formulary. The pharmacy and therapeutics committee would 
include at least one academic expert, at least one practicing 
physician, and at least one practicing pharmacist, all of whom 
must have expertise in the care of elderly or disabled persons. 
The committee would base clinical decisions on the strength of 
scientific evidence and standards of practice. The committee 
would establish policies and procedures to educate and inform 
health care providers concerning the formulary. Drugs could not 
be removed from the formulary until after appropriate notice 
had been provided to beneficiaries, physicians, and 
pharmacists. An enrollee would have the right to appeal to 
obtain coverage for a drug not on the formulary if the 
prescribing physician determined that the formulary drug was 
not as effective for treatment of the same condition for the 
individual or had adverse effects for the individual. If a plan 
offered tiered cost-sharing for covered drugs, an enrollee 
would have the right to request that a nonpreferred drug be 
treated on terms applicable for a preferred drug if the 
prescribing physician determined that the preferred drug was 
not as effective for treatment of the same condition for the 
individual or had adverse effects for the individual.
      The formulary would be required to include drugs within 
all therapeutic categories and classes of covered drugs 
(although not necessarily for all drugs within such categories 
and classes). For purposes of defining therapeutic categories 
and classes, the Administrator would be required to use the 
following compendia: American Hospital Formulary Service Drug 
Information, United States Pharmacopeia-Drug Information, the 
DRUGEX Information System, and American Medical Association 
Drug Evaluations.
      Eligible entities would be required to have a cost-
effective drug utilization management program (including 
incentives to reduce costs when appropriate). They would be 
required to have a program to control fraud, abuse, and waste. 
Further, they would be required to have quality assurance 
measures, including a medication therapy management program, to 
reduce medical errors and adverse drug interactions. The 
medication therapy management program would be designed to 
assure that drugs for beneficiaries with chronic diseases (such 
as diabetes, asthma, hypertension, hyperlipidemia, and 
congestive heart failure) or multiple prescriptions were 
appropriately used to optimize therapeutic outcomes and reduce 
the risk of adverse events including adverse drug interactions. 
The program could include enhanced beneficiary understanding of 
appropriate use through education, counseling and other 
appropriate means; increased adherence with prescription 
regimens through refill reminders, special packaging and other 
appropriate means; and detection of patterns of overuse and 
underuse of drugs. The program would be developed in 
cooperation with pharmacists and physicians. Associated costs 
would be taken into account by the entity when establishing 
fees for pharmacists and others providing services under the 
medication therapy management program.
      Pharmacies or other dispensers would be required to 
assure that beneficiaries were informed at the time of purchase 
of any difference between the price of the prescribed drug and 
the lowest cost generic drug that is therapeutically equivalent 
and bioequivalent and that is available at the pharmacy or 
other dispenser. Entities would also be required to have 
meaningful procedures for hearing and resolving grievances, 
comparable to those established for MedicareAdvantage plans. In 
addition, eligible entities would be required to 
meetMedicareAdvantage requirements relating to coverage determinations. 
Entities would be required to safeguard the privacy of individually 
identifiable beneficiary information, maintain such records in an 
accurate and timely manner, ensure timely access by beneficiaries, and 
otherwise comply with laws relating to patient privacy.
      Eligible entities would be required to conduct consumer 
satisfaction surveys with respect to the plan and entity. The 
Administrator would establish uniform requirements for such 
survey.
      b. Electronic Prescription Program. The provision would 
establish a new Part D in Title XI of the Social Security Act. 
The new Section 1180 would mandate the development or adoption 
of standards for transactions and data elements for such 
transactions, to enable the electronic transmission of 
medication history, eligibility, benefit and other prescription 
information. In developing the standards, the Secretary would 
be required to consult with representatives of physicians, 
hospitals, pharmacists, standard setting organizations, 
pharmacy benefit managers, beneficiaries, information exchange 
networks, technology experts, and representatives of the 
Departments of Veterans Affairs and Defense and other 
interested parties. The standards developed or adopted by the 
Secretary would be consistent with the objective of improving 
patient safety and improving the quality of care.
      Standards would be required to comply with certain 
requirements. Patients could request a written prescription and 
not be charged for such request. The standards would 
accommodate the electronic transmittal of a patient's 
medication history, eligibility, benefit and other prescription 
information among prescribing and dispensing professionals at 
the point of care. The information that could be transmitted 
using the standards would include: information on the drugs 
prescribed for the patient; cost-effective alternatives (if 
any) to the drug prescribed; information on eligibility and 
benefits (including the drugs included in the applicable 
formulary and any requirements for prior authorization); 
information on potential drug interactions; and other 
information to improve the quality of care and to reduce 
medical errors. The standards would be designed so that, to the 
extent practicable, they did not impose an undue administrative 
burden on the practice of medicine, pharmacy, or other health 
professions.
      The standards developed or adopted by the Secretary would 
be consistent with Federal regulations (concerning the privacy 
of individually identifiable health information) promulgated 
under section 264(c) of the 1996 Health Insurance Portability 
and Accountability Act (HIPAA), and would be compatible with 
HIPAA's Administrative Simplification standards.
      The Secretary would be required to adopt standards for 
the appropriate data elements needed for the electronic 
exchange of prescription drug information among prescribers, 
insurers, and other entities.
      The Secretary would have to adopt the standards by Jan. 
1, 2006, and would be permitted to modify them, but in a manner 
that minimized the disruption and cost of compliance. 
Individuals that transmit or receive prescriptions 
electronically would be required to comply with the standards. 
However, individuals would not be required to transmit or 
receive electronic prescriptions. The standards would preempt 
state electronic prescription laws. Entities covered by the 
standards would have 24 months to comply. Small health plans, 
as defined by the Secretary, would have an additional 12 months 
to comply.
      The Secretary would be required to consult with the 
Attorney General to ensure that the standards resulted in the 
secure electronic transmission of prescriptions for controlled 
substances.
Conference Agreement
      a. Beneficiary Protections. New Section 1860D-4 
establishes beneficiary protection requirements for qualified 
prescription drug plans. PDP plan sponsors are required to 
disclose, to each enrolling beneficiary, information about the 
plan's benefit structure. The plan will disclose information 
on: (1) access to specific covered drugs (including access 
through pharmacy networks); (2) how any formulary (including a 
tiered formulary) used by the sponsor functions, including how 
a beneficiary might obtain information on the formulary; (3) 
copayment and deductible requirements (including any applicable 
tiered copayment requirements; and (4) grievance and appeals 
procedures. In addition, beneficiaries will have the right to 
obtain more detailed plan information. Plans will be required 
to have a mechanism for providing specific information to 
enrollees on request. The sponsor will be required to make 
available, through an Internet website, information on specific 
changes in the formulary (including tiered or preferred 
status). Sponsors will be required to furnish to enrollees, a 
detailed explanation of benefits when drug benefits were 
provided, including information on benefits compared to the 
initial coverage limit and the applicable out-of-pocket 
threshold.
      PDP sponsors are required to permit the participation of 
any pharmacy that meets the plan's terms and conditions. The 
conference report would require plans to accept any and all 
pharmacies willing to agree to the terms and conditions of the 
plan. A PDP could reduce copayments for its enrolled 
beneficiaries below the otherwise applicable level for drugs 
dispensed through in-network pharmacies; in no case could the 
reduction result in an increase in subsidy payments made by the 
Secretary to the plan. The PDP sponsor is required to secure 
participation in its network of a sufficient number of 
pharmacies that dispense drugs directly to patients (other than 
by mail order) to assure convenient access. The Secretary will 
establish convenient access rules that are no less favorable to 
enrollees than rules for convenient access established in the 
statement of work solicitation (#MDA906-03-R-0002) by the 
Department of Defense on March 13, 2003, for purposes of the 
TRICARE Retail Pharmacy program. The conference report adopts 
the House language, with the clarification that the minimum in-
network pharmacy for each plan offered by a PDP or MA plan in a 
geographic area must provide access to pharmacies that is not 
less restrictive than the TRICARE access standards. These 
standards require that 90 percent of plan enrollees in urban 
areas will have access to a retail pharmacy within 2 miles; 
that 90 percent of suburban plan enrollees will have access to 
a retail pharmacy within 5 miles; and that 70 percent of rural 
plan enrollees will have access to a pharmacy within 15 miles. 
PDP sponsors or MA sponsors can offer broader networks than 
those meeting the TRICARE access standards.
      Plan sponsors cannot create any pharmacy networks that 
are more restrictive than the TRICARE access standards. PDP 
plan sponsors or MA sponsors cannot include mail order only 
pharmacies. The rules would include adequate emergency access 
for enrolled beneficiaries. The rules may include standards 
with respect to access for enrollees in long-term care 
facilities. Sponsors will permit enrollees to receive benefits 
(which may include a 90-day supply) through a community 
pharmacy, rather than through mail-order, with any differential 
in charge paid by enrollees. In addition, the conference report 
clarifies that pharmacies could not accept insurance risk.
      PDP sponsors are required to issue (and reissue as 
appropriate) a card or other technology that could be used by 
an enrolled beneficiary to assure access to negotiated prices 
for drugs. The Secretary will provide for the development, 
adoption, or recognition of standards relating to a 
standardized format for the card or other technology. These 
standards are to be compatible with the administrative 
simplification requirements of Title XI of the Social Security 
Act. The standards will be implemented by such date the 
Secretary determines to be sufficient to ensure PDP sponsors 
utilize such standards beginning January 1, 2006, and developed 
in consultation with the National Counsel for Prescription Drug 
Programs (NCPDP) and other standard setting organizations.
      The provision would specify that if a PDP sponsor used a 
formulary, it would have to meet certain requirements. A 
pharmaceutical and therapeutic committee would develop and 
review the formulary. The committee would include at least one 
practicing physician and one practicing pharmacist, independent 
and free of conflict with respect to the committee, both with 
expertise in the care of elderly or disabled persons. The 
majority of members would be physicians or pharmacists. The 
committee would be required, when developing and reviewing the 
formulary, to base clinical decisions on the strength of 
scientific evidence and standards of practice, including 
assessing peer-reviewed medical literature, such as randomized 
clinical trials, pharmacoeconomic studies, outcomes research 
data, and such other information the committee determined 
appropriate. The committee would also take into account whether 
including a particular covered drug in the formulary (or in a 
particular tier in a formulary) had therapeutic advantages in 
terms of safety and efficacy. The formulary would have to 
include drugs within each therapeutic category and class of 
covered Part D drugs, although not necessarily all drugs within 
such categories or classes.
      The Secretary is required to request the United States 
Pharmacopeia to develop a list of categories and classes that 
may be used by plans. The Secretary's request would also 
include the revision of such classification from time to time 
to reflect changes in therapeutic uses of covered drugs and the 
addition of new covered drugs. The plan sponsor cannot change 
therapeutic categories and classes in a formulary other than at 
the beginning of a plan year, except as the Secretary may 
permit to take into account new therapeutic uses and newly 
approved covered drugs. Each sponsor is required to establish 
policies and procedures to educate and inform health care 
providers and enrollees concerning the formulary. Any removal 
of a drug from the formulary, and any change in the preferred 
or tier cost-sharing status of a drug, could not occur until 
appropriate notice had been provided to the Secretary, 
beneficiaries, and physicians, pharmacies, and pharmacists. The 
plan must provide for periodic evaluation and analysis of 
treatment protocols and procedures.
      The PDP sponsor would be required to have (directly, or 
indirectly through arrangements) a cost-effective drug 
utilization management program; quality assurance measures, a 
medication therapy management program; and a program to control 
fraud, waste, and abuse. A medication therapy management 
program is a program of drug therapy management and medication 
administration, that may be furnished by a pharmacist and that 
is designed to assure with respect to targeted beneficiaries 
that drugs under the plan are appropriately used to optimize 
therapeutic outcomes through improved medication use and to 
reduce the risk of adverse events, including adverse drug 
interactions. Targeted individuals are those with multiple 
chronic diseases (such as diabetes, asthma, hypertension, 
hyperlipidemia, and congestive heart failure) or are taking 
multiple drugs or are likely to incur annual costs that exceed 
a specified level. The program would be developed in 
cooperation with licensed practicing pharmacists and 
physicians. Such plans would be coordinated with disease 
management programs to the extent beneficiaries are enrolled in 
such programs. The PDP sponsor would be required, when 
establishing fees for pharmacists and other providers, to take 
into account the resources and time associated with the 
medication therapy management program. The sponsor or entity 
would disclose the amount of such fees to the Administrator 
upon request; the fees would be confidential.
      The Secretary will be required to conduct consumer 
satisfaction surveys in order to provide comparative 
information during the enrollment period.
      Each PDP sponsor is required to have meaningful 
procedures for the hearing and resolving of any grievances 
between the sponsor (including any entity or individual through 
which the sponsor provided covered benefits) and enrollees. 
Enrollees will be afforded access to expedited determinations 
and reconsiderations, in the same manner afforded under MA. A 
beneficiary in a plan that provides for tiered cost-sharing can 
request coverage of a non-preferred drug on the same conditions 
applicable to preferred drugs, if the prescribing physician 
determines that that the preferred drug for the treatment of 
the same condition is not as effective for the enrollee or has 
adverse effects for the enrollee. A PDP is required to have an 
exceptions process consistent with guidelines established by 
the Secretary.
      In general, PDP plan sponsors will be required to meet 
the requirements for independent review and appeals of coverage 
denials and tiered cost-sharing in a similar manner that such 
requirements applied to MA organizations for fee-for-service 
benefits. An individual enrolled in a PDP plan may appeal to 
obtain coverage for a drug not on the formulary only if the 
prescribing physician determines that all covered Part D drugs 
on any tier of the formulary for treatment of the same 
condition would not as effective for the individual or would 
have adverse effects for the individual or both. The PDP 
sponsor will be required to meet requirements related to 
confidentiality and accuracy of enrollee records in the same 
manner that such requirements applied to MA organizations.
      Each PDP sponsor will provide that each pharmacy that 
dispenses a covered drug shall inform enrolled beneficiaries at 
the time of purchase (or at the time of delivery in the case of 
mail order drugs) of any price differential between the price 
to the enrollee and the price of the lowest cost generic drug 
covered under the plan that is therapeutically equivalent and 
bioequivalent and available at the pharmacy. The Secretary is 
permitted to waive this requirement.
      b. Electronic Prescription Program. The conference 
agreement requires the Secretary to develop electronic 
prescription standards. The standards apply to prescriptions 
for covered part D drugs and required information that are 
transmitted electronically under an electronic prescription 
drug program conducted by a PDP or MA plan. The program must 
provide for the electronic transmittal of information on 
eligibility and benefits (including formulary drugs, any tiered 
formulary structure, and prior authorization requirements), 
information on the drug being prescribed and other drugs listed 
in the patient's medication history (including drug-drug 
interactions), and information on the availability of lower-
cost, therapeutically appropriate alternative drugs. The 
conferees intend for prescribing health care professionals to 
have ready access to neutral and unbiased information on the 
full range of covered outpatient drugs available. Disclosure of 
information must meet the requirements of the HIPAA privacy 
rule and, to the extent feasible, be on an interactive, real-
time basis. The conferees do not intend for the provision 
relating to ``interactive, real-time'' transmission of 
information to preclude an individual or entity from complying 
with the standards under this part by virtue of such 
individual's or entity's inability to transmit information on 
an interactive, real-time basis.
      The standards must be consistent with the objectives of 
improving patient safety and the quality and efficiency of 
patient care. To the extent practicable, the standards must be 
designed so that they do not impose an undue administrative 
burden on prescribing physicians and pharmacists. The standards 
must also be compatible with the HIPAA Administrative 
Simplification standards and other health information 
technology standards, and must permit the electronic exchange 
of drug labeling and drug listing information maintained by the 
FDA and the National Library of Medicine. Finally, the 
standards must accommodate the messaging of information about 
appropriate prescribing of drugs and allow a beneficiary 
(consistent with their prescription drug plan) to designate a 
particular pharmacy to dispense a prescribed drug.
      The conference agreement requires the Secretary to 
promulgate initial standards by September 1, 2005, taking into 
account recommendations from the National Committee on Vital 
and Health Statistics (NCVHS). The NCVHS is required to develop 
such recommendations in consultation with standard setting 
organizations, practicing physicians, hospitals, pharmacies, 
practicing pharmacists, pharmacy benefit managers, state boards 
of pharmacy and medicine, and appropriate federal agencies. 
Prior to the promulgation of final standards, the Secretary 
must enter into voluntary agreements with physicians, 
pharmacies, hospitals, and PDP sponsors and MA plans to conduct 
a pilot project to test the initial standards. The pilot 
project must be conducted during the 1-year period that begins 
on January 1, 2006, except that pilot testing is not required 
where there is adequate industry experience. The Secretary must 
then evaluate the pilot project and report to Congress not 
later than April 1, 2007. Based on the evaluation and not later 
then April 1, 2008, the Secretary must promulgate final 
standards to take effect within one year. The electronic 
prescriptions standards shall supercede any contrary state 
laws.
      The agreement requires the Secretary, in consultation 
with the Attorney General, to provide a safe harbor from both 
criminal sanctions under Section 1128(b)(1 and 2) of the Act 
and the self-referral prohibition under Section 1877 of the Act 
with respect to the provision of nonmonetary remuneration 
necessary and used solely to receive and transmit electronic 
prescription information in accordance with Part D standards. 
Nonmonetary remuneration includes hardware, software, or 
information technology and training services. This safe harbor 
is to apply: (1) in the case of a hospital by the hospital to 
members of its medical staff; (2) in the case of a medical 
group practice by the practice to prescribing health care 
professionals who are members of the practice; and (3) in the 
case of a PDP sponsor or MA organization, by the sponsor or 
organization to pharmacists and pharmacies participating in its 
network and to prescribing health processionals.
      The conferees intend for electronic prescribing to serve 
as a vehicle to reduce medical errors and improve efficiencies 
in the health care system, but not for it to be used as a 
marketing platform or other mechanism to unduly influence the 
clinical decisions of physicians.

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

PDP Regions; Submission of Bids; Plan Approval (New Section 1860D-11 of 
        Conference Agreement; New Section 1860D-6 and New section 
        1860D-4 of House bill; New Section 1860D-7, 1860D-12, and 
        1860D-13 of Senate bill).
Present Law
    a. PDP Regions. No provision.
    b. Submission of Bids. No provision.
    c. Plan Approval. No provision.
    d. Fallback. No provision.
House Bill
    a. PDP Regions. The Administrator would designate at least 
10 service areas in the U.S., consistent with EFFS regions, to 
the extent practicable.
    b. Submission of Bids. The new Section 1860D-6 would 
require each PDP sponsor to submit to the Administrator 
specified information in the same manner as such information 
was submitted by MA organizations. The information to be 
submitted would be information on the qualified drug coverage 
to be provided, the actuarial value of the coverage, and 
information on the bid and premium for the coverage. The PDP 
sponsor would have to include an actuarial certification of: 
(1) the actuarial basis for the bid and premium; (2) the 
portion of the bid and premium attributable to benefits in 
excess of the standard coverage; (3) the reduction in the 
premium resulting from reinsurance subsidies; (4) the reduction 
in the bid resulting from direct and reinsurance subsidy 
payments; and (5) such other information required by the 
Administrator.
    c. Plan Approval. The Administrator would review the 
submitted information for purposes of conducting negotiations 
with the plan. The Administrator would approve the premium only 
if it accurately reflected the actuarial value of the benefits 
and the 73% average subsidy provided for under the new Section 
1860D-8. The Administrator would apply actuarial principles to 
approval of a premium in a manner similar to that used for 
establishing the monthly Part B premium. These requirements 
would not apply to private fee-for-service plans.
    d. Fallback. No provision.
Senate Bill
    a. PDP Regions. New Section 1860D-10 would require the 
Administrator to establish by April 15, 2005, and periodically 
review, service areas in which plans could offer benefits. The 
Administrator would establish service areas so that they 
maximized the availability of Medicare Prescription Drug Plans 
to eligible beneficiaries and minimized the ability of entities 
offering plans to favorably select beneficiaries. In 
establishing the service areas, the Administrator would 
establish at least 10 service areas, which would have to 
include at least one state. The Administrator could not divide 
states so that portions of a state were in different service 
areas. To the extent possible, the Administrator would include 
multi-state metropolitan statistical areas (MSAs) in a single 
service area. The Secretary could divide MSAs where it is 
necessary to establish service areas of such size and geography 
as to maximize plan participation. TheAdministrator could 
conform service areas to those established for preferred provider 
organizations under MedicareAdvantage.
      Under the New Section 1860D-12, plan service areas could 
either be, the entire area of one of the service areas 
established by the Administrator or the entire area covered by 
Medicare. Entities could submit separate bids for multiple 
service areas, provided each bid was for a single service area.
      b. Submission of bids. The new Section 1860D-12 of the 
Senate bill would require entities to submit bids to the 
Administrator on an annual basis. The bid would be submitted at 
such time in the previous year as specified by the 
Administrator. The bid would contain information on proposed 
plans including benefits, actuarial value of the qualified 
prescription drug coverage, the service area for the plan, and 
the monthly premium. Premium information would have to include 
an actuarial certification of the basis for the premium, the 
portion of the premium attributable to benefits in excess of 
standard coverage, and the reduction in bids attributable to 
reinsurance payments. Entities would also be required to 
provide information on whether the entity planned to use any 
funds in the plan stabilization reserve fund that were 
available to the entity for the purpose of stabilizing or 
reducing the monthly premium.
      c. Plan Approval. The new Section 1860D-13 would prohibit 
the Administrator from approving a plan unless the premium, for 
both standard coverage and for any additional benefits, 
accurately reflected the actuarial value of the benefits less 
the actuarial value of reinsurance payments and any 
stabilization funds used. The bid submitted by an entity for a 
qualified plan must reasonably and equitably reflect the cost 
of benefits provided under that plan. The Administrator would 
have the authority to negotiate the terms and conditions of the 
proposed monthly premiums and other terms and conditions of 
proposed plans. The Administrator could disapprove, or limit 
enrollment in, a proposed plan based on costs to beneficiaries, 
the quality of coverage and benefits, the adequacy of the plan 
network, average aggregate projected costs of covered drugs and 
other factors determined appropriate by the Administrator. The 
Administrator could approve a plan only if it provided the 
required benefits and was not designed to result in a favorable 
selection of beneficiaries. The Administrator would approve at 
least 2 contracts to offer a Medicare Prescription Drug plan in 
an area. Contracts would be awarded for 2 years.
      d. Fallback. Under New Section 1860D-13, the 
Administrator, not later than September 1 of each year, 
beginning in 2005, would make a determination as to whether 
there were 2 approved bids. If not, the Administrator would 
enter into an annual contract with an entity to provide Part D 
enrollees in the area with standard coverage (including access 
to negotiated prices) for the following year. The Administrator 
could enter into only 1 contract for each such area. A single 
entity could be awarded contracts for more than one such area. 
The Administrator could not enter into such a contract if the 
Administrator received two or more qualified bids after 
exercise of the authority to reduce risk for entities. Entities 
would be required to meet beneficiary protection requirements.
      Beneficiary premiums for a fallback plan would be set at 
the premium amount that would apply if the plan premium equaled 
the national weighted average premium for the area, as adjusted 
for geographic differences in drug prices. The Administrator 
would establish a methodology for making this calculation, 
which could take into account geographic differences in 
utilization and the results of the ongoing study on spending 
and utilization required under the Act. The contract with the 
plan would provide for payments to the plans for the negotiated 
costs of covered drugs and payment of prescription management 
fees tied to performance management fees established by the 
Administrator. Performance requirements established by the 
Administrator would include the following; (1) the entity 
contained costs to taxpayers and to beneficiaries; (2) the 
entity provided quality clinical care; and (3) the entity 
provided quality services. The fallback plan would not be 
permitted to engage in any marketing or branding of the 
contract. Entities that submitted bids to be a qualified risk-
bearing entity could not submit a bid to be a fallback plan.
Conference Agreement
      a. PDP Regions. New Section 1860D-11 of the conference 
agreement provides for the establishment of PDP regions. The 
service area for a plan includes an entire PDP region. The 
Secretary shall establish, and may revise PDP regions in a 
manner that is consistent with the requirements for 
establishment and revision of MA regions. To the extent 
practicable, PDP regions shall be the same as MA regions. The 
Secretary may establish different regions if the Secretary 
determines that it would improve access to drug benefits. The 
Secretary will establish PDP regions for the territories. A 
plan can be offered in more than one PDP region, including all 
PDP regions.
      b. Submission of Bids. Each PDP sponsor is required to 
submit to the Secretary specified information at the same time 
and in a similar manner as such information is submitted by MA 
organizations. The information to be submitted is: (1) 
information on the prescription drug coverage to be provided; 
(2) the actuarial value of the qualified prescription drug 
coverage in the region for a beneficiary with a national 
average risk profile; (3) information on the bid including the 
basis for the actuarial value, the portion of the bid 
attributable to basic coverage and if applicable, the portion 
attributable to supplemental benefits, and assumptions 
regarding reinsurance subsidy payments and administrative 
expenses; (4) service area; (5) level of risk assumed including 
whether the sponsor requires a modification of risk level and 
if so the extent of the modification; and (6) such other 
information required by the Secretary. A modification of risk 
levels applies to all PDP plans offered by a PDP sponsor in a 
region; it may include an increase in the federal percentage 
assumed in the risk corridor or decrease in the size of risk 
corridors. The Secretary is to establish requirements for 
information submission in a manner that promotes the offering 
of plans in more than one PDP region.
      The Secretary is to establish processes and methods for 
determining the actuarial valuation of prescription drug 
coverage including: (1) an actuarial valuation of standard 
coverage; (2) actuarial valuations relating to alternative 
coverage; (3) use of generally accepted actuarial principles 
and methodologies; (4) applying the same methodology for 
determinations of alternative coverage as is used for 
determinations of standard coverage; and (5) actuarial 
valuation of reinsurance subsidies. The processes and methods 
are to take into account the effect that providing alternative 
coverage (rather than standard coverage) has on drug 
utilization.
      PDP sponsors and MA organizations are responsible for the 
submission of required actuarial valuations for plans they 
offer. They may use actuarial opinions certified by 
independent, qualified actuaries.
      c. Plan Approval. The Secretary will review the submitted 
information for purposes of conducting negotiations with the 
plan. The Secretary has the authority to negotiate the terms 
and conditions of the plans. The authority is similar to the 
authority the Director of the Office of Personnel Management 
has with respect to Federal Employee Health Benefits (FEHB) 
plans.
      After review and negotiation, the Secretary will approve 
or disapprove the plan. The Secretary may only approve a plan 
if certain requirements are met. The plan must comply with Part 
D requirements, including for actuarial determinations. The 
Secretary must determine that the portion of the bid that is 
related to basic coverage is supported by the actuarial bases 
provided and reasonably and equitably reflects the revenue 
requirements (as the term is used under Section 1302(8)(c) of 
the Public Health Service Act) for benefits provided under the 
plan, less the sum of the actuarial value of the reinsurance 
payments provided. Similarly, the Secretary must determine that 
the portion of the bid that is related to supplemental coverage 
is supported by the actuarial bases provided and reasonably and 
equitably reflects the revenue requirements for coverage 
provided under the plan.
      The Secretary can only approve a plan, if the plan and 
the benefits (including any formulary and tiered formulary 
structure) are not likely to discourage enrollment by certain 
beneficiaries.
      The agreement provides that the Secretary may only 
approve a limited risk plan for a PDP region if the access 
requirements for the region would otherwise not be met except 
for the approval of a limited risk or fallback plan. Only the 
minimum number of limited risk plans necessary for a region to 
meet access requirements may be approved. The Secretary shall 
provide priority to those with the highest level of risk. In no 
case can the reduction of risk provide for no (or a de minimus) 
level of financial risk. There is no limit on the number of 
full risk plans that may be approved.
      d. Fallback. The New Section 1860D-3, discussed above, 
establishes access requirements. If access is not provided, 
including through a limited risk plan, the conference agreement 
establishes a fallback process. The Secretary is required to 
establish a separate process for the solicitation of bids from 
eligible fallback entities for the offering in all fallback 
service areas in or more PDP regions of a fallback prescription 
drug plan during the contract period. A single fallback entity 
may not offer all fallback plans throughout the United States. 
Except as otherwise provided, the general provision relating to 
approval or disapproval of bids under New Section 1860D-11(e) 
applies with respect to fallback plans. The Secretary can only 
approve one fallback plan for all fallback service areas in any 
PDP region for a contract period. Competitive contracting 
provisions apply. The Secretary shall approve fallback plans so 
that if there are any fallback service areas in the region for 
the year, they are offered at the same time as prescription 
drug plans would otherwise be offered.
      The fallback entity could not submit a bid for a 
prescription drug plan for any region for the first year of a 
contract period. A fallback service area is an area within a 
PDP region in which, after applying the provisions relating to 
limited risk plans, the access requirements will not be met. 
Fallback prescription drug plans are permitted to offer only 
standard prescription drug coverage, pass on negotiated 
discounts and meet such other requirements specified by the 
Secretary. The fallback plan would not be permitted to engage 
in any marketing or branding of the contract.
      Under a fallback contract, the Secretary would pay actual 
costs of Part D covered drugs taking into account negotiated 
price concessions. Payment would also be made for prescription 
management fees tied to performance management requirements, 
established by the Secretary. Performance requirements 
established by the Secretary would include the following; (1) 
the entity contained costs to the Medicare Prescription Drug 
Account and to beneficiaries; (2) the entity provided quality 
clinical care, including reduction in adverse drug 
interactions; and (3) the entity provided timely and accurate 
delivery of services, including pharmacy and beneficiary 
support services; and (4) efficient and effective benefit 
administration and claims adjudication services. Beneficiary 
premiums under fallback plans would be uniform and equal to 26 
percent of the Secretary's estimate of the average monthly per 
capita actuarial cost (including administrative costs) to the 
entity offering the fallback plan.
      In general, contract requirements for fallback plans 
would be the same as those established for prescription drug 
plans. A contract for a fallback plan would be for 3 years (and 
be renewable after a subsequent bidding process). However, a 
contract could not apply in an area in any year unless the area 
was a fallback service area.
      The Secretary will submit an annual report to Congress 
that describes the instances in which limited risk plans and 
fallback plans are offered. The secretary will include such 
recommendations as may be appropriate to limit the need for the 
provision of such plans and to maximize the assumption of 
financial risk.
      In order to promote competition, the Secretary is 
prohibited from interfering with the negotiations between drug 
manufacturers and pharmacies and PDP sponsors. Further, the 
Secretary may not require a particular formulary or require a 
particular price structure for the reimbursement of covered 
drugs. Conferees expect PDPs to negotiate price concessions 
directly with manufacturers.
      PDP sponsors shall permit State pharmaceutical assistance 
programs and prescription plans under Section 1860D-24 to 
coordinate benefits with the plan. Fees may not be imposed that 
are unrelated to coordination. Conferees want to ensure the new 
Medicare plans are required to coordinate with State plans to 
ensure those plans can efficiently enroll seniors without 
unnecessary constraints. Conferees want to ensure a seamless 
transition for both States and beneficiaries.
Requirements for and Contracts With Prescription Drug Plan (PDP) 
        Sponsors (New Section 1860D-12 of Conference agreement; (New 
        Section 1860D-4 of House Bill; New Sections 1860D-7, 1860D-10, 
        1860D-12, and 1860D-13 of Senate Bill).
Present Law
      Medicare+Choice plans are required to meet a number of 
financial and organizational requirements. In general they are 
required to be organized and licensed under state law, except 
that a special exception may be established for provider-
sponsored organizations. In addition, entities must assume full 
financial risk for required services.
House Bill
      New Section 1860D-4 would specify organizational plan 
requirements for entities seeking to become PDP plan sponsors. 
In general, the section would require a PDP sponsor to be 
licensed under state law as a risk bearing entity eligible to 
offer health insurance or healthbenefits coverage in each state 
in which it offers a prescription drug plan. Alternatively it could 
meet solvency standards established by the Administrator for entities 
not licensed by the state. Plans would be required to assume full 
financial risk on a prospective basis for covered benefits except: (1) 
as covered by federal subsidy payments and reinsurance payments for 
high cost enrollees; or (2) as covered by federal incentive payments to 
encourage plans to expand service areas for existing plans or establish 
new plans. The entity could obtain reinsurance or make other 
arrangements for the cost of coverage provided to enrollees.
      PDP plan sponsors would be required to enter into a 
contract with the Administrator under which the sponsor agreed 
to comply both with the applicable requirements and standards 
and the terms and conditions of payment. The contract could 
cover more than one plan. Contracts would be for at least one 
year. The Administrator would have the same authority to 
negotiate the terms and conditions of the plans as the Director 
of the Office of Personnel Management has with respect to 
Federal Employee Health Benefits (FEHB) plans. The 
Administrator would be required to take into account subsidy 
payments for covered benefits in negotiating the terms and 
conditions regarding premiums. The Administrator would 
designate at least 10 service areas, consistent with EFFS 
regions.
      The new section would incorporate, by reference, many of 
the contract requirements applicable to MA plans including 
minimum enrollment, contract periods, allowable audits to 
protect against fraud and abuse, intermediate sanctions, and 
contract terminations. Pro rata user fees could be established 
to help finance enrollment activities; in no case could the 
amount of the fee exceed 20% of the maximum fee permitted for 
an MA or EFFS plan.
      The new Section would permit the Administrator to waive 
the state licensure requirements under circumstances similar to 
those permitted under Part C for provider sponsored 
organizations. In such cases, plans would be required to meet 
financial solvency and capital adequacy standards established 
by the Administrator. The Administrator would establish such 
standards by regulation by October 1, 2004.
      The standards established under Part D would supersede 
any state law or regulation (other than state licensing laws or 
laws relating to plan solvency). In addition, states would be 
prohibited from imposing premium taxes or similar taxes with 
respect to premiums paid to PDP sponsors or payments made to 
such sponsors by the Administrator.
Senate Bill
      Under the New Section 1860D-7, an entity eligible to 
offer a Medicare Prescription Drug Plan would be organized and 
licensed under state law as a risk-bearing entity eligible to 
offer health insurance or health benefits coverage in each 
state it offers a plan. Alternatively, the Administrator could 
waive the requirement that the entity be licensed in the state, 
if the Administrator determined that grounds for approval of 
the application had been met. By January 1, 2005, the 
Administrator would, in consultation with the National 
Association of Insurance Commissioners, establish and publish 
solvency standards for non-licensed entities.
      Entities would be required to assume financial risk on a 
prospective basis for costs of benefits in excess of amounts 
received from premium payments and reinsurance payments. 
Entities would be permitted to obtain private reinsurance for 
the portion of the costs for which they were at risk.
      Beneficiaries could not elect a Medicare Prescription 
Drug Plan unless the Administrator had entered into a contract 
with the eligible entity for the plan. A contract with an 
entity could cover more than one plan.
      The New Section 1860D-12 would require the Administrator, 
by January 1, 2005, to establish by regulation standards to 
implement Part D. Such standards would be periodically reviewed 
and revised as appropriate. Significant new regulatory 
requirements could only be implemented at the beginning of a 
calendar year. The standards would supersede any state law and 
regulation to the extent such law or regulation was 
inconsistent with such standards and in the same manner those 
standards were superseded for Medicare Advantage plans. 
Standards specifically superseded include those relating to 
benefits (including requirements relating to cost-sharing and 
the structure of formularies), premiums, requirements relating 
to inclusion or treatment of providers, coverage determinations 
(including related grievance and appeals processes), and 
requirements relating to marketing materials and summaries and 
schedules of benefits for a plan.
      States would be prohibited from imposing a premium or 
similar tax with respect to premiums paid to the Administrator 
for Medicare Prescription Drug Plans and any payments made by 
the Administrator to eligible entities offering such a plan.
Conference Agreement
      The conference agreement establishes organizational 
requirements for PDP sponsors under the New Section 1860D-12. 
In general, the section would require a PDP sponsor to be 
licensed under state law as a risk bearing entity eligible to 
offer health insurance or health benefits coverage in each 
state in which it offers a prescription drug plan. 
Alternatively it could meet solvency standards established by 
the Secretary for entities not licensed by the state. To the 
extent an entity is at risk, it must assume financial risk on a 
prospective basis for covered benefits that is not covered by 
direct subsidy payments. The entity could obtain insurance or 
make other arrangements for the cost of coverage provided to 
enrollees.
      PDP plan sponsors would be required to enter into a 
contract with the Secretary under which the sponsor agreed to 
comply both with the applicable requirements and standards and 
the terms and conditions of payment. The contract could cover 
more than one plan. The Secretary may not enter into a contract 
with a PDP sponsor if the entity submitted a bid for the year 
(as the first year of the contract period) to offer a fallback 
plan in any region or offered a fallback plan in the region 
during the previous year. An entity is to be treated as 
submitting a bid if it is acting as a subcontractor of a PDP 
sponsor that is offering a plan; however this does not apply to 
an MA organization insofar as it is acting as a PDP sponsor.
      The new section would incorporate, by reference, many of 
the contract requirements applicable to MA plans including 
minimum enrollment, contract periods, protections against fraud 
and abuse, intermediate sanctions, and contract terminations. 
Pro rata user fees may be established to help finance 
enrollment activities.
      The new Section 1860D-12 permits the Secretary, in order 
to expand choice, to waive the state licensure requirement 
under circumstances similar to those permitted under Part C for 
provider sponsored organizations. In such cases, plans would be 
required to meet financialsolvency and capital adequacy 
standards established by the Secretary. The Secretary, in consultation 
with the National Association of Insurance Commissioners, would 
establish and publish such standards by January 1, 2005. The Secretary 
may periodically review and revise the standards; however, the 
Secretary may not implement significant new regulatory requirements 
except at the beginning of a calendar year.
      The standards established under Part D supersede state 
laws or regulations in the same manner that such laws or 
regulations are superseded for purposes of MA organizations and 
plans. In addition, states are prohibited from imposing premium 
taxes with respect to premiums for PDP plans.
Premiums; Late Enrollment Penalty (New Section 1860D-13 of the 
        Conference agreement; New Section 1860D-1 and New Section 
        1860D-6 of House Bill; New Sections 1860D-2, 1860D-6, 1860D-14, 
        1860D-15, 1860D-17, and 1860D-18 of Senate bill).
Present Law
      Persons who delay enrollment in Part B after their 
initial enrollment period are subject to a premium penalty. 
Certain persons, including a working individual and/or spouse 
of a working individual, may be able to delay enrollment in 
Medicare Part B without being subject to the delayed enrollment 
penalty.
House Bill
      New Section 1860D-1 would specify that PDP sponsors and 
MA or EFFS organizations providing qualified prescription drug 
coverage could not deny, limit, or condition the coverage or 
provision of benefits or increase the premium based on any 
health-related status factor in the case of persons who 
maintained continuous prescription drug coverage since the date 
they first qualified to elect drug coverage under Part D. 
Individuals who did not maintain continuous coverage could be 
subject to an adjusted premium or a pre-existing condition 
exclusion in a manner reflecting the additional actuarial risk 
involved. Such risk would be established through an appropriate 
actuarial opinion. The Administrator would provide a mechanism 
for assisting sponsors and entities in identifying eligible 
individuals who had, or had not, maintained continuous 
coverage.
      The provision would specify that an individual would be 
considered to have had continuous prescription drug coverage if 
the individual established that he or she had coverage under 
one of the following (and coverage in one plan occurred no more 
than 63 days after termination of coverage in another plan): 
(1) qualified prescription drug coverage under a PDP or MA Rx 
or EFFS Rx plan; (2) Medicaid prescription drug coverage; (3) 
prescription drug coverage under a group health plan, but only 
if benefits were at least equivalent to benefits under a 
qualified PDP; (4) prescription drug coverage under a Medigap 
plan, but only if the policy was in effect on January 1, 2006, 
and only if the benefits were at least equivalent to benefits 
under a qualified PDP; (5) state pharmaceutical assistance 
program, but only if benefits were at least equivalent to 
benefits under a qualified PDP; and (6) veterans coverage for 
prescription drugs, but only if benefits were at least 
equivalent to benefits under a qualified PDP. Individuals could 
apply to the Administrator to waive the requirement that such 
coverage be at least equivalent to benefits under a qualified 
prescription drug plan. They could make such application if 
they could establish that they were not adequately informed 
that the coverage did not provide such level of coverage.
      New Section 1860D-6 would specify that the bid and 
premium for a PDP could not vary among individuals enrolled in 
the plan in the same service area, provided they were not 
subject to late enrollment penalties. A PDP sponsor would 
permit each enrollee to have their premiums withheld from their 
Social Security checks in the same manner as is currently done 
for Part B premiums. Beneficiaries could also make payment of 
the premium through an electronic funds transfer mechanism. The 
amount would be credited to the Medicare Prescription Drug 
Trust Fund. Reductions in Part B premiums attributable to 
enrollment in MA or EFFS plans could be used to reduce the 
premium otherwise applicable.
      Under certain conditions, the PDP sponsor or entity 
offering an MA Rx or EFFS Rx plan in an area would be required 
to accept, for an individual eligible for a low-income premium 
subsidy, the reference premium amount (premium for standard 
coverage) as payment in full for the premium for qualified 
prescription coverage. This requirement would apply if there 
was no standard coverage available in the area.
Senate Bill
      New section 1860D-2 would specify that persons enrolling 
in Part D after their initial enrollment period would be 
subject to delayed enrollment penalties. The actuarially sound 
increase for each 12-month period of delayed enrollment would 
be determined by the Administrator.
      Eligible beneficiaries with creditable drug coverage 
could elect to continue to receive such coverage, not enroll in 
Part D, and subsequently enroll in Part D without penalty if 
the plan terminates, ceases to provide, or reduces the value of 
the prescription drug coverage under the plan to below the 
actuarial value of standard prescription drug coverage. Subject 
to certain conditions, creditable drug coverage would include 
drug coverage through Medicaid or through a Section 1115 waiver 
for persons who are not dual eligibles, a group health plan, 
state pharmaceutical assistance program, Veterans' programs, 
and Medigap. Entities offering creditable coverage would be 
required to disclose whether coverage equals or exceeds the 
actuarial value of standard coverage. A special enrollment 
period would apply for persons losing creditable coverage. In 
general, it would be the 63-day period beginning on the date 
the individual lost such coverage. Entitlement would begin the 
first day of the first month following enrollment.
      The New Section 1860D-14 would require the Administrator 
to compute a monthly standard coverage premium for each 
Medicare Prescription Drug plan and for each Medicare Advantage 
plan. This would equal the value of standard coverage or 
actuarially equivalent coverage if the plan provided no 
additional benefits. If the plan offered additional benefits, 
the calculation would reflect only the value of standard 
coverage or, alternatively the approved plan premium for the 
required qualified coverage plan offered by the entity.
      The New Section 1860D-15 would require the Administrator, 
each year, beginning in 2006, to compute a monthly national 
average premium equal to the average of the monthly standard 
coverage premium for each Medicare Prescription Drug plan and 
each Medicare Advantage plan. The calculation would be a 
weighted average based on the number of enrolleesin the plan in 
the previous year. The Administrator would establish a methodology for 
making an adjustment to take into account differences in prices among 
different areas. In making this calculation, the Administrator could 
take into account geographic differences in utilization. Any adjustment 
would be budget neutral.
      The Administrator would establish procedures for making 
the calculation for 2005.
      New Section 1860D-17 would specify that if the plan's 
monthly approved premium for standard coverage was equal to the 
national monthly weighted average premium for such coverage, 
the beneficiary would pay: (1) the applicable percentage, 
established for the area, of the monthly national average. If 
the plan's monthly approved premium was less than the national 
average the beneficiary would pay: (1) the applicable 
percentage for the area, minus, (2) the difference between the 
national average and the plan's premium. If the plan's monthly 
premium was greater than the national average, the beneficiary 
would pay: (1) the applicable percentage for the area, plus (2) 
the difference between the national average and the plan's 
premium. The applicable percentage for an area would be 30% 
divided by 100% minus a percentage equal to: total reinsurance 
payments that will be made in a year (including such payments 
to qualified retiree plans) divided by such amount plus total 
payments that would be made to plans, including Medicare 
Advantage plans, in the year for standard coverage (or 
actuarially equivalent coverage).
      New Section 1860D-18 would specify that premiums would be 
collected in the same manner as Part B premiums. The 
collections would be credited to the Prescription Drug Account. 
The Administrator would establish procedures whereby the 
sponsor of employment-based retiree coverage could pay the 
premium. The Administrator would transmit the information 
necessary for collection to the Commissioner of Social 
Security.
      New Section 1860D-6 would specify that premiums for a 
plan would not vary within a region. However, this requirement 
would not apply to enrollees who were enrolled in a plan 
pursuant to a contract between the plan and the employer or 
other group plan that provided employment-based retiree health 
coverage, if the premium amount was the same for all such 
enrollees under such agreement.
Conference Agreement
      The conference agreement establishes a new section 1860D-
13 which sets requirements for beneficiary premiums. The 
monthly beneficiary premium for a prescription drug plan is 
defined as the base beneficiary premium, as adjusted. The base 
beneficiary premium equals the product of the beneficiary 
premium percentage and the national average monthly bid amount. 
The beneficiary premium percentage is equal to: (1) 26%, 
divided by (2) 100% minus a percentage equal to total 
reinsurance payments divided by the sum of such reinsurance 
payments and total payments the Secretary estimates will be 
paid to prescription drug plans in a year that are attributable 
to the standardized bid amount (taking into account amounts 
paid by the Secretary and enrollees and the application of risk 
adjustment). The national average monthly bid amount is a 
weighted average of standardized bid amounts for each 
prescription drug plan and each MA-PD plan. It does not take 
into account bids submitted for MSA plans, MA private fee-for-
service plans, specialized MA plans for special needs 
beneficiaries, PACE programs, and reasonable cost reimbursement 
contracts. Once the base beneficiary premium is calculated, it 
is adjusted up or down, as appropriate, to reflect differences 
between it and the geographically-adjusted national average 
monthly bid amount. It is further increased for any 
supplemental benefits and decreased if the individual is 
entitled to a low-income subsidy. The premium is uniform for 
all persons enrolled in the plan, except for those receiving 
low-income subsidies or those subject to a late enrollment 
penalty.
      Late enrollment penalties would be applied to 
beneficiaries who failed to maintain creditable coverage for a 
period of 63 days (within a continuous period of eligibility), 
beginning on the day after the individual's initial enrollment 
period and ending on the date of enrollment in a prescription 
drug plan or MA-PD plan. The amount of the penalty is equal to 
the amount that is the greater of what the Secretary determines 
is actuarially sound or 1 percent of the national average 
monthly beneficiary basic premium (not geographically adjusted) 
for each uncovered month.
      The provision specifies that an individual is considered 
to have had creditable prescription drug coverage if the 
individual establishes that he or she had coverage under one of 
the following: (1) prescription drug plan or MA-PD; (2) 
Medicaid; (3) group health plan, including a Federal Employees 
Health Benefits (FEHB) plan and a qualified retiree 
prescription drug plan; (4) state pharmaceutical assistance 
program; (5) veterans coverage of prescription drugs; (6) 
prescription drug coverage under a Medigap plan; (7) military 
coverage including TRICARE; and (8) other coverage the 
Secretary determines is appropriate. Coverage meets the 
definition of creditable coverage only if the actuarial value 
of prescription drug coverage equals or exceeds the actuarial 
value of such coverage under standard prescription drug 
coverage. Individuals could apply to the Secretary to waive the 
requirement that such coverage be at least equivalent to 
benefits under a qualified prescription drug plan if they could 
establish that they were not adequately informed that the 
coverage did not provide such level of coverage. The Secretary 
will establish procedures for the documentation of creditable 
prescription drug coverage. Entities offering creditable 
coverage would be required to provide disclosure that the 
coverage does not meet the requirement and the fact that the 
eligible individual could face late enrollment penalties.
      Beneficiary premium payments may be paid directly to the 
PDP sponsor or MA organization. Alternatively the beneficiary 
has the option of having the amount withheld from his or her 
Social Security payment or having payment made through an 
electronic funds transfer mechanism. Payments withheld are to 
be paid to the PDP sponsor; however, in the case of late 
enrollment penalties only that portion attributable to 
increased actuarial costs is to be paid to the plan.
Premium and Cost-Sharing Subsidies for Low-Income Subsidy Individuals 
        (New Section 1860D-14 of the Conference agreement; New section 
        1860D-7 of House bill; New Section 1860D-19 of Senate bill).
Present Law
      Some low-income aged and disabled Medicare beneficiaries 
are also eligible for full or partial coverage under Medicaid. 
Medicaid is a federal-state program, which provides health 
insurance coverage to certain low-income individuals. Within 
broad federal guidelines, each state sets its own eligibility 
criteria, including income eligibility standards. Persons 
meeting the state standards are entitled to full coverage under 
Medicaid. Persons entitled to full Medicaid protection 
generally have all of their health care expenses met by a 
combination of Medicare andMedicaid. For these ``dual 
eligibles,'' Medicare pays first for services both programs cover. 
Medicaid picks up Medicare cost-sharing charges and provides protection 
against the costs of services generally not covered by Medicare. 
Perhaps the most important service for the majority of dual eligibles 
is prescription drugs. These dual eligibles typically have 
comprehensive drug coverage with only nominal cost-sharing.
      Federal law specifies several population groups that are 
entitled to more limited Medicaid protection. These are 
qualified Medicare beneficiaries (QMBs), specified low income 
beneficiaries (SLMBs), and certain qualified individuals. QMBs 
and SLMBs are not entitled to Medicaid's prescription drug 
benefit unless they are also entitled to full Medicaid coverage 
under their state's Medicaid program. Qualifying individuals 
are never entitled to Medicaid drug coverage (because, by 
definition, they are not eligible for full Medicaid benefits).
      Qualified Medicare Beneficiaries (QMBs) are aged or 
disabled persons with incomes at or below the federal poverty 
level. In 2003, the monthly level is $769 for an individual and 
$1,030 for a couple. ($9,228 per year for an individual and 
$12,360 per year for a couple). The qualifying levels are 
higher than the HHS federal poverty guidelines because, by law, 
$20 per month of unearned income, rounded to the next dollar, 
is disregarded in the calculation. QMBs must also have assets 
below $4,000 for an individual and $6,000 for a couple. QMBs 
are entitled to have their Medicare cost-sharing charges, 
including the Part B premium, paid by the Federal-state 
Medicaid program. Medicaid protection is limited to payment of 
Medicare cost-sharing charges (i.e., the Medicare beneficiary 
is not entitled to coverage of Medicaid plan services unless 
the individual is otherwise entitled to Medicaid).
      Specified Low-Income Medicare Beneficiaries (SLMBs) are 
persons who meet the QMB criteria, except that their income is 
over the QMB limit. The SLMB limit is 120% of the federal 
poverty level. In 2003, the monthly income limits are $918 for 
an individual and $1,232 for a couple ($11,016 per year for an 
individual and $14,784 for a couple). Medicaid protection is 
limited to payment of the Medicare Part B premium (i.e., the 
Medicare beneficiary is not entitled to coverage of Medicaid 
plan services unless the individual is otherwise entitled to 
Medicaid.)
      Qualifying Individuals (QI-1s) are persons who meet the 
QMB criteria, except that their income is between 120% and 135% 
of poverty. The monthly income limit for QI-1 for an individual 
is $1,031 and for a couple $1,384 ($12,372 per year for an 
individual and $16,608 for a couple). Medicaid protection for 
these persons is limited to payment of the monthly Medicare 
Part B premium. In general, Medicaid payments are shared 
between the federal government and the states according to a 
matching formula. However, expenditures under the QI-1 program 
are paid 100% by the federal government (from the Part B trust 
fund) up to the state's allocation level. A state is only 
required to cover the number of persons which would bring its 
spending on these population groups in a year up to its 
allocation level. This temporary program, originally slated to 
end September 30, 2002, was extended through March 31, 2004 by 
P.L. 108-89.
      Eligibility determinations for Medicaid, QMB, SLMB, and 
QI-1 programs are made by the states.
House Bill
      The New Section 1860D-7 would provide income-related 
subsidies for low-income individuals. Low-income persons would 
receive a premium subsidy (based on the value of standard 
coverage). Individuals with incomes below 135% of poverty would 
have a subsidy equal to 100% of the value of standard drug 
coverage provided under the plan. For individuals between 135% 
and 150% of poverty, there would be a sliding scale premium 
subsidy ranging from 100% of such value at 135% of poverty to 
0% of such value at 150% of poverty. For those with incomes 
under 135% of poverty, beneficiary cost-sharing for spending up 
to the initial coverage limit would be reduced to an amount not 
to exceed $2 for a multiple source or generic drug and $5 for a 
non-preferred drug. Sponsors and entities could not charge 
individuals receiving cost-sharing subsidies more than $5 per 
prescription. (Beginning in 2007, these amounts would be 
increased by the percentage increase in per capita beneficiary 
drug costs.) Sponsors and entities could reduce to zero the 
cost-sharing otherwise applicable for generic drugs.
      In 2006, persons eligible for low-income subsidies would 
have to have resources at or below three times the level 
applicable for the Supplemental Security Income program (i.e. 
$6,000 for an individual and $9,000 for a couple). Beginning in 
2007, these amounts would be increased by the annual percentage 
increase in the consumer price index.
      The determination of whether an individual was a subsidy 
eligible individual, and the amount of the subsidy, would be 
made by the State Medicaid program or the Social Security 
Administration. Such funds as necessary would be appropriated 
to the Social Security Administration. Individuals not in the 
50 states or the District of Columbia could not be subsidy 
eligible individuals but could be eligible for financial 
assistance with drug costs under new Section 1935(e) added by 
Section 103.
      The premium subsidy amount would be defined as the 
benchmark premium amount for the qualified prescription drug 
coverage that the beneficiary selects whether offered by a PDP 
plan or an MA Rx or EFFS Rx plan in the area. The benchmark 
premium amount for a plan means the premium amount for 
enrollment under the plan (without regard to any subsidies or 
late enrollment penalties) for standard coverage (or 
alternative coverage if the actuarial value was equivalent). If 
a plan provided alternative coverage with a higher actuarial 
value than that for standard coverage, the benchmark amount 
would bear the same ratio to the total premium as the actuarial 
value of standard coverage was to the actuarial value of 
alternative coverage.
      The Administrator would provide a process whereby the 
Administrator would notify the PDP sponsor or MA Rx or EFFS Rx 
entity that an individual was eligible for a subsidy and the 
amount of the subsidy. The sponsor or entity would reduce the 
premiums or cost-sharing otherwise imposed by the amount of the 
subsidy. The Administrator would periodically, and on a timely 
basis, reimburse the sponsor or entity for the amount of the 
reductions.
      Part D benefits would be primary to any coverage 
available under Medicaid. The Administrator would be required 
to develop and implement a plan for the coordination of Part D 
benefits and Medicaid benefits. Particular attention would be 
given to coordination of payments and preventing fraud and 
abuse. The Administrator would be required to involve the 
Secretary, the States, the data processing industry, 
pharmacists, pharmaceutical manufacturers, and other experts in 
the development and administration of the plan.
Senate Bill
      Medicaid beneficiaries eligible for medical and drug 
benefits under their state Medicaid program (including the 
medically needy) would continue to receive drug benefits 
through Medicaid. Persons meeting the definition of QMB, SLMB, 
or QI-1, and not eligible for Medicaid medical and drug 
benefits, as well as other persons below 160% of the federal 
poverty level, would receive their drug benefits through Part 
D. They would receive assistance for the Part D premium and 
cost-sharing charges.
      QMBs, SLMBs and QI-1s would have a 100% premium subsidy 
for premiums provided the plan premium was at or below the 
national weighted average premium (or the lowest premium in the 
area if none was below the national weighted average).
      The benefit package for the QMB population would be 
defined as having a zero deductible, cost-sharing of 2.5% for 
costs below the initial coverage limit; 5.0% cost-sharing for 
costs above the initial coverage limit and below the annual 
catastrophic limit, and 2.5% cost-sharing for costs above the 
catastrophic limit. The benefit package for the SLMB and QI-1 
population would be defined as having a zero deductible, 5.0% 
cost-sharing for costs below the initial coverage limit; 10.0% 
cost-sharing for costs above the initial coverage limit and 
below the annual catastrophic limit, and 2.5% cost-sharing for 
costs above the catastrophic limit. Plans could waive or reduce 
cost-sharing otherwise applicable.
      Persons with incomes below 160% of poverty, not otherwise 
eligible for low-income benefits would have a sliding scale 
premium subsidy ranging from 100% of the premium at 135% of 
poverty to 0% at 160% of poverty with no additional premium 
costs provided the plan premium was at or below the national 
weighted average premium (or the lowest premium in the area if 
none was below the national weighted average). The benefit 
package for this population would be defined as having a $50 
deductible in 2006 (indexed in subsequent years by the annual 
percentage increase in average per capita Medicare drug 
expenditures), 10.0% cost-sharing for costs below the initial 
coverage limit; 20.0% cost-sharing for costs above the initial 
coverage limit and below the annual catastrophic limit, and 
10.0% cost-sharing for costs above the catastrophic limit. 
Plans could waive or reduce cost-sharing otherwise applicable.
      QMBs, SLMBs and QI-1s and other Part D enrollees with 
incomes below 160% of poverty could enroll in MedicareAdvantage 
and receive their low-income assistance through such plans.
      Beginning November 1, 2005, eligibility for low-income 
individuals would be determined by states. The Administrator 
would implement a process to notify the eligible entity or 
MedicareAdvantage plan that the individual was eligible for a 
cost-sharing subsidy and the amount of the subsidy. The entity 
would reduce the applicable cost-sharing and submit information 
to the Administrator on the amount of the reduction. The 
Administrator would periodically and on a timely basis 
reimburse the entity or organization for the amount of the 
reductions.
      Beginning January 1, 2009, to the extent a state had not 
already eliminated application of an asset test, it would be 
required to permit individuals to make a self-declaration that 
assets did not exceed $10,000 for an individual or $20,000 for 
a couple. In subsequent years, these amounts would be increased 
by the increase in the consumer price index. The Secretary 
would develop a model declaration form.
Conference Agreement
      New Section 1860D-14 of the conference agreement provides 
premium and cost-sharing subsidies for low-income subsidy-
eligible individuals. There are groups of subsidy eligible 
individuals. The first group is composed of persons who: (1) 
are enrolled in a prescription drug plan or MA-PD plan; (2) 
have incomes below 135% of poverty; and (3) have resources in 
2006 below $6,000 for an individual and $9,000 for a couple 
(increased in future years by the percentage increase in the 
CPI), or (4) who is a full benefit dual eligible, regardless 
whether that person meets other eligibility standards. The 
second group of subsidy eligible individuals are persons 
meeting the same requirements, except that the income level is 
150% of poverty and an alternative resources standard may be 
used; this alternative standard in 2006 is $10,000 for an 
individual and $20,000 for a couple (increased in future years 
by the percentage increase in the CPI.)
      Individuals with incomes below 135% of poverty, and 
resources meeting the requirement for the first group, would 
have a premium subsidy equal to 100% of the low-income 
benchmark premium amount, but in no case higher than the actual 
premium amount for basic coverage under the plan. The low-
income benchmark premium amount for a region equals either: (1) 
the weighted average of the basic premiums, if all prescription 
drug plans are offered by the same PDP sponsor; or (2) the 
weighted average of premiums for prescription drug plans and 
MA-PD plans, if plans in the region are offered by more than 
one PDP sponsor. Other low-income subsidy eligible persons will 
have a sliding scale premium subsidy ranging from 100% of such 
value at 135% of poverty to 0% of such value at 150% of 
poverty. Persons below 135% of poverty would have a premium 
subsidy for any late enrollment penalty equal to 80 percent for 
the first 60 months and 100 percent thereafter.
      Beneficiaries in both groups are entitled to cost-sharing 
subsidies. Individuals with incomes below 135% of poverty, and 
resources meeting the requirement for the first group will have 
no deductible, cost-sharing for all costs up to the out-of-
pocket threshold of $2 for a generic drug or preferred multiple 
source and $5 for brand name or non-preferred drug. 
Institutionalized dual eligibles will have no cost sharing. 
Full benefit dual eligibles with incomes under 100 percent of 
poverty will have cost sharing up to the out-of-pocket 
threshold of up to $1 for a generic drug or preferred multiple 
source and $3 for a brand name or nonpreferred drug. Other low-
income subsidy eligible persons will have a $50 deductible, 15 
percent cost-sharing for all costs up to the out-of-pocket 
limit, and cost-sharing for costs above the out-of-pocket 
threshold of $2 for a generic drug or preferred multiple source 
and $5 for brand name or non-preferred drug. The deductible and 
cost-sharing amounts are increased each year beginning in 2007 
by the annual percentage increase in per capita beneficiary 
expenditures for Part D covered drugs except for $1 and $3 
cost-sharing, which will increase by the percentage increase in 
CPI.
      Eligibility determinations are to be made under the state 
Medicaid plan for the state or by the Commissioner of Social 
Security. Conferees believe that more beneficiaries will enroll 
in the new Part D benefit if given the option to apply at the 
Social Security office as well as the welfare office. Low-
income subsidy applications, information, and application 
assistance shall be available to beneficiaries in all Social 
Security offices and State Medicaid offices. It is the intent 
of the conferees that while enrollment at the SSA offices is 
important, both Medicaid programs and the Social Security 
Administration should engage in outreach activities to 
encourage eligible individuals to apply for subsidies under 
this section. The determinations shall remain effective for a 
period determined by the Secretary, not to exceed one year. 
Redeterminations or appealsare to be made in the same manner as 
such redeterminations and appeals are made by state Medicaid plans or 
the Commissioner for the supplemental security income program, 
whichever is appropriate.
      Full dual eligible persons are to be treated as subsidy 
eligible persons; the Secretary may provide that other Medicaid 
beneficiaries be treated as subsidy eligible. Otherwise, income 
is to be determined in the same manner as determinations are 
made for the QMB program; however, Section 1902(r)(2) which 
permits the use of less restive methodologies does not apply 
for determining whether an individual is a low-income subsidy 
eligible individual. However, Section 1902(r)(2) continues to 
apply to all state Medicaid eligibility determinations. The 
Secretary is to develop a model simplified application form and 
process for determining and verifying eligibility. The 
Commissioner may only require submission of statements from 
financial institutions for an application for low-income 
subsidies to be considered complete. No other documentary 
evidence may be required with the submission of the 
application. The Secretary is permitted to verify information 
submitted on the application.
      The Secretary will provide a process whereby the 
Secretary will notify the PDP sponsor or MA organization that 
an individual is eligible for a subsidy and the amount of the 
subsidy. The sponsor or entity would reduce the premiums or 
cost-sharing otherwise imposed by the amount of the subsidy. 
The Administrator will periodically, and on a timely basis, 
reimburse the sponsor or entity for the amount of the 
reductions. Reimbursement for cost-sharing subsidies may be 
computed on a capitated basis.
      The residents of the territories are not eligible for 
low-income subsidies. However, they may be eligible for 
financial assistance under the new section 1935(e), as added by 
Section 103.
Subsidies for All Medicare Beneficiaries for Qualified Prescription 
        Drug Coverage (New Section 1860D-15 of Conference agreement; 
        New Section 1860D-8 of House bill; New Sections 1860D-20, 
        1860D-11, and 1860D-16 of Senate bill).
House Bill
      a. Subsidies. New Section 1860D-8 would provide for 
subsidy payments to qualifying entities. The stated purpose of 
such payments would be to reduce premiums for all beneficiaries 
consistent with an overall subsidy level of 73%, reduce adverse 
selection among plans, and promote the participation of PDP 
sponsors. Such payments would be made as direct subsidies and 
through reinsurance. The section would constitute budget 
authority in advance of appropriations and represent the 
obligation of the Administrator to provide for subsidy payments 
specified under the section.
      Direct subsidies would be made for individuals enrolled 
in a PDP, MA Rx or EFFS Rx plan, and equal to 43% of the 
national weighted average monthly bid amount. Each year, the 
Administrator would compute a national average monthly bid 
amount equal to the average of the benchmark bid amounts for 
each drug plan (not including those offered by private-fee-for 
service entities) adjusted to add back in the value of 
reinsurance subsidies. The benchmark bid amount would be 
defined as the portion of the bid attributable to standard 
coverage or actuarial equivalent coverage. The bid amount would 
be a weighted average with the weight for each plan equal to 
the average number of beneficiaries enrolled in the plan for 
the previous year. (The Administrator would establish a 
procedure for determining the weighted average for 2005).
      Reinsurance payments would be made for specified costs 
incurred in providing prescription drug coverage for 
individuals enrolled in either a PDP plan, or a MA Rx or EFFS 
Rx plan. The Administrator would provide for reinsurance 
payments to PDP sponsors, and entities offering MA Rx or EFFS 
Rx plans. Reinsurance payments would be provided for 30% of an 
individual's allowable drug costs over the initial reinsurance 
threshold ($1,000 in 2006) but not over the initial coverage 
limit ($2,000 in 2006). Reinsurance, not to exceed 80% would 
also be provided for costs over the out-of-pocket threshold 
($3,500 in 2006). In the aggregate, reinsurance payments would 
equal 30% of total payments made by qualifying entities for 
standard coverage.
      For purposes of calculating reinsurance payments, 
allowable costs would be defined as the portion of gross 
covered prescription drug costs that were actually paid by the 
plan (net of discounts, chargebacks, and average percentage 
rebates), but in no case more than the part of such costs that 
would have been paid by the plan if the drug coverage under the 
plan were standard coverage. Gross covered drug costs would be 
defined as costs (including administrative costs) incurred 
under the plan for covered prescription drugs dispensed during 
the year, including costs related to the deductible, whether 
paid by the enrollee or the plan, regardless of whether 
coverage under the plan exceeded standard coverage and 
regardless of when the payment for the drugs was made.
      The Administrator would be required to estimate the total 
reinsurance subsidy payments that would be made during the year 
(including those made to qualified retiree plans) and total 
benefit payments to be made by qualifying entities for standard 
coverage during the year. The Administrator would 
proportionately adjust payments such that total subsidy 
payments during the year were equal to 30% of total payments 
made by qualifying plans for standard coverage during the year. 
The Administrator could, in a budget neutral manner, adjust 
direct subsidy payments in order to avoid risk selection. The 
payment method would be determined by the Administrator who 
could use an interim payment system based on estimates. 
Payments would be made from the Medicare Prescription Drug 
Trust Fund.
      b. Risk corridors. No provision.
Senate Bill
      a. Subsidies. New Section 1860D-20 of the Senate bill 
would provide for reinsurance payments on behalf of: (1) 
persons enrolled in a PDP; (2) MA plan (except for MSA plan or 
private fee-for-service plan not providing qualified coverage); 
(3) persons eligible for but not enrolled in Part D and covered 
under a qualified retiree plan; (4) persons eligible for but 
not enrolled in Part D and covered under a qualified state 
pharmaceutical assistance program. Qualified retiree plans and 
state pharmaceutical assistance programs would have to provide 
coverage at least equal to the actuarial value of standard 
coverage. Reinsurance payments would be made to plans in the 
case of individuals whose spending exceeded the out-of-pocket 
limit. Payments to plans would equal 80% (65% in the case of 
persons in a state pharmaceutical assistance program) of 
allowable drug costs exceeding the limit. Allowable costs would 
be equal to actual costs above the limit. Entities would be 
required to notify the Administrator of the total actual costs 
(if any) incurred for providing benefits for an individual 
after the individual exceeded the out-of-pocket threshold. 
Administrative costs, costs for coverage in excess of the 
standard benefit, and discounts, direct or indirect subsidies, 
rebates, or other price concessions or direct or indirect 
remunerations would not be included. Payment methods would be 
determined by the Administrator. Such methods could include the 
use of interim payments.
      Any plan sponsor that was not an employer would be 
required to redistribute reinsurance payments to employers 
contributing to the plan maintained by the sponsor; the 
payments would be allocated proportionately among all employers 
contributing to the plan.
      The New Section 1860D-11 would require the Administrator 
to establish an appropriate method for adjusting payments to 
plans to take into account variations in costs based on the 
differences in actuarial risk of different enrollees being 
served. Any risk adjustment would be designed in a budget 
neutral manner. The Administrator could take into account 
similar methodologies used to adjust payments for Medicare 
Advantage organizations. The Administrator would be required to 
publish such risk adjusters not later than April 15 each year 
(beginning in 2005) to be used for computing payments to plans 
for standard coverage.
      New Section 1860D-16 would require the Administrator to 
pay each entity offering a Medicare Prescription Drug Plan an 
amount equal to the full monthly approved premium, with 
appropriate risk adjusters. Payment terms would be determined 
by the Administrator and be based on terms used for Medicare 
Advantage plans. Payments to plans would be adjusted to account 
for differences in actuarial risk of different enrollees being 
served.
      b. Risk corridors. New section 1860D-16 would require 
entities to notify the Administrator for each year (beginning 
in 2007) of the total actual costs the entity incurred in 
providing standard coverage in the preceding year. Total actual 
costs would reflect total payments made to pharmacies and other 
entities for coverage and the aggregate amount of discounts, 
direct or indirect subsidies, rebates, or other price 
concessions or direct or indirect remunerations made to the 
entity. The notification would not include spending for 
administrative costs, amounts spent for coverage in excess of 
standard coverage, or amounts for which the entity subsequently 
received reinsurance payments.
      The provision would establish risk corridors, which would 
be defined as specified percentages above and below a target 
amount. The target amount would be defined as the total of plan 
premiums minus a percentage (negotiated between the 
Administrator and the entity) for administrative costs. No 
payment adjustment would be made if allowable costs were not 
more than the first threshold upper limit or less than the 
first threshold lower limit for the year, i.e. if the plans 
were within the first risk corridor. A portion of any plan 
spending above or below these levels would be subject to risk 
adjustments. If allowable costs exceeded the first threshold 
upper limit, then payments would be increased. If allowable 
costs were below the first threshold lower limit, payments 
would be reduced.
      During 2006 and 2007, plans would be at full risk for 
drug spending within 2.5% above or below the target. Plans 
would be at risk for 25% of spending exceeding 2.5% (first 
threshold upper limit) and below 5% of the target (second 
threshold upper limit). That is their payments would equal 75% 
of the allowable costs for spending in this range. They would 
be at risk for 10% of the spending exceeding 5% of the target. 
That is their payments would equal 90% of the allowable costs 
for spending in this range. Conversely, if plans fell below the 
target, they would share the savings with the government. They 
would have to refund 75% of the savings if costs fell between 
2.5% and 5% below the target level, and 90% of any amounts 
below 5% of the target.
      A special transition corridor would be established in the 
first two years. The Administrator would make a payment 
adjustment if the Administrator determined that 60% or more of 
all participating plans (including Medicare Advantage plans) 
representing at least 60% of covered beneficiaries had 
allowable costs that were more than 2.5% above the target. Risk 
corridor payments would equal 90% of any spending greater than 
2.5% of the target but below 5% of the target.
      For 2008-2011, the risk corridors would be modified. 
Plans would be at full risk for drug spending within 5.0% above 
or below the target level. Plans would be at risk for 50% of 
spending exceeding 5.0% and below 10.0% of the target level. 
They would be at risk for 10% of the spending exceeding 10% of 
the target level. Payments would be increased by 50% of 
allowable costs exceeding the first threshold upper limit and 
90% for costs exceeding the second threshold upper limit. 
Conversely, if plans fell below the target, they would share 
the savings with the government. They would have to refund 50% 
of the savings if costs fell between 5% and 10% below the 
target level, and 90% of any amounts below 90% of the target. 
For years after 2011, the Administrator would establish risk 
corridors. The first threshold risk percentage could not be 
less than 5% and the second threshold risk percentage could not 
be less than 10%.
      Administrative costs would not be included in the 
calculation of whether or nor plan spending fell within a 
particular risk corridor. Administrative costs would be 
negotiated separately, on a plan by plan basis, with the 
Administrator. Administrative costs would be subject to 
performance risk.
      For purposes of making risk corridor calculations, 
allowable costs would be based on actual costs reported by the 
plan.
      The Administrator could require disclosure of any data as 
needed to administer the benefit. The Administrator would have 
the right to inspect and audit any books and records of the 
entity pertaining to amounts reported for drug spending. 
Information could be used by officers and employees of the 
Department of Health and Human Services, but only to the extent 
necessary to carry out this section.
      The Administrator would be required to establish a 
stabilization reserve fund, within the Prescription Drug 
Account. Amounts in this fund would be made available to 
eligible entities beginning with their 2008 contract year. 
Payments to the fund would be determined as follows. If the 
target amount for a plan for any year 2006-2010 exceeded 
applicable costs by more than 3% for the year, the entity would 
pay the Administrator the amount of such excess; the 
Administrator would deposit such amount in the fund on behalf 
of the entity. Applicable costs would be defined as the sum of 
allowable costs and the amount by which monthly payments were 
reduced through application of the risk corridor provisions. At 
appropriate intervals, the Administrator would notify a 
participating entity of the balances in any of its 
stabilization accounts. Beginning in 2008, entities would be 
permitted to use account funds to stabilize or reduce plan 
premiums. The accounts would expire after 5 years. Any amounts 
not used by an eligible entity or that was deposited for use by 
an entity that no longer had a Part D contract would revert to 
the use of the Prescription Drug Account.
Conference Agreement
      a. Subsidies. New Section 1860D-15 of the conference 
agreement provides for subsidy payments to qualifying entities. 
Such payments would reduce premiums for all beneficiaries 
consistent with an overall subsidy level of 74% for basic 
coverage, to reduce adverse selection among plans, and to 
promote the participation of PDP sponsors and MA organizations. 
Such payments would be made as direct subsidies and through 
insurance.
      The direct monthly per capita subsidy amount is equal to 
the plan's standardized bid amount adjusted for health status 
and risk and reduced by the base beneficiary premium as 
adjusted to reflect the difference between the bid and the 
national average bid.
      Reinsurance payments, equal to 80% of allowable costs, 
would also be provided for an enrollee whose costs exceeded the 
annual out-of-pocket threshold ($3,600 in 2006). For purposes 
of calculating reinsurance payments, allowable costs would be 
defined as the portion of gross covered prescription drug costs 
that were actually paid by the plan (net of discounts, 
chargebacks, and average percentage rebates), but in no case 
more than the part of such costs that would have been paid by 
the plan if the drug coverage under the plan were basic 
coverage or, in the case of supplemental coverage, standard 
coverage. Gross covered drug costs would be defined as costs 
(not including administrative costs) incurred under the plan 
for covered prescription drugs dispensed during the year, 
including costs related to the deductible, whether paid by the 
enrollee or the plan, regardless of whether coverage under the 
plan exceeded basic coverage and regardless of when the payment 
for the drugs was made.
      The Secretary is required to establish an appropriate 
method for adjusting the standardized bid amount to take into 
account variations in costs for basic coverage based on the 
differences in actuarial risk of different enrollees being 
served. Any risk adjustment would be designed in a budget 
neutral manner. The Secretary may take into account similar 
methodologies used to adjust payments for MA organizations. The 
Secretary would require PDP sponsors and MA organizations 
offering MA-PD plans to submit data. The Secretary is required 
to publish such risk adjusters at the same time as risk 
adjusters are published for MA organizations.
      The Secretary is required to establish an appropriate 
method for adjusting the national average monthly bid amount 
per capita subsidy amount to take into account differences. If 
the Secretary determines that price variations are de minimis, 
no adjustment is to be made. Any adjustments must be applied in 
a budget neutral manner.
      The Secretary is to establish payment methods, which may 
include interim payments. Payments are conditional upon the PDP 
sponsor and MA organization furnishing necessary information to 
the Secretary. Information may be used by officers and 
employees of HHS only for the purposes of and to the extent 
necessary to carry out the section.
      b. Risk corridors. New Section 1860D-15 of the conference 
agreement provides for the establishment of risk corridors, 
which are defined as specified percentages above and below a 
target amount. The target amount is defined as total payments 
paid to the plan, taking into account the amount paid by the 
Secretary and enrollees, based on the standardized bid amount, 
risk adjusted, and reduced by total administrative expenses 
assumed in the bid. No payment adjustments will be made if 
adjusted allowable costs for the plan are at least equal to the 
first threshold lower limit of the first risk corridor but not 
greater than the first threshold upper limit of the risk 
corridor for the year, i.e. if the plans are within the first 
risk corridor. A portion of any plan spending above or below 
these levels is subject to risk adjustment. If adjusted 
allowable costs exceed the first threshold upper limit, then 
payments are increased. If adjusted allowable costs are below 
the first threshold lower limit, then payments are reduced. 
Adjusted allowable costs are reduced by reinsurance and subsidy 
payments. Payment adjustments would not affect beneficiary 
premiums.
      During 2006 and 2007, plans would be at full risk for 
adjusted allowable risk corridor costs within 2.5% above or 
below the target. Plans with adjusted allowable costs above 
this level would receive increased payments. If their costs 
were between 2.5% of the target (first threshold upper limit) 
and 5% of the target (second threshold upper limit), they would 
be at risk for 25% of the increased amount; that is their 
payments would equal 75% of adjusted allowable costs for 
spending in this range. If their costs were above 5% of the 
target they would be at risk for 25% of the costs between the 
first and second threshold upper limits and 20% of the costs 
above that amount. That is their payments would equal 80% of 
the adjusted allowable costs over the second threshold upper 
limit. Conversely, if plans fell below the target, they would 
share the savings with the government. They would have to 
refund 75% of the savings if costs fell between 2.5% and 5% 
below the target level, and 80% of any amounts below 5% of the 
target.
      A higher risk sharing percentage would apply in 2006 and 
2007 if the Secretary determines that 60 percent of 
prescription drug plans and MA-PD plans, representing at least 
60 percent of beneficiaries enrolled in such plans have 
adjusted allowable costs that are more than the first threshold 
upper limit. In this case, payment to plans would equal 90 
percent of adjusted allowable costs between the first and 
second upper threshold limits.
      For 2008-2011, the risk corridors would be modified. 
Plans would be at full risk for drug spending within 5% above 
or below the target level. Plans would be at risk for 50% of 
spending exceeding 5% and below 10% of the target level. 
Additionally, they would be at risk for 20% of any spending 
exceeding 10% of the target level. Payments would be increased 
by 50% of adjusted allowable costs exceeding the first 
threshold upper limit and 80% for any costs exceeding the 
second threshold upper limit. Conversely, if plans fell below 
the target, they would share the savings with the government. 
They would have to refund 50% of the savings if costs fell 
between 5% and 10% below the target level, and 80% of any 
amounts below 10% of the target. For years after 2011, the 
Administrator would establish risk corridors. The first 
threshold risk percentage could not be less than 5% and the 
second threshold risk percentage could not be less than 10% of 
the target amount. Conferees intend the risk corridors to 
create incentives for plans to enter the market.
      If allowable risk corridor costs are less than the first 
threshold lower limit, but not greater than the first threshold 
upper limit for the plan year, then no payment adjustment is 
made.
      Plans are at full financial risk for all spending for 
supplemental prescription drug coverage.
      The subsidy and risk corridor provisions would not apply 
to fallback plans.
Medicare Prescription Drug Account in the Federal Supplementary 
        Insurance Trust Fund (New Section 1860D-16 of Conference 
        Agreement; New Section 1860D-9 of House Bill; New Section 
        1860D-25 of Senate Bill).
Present Law
      Medicare Part B is financed by a combination of enrollee 
premiums and federal general revenues. Income from these 
sources is credited to the Federal Supplementary Insurance 
Trust Fund. Payments are made from the Trust Fund for Part B 
benefits.
House Bill
      New Section 1860D-9 would create a Medicare Prescription 
Drug Trust Fund. Requirements applicable to the Part B trust 
fund would apply in the same manner to the Drug Trust Fund as 
they apply to the Part B Trust Fund. The Managing Trustee would 
pay from the Fund, from time to time, low-income subsidy 
payments, subsidy payments, and payments for administrative 
expenses. The Managing Trustee would transfer, from time to 
time, to the Medicaid account amounts attributable to allowable 
increases in administrative costs associated with identifying 
and qualifying beneficiaries eligible for low-income subsidies. 
Amounts deposited into the Trust Fund would include the federal 
amount which would otherwise be payable by Medicaid except for 
the fact that Medicaid becomes the secondary payer of drug 
benefits for the dual eligibles. The provision would authorize 
appropriations to the Trust Fund an amount equal to the amount 
of payments from the Trust Fund reduced by the amount 
transferred to the Trust Fund.
      The provision would specify that any provision of law 
relating to the solvency of the trust fund would take into 
account the Fund and the amounts received by, or payable from, 
the Fund.
Senate Bill
      A separate account, known as the Prescription Drug 
Account, would be established within the Part B Trust Fund. 
Funds in this Account would be kept separate from other funds 
within the Trust Fund. Payments would be made from the Account 
to eligible entities and Medicare Advantage plans and for low-
income subsidies, reinsurance payments, and administrative 
expenses. Appropriations would be made to the Account equal to 
the amount of payments and transfers made from the Account.
Conference Agreement
      The conference agreement establishes a Medicare 
Prescription Drug Account in the Part B Trust Fund. Funds in 
this Account will be kept separate from other funds within the 
Trust Fund. Payments will be made from the Account for low-
income subsidies, subsidy payments, payments to qualified 
retiree prescription drug plans, and administrative expenses. 
Transfers would be made to the Medicaid account for increased 
administrative costs. States would make payments to the Account 
for dual eligibles as provided for under Section 1935(c). 
Appropriations would be made to the Account equal to the amount 
of payments and transfers from the Account. In order to ensure 
prompt payments in the early months of the program, there are 
appropriated such amounts the Secretary certified as necessary, 
not to exceed 10% of estimated expenditures for 2006.

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

Application to Medicare Advantage Program and Related Managed Care 
        Programs (New Section 1860D-21 of Conference agreement; Section 
        101 of House bill; Sections 201 and 205 of Senate bill).
Present Law
      No provision.
House Bill
      Beginning January 1, 2006, at least one MA plan offered 
by an MA organization in an area would be required to: (1) 
offer qualified drug coverage under Part D; (2) meet the 
beneficiary protections outlined in the new Section 1860D-3, 
including requirements relating to information dissemination as 
well as grievance and appeals; and (3) provide the same 
information required from prescription drug plan sponsors when 
submitting a bid, unless waived by the Administrator. MA 
organizations providing qualified drug coverage would receive 
low-income subsidy payments and direct and reinsurance 
subsidies. A single premium would be established for drug and 
non-drug coverage.
      There would be exceptions for the prescription drug 
coverage offered by private fee-for-service (PFFS) plans. PFFS 
plans would not be required to negotiate prices or discounts; 
however, to the extent a plan did so, it would be required to 
meet related Part D requirements.
Senate Bill
      In addition to current law requirements, Medicare 
beneficiaries would also be required to be enrolled in the new 
Part D (prescription drug program) in order to enroll in MA 
(except for PFFS).
      Beginning on January 1, 2006, MA plans, other than PFFS 
and MSA plans, would be required to offer each enrollee 
qualified prescription drug coverage that met the requirements 
for such coverage under the MA program and under Part D of 
Medicare. An MA plan could offer qualified prescription drug 
coverage that exceeded the coverage required under Part D, as 
long as it also offered an MA plan in the area that provided 
only the required coverage. This provision would also establish 
payments to each MA organization offering an MA plan that 
provided qualified prescription drug coverage, including a low-
income drug subsidy.
Conference Agreement
      Beginning January 1, 2006, an MA organization cannot 
offer an MA plan in an area unless either that plan (or another 
MA plan offered by the organization in the same service area) 
includes required prescription drug coverage, and could not 
offer prescription drug coverage (other than that required 
under parts A and B) to an enrollee under an MSA plan or under 
another MA plan unless such drug coverage was qualified 
prescription drug coverage and unless the requirements of this 
section, with respect to such coverage are met. Qualified 
coverage is basic coverage or qualified coverage that provides 
supplemental drug benefits so long as there is no MA monthly 
supplemental beneficiary premium under the plan.
      An individual enrolled in a health benefits plan would 
not be considered to have been deemed to make an election into 
an MA-PD plan, unless the plan provides prescription drug 
coverage. An individual enrolled in an MA plan would not be 
considered to have been deemed to make an election into an MA-
PD plan, unless: (1) for purposes of the January 1, 2006 
election, the MA plan provided as of December 31, 2005 any 
prescription drug coverage; or (2) for periods after January 1, 
2006, such MA plan was an MA-PD plan. An individual who 
discontinues enrollment in an MA-PD plan during his/her first 
year of eligibility could enroll in a prescription drug plan 
under part D at the time of their election of coverage under 
original Medicare fee-for-service program.
      If an individual is enrolled in an MA plan (other than an 
MSA plan) that does not provide qualified prescription drug 
coverage, and the organization discontinues offering all MA 
plans without prescription drug coverage, then the individual 
would be deemed to have elected the original Medicare fee-for-
service program, unless the individual affirmatively enrolls in 
an MA-PD plan. This disenrollment would be treated as an 
involuntary termination of the MA plan.
      The provisions of this part would apply under Part C of 
Medicare with respect to prescription drug coverage provided 
under MA-PD plans in lieu of other Part C provisions that would 
apply to such coverage. The Secretary could waive these 
provisions to the extent that they duplicate provision under 
Part C or as may be necessary in order to improve coordination. 
The Secretary may also waive the pharmacy network requirements 
of section 1860D-4(b)(1)(C) in the case of an MA-PD plan that 
provides access (other than mail order) to qualified 
prescription drug coverage through pharmacies owned and 
operated by the MA organizations. The Secretary must determine 
the organization's pharmacy network is sufficient to provide 
comparable access for enrollees under the plan.
      Private fee-for-service plans (PFFS) plans would not be 
required to negotiate prices or discounts; however, to the 
extent a plan did so, it would be required to meet related Part 
D requirements. If the PFFS plan provided coverage for drugs 
purchased from all pharmacies, without additional cost-sharing, 
requirements for pharmacy access and public disclosure of 
pharmaceutical prices for equivalent drugs would not apply. For 
PFFS plans, the drug utilization management program and the 
medication therapy management program would not be required. 
For PFFS plans, the Secretary would determine the amount of 
reinsurance payment using a methodology that bases such amount 
on the Secretary's estimate of the amount of such payment that 
would be payable if the plan were an MA-PD plan and that takes 
into account the average reinsurance payment made for a 
population of similar risk under MA-PD plans. The risk corridor 
provisions would not apply, and plans would be exempt from 
negotiations on bid terms.
      If an organization provides benefits under a reasonable 
cost reimbursement contract and also elects to provide 
qualified prescription drug coverage, then the provisions of 
this section and related provisions in part C would apply in 
the same manner as applied to local MA-PD plans. Individuals, 
who were not enrolled in the reasonable cost plan, could not 
enroll in the prescription drug plan. The bid of the reasonable 
cost plan would not be taken into account in computing any 
standardized bid amount under this section.
      In general, the provisions of Part D and related 
provisions of Part C apply to PACE programs in the same manner 
as they apply to MA-PD plans. The organization may not enroll 
persons not enrolled in PACE. Bids are not taken into account 
in computing the standardized bid amount.
Special Rules for Employer-Sponsored Programs (New Section 1860D-22 of 
        Conference agreement; New section 1860D-8 of House bill; New 
        Section 1860D-21 and 1860D-22 of Senate bill).
Present Law
      No provision.
House Bill
      Under New Section 1860D-8, special subsidy payments would 
be made to a ``qualified retiree prescription drug plan.'' A 
qualified plan would be defined as employment-based retiree 
health coverage (including coverage offered pursuant to one or 
more collective bargaining agreements) meeting certain 
requirements. The Administrator would have to determine that 
coverage had at least the same actuarial value as standard 
coverage. The sponsor (and the plan) would be required to 
maintain and provide access to records needed to ensure the 
adequacy of coverage and the accuracy of payments made. 
Further, the sponsor would be required to provide 
certifications of coverage. Payment could not be made for an 
individual unless: the individual was covered under the retiree 
plan, entitled to enroll under a PDP or MA Rx or EFFS Rx plan 
but elected not to. Subsidy payments would equal 28% of 
allowable costs between $250, but not greater than $5,000, 
indexed annually by the percentage increase in Medicare per 
capita prescription drug costs. The provision would clarify 
that nothing in the section would be construed as precluding an 
individual covered under an employment-based retiree plan from 
enrolling in a PDP plan or MA or EFFs plan or having the 
employment based plan from paying the premium. Employment-based 
supplemental coverage would be considered the primary payer for 
purposes of the Medicare secondary payment provisions.
Senate Bill
      New Section 1860D-21 of the Senate bill would authorize 
the Administrator to make direct payments to sponsors of 
qualified retiree prescription drug plans (as defined under New 
Section 1860D-20) for each beneficiary enrolled in the plan who 
was not enrolled in Part D. The amount of the payment would 
equal the direct subsidy percent of the monthly national 
average premium for the year, as adjusted by risk adjusters. 
The direct subsidy percent would be 100% minus the applicable 
percent as defined under the new Section 1860D-17. The 
applicable percentage for an area would be 30% divided by: (1) 
100%, minus (2) a percentage equal to total reinsurance 
payments that would be made in a year divided by such amount 
plus total payments that would be made to plans in the year for 
standard coverage.
      The Administrator would establish payment methods, which 
could include interim payments. Payments would be made from the 
Prescription Drug Account.
      New Section 1860D-22 would require the Administrator to 
make direct payments to sponsors of qualified state 
pharmaceutical assistance programs for each beneficiary 
enrolled in the plan who was not enrolled in Part D. The amount 
of the payment would be calculated in the same way that such 
payments were calculated for retiree plans. Further, the 
Administrator would provide for additional payments in behalf 
of each person who would otherwise qualify for a low-income 
subsidy, if the individual were enrolled in Part D. The payment 
would equal the amountthe Administrator estimates would have 
been paid under the subsidy provisions, but in no case more than the 
average payment made under the subsidy provisions for an individual in 
the same income group.
Conference Agreement
      New Section 1860D-22 of the conference agreement 
establishes special rules for employer-sponsored programs. 
Under certain conditions, the Secretary is required to make 
special subsidy payments to sponsors of qualified retiree 
prescription drug plans. These payments are to be made on 
behalf of an individual covered under the retiree plan, 
entitled to enroll under a PDP or MA-PD plan but elected not 
to. Subsidy payments will equal 28% of gross covered retiree 
plan-related prescription drug costs greater than $250 but not 
greater than $5,000, adjusted annually by the percentage 
increase in Medicare per capita prescription drug costs.
      Qualified retiree prescription drug plans must be 
employment-based group health plans. Group health plans include 
welfare plans defined under the Employee Retirement Income 
Security Act, federal and state governmental plans, including 
such plans as the Federal Employee Health Benefits program and 
CalPERS, collectively bargained plans, and church plans. 
Conferees expect that in the case of interpretive matters with 
regard to plan sponsors of group health plans, CMS will 
coordinate with the Department of Labor and Treasury Department 
for guidance. The sponsor must provide the Secretary with an 
attestation that the actuarial value of prescription drug 
coverage under the plan is at least equivalent to the actuarial 
value of standard prescription drug coverage. The sponsor, or 
administrator designated by the sponsor, shall maintain and 
afford the Secretary access to necessary records for the 
purpose of audits and other oversight activities. The sponsor 
is required to provide disclosure of information in accordance 
with disclosure of information on creditable coverage.
      Nothing in the section is to be construed as precluding 
an individual covered under an employment-based retiree plan 
from enrolling in a PDP plan or MA-PD plan or having the 
employment-based plan from paying the premium. The PDP or MAPD 
plan would constitute primary coverage, not the employer. 
Employment-based retiree coverage may provide coverage that is 
better than standard coverage to retirees under a qualified 
retiree prescription drug plan. Employment-based retiree health 
coverage may provide coverage that is supplemental to benefits 
provided under a prescription drug plan or MA-PD plan to 
enrollees in such plans. Nothing is to prevent employers from 
providing flexibility in benefit design and pharmacy access 
provisions for basic drug coverage so long as actuarial 
equivalence requirements are met.
      About one-third of Medicare beneficiaries receive 
coverage for prescription drugs from their former employers. 
Retirees are generally happy with their coverage and want to 
keep it. But employer plans are under increasing pressure to 
drop or scale back coverage. In 1988, 66% of large employers 
provided health benefits. In 2002, that number slipped to just 
34%. Costs for retiree health coverage rose 16.0% in 2002, 
while prescription drug expenditures increased by 11.8% last 
year, and most employers predict double-digit health inflation 
well into the future. Conferees believe the employer retiree 
subsidies included in the conference report will help employers 
retain and enhance their prescription drug coverage so that the 
current erosion in coverage would plateau or even improve. 
Absent this assistance, many more retirees will lose their 
employer sponsored coverage.
      State Pharmaceutical Assistance Programs (New Section 
1860D-23 of Conference agreement).
Present Law
      A number of states currently have programs to provide 
low-income persons, not qualifying for Medicaid, with financial 
assistance in meeting their drug costs. The state programs 
differ substantially in both design and coverage.
House Bill
      No provision.
Senate Bill
      No provision.
Conference Agreement
      New Section 1860D-23 of the conference agreement requires 
the Secretary, by July 1, 2005, to establish requirements to 
ensure effective coordination between a Part D plan (both a 
prescription drug plan and MA-PD plan) and a state 
pharmaceutical assistance program (SPAP). The coordination 
requirements relate to payment of premiums and coverage and 
payment for supplemental drug benefits, and assistance with 
cost-sharing. Requirements must be included for enrollment 
file-sharing, claims processing, claims reconciliation reports, 
application of the catastrophic out-of-pocket protection, and 
other administrative procedures specified by the Secretary. 
Requirements are to be consistent with applicable law, to 
safeguard the privacy of any identifiable beneficiary 
information. The agreement provides that the requirements must 
include a method for the application by a Part D plan of 
specified funding amounts for enrolled beneficiaries for 
supplemental benefits. The Secretary is required, when 
developing the requirements, to consult with state programs, 
the PDP sponsors, MA organizations, States, pharmaceutical 
benefit managers, employers, data processing experts, 
pharmacists, pharmaceutical manufacturers, and other experts.
      This legislation allows state pharmacy assistance 
programs to act as administrative intermediaries for the 
purpose of facilitating enrollment of SPAP members in 
prescription drug plans and in the discount card program.
      A state pharmaceutical program that this provision 
applies to is one: (1) that provides financial assistance for 
the purchase or provision of supplemental prescription drug 
coverage on behalf of eligible individuals; and (2) which, in 
determining program eligibility and amount of payment, provides 
assistance to beneficiaries in all Part D plans and does not 
discriminate based on the Part D plan in which the individual 
is enrolled. A card used under Part D may also be used for 
benefits under the state program.
      The agreement authorizes the Secretary, based on an 
approved application, to provide payments to state 
pharmaceutical assistance programs for the purpose of educating 
program beneficiaries about Part D coverage, providing 
technical assistance to facilitate selection and enrollment in 
plans, and other activities to promote effective coordination. 
The report provides$62.5 million in mandatory spending in each 
fiscal year 2005 and 2006 to help promote coordination between Medicare 
plans and SPAPs.
      Coordination Requirements for Plans Providing 
Prescription Drug Coverage (New Section 1860D-24 of Conference 
agreement).
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      No provision.
Conference Agreement
      The New Section 1860D-24 of the conference agreement 
requires the Secretary to apply the coordination requirements 
established under the New Section 1860D-23 for state 
pharmaceutical assistance programs, to other prescription plans 
including Medicaid (including a plan operating under an 1115 
waiver), group health plans, federal employees health benefits 
plan, military coverage (including TRICARE), and other coverage 
specified by the Secretary.
      The coordination requirements include coordination of 
procedures to establish third-party reimbursement of out-of-
pocket costs. The provision does not change the application of 
these procedures. The Secretary may impose user fees for the 
transmittal of information necessary for benefit coordination.
Medicare Prescription Drug Discount Card and Transitional Assistance 
        Program (New Section 1860D-31 of Conference agreement; Section 
        105 of House Bill; Section 111 of Senate Bill).
Present Law
      On July 12, 2001, the President announced a new national 
drug discount card program for Medicare beneficiaries. Under 
this program, CMS would endorse drug card programs meeting 
certain requirements. This program was viewed as an interim 
step until a legislative reform package, including both a drug 
benefit and other Medicare reforms, was enacted. Implementation 
of the drug discount card program was suspended by court 
action.
House Bill
      The provision would require the Secretary to establish a 
program to: (1) endorse prescription drug discount card 
programs meeting certain requirements; (2) provide for 
prescription drug accounts; and (3) make available information 
on such programs to beneficiaries. The Secretary would begin 
operation of the endorsement program within 90 days of 
enactment. The account part of the program would begin no later 
than September 2004. The Secretary would provide for an 
appropriate transition and termination of the program on 
January 1, 2006. The program would be voluntary.
      Eligible beneficiaries would be defined as persons 
eligible under Part A or enrolled in Part B, but not enrolled 
in an MA plan offering qualified prescription drug coverage. 
The Secretary would establish a process through which an Part D 
eligible individual could make an election to enroll under the 
new Section 1807 with an endorsed program. The beneficiary 
would have to enroll for a year in order to receive the 
benefits for the year. An individual would, in general have 
only one opportunity for enrollment. This would occur during an 
initial, general enrollment period as soon as possible after 
enactment, and annually thereafter. The annual open enrollment 
periods would be coordinated with those for MA. An individual 
who enrolled in the new Section 1807, subsequently enrolled in 
an MA plan with drug coverage, and then discontinued such MA 
enrollment would be permitted to reenroll under Section 1807.
      In general, eligible beneficiaries would not be permitted 
to enroll after their initial enrollment period (as defined 
under Part B). The Secretary would establish an open enrollment 
period for current beneficiaries.
      The Secretary would establish a process through which an 
Part D eligible individual, enrolled under the new Section 
1807, would select an eligible entity to provide access to 
negotiated prices. The entity would be one, which had been 
awarded a contract and served the state in which the 
beneficiary resided. Eligible entities would be pharmaceutical 
benefit management companies, wholesale and retail pharmacy 
delivery systems, insurers, MA organizations, other entities, 
or any combination of these.
      The enrollment process, established by the Secretary, 
would use rules similar to those established for MA. 
Individuals could not select more than one entity at a time 
and, except for unusual circumstances (including changing 
residential setting, such as nursing home placement.) change 
the selection once a year. The process would provide for 
selecting eligible entities for individuals who enrolled in the 
New Section 1807, but failed to select an entity. Entities 
would compete for beneficiaries on the basis of discounts, 
formularies, pharmacy networks, and other services.
      The Secretary would broadly disseminate information to 
eligible beneficiaries regarding enrollment, selection of 
eligible entities, and the coverage made available by entities. 
The enrollment fee would be $30 with the 2004 fee including any 
portion of 2003 covered by the program. The fee would be 
collected in the same manner as Part B premiums are collected 
from Social Security payments, except the collection would be 
made only once a year. States could pay the fee for some or all 
low-income enrollees in the state. No federal matching payments 
would be available. The Secretary would make 2/3 of the fee 
collected available to the eligible entity.
      Each eligible entity would be required to issue a card 
and an enrollment number to each enrolled beneficiary and to 
provide for electronic methods to coordinate with prescription 
drug accounts established under the New Section 1807A.
      Beneficiary protections would be established including 
guaranteed issue and nondiscrimination provisions. If an 
eligible entity served a state, it would be required to serve 
the entire state. Entities would be required to disseminate, to 
each beneficiary who selected theentity, summary information on 
negotiated prices, access to such prices through pharmacy networks, and 
how the formulary functioned. Upon request, entities would be required 
to provide general coverage, utilization, and grievance information. In 
addition, entities would be required to have a mechanism for providing 
specific information upon request. The new Part D provisions relating 
to pharmacy access would apply to eligible entities. To the extent the 
Secretary determined they could be implemented on a timely basis, 
entities would be required to meet the new Part D provisions with 
respect to development and application of formularies and the 
requirements to have in place an effective cost and drug utilization 
management program, quality assurance measures and systems, and a 
program to control fraud, abuse and waste. Each entity would be 
required to have in place meaningful procedures for hearing and 
resolving grievances and for expedited determinations and 
reconsiderations of coverage determinations. Entities would be required 
to provide pharmaceutical support services. They would also be required 
to provide for confidentiality and accuracy of enrollee records and 
periodic reports to the Secretary.
      Entities would be required to provide beneficiaries with 
access to negotiated prices (including applicable discounts). 
Such discounts would not be taken into account in establishing 
``best price'' for purposes of Medicaid calculations. If the 
entity used a formulary, negotiated prices would only be 
available for formulary drugs. Negotiated prices could not be 
limited to mail order drugs. Entities and contracting 
pharmacies could not charge beneficiaries for any required 
services. Entities would be required to disclose to the 
Secretary the extent to which discounts, or rebates or other 
remuneration or price concessions made available by a 
manufacturer were passed through to enrollees; such information 
would be confidential. Entities would be required to notify 
enrollees at the time of purchase of the differential between 
any prescribed drug and the cost of the lowest cost available 
generic drug that was therapeutically equivalent and 
bioequivalent.
      The Secretary would be required to establish a 
prescription drug account for each enrolled individual and 
deposit into the account the federal contribution amount. This 
amount would be $800 for an accountholder with income under 
135% of poverty, $500 for an accountholder with income between 
135% and 150% of poverty, and $100 for all other persons. 
Income would be determined under the state Medicaid program or 
by the Social Security Administration (SSA). Such sums as may 
be necessary would be authorized to be appropriated to the SSA. 
If the program was not in effect for all of 2004, the amounts 
would be prorated. Persons would not be eligible for a federal 
contribution if they were eligible for drug coverage under 
Medicaid, group health plan, Medigap, medical care for members 
of the uniformed services, veterans' medical care, Federal 
Employees Health Benefits program, or the Indian Health Care 
Improvement Act. The provision would authorize appropriations 
to the Part B trust fund of an amount equal to the amount by 
which benefits and administrative costs exceeded the portion of 
enrollment fees retained by the Secretary.
      The provision would establish a new Section 1807A, 
Prescription Drug Accounts, that would be established for each 
enrolled beneficiary. Contributions to the account would 
include federal contributions, any state contributions, private 
contributions (including employer and individual contributions) 
and spousal rollover contributions. If the accountholder was 
married at the time of death, the amount in the account 
attributable to public contributions would be credited to the 
account, if any, of the surviving spouse, or if the spouse was 
not an Part D eligible individual, into a reserve account to be 
held for when the spouse became an Part D eligible individual.
      Costs of the voluntary prescription drug discount card 
program would not be considered in calculating the Part B 
premium.
      By March 1, 2005, the Administrator would be required to 
submit a report to Congress on the progress made in 
implementing the new prescription drug benefit, including 
specific steps that had been taken, and need to be taken, to 
ensure timely start of the program on January 1, 2006.
Senate Bill
      Section 111 would add a new Section 1807 to the Social 
Security Act, Medicare Prescription Drug Discount Card 
Endorsement Program. The Secretary would establish a program 
under which the Secretary would endorse card programs offered 
by prescription drug card sponsors meeting certain requirements 
and would make available information on such programs to 
beneficiaries. Eligible sponsors would be entities with 
demonstrated experience and expertise in operating a 
prescription drug discount card program or similar program that 
the Secretary determined to be appropriate to provide benefits 
to Medicare beneficiaries. Such entities would include 
pharmaceutical benefit management companies, wholesale or 
retail pharmacist delivery systems, insurers, other entities, 
or any combination of these.
      Any individual entitled to Part A and enrolled in Part B 
would be eligible to enroll in an endorsed prescription drug 
card program. The Secretary would be required to establish 
procedures for identifying eligible beneficiaries. The 
Secretary would also be required to establish procedures under 
which beneficiaries could make an election to enroll and 
disenroll in an endorsed card program. A beneficiary could only 
be enrolled in one endorsed program at a time. Card sponsors 
could charge annual enrollment fees, not to exceed $25. The fee 
would be the same for all eligible Medicare beneficiaries 
enrolled in the program and would be collected by the card 
sponsor.
      The Secretary would provide information, which compared 
the costs and benefits of various programs. This information 
dissemination, intended to promote informed choice, would be 
coordinated with the dissemination of other educational 
information on other Medicare options. Each card sponsor would 
make available to each beneficiary (through the Internet or 
otherwise) information that the Secretary identified as being 
necessary to provide for informed choice by beneficiaries among 
endorsed programs; this would include information on enrollment 
fees, negotiated prices, and services related to drugs offered 
under the program. The sponsor would have to provide 
information on how the formulary functioned. The Medicare toll-
free number, 1-800-MEDICARE, would be used to receive and 
respond to inquiries and complaints.
      Each endorsed drug card program would have to meet 
beneficiary protection requirements, including those relating 
to beneficiary appeals and marketing practices. They would also 
have to ensure that beneficiaries were not charged more than 
the lower of the negotiated retail price or the usual and 
customary price. Each card sponsor would secure the 
participation of a sufficient number of pharmacies that 
distributed drugs directly to patients to ensure convenient 
access (including adequate emergency access) for beneficiaries 
enrolled in the program. Convenient access would be determined 
by the Secretary and would take into account reasonable 
distances to pharmacy services in both urban and rural areas. 
Each card sponsor would be required to have in place procedures 
for assuring that quality service was provided toeligible 
beneficiaries enrolled in a prescription drug discount card program. 
They would also have to safeguard individually identifiable information 
in accordance with the Health Insurance Portability and Accountability 
Act (HIPAA). Sponsors would be prohibited from charging any fees, 
except for the annual enrollment fee. Card sponsors could not recommend 
switching a Part D eligible individual to a drug with a higher 
negotiated price, unless a licensed health professional recommended a 
switch based on a clinical indication. Negotiated prices could not 
change more than once every 60 days.
      Card sponsors would provide enrolled beneficiaries with 
access to negotiated prices used by the sponsor for payment for 
prescription drugs, provided such drugs were not excluded under 
the program's formulary. The term negotiated price, would 
include all discounts, direct or indirect subsidies, rebates, 
price concessions, and direct or indirect remunerations. 
Medicaid negotiation rules, including rebate requirements, 
would not apply.
      Each card program would be required to provide 
pharmaceutical support services such as education, counseling, 
and services to prevent adverse drug interactions. Each card 
sponsor would issue a discount card to program enrollees.
      Sponsors seeking endorsement of a card program would 
submit required information to the Secretary. The Secretary 
would review the information and determine whether to endorse 
the program. A program could not be approved unless it and the 
sponsor complied with the requirements of the new Section 1807.
      Sponsors could use a formulary. Sponsors electing to use 
a formulary would be required to establish a pharmaceutical and 
therapeutic committee (that included at least one academic 
expert, at least one practicing physician and at least one 
practicing pharmacist) to develop and review the formulary. The 
committee would base clinical decisions on the strength of 
scientific evidence and standards of practice. The formulary 
would have to include drugs within each therapeutic category 
and class of covered drugs (as defined by the Secretary) 
although not necessarily for all drugs within such categories 
and classes. The committee would establish policies and 
procedures to educate and inform health care providers 
concerning the formulary. Drugs could not be removed from the 
formulary until after appropriate notice had been provided to 
beneficiaries, physicians, and pharmacies. The Secretary would 
provide appropriate oversight to ensure compliance of programs; 
including verification of the negotiated prices and services 
provided. Each program sponsor would be required to report to 
the Secretary on program performance, use of drugs by 
beneficiaries, financial information of the sponsor, and other 
information required by the Secretary. The Secretary could not 
disclose any proprietary data that was reported. The Secretary 
could use Parts A and B claims data for purposes of conducting 
a drug utilization review program.
      Section 111 would add a new Section 1807A to the Social 
Security Act, Transitional Prescription Drug Assistance Card 
Program for Eligible Low-Income Beneficiaries. The Secretary 
would award contracts to prescription drug card sponsors, 
offering a program that was endorsed by the Secretary under the 
new Section 1807, to offer a prescription drug card assistance 
program to eligible low-income beneficiaries. The program would 
begin no later than January 1, 2004. The Secretary would 
provide for a transition and discontinuation of the drug card 
program and the low-income assistance card program when the new 
Part D program became effective. The transitional programs 
would continue to operate at least 6 months after the date 
benefits first became available under Part D.
      All individuals meeting the definition of QMB, SLMB, or 
QI-1, or those with income below 135 percent of poverty who 
were not eligible to receive drug benefits under Medicaid, 
could receive assistance with their prescription drug costs, 
effective January 1, 2004. In addition, those determined to 
have income below 135 percent of poverty could receive 
assistance with their prescription drug costs. These persons 
would have access, through a drug discount card, to up to $600 
per year. The entire $600 benefit would be available for the 
entire year; any balance left on the card in one year could be 
carried forward. Beneficiaries would be subject to cost-sharing 
requirements, which could not be less than 5% of the negotiated 
price for a drug, or 10% for a transitional assistance eligible 
individual. Cost-sharing charges would not count against the 
$600. At a minimum, card sponsors would provide low-income 
enrollees with a minimum of a 20% discount from the average 
wholesale price for each covered drug.
      In general, the enrollment procedures established for the 
drug discount card program would apply for this program. Each 
sponsor offering an assistance card program would be required 
to enroll any low-income person wishing to enroll if the 
program served the geographic area where the beneficiary 
resides. An individual enrolling in an assistance card program 
would be simultaneously enrolled in a discount card program 
offered by the sponsor. Enrollment fees would be waived for 
these individuals and would instead be paid by the Secretary.
      Eligible beneficiaries would have to be provided the 
information required for the discount card program. In 
addition, sponsors would be required to notify low-income 
enrollees, on a periodic basis, of the amount of coverage 
remaining and on the grievance and appeals process under the 
program.
      Each card sponsor would secure the participation of a 
sufficient number of pharmacies that distributed drugs directly 
to patients to ensure convenient access for beneficiaries 
enrolled in the program. The Secretary would determine whether 
convenient access was provided; mail order pharmacies would not 
be included in the determination. Further, the Secretary could 
not make a determination that convenient access had been 
provided, unless an appropriate arrangement was in place for 
low-income persons in long-term care facilities.
      The Secretary would be required to establish procedures 
under which benefits under the assistance card program were 
coordinated with coverage under a state pharmaceutical 
assistance program or Medicare+Choice plan.
      Drug discount card managers could establish formularies. 
A low-income enrollee would have the right to appeal to obtain 
coverage for a drug not on the formulary if the prescribing 
physician determined that the formulary drug was not as 
effective for the individual or had adverse effects for the 
individual. If a plan offered tiered cost-sharing for covered 
drugs, an enrollee would have the right to request that a 
nonpreferred drug be treated on terms applicable for a 
preferred drug if the prescribing physician determined that the 
preferred drug was not as effective for the individual or had 
adverse effects for the individual.
      Sponsors offering assistance card programs would be 
required to process claims negotiate with brand name and 
generic manufacturers and others for price concessions, track 
individual beneficiary expenditures, and perform other 
functions specified by the Secretary. Each sponsor would 
receive data exchanges in a format specified by the Secretary.
      Entities would be required to assure that low-income 
beneficiaries were informed at the time of purchase of any 
difference between the price of the prescribed drug and the 
lowest cost generic drug that was therapeutically equivalent 
and bioequivalent and that was available at the pharmacy or 
other dispenser. Entities would also be required to have 
meaningful procedures for hearing and resolving grievances, 
comparable to those established for Medicare+Choice plans. In 
addition, eligible entities would be required to meet 
Medicare+Choice requirements relating to coverage 
determinations.
      Sponsors seeking to offer an assistance program would be 
required to submit information to the Secretary, in the manner 
specified by the Secretary. The Secretary could not approve a 
program unless the sponsor and program met the requirements of 
the new Section 1807A. Further, the Secretary would have to 
determine that the entity was appropriate to provide benefits 
to low-income beneficiaries, was able to manage the monetary 
assistance provided under the program, agreed to submit to 
audits by the Secretary, and provided other assurances require 
by the Secretary. There would be no limit on the number of 
sponsors who could be awarded contracts. The contract would be 
for the lifetime of the program and cover the same service area 
served by the sponsor under the card program under Section 
1807. The sponsor could submit an application for endorsement 
under both programs simultaneously.
      The Secretary would pay sponsors the amount agreed to in 
the contract between the sponsor and the Secretary. Payments 
would be made from the Part B trust fund but would not be 
considered in the calculation of the Part B premium.
      The Secretary would implement New Sections 1807 and 1807A 
to assure that discounts and benefits were available no later 
than January 1, 2004. The Secretary would provide for an 
appropriate transition and discontinuation of the programs; 
such transition would ensure that benefits continue to operate 
until the first Part D enrollment period ended.
Conference Agreement
      a. Establishment of Program. The conference agreement 
adds a new Section 1860D-31 to the Social Security Act, 
Medicare Prescription Drug Discount Card and Transitional 
Assistance Program. The Section requires the Secretary to 
establish a program to endorse prescription drug discount card 
programs meeting certain requirements. Discount card eligible 
individuals would receive access to prescription drug discounts 
through card sponsors throughout the U.S. The program will also 
provide transitional assistance for low-income persons enrolled 
in endorsed programs. The program is voluntary for eligible 
individuals.
      The agreement requires the Secretary to implement the 
program so that discount cards and transitional assistance are 
available no later than 6 months after enactment. The Secretary 
is required to promulgate regulations to carry out the program. 
They could be promulgated on an interim final basis which could 
be effective on the date of issuance. In the case interim final 
regulations are promulgated, a public comment period would be 
provided. The Secretary could change or revise the regulations 
after conclusion of the comment period.
      The conference agreement specifies that the new program 
would not, except as provided for during an individual's 
transition period, apply to covered discount card drugs 
dispensed after December 31, 2005. However, any transitional 
assistance for low income persons would be available after that 
date to the extent the assistance was for drugs dispensed on or 
before that date.
      Special rules may apply for an individual in a transition 
period who is also enrolled under a card program as of December 
31, 2005. The transition period to the new Part D is the period 
beginning January 1, 2006 and ending on the effective date of 
the individual's coverage under Part D or at the close of the 
individual's initial enrollment period for Part D. During this 
period, discounts may continue to apply for drugs dispensed to 
the individual, no annual enrollment fee would be applicable, 
the individual could not change the endorsed plan in which they 
were enrolled, and the balance of any transitional assistance 
remaining on January 1, 2006 would remain available for drugs 
dispensed during this period.
      b. Eligibility. The conference agreement specifies that 
persons eligible for the discount card are those entitled to or 
enrolled under Part A or enrolled under Part B. However 
individuals enrolled in Medicaid (or under any Section 1115 
Medicaid waiver) who are entitled to any medical assistance for 
outpatient prescribed drugs would not be a discount card 
eligible individual.
      An individual eligible for transitional assistance is a 
discount card eligible individual, residing in one of the 50 
states or the District of Columbia, whose income is not more 
than 135% of the official poverty line applicable to the family 
size involved. Certain persons would not be eligible for 
transitional assistance. These are persons who had coverage 
for, or assistance with, covered discount card drugs under: (1) 
a group health insurance plan or health insurance plan (other 
than coverage under a plan under Medicare Part C or coverage 
consisting only of excepted benefits as that term is defined 
under Section 2791 of the Public Health Service Act); (2) 
Chapter 55 of the United States Code relating to medical and 
dental care for members of the uniformed services; and (3) a 
plan under the Federal employees health benefits program.
      Certain transitional eligible assistance eligible 
individuals may also qualify as special transitional assistance 
eligible individuals. These are persons with incomes below 100% 
of the official poverty line.
      The Secretary is required to provide for appropriate 
rules for the treatment of medically needy persons as discount 
eligible individuals and as transitional assistance eligible 
individuals.
      c. Enrollment. The conference agreement requires the 
Secretary to establish a process through which a discount card 
eligible individual is enrolled and disenrolled in a discount 
card program. An individual not enrolled in a card program may 
enroll in any card program, serving residents of the state at 
any time beginning on the initial enrollment date and before 
January 1, 2006. Completion of a standard enrollment form, 
specified by the Secretary, is required. Each program sponsor 
is required to transmit to the Secretary (in a form and manner 
specified by the Secretary) information on persons completing 
the enrollment forms. They are also required to provide certain 
information relating to the certification as a transitional 
assistance eligible individual.
      The conference agreement specifies that a discount 
eligible individual may only be enrolled in one endorsed card 
program at a time. An individual enrolled in one program in 
2004 could change the election for 2005. The Secretary will 
establish a process for making this change, which will be 
similar to, and coordinated with, that established for annual 
coordinatedelections for Medicare+Choice plans under Part C. 
The agreement requires the Secretary to permit individuals to change 
programs in which they were enrolled if they changed residence outside 
the service area of the plan or under other exceptional circumstances. 
The Secretary is permitted to consider a change in residential setting 
(such as placement in a nursing facility) as an exceptional 
circumstance. Also meeting this criteria would be enrollment or 
disenrollment from a Medicare+Choice plan through which an individual 
was enrolled in an endorsed program.
      An individual could voluntarily disenroll from an 
endorsed program at any time. Such individual could not enroll 
under another endorsed program except during the open 
enrollment period or under the exceptional circumstances 
specified by the Secretary. An individual, who was not a 
transitional assistance eligible individual, could be 
disenrolled by the program sponsor, if the individual failed to 
pay the annual enrollment fee.
      A Medicare+Choice organization or organization operating 
under a reasonable cost contract that wishes to become a 
prescription drug card sponsor may elect to limit enrollment in 
its endorsed discount card program to eligible enrollees 
enrolled in the plan. If the organization elects this option, 
its enrollees can only enroll in the endorsed discount card 
program offered by that sponsor.
      A card sponsor may charge an annual enrollment fee, not 
to exceed $30, for each enrollee. The fee for either 2004 or 
2005 could not be prorated. The sponsor will ensure that the 
annual enrollment fee (if any) is the same for all enrollees 
residing in the state. The annual enrollment fee is to be 
collected by the program sponsor. The annual enrollment fee for 
a transitional assistance eligible individual is to be paid by 
the Secretary on the individual's behalf.
      The Secretary will establish an arrangement under which a 
state could pay for some, or all, of the enrollment fee for 
some or all enrollees who are not transitional assistance 
eligible individuals. The payment would be paid directly by the 
state to the sponsor. No federal matching payments would be 
available.
      The Secretary will establish special rules for 
individuals who change, during a year, the endorsed program in 
which they are enrolled.
      Each card sponsor will issue, in a standard format 
specified by the Secretary, a discount card to each enrollee. 
The card will establish proof of enrollment. It may be used in 
a coordinated manner to identify the sponsor, program, and 
individual. The Secretary will specify the effective date that 
card enrollees will have access to negotiated prices and 
transitional assistance, if any.
      d. Information. The conference agreement requires the 
Secretary to provide for activities that broadly disseminate 
information to discount card eligible individuals and 
prospective eligible individuals. These persons would receive 
information on enrollment in endorsed card programs and on the 
features of the drug discount card and transitional assistance 
program. In order to promote informed choice, the Secretary 
will provide for the dissemination of information, which 
compares the annual enrollment fee and other features of such 
programs, which could include comparative prices for covered 
drugs. To the extent practicable, this will be coordinated with 
the dissemination of educational material on other Medicare 
options. The required information will also include educational 
materials on the variability of discounts on covered drugs 
under an endorsed program. To the extent practicable, the 
Secretary will ensure the provision of required information at 
least 30 days prior to the initial enrollment date. The 
Secretary, through the use of 1-800-MEDICARE, will provide for 
the receipt and response to inquiries and complaints concerning 
the discount card program and endorsed programs.
      The conference agreement requires each card sponsor to 
make available to discount card eligible individuals (through 
the Internet and otherwise) information the Secretary 
identifies as being necessary to promote informed choice. This 
includes information on enrollment fees and negotiated prices 
for covered drugs. Each sponsor is required to have a mechanism 
(including a toll free number) for providing, on request, 
specific information to individuals enrolled in the program. 
Specific information includes information on negotiated prices 
and the amount of transitional assistance remaining to the 
individual. The sponsor is required to inform transitional 
assistance eligible individuals of the availability of such 
toll-free numbers to provide information on the amount of 
available assistance to the individual. Information on the 
balance of transitional assistance available will have to be 
available at the point-of-sale, either electronically or by 
telephone.
      The conference report requires sponsors to provide that 
each pharmacy that dispensed a covered discount drug to inform 
program enrollees of any difference between the price of the 
drug provided to the enrollee and the price of the lowest 
priced generic drug covered under the program that is 
therapeutically equivalent and bioequivalent and available at 
such pharmacy. The notice is to be provided at the time of 
purchase, or in the case of a mail order drug, at the time of 
delivery. The Secretary may waive this requirement under 
circumstances specified by the Secretary.
      e. Discount Card Program. The conference agreement 
requires each card sponsor to provide each enrollee with access 
to negotiated prices. These negotiated prices would take into 
account negotiated price concessions such as discounts, direct 
or indirect subsidies, rebates, and direct or indirect 
remunerations for covered drugs. Negotiated prices include any 
dispensing fees. Seniors currently benefit from prescription 
drug assistance programs offered by pharmaceutical companies. 
Conferees intend that these programs continue to be offered 
until the full implementation of the prescription drug benefit. 
Nothing in this conference report shall be interpreted as 
encouraging the discontinuation or diminution of these 
benefits.
      Each prescription drug card sponsor must secure the 
participation of a sufficient number of pharmacies that 
dispense drugs directly to enrollees to ensure convenient 
access to covered drugs at negotiated prices. This requirement 
may only be met by entities dispensing drugs other than solely 
by mail order. Conferees intend for seniors to have access to a 
bricks and mortar pharmacy. The Secretary will establish 
convenient access rules that are no less favorable than 
standards for convenient access to pharmacies applicable under 
TRICARE. Applicable TRICARE standards are those specified in 
the statement of work solicitation (#MDA906-03-R-0002) as of 
March 13, 2003.
      A prescription drug card sponsor (and any pharmacy 
contracting with the sponsor to provide covered discount card 
drugs) may not charge enrollees for any items and services 
required to be provided under the program. This prohibition 
would not apply to the annual enrollment fee for persons who 
are not transitional assistance eligible individuals or for the 
charge for the drug (consistent with the negotiated price) 
reduced by any transitional assistance.
      The agreement further provides that negotiated prices 
will not be taken into account for purposes of making best 
price calculations under the Medicaid rebate program.
      Each endorsed card program is required to implement a 
system to reduce the likelihood of medication errors and 
adverse drug interactions and to improve medication use.
      f. Eligibility Procedures. The conference agreement 
requires the Secretary to establish procedures for eligibility 
determinations for endorsed programs and for those eligible as 
a transitional assistance eligible individual or a special 
transitional eligible individual. The Secretary is to define 
the terms income and family size and specify the methods and 
period for which they are determined. If such methods provide 
for use of information for prior time periods, the Secretary is 
required to permit an individual whose circumstances changed to 
have eligibility for transitional assistance determined for a 
more recent period. The Secretary may use a reconsideration 
process or other method.
      An individual wishing to be treated as a transitional 
assistance eligible individual or special transitional eligible 
individual could self-certify through a simplified means as to 
their income, family size, and prescription drug coverage (if 
any). The certification could also be done by another qualified 
person, acting on the individual's behalf. The certification 
could be provided before, on or after the time of enrollment in 
an endorsed program. The self-certification would be deemed as 
consent to have the information verified by the Secretary. A 
verified self-certification for as a transitional assistance or 
special transitional assistance eligible individual would be 
applicable for the entire period of enrollment in any endorsed 
program.
      The Secretary is required to establish verification 
methods, which could include sampling and use of information on 
Medicaid eligibility provided by the states, financial 
information from the Commissioner of Social Security, and 
financial information from the Secretary of the Treasury. The 
Secretary could find that an individual met the income 
requirements for transitional assistance if the individual is 
within a category of discount card eligible individuals who are 
enrolled under Medicaid (such as qualified Medicare 
beneficiaries, specified low-income Medicare beneficiaries, and 
certain qualified individuals). States will be required, as a 
condition of Federal Medicaid assistance to provide, on a 
timely basis, information that allows the Secretary to identify 
persons eligible for drug coverage under Medicaid, or who are 
transitional assistance eligible individuals, or special 
transitional eligible individuals. The Secretary is required to 
establish a reconsideration process for persons determined not 
to be transitional eligible or special transitional assistance 
eligible individuals. The results are to be communicated to the 
individual and drug card sponsor involved. The Secretary may 
enter into contracts to perform the reconsideration function.
      g. Transitional Assistance. The conference agreement 
provides special provisions for low-income persons. A 
transitional assistance eligible individual will be entitled to 
have his or her discount card enrollment fee paid. Those 
individuals with incomes below 100% of poverty (special 
transitional assistance eligible individuals) would be liable 
for coinsurance charges of 5% of incurred costs up to $600 in 
both 2004 and 2005. Other transitional assistance eligible 
individuals (those with incomes between 100% and 135% of 
poverty) would be liable for coinsurance charges of 10% of 
incurred costs up to $600 in both 2004 and 2005. Thus, the 
program will pay 95% of a special transitional eligible 
individual's incurred drug costs up to $600 in 2004 and 90% of 
other transitional eligible individual's incurred drug costs up 
to $600 in 2004. Similarly, payment would be made for 95% or 
90%, whichever is appropriate, of the individual's incurred 
drug costs up to $600 in 2005. In addition, any balance left 
over from 2004 may be added to the amount available in 2005, 
except no rollover would be permitted if the individual 
voluntarily disenrolled from an endorsed plan. No funds will be 
available under this program for covered discount card drugs 
dispensed after December 31, 2005. The Secretary will provide a 
method for the reimbursement of card sponsors for transitional 
assistance.
      The $600 annual amount is to be prorated in 2004, for 
persons not enrolling in an endorsed program and providing 
self-certification prior to the program's initial 
implementation date. For 2005, the amount is to be prorated for 
persons not enrolling in an endorsed program and providing 
self-certification prior to February 1, 2005.
      The conference agreement permits a pharmacy to reduce the 
coinsurance otherwise applicable. It also permits states to pay 
some or all of the coinsurance for some or all transitional 
assistance eligible enrollees. The payment would be made 
directly by the state to the pharmacy. No federal matching 
payments would be available for these costs; further they could 
not be considered as Medicare cost-sharing for purposes of the 
qualified Medicare beneficiary program.
      The conference agreement includes provisions to ensure 
access to transitional assistance for qualified residents of 
long-tem care facilities and American Indians. It requires the 
Secretary to establish procedures to ensure such access for 
qualified residents of long-term care facilities. The Secretary 
could waive requirements of the new Section 1860D-31, as 
necessary, to negotiate arrangements with sponsors to provide 
arrangements with pharmacies that support long-term care 
facilities. The Secretary is also required to establish 
procedures to ensure that pharmacies operated by the Indian 
Health Service, Indian tribes and tribal organizations, and 
urban Indian organizations have the opportunity to participate 
in the pharmacy networks of at least two endorsed programs in 
each of the 50 states and the District of Columbia where such a 
pharmacy operates. Where necessary, the Secretary could waive 
requirements of the new Section 1860D-31.
      The availability of negotiated prices or transitional 
assistance could not be taken into account in determining an 
individual's eligibility for or benefits under any other 
Federal program. Any nonuniformity of benefits resulting from 
the implementation of the new Section 1807 (such as the waiver 
of an enrollment fee) would not be taken into account in 
calculations of any required additional benefits under Part C.
      h. Qualifications for Card Sponsors. The conference 
agreement defines entities eligible to be card sponsors and 
establishes criteria that such entities would have to meet. The 
agreement specifies that a card sponsor could be any 
nongovernmental entity that the Secretary determines is 
appropriate to offer an endorsed discount card program. An 
entity which could qualify includes a pharmaceutical benefit 
management company, a wholesale or retail pharmacy delivery 
system, an insurer (including one that offered Medigap 
policies), an organization under Part C, or any combination of 
these. Each program would have to be operated directly, or 
through arrangements with an affiliated organization (or 
organizations), by one or more organizations with demonstrated 
experience and expertise in operating such a program. Further, 
the program would have to meet business stability and integrity 
requirements specified by the Secretary. The sponsor will be 
required to have arrangements, satisfactory to the Secretary, 
to account for transitional assistance provided to eligible 
individuals.
      The conference agreement requires each sponsor seeking 
endorsement to submit an application to the Secretary. The 
Secretary would review the application and determine whether to 
endorse the program. The Secretary could not endorse the 
program unless the program and sponsor comply with the 
applicable requirements of the new Section 1860D-31 and the 
sponsor enters into a contract with the Secretary to carry out 
such requirements. An endorsement would be for the duration of 
the discount card and transitional assistance program. The 
Secretary could make an exception for cause.
      The conference agreement requires the Secretary to ensure 
that at least 2 endorsed programs (each offered by a different 
sponsor) are available to each eligible individual. The 
Secretary may limit (but not below 2) the number of sponsors in 
a state that were awarded contracts.
      Card sponsors enrolling individuals in any part of a 
state would be required to permit eligible individuals in all 
parts of the state to enroll. An exception would apply in the 
case of a Medicare+Choice organization, which elects to limit 
enrollment in its endorsed discount card program to eligible 
enrollees enrolled in its Medicare+Choice plan.
      Each prescription drug card sponsor will be required to 
pass on to discount eligible enrollees the negotiated prices 
for covered drugs, including discounts negotiated with 
pharmacies and manufacturers, to the extent such discounts are 
disclosed under required disclosure rules. Each card sponsor 
will be required to provide meaningful procedures for hearing 
and resolving grievances between the sponsor and enrollees in a 
manner similar to that required for Medicare+Choice. The 
operations of an endorsed card program are covered functions 
and a card sponsor is a covered entity for purposes of applying 
the administrative simplification provisions established in 
Part C of Title XI of the Social Security Act. Included are 
regulations promulgated under that Part including privacy 
regulations. The Secretary could waive the relevant portions of 
privacy regulations for an appropriate limited period of time 
in order to promote participation of sponsors.
      The sponsor of an endorsed card program may not provide 
or market services under the program except if the product or 
service is directly related to a covered discount card drug or 
a discount price for a nonprescription drug. Sponsors will also 
be required to meet additional requirements as the Secretary 
identifies are needed to ensure that enrollees are not charged 
more than the lower of the negotiated price or the usual and 
customary price.
      Special rules apply to Medicare+Choice organizations or 
organizations offering enrollment under a reasonable cost 
contract. An organization could elect to limit enrollment in 
its endorsed discount card program to eligible enrollees 
enrolled in its plan. In this case, special rules would apply. 
The sponsor could not enroll individuals not enrolled in the 
plan. The pharmacy access requirements applicable to card 
sponsors would be deemed to be met if access is made available 
through a pharmacy network (and not only through mail order) 
and the network is approved by the Secretary. The Secretary 
could waive requirements applicable to card sponsors to the 
extent he determined they were duplicative or conflicted with a 
Medicare+Choice or cost contract requirement or were necessary 
in order to improve coordination of the card program with 
Medicare+Choice or cost contract benefits.
      Each card sponsor will be required to disclose to the 
Secretary information relating to: (1) program performance; (2) 
use of drugs by card program enrollees; (3) extent to which 
negotiated price concessions made available by the manufacturer 
are passed through to enrollees through pharmacies or 
otherwise; and (4) other information specified by the 
Secretary. The Medicaid provision providing for the 
confidentiality of drug information will apply to any drug 
pricing information (other than aggregate data) disclosed under 
these requirements.
      The Secretary will provide appropriate oversight to 
ensure compliance of card programs and sponsors with the 
requirements of the new Section 1860D-31. The Secretary would 
have the right to audit and inspect any books and records of 
sponsors (and any affiliated organization) that pertain to the 
card program, including amounts payable to the sponsor. The 
Secretary could impose sanctions for abusive practices.
      i. Territories. The conference agreement provides federal 
assistance to territories, which establish a plan to provide 
transitional assistance for covered discount drugs to some or 
all eligible persons residing in the state. Eligible persons 
are those entitled to benefits under Part A or enrolled in Part 
B with incomes below 135% of the poverty line. The total amount 
of available federal assistance is $35 million. The amount 
available for each territory would be determined using the 
ratio of the total number of Medicare residents in the 
territory to Medicare residents in all the territories.
      j. Funding. The conference agreement creates a separate 
Transitional Assistance Account in the Part B Trust Fund. Funds 
in this account are to be kept separate from other funds within 
the Trust fund. Payments are to be made from the Account in 
such amounts as the Secretary certifies are necessary to make 
payments for transitional assistance. Appropriations are to be 
made to the Account equal to the amount of payments from the 
Account. Such sums as are necessary would be authorized to be 
appropriated for the Secretary's administrative expenses. 
Payments could not be made to sponsors for administrative 
expenses, except for payment of the enrollment fee for 
transitional eligible individuals. Costs associated with the 
Medicare prescription drug card and the transitional assistance 
program would be excluded from the calculation of the Part B 
premium.
Definitions; Treatment of References to Provisions in Part C (New 
        Section 1860D-41 of Conference agreement; New Section 1860D-10 
        of House bill; New Sections 1860D, 1860D-26 and Section 110 of 
        Senate bill).
House Bill
      New Section 1860D-10 would provide cross-references to 
other sections of the bill for definitions of covered 
outpatient drugs, initial coverage limit, Medicare Prescription 
Drug Trust Fund, PDP sponsor, qualified prescription drug 
coverage, and standard coverage. It would define a prescription 
drug plan as health benefits coverage that: (1) is offered 
under a policy, contract, or plan by a PDP sponsor pursuant to 
and in accordance with a contract between the Administrator and 
the sponsor; (2) provides qualified prescription drug coverage; 
and (3) meets the applicable beneficiary protection 
requirements. It would specify that the term ``insurance risk'' 
would, for a participating pharmacy, mean the type commonly 
assumed only by insurers licensed by a state and not payment 
variations designed to reflect performance-based measures of 
activities within control of the pharmacy, such as formulary 
compliance and generic drug substitution. The section would 
further provide that any reduction or waiver of cost-sharing 
would not be in violation of kickback and similar prohibitions.
      MA and EFFS plans would be required to offer drug plans 
pursuant to the requirements of Sections 1851 and New Section 
1860e-2(d). The provision would specify that Part C 
requirements relating to a drug plan or sponsor would be 
applied (unless otherwise specified) as if: (1) any reference 
to a MA or other plan included a reference to a prescription 
drug plan; (2) any reference to a provider-sponsored 
organization included a reference to a PDP sponsor; (3) any 
reference to a contract included a reference to a drug plan 
contract; and (4) any reference to Part C included a reference 
to Part D.
Senate Bill
      New Section 1860 D would define a number of terms used in 
the bill. The ``Administrator'' would be defined as the 
Administrator of the new Center for Medicare Choices 
established under the bill.
      A ``Part D eligible individual'' would be an individual 
entitled to, or enrolled for, benefits under Part A and 
enrolled in Part B. An ``eligible entity'' would be any risk 
bearing entity that the Administrator determined to be 
appropriate to provide eligible beneficiaries with benefits 
under a Medicare Prescription Drug Plan. Eligible entities 
would include pharmaceutical benefit management companies, 
wholesale or retail pharmacist delivery systems, insurers 
(including insurers that offered Medigap policies), other risk 
bearing entities, or any combination of these. This requirement 
would not preclude State pharmacy assistance programs from 
becoming a qualified entity if they meet the requirements.
      A ``Medicare Prescription Drug Plan'' would offer 
prescription drug coverage under a policy, contract or plan by 
an eligible entity pursuant to and in accordance with a 
contract between the Administrator and the entity. The plan 
would have to be approved by the Administrator.
      The provision would specify that Part C requirements 
relating to MedicareAdvantage would be applied (unless 
otherwise specified) as if: (1) any reference to a 
MedicareAdvantage plan included a reference to a Medicare 
Prescription Drug plan; (2) any reference to a provider-
sponsored organization included a reference to an eligible 
entity; (3) any reference to a contract included a reference to 
a drug plan contract; and (4) any reference to Part C included 
a reference to Part D.
      The provision would permit sponsors of employment-based 
retiree coverage that offer a prescription drug plan to 
restrict enrollment in the plan to eligible beneficiaries 
enrolled in such coverage. Sponsors could not offer enrollment 
in a Medicare Prescription Drug plan based on the health status 
of beneficiaries.
      Entities offering a Medicare Prescription Drug plan or a 
MedicareAdvantage organization offering a MedicareAdvantage 
plan could enter into an agreement with a state pharmaceutical 
assistance program (including one established under a Section 
115 waiver) to coordinate coverage.
Conference Agreement
      New Section 1860D-41 provides cross references to other 
sections of the bill for definitions of basic prescription drug 
coverage, covered Part D drugs, creditable prescription drug 
coverage, Part D eligible individual, fallback prescription 
drug plan, initial coverage limit, MA plan, MA-PD plan, 
Medicare Prescription Drug Account, PDP approved bid, PDP 
region, qualified prescription drug coverage, standard 
prescription drug coverage, state pharmaceutical assistance 
program; and subsidy-Part D eligible individual. It defines the 
term ``insurance risk'' as meaning for a participating 
pharmacy, risk of the type commonly assumed only by insurers 
licensed by a state and does not include payment variations 
designed to reflect performance-based measures of activities 
within control of the pharmacy, such as formulary compliance 
and generic drug substitution. A PDP sponsor is defined as a 
nongovernmental agency that is certified under Part D as 
meeting Part D requirements and standards. A prescription drug 
plan is defined as prescription drug coverage that: is offered 
(1) under a policy, contract, or plan that has been approved 
under Part D; and (2) by a PDP sponsor pursuant to and in 
accordance with a contract between the Secretary and the 
sponsor under Part D.
      The provision specifies that Part C requirements are to 
be applied (unless otherwise specified) as if: (1) any 
reference to a MA plan included a reference to a prescription 
drug plan; (2) any reference to a provider-sponsored 
organization included a reference to a PDP sponsor; (3) any 
reference to a contract included a reference to a drug plan 
contract; (4) any reference to Part C included a reference to 
Part D; and (5) any reference to a Part C election period is a 
reference to a Part D enrollment period.
Miscellaneous Provisions (New Section 1860D-42 of conference agreement; 
        New Section 1860D-16 of House bill; Section 1860D-26 of Senate 
        bill).
Present Law
      No provision.
House Bill
      The Secretary would be required to submit a legislative 
proposal within six months of enactment containing necessary 
technical and conforming amendments. Not later than January 1, 
2005, the Administrator would be required to submit a report 
containing recommendations for providing benefits under Part D 
for drugs currently paid for under Part B.
Senate Bill
      New Section 1860D-26 would require the Secretary, within 
six months of enactment, to submit a legislative proposal for 
any necessary technical and conforming amendments.
Conference Agreement
      The agreement includes miscellaneous provisions. It 
permits the Secretary to waive Part D requirements, including 
the requirement for two plans in an area, insofar as the 
Secretary determines it necessary to secure access to qualified 
drug coverage in the territories.
      The agreement requires the Secretary to submit a 
legislative proposal within six months of enactment containing 
necessary technical and conforming amendments to titles I and 
II of thebill. Not later than January 1, 2005, the Secretary is 
required to submit a report to Congress containing recommendations for 
providing benefits under Part D for drugs currently paid for under Part 
B. By March 1, 2005, the Secretary is required to submit a report to 
Congress on the progress made in implementing the drug benefit. The 
report will include specific steps taken, and that need to be taken, to 
ensure a timely start on January 1, 2006. The report is to include 
recommendations regarding an appropriate transition form the discount 
card and transitional assistance program.
Medicare Advantage Conforming Amendments (Section 102 of Conference 
        agreement; Section 231 of House bill; Sections 201 and 204 of 
        Senate bill).
Present Law
      The Public Health Security and Bioterrorism Preparedness 
and Response Act of 2002, P.L. 107-188, made temporary changes 
to reporting dates and deadlines. First, CMS moved its annual 
announcement of M+C payment rates from no later than March 1 to 
no later than the 2nd Monday in May, effective only in 2003 and 
2004. It also temporarily moved the deadline for plans to 
submit information about ACRs, M+C premiums, cost sharing, and 
additional benefits (if any) from no later than July 1 to no 
later than the 2nd Monday in September in 2002, 2003, and 2004. 
It also changed the annual coordinated election period from the 
month of November to November 15th through December 31 in 2002, 
2003, and 2004. Once the temporary provision expires, the 
reporting dates and deadlines would return to the pre-P.L. 107-
188 dates.
      In addition, P.L. 107-188 will continue to allow Medicare 
beneficiaries to make and change election to an M+C plan on an 
ongoing basis through 2004. Then beginning in 2005, individuals 
will only be able to make changes on the more limited basis, 
originally scheduled to be phased in beginning in 2002. 
Beneficiaries can make or change elections during the annual 
coordinated election period. Current Medicare beneficiaries may 
also change their election at any time during the first 6 
months of 2005 (or first 3 months of any subsequent year). 
Additionally, there are special enrollment rules for newly 
eligible aged beneficiaries as well as special enrollment 
periods for all enrollees under limited situations, such as an 
enrollee who changes place of residence.
      The Secretary must provide information to Medicare 
beneficiaries and prospective beneficiaries on the coverage 
options provided under the M+C program, including open season 
notification, a list of plans and other general information.
House Bill
      The reporting deadline for ACRs and other information 
would permanently move to July 1 of each year. The annual 
coordinated election period would be permanently changed to 
November 15 through December 31. The announcement of payment 
rates, including rates for EFFS plans, would be permanently 
moved to no later than the second Monday in May.
      In addition to the information dissemination required 
under current law, the Secretary would be required to provide 
beneficiaries with a list of plans that are or would be 
available in an area, to the extent the information was 
available at the time the materials were prepared for mailing.
Senate Bill
      Each MA organization would be required to submit 
information by the second Monday in September, including: (1) 
notice of intent and information on the service area of the 
plan; (2) the plan type for each plan; (3) specific information 
for coordinated care and PFFS plans; (4) enrollment capacity; 
(5) the expected mix of enrollees, by health status; and (6) 
other information specified by the Secretary.
      Medicare beneficiaries would retain their ability to make 
and change elections to a Medicare+Choice plan through 2005. 
The current law limitation on changing elections that begins in 
2005, would be delayed until 2006. Further, the annual 
coordinated election period for 2003 through 2006 would begin 
on November 15 and end on December 31. Beginning in 2007, the 
annual coordinated election period would be during the month of 
November.
      In addition to the information dissemination required 
under current law, the Secretary would be required to provide: 
(1) the MA monthly basic beneficiary premium; (2) the monthly 
beneficiary premium for any enhanced medical benefits; (3) the 
MA monthly beneficiary obligation for qualified prescription 
drug coverage; (4) the catastrophic coverage amount (including 
the maximum limitation on out-of-pocket expenses) and unified 
deductible for the plan; (5) the outpatient prescription drug 
coverage benefits; (6) any beneficiary cost-sharing, including 
information on the unified deductible; (7) comparative 
information relating to prescription drug coverage; (8) if 
applicable, any reduction in the Medicare Part B premium; (9) 
whether the MA monthly premium for enhanced benefits was 
optional or mandatory; and (10) quality and performance 
indicators for prescription drug coverage, including a 
comparison with FFS Medicare.
      Additionally, the Secretary would conduct a special 
information campaign to inform MA eligible beneficiaries about 
plans. The campaign would begin on November 15, 2005 and ending 
on December 31, 2005.
Conference Agreement
      The conference agreement allows Medicare beneficiaries to 
retain their ability to make and change elections to a 
Medicare+Choice plan through 2006. The current law limitation 
on changing elections that begins in 2005, is delayed until 
2006. Further, the annual coordinated election period for 2004 
and 2005 begins on November 15 and ends on December 31. For 
2006, the annual coordinated election period begins on November 
15 and ends on May 15, 2006. Beginning in 2007, the annual 
coordinated election period will begin on November 15 and end 
on December 31.
      The Secretary is to provide for an education and 
publicity campaign to inform MA eligible individuals about the 
availability of MA plans, including MA-PD plans, offered in 
different areas and the election process for MA plans. If any 
portion of an individual's initial enrollment period for Part B 
occurs after the end of the annual coordinated election period, 
their initial enrollment period would be extended through the 
end of their Part B initial enrollment period.
      The conference agreement will limit an individual's right 
to change MA plans, for plan years beginning on or after 
January 1, 2006. This limit will not affect an 
individual'sopportunity to make changes during the annual coordinated 
election period, but it will limit changes during the continuous open 
enrollment and disenrollment periods in a year. Individuals enrolled in 
an MA plan that provides qualified prescription drug coverage, may only 
disenroll from their plan to get coverage through FFS Medicare or 
through another MA plan that does not provide qualified prescription 
drug coverage. They may not leave their plan to obtain coverage under 
an MA-PD plan or under a prescription drug plan under Part D. 
Conversely, individuals enrolled in an MA-PD plan, may only change to 
another MA-PD plan or they may get coverage under FFS Medicare with 
coverage under a drug plan under part D. They may not enroll in an MA 
plan if it does not provide qualified prescription drug coverage.
      An MA-PD plan could provide for a separate or 
differential payment for a participating physician who 
prescribes covered part D drugs in accordance with an 
electronic prescription program meeting Part D requirements. 
Such payment could take into consideration the implementation 
costs for the physician and could also be increased for those 
participating physicians who significantly increased: (1) 
formulary compliance; (2) lower cost and therapeutically 
equivalent alternatives; (3) reductions in adverse drug 
interactions; and (4) efficiencies in filing prescriptions 
through reduced administrative costs. Additional or increased 
payment could be structured in the same manner as medication 
therapy management fees under section 1869(D)-4(c)(2)(E).
      An MA eligible individual could elect qualified 
prescription drug coverage in accordance with Section 1860D-1.
Medicaid Amendments (Section 103 of Conference agreement; Section 103 
        of House bill; Section 104 of Senate Bill).
Present Law
      Some low-income aged and disabled Medicare beneficiaries 
are also eligible for full or partial coverage under Medicaid. 
Within broad federal guidelines, each state sets its own 
eligibility criteria, including income eligibility standards. 
Persons meeting the state standards are entitled to full 
coverage under Medicaid. Persons entitled to full Medicaid 
protection generally have all of their health care expenses met 
by a combination of Medicare and Medicaid. For these ``dual 
eligibles'' Medicare pays first for services both programs 
cover. Medicaid picks up Medicare cost-sharing charges and 
provides protection against the costs of services generally not 
covered by Medicare, including prescription drugs. State 
Medicaid programs have the option to include prescription drugs 
in their Medicaid benefit packages. All states include drugs 
for at least some of their Medicaid beneficiaries and many 
offer it to all program recipients entitled to full Medicaid 
benefits.
      As noted earlier, Federal law specifies several 
population groups that are entitled to more limited Medicaid 
protection. These are qualified Medicare beneficiaries (QMBs), 
specified low income beneficiaries (SLIMBs), and certain 
qualified individuals (QI-1s). Assistance under the QI-1 
program, originally available for the period January 1, 1998 to 
December 31, 2002, has been extended to March 31, 2004.
      States make eligibility determinations for their Medicaid 
populations. Federal matching payments for Medicaid services in 
the territories is subject to an annual cap.
      Current Medicaid law requires manufacturers to pay state 
Medicaid programs a basic rebate for single source and 
innovator multiple source drugs. Basic rebates are calculated 
by comparing the average manufacturer price for a drug (the 
average price paid by wholesalers) to the ``best price,'' which 
is the lowest price offered by the manufacturer in the same 
period to any wholesaler, retailer, nonprofit, or public 
agency. For purposes of determining Medicaid rebates, prices 
paid by a number of federal and state entities are excluded 
from the definition of ``best price.''
House Bill
      Section 103 would add a new Section 1935 to the Social 
Security Act entitled ``Special Provisions Relating to Medicare 
Prescription Drug Benefit.'' The provision would require 
states, as a condition of receiving federal Medicaid 
assistance, to make eligibility determinations for low-income 
premium and cost-sharing subsidies, inform the Administrator of 
cases where eligibility has been established, and otherwise 
provide the Administrator with information that may be needed 
to carry out Part D. The provision would provide for the 
phased-in federal assumption of associated administrative 
costs. In 2005, the federal matching rate would be increased by 
6\2/3\ percent and in 2006 by 13\1/3\ percent. In each 
subsequent year, the percent would be increased by 6\2/3\ 
percentage points (but in no case could the rate exceed 100 
percent). Beginning in 2019, the federal matching rate would be 
100 percent. The state would be required to provide the 
Administrator with the appropriate information needed to 
properly allocate administrative expenditures that could be 
made for similar eligibility determinations.
      The provision would provide for the federal phase-in of 
the costs of premiums and cost-sharing subsidies for dual 
eligibles (i.e. persons eligible for Medicare and full Medicaid 
benefits, including drugs). Over the 2006-2020 period, the 
federal matching rate for these costs would be increased to 
cover 100% of what would otherwise be state costs. States would 
be required to maintain Medicaid benefits as a wrap around to 
Medicare benefits for dual eligibles; states could require that 
these persons elect Part D drug coverage.
      Residents of territories would not be eligible for 
regular low-income subsidies. However, territories would be 
able to get additional Medicaid funds, beginning at $25 million 
in 2006 and increasing in subsequent years by the annual 
percentage increase in prescription drug costs for Medicare 
beneficiaries. In order to obtain these funds, territories 
would be required to formulate a plan on how they would 
dedicate the funds to assist low-income Medicare beneficiaries 
in obtaining covered outpatient prescription drugs. The 
Administrator would be required to report to Congress on the 
application of the law in the territories.
Senate Bill
      Section 104 would add a new Section 1935 to the Social 
Security Act entitled ``Special Provisions Relating to Medicare 
Prescription Drug Benefit.'' The provision would require states 
to make low-income eligibility determinations for low income 
subsidies. States would be required, for purposes of the 
transitional prescription drug card assistance program, to 
establish eligibility standards consistent with that program; 
establish procedures for providing presumptive eligibility 
determinations (similar to that which currently apply for low-
income pregnant women and children); make eligibility 
determinations for the card program; and communicate to the 
Secretary information on eligibility determinations or 
discontinuations. For purposes of the low-income subsidies for 
the new Part D program, states would be required, 
beginningNovember 2005, to make eligibility determinations; inform the 
Administrator of cases where eligibility was established, and otherwise 
provide the Administrator with any information required to carry out 
Part D. States would be required to enter agreements with the 
Commissioner of Social Security to use all social security field 
offices in the state as information and enrollment sites for making 
eligibility determinations. As part of the eligibility determination 
process, states would also be required to screen for eligibility for 
Medicare cost-sharing assistance under the QMB, SLIMB, and QI-1 
programs.
      The federal government would pay an enhanced matching 
rate for administrative costs associated with making 
eligibility determinations. The rate would be 75% for the 
period January 1, 2004-September 30, 2005, 70% for fiscal year 
2006, 65% for FY 2007, and 60% beginning in FY 2008. Beginning 
November 1, 2005, the rate would be 100% for purposes of making 
eligibility determinations for low-income subsidies.
      In addition, states would be entitled to enhanced 
matching for the costs associated with designing, developing, 
acquiring and installing improved eligibility determination 
systems, including hardware and software, for low-income 
subsidy programs. The enhanced rate would be 90% for fiscal 
years 2004, 2005, and 2006. The systems would be required to 
comply with any standards established by the Secretary for 
improved eligibility systems. Further, the systems would have 
to be compatible with the standards established under the 
administrative simplification provisions of Title XI of the 
Social Security Act.
      Medicaid beneficiaries who were eligible for drug 
benefits under their state Medicaid program would remain in 
Medicaid. Beginning January 1, 2006, states agreeing to provide 
a drug benefit to their dual eligible population that was at 
least equivalent to minimum standards would be relieved of 
their responsibility to pay Medicare Part B premiums for 
persons with incomes between the level established for the 
supplemental security income program and 100% of the federal 
poverty level. The minimum standards would be defined as 
follows. A state would be required to meet all current law 
coverage standards for dual eligibles under Medicaid, including 
nominal cost-sharing requirements. States would have to provide 
beneficiary protections equivalent to those provided under Part 
D. States could not place a limit on the number of 
prescriptions for dual eligibles. States would be permitted to 
cover smoking cessation drugs for this population group.
      If on the date of enactment, a state provided medical 
assistance to aged and disabled persons up to 100% of poverty, 
it would be entitled to have the federal government assume the 
costs for Medicare Part A cost-sharing. The Part A costs would 
be assumed so long as the state maintained the expanded 
coverage. The provision would apply effective January 1, 2006.
      Residents of Puerto Rico and the territories would not be 
eligible for low-income subsidies. Instead, if they chose to 
provide assistance to their low-income residents they would 
receive an increase in amounts otherwise paid to them under 
Medicaid. The aggregate amount available would be $37.5 million 
for the last 3 quarters of FY2006, and $50 million for FY2007. 
In subsequent fiscal years, the aggregate amount would be the 
amount available the previous year, increased by the percentage 
increase in prescription drug spending.
      The provision would extend the QI-1 program through 
December 2008 with total annual allocations of $400 million 
through fiscal year 2008 and $100 million for the first quarter 
of fiscal 2009.
      The provision would expand outreach requirements for the 
Commissioner of Social Security to include outreach activities 
for low-income subsidy individuals. By January 1, 2005, the 
Secretary would submit a report to Congress to recommend a 
voluntary option for dual eligibles to enroll in Part D drug 
plans.
      The provision would exempt negotiated prices by any 
qualified plan offering Medicare drug coverage from the 
calculation of Medicaid ``best price.''
Conference Agreement
      The conference agreement would add a new Section 1935 to 
the Social Security Act entitled ``Special Provisions Relating 
to Medicare Prescription Drug Benefit.'' The provision 
establishes certain requirements, as a condition of receiving 
federal Medicaid assistance. States are required to provide the 
Secretary with Medicaid eligibility information necessary to 
carry out transitional prescription drug assistance 
verification. They are required to make eligibility 
determinations for low-income premium and cost-sharing 
subsidies, inform the Secretary of cases where eligibility has 
been established, and otherwise provide the Secretary with 
information that may be needed to carry out Part D. Further, as 
part of the eligibility determination process, states are 
required to make determinations for Medicare cost-sharing 
assistance. Regular federal matching applies to these 
activities.
      The agreement provides for the federal phase-in of the 
costs of premiums and cost-sharing subsidies for dual eligibles 
(i.e., persons eligible for Medicare and full Medicaid 
benefits, including drugs). The agreement provides for a 
phased-down state contribution. For each month beginning in 
2006, each state is required to provide for payment to the 
Secretary equal to the product of: (1) \1/12\ of the product of 
the base year state Medicaid per capita expenditures for full-
benefit dual eligibles and the state matching rate, and updated 
to the year involved by the applicable growth factor; (2) the 
total number of dual eligibles for such state for the month; 
and (3) the factor for the month. The base year is defined as 
the weighted average of gross Medicaid expenditures (including 
dispensing fees) for prescription drugs in 2003 and the 
estimated actuarial value of prescription drug benefits 
provided under a capitated care plan for full benefit dual 
eligibles in that year. The applicable growth factor in 2004, 
2005, and 2006 is the average annual percent change in the per 
capita amount of prescription drug expenditures as determined 
based on the most recent National Health Expenditure 
projections. In subsequent years, the growth factor is the 
annual percentage increase average per capita expenditures 
under Part D. The factor under #3 is 90% in 2006, phasing down 
to 75% over 10 years. The Secretary is required to notify each 
state by October 15 of the amount computed under the formula 
for the following year, beginning in 2006. A state's failure to 
make required payments would result in interest charges and in 
an offset to amounts otherwise payable under Medicaid.
      The agreement requires the Secretary when determining 
gross expenditures for 2003 to: (1) use data from the Medicaid 
Statistical Information System (MSIS) and other available data; 
(2) exclude expenditures for drugs that are not covered Part D 
drugs, and (3) reduce the portion of expenditures not 
attributable to dispensing fees by an adjustment ratio applied 
to such portion. The adjustment ratio for a state is equal to 1 
minus the ratio in 2003 of aggregate payments under rebate 
agreements under section 1927 to gross expenditures under 
Medicaid for covered outpatient drugs.
      The agreement specifies that Medicare is the primary 
payer for covered drugs for dual eligibles. Medicaid coverage 
is not available for such drugs or any cost-sharing for such 
drugs. States may provide coverage for drugs, other than Part D 
covered drugs in the manner otherwise provided for non-full 
benefit dual eligibles or through an arrangement with the 
prescription drug plan of MA-PD plan.
      Residents of territories would not be eligible for 
regular low-income subsidies. However, territories would be 
able to apply for additional Medicaid funds. The total amount 
available is $28.125 million beginning in the last 3 quarters 
of 2006, $37.5 million in 2007 and increasing in subsequent 
years by the annual percentage increase in prescription drug 
costs for Medicare beneficiaries. In order to obtain these 
funds, territories would be required to provide assurances that 
additional funds would be used for covered drugs and 
administrative costs (with no more than 10 percent of the total 
used for administrative expenses.) The Secretary is required to 
report to Congress on the application of the provision in the 
territories.
      The agreement exempts prices negotiated from 
manufacturers for discount card drugs under an endorsement card 
program and prices negotiated by a prescription drug plan under 
Part D, a MA-PD plan or a qualified retiree prescription plan 
from the calculation of Medicaid ``best price.''
      The agreement extends the QI-1 program through September 
30, 2004. It expands outreach requirements for the Commissioner 
of Social Security to include outreach activities for 
transitional assistance and low-income subsidy individuals.
Medigap Amendments (Section 104 of Conference agreement; Section 104 of 
        House bill; Section 103 of Senate bill).
Present Law
      Most beneficiaries have some health insurance coverage in 
addition to basic Medicare benefits. Some individuals obtain 
private supplementary coverage through an individually-
purchased policy, commonly referred to as a ``Medigap'' policy. 
Beneficiaries with Medigap insurance typically have coverage 
for Medicare's deductibles and coinsurance; they may also have 
coverage for some items and services not covered by Medicare. 
Individuals generally select from one of 10 standardized plans, 
though not all 10 plans are offered in all states. The 10 plans 
are known as Plans A through Plan J. Plan A covers a basic 
package of benefits. Each of the other nine plans includes the 
basic benefits plus a different combination of additional 
benefits. Plan J is the most comprehensive. Plans H, I, and J 
offer some drug coverage.
      The law provided for the development by the National 
Association of Insurance Commissioners (NAIC) of standardized 
benefit packages. It also provides for modifications of such 
packages when Medicare benefit changes are enacted.
      All insurers offering Medigap policies are required to 
offer open enrollment for 6 months from the date a person first 
enrolls in Medicare Part B (generally when the enrollee turns 
65). The law also guarantees issuance of specified Medigap 
policies for certain persons whose previous supplementary 
coverage was terminated. Guaranteed issue also applies to 
certain persons who elect to try out a managed care option 
under the Medicare+Choice plan program.
      Medicare beneficiaries buy supplemental coverage to help 
pay for health care costs not covered by Medicare. Almost one-
quarter (24 percent) of Medicare beneficiaries purchase this 
coverage as individuals through the private insurance 
``Medigap'' market. In 1990, Congress mandated the creation of 
10 standardized Medigap policies through the National 
Association of Insurance Commissioners (NAIC). All 10 plans are 
required to cover beneficiaries' coinsurance--some of the costs 
of Medicare services for which beneficiaries are responsible, 
such as 20 percent of the costs of a physician visit. Nine out 
of 10 of those policies, which comprise more than 90 percent of 
the Medigap market, are required to cover the Part A inpatient 
hospital deductible, and the most popular Medigap policy covers 
both the Part A hospital deductible and the $100 Part B 
deductible for physician services. Insulating beneficiaries 
from this cost sharing incentives over utilization of health 
services.
      Numerous studies have demonstrated that covering 
deductibles and coinsurance has led to higher Medicare spending 
because beneficiaries become insensitive to costs. 
Beneficiaries with Medigap consume $1,400 more in Medicare 
services than beneficiaries without supplemental coverage, and 
$500 more than beneficiaries with employer-sponsored insurance. 
This higher utilization drives up costs for everyone--premiums 
of Medicare beneficiaries without Medigap coverage and costs to 
taxpayers.
      In addition, only the three most expensive Medigap plans 
cover prescription drugs, and that coverage is limited. Yet, 8 
of the 10 plans are required to cover foreign travel insurance, 
while most beneficiaries never leave their home country.
      And despite standardization, premiums continue to 
increase and vary widely. From 1998 to 2000, average premiums 
rose 16 percent for plans without drug coverage, and more than 
twice as fast, 37 percent, for plans with drug coverage. In 
addition, premiums vary dramatically for identical plans in the 
same location. Weiss Ratings, Inc. analyzed Medigap premiums in 
2001. A 65-year old man living in Ft. Myers, Florida would pay 
about $3,600 for Plan J from Physicians Mutual Insurance 
Company, but only $2,700 with United Healthcare Insurance 
Company through AARP. The same gentleman living in Las Vegas 
would spend about $1,500 for Plan C with United American 
Insurance Company, but about half that amount--$778 B with the 
USAA Life Insurance Company for the same policy.
      All of these factors lead conferees to believe Medigap 
policies should be restructured in light of changes to the 
marketplace since standardization. Conferees encourage the 
National Association of Insurance Commissioners (NAIC) to 
modernize the Medigap market by reforming first dollar coverage 
requirements that drive over utilization of services and 
premiums. Conferees believe that in developing the two new 
policies included in the conference report, NAIC should 
consider much broader changes to the Medigap market that will 
effectuate reduced premiums and more rational coverage policies 
that create incentives for appropriate utilization of services.
House Bill
      The provision would prohibit, effective January 1, 2006, 
the issuance of new Medigap policies with prescription drug 
coverage. The prohibition would not apply to policies replacing 
another policy with drug coverage. Beneficiaries could keep 
their existing policies. Further, it would not apply to 
policies meeting new standards, as outlined below.
      The provision would guarantee issuance of a substitute 
Medigap policy for persons, enrolling in Part D, who at the 
time of such enrollment were enrolled in and terminated 
enrollment in a Medigap policy H, I, or J. The guaranteed 
enrollment would be for any of the Plans A through Plan G. The 
guarantee would apply for enrollments occurring in the new 
Medigap plan within 63 days of termination of enrollment in a 
Medigap drug Plan H, I, or J. The insurer could not impose an 
exclusion based on a pre-existing condition for such 
individuals. Further, the insurer would be prohibited from 
discriminating in the pricing of such policy on the basis of 
the individual's health status, claims experience, receipt of 
health care or medical condition.
      The provision would provide for the development by the 
NAIC of two new standardized Medigap plans and would outline 
the standards for these policies. The first new policy would 
have the following benefits (notwithstanding other provisions 
of law relating to core benefits): (1) coverage of 50% of the 
cost-sharing otherwise applicable (except coverage of 100% 
cost-sharing applicable for preventive benefits); (2) no 
coverage of the Part B deductible; (3) coverage of all hospital 
coinsurance for long stays (as in current core package); and 
(4) a limitation on annual out-of-pocket costs of $4,000 in 
2006 (increased in future years by an appropriate inflation 
adjustment as specified by the Secretary). The second new 
policy would have the same benefit structure as the first new 
policy, except that: (1) coverage would be provided for 75%, 
rather than 50%, of cost-sharing otherwise applicable; and (2) 
the limitation on out-of-pocket costs would be $2,000, rather 
than $4,000. Both policies could provide for coverage of Part D 
cost-sharing; however, neither policy could cover the Part D 
deductible.
Senate Bill
      Effective January 1, 2006, Medigap drug policies could 
not be sold, issued or renewed for Part D enrollees. Persons 
who had such policies could obtain Medigap coverage without 
drug benefits. Beneficiaries who sought to enroll during the 
Part D open enrollment period established for current 
beneficiaries would be guaranteed issuance of such non-drug 
policies (without an exclusion based on preexisting 
conditions). Medigap issuers would be required to notify 
individuals of these changes 60 days prior to the Part D open 
enrollment period.
      Medigap insurers could not be required to participate as 
an eligible entity under the new Part D.
Conference Agreement
      The agreement prohibits, effective January 1, 2006, the 
selling, issuance, or renewal of existing Medigap policies with 
prescription drug coverage for Part D enrollees. The 
prohibition would not apply to renewal of Medigap prescription 
policies for persons who are not Part D enrollees. Persons 
enrolling under Part D during the initial enrollment period 
could enroll in a plan without drug coverage, or continue their 
previous policy as modified to exclude drugs. H, I, and J 
policies, modified to exclude drugs, could continue to be 
offered to new enrollees. Medigap issuers would be required to 
notify individuals of these changes 60 days prior to the 
initial Part D enrollment period.
      The provision guarantees issuance of a substitute Medigap 
policy for persons, enrolling in Part D, who at the time of 
such enrollment were enrolled in and terminated enrollment in a 
Medigap policy H, I, or J or a pre-standard policy that 
included drug coverage. Evidence of enrollment and termination 
would be required. The guaranteed enrollment is for any of the 
Plans A, B, C, and F within the same carrier of issue. The 
guarantee applies for enrollments occurring in the new Medigap 
plan within 63 days of termination of enrollment in a Medigap 
drug Plan H, I, or J. The insurer may not impose an exclusion 
based on a pre-existing condition for such individuals. 
Further, the insurer is prohibited from discriminating in the 
pricing of such policy on the basis of the individual's health 
status, claims experience, receipt of health care or medical 
condition. The conferees intend that these provisions be 
administered in such a manner as to avoid a break in coverage.
      The conference agreement requires the Secretary to 
request the National Association of Insurance Commissioners to 
review and revise standards for benefit packages taking into 
account the changes in benefits resulting form the enactment of 
this Act and to otherwise update standards to reflect other 
changes in law included in the Act. To the extent practicable, 
the revision will provide for implementation of revised 
standards as of January 1, 2006.
      The revision is to include 2 new benefit packages. The 
first new package will have the following benefits 
(notwithstanding other provisions of law relating to core 
benefits): (1) coverage of 50% of the cost-sharing otherwise 
applicable (except coverage of 100% cost-sharing applicable for 
preventive benefits); (2) no coverage of the Part B deductible; 
(3) coverage of all hospital coinsurance for long stays and 365 
extra lifetime days of coverage (as in current core package); 
and (4) a limitation on annual out-of-pocket costs of $4,000 in 
2006 (increased in future years by an appropriate inflation 
adjustment as specified by the Secretary). The second new 
benefit package will have the same benefit structure as the 
first new package except that: (1) coverage would be provided 
for 75%, rather than 50%, of cost-sharing otherwise applicable; 
and (2) the limitation on out-of-pocket costs would be $2,000, 
rather than $4,000.
      Medigap issuers could not be required to participate as a 
PDP sponsor under the new Part D, nor could a State make such a 
requirement.
      Additional Provisions Relating to Medicare Prescription 
Drug Discount Card and Transitional Assistance Program (Section 
105 of Conference agreement).
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement includes additional provisions 
relating to the implementation of the Medicare prescription 
drug discount card and transitional assistance program. It 
excludesprogram costs from the calculation of the Part B 
premium. It applies Medicaid confidentiality provisions to drug pricing 
data reported by manufacturers under the program.
      The conference agreement includes additional 
administrative provisions. It specifies that the following 
sections of law would not apply to the card program: New 
Section 1871(a)(3) of the Social Security Act relating to time 
line for publication of final rules; Chapter 35 of Title 44 of 
the U.S. Code relating to coordination of federal information 
policy; Section 553(d) of Title 5 of the U.S. Code requiring at 
least 30 days between issuance and effective date of a 
substantive rule; and Section 801(a)(3)(A) of title 5 of the 
U.S. Code providing 60 days for congressional review of a major 
rule.
      The contracting authority extended to the Secretary under 
Medicare+Choice also applies to the Secretary with respect to 
the discount card program. There could be no judicial review of 
a determination not to endorse or enter into a contract with a 
card sponsor. Further, an order to enjoin any provision of the 
new section 1807 would not affect any other provision of the 
section and all provisions are to be treated as severable.
      The Secretary of the Treasury, upon written request from 
the Secretary of HHS, is required to disclose to officers and 
employees of HHS certain information with respect to a taxpayer 
for the most recent taxable year for which information is 
available in the Internal Revenue Service's taxpayer data 
information system, or if no return was filed for that year, 
the year before that. Required information would consist of 
whether the adjusted gross income (as modified by HHS 
regulations) of the taxpayer, and if applicable the taxpayer's 
spouse, exceeds amounts that are 100 percent and 135 percent of 
the official poverty line. Such information may only be used to 
determine eligibility for the transitional low-income 
assistance program.
State Pharmaceutical Assistance Transition Commission (Section 106 of 
        Conference agreement; Section 107 of House bill).
Present Law
      A number of states currently have programs to provide 
low-income persons, not qualifying for Medicaid, with financial 
assistance in meeting their drug costs. The state programs 
differ substantially in both design and coverage.
House Bill
      The provision would establish a State Pharmaceutical 
Assistance Transition Commission to develop a proposal for 
dealing with the transitional issues facing state programs and 
participants due to implementation of the new Part D 
prescription drug program. The Commission, to be established on 
the first day of the third month following enactment, would 
include: (1) a representative of each governor from each state 
with a program that the Secretary identified as having a 
benefit package comparable to or more generous than the new 
Part D; (2) representatives from other states that had 
pharmaceutical assistance programs, as appointed by the 
Secretary; (3) representatives (not exceeding the total under 
#1 and #2) of organizations that represented interests of 
participants, appointed by the Secretary; (4) representatives 
of MA organizations; and (5) the Secretary or the Secretary's 
designee and other members specified by the Secretary. The 
Commission would develop the proposal in accordance with 
specified principles, namely: (1) protection of the interests 
of program participants in the least disruptive manner; (2) 
protection of the financial and flexibility interests of states 
so they are not financially worse off; and (3) principles of 
Medicare modernization outlined in Title II of the Act.
      The Commission would report to the President and Congress 
by January 1, 2005. The report would contain specific proposals 
including specific legislative or administrative 
recommendations, if any. The Commission would terminate 30 days 
later.
Senate Bill
      No provision.
Conference Agreement
      The agreement establishes a State Pharmaceutical 
Assistance Transition Commission to develop a proposal for 
dealing with the transitional issues facing State programs and 
participants due to implementation of the new Part D 
prescription drug program. The Commission, to be established as 
of the first day of the third month following enactment, will 
include: (1) a representative of each governor from each state 
with a program that the Secretary identifies as having a 
benefit package comparable to or more generous than the low-
income assistance under the new Section 1860D-14; (2) 
representatives from other states that have pharmaceutical 
assistance programs, as appointed by the Secretary; (3) 
representatives (not exceeding the total under #1 and #2) of 
organizations that have an inherent interest in the 
participants or the program itself; appointed by the Secretary; 
(4) representatives of MA organizations, Pharmacy Benefit 
Managers and other private insurance plans; and (5) the 
Secretary or the Secretary's designee and other members 
specified by the Secretary. The Commission is to develop the 
proposal in accordance with specified principles, namely: (1) 
protection of the interests of program participants in the 
least disruptive manner; (2) protection of the financial and 
flexibility interests of states so they are not financially 
worse off; and (3) principles of Medicare modernization 
outlined in Title II of the Act.
      The Commission will report to the President and Congress 
by January 1, 2005, including specific legislative or 
administrative recommendations, if any. The Commission will 
terminate 30 days later. The Conferees intend the Commission to 
play an integral role in identifying potential problems and 
proposing creative solutions to ensure a seamless transition 
for States and beneficiaries in coordinating and interacting 
with the new Medicare plans.
Studies and Reports (Section 107 of Conference agreement; New Section 
        1860D-10 of House bill; Section 102, Section 106 and Section 
        110 of Senate bill).
House Bill
      Under the new Section 1860D-10, the Secretary, within six 
months of enactment, would be required to review the current 
standards of practice for pharmacy services provided to 
patients in nursing facilities. Specifically, the Secretary 
would assess: (1) the current standards of practice, clinical 
services, and other service requirements generally utilized for 
such pharmacy services; (2) evaluate the impact of those 
standards with respect to patient safety, reduction of 
medication errors, and quality of care; and (3) recommend 
necessary actions. The Secretary would submit a report to the 
Congress on the findings and recommendations.
Senate Bill
      Section 110 would require the Secretary to conduct a 
thorough review of the standards of practice for pharmacy 
services provided to patients in nursing facilities. The 
Secretary would assess the current standards, clinical services 
and other service requirements generally used in long-term 
settings and evaluate the impact of these standards with 
respect to patient safety, reduction of medication errors, and 
quality of care. Within 18 months of enactment, the Secretary 
would be required to submit a report to Congress on the study 
containing: (1) a detailed description of the Secretary's plans 
to implement the Act in a manner consistent with applicable 
state and federal laws designed to protect the safety and 
quality of care of nursing facility patients; and (2) 
recommendations regarding necessary actions and appropriate 
reimbursement to ensure the provision of care in such manner.
      Section 102 would require the Administrator to conduct a 
study, and report to Congress by January 1, 2005, on allowing 
persons not entitled to Part A, but enrolled in Part B, to 
enroll in Part D.
      Section 106 requires the Secretary, on an ongoing basis, 
would study variations in spending and drug utilization under 
Part D to determine the impact on premiums. The Secretary would 
examine the impact of geographic adjustments of the monthly 
national average premium on the maximization of competition and 
the ability of eligible entities to contain costs. The 
Secretary would submit an annual report to Congress beginning 
in 2007.
Conference Agreement
      The agreement requires the Secretary to study variations 
in per capita spending for covered Part D drugs among PDP 
regions to determine the amount of such variation that is 
attributable to price variations and the differences in per 
capita utilization that is not taken into account in the health 
status risk adjustment made to PDP bids. The Secretary is 
required to submit a report to Congress on the study including 
information on the extent of geographic variation in per capita 
utilization, an analysis of the impact of direct subsidies and 
whether such subsidies should be adjusted to take into account 
such variation, and recommendations regarding the 
appropriateness of applying an additional geographic adjustment 
factor to bids.
      The conference agreement requires the Secretary, within 
six months of enactment, to review the current standards of 
practice for pharmacy services provided to patients in nursing 
facilities. Specifically, the Secretary is to assess: (1) the 
current standards of practice, clinical services, and other 
service requirements generally utilized for such pharmacy 
services; and (2) evaluate the impact of those standards with 
respect to patient safety, reduction of medication errors, and 
quality of care. The report is to contain a description of the 
Secretary's plans to implement this Act in a manner consistent 
with applicable state and federal laws designed to protect the 
safety and quality of care of nursing facility patients. The 
report must also include recommendations regarding necessary 
actions.
      The conference agreement requires the Secretary to enter 
into a contract with the Institute of Medicine to carry out a 
comprehensive study of drug safety and quality issues in order 
to provide a blueprint for system-wide change. The objectives 
of the study are to: (1) develop a full understanding of drug 
safety and quality issues through an evidence-based review of 
the literature, case studies, and analysis; (2) attempt to 
develop credible estimates of the incidence, severity and costs 
of medication errors; (3) evaluate alterative approaches to 
reducing medication errors; (4) provide guidance on high-
priority strategies to achieve drug safety goals; (5) assess 
opportunities and key impediments to broad nationwide 
implementation of medication error reductions; and (6) develop 
an applied research agenda to evaluate the health and cost 
impacts of alternative interventions. The study is to be 
completed within an 18-month period. Such sums as may be 
necessary are authorized.
      The agreement requires the Secretary to provide a study 
on the feasibility and advisability of providing multi-year 
contracts with PDP sponsors and MA organizations.
      The agreement requires the GAO to conduct a study to 
determine the extent to which utilization and access to covered 
Part D drugs for low-income subsidy eligible individuals 
differs from that for persons who would qualify as subsidy 
eligible individuals except for application of the assets test. 
The report is due to Congress by September 30, 2007.
Grants to Physicians to Implement Electronic Prescription Programs 
        (Section 108 of Conference agreement; Section 121 of Senate 
        bill).
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      The Secretary would be authorized to award grants to 
health care providers to implement electronic prescription 
programs. There would be authorized to be appropriated such 
sums as may be necessary for each of fiscal years 2006, 2007, 
and 2008.
Conference Agreement
      The agreement authorizes the Secretary to make grants to 
physicians for the purpose of assisting them to implement 
electronic prescription programs in complying with the 
standards under the new Section 1860D-(4)(e). The Secretary, in 
awarding the grant shall give special consideration to 
physicians who serve a disproportionate number of Medicare 
patients and give preference to physicians who serve a rural or 
underserved area. Grant funds may be used for purchasing, 
leasing, and installing hardware and software; making upgrades 
and other improvements; and providing education and training to 
eligible physician staff on the use of technology. Grant 
applicants are required to provide the secretary with 
information necessary to evaluate the project and to ensure 
that funding is expended only for the purposes for which it is 
made. The applicant must agree to make available non-Federal 
contributions totaling at least 50 percent of the costs. $50 
million is authorized for FY 2007, and such sums as may be 
necessary for FY 2008 and FY 2009.
      Expanding the Work of Medicare Quality Improvement 
Organizations to Include Parts C and D (New section 109 of the 
Conference agreement).
Present Law
      Quality improvement organizations (QIOs) review medical 
necessity and quality of services provided under Medicare.
House Bill
      No provision.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement expands the work of quality 
improvement organizations (QIOs) to include Part C and Part D. 
It is required to offer providers, practitioners, MA 
organizations, and PDP sponsors quality improvement assistance 
pertaining to prescription drug therapy. The secretary is to 
request the Institute of Medicine of the National Academy of 
Sciences to conduct a study of the QIO program including an 
evaluation of the program and the extent to which other 
entities could perform similar quality improvement functions as 
well as or better than QI0s. The Secretary will report to 
Congress on such study by June 1, 2006. If the Secretary finds, 
based on the study, that other entities could improve quality 
as well as or better than QI0s, the Secretary shall provide 
increased competition through such entities.
      Conflict of Interest Study (Section 110 of Conference 
agreement).
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement requires the Federal Trade 
Commission to conduct a study of differences in payment amounts 
for pharmacy services provided to enrollees in group health 
plans that utilize pharmacy benefit managers (PBMs). The study 
is to include an assessment of the differences in costs 
incurred by such enrollees and plans for drugs dispensed by 
mail order pharmacies owned by PBMs compared to those not owned 
by PBMs, and community pharmacies. The study is to examine 
whether such plans are acting in a manner that maximizes 
competition and results in lower prescription drug prices for 
enrollees. The report is due to Congress within 18 months of 
enactment. It is to include recommendations regarding any 
legislation to insure the fiscal integrity of the Part D 
program. Conferees note the Secretary has the authority to 
accept or reject bids, based, among other factors, costs 
associated with delivering drug benefits.
      The intent of the conferees in including this assessment 
by the FTC is to assess whether Medicare spending is likely to 
be adversely affected because of the use of mail order 
pharmacies that are owned and operated by a PBM under contract 
to a prescription drug plan or MA-PD plan. Therefore, this 
study should evaluate to what extent prescription drug spending 
is likely to be affected if a PDP or MA-PD plan approves the 
dispensation of covered drugs from a mail- order pharmacy owned 
directly or indirectly by a PBM compared to drug utilization 
and costs if the mail-order pharmacy were independently owned. 
Such assessment shall take into account the following:
            (1) whether mail order pharmacies that are owned by 
        PBMs (or entities that own PBMs) dispense fewer generic 
        drugs compared to single source drugs within the same 
        therapeutic class when compared to mail order 
        pharmacies that are not owned by PBMs,
            (2) whether mail order pharmacies that are owned by 
        PBMs (or entities that own PBMs) routinely switch 
        patients from lower priced drugs to higher priced drugs 
        (in the absence of a clinical indication) when compared 
        to mail order pharmacies that are not owned by PBMs,
            (3) whether mail order pharmacies owned by PBMs (or 
        entities that own PBMs) sell a higher proportion of 
        repackaged drugs than mail order pharmacies that are 
        not owned by PBMs,
            (4) whether mail order pharmacies owned by PBMs (or 
        entities owned by PBMs) sell repackaged drugs at prices 
        above the manufacturer's average wholesale price,
            (5) other factors deemed relevant by the FTC.
      In conducting this study, the FTC shall consider whether 
competition or drug pricing behavior by PBMs would be affected 
if PBMs were to bear financial risk for drug spending. The FTC 
shall issue a written report within 18 months of the date of 
enactment.
Disclosure of Return Information for Purposes of Carrying Out Medicare 
        Catastrophic Prescription Drug Program. (Section 106 of House 
        Bill).
Present Law
      Current law authorizes, under specified circumstances, 
the disclosure by the Secretary of the Treasury of returns and 
return information for purposes other than tax administration.
House Bill
      The provision would permit the Secretary of the Treasury, 
upon written request from the Secretary of the Department of 
Health and Human Services (HHS) to disclose to officers and 
employees of HHS specific information with respect to a 
specified taxpayer for a specific tax year. The information 
that could be disclosed is taxpayer identity information and 
the adjustedgross income for the taxpayer or, if less, the 
income threshold limit specified under the new Part D ($200,000 in 
2006). A specified taxpayer would be either: (1) an individual who had 
adjusted gross income for the year in question in excess of the income 
threshold specified in the new Part D ($60,000); or (2) an individual 
who elected to use more recent income information as permitted under 
Part D. Individuals filing joint returns would each be treated 
separately with each person considered to have an adjusted gross income 
equal to one-half of the total.
      Return information disclosed, could be used by officers 
and employees of HHS only for administering the prescription 
drug benefit. They could disclose the annual out-of-pocket 
threshold applicable to an individual to the entity offering 
the individual prescription drug coverage. The sponsor could 
use such information only for the purposes of administering the 
benefit.
Senate Bill
      No provision.
Conference Agreement
      No provision.
Limitation on Prescription Drug Benefits of Members of Congress 
        (Section 107 of Senate Bill).
Present Law
      Members of Congress are entitled to receive health 
benefits through the Federal Employees Health Benefits (FEHB) 
program.
House Bill
      No provision.
Senate Bill
      During calendar year 2004, the actuarial value of the 
drug benefit of any Member of Congress enrolled in a FEHBP plan 
could not exceed the actuarial value of any prescription drug 
benefit under Title XVIII of the Social Security Act passed by 
the first session of the 108th Congress and enacted into law. 
The Office of Personnel Management would promulgate necessary 
regulations.
Conference Agreement
      No provision.
Protecting Seniors With Cancer (Section 108 of Senate Bill).
Present Law
      Medicaid pays Part B premiums for QMBs, SLIMBs and QI-1s. 
It pays Medicare cost-sharing charges for QMBs.
House Bill
      No provision.
Senate Bill
      The cost-sharing specified under the low-income subsidy 
provisions would be modified for persons diagnosed with cancer. 
The cost-sharing specified under New Section 1860D-19 would 
apply except for the following changes. The QMB population 
would have a full premium subsidy for at least one drug plan 
available in the area where the beneficiary resided. For the 
SLIMB and QI-1 population, there would be no premium for any 
plan whose premium was at or below the monthly national average 
premium. For other persons below 160% of poverty, only a 
percentage of the premium otherwise applicable. Persons with 
incomes above 160% of the poverty line would have, in 2006, the 
same cost-sharing otherwise specified under the bill.
Conference Agreement
      No provision.
Protecting Seniors With Cardiovascular Disease, Cancer, or Alzheimer's 
        Disease (Section 109 of Senate Bill).
Present Law
      Medicaid pays Part B premiums for QMBs, SLIMBs and QI-1s. 
It pays Medicare cost-sharing charges for QMBs.
House Bill
      No provision.
Senate Bill
      The cost-sharing specified under the low-income subsidy 
provisions would be modified for persons diagnosed with 
cardiovascular disease, cancer, diabetes or Alzheimer's 
disease. The cost-sharing specified under New Section 1860D-19 
would apply except for the following changes. The QMB 
population would have a full premium subsidy for at least one 
drug plan available in the area where the beneficiary resided. 
For the SLIMB and QI-1 population, there would be no premium 
for any plan whose premium was at or below the monthly national 
average premium. For other persons below 160% of poverty, only 
a percentage of the premium otherwise applicable. Persons with 
incomes above 160% of the poverty line would have, in 2006, the 
same cost-sharing otherwise specified under the bill.
Conference Agreement
      No provision.
Medication Therapy Management Assessment Program (Section 110A of 
        Senate Bill).
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      The Secretary would be required to establish a 1-year 
assessment program to contract with qualified pharmacists to 
provide medication therapy management services to fee-for-
service beneficiaries. The Secretary would designate 6 
geographic areas (at least 2 rural), each containing not less 
than 3 sites. The program would be implemented between October 
1, 2004 and January 1, 2005. Beneficiaries in an area could 
participate if they identified a qualified pharmacist to 
furnish medication therapy management services. The Secretary 
would enter into contracts with qualified pharmacists to 
provide such services. The fee established under the contract 
would be designed to test various payment methodologies 
including one that applied a relative value scale and fee 
schedule. Payments would be made from the Part B trust fund and 
be budget neutral. The Secretary would be required to make data 
on the program available and report to Congress within 6 months 
of completion of the program.
Conference Agreement
      No provision.
Section 133. Pharmacy Benefit Managers Transparency Requirements 
        (Section 133 of Senate Bill).
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      An eligible entity offering a Medicare prescription drug 
plan under Part D or a MedicareAdvantage organization offering 
a MedicareAdvantage plan under Part C could not enter a 
contract with a pharmacy benefit manager (PBM) owned by a 
pharmaceutical manufacturing company. PBMs would be required to 
provide the following information, on an annual basis, to the 
Assistant Attorney General for Antitrust of the Department of 
Justice and the Inspector General for the Department of Health 
and Human Services: (1) aggregate amount of any and all 
rebates, discounts, administrative fees, promotional 
allowances, and other payments received or recovered from each 
pharmaceutical manufacturer; (2) the amount of payments 
received or recovered from each pharmaceutical manufacturer for 
each of the top 50 drugs (as measured by volume); and (3) the 
percentage differential between the price PBMs pay pharmacies 
and the price the PBM charges the PDP or MA organization. 
Failure to disclose could result in civil penalties; further, 
the U.S. district court could order compliance. No disclosed 
information would be made public, except as might be relevant 
to any judicial action or proceeding. Nothing in the provision 
would be intended to prevent disclosure to either body of 
Congress or any duly authorized committee or subcommittee.
Conference Agreement
No provision.
      Office of the Medicare Beneficiary Advocate (Section 134 
of Senate Bill).
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      Within 1 year of enactment, the Secretary would be 
required to establish an Office of the Medicare Beneficiary 
Advocate within the Department of Health and Human Services. 
The Office would establish a toll-free number for beneficiaries 
to obtain information on the Medicare program, particularly 
with respect to Part D. It would establish a website with 
easily accessible information on PDPs and MA plans. From 
amounts appropriated to the Secretary's administrative account, 
$2 million could be used to establish the Office and such funds 
as may be necessary would be used to operate the Office.
Conference Agreement
      No provision.

                      TITLE II--MEDICARE ADVANTAGE

        Subtitle A--Implementation of Medicare Advantage Program

Sec. 201. Implementation of Medicare Advantage program
Present Law
      Health maintenance organizations (HMOs) and other types 
of managed care plans have long participated in the Medicare 
program, beginning with private health plan contracts in the 
1970s and the Medicare risk contract program in the 1980s. In 
1997, Congress passed the Balanced Budget Act of 1997 (BBA 
1997, P.L. 105-33), which replaced the risk contract program 
with the Medicare+Choice (M+C) program. M+C plans include 
coordinated care plans (HMOs, preferred provider organizations 
or PPOs, and provider-sponsored organizations or PSOs), private 
fee for service (PFFS) plans, and, on a temporary basis, 
medical savings accounts (MSAs).
House Bill
      Section 200. Title II would establish the Medicare 
Enhanced Fee-for-Service (EFFS) program, under which Medicare 
beneficiaries would be provided access to a range of regional 
EFFS plans that could include preferred provider networks, 
beginning in 2006. It would establish the Medicare Advantage 
(MA) program, upon enactment, to replace the M+C program, which 
would continue to offer coordinated care and other plans on a 
county-wide basis as under current law. It would also use 
competitive bidding, beginning in 2010, in the same style as 
the Federal Employees Health Benefits program (FEHBP) for 
certain EFFS plans and MA plans, to promote greater efficiency 
and responsiveness to Medicare beneficiaries.
Senate Bill
      Title II would establish the Medicare Advantage (MA) 
program, which would replace the M+C program, beginning in 
2006. The MA program would continue to offer coordinated care 
and other plans on a county-wide basis as under current law. It 
would also establish regional PPOs, to be offered in regions. 
Beginning in 2008, it would establish a limited competition 
program, in areas designated as ``highly competitive.''
Conference Agreement
      Section 201. The conference agreement establishes the 
Medicare Advantage (MA) program under Part C of Medicare. Any 
reference under Part C of Medicare to the ``Medicare+Choice'' 
program is deemed to be a reference to ``Medicare Advantage'' 
and ``MA''.
      This title modernizes and revitalizes private plans under 
Medicare. The Balanced Budget Act (BBA) of 1997 altered 
payments for private plans and expanded the types of plans that 
could be offered under Medicare. Since payment rate changes 
were implemented, enrollment in private plans has fallen from 
6.2 million beneficiaries in 1998 to 4.6 million beneficiaries 
in November 2003, and the number of plans has decreased from 
346 risk plans in 1998 to 155 (151 coordinated care plans and 4 
private FFS plans) in November 2003. This disruption has been 
due, in part, to unpredictable and insufficient payments. BBA 
97 fundamentally de-linked payments to plans from FFS payment 
growth.
      To increase beneficiary choice, Title II reforms the 
payment system in 2004. All plans would be paid at a rate at 
least as high as the rate for traditional FFS Medicare, as 
recommended by the Medicare Payment Advisory Commission 
(MedPAC). After 2004, private plans' capitation rates would 
grow at the same rate as FFS Medicare. To increase beneficiary 
choice in more rural areas, Title II would establish regional 
plans, which would encourage private plans to serve Medicare 
beneficiaries in larger regions, beginning in 2006. Both local 
and regional MA private plans would bid competitively against a 
benchmark beginning in 2006.
      Once private plans became established, and enrollment in 
private plans increased, a demonstration of comparative cost 
adjustment in selected sites would begin in 2010. Plan bids 
from private plans and rates for traditional FFS Medicare would 
be averaged to create a benchmark for competitive bidding. The 
competitive program would encourage beneficiaries to enroll in 
the most efficient plan, producing savings for both 
beneficiaries, through reduced premiums, and for taxpayers, 
through relatively lower Medicare costs.

                   Subtitle B--Immediate Improvements

Section 211. Immediate improvements
Present Law
      Under current law, Medicare+Choice (M+C) plans are paid 
an administered monthly payment, called the M+C payment rate, 
for each enrollee. The per capita rate for a payment area is 
set at the highest of three amounts: (1) a minimum payment (or 
floor) rate, (2) a rate calculated as a blend of an area-
specific (local) rate and a national rate, or (3) a rate 
reflecting a minimum increase from the previous year's rate 
(currently 2%).
      A budget neutrality adjustment is made so that estimated 
total M+C payments in a given year will be equal to the total 
payments that would be made if payments were based solely on 
area-specific rates. The budget neutrality adjustment may only 
be applied to the blended rates because rates cannot be reduced 
below the floor or minimum increase amounts. The blend payment 
is also adjusted to remove the direct and indirect costs of 
graduate medical education. The blend payment amount is based 
on a weighted average of local and national rates for all 
Medicare beneficiaries.
      Each year, the three payment amounts are updated by 
formulas set in statute. Both the floor and the blend are 
updated each year by a measure of growth in program spending, 
the national growth percentage. The minimum increase provides 
for an increase of at least 2% over the previous year's amount.
      If an individual is in a short-term general hospital at 
the time he or she elected to enroll in an M+C plan or change 
from one M+C plan to another, payment for such services would 
be made through FFS or the original plan. Conversely, if an 
individual terminates enrollment in anM+C plan, that 
organization would be responsible for payment for such services until 
the date of the individual's discharge.
House Bill
      Section 212(a). For 2004, a 4th payment mechanism would 
be added and plans would receive the highest of the four 
payment calculations (the floor, blend, minimum percentage 
increase, or the new amount). The new payment amount would be 
100% of fee-for-service (FFS) costs. The FFS payment would be 
based on the adjusted average per capita cost for the year, for 
an MA payment area, for services covered under Parts A and B 
for beneficiaries entitled to benefits under Part A, enrolled 
in Part B and not enrolled in an MA plan. This payment would be 
adjusted to remove payments for direct medical education costs 
and to include the additional payments that would have been 
made if Medicare beneficiaries entitled to benefits from 
facilities of the Department of Veteran Affairs (VA) and the 
Department of Defense (DOD) had not used those services (VA/DOD 
adjustment).
      Section 212(b). In 2004, no adjustment would be made for 
budget neutrality, which would fund the blend for that year.
      Section 212(c). The calculation of the minimum percentage 
increase would also be revised. For 2004 and beyond, the 
minimum percentage increase would be the greater of: (1) a 2% 
increase over the previous year's payment rate (as under 
current law), or (2) the previous year's payment increased by 
the national per capita MA growth percentage. For purposes of 
calculating the minimum percentage increase, there would be no 
adjustment to the national growth percentage for prior years' 
errors before 2004. Beginning in 2005 and each subsequent year, 
the payments to a plan would be based on its prior year rate 
increased by the revised minimum percentage increase.
      Section 212(d). The area-specific MA capitation rate (the 
local component of the blend) would be adjusted to include the 
VA/DOD adjustment, beginning in 2004.
      Section 212(e). Beginning January 1, 2004, the payment 
rule for beneficiaries in a short-term general hospital at the 
time they either elected to enroll in or to terminate their 
enrollment in an M+C plan, would be extended to a beneficiary 
in an inpatient rehabilitation facility.
      Section 212(f). No later than 18 months after enactment 
of this Act, the Medicare Payment Advisory Commission would 
report to Congress providing an assessment of the method used 
for determining the adjusted average per capita cost (AAPCC). 
The report would examine the variation in costs between 
different areas, including differences in input prices, 
utilization and practice patterns; the appropriate geographic 
area for payment; and the accuracy of the risk adjustment 
methods in reflecting differences in the cost of providing care 
to different groups of beneficiaries.
      Section 212(g). No later than July 1, 2006, the 
Administrator would submit a report to Congress that described 
the impact of additional financing provided under this Act and 
other Acts, (including the Balanced Budget Refinement Act of 
1999--BBRA and the Benefits Improvement and Protection Act of 
2000--BIPA) on the availability of MA plans in different areas 
and the impact on lowering premiums and increasing benefits 
under such plans.
      Section 212(h). The Secretary would calculate and 
announce the new MA capitation rates within 6 weeks of 
enactment of this legislation.
Senate Bill
      Section 203. [Sec. 1853(c)]. For payments before 2006, 
the payment would be calculated in the same manner as under 
current law--the highest of the blend, minimum payment (floor) 
rate, or minimum percentage increase. However the calculation 
of the minimum percentage increase would change for 2005. The 
minimum percentage increase for 2005 would be a 3% increase 
over the rate for the area for 2003. For 2006 and subsequent 
years, it would be a 2% increase over the previous year (but 
calculated as though the increase in 2005 was 2%.) 
Additionally, beginning in 2014, the minimum amount (floor) 
would be increased by the percentage increase in the CPI for 
all consumers, for the 12-month period ending in June of the 
previous year.
      Section 204(b). The Secretary would conduct a study to 
determine the extent to which M+C cost-sharing discourages 
access to covered services or discriminates based on the health 
status of M+C eligible beneficiaries. The Secretary would 
submit a report to Congress, providing recommendations for 
legislation and administrative action, no later than December 
31, 2004.
      Section 210. The costs of DOD and VA military facility 
services would be included in the area specific M+C payment and 
the local fee for service rates beginning in 2006.
Conference Agreement
      Section 211(a). The conference agreement makes several 
changes to the payments for MA plans. In some MA payment areas, 
the MA payment rate is lower than the costs of providing FFS 
care to enrollees in traditional Medicare in some parts of the 
country. Many private plans have seen their Medicare payment 
rates rise much less rapidly than the costs of FFS Medicare, as 
they have been held to increases of two percent annually every 
year since 1998, except for 2001 when a three percent increase 
was paid due to the BIPA. Health costs in general are running 
much higher than the two percent payment increases that most 
plans are receiving in the areas where most of the 
beneficiaries are enrolled in Medicare+Choice. Plans find it 
difficult--if not impossible--to contract with providers if FFS 
Medicare can reimburse providers at higher rates than private 
plans may offer, given their Medicare payments. If paid less 
than FFS Medicare, private plans may be forced to increase 
enrollee premiums or cost-sharing, or decrease supplemental 
benefits, such as prescription drug coverage. Since 1998, the 
number of plans participating in M+C has declined from 346 to 
155.
      To encourage plan entry, all private plans would be paid 
at a minimum of the FFS rate. In addition, private plan rates 
would increase at the same rate as growth in FFS Medicare. The 
goal is to increase beneficiary choice, by increasing private 
plan participation in Medicare.
      For 2004, a 4th payment mechanism will be added and plans 
will receive the highest of the four payment calculations (the 
floor, blend, minimum percentage increase, or the new amount). 
The new payment amount is 100% of fee-for-service (FFS) costs. 
The FFS payment is based on the adjusted average per capita 
cost for the year, for an MA payment area, for services covered 
under Parts A and B for beneficiaries entitled to benefits 
under Part A, enrolled in Part Band not enrolled in an MA plan. 
The 4th payment mechanism, 100% fee-for-service, will be rebased no 
less than once every 3 years. This payment will be adjusted to: (1) 
remove payments for direct medical education costs, and (2) include the 
additional payments that would have been made if Medicare beneficiaries 
entitled to benefits from facilities of the Department of Veteran 
Affairs (VA) and the Department of Defense (DOD) had not used those 
services (VA/DOD adjustment).
      Section 211(b). In 2004, no adjustment will be made for 
budget neutrality, in order to fund the blend for that year.
      Section 211(c). The calculation of the minimum percentage 
increase will also be revised. For 2004 and beyond, the minimum 
percentage increase will be the greater of: (1) a 2% increase 
over the previous year's payment rate (as under current law); 
or (2) the previous year's payment increased by the national 
per capita MA growth percentage. For purposes of calculating 
the minimum percentage increase, there will be no adjustment to 
the national growth percentage for prior years' errors before 
2004. Beginning in 2005 and each subsequent year, the payments 
to a plan will be based on its prior year rate increased by the 
revised minimum percentage increase.
      Section 211(d). The area-specific MA capitation rate (the 
local component of the blend) will be adjusted to include the 
VA/DOD adjustment, beginning in 2004.
      Section 211(e). Beginning January 1, 2004, the payment 
rule for beneficiaries in a short-term general hospital at the 
time they either elected to enroll in or to terminate their 
enrollment in an MA plan, will be extended to a beneficiary in 
an rehabilitation hospital, a distinct part rehabilitation 
unit, or a long-term care hospital. For beneficiaries leaving 
their MA plan while receiving these inpatient hospital 
services, this provision will expand the rule that disallows 
payment for such services under fee-for-service payments for 
inpatient hospitals. Under the expansion, payments will be 
prohibited from any type of payment provision under Medicare 
for inpatient services, for the type of facility, hospital, or 
unit involved.
      Section 211(f). No later than 18 months after enactment 
of this Act, the Medicare Payment Advisory Commission (MedPAC) 
will submit a report to Congress providing an assessment of the 
method used for determining the adjusted average per capita 
cost (AAPCC). The report will examine the variation in costs 
between different areas, including differences in input prices, 
utilization and practice patterns; the appropriate geographic 
area for payment of local MA plans; and the accuracy of the 
risk adjustment methods in reflecting differences in the cost 
of providing care to different groups of beneficiaries.
      Section 211(g). No later than July 1, 2006, the Secretary 
will submit a report to Congress that describes the impact of 
additional financing provided under this Act and other Acts, 
(including the Balanced Budget Refinement Act of 1999--BBRA and 
the Benefits Improvement and Protection Act of 2000--BIPA) on 
the availability of MA plans in different areas and the impact 
on lowering premiums and increasing benefits under such plans.
      Section 211(h). The Medicare Payment Advisory Commission 
(MedPAC) will conduct a study to determine the extent to which 
MA cost-sharing affects access to covered services or selects 
enrollees based on the health status of MA eligible 
beneficiaries. MedPAC will submit a report to Congress, 
providing recommendations for legislation and administrative 
action, no later than December 31, 2004.
      Section 211(i). Within 6 weeks after enactment, the 
Secretary will determine and announce the revised MA capitation 
rates. The revised payment rates will be subject to the same 
transition rules that applied to revised payments after the 
passage of the Benefits Improvement and Protection Act of 2000 
(BIPA, P.L. 106-554), including the requirement that plans that 
previously announced their intention to terminate their 
contract or reduce their service area could rescind their 
notice, among other transition rules. Also for 2004, any 
changes to payments made under this Act will be effective 
beginning in March 2004, and would be adjusted to include any 
additional amounts plans would have received if the new payment 
system had been effective January 1. If a plan revises its 
submission of information to the Secretary, and it includes 
changes in beneficiary premiums, beneficiary cost-sharing, or 
benefits under the plan, then the plan is required to notify 
each enrollee in writing, within 3 weeks after the date that 
the Secretary approves the changes. There will be no 
administrative or judicial review of any determination made by 
the Secretary for application of this section or payment rates.
      In order to clarify current law, if a private fee-for-
service plan has contacts and agreements with a sufficient 
number and range of providers within a category of health care 
professionals and providers, it may charge higher beneficiary 
copayments to providers in that category who do not have such 
contracts or agreements (other than deemed contracts or 
agreements).

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

Section 221. Establishment of MA regional plans
Present Law
      M+C plans include coordinated care plans (HMOs, preferred 
provider organizations or PPOs, and provider-sponsored 
organizations or PSOs), private fee for service (PFFS) plans, 
and, on a temporary basis, medical savings accounts (MSAs).
      Enrollment in any individual M+C plan is open only to 
those beneficiaries living in a specific service area. An M+C 
payment area is defined as a county, or equivalent area as 
specified by the Secretary. Plans define a service area as a 
set of counties and county parts, identified at the zip code 
level. At a state's option, the service area could be defined 
as the entire state; however, to date, no state has done so.
House Bill
      Section 201(a). [Sec. 1860E-1(a)] Beginning January 1, 
2006, the Administrator would establish the EFFS program for 
EFFS eligible individuals in EFFS regions. Plans would be 
offered on a regional basis, in at least 10 regions established 
by the Administrator. Before establishing the regions, the 
Administrator would conduct a market survey and analysis, 
including an examination of current insurance markets, to 
determine how the regions should be established. Regions would 
be established to take into consideration maximizing full 
access for all EFFS-eligible individuals, especially those 
residing in rural areas.
      [Sec. 1860E-1(b)]. EFFS plans would be required to 
provide either fee-for-service (FFS) or preferred provider 
coverage. Under FFS coverage, plans would: (1) reimburse 
hospitals, physicians and other providers at a rate determined 
by the plan on a FFS basis, without placing providers at risk, 
(2) not vary rates based on the provider's utilization, and (3) 
not restrict the selection of providers from among those who 
were lawfully authorized to provide covered services and agreed 
to accept the plan's terms and conditions. Under preferred 
provider coverage, plans would: (1) have a network of providers 
who agreed to a contractually-specified reimbursement for 
covered benefits with the organization, and (2) provide for 
reimbursement for all covered benefits regardless of whether 
they were provided within the network.
      [Sec. 1860E-1(c)]. EFFS plans would have to comply with 
existing eligibility, election, and enrollment provisions 
(under Sec. 1851) including guaranteed issue and renewal, but 
could offer cash rebates, reduced premiums, or supplemental 
benefits to beneficiaries if plan bids were below a specified 
benchmark.
      [Sec. 1860E-3(a)]. The Administrator may enter into 
contracts with up to three EFFS organizations in any region.
Senate Bill
      Section 211. [Sec. 1858(a)]. Beginning January 1, 2006, a 
preferred provider organization (PPO) plan would be offered to 
MA eligible individuals in preferred provider regions. A PPO 
would be an entity with a contract that met other requirements 
of this Act. A PPO would have a network of providers that 
agreed to contractually specified reimbursements for covered 
benefits under Parts A and B. The PPO would pay for all covered 
services an enrollee received, whether provided in or out of 
network.
      [Sec. 1858(a)(3)]. There would be at least 10 regions. 
Each region would have to include at least one state, and could 
be the entire United States. The Secretary could not divide 
states so that portions of the state were in different regions. 
To the extent possible, the Secretary would include multi-state 
metropolitan statistical areas (MSAs) in a single region, 
except that he or she could divide an MSA where necessary to 
establish a region of such size and geography to maximize the 
participation of PPOs. The Secretary could use the same regions 
established for the prescription drug program, under Part D. 
The service area of a PPO would be the region.
      Each plan would be offered to any MA eligible individual 
residing in the service area.
      Section 211. [Sec. 1858(b)]. PPOs would be required to 
establish a sufficient number and range of health care 
professionals and providers willing to provide services under 
the plan's terms. The Secretary would consider this requirement 
to be met if the organization had a sufficient number of 
contracts and agreements with a sufficient number and range of 
providers. These arrangements would not restrict enrollee 
access to other providers for covered services. Additionally, 
if the plan was in a state where 25% or more of the population 
resided in a health professional shortage area, these 
arrangements would also not restrict the categories of licensed 
health professionals or providers from whom the enrollee could 
obtain covered benefits. The Secretary could disapprove any PPO 
believed to attract a population that is healthier than the 
average population of the region serviced by the plan.
      Section 211. [Sec. 1858(d)]. If there were bids for more 
than three plans in a preferred provider region, the Secretary 
would limit the number of plans to the three lowest-cost 
credible plans that met or exceeded the quality or minimum 
standards.
Conference Agreement
      The conference agreement establishes a new regional plan 
program beginning in 2006. The Secretary will establish between 
10 and 50 regions across the nation. Plans wishing to 
participate in this program will be required to serve an entire 
region. By requiring plans to serve larger service areas that 
bring together both urban and rural areas, the program will 
bring greater health plan choices to areas not previously 
served by the Medicare+Choice program, particularly rural 
areas.
      In establishing Medicare Advantage regions (MA regions), 
the Secretary will conduct a market study to determine how 
regions should best be constructed to maximize plan 
participation and availability of plans to beneficiaries. The 
conference agreement includes a number of provisions to provide 
incentives for plans to participate in the regional program. 
These provisions include risk corridors for plans during the 
first 2 years of the program, 2006 and 2007; a stabilization 
fund to encourage plan entry and limit plan withdrawals; a 
blended benchmark that will provide greater responsiveness to 
the market by allowing plan bids to influence the benchmark 
amount; and a network adequacy fund to assist plans in forming 
adequate networks, particularly in rural areas. While private 
plans have experience in serving Medicare beneficiaries at a 
local level, such plans have not previously operated on a 
region-wide basis. These provisions will assist plans as they 
enter this new line of business and learn the market dynamics 
of serving beneficiaries across larger regions.
      Section 221(a). This provision establishes a 2-year 
moratorium on new local preferred provider organizations in 
order to encourage PPOs to operate at the regional level. PPOs 
that are in operation as of December 31, 2005, including 
demonstration projects, will be allowed to continue operations 
and expand enrollment in their existing service areas during 
this period; however they will not be allowed to expand their 
service areas. PPOs will be able to enter new or expanded 
service areas again beginning January 1, 2008.
      Section 221(b). The conference agreement allows MA 
regional coordinated care plans under the MA program. An MA 
regional plan: (1) has a network of providers who agreed to a 
contractually specified reimbursement for covered benefits with 
the organization offering the plan, (2) provides for 
reimbursement for all covered benefits regardless of whether 
such benefits are provided within such network of providers, 
and (3) has a service area of one or more MA regions. A local 
MA plan is an MA plan that is not an MA regional plan, and 
local MA areas are defined, as under current law, as a county 
or equivalent area specified by the Secretary. MSA and PFFS 
plans are defined as local plans, although nothing prevents an 
MSA plan or an MA PFFS plan from serving one or more regions, 
or the entire Nation.
      Section 221(c). [Sec. 1858(a)(1)]. The service area for 
an MA regional plan will consist of an entire MA region and may 
not be segmented.
      [Sec. 1858(a)(2)]. No later than January 1, 2005 the 
Secretary will establish and publish a list of MA regions. 
There will be between 10 and 50 regions within the 50 states 
and the District of Columbia. Before establishing the MA 
regions, the Secretary will conduct a market surveyand 
analysis, including an examination of current insurance markets. The 
regions should maximize the availability of MA regional plans to all MA 
eligible individuals without regard to health status, especially 
beneficiaries residing in rural areas. To the extent possible, each 
region should include at least one State, should not divide States 
across regions, and should include multi-State Metropolitan Statistical 
Areas in a single region. The Secretary may periodically review MA 
regions and, based on the review, revise the regions to be more 
appropriate. An MA regional plan may be offered in more than one region 
including all regions.
Single Deductible and Catastrophic Limit
Present Law
      Medicare does not have a catastrophic limit on 
beneficiary out-of-pocket expenses, although some M+C plans 
offer an out-of-pocket limit as an added benefit. The original 
Medicare FFS program includes a Part B deductible and a 
separate Part A deductible for hospital stays.
House Bill
      Section 201(a). [Sec. 1860E-2(b and c)]. EFFS plans could 
only be offered in a region if the plan, among other 
requirements, included a single deductible for benefits under 
Parts A and B, and a catastrophic limit on out-of-pocket 
expenses.
Senate Bill
      Section 202. [Sec. 1852(a)]. Each MA plan would have to 
offer a maximum limitation on out-of-pocket expenses and a 
unified deductible.
Conference Agreement
      Section 221(c). [Sec. 1858(b)]. In order to ensure that 
MA regional plans are structured more like existing private 
market plans for the under-65 population, the conference 
agreement requires MA regional plans to include a single 
deductible for benefits under Parts A and B. The single 
deductible may be applied differentially for in-network 
services and may be waived for preventive or other items and 
services. MA regional plans will also be required to include 
two catastrophic limits--one for out-of-pocket expenditures for 
in-network Part A and B benefits and one for out-of-pocket 
expenditures for all Part A and B benefits. Payment rates to 
these plans are not increased to provide this coverage.
Risk Corridors
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      Section 211. [Sec. 1858(e)]. The PPO would notify the 
Secretary of the total amount of costs incurred during 2007 and 
2008 in providing covered benefits under Part A and B of 
Medicare, except that certain expenses would not be included 
(administrative expenses over the amount determined appropriate 
by the Administrator and amounts expended for enhanced medical 
benefits).
      The Secretary would be required to establish risk 
corridors for the regional PPO plans for 2006 and 2007. 
Medicare would share risk with PPO organizations after costs 
fell above or below a risk corridor of 5% as follows: (1) 
Medicare would share 50% of the losses or profits between 105% 
and 110% of a target which consists of Medicare's MA payment 
plus the beneficiaries' contributions; and (2) Medicare would 
share 90% of the losses or profits above 110% of the target. 
PPOs would be at full risk for all enhanced medical benefits. A 
beneficiary's liability would not be affected by these risk 
corridors in the given years.
Conference Agreement
      Section 221(c). [Sec. 1858(c)]. In order to encourage 
plans to enter the regional market and to provide assistance to 
these plans during the start-up phase of their business, 
Medicare will share risk with MA regional plans if costs fall 
above or below a specific risk corridor. These risk corridors 
will be available to plans during 2006 and 2007. The conference 
agreement provides that MA regional plans notify the Secretary 
of: (1) the total costs of providing Part A and B benefits and 
the portion attributable to allowable administrative expenses, 
and (2) the costs of providing rebatable integrated benefits 
and the portion of these costs attributable to allowable 
administrative expenses. Allowable cost is defined, with 
respect to an MA regional plan for a year, as the total amount 
of costs incurred in providing benefits under the original 
Medicare FFS program, and rebatable integrated benefits, 
reduced by administrative expenses. Rebatable integrated 
benefits are defined as non-drug supplemental benefits provided 
by a plan, as part of its required rebate to beneficiaries, 
that are integrated with the benefits under the original 
Medicare fee-for-service program. The Secretary will have 
discretion to evaluate whether certain rebatable benefits 
should be included in allowable costs for risk corridor 
calculations.
      [Sec. 1854(c)(2)(D)]. The target amount is defined as an 
amount equal to the sum of: (1) the total monthly payments made 
to the organization for enrollees in the plan for the year that 
are attributable to benefits under the original Medicare FFS 
program; (2) the total of the MA monthly basic beneficiary 
premium, collectable for the enrollees for the year; and (3) 
the total amount of rebatable integrated benefits that the 
Secretary determines are appropriate for inclusion in the risk 
corridor calculation. The target amount does not include the 
cost of administrative expenses for FFS benefits or for 
rebatable supplemental benefits.
      [Sec. 1854(c)(2)]. There will be no payment adjustment if 
the allowable costs for the plan are at least 97 percent, but 
do not exceed 103 percent of the target amount for the plan. If 
allowable costs for the plan are more than 103 percent but less 
than 108 percent of the target amount for the plan for the 
year, the Secretary will increase the total monthly payments 
made to the organization by 50 percent of the difference 
between 103 percent and allowable costs. If allowable costs for 
the plan are greater than 108 percent of the target amount, the 
Secretary will increase the total monthly payments to the plan 
by an amount equal to the sum of: (1) 2.5 percent of the target 
amount; and (2) 80 percent of the difference between allowable 
costs and 108 percent of thetarget. Conversely, if the 
allowable costs for the plan are less than 97 percent, but greater than 
or equal to 92 percent of the target amount, the Secretary will reduce 
the total monthly payment to the plan by 50 percent of the difference 
between 97 percent of the target amount and the allowable cost. If the 
allowable costs for the plan are below 92 percent of the target, the 
Secretary will reduce the total monthly payments to the organization by 
the sum of: (1) 2.5 percent of the target amount, and (2) 80 percent of 
the difference between 92 percent of the target and the allowable cost.
       [Sec. 1854(c)(3)]. Each contract under the MA program 
will provide the information the Secretary deems necessary to 
carry out this subsection. While the Secretary has the right to 
inspect and audit all books and records pertaining to 
information provided under this section, the information 
disclosed or obtained may only be used to carry out this 
section.
Organizational and Financial Requirements
       [Sec. 1854(d)]. In order to facilitate the offering of 
MA plans in regions that may encompass multiple states, the 
conference agreement establishes rules for applying licensing 
requirements across states. If an MA organization offering an 
MA regional plan is organized and licensed under State law in a 
state in the region but does not meet the requirements in other 
states in the region, the Secretary may waive such requirement 
for an appropriate period of time. Such a waiver can only be 
granted if the organization demonstrates to the Secretary's 
satisfaction that it has filed the necessary application to 
meet the other state's requirements. If an MA organization is 
organized and licensed under more than one state in the region, 
and the organization does not meet the requirements of each 
state, the organization may select the rules of one State and 
apply those rules to the entire service area until such time as 
the organization meets a state's requirements, in a manner 
specified by the Secretary.
Stabilization Fund
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      Section 231. If an area was designated as highly 
competitive, benchmarks would not apply. Instead, a plan would 
bid the total payment it was willing to accept (not taking into 
account risk adjustment) for providing required Parts A and B 
benefits to plan enrollees residing in the service area. The 
Secretary would substitute the second lowest bid for the 
benchmark. If there were fewer than three bids, the Secretary 
would be required to substitute the lowest bid for the 
benchmark. Total funding for this provision is limited to $6 
billion over 2009 through 2013.
Conference Agreement
      Section 221(c). [Sec. 1858(e)]. During the past several 
years a number of plans have pulled out of the Medicare+Choice 
program due to changing market conditions and an inflexible 
payment formula. Plans were held to 2 percent annual payment 
increases while costs in the fee-for-service program were 
rising at a much faster rate. Under current law, the Secretary 
had no ability to respond quickly to these market changes, 
resulting in plan withdrawals which have affected millions of 
beneficiaries. In order to promote greater stability in the 
regional program and provide the Secretary with a tool to 
respond to market fluctuations, the conference agreement 
establishes an MA Regional Plan Stabilization Fund. The Fund 
can be used to provide incentives for plan entry in each region 
and plan retention in MA regions with below- average MA 
penetration. Initially, $10 billion will be available for 
expenditures from the Fund beginning on January 1, 2007 and 
these start-up funds will only be available until December 31, 
2013. Funds will be drawn from the Federal Hospital Insurance 
Trust Fund and the Federal Supplementary Medical Insurance 
Trust Fund in a proportion that reflects the relative weight 
that the benefits under Parts A and B represent of the 
actuarial value of the total benefit. Additional funds will be 
available in an amount equal to 12.5% of average per capita 
monthly savings from regional plans that bid below the 
benchmark. The additional funds will be deposited on a monthly 
basis into a special account in the Treasury.
      The Fund is designed to allow the Secretary to respond to 
market conditions on a temporary basis. If the Fund is used for 
either plan entry or retention for 2 consecutive years, the 
Secretary must report to Congress on the underlying market 
conditions in the regions. These reports will give Congress 
time to respond to the market conditions through changes to the 
regions or the underlying payment system.
       [Sec. 1858(e)(2)]. The funds will be available in 
advance of appropriations to MA regional plans in accordance 
with specified funding limitations. [Sec. 1854(e)(5)]. The 
total amount projected to be expended from the Fund in any year 
may not exceed the amount available in the Fund as of the first 
day of that year. If the use of the stabilization fund results 
in increased expenditures under this title, the increased 
expenditures shall be counted as expenditures from the Fund. 
The Secretary will only obligate funds if the Secretary, the 
Chief Actuary of CMS, and the appropriate budget officer 
certifies that there are sufficient funds at the beginning of 
the year to cover all such obligations for that year. The 
Secretary will take steps to ensure that sufficient funds are 
available to make such payments for the entire year, which may 
include computing additional payment amounts or limitations on 
enrollment in MA regional plans receiving such payments. 
[Sec. 1858(e)(2)(D)]. Expenditures from the Fund will first be 
made from amounts made available from the initial funding.
       [Sec. 1858(e)(3)]. Plan entry incentives are available 
for either a one-year national bonus payment or multi-year 
adjustments in regional payments; however in no case can there 
be a regional payment adjustment if there is a national bonus 
for that year. In order to encourage the offering of plans in 
all regions, the national bonus payment will be available to an 
MA organization that elects to offer a regional plan in each MA 
region in a year, but only if one of the regions did not have a 
plan available in the previous year. Funding is only available 
for a single year, but more than one organization can receive 
the incentive in the same year. The national bonus payment 
will: (1) be available to an organization only if it offers 
plans in every MA region; (2) be available to all MA regional 
plans of the organization regardless of whether any other MA 
regional plan is offered in any region; and (3) be equal to 3 
percent of the benchmark amount otherwise applicable for each 
MA regional plan offered by the organization, subject to 
funding limitations.
       [Sec. 1858(e)(3)]. If a national bonus payment is not 
made, a regional payment adjustment can be made. The regional 
payment adjustment is an increased payment for an MA regional 
plan offered in an MA region that did not have any MA regional 
plans offered in the previous year. The Secretary will 
determine the adjusted payment amount based solely on plans' 
bids in the region, and the adjusted payment amount will be 
available to all plans offered in the region. The amount can be 
based on the mean, mode, median or other measure of such bids 
and may vary from region to region, but the payment amount 
cannot be determined through a method that limits the number of 
plans or bids in the region. Such a payment adjustment will be 
treated as a change to the benchmark amount in that region for 
purposes of calculating individual plan payments and 
beneficiary rebates.
       [Sec. 1858(e)(3)(C)(ii)]. Subject to funding 
limitations, the Secretary will determine the period of time 
that funds are available for regional payment changes to 
encourage plan entry. If funding will be provided for a second 
consecutive year under this provision, the Secretary is 
required to submit a report to Congress describing the 
underlying market dynamics in the region and recommending 
changes to the payment methodology. Multi-year funding may be 
made available to all MA plans offered in a region. If this 
multi-year increased amount is made available to MA plans in a 
region, funding will not be available for plan retention in the 
region in the following year. Regional payment adjustments will 
not be taken into account when computing the underlying 
benchmark for the subsequent year.
       [Sec. 1858(e)(4)]. In addition to using the Fund to 
encourage plans to enter regions that might otherwise go 
unserved, the Secretary may also use the fund to encourage 
plans to remain in regions if market conditions are causing 
plan withdrawals. Incentives for plan retention could take the 
form of an increased payment to plans in regions that meet 
specific requirements. The requirements are: (1) one or more 
plans inform the Secretary that they will discontinue service 
in the region in the succeeding year; (2) the Secretary 
determines that if those plans were not offered, fewer than 2 
MA regional plans, each offered by a different organization, 
would be offered in the region in the year; (3) for the 
previous year, the Secretary determines that the proportion of 
beneficiaries enrolled in MA regional plans in the region is 
less than national average of MA regional plan enrollment; (4) 
funds have not already been awarded for 2 consecutive years. 
Any additional payment amount will be treated as if it were an 
addition to the benchmark amount otherwise applicable, but will 
not be taken into account in the computation of the benchmark 
for any subsequent year. If plans receive funding under this 
part for a second year, the Secretary will submit a report to 
Congress that describes the underlying market dynamics in the 
region and includes recommendations concerning changes in the 
payment methodology otherwise provided for MA regional plans 
under this part.
       [Sec. 1858(e)(4)]. The incentive for plan retention 
payment will be an amount determined by the Secretary, that 
does not exceed the greater of: (1) 3 percent of the benchmark 
amount applicable in the region; or (2) an amount that, when 
added to the benchmark, results in a ratio such that the 
additional amount plus the benchmark for the region divided by 
the adjusted average per capita cost (AAPCC) equals the 
weighted average of benchmarks for all regions divided by the 
AAPCC for the United States.
       [Sec. 1858(e)(6)]. Not later than April 1 of each year 
beginning in 2008, the Secretary will submit a report to 
Congress and the Comptroller General of the United States that 
includes: (1) a detailed description of the total amount 
expended as a result of the Stabilization Fund in the previous 
year (and the projections for the current year) compared to the 
total amount that would have been expended under this title in 
each year if this subsection had not been enacted; (2) amounts 
remaining within the funding limitations; and (3) the steps the 
Secretary will take to ensure that the expenditures from the 
Stabilization Fund will not exceed the amount available. The 
report will include certification from the Chief Actuary of CMS 
that estimates are reasonable, accurate and based on generally 
accepted actuarial principles and methodologies.
       [Sec. 1858(e)(7)]. Not later than January 1 of 2009, 
2011, 2013 and 2015, the Comptroller General of the United 
States will submit a report to the Secretary and Congress on 
the application of payments from the Stabilization Fund. The 
reports will include an evaluation of: (1) the quality of care 
provided to individuals for which additional payments were made 
from the Stabilization Fund; (2) beneficiary satisfaction; (3) 
the cost of Stabilization Fund payments to the Medicare 
program; and (4) any improvements in service delivery. The 
report will also include a comparative analysis of the 
performance of MA regional plans receiving payments to MA 
regional plans not receiving Stabilization Fund payments, and 
recommendations for legislation or administrative action as the 
Comptroller General determines would be appropriate.
Regional Blended Benchmark
Present Law
      Under current law, Medicare+Choice (M+C) plans are paid 
an administered monthly payment, called the M+C payment rate, 
for each enrollee. The per capita rate for a payment area is 
set at the highest of three amounts: (1) a minimum payment (or 
floor) rate, (2) a rate calculated as a blend of an area-
specific (local) rate and a national rate, or (3) a rate 
reflecting a minimum increase from the previous year's rate 
(currently 2%). In general, the Secretary makes monthly 
payments for each M+C enrollee reduced by any Part B premium 
reduction, and adjusted for risk.
House Bill
      Section 201. [Sec. 1860E-3(b)]. The EFFS region-specific 
non-drug monthly benchmark amount means an amount equal to \1/
12\ of the average (weighted by the number of EFFS eligible 
individuals in each local payment area in the region) of the 
annual MA payment rate for payment areas within the region.
Senate Bill
      Section 211. [Sec. 1858(c)(2)]. Beginning in 2006, the 
Secretary would calculate a benchmark amount for required 
services for each region equal to the average of each benchmark 
amount for each MA payment area within the region, weighted by 
the number of MA eligible individuals residing in the payment 
area for the year. Each year, beginning in 2005, the Secretary 
would publish (at the time of publication of the risk adjustors 
under Part D--no later than April 15) the benchmark amount for 
each region, factors to be used for adjusting payments under 
the comprehensive risk adjustment methodology and methodology 
used for adjustments for geographic variations within a region.
Conference Agreement
       Section 221(c). [Sec. 1854(f)]. Beginning in 2006, the 
Secretary will compute a ``blended benchmark'' amount for each 
MA region. The blended benchmark is designed to be responsive 
to market conditions in the region by allowing plan bids to 
influence the final benchmark amount. The MA region-specific 
non-drug monthly benchmark amount is defined as the sum of a 
statutory component and a plan-bid component for the year. The 
statutory component is the product of the statutory region-
specific non-drug amount for the region and the year, and the 
statutory national market share percentage. The statutory 
region-specific non-drug amount, the first part of the 
statutory component, is an amount equal to the sum, (for each 
local MA area within the region) of the product of the MA area-
specific non-drug monthly benchmark amount for the area and the 
year, and the number of MA eligible individuals residing in the 
local area, divided by the total number of MA eligible 
individuals residing in the region. The statutory national 
market share percentage, the second part of the statutory 
component, is equal to the proportion of MA eligible 
individuals nationally who were not enrolled in an MA plan 
during the most recent month during the previous year for which 
data are available.
       The plan-bid component is the product of the weighted 
average of MA plan bids for the region and the year and the 
non-statutory market share percentage. The weighted average of 
plan bids for an MA region is calculated as the sum across MA 
regional plans, of (for each plan) the products of the 
unadjusted MA statutory non-drug monthly bid for the plan, and 
the plan's share of MA enrollment in the region. Or, in the 
first year in which any regional plan is offered in a region, 
if more than one MA regional plan is offered in that year, the 
plan's share of MA enrollment in the region is replaced in the 
formula either by (1) one divided by the number of plans in the 
region, or (2) a share estimated by the Secretary. The non-
statutory market share percentage is one minus the statutory 
national market share percentage.
Uniform Coverage Determination
Present Law
       An M+C organization may elect to have a single local 
coverage policy apply to its plan when the plan's service area 
includes more than one local coverage policy area. The 
Secretary will identify the local coverage policy that is most 
beneficial to M+C enrollees.
House Bill
      No provision.
Senate Bill
      No provision.
Conference Agreement
      Section 221(c). [Sec. 1854(g)]. The organization offering 
an MA regional plan may elect to have a local coverage 
determination for the entire MA plan based on the local 
coverage determination applied for any part of the region, as 
selected by the organization. These local coverage 
determinations may be appealed under the applicable provisions 
of section 1869(f) (BIPA, sec. 522).
Assurance of Network Adequacy
Present Law
      An M+C organization may select the providers in its 
network, so long as: (1) the organization makes the benefits 
available and accessible to each individual within the service 
area with reasonable promptness and in a manner which assures 
continuity in the provision of benefits; (2) when medically 
necessary, the organization makes benefits available and 
accessible 24 hours a day and 7 days a week; and (3) the plan 
provides reimbursement for services provided outside of the 
network when services are medically necessary and immediately 
required, when the services are renal dialysis and the 
beneficiary is temporarily out of the plan's service area, or 
when the services are maintenance care or post-stabilization. 
The organization must provide access to appropriate providers 
including credentialed specialists, and must provide emergency 
services without regard to prior authorization.
House Bill
      No provision.
Senate Bill
      No provision.
Conference Agreement
      Section 221(c). [Sec. 1854(h)]. All current law network 
adequacy requirements will remain in place under the new 
regional program. However, because regions may encompass areas 
served by a single hospital, plans may have difficulty meeting 
their network adequacy requirements if they are unable to reach 
an agreement with such a hospital. In order to facilitate the 
meeting of these network adequacy requirements across large 
regions, the conference agreement allows the Secretary to 
provide payment to an essential hospital that provides services 
to enrollees in an area, in cases in which the MA organization 
offering the plan was unable to reach an agreement with the 
hospital regarding provision of services to plan enrollees. The 
Secretary will make the plan payment available only if the 
organization makes satisfactory assurances to the Secretary 
that it will pay the hospital an amount not less than the 
Medicare Part A payment for such services, and, with respect to 
specific services provided to an enrollee, the hospital 
demonstrates that its costs exceed the Medicare Part A payment. 
The agreement makes $25 million available in 2006, increased 
each year by the growth in the market basket percentage. 
Subject to that limit, the payment, if any, would be the amount 
by which the payment for inpatient hospital services if the 
hospital were a critical access hospital exceeds the payment 
for the same service that the hospital would otherwise receive. 
An essential hospital would be defined as a general acute care 
hospital that demonstrates to the Secretary that its costs 
exceed the Medicare Part A payment and is determined by the 
Secretary to be necessary for the plan to meet its network 
adequacy requirements.
Section 222. Competition program beginning in 2006
Submission of bidding and rebate information
Present Law
      Under current law, Medicare+Choice (M+C) plans are paid 
an administered monthly payment, called the M+C payment rate, 
for each enrollee. The per capita rate for a payment area is 
set at the highest of three amounts: (1) a minimum payment (or 
floor) rate, (2) a rate calculated as a blend of an area-
specific (local) rate and a national rate, or (3) a rate 
reflecting a minimum increase from the previous year's rate 
(currently 2%). In general, the Secretary makes monthly 
payments for each M+C enrollee, reduced by any Part B premium 
reduction, and adjusted for risk.
      Each year a coordinated care plan of an M+C organization 
submits an adjusted community rate (ACR) proposal, estimating 
its proposed cost to serve Medicare beneficiaries for the 
following contract year and comparing such costs to the 
estimated costs of providing Medicare services to a commercial 
population. To the extent that a plan's ACR is below the 
administered payment amount, the plan must provide additional 
benefits to its enrollees or reductions in the Part B premium. 
In submitting its proposal, the organization must include 
information on: (1) the ACR; (2) the M+C monthly basic 
beneficiary premium; (3) a description of the deductible, 
coinsurance and copayments under the plan (including the 
actuarial value of each); and (4) a description of any required 
additional benefits. For supplemental benefits, the 
organization must also include: (1) the ACR, (2) the M+C 
monthly supplemental beneficiary premium, and (3) a description 
of the deductible, coinsurance and copayments, including the 
actuarial value of each.
House Bill
      Section 221(a). Beginning in 2006, an MA organization 
would be required to provide the following information: (1) the 
monthly bid amount for the provision of all required items and 
services, based on average costs for a typical enrollee 
residing in the area and the actuarial bases for determining 
such amount; (2) the proportion of the bid attributed to the 
provision of statutory non-drug benefits (the ``unadjusted MA 
statutory non-drug monthly bid'' amount), statutory 
prescription drug benefits, and non-statutory benefits 
(including the actuarial basis for determining these 
proportions); and (3) additional information as the 
Administrator may require.
Senate Bill
      Section 204. [Sec. 1854(a)]. Each MA organization would 
be required to submit information by the second Monday in 
September, including: (1) notice of intent and information on 
the service area of the plan; (2) the plan type for each plan; 
(3) specific information for coordinated care and PFFS plans; 
(4) enrollment capacity; (5) the expected mix of enrollees, by 
health status; and (6) other information specified by the 
Secretary. For coordinated care plans and PFFS plans, the plans 
would also be required to submit the plan bid (the total amount 
that the plan was willing to accept for required Parts A and B 
benefits not taking into account the application of 
comprehensive risk adjustment), the assumptions used in 
preparing the bid with respect to the number of enrollees in 
each payment area and the mix by health status, and any 
required information for prescription drug coverage. The plan 
bid would also have to be based on actuarial equivalence.
      For any enhanced medical benefit package a plan chooses 
to offer, it would be required to provide the following 
information: (1) the ACR, (2) the portion of the actuarial 
value of such benefits package, if any, that would be applied 
toward satisfying the requirement for additional benefits, (3) 
the MA monthly beneficiary premium for enhanced benefits, (4) 
cost-sharing requirements, (5) the description of whether the 
unified deductible had been lowered or if the maximum out-of-
pocket limitation had been decreased, and (6) other information 
required by the Secretary.
      [Sec. 1854(a)(5)]. Each plan bid would be required to 
reasonably and equitably reflect the cost of benefits provided 
under that plan.
Conference Agreement
      Section 222(a). Under the current Medicare+Choice system, 
plans are paid a fixed administrative amount regardless of 
their efficiency or their actual costs of providing services to 
the Medicare population. Beginning in 2006, an MA organization 
(other than an MSA) will be required to submit a bid to provide 
services to Medicare beneficiaries on either a local or a 
regional level. In submitting its bid, the plan will provide 
the following information: (1) the monthly aggregate bid amount 
for the provision of all required items and services, based on 
average revenue requirements (as applied under Title XIII of 
the Public Health Service Act for Health Maintenance 
Organizations) in the payment area for an enrollee with a 
national average risk profile (including demographic risk 
factors and health status); (2) the proportion of the bid 
attributable to the provision of benefits under the original 
Medicare fee-for-service program, basic prescription drug 
coverage, and supplemental health care benefits; (3) the 
actuarial basis for determining the amounts and proportions, 
and additional information as the Secretary may require to 
verify such actuarial basis; (4) a description of deductibles, 
coinsurance and copayments applicable under the plan and their 
actuarial value; and (5) for qualified prescription drug 
coverage, the information required under Title I of this Act. 
In order to facilitate regional plans being offered in more 
than one MA region, the Secretary will establish procedures to 
reduce paperwork for bids in multiple regions. Use of the term 
``required revenue'' is intended to make clear that the bids of 
health plans incorporate all their revenue needs, both the 
medical costs of providing benefits and associated 
administrative costs (including profits or retained earnings).
      The changes made in the bidding process under Part C do 
not apply to PACE programs, which operate outside of Part C. 
However, if they wish to offer qualified prescription drug 
coverage, they will be treated as a MA-PD local plan and must 
submit a bid for drug coverage.
      Plan bids for supplemental benefits, for which plans 
charge a premium may include reductions in the cost sharing 
that would otherwise apply under the plan for Part A and B 
services. Benefits in each of the three areas (A/B benefits, 
prescription drug benefits, and supplemental benefits) will be 
integrated together in a way that is seamless to the 
beneficiary and paid for through a single premium.
Acceptance and Negotiation of Bid Amounts
Present Law
      The Secretary reviews the information submitted by plans 
and approves or disapproves the premiums, cost-sharing amounts, 
and benefits. The Secretary does not have the authority to 
review the premiums for either MSA plans or PFFS plans.
House Bill
      Section 221(a)(3)(C). The Administrator would have the 
same authority to negotiate bid amounts that the Director of 
the Office of Personnel Management has with respect to the 
Federal Employee Health Benefits Plan. The Administrator could 
negotiate the bid amount and could also reject a bid amount or 
proportion of the bid, if it was not supported by the actuarial 
basis. PFFS plans would be exempt from this negotiation.
Senate Bill
      Section 204(a)(5). Each bid amount would have to 
reasonably and equitably reflect the cost of benefits provided 
by the plan.
Conference Agreement
      Section 222(a). The conference agreement provides the 
Secretary with the authority to negotiate the monthly bid 
amount and the proportions, including supplemental benefits. 
The Secretary has similar authority to negotiate bid amounts to 
that of the Director of the Office of Personnel Management with 
respect to the Federal Employees Health Benefits Program. The 
Secretary may only accept such a bid amount and proportion if 
they are supported by the actuarial bases, and reasonably and 
equitably reflect the revenue requirement (as applied under 
Title XIII of the Public Health Service Act for Health 
Maintenance Organizations) of benefits provided under the plan. 
As under current law, the Secretary does not have the authority 
to review the bid amounts for PFFS plans.
      The Secretary may not require: (1) any MA organization to 
contract with a particular hospital, physician, or other entity 
or individual to furnish items and services under this title; 
or (2) a particular price structure for payment under such a 
contract to the extent consistent with the Secretary's 
authority.
Benefits under the original Medicare fee-for-service program option
Present Law
      M+C plans are required to include all Medicare-covered 
services (Parts A and B benefits) except hospice care. In some 
circumstances, plans may also be required to offer additional 
benefits or reduced cost-sharing to their beneficiaries. The 
basic benefit package includes all of the required Medicare-
covered benefits (except hospice services) as well as the 
additional benefits, as determined by a formula which is set in 
law. The adjusted community rate (ACR) mechanism is the process 
through which health plans determine the minimum amount of 
additional benefits, if any, they are required to provide to 
Medicare enrollees and the cost-sharing they are permitted to 
charge for those benefits. Medicare does not have a 
catastrophic limit on beneficiary out-of-pocket expenses 
although some M+C plans offer an out-of-pocket limit as an 
added benefit. The original Medicare FFS program includes a 
Part B deductible and a separate Part A deductible for 
inpatient hospital stays.
House Bill
      MA organizations, other than PFFS plans, will be required 
to offer at least one plan in their service area that provides 
drug coverage as outlined in Title I. However, if an 
organization offers one such plan with drug coverage, they may 
offer alternative plans without such drug coverage. MA plans 
would be required to pay rebates to beneficiaries--in the form 
of additional benefits, reduced premiums, or cash payments--to 
the extent that program payments to MA plans exceeded bid 
amounts. MA plans would also be able to offer supplemental 
benefits for additional premiums.
Senate Bill
      Section 202. [Sec. 1852(a)]. In addition to offering 
Medicare Parts A and B benefits (except hospice) and any 
additional required benefits, each MA plan (except MSAs, and in 
the case of prescription drug coverage, PFFS plans) would be 
required to offer: (1) qualified prescription drug coverage 
under Part D to beneficiaries residing in the area, and (2) a 
maximum limitation on out-of-pocket expenses and a unified 
deductible.
      [Sec. 1852(a)(7)]. The unified deductible would be 
defined as an annual deductible amount applied in lieu of the 
inpatient hospital deductible and the Part B deductible. This 
would not prevent an MA organization from requiring coinsurance 
or a copayment for inpatient hospital services, after the 
unified deductible was satisfied, subject to statutory 
limitations.
      [Sec. 1852(a)(2)(D)]. A PFFS plan could choose not to 
offer qualified prescription drug coverage under part D. 
Beneficiaries enrolling in such a PFFS plan could choose to 
enroll in an eligible entity under part D to receive their 
prescription drug coverage. [Sec. 1852(d)(4)]. A PFFS plan 
entirely meeting the access requirement for a category of 
providers through contracts or agreements (other than deemed 
contracts) could require higher beneficiary co-payments for 
providers who did not have such contracts or agreements.
Conference Agreement
      Section 222(a). Beginning in 2006, plan bids will be 
compared to a benchmark amount. For MA local plans, the 
benchmark amount will be the MA payment rates. For MA regional 
plans, the benchmark amount will be the regional blended 
benchmark. Plans that submit bids below the benchmark will be 
paid their bids, plus 75 percent of the difference between the 
benchmark and the bid, which must be returned to beneficiaries 
in the form of additional benefits or reduced premiums. For 
plans that bid above the benchmark the government will pay the 
benchmark amount, and the beneficiary will pay the difference 
between the benchmark and the bid amount as a premium. When for 
an MA regional plan, in determining the actuarially equivalent 
level of cost-sharing for required benefits, only expenses for 
in-network providers will be taken into account for the 
application of the catastrophic limit. Supplemental benefits 
can include reductions in cost-sharing for A and B benefits 
below the actuarial value of the deductible, coinsurance and 
copayments that would be applicable, on average, to individuals 
in the original fee-for-service program.
      MA organizations, other than PFFS plans, will be required 
to offer at least one plan in their service area that provides 
drug coverage as outlined in Title I. However, if an 
organization offers one such plan with drug coverage, it may 
offer alternative plans without such drug coverage.

                          Beneficiary Savings

Present Law
      To the extent that a plan's ACR is below the administered 
payment amount, plans must provide reduced cost-sharing, 
additional benefits, or reduced Part B premiums to their 
Medicare enrollees. Such benefits must be valued at 100 percent 
of the difference between the projected cost of providing 
Medicare-covered services to its commercial population and the 
expected revenue for Medicare enrollees. Plans can choose which 
additional benefits to offer, however, the total cost of these 
benefits must at least equal the ``savings'' from Medicare-
covered services. Plans may also place the additional funds in 
a stabilization fund or return funds to the Treasury.
House Bill
      Section 221(b). An MA plan would be required to provide 
an enrollee a monthly rebate that equaled 75 percent of any 
average per capita savings (the amount by which the risk-
adjusted benchmark exceeded the risk-adjusted bid). The rebate 
could be: (1) credited toward the MA monthly supplemental 
beneficiary premium or the prescription drug premium; (2) paid 
directly to the beneficiary; (3) provided by another means 
approved by the Administrator; (4) or any combination of the 
above. The remaining 25 percent of the average per capita 
savings would be retained by the federal government.
      Benchmarks would equal one-twelfth of the annual MA 
capitation rate for an enrollee in that area, and would be 
calculated by updating the previous year's capitation rate by 
the annual increase in the minimum percentage increase.
Senate Bill
      [Sec. 1854(c)]. If the weighted service area benchmark 
exceeded the plan bid, the Secretary would require the plan to 
provide additional benefits, and if the plan bid exceeded the 
weighted service area benchmark, the plan could charge an MA 
monthly basic beneficiary premium equal to the amount the bid 
exceeded the benchmark.
      Section 204. [Sec. 1854(g)]. If the plan bid was lower 
than the weighted service area benchmark, the plan could, in 
addition to benefits allowed under current law, also lower the 
amount of the unified deductible and decrease the maximum 
limitation on out-of-pocket expenses. However, plans would be 
restricted from specifying any additional benefits that 
provided for the coverage of any prescription drug, other than 
that relating to covered drugs under Part D.
Conference Agreement
      Section 222(b). The conference agreement requires an MA 
plan to provide an enrollee with a monthly rebate equal to 75 
percent of any average per capita savings (the amount by which 
the risk-adjusted benchmark exceeds the risk-adjusted bid). In 
calculating such savings, and in order to ensure that savings 
are uniform for all enrollees in a plan, the benchmark and the 
bid will be risk adjusted according to a statewide (for local 
plans) or region-wide (for regional plans) risk adjuster. 
Alternatively, the Secretary has the discretion to risk adjust 
the benchmark and bid on a plan-specific basis for the purpose 
of calculating such savings. The beneficiary rebate can be 
credited toward the provision of supplemental health care 
benefits (including a reduction in cost-sharing, additional 
benefits or a credit toward any MA monthly supplemental 
beneficiary premium), the prescription drug premium, or the 
Part B premium. The plan will inform the Secretary about the 
form and amount of the rebate, or the actuarial value, in the 
case of supplemental health care benefits. The remaining 25 
percent of the average per capita savings will be retained by 
the federal government.
Revision of Premium Terminology
Present Law
      The M+C monthly basic beneficiary premium is the amount 
authorized to be charged for the plan based on the application 
of the ``limitation on enrollee liability''. The ``limitation 
on enrollee liability'' requires that the actuarial value of 
the premium, deductibles, coinsurance, and copayments 
applicable on average to enrollees in an M+C plan for required 
services does not exceed the actuarial value of deductibles, 
coinsurance, and copayments on average for beneficiaries in 
traditional Medicare. However, this average may be achieved by 
having higher copayments for some M+C services and lower 
copayments for other services. The supplemental beneficiary 
premium is amount authorized to be charged for the plan, such 
that the actuarial value of supplemental beneficiary premium, 
deductibles, coinsurance, and copayments for such benefits does 
not exceed the ACR for such benefits. These requirements do not 
apply to PFFS plans.
House Bill
      Section 221(d). For plans with a bid amount below the 
benchmark, the basic premium would be zero. For plans with bids 
above the benchmark, the basic premium would be equal to the 
amount by which the bid exceeded the benchmark.
Senate Bill
      Section 204. If the weighted service area benchmark 
exceeded the plan bid, the plan would have to provide 
additional benefits. If the bid exceeded the weighted service 
area benchmark, the amount of the excess would be the MA 
monthly basic beneficiary premium.
Conference Agreement
      Section 222(b). For plans providing rebates (plans that 
bid below the benchmark), the MA monthly basic beneficiary 
premium will be zero. For plans with bids above the applicable 
benchmark, the MA monthly basic beneficiary premium will equal 
the amount by which the bid exceeds the benchmark. The MA 
monthly prescription drug beneficiary premium is the portion of 
the aggregate monthly bid amount that is attributable to the 
provision of prescription drug benefits under Title I of this 
Act, less the amount of any rebate. The MA monthly supplemental 
beneficiary premium is the portion of the aggregate monthly bid 
amount that is attributable to the provision of supplemental 
health care benefits, less the amount of any rebate. The 
unadjusted MA statutory non-drug monthly bid is the portion of 
the bid submitted by a plan attributable to the provision of 
required benefits under Medicare fee-for-service.
Collection of Premiums
Present Law
      Medicare beneficiaries may have their Part B premiums 
deducted directly from their Social Security benefits.
House Bill
      Section 221(b). Enrollees would be permitted to have 
their MA premiums deducted directly from their Social Security 
benefits or through an electronic funds transfer. The 
Administrator would be required to provide a mechanism whereby 
a beneficiary who joined an MA plan and elected Part D coverage 
through the plan would be able to pay one consolidated premium 
amount.
Senate Bill
      No provision.
Conference Agreement
      Section 222(c). The conference agreement allows enrollees 
to have their MA premiums deducted directly from their Social 
Security benefits, through an electronic funds transfer, or 
such other mean as specified by the Secretary, including 
payment by an employer or under employment-based retiree 
coverage on behalf of an employee, a former employee, or a 
dependent. All premium payments deducted from Social Security 
benefits will be credited to the appropriate Trust Fund as 
specified by the Secretary (in consultation with the 
Commissioner of Social Security and the Secretary of the 
Treasury) and shall be paid to the MA organization involved. 
The MA plan may not impose a charge for individuals electing to 
pay their premiums through a deduction from their Social 
Security payments.
      For individuals electing to have premiums deducted 
directly from Social Security benefits, the Secretary will 
transmit to the Commissioner of Social Security, by the 
beginning of each year, the name, social security account 
number, consolidated monthly beneficiary premium owed by the 
enrollee for each month during the year, and other information 
determined appropriate by the Secretary. Information will be 
periodically updated throughout the year. The Secretary will be 
required to provide a mechanism for the consolidation of any MA 
monthly basic beneficiary premium, any MA monthly supplemental 
beneficiary premium, and any MA monthly prescription drug 
beneficiary premium.
Computation of MA Benchmark and Payments of Plans Based on Bid Amounts
Present Law
      Under current law, Medicare+Choice (M+C) plans are paid 
an administered monthly payment, called the M+C payment rate, 
for each enrollee. The per capita rate for a payment area is 
set at the highest of three amounts: (1) a minimum payment (or 
floor) rate, (2) a rate calculated as a blend of an area-
specific (local) rate and a national rate, or (3) a rate 
reflecting a minimum increase from the previous year's rate 
(currently 2%). In general, the Secretary makes monthly 
payments for each M+C enrollee, reduced by any Part B premium 
reduction, and adjusted for risk.
House Bill
      Section 221(c). For payments before 2006, the monthly 
payment amount would equal \1/12\ of the annual MA capitation 
rate, for an enrollee for that area, reduced by any Part B 
premium reduction and adjusted for risk factors such as age, 
disability status, gender, institutional status and other 
factors the Administrator determines to be appropriate, 
including an adjustment for health status.
      Beginning in 2006, MA payment rates would be determined 
by the Administrator by comparing plan bids to the benchmark. 
Non-drug benefits: Beginning in 2006, for plans with bids below 
the benchmark, the payment would equal the unadjusted MA 
statutory non-drug monthly bid amount, with adjustments for 
demographic factors (including age, disability, and gender) and 
health status and the monthly rebate. Conversely, for plans 
with bids at or above the benchmark, the payment amount would 
equal the MA area-specific non-drug monthly benchmark amount, 
with the demographic and health status adjustments. Drug 
benefits: Additionally, for an MA enrollee who enrolled in Part 
D and elected prescription drug coverage through the plan, the 
plan's payment would include a direct and a reinsurance subsidy 
payment and reimbursement for premiums and cost-sharing 
reductions for certain low-income beneficiaries, as outlined in 
Title I of this bill.
Senate Bill
      Section 203. [Sec. 1853(a)]. Each MA organization would 
receive a separate monthly payment for: (1) benefits under FFS 
Medicare Parts A and B, and (2) benefits under the prescription 
drug program, Part D. The Secretary would ensure that payments 
for each enrollee would equal the MA benchmark amount for the 
payment area, as adjusted. The adjustments would include both a 
risk adjustment and an adjustment based on the ratio of the 
payment amount to the weighted service area benchmark.
      Section 203. [Sec. 1853(c&d)]. Beginning in 2006, 
payments to MA plans would be determined differently, based on 
a comparison between plan bids and the weighted service area 
benchmark. The Secretary would however, continue to calculate 
the annual M+C capitation rates.
      Plans would submit bids to the Secretary by the second 
Monday in September.
      The Secretary would calculate the benchmark amounts as 
the greater of the minimum amount (floor) or the local FFS rate 
for the area. The local FFS rate would be calculated similarly 
to the adjusted average per capita cost (AAPCC), adjusted to 
remove the costs of indirect and direct graduate medical 
education.
      The Secretary would calculate the weighted service area 
benchmark amount equal to the weighted average of the benchmark 
amounts for required services for the payment areas included in 
the service area of the plan.
      The Secretary would determine the difference between each 
plan's bid and the weighted service area benchmark amount. For 
plan bids that equal or exceed the weighted service area 
benchmark, the MA organization would be paid the weighted 
service area benchmark amount. For plan bids below the weighted 
service area benchmark, the plan would be paid the weighted 
service area benchmark reduced by the amount of any premium 
reduction elected by the plan. The Secretary would adjust 
payments using the comprehensive risk adjustment methodology.
      Section 205. This provision would establish the 
additional payments that would be made to the MA plans for the 
prescription drug coverage under Part D.
Conference Agreement
      Section 222(d). The conference agreement defines the term 
MA area-specific non-drug monthly benchmark amount, for a month 
in a year, for a service area that is entirely within an MA 
local area, as an amount equal to \1/12\ of the annual MA 
capitation rate for the area. For a service area within more 
than one MA local area, the amount is equal to the average of 
the local amounts, weighted by the projected number of 
enrollees in the plan residing in the respective local area. 
For an MA region, the MA region-specific benchmark amount for 
the region for the year is defined as the sum of the statutory 
component and the plan-bid component. The statutory component 
is a weighted average of the local MA benchmarks in the region.
      Section 222(e). For payments before 2006, the conference 
agreement sets the monthly payment amount to equal \1/12\ of 
the annual MA capitation rate, for an enrollee for that area, 
reduced by any Part B premium reduction and adjusted for 
demographic factors such as age, disability status, gender, 
institutional status and other factors the Secretary determines 
to be appropriate, including an adjustment for health status.
      Beginning in 2006, MA payment rates will be determined by 
the Secretary by comparing plan bids to the benchmark. Non-drug 
benefits: Beginning in 2006, for plans with bids below the 
benchmark, the payment will equal the unadjusted MA statutory 
non-drug monthly bid amount, with adjustments for demographic 
factors (including age, disability, and gender) and health 
status, adjustments for intra-regional variation (if 
applicable), adjustments relating to risk adjustment, and the 
monthly rebate. To adjust for intra-regional variation, the 
Secretary will adjust the amounts to take into account 
variation in MA local payment rates among the different MA 
local areas included in a region. For adjustments relating to 
risk, the Secretary will adjust payments to MA plans to ensure 
that the sum of the monthly payment and any basic beneficiary 
premium equals the unadjusted MA statutory non-drug monthly bid 
amount, with demographic adjustments, and for an MA regional 
plan, adjustments for intra-regional variations. For plans with 
bids at or above the benchmark, the payment amount will equal 
the MA area-specific non-drug monthly benchmark amount, with 
the demographic and health status adjustments, adjustments for 
intra-regional variation (if applicable), and adjustments 
relating to risk adjustment. The use of a risk adjustment 
methodology that uses demographic factors and health status 
factors will continue as under current law, and the Secretary 
will continue to have the flexibility to develop and implement 
new risk adjustment methodologies. Drug benefits: Additionally, 
for an MA enrollee in an MA-PD plan, the plan's payment will 
include a subsidy payment and reimbursement for premiums and 
cost-sharing reductions for certain low-income beneficiaries, 
as outlined in Title I of this bill.
      In the case of an MSA plan, the payment equals the MA 
area-specific non-drug monthly benchmark amount, adjusted for 
demographics and health status.
Annual Announcement Process
Present Law
      The Secretary annually determines and announces, no later 
than May 1 for 2003 and 2004 and March 1, thereafter (for the 
following year), the annual M+C capitation rate for each M+C 
payment area and the risk and other factors to be used in 
adjusting these rates.
House Bill
      Section 221(e). For years before 2006, for the calendar 
year concerned, the Secretary would announce the annual MA 
capitation rate for each MA payment area for the year and the 
risk and other factors to be used to adjust these rates. 
Beginning in 2006, the Secretary would announce yearly the MA 
area-specific non-drug benchmark and the adjustment factors 
relating to demographics, end stage renal disease (ESRD), and 
health status in each MA plan in the area.
Senate Bill
      Section 203. [Sec. 1853(a)]. Beginning April 15, 2005 (at 
the same time as risk adjusters for prescription drug coverage 
were announced), the Secretary would annually announce the 
benchmark for each MA payment area and the risk adjustment 
factors.
Conference Agreement
      Section 222(f). For payments in 2005, the conference 
agreement requires the Secretary to determine and announce the 
MA capitation rates for each MA payment area for 2005, and the 
risk and other adjustment factors, by the 2nd Monday in May of 
2004. For 2006 and subsequent years, the Secretary will 
determine and announce, not later than the 1st Monday in April 
before the calendar year concerned, the MA capitation rate for 
each payment area, and the risk and other factors to be used in 
adjusting such rates. The Secretary will determine and 
announce, on a timely basis before the calendar year concerned, 
for each MA region and MA regional plan for which a bid is 
submitted, the MA region-specific non-drug monthly benchmark 
amount.
Protection Against Beneficiary Selection
Present Law
       The M+C monthly basic and supplemental beneficiary 
premium cannot vary among individuals enrolled in a the same 
plan.
House Bill
      Section 221(d). The MA monthly bid amount, the MA monthly 
basic, prescription drug, and the supplemental beneficiary 
premium would not vary among enrollees in the plan. 
Additionally, the MA monthly MSA premium would not vary within 
an MSA plan.
Senate Bill
      Section 204. The provision would establish the 
requirement that the MA monthly basic beneficiary premium, the 
MA monthly beneficiary obligation for qualified prescription 
drug coverage, and the MA monthly beneficiary premium for 
enhanced medical benefits could not vary among beneficiaries 
enrolled in the plan. Also, the MA MSA premium would not vary 
among beneficiaries enrolled in the MSA plan.
Conference Agreement
      Section 222(g). Except as permitted to facilitate the 
offering of MA plans under contracts between MA organizations 
and employers, labor organizations or the trustees to a fund 
established by one or more employers or labor organizations (as 
currently allowed under sec. 1857(i)), the MA monthly bid 
amount, the MA monthly basic, prescription drug, and the 
supplemental beneficiary premium may not vary among enrollees 
in the plan.
Adjusted Community Rates
Present Law
      Each year an M+C organization submits an ACR proposal, 
estimating their proposed cost of serving Medicare 
beneficiaries for the following contract year as compared to 
the estimated cost of providing the same services to a 
commercial population. The ACR process is a mechanism through 
which health plans determine the minimum amount of additional 
benefits they are required to provide to Medicare enrollees and 
the cost-sharing they are permitted to charge for those 
benefits.
House Bill
      Plan bids would replace ACRs beginning in 2006.
Senate Bill
      No provision.
Conference Agreement
      Plan bids will replace ACRs beginning in 2006.
Plan Incentives
Present Law
      A M+C organization may not operate a physician incentive 
plan unless it meets the following requirements: (1) no 
specific payment is made directly or indirectly under the plan 
to a physician or physician group as an inducement to reduce or 
limit medically necessary services provided to an enrollee; or 
(2) if the plan places a physician or group at substantial 
financial risk, it must provide stop-loss protection and 
conduct periodic surveys of current and former enrollees to 
determine the degree of access and satisfaction with the 
quality of services. The organization must provide the 
Secretary with sufficient information regarding the plan, to 
determine whether or not the plan is in compliance with these 
requirements.
House Bill
      No provision.
Senate Bill
      No provision.
Conference Agreement
      Section 222(h). An MA organization may not operate a 
physician incentive plan unless it provides assurances 
satisfactory to the Secretary. Requirements that the 
organization: (1) conduct periodic surveys, and (2) provide the 
Secretary with sufficient information regarding the plan, to 
determine whether or not the plan is in compliance with these 
requirements are replaced. Instead, the plan must provide such 
information as the Secretary requires on any physician 
incentive plan.
Continuation of treatment of enrollees with End-Stage Renal Disease
Present Law
      The Secretary established a separate rate of payment to 
an M+C organization for individuals with ESRD who are enrolled 
in an M+C plan.
House Bill
      No provision.
Senate Bill
      No provision.
Conference Agreement
      Section 222(i). The conference agreement requires payment 
rates to be actuarially equivalent to rates that would have 
been paid with respect to other enrollees in the MA payment 
area (or such other area as specified by the Secretary) under 
the provision of this section in effect before the enactment of 
this Act. The Secretary may apply the competitive bidding 
methodology of this section, with appropriate adjustments to 
account for the risk adjustment methodology applied to ESRD 
payments.
Facilitating employer participation
Present Law
      Employers may sponsor an M+C plan or pay premiums for 
retirees who enroll in an M+C plan. If an M+C plan contracts 
with an employer group health plan (EGHP) that covers enrollees 
in an M+C plan, the enrollees must be provided the same 
benefits as all other enrollees in the M+C plan, with the EGHP 
benefits supplementing the M+C plan benefits. The Secretary may 
waive or modify requirements that hinder the ability of 
employer or union group health plans to offer an M+C plan 
option.
House Bill
      No provision.
Senate Bill
      Section 206. The Administrator could permit an MA plan to 
establish a separate premium amount for enrollees in an 
employer or other group health plan that provides employment-
based retiree health coverage. This provision would also apply 
the current law requirements to regional PPOs.
Conference Agreement
      Section 222(j). The conference agreement allows the 
Secretary to waive or modify requirements that hinder the 
design of, offering of, or enrollment in an MA plan offered by 
employers, labor organizations, or the trustees of a fund 
established by one or more employers or labor organizations (to 
furnish benefits to any combination of current or former 
employees, or current or former members of the labor 
organization.) The MA plan may restrict enrollment to 
individuals who are beneficiaries and participants in such a 
plan.
Expansion of Medicare Beneficiary Education and Information Campaign
Present Law
      The Secretary is authorized to collect a user fee from 
each M+C organization for use in carrying out enrollment 
information dissemination activities for the program as well as 
the health insurance and counseling assistance program. The fee 
is based on the ratio of the organization's number of Medicare 
enrollees to the total number of Medicare beneficiaries. There 
are authorized to be appropriated $1 million each year, reduced 
by any fees collected by the Secretary, to carry out these 
activities.
House Bill
      No provision.
Senate Bill
      No provision.
Conference Agreement
      Section 222(k). The conference agreement allows the 
Secretary to also charge a PDP sponsor under Part D for its 
share of fees related to enrollment information dissemination 
activities. The authorization for appropriated amounts will be 
increased to $2 million each year, beginning in 2006.
Protection against Beneficiary Selection
Present Law
      No provision.
House Bill
      Section 221(d). The Administrator would not approve a 
plan if benefits were designed to substantially discourage 
enrollment by certain MA eligible individuals.
Senate Bill
      Section 204. [Sec. 1854(a)]. The Secretary could 
disapprove a plan bid if he or she determined that the 
deductibles, coinsurance or copayments discouraged access to 
covered services or were likely to result in favorable 
selection of MA eligible beneficiaries.
Conference Agreement
      Section 222(l). The Secretary may not approve a plan if 
the design of the plan and its benefits are likely to 
substantially discourage enrollment by certain MA eligible 
individuals.
      Section 223. Effective date.
Present Law
      No provision.
House Bill
      Section 211(e). The MA program would be effective January 
1, 2004. Section 21(g). The competition program would be 
effective January 1, 2006.
Senate Bill
      Section 209. Generally effective January 1, 2006. 
However, the Secretary would apply payment and other rules for 
MSA plans, as if this title had not been enacted.
Conference Agreement
      The conference agreement makes the amendments of Title II 
effective for plan years beginning on or after January 1, 2006, 
unless otherwise provided. The Secretary shall revise 
previously promulgated regulations for the changes due to the 
provisions of this Act, to carry out Part C of Medicare.

                     Subtitle D--Additional Reforms

Section 231. Specialized MA plans for special needs beneficiaries
Present Law
      One model for providing a specialized M+C plan, EverCare, 
operates as a demonstration program. EverCare is designed to 
study the effectiveness of managing acute-care needs of nursing 
home residents by pairing physicians and geriatric nurse 
practitioners. EverCare receives a fixed capitated payment, 
based on a percentage of the AAPCC, for all nursing home 
resident Medicare enrollees.
House Bill
      Section 233. A new MA option would be established--
specialized MA plans for special needs beneficiaries (such as 
the EverCare demonstration). Special needs beneficiaries are 
defined as those MA eligible beneficiaries who were 
institutionalized, entitled to Medicaid, or met requirements 
determined by the Administrator. Enrollment in specialized MA 
plans could be limited to special needs beneficiaries until 
January 1, 2007. Interim final regulations would be required 
within 6 months of enactment. The Secretary would be permitted 
to offer specialized MA plans for plans that disproportionately 
serve beneficiaries with special needs who are the frail 
elderly. No later than December 31, 2005, the Administrator 
would be required to submit a report to Congress that assessed 
the impact of specialized MA plans for special needs 
beneficiaries on the cost and quality of services provided to 
enrollees.
Senate Bill
      Section 222. A new M+C option would be established--
specialized M+C plans for special needs beneficiaries (such as 
the EverCare demonstration). Special needs beneficiaries are 
defined as those M+C eligible beneficiaries who were 
institutionalized, entitled to Medicaid, or met requirements 
determined by the Secretary. Enrollment in specialized M+C 
plans could be limited to special needs beneficiaries until 
January 1, 2008. No later than December 31, 2006, the Secretary 
would be required to submit a report to Congress that assessed 
the impact of specialized M+C plans for special needs 
beneficiaries on the cost and quality of services provided to 
enrollees. No later than 1 year after enactment of this Act, 
the Secretary would be required to issue final regulations to 
establish requirements for special needs beneficiaries.
Conference Agreement
      Section 231. The establishment of a specialized plan 
designation provides health plans the authority and incentives 
to develop targeted clinical programs to more effectively care 
for high-risk beneficiaries who have multiple chronic 
conditions or have complex medical problems. This provision 
designates two specific segments of the Medicare population as 
special needs beneficiaries, but also provides the Secretary 
the authority to designate other chronically ill or disabled 
beneficiaries as ``special needs beneficiaries'' to allow plans 
to serve additional high risk groups who would benefit from 
enrollment in plans that offer targeted geriatric approaches 
and innovations in chronic illness care. The Secretary should 
consider Medicare demonstrations for guidance regarding other 
potential special needs beneficiary designations.
      The provision would establish a new Medicare Advantage 
option--Specialized Medicare Advantage plans for Special Needs 
Beneficiaries. Specialized Medicare Advantage plans are plans 
that exclusively serve special needs beneficiaries such as the 
Evercare and Wisconsin Partnership demonstrations and, at the 
discretion of the Secretary, those that serve a 
disproportionate number of such beneficiaries. Special needs 
beneficiaries are defined as Medicare Advantage enrollees who 
are institutionalized, or entitled to Medicaid, or individuals 
with severe and disabling conditions that the Secretary deems 
would benefit from a specialized plan. Specialized Medicare 
Advantage plans can limit enrollment to special needs 
beneficiaries until January 1, 2009. No later than 1 year after 
enactment of this act, the Secretary is required to issue final 
regulations to establish requirements for special needs 
beneficiaries. No later than December 31, 2007, the Secretary 
is required to submit a report to Congress that assesses the 
impact of Specialized Medicare Advantage plans on the cost and 
quality of care. The provision does not change current 
Medicare+Choice quality, oversight or payment rules.
      The legislation also allows the Secretary to define as 
Specialized Medicare Advantage plans those that 
``disproportionately'' serve special needs beneficiaries. Since 
there is no existing standard for measuring 
``disproportionate,'' the provision gives the Secretary 
discretion in promulgating this part of the regulation with a 
view toward establishing quantitative criteria for defining 
``disproportionate.'' The Secretary may identify such means of 
measuring ``disproportionate'' as are feasible to capture 
appropriate risk levels for designation as a ``Specialized 
Medicare Advantage Plan for Special Needs Beneficiaries.'' The 
Secretary may wish to require further validation that 
``disproportionate'' plans are ``specialized'' by requiring 
evidence of processes or clinical programs designed to address 
the unique needs of the special needs beneficiaries served.
Section 232. Avoiding duplicative State regulation
Present Law
      Medicare law currently preempts state law or regulation 
from applying to M+C plans to the extent they are inconsistent 
with federal requirements imposed on M+C plans, and 
specifically, relating to benefit requirements, the inclusion 
or treatment of providers, and coverage determinations 
(including related appeals and grievance processes).
House Bill
      Section 232. Federal standards established by this 
legislation would supersede any state law or regulation (other 
than state licensure laws and state laws relating to plan 
solvency), with respect to MA plans offered by MA 
organizations.
Senate Bill
      No provision.
Conference Agreement
      Section 232. The conference agreement clarifies that the 
MA program is a federal program operated under Federal rules. 
State laws, do not, and should not apply, with the exception of 
state licensing laws or state laws related to plan solvency. 
There has been some confusion in recent court cases. This 
provision would apply prospectively; thus, it would not affect 
previous and ongoing litigation.
      Additionally, no state may impose a premium, or similar, 
tax on premiums paid to MA organizations under this bill.
Section 233. Medicare Medical Savings Accounts (MSAs)
Present Law
      BBA 1997 authorized a demonstration for M+C MSAs. The M+C 
option combined a high-deductible health insurance plan with an 
M+C MSA. New enrollment was not allowed after January 1, 2003 
or after the number of enrollees reached 390,000. No private 
plans have established an M+C MSA for Medicare beneficiaries. 
M+C plans (including MSAs) must have an ongoing quality 
assurance program for health care services provided to Medicare 
beneficiaries. The required elements of the program are 
specified in statute.
House Bill
      Section 234. The requirement that MSAs report on enrollee 
encounters for an ongoing quality assurance program would be 
eliminated because MSAs are not plans but bank accounts. The 
Medicare MSA demonstration would be made a permanent option, 
the capacity limit would be removed and the deadline for 
enrollment would be eliminated. Non-contract providers 
furnishing services to enrollees of MSAs will be subject to the 
same balanced billing limitations as non-contract providers 
furnishing services to enrollees of coordinated care plans.
Senate Bill
      Section 201. The deadline for enrollment in an MSA would 
be extended until December 31, 2003.
Conference Agreement
      Section 233. Medicare MSAs are not being offered in the 
Medicare program today, despite the legislative authority 
granted in 1997 and despite the fact that non-Medicare MSAs are 
being offered. The Medicare MSA demonstration will be made a 
permanent option, the capacity limit will be removed and the 
deadline for enrollment will be eliminated. The requirement 
that MSAs report on enrollee encounters for an ongoing quality 
assurance program would be eliminated because MSAs are not 
plans but bank accounts. Non-contract providers furnishing 
services to enrollees of MSAs will be subject to the same 
balanced billing limitations as non-contract providers 
furnishing services to enrollees of coordinated care plans. The 
Conferees hope to encourage this additional choice for seniors 
through these changes.
Section 234. Extension of reasonable cost contracts
Present Law
      Cost-based plans are those plans that are reimbursed by 
Medicare for the actual cost of furnishing covered services to 
Medicare beneficiaries, less the estimated value of beneficiary 
cost-sharing. The Secretary cannot extend or renew a reasonable 
cost reimbursement contract for any period beyond December 31, 
2004.
House Bill
      Section 235. Reasonable cost contracts could be extended 
or renewed indefinitely, with an exception that would begin in 
2008. Beginning January 1, 2008, cost contracts could not be 
continued if during the entire previous year, the service area 
had two or more coordinated care MA plans or two or more EFFS 
plans, each of which met the following minimum enrollment 
requirements: (1) at least 5,000 enrollees for the portion of 
the area that is within a metropolitan statistical area having 
more than 250,000 people and counties contiguous to such an 
area, and (2) at least 1,500 enrollees for any other portion of 
such area.
Senate Bill
      Section 221. Reasonable cost contracts could be extended 
or renewed until December 31, 2009. Beginning in 2004, these 
plans would have to comply with certain requirements of the M+C 
program (and beginning in 2006 the MA program), including 
ongoing quality assurance programs, physician incentive plan 
limitations, uniform premium amount requirements, premium tax 
restrictions, federal preemption, authority of an organization 
to include supplemental health care benefits, benefit filling 
deadlines, contract renewals and beneficiary notifications, and 
proposed cost-sharing subject to the Secretary's review.
      The Secretary would be required to approve a new 
application for a group practice HMO to enter into a reasonable 
cost contract if the group met certain requirements of the 
Public Health Service Act. The requirements would be that the 
group practice HMO, as of January 1, 2004, provided at least 
85% of the services of a physician (which are provided as basic 
health services) through a medical group (or groups), and met 
other requirements for such entities specified in statute.
Conference Agreement
      Section 234. The conference agreement ends the 
uncertainty about the continuation of cost contracts, allowing 
these plans to operate indefinitely, unless two other plans of 
the same type (i.e., either 2 local or 2 regional plans) enter 
the cost contract's service area. These other plans must meet 
the following minimum enrollment requirements: (1) at least 
5,000 enrollees for the portion of the area that is within a 
metropolitan statistical area having more than 250,000 people 
and counties contiguous to such an area, and (2) at least 1,500 
enrollees for any other portion of such area. The Conferees 
believe that if other private plans are willing to enter the 
cost contract's service area, then the cost contract should be 
required to operate under the same provisions as these other 
private plans.
Section 235. 2-year extension of Municipal Health Service demonstration 
        projects
Present Law
      The Municipal Health Services Demonstration Project 
operates in four cities. These cities use their existing public 
health programs as the nucleus of a coordinated system to 
provide community-based health care for the underserved urban 
poor. The project provides comprehensive health services, 
including a prescription drug benefit and dental services.
      BBA 97 extended the program through 2000. The BBRA 
extended it through 2002, and the BIPA extended it through 
December 31, 2004.
House Bill
      Section 236. Demonstration projects would be extended 
through December 31, 2009, for beneficiaries who reside in the 
city in which the project is operated.
Senate Bill
      Section 618. Demonstration projects would be extended 
through December 31, 2006, for beneficiaries who reside in the 
city in which the project is operated.
Conference Agreement
      Section 235. The conference agreement extends 
demonstration projects through December 31, 2006, for 
beneficiaries who reside in the city in which the project is 
operated.
Section 236. Payment by Program of All-Inclusive Care for the Elderly 
        (PACE) providers for Medicare and Medicaid services furnished 
        by non-contract providers
Present Law
      PACE was created as a demonstration project in the 
Omnibus Budget Reconciliation Act (OBRA 86). The Secretary was 
required to grant waivers of certain Medicare and Medicaid 
requirements to a maximum of 10 (expanded to 15 in OBRA90) 
community-based organizations to provide health and long-term 
care services on a capitated basis to frail elderly persons at 
risk of being institutionalized. The Balanced Budget Act 97 
(BBA97) made PACE a permanent part of Medicare and a state 
option for the Medicaid program.
House Bill
      No provision.
Senate Bill
      Section 223. For the Medicare program, protections 
against balance billing to PACE providers and beneficiaries 
enrolled with such PACE providers would apply in the same 
manner as applies to M+C. For the Medicaid program, with 
respect to services covered under the State plan (but not under 
Medicare) that were furnished to a beneficiary enrolled in a 
PACE program, the PACE program would not be required to pay a 
provider an amount greater than required under the state plan.
Conference Agreement
      Section 236. For the Medicare program, protections 
against balance billing to PACE providers and beneficiaries 
enrolled with such PACE providers apply in the same manner as 
applies to M+C (MA). For the Medicaid program, with respect to 
services covered under the State plan (but not under Medicare) 
that are furnished to a beneficiary enrolled in a PACE program, 
the PACE program is not required to pay a provider an amount 
greater than required under the state plan.
Section 237. Reimbursement for Federally Qualified Health Centers 
        (FQHCs) providing services under MA plans
Present Law
      Services provided by FQHCs to Medicare enrollees are 
reimbursed at no more than 80% of the reasonable costs of 
providing such services less any beneficiary cost sharing 
amounts collected.
      People who knowingly and willfully offer or pay a 
kickback, a bribe, or rebate to directly or indirectly induce 
referrals or the provision of services under a Federal program 
may be subject to financial penalties and imprisonment. Certain 
exceptions or safe harbors that are not considered violations 
of the anti-kickback statute have been established.
House Bill
      No provision.
Senate Bill
      Section 615. FQHCs would receive a wrap-around payment 
for the reasonable costs of care provided to Medicare managed 
care patients served at such centers. The provision would raise 
reimbursements to FQHCs, so that when they are combined with 
M+C payments and cost-sharing payments from beneficiaries, they 
would equal 100% of the reasonable costs of providing such 
services.
      This provision would extend the safe harbor to include 
any remuneration between a FQHC (or entity control by and FQHC) 
and an MA organization.
Conference Agreement
      Section 237. FQHCs will receive a wrap-around payment for 
the reasonable costs of care provided to Medicare managed care 
patients served at such centers. The provision raises 
reimbursements to FQHCs, so that when they are combined with MA 
payments and cost-sharing payments from beneficiaries, they 
equal 100% of the reasonable costs of providing such services.
      This provision extends the safe harbor to include any 
remuneration between a FQHC (or entity control by an FQHC) and 
an MA organization.
Section 238. Study of performance-based payment systems
Present Law
      No provision.
House Bill
      Section 237. The Secretary would request that the IOM 
conduct a study to review and evaluate public and private 
sector experiences in: (1) establishing performance measures 
and payment incentives under the Medicare program, and (2) 
linking performance to payment. The Secretary would also 
request that no later than 18 months after enactment, the 
Institute submit a report to the Secretary and the Congress 
that included a review and evaluation of incentives to 
encourage quality performance, as specified in the statute. The 
study would also examine how these measures and incentives 
might be applied in the Medicare MA, EFFS, and FFS programs. 
The report would include recommendations regarding appropriate 
performance measures for use in assessing and paying for 
quality and would identify options for updating performance 
measures.
Senate Bill
      Section 224. Within 2 months of enactment, the Secretary 
would be required to enter into an arrangement with IOM to 
evaluate leading health care performance measures and options 
to implement policies that align performance with payment under 
the Medicare program. The information that would be catalogued, 
reviewed and evaluated by IOM would be specified in statute. A 
report would be due to the Secretary and the congressional 
committees of jurisdiction within 18 months of enactment. There 
would be $1 million authorized to be appropriated to conduct 
the evaluation and prepare the report.
Conference Agreement
      Section 238. The conference agreement requires that 
within 2 months of enactment, the Secretary shall enter into an 
arrangement with IOM to evaluate leading health care 
performance measures in the public and private sectors and 
options to implement policies that align performance with 
payment under the Medicare program. The information examined by 
IOM includes the validity of leading health care performance 
measures, the success and utility of alternative performance 
incentive programs, and options to implement policy that aligns 
performance with payments. The Institute shall consult with 
MedPAC. A report is to be due to the Secretary and the 
congressional committees of jurisdiction within 18 months of 
enactment. There will be authorized to be appropriated such 
sums as may be necessary to conduct the evaluation and prepare 
the report.

        Subtitle E--Demonstration of Comparative Cost Adjustment

Establishment of Demonstration
Present Law
      No provision.
House Bill
      Section 241. Beginning in 2010, FEHBP-style competition 
would begin nationwide in competitive areas. Competitive areas 
would be defined as areas in which Medicare beneficiaries have 
access to two private plans--either two MA or two EFFS plans--
along with traditional FFS Medicare; and private plan 
enrollment in the area that is at least as great as private 
plan enrollment nationwide, or 20 percent, whichever is lower. 
Competitive MA (CMA) areas would be limited to metropolitan 
statistical areas, or areas with substantial numbers of MA 
enrollees. To be considered a competitive area, the two private 
plans must be offered during the open season by different 
organizations, each meeting minimum enrollment requirements as 
of March of the previous year.
      In competitive areas, private plans would submit bids and 
traditional FFS would calculate FFS amounts, based on the 
adjusted average per capita cost (AAPCC) in the area or region. 
The AAPCC would be adjusted to remove costs associated with 
direct graduate medical education, and to include costs of 
services provided to Medicare beneficiaries by the VA and DoD 
military facilities. In addition, payments would be adjusted 
for health status and other demographic factors.
      The competitive benchmark would be set at the weighted 
average of the private plan bids and the FFS amount in the 
competitive area. In order to provide traditional FFS 
disproportionate influence in competitive areas, the weight of 
the benchmark for FFS would equal the nationwide proportion of 
Medicare beneficiaries enrolled in FFS, or the competitive 
area's proportion, if higher. The weights for all other private 
plans would equal the national proportion of beneficiaries 
enrolled in private plans, or the regional proportion if lower.
      The competitive benchmark would be blended with the 
older, pre-2010 benchmark for the area over a 5-year period to 
allow for transition to a more competitive system.
      Beneficiaries enrolling in plans with bids or FFS amounts 
below the competitive benchmark would receive 75 percent of the 
difference between the benchmark and bid/FFS amount, and the 
government would receive 25 percent of the difference. 
Beneficiaries enrolling in plans with bids/FFS amounts above 
the benchmark would pay the excess. Premium adjustments would 
be moderated over a 5-year period for beneficiaries remaining 
in traditional FFS in competitive areas. The traditional FFS 
beneficiary premium would be unaffected in non-competitive 
areas or regions.
      Beginning in 2010, the MBA Administrator would announce 
the MA area-specific non-drug benchmark yearly. If applicable, 
the MBA Administrator would also announce, for the year and CMA 
area: the competitive MA non-drug benchmark; the national FFS 
market share percentage; the demographic, end-stage renal 
disease, and health status adjustment factors; the MA area-wide 
non-drug benchmark amount; the FFS area-specific non-drug 
amount; and MA enrollment.
      To carry out this section, the MBA Administrator would 
transmit the name, Social Security number, and adjustment 
amount to the Commissioner of SSA at the beginning of each year 
and at periodic times throughout the year.
Senate Bill
      No provision.
Conference Agreement
      Section 241 [Sec. 1860 C-1]. In order to test whether 
direct competition between private plans and the original 
Medicare FFS program will enhance competition in Medicare, 
improve health care delivery for all Medicare beneficiaries, 
and provide for greater beneficiary savings and reductions in 
government costs, the conference agreement requires the 
Secretary to establish a demonstration for the application of 
comparative cost adjustment (CCA). The 6-year demonstration 
will begin on January 1, 2010. The first 4 years include a 
phase-in. Upon completion of the demonstration, the Secretary 
will submit a report to Congress that includes an evaluation 
of: (1) the financial impact on Medicare, (2) changes in access 
to physicians and other health care providers, and (3) 
beneficiary satisfaction under the demonstration and original 
Medicare fee-for-service. Based upon the results of the 
evaluation, the Secretary will provide recommendations for any 
extension or expansion of the demonstration. The demonstration 
cannot be extended unless there is a reauthorization from 
Congress.
      Allowing for competition for enrollees, between private 
plans and original FFS Medicare, will level the playing field 
between all options available to Medicare beneficiaries. If 
traditional FFS Medicare is able to provide benefits at a lower 
cost than some or all private plans in a competitive area, then 
beneficiaries remaining in traditional FFS will see their 
premiums decline. In this case, beneficiaries enrolling in 
higher-cost private plans will be required to pay the extra 
price stemming from that decision. Likewise, if a private plan 
is able to offer Medicare beneficiaries coverage at a lower 
cost, then beneficiaries will be encouraged to enroll in the 
private plan by lowering the beneficiaries' costs of coverage 
under the private plan. In any case, beneficiaries will be 
entitled to the same defined benefit package and payments to 
plans will be fully adjusted for health and other demographic 
factors.
      Without this stage of competition, private plans will 
have an incentive to shadow price their benchmarks. A floating 
benchmark rewards more efficient plans, and it allows these 
more efficient plans to lower the benchmark in future years, as 
their market share rises.
      Several features were added in the Chairman's amendment 
in the nature of a substitute to allow for a smooth transition 
to a more competitive system in 2010 in competitive areas/
regions, and to prevent shock to the current system. The 
competitive benchmark, based on private plan bids and 
traditional FFS rates, would be calculated based on the 
relative enrollment in FFS versus private plans nationwide (or 
the area/region if FFS enrollment is a larger proportion in the 
area/region). This feature ensures that the competitive 
benchmark is closer to the traditional FFS rate than would 
otherwise occur. Premium changes for beneficiaries remaining in 
traditional FFS in competitive areas would be phased-in over 
five years to prevent oscillations. In addition, the 
competitive benchmark would be phased-in over a 5-year period 
for private plans. This would allow for a more gradual change 
from the benchmarks under the pre-2010 system to the new 
competitive benchmark in competitive areas.
      The Secretary will select CCA demonstration areas from 
among qualifying Metropolitan Statistical Areas (MSAs). To 
qualify, an MSA must have: (1) at least 25 percent of eligible 
Medicare beneficiaries enrolled in a local coordinated care MA 
plan; and (2) at least 2 coordinated MA local plans offered by 
different organizations, both of which meet minimum enrollment 
criteria. The total number of CCA areas may not exceed 6, or 
25% of the total number of qualifying MSAs, whichever is lower.
      To maximize the opportunity for a successful 
demonstration, the Secretary will select CCA demonstration 
areas to provide for geographic diversity and not seek to 
maximize the number of beneficiaries affected by the 
demonstration. At least one of the selected MSAs must be chosen 
from the 4 largest that qualify (based on the eligible MA 
population). At least one selected MSA must be chosen from 
among the 4 with the lowest population density. At least one 
must include a multi-State area. No more than 2 CCA areas may 
be located within the same geographic region. In addition, the 
Secretary will also grant priority to qualifying MSAs that have 
not had a Medicare preferred provider organization (PPO) plan 
demonstration.
      In order to ensure that all beneficiaries residing in a 
CCA demonstration area have sufficient choice, a county within 
the MSA will be included only if it has at least 2 MA local 
coordinated care plans, each of which is offered by a different 
MA organization. An area will continue to be included as long 
as there is at least one MA local plan offered in the local 
area.
      To minimize any possible disruption, the demonstration 
will be phased in over a four-year period between 2010 and 
2013. Both the benchmark and changes to the Part B premiums 
under the original FFS program will be phased-in over this 4-
year period.
      In CCA areas, private plans would submit bids and 
traditional FFS would calculate FFS amounts, based on the 
adjusted average per capita cost (AAPCC) in the area or region. 
The AAPCC would be adjusted to remove costs associated with 
direct graduate medical education, and to include costs of 
services provided to Medicare beneficiaries by the VA and DoD 
military facilities. In addition, payments would be adjusted 
for health status and other demographic factors.
      The CCA competitive benchmark would be set at the 
weighted average of the private plan bids and the FFS amount in 
the CCA area. In order to provide traditional FFS 
disproportionate influence in CCA areas, the weight of the 
benchmark for FFS would equal the nationwide proportion of 
Medicare beneficiaries enrolled in FFS, or the CCA area's 
proportion, if higher. The weights for all other private plans 
would equal the national proportion of beneficiaries enrolled 
in private plans, or the CCA proportion if lower.
      The CCA competitive benchmark would be blended with the 
older, pre-2010 benchmark for the area over a 4-year period to 
allow for transition to a more competitive system.
      Beneficiaries enrolling in plans with bids or FFS amounts 
below the CCA competitive benchmark would receive 75 percent of 
the difference between the benchmark and bid/FFS amount, and 
the government would receive 25 percent of the difference. 
Beneficiaries enrolling in plans with bids/FFS amounts above 
the benchmark would pay the excess. Premium adjustments would 
be moderated over a 4-year period for beneficiaries remaining 
in traditional FFS in CCA areas.
      In order to test whether application of the CCA benchmark 
to the traditional FFS program will improve efficiency of the 
program, an individual residing in a CCA demonstration area who 
is enrolled in Part B of Medicare, but not enrolled in an MA 
plan, can have an adjustment to their Part B premium, either as 
an increase or a decrease. No premium adjustment would be made 
forindividuals, for a month that they were eligible for a 
prescription drug subsidy, as defined in Title I of this Act. That is, 
individuals with incomes below 150 percent of poverty and who also meet 
the assets requirements would continue to pay the Part B premium 
amount.
      The Part B premium adjustment for FFS beneficiaries in 
CCA demonstration areas would be made as follows: (1) if the 
FFS area-specific non-drug amount for the month does not exceed 
the CCA non-drug benchmark, the Part B premium is reduced by 
75% of the difference; and (2) if the FFS area-specific non-
drug amount for the month exceeds the CCA non-drug benchmark, 
the Part B premium is increased by the full amount of the 
difference. This adjustment will be phased-in over 4 years. 
There is also a 5% limit to the adjustment, irrespective of 
whether it is an increase or a decrease.
      The premium adjustment will not affect any late 
enrollment penalties or income-related adjustments to the Part 
B premiums as established under Title VIII of this Act. The 
Secretary will transmit to the Commissioner of Social Security 
at the beginning of each year, the name, social security 
account number and the amount of any adjustment for each 
individual, and periodically through the year, update the 
information.
      Nothing in the demonstration project in any way changes 
the entitlement to defined benefits under Parts A and B of the 
Medicare program. Throughout the demonstration, beneficiaries 
will have complete freedom to choose either a private plan or 
the traditional Medicare fee-for-service program.

                            Other Provisions

Expanding the work of Medicare Quality Improvement Organizations (QIOs) 
        to include parts C and D
Present Law
      QIOs, formerly known as Peer Review Organizations (PROs), 
are responsible for working with consumers, physicians, 
hospitals, and other care-givers to refine care delivery.
House Bill
      No provision.
Senate Bill
      Section 225. The responsibilities of the QIOs would be 
expanded to include M+C and MA organizations, prescription drug 
card sponsors, and eligible entities beginning January 1, 2004. 
Quality improvement assistance relating to prescription drug 
therapy would be provided to providers, practitioners, 
prescription drug card sponsors, eligible entities under Part 
D, M+C plans, and MA plans beginning January 1, 2004.
Conference Agreement
      The conference agreement does not include this provision.
Extension of demonstration for end-stage renal disease (ESRD) managed 
        care
Present Law
      Medicare beneficiaries with ESRD cannot enroll in a 
managed care plan. If they develop ESRD while a member of a 
plan they can continue their enrollment in the plan. The 
Deficit Reduction Act of 1984 established a demonstration 
project for ESRD managed care, which was subsequently extended 
by the Omnibus Budget Reconciliation Act of 1993.
House Bill
      No provision.
Senate Bill
      Section 226. The Secretary would be required to extend 
the demonstration project for ESRD managed care through 
December 31, 2007. The terms and conditions in place during 
2002 would apply. The monthly capitation rate for enrollees 
would be set based on the reasonable medical and direct 
administrative costs of providing the benefits to participants.
Conference Agreement
      The conference agreement does not include this provision.
MA annual coordinated election period
Present Law
      The Public Health Security and Bioterrorism Preparedness 
and Response Act of 2002, P.L. 107-188 changed the annual 
coordinated election period from the month of November to 
November 15th through December 31st in 2002, 2003, and 2004. 
Once the temporary provisions expired, the reporting dates and 
deadlines return to the pre-P.L. 107-188 dates.
      In addition, P.L. 107-188 continues to allow Medicare 
beneficiaries to make and change election to an M+C plan on an 
ongoing basis through 2004. Then beginning in 2005, individuals 
may only make changes on the more limited basis, originally 
scheduled to be phased in beginning in 2002. Since the 
beginning of the M+C program, beneficiaries have been able to 
make and change election to an M+C plan on an ongoing basis. 
Beginning in 2005, elections and changes to elections will be 
available on a more limited basis. Beneficiaries can make or 
change elections during the annual coordinated election period. 
Current Medicare beneficiaries may also change their election 
at any time during the first 6 months of 2005 (or first 3 
months of any subsequent year). Additionally, there are special 
enrollment rules for newly eligible aged beneficiaries as well 
as special enrollment periods for all enrollees under limited 
situations, such as an enrollee who changes place of residence.
House Bill
      Section 231. The annual coordinated election period would 
be permanently changed to November 15 through December 31.
Senate Bill
      Section 201. [Sec. 1851(e)]. Medicare beneficiaries would 
retain their ability to make and change elections to an M+C 
plan through 2005. The current law limitation on changing 
elections that begins in 2005, would be delayed until 2006. 
Further, the annual coordinated election period for 2003 
through 2006 would begin on November 15 and end on December 31. 
Beginning in 2007, the annual coordinated election period would 
be during the month of November.
      [Sec. 1851(e)(3)]. Additionally, the Secretary would 
conduct a special information campaign to inform MA eligible 
beneficiaries about plans. The campaign would begin on November 
15, 2005 and ending on December 31, 2005.
Conference Agreement
      The conference agreement does not include this provision.
Cause for intermediate sanctions
Present Law
      The Secretary is authorized to carry out specific 
remedies in the event that an M+C organization: (1) fails 
substantially to provide medically necessary items and services 
required to be provided, if the failure adversely affects the 
Medicare enrollee; (2) imposes premiums on enrollees that are 
in excess of those allowed; (3) acts to expel or refuses to re-
enroll an enrollee in violation of Federal requirements; (4) 
engages in any practice that would have the effect of denying 
or discouraging enrollment (except as permitted by law) of 
eligible beneficiaries whose medical condition or history 
indicates a need for substantial future medical services; (5) 
misrepresents or falsifies information to the Secretary or 
others; (6) fails to comply with rules regarding physician 
participation; or (7) employs or contracts with any individual 
or entity that has been excluded from participation in 
Medicare.
House Bill
      No comparable provision.
Senate Bill
      Section 208. In addition to specifications included in 
current law, the Secretary could also carry out remedies if an 
organization charged any Medicare enrollee an amount in excess 
of the MA monthly beneficiary obligation for qualified 
prescription drug coverage, provided coverage that was not 
qualified prescription drug coverage, offered prescription drug 
coverage but did not make standard prescription drug coverage 
available, or provided coverage for drugs other than that 
relating to prescription drugs covered under Part D, as an 
enhanced or additional benefit.
Conference Agreement
      The conference agreement does not include this provision.
Evaluate fee-for-service modernization projects
Present Law
      No provision.
House Bill
      No explicit provision. H.R. 1 would establish chronic 
care improvement benefits under fee-for-service (Section 721) 
and under MA and EFFS (Section 722).
Senate Bill
      Section 232. The Secretary would be required to review 
the results of the demonstrations required under Sections 442, 
443, and 444 of this bill and report to Congress by January 1, 
2008. [These demonstrations are the Medicare health care 
quality demonstration, the Medicare complex clinical care 
management payment demonstration, and the Medicare fee-for-
service care coordination demonstration.] Beginning in 2009, 
the Secretary would be required to establish projects to 
provide Medicare beneficiaries in traditional Medicare coverage 
of enhanced benefits or services (preventive services not 
already covered under Medicare, chronic care coordination 
services, disease management services or other benefits 
determined by the Secretary). The purpose of the projects would 
be to evaluate whether the enhanced benefits or services 
improved the quality of care, improved health care delivery 
systems, and reduced expenditures under the Medicare program. 
The projects would be conducted in regions comparable to the 
regions designated as ``highly competitive.'' The Secretary 
would be required to submit annual reports to Congress and the 
GAO beginning no later than April 1, 2010. The GAO would be 
required to report by January 1, 2011 and biennially thereafter 
for as long as the projects were being conducted.
Conference Agreement
      The conference agreement does not include this provision.
Establish MA enrollment goal
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      Section 241. This provision would establish an MA 
enrollment goal of at least 15% of Medicare beneficiaries by 
January 1, 2010. If the goal were not met, a bipartisan 
commission would be established as provided for in Section 242.
Conference Agreement
      The conference agreement does not include this provision.
Establish national bipartisan commission on Medicare reform
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      Section 242. If the enrollment goal described in Section 
241 were not met, the National Bipartisan Commission on 
Medicare Reform would be established. The Commission would 
review and analyze the long-term financial condition of the 
Medicare program; identify problems that threaten the financial 
integrity of the Medicare Trust Funds; and analyze potential 
solutions to the identified problems. The Commission would be 
required to make recommendations, including issues facing 
Medicare, such as solvency, financing of the Medicare Trust 
Funds, and benefits. The Commission would have 17 members--four 
appointed by the President, 12 appointed by Congressional 
leaders, and one appointed jointly by the President and 
Congressional leaders to serve as Chairperson. The Commission 
would be required to submit a report and an implementation bill 
to the President and Congress no later than April 1, 2014.
Conference Agreement
      The conference agreement does not include this provision.
Establish congressional consideration of reform proposals
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      Section 243. Congressional leaders would be required to 
introduce the implementation bill required by Section 242. 
Hearings would be required by appropriate committees as well as 
floor consideration.
Conference Agreement
      The conference agreement does not include this provision.
Authorize appropriations
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      Section 244. Appropriations would be authorized for such 
sums as necessary to carry out the provisions regarding the 
National Bipartisan Commission on Medicare Reform for fiscal 
years 2012 through 2013.
Conference Agreement
      The conference agreement does not include this provision.
Enhanced benefits
Present Law
      M+C plans may offer supplemental benefits in addition to 
any required benefits under Parts A and B of Medicare and any 
additional required benefits.
House Bill
      Section 221(a). Plans could include supplemental benefits 
in their bids. The Secretary's authority to negotiate bids 
would include these supplemental benefits.
Senate Bill
      Section 202. [Sec. 1852(a)(3)]. MA plans could choose to 
provide beneficiaries with enhanced medical benefits that the 
Secretary could approve. The Secretary could deny any 
submission for enhanced benefits believed to discourage 
enrollment by MA eligible individuals. The Secretary could not 
approve any enhanced medical benefit that provided for the 
coverage of any prescription drug, other than those relating to 
covered prescription drugs under Part D.
Conference Agreement
      The conference agreement does not include this provision.
Incentive for Enrollment
Present Law
      M+C plans cannot offer cash or monetary rebates as an 
inducement for enrollment.
House Bill
      Section 221(d). For MA plans, the ability to offer cash 
or monetary rebates would be limited to the rebates (based on 
the calculation of average per capita monthly savings) 
established under this bill.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement does not include this provision.

              TITLE III--COMBATTING WASTE, FRAUD AND ABUSE

Medicare Secondary Payor (MSP) Provisions (Section 301 of the 
        Conference Agreement, Section 301 of the House Bill, and 
        Section 461 of the Senate Bill).
Present Law
      In certain instances, Medicare is prohibited from making 
payment for a health care claim if payment is expected to be 
made promptly under workmen's compensation law or plan, under 
automobile or liability insurance (including a self-insured 
plan) or under no-fault insurance on behalf of a beneficiary. 
Medicare is permitted to make a conditional payment in certain 
circumstances including if Medicare could reasonably expect 
payment to be made under a workers compensation plan or no-
fault insurance claim but Medicare determines that the payment 
will not be made promptly, as determined in accordance with 
regulations).
House Bill
      The Secretary would be able to make a conditional 
Medicare payment if a workmen's compensation law or plan, an 
automobile or liability insurance policy or plan (including a 
self-insured plan), or a no-fault insurance plan, has not made 
or cannot reasonably be expected to make prompt payment (as 
determined in accordance with regulations). This payment would 
be contingent on reimbursement by the primary plan to the 
Medicare Trust Funds. This provision on conditional payment 
would be effective as if included in the enactment of title III 
of the Medicare and Medicaid Budget Reconciliation Amendments 
of 1984 (P.L. 98-369) (which was contained in the Deficit 
Reduction Act of 1984).
      The list of primary plans for which conditional payment 
could be made would be clarified; an entity engaging in a 
business, trade, or profession would be deemed as having a 
self-insured plan if it carries its own risk. A primary plan, 
as well as an entity that receives payment from a primary plan, 
would be required to reimburse the Medicare Trust Funds for any 
payment made by the Secretary if the primary plan was obligated 
to make payment. The Secretary's authority to recover payment 
from any and all responsible entities and bring action, 
including the collection of double damages, to recover payment 
under the Medicare Secondary Payer provisions also would be 
clarified. This provision clarifying the conditional payment 
provisions would be effective upon enactment.
Senate Bill
      Identical provision.
Conference Agreement
      The conference agreement clarifies that the Secretary may 
make a conditional Medicare payment if a workmen's compensation 
law or plan, an automobile or liability insurance policy or 
plan (including a self-insured plan), or a no-fault insurance 
plan, has not made or cannot reasonably be expected to make 
prompt payment (as determined in accordance with regulations). 
This payment is contingent on reimbursement by the primary plan 
to the Medicare Trust Funds. This provision on conditional 
payment is effective as if included in the enactment of title 
III of the Medicare and Medicaid Budget Reconciliation 
Amendments of 1984 (P.L. 98-369) (which was contained in the 
Deficit Reduction Act of 1984).
      The list of primary plans for which conditional payment 
could be made is also clarified; an entity engaging in a 
business, trade, or profession would be deemed as having a 
self-insured plan if it carries its own risk. A primary plan, 
as well as an entity that receives payment from a primary plan, 
is required to reimburse the Medicare Trust Funds for any 
payment made by the Secretary if the primary plan was obligated 
to make payment. The Secretary's authority to recover payment 
from any and all responsible entities and to bring action, 
including the collection of double damages, to recover payment 
under the Medicare Secondary Payer provisions also is 
clarified. This provision clarifying the conditional payment 
provisions is effective as if included in the enactment of 
section 953 of the Omnibus Reconciliation Act of 1980.
Payment for Durable Medical Equipment; Competitive Acquisition of 
        Certain Items and Services (Section 302 of the Conference 
        Agreement, Section 302 of the House Bill, and Section 430 of 
        the Senate Bill).
Present Law
      Medicare pays for durable medical equipment (DME), using 
a different fee schedule for each class of covered items. Under 
the fee schedule, covered items are classified into six major 
categories, one of which is prosthetics and orthotic devices. 
In general, fee schedule payments are a weighted average of 
either local or regional prices, subject to national limits 
(both floors and ceilings), that are updated each year by the 
consumer price index for urban consumers (CPI-U) for the 12-
month period ending with June of the previous year.
      Medical devices are classified into three categories: 
Class I devices represent minimal potential for harm, and are 
subject to the least regulatory control (e.g., elastic bandages 
and enema kits). Class II devices are moderate risk (e.g., some 
surgical lasers). Class III devices are devices that sustain or 
support life, are implanted, or present potential unreasonable 
risk (e.g., implantable infusion pumps and heart valve 
replacements) and are subject to premarket approval, the most 
stringent regulatory control.
      BBA 97 authorized the Secretary to conduct up to five 
demonstration projects to test competitive bidding as a way for 
Medicare to price and pay for Part B services other than 
physician services. The Secretary was required to establish up 
to three competitive acquisition areas for this purpose. Three 
competitive bidding demonstrations for durable medical 
equipment, prosthetics, orthotics, and supplies were 
implemented, two in Polk County, Florida and one in the San 
Antonio, Texas area.
House Bill
      The Secretary would be required to establish and 
implement competitive acquisition programs for durable medical 
equipment, medical supplies, items used in infusion, drugs and 
supplies used in conjunction with durable medical equipment, 
medical supplies, home dialysis supplies, blood products, 
parental nutrition, and off-the-shelf orthotics (requiring 
minimal self-adjustment for appropriate use) that would replace 
the Medicare fee schedule payments. Enteralnutrients and class 
III devices, those that sustain or support life, are implanted, or 
present potential unreasonable risk (e.g., implantable infusion pumps 
and heart valve replacements) and are subject to premarket approval by 
the Food and Drug Administration would not be covered by the program.
      In starting the programs, the Secretary would be required 
to establish competitive acquisition areas, but would be able 
to exempt rural areas and areas with low population density 
within urban areas that are not competitive, unless a 
significant national market exists through mail order for a 
particular item or service. The programs would be phased-in 
over 3 years with at least one-third of the areas implemented 
in 2005 and two-thirds of the areas implemented in 2006. High-
cost items and services would be required to be phased-in 
first. The Secretary would be able to exempt items and services 
for which competitive acquisition would not be likely to result 
in significant savings. The Secretary would be required to 
establish a process where existing rental agreements for 
covered DME items entered into contract before implementation 
of this program would not be affected. The supplier would be 
required to provide for appropriate servicing and replacement 
of these rental items. Also, the Secretary may establish a 
process where a physician would be able to prescribe a 
particular brand or mode of delivery of an item or service if 
such item is clinically more appropriate than other similar 
items.
      Certain requirements for the competitive acquisition 
program would be established. Specifically, the Secretary would 
be allowed to award contracts in an area only when the 
following conditions were met: entities met quality and 
financial standards specified by the Secretary or the Program 
Advisory and Oversight Committee; total amounts paid under the 
contracts would be expected to be less than would otherwise be 
paid; beneficiary access to multiple suppliers would be 
maintained; and beneficiary liability would be limited to 20% 
of the applicable contract award price. Contracts would be 
required to be re-competed at least every three years. The 
Secretary would be required to award contracts to multiple 
entities submitting bids in each area for an item or service 
and would also have the authority to limit the number of 
contractors in a competitive acquisition area to the number 
needed to meet projected demand for covered items and services. 
The similarity of the clinical efficiency and the value of 
specific products would be considered when establishing the 
categories and products that would be subject to bidding. The 
Secretary would not be able to pay for items furnished by a 
contractor unless the contractor has submitted a bid to supply 
the item and the contract has been awarded. The Secretary would 
be permitted to waive certain provisions of the Federal 
Acquisition Regulation that are necessary for the efficient 
implementation of this program, other than those relating to 
confidentiality of information. The Secretary would also be 
able to contract with an appropriate entity to address 
beneficiary complaints, provide beneficiary outreach and 
education services, and monitor the quality of items and 
services provided. The Secretary would be required to report to 
Congress annually on savings, reductions in cost-sharing, 
access to items and services, and beneficiary satisfaction 
under the competitive acquisition program.
      A Program Advisory and Oversight Committee with members 
appointed by the Secretary would be established. The Committee 
would be required to provide advice and technical assistance to 
the Secretary regarding the implementation of the program, data 
collection requirements, proposals for efficient interaction 
among manufacturers and distributors of the items and services, 
providers, and beneficiaries, and other functions specified by 
the Secretary. The provisions of the Federal Advisory Committee 
Act would not apply to this Committee. The Secretary would be 
required to conduct a demonstration program on using 
competitive acquisition for clinical laboratory tests that are 
furnished without a face-to-face encounter between the 
individual and the hospital personnel or physician performing 
the test. The same quality and financial conditions specified 
for the DME competitive acquisition program would apply for 
clinical laboratory test competitive acquisition. An initial 
report to Congress would be required of the Secretary not later 
than December 31, 2005 with progress and final reports as the 
Secretary would determine appropriate.
      The covered items and services included in the 
competitive acquisition program would be paid as determined 
under this program. The Secretary would be able to use this 
payment information to adjust the payment amounts for DME not 
in a competitive acquisition area. In this instance, the 
inherent reasonableness rule would not be applied. Orthotics in 
a competitive acquisition program would also be paid the 
amounts determined by this program. The Secretary would be able 
to use this payment information to adjust the payment amounts 
for such items. The provision would be effective upon 
enactment.
Senate Bill
      Medicare would not increase the DME fee schedule amounts 
in any of the years from 2004 through 2010 and would update the 
amounts by the CPI-U in each subsequent year. Payments for 
orthotic devices that have not been custom-fabricated would be 
similarly affected. Class III medical devices would be exempt 
from the freeze in DME payments. Prosthetics, prosthetic 
devices, and custom-fabricated orthotics would be updated by 
the percentage change in the CPI-U. The provision would also 
subject DME companies to an accreditation and quality assurance 
process. The Secretary would be required to designate 
independent accreditation organizations no later than 6 months 
from enactment after consultation with an expert outside 
advisory panel. The application of quality standards would be 
phased in over a 3-year period. The provision would be 
effective upon enactment.
Conference Agreement
      The conference agreement requires the Secretary to 
establish and implement quality standards for suppliers of: 
items and services of durable medical equipment, prosthetics 
and orthotics, and certain other items and services. Suppliers 
of the following items and services are included in the 
conference agreement: items of durable medical equipment, 
prosthetic devices, orthotics and prosthetics, medical 
supplies, home dialysis supplies and equipment, therapeutic 
shoes, parenteral and enteral nutrients, equipment, and 
supplies, electromyogram devices, salivation devices, blood 
products, and transfusion machines. The Secretary is explicitly 
authorized to establish the quality standards by program 
memorandum on a prospective basis after consultation with 
representatives of relevant parties. The standards are required 
to be posted on the Internet website of CMS. The Secretary is 
required to designate one or more independent accreditation 
organizations not later than one year after the date the 
quality standards are implemented. The quality standards may 
not be less stringent than the quality standards otherwise in 
place.
      The Secretary is required to establish standards for 
clinical conditions for payment for covered durable medical 
equipment that include the specification of types or classes of 
covered items that require, as a condition of payment, a face-
to-face examination and a prescription for the item. Standards 
are required to be established for those covered items for 
which there hasbeen a proliferation of use, consistent findings 
of charges for covered items that are not delivered, or consistent 
findings of falsification of documentation to provide for payment of 
such covered items. Beginning with the date of enactment, payment may 
not be made for motorized or power wheelchairs unless a physician, 
physician assistant, nurse practitioner, or a clinical nurse specialist 
has conducted a face-to-face examination of the individual and written 
a prescription for the item. Medicare payment is not permitted unless 
the item meets the standards established for clinical condition of 
coverage.
      The conference agreement also establishes competitive 
acquisition programs for durable medical equipment (including 
items used in infusion and drugs), medical supplies, home 
dialysis supplies, therapeutic shoes, enteral nutrients, 
equipment, and supplies, electromyogram devices, salivation 
devices, blood products, and transfusion medicine, and off-the-
shelf orthotics (requiring minimal self-adjustment for 
appropriate use) that would replace the Medicare fee schedule 
payments. Exclusions from the competitive acquisition are: 
inhalation drugs; parenteral nutrients, equipment, and 
supplies; and class III devices, that is those that sustain or 
support life, are implanted, or present potential unreasonable 
risk (e.g., implantable infusion pumps and heart valve 
replacements) and are subject to premarket approval by the Food 
and Drug Administration.
      In starting the programs, the Secretary is required to 
establish competitive acquisition areas, but would be able to 
exempt rural areas and areas with low population density within 
urban areas that are not competitive, unless a significant 
national market exists through mail order for a particular item 
or service. The programs will be phased-in so that competition 
under the programs occurs in 10 of the largest metropolitan 
statistical areas in 2007; 80 of the largest metropolitan 
statistical areas in 2009; and remaining areas after 2009. The 
Secretary is permitted to phase-in first items and services 
with the highest cost and highest volume, or those items and 
services that the Secretary determines have the largest savings 
potential. The Secretary may exempt items and services for 
which competitive acquisition would not be likely to result in 
significant savings. The Secretary is required to establish a 
process where existing rental agreements for covered DME items 
entered into contract before implementation of this program 
would not be affected. The supplier would be required to 
provide for appropriate servicing and replacement of these 
rental items. Also, the Secretary may establish a process where 
a physician would be able to prescribe a particular brand or 
mode of delivery of an item or service within a particular 
healthcare procedure code (HCPCS) if the physician determines 
that use of the item or service would avoid an adverse medical 
outcome on the beneficiary, as determined by the Secretary, 
although this could not affect the amount of payment otherwise 
applicable.
      Certain requirements for the competitive acquisition 
program are established by the conference agreement. 
Specifically, the Secretary cannot award contracts in an area 
unless the following conditions were met: (1) entities meet 
quality standards established by the Secretary; (2) entities 
meet financial standards specified by the Secretary, taking 
into account the needs of small providers; (3) total amounts 
paid under the contracts are expected to be less than would 
otherwise be paid; and (4) beneficiary access to multiple 
suppliers would be maintained. Contracts are subject to terms 
and conditions that the Secretary may specify and are required 
to be re-competed at least every 3 years. The Secretary is 
required to award contracts to multiple entities submitting 
bids in each area for an item or service and has the authority 
to limit the number of contractors in a competitive acquisition 
area to the number needed to meet projected demand for covered 
items and services.
      Payment for competitively priced items and services will 
be based on bids submitted and accepted. The Secretary is 
required to determine a single payment amount for each item or 
service in each competitive acquisition area. Medicare payment 
is required to be equal to 80 percent of the payment amount 
determined, with beneficiaries paying the remaining 20 percent 
(after meeting the Part B deductible). Payment for any item or 
services can be made only on an assignment-related basis that 
is the supplier bills Medicare and accepts Medicare payment as 
payment in full. The use of advanced beneficiary notices is not 
precluded by this program.
      In establishing the categories and products that would be 
subject to bidding, the Secretary is permitted to consider the 
clinical efficiency and the value of specific items within 
HCPCs codes, including whether some items have a greater 
therapeutic advantage to individuals. The Secretary is required 
to take appropriate steps to ensure that small suppliers of 
items and services have an opportunity to be considered for 
participation in this program. The Secretary cannot pay for 
items furnished by a contractor unless the contractor has 
submitted a bid to supply the item and the contract has been 
awarded. The Secretary is permitted to waive certain provisions 
of the Federal Acquisition Regulation that are necessary for 
the efficient implementation of this program, other than those 
relating to confidentiality of information. The Secretary is 
permitted to contract with an appropriate entity to address 
beneficiary complaints, provide beneficiary outreach and 
education services, and monitor the quality of items and 
services provided. The Secretary is also permitted to contract 
with entities to implement the competitive bidding program. The 
conference agreement prohibits administrative or judicial 
review of the establishment of payments amounts, the awarding 
of contracts, the designation of competitive acquisition areas, 
the phased-in implementation, the selection of items and 
services for competitive acquisition or the bidding structure 
and number of contractors. The Secretary is required to report 
to Congress by July 1, 2009, on savings, reductions in cost-
sharing, access to items and services, and beneficiary 
satisfaction under the competitive acquisition program.
      A Program Advisory and Oversight Committee with members 
appointed by the Secretary is required to be established. The 
Committee is required to provide advice to the Secretary 
regarding the implementation of the program, data collection 
requirements, proposals for efficient interaction among 
manufacturers and distributors of the items and services, 
providers, and beneficiaries, the establishment of quality 
standards, and other functions specified by the Secretary. The 
provisions of the Federal Advisory Committee Act do not apply 
to this Committee. The Committee is required to end on December 
31, 2009.
      The Secretary is required to conduct a demonstration 
program on using competitive acquisition for clinical 
laboratory tests that are furnished without a face-to-face 
encounter between the individual and the hospital personnel or 
physician performing the test. The terms and conditions of the 
demonstration are to include the application of CLIA quality 
standards. An initial report to Congress is required of the 
Secretary no later than December 31, 2005, with progress and 
final reports as the Secretary determines appropriate.
      For durable medical equipment, prosthetic devices, 
prosthetics and orthotics, the update will be 0 percentage 
points in 2004 through 2008. After 2008, for those items not 
included in competitive bidding the update will be the consumer 
price index (CPI). For 2005, the payment amount for certain 
items, oxygen and oxygen equipment, standard wheelchairs, 
nebulizers, diabetic lancets and testing strips, hospital beds 
and air mattresses, will be reduced. The Secretary will take 
the payment amount otherwise determined and reduce it by the 
percentage difference between the amount of payment otherwise 
determined for the specific item for 2002and the amount of 
payment for the specific item and HCPC code under chapter 89 of title 
5, United States Code (which was identified in the column entitled a 
median FEHBP Price in the table entitled ``A Summary of Medicare Prices 
Compared to VA, Medicaid, Retail, and FEHP Prices for 16 Items'' that 
was included in the Testimony of the Inspector General before the 
Senate Committee on Appropriations, June 12, 2002). An OIG report on 
oxygen will be available in the spring of 2004.
      For class III medical devices the update in 2004, 2005, 
and 2006 is equal to the percentage increase in the consumer 
price index for all urban consumers (CPI-U) for the 12-month 
period ending with June of the previous year. In 2007 the 
percentage change for class III medical devices is to be 
determined by the Secretary after taking into account 
recommendations made by the Comptroller General in a report on 
class III medical devices. In 2008 the update is determined by 
the amount paid in 2007 updated by the CPI. In subsequent years 
the CPI is the update.
      For covered items and services furnished beginning 
January 1, 2009, items and services included in the competitive 
acquisition program would be paid as determined under that 
program and the Secretary would be able to use this payment 
information to adjust the payment amounts for DME, off-the-
shelf orthotics, and other items and services that are supplied 
in an area that is not a competitive acquisition area. The 
inherent reasonableness authority for DME, off-the-shelf 
orthotics, medical supplies, home dialysis supplies, 
therapeutic shoes, enteral nutrients, equipment, and supplies, 
electromyogram devices, salivation devices, blood products, and 
transfusion medicine is not eliminated but, if the Secretary 
uses the competitive acquisition program information to adjust 
payments, then inherent reasonableness authority cannot be 
used.
      The Inspector General of the Department of Health and 
Human Services (the Inspector General) is required to study the 
extent to which (if any) suppliers of covered items of DME that 
are subject to the competitive acquisition program are 
soliciting physicians to prescribe certain brands or modes of 
delivery of covered items based on profitability. The report is 
due to Congress no later than July 1, 2009.
      The provision is effective upon enactment.
Competitive Acquisition of Covered Outpatient Drugs and Biologicals 
        (Section 303 of the Conference Agreement, Section 303 of the 
        House Bill, and Section 432 of the Senate Bill).
Adjustment to the Physician Fee Schedule (Section 303(a) of the 
        Conference Agreement, Section 303(a) of the House Bill and 
        Section 432(b) of the Senate Bill).
Present Law
      The relative value associated with a particular physician 
service is the sum of three components: physician work, 
practice expense, and malpractice expense. Practice expense 
includes both direct costs (such as clinical personnel time and 
medical supplies used to provide a specific service to an 
individual patient) as well as indirect costs such as rent, 
utilities, and business costs associated with running a 
practice). When the physician fee schedule was implemented, 
reimbursement for practice expenses was based on historic 
charges. The Social Security Act Amendments of 1994 (PL. 103-
432) required the Secretary to develop a methodology for a 
resource based system for calculating practice expenses for use 
in CY1998. BBA 1997 delayed the implementation of the 
methodology until CY1999 and established a transition period 
with full implementation by CY2002. BBRA required the Secretary 
to establish a data collection process and data standards for 
determining practice expense relative values. Under this survey 
process, the Secretary was required to use data collected or 
developed outside HHS, to the maximum extent practicable, 
consistent with sound data collection practices.
      The Secretary is required to periodically review and 
adjust the relative values affecting physician payment to 
account for changes in medical practice, coding changes, new 
data on relative value components, or the addition of new 
procedures. Under the budget-neutrality requirement, changes in 
these factors cannot cause expenditures to differ by more than 
$20 million from what would have been spent if such adjustments 
had not been made.
House Bill
      The Secretary would be required to increase the practice 
expense relative value for the physician fee schedule in CY2005 
using survey data that includes information on the expense 
associated with administering drugs and biologicals. The 
supplemental data provided by entities and organizations would 
be included if consistent with the Secretary's criteria for 
acceptable survey data and submitted by December 31, 2004. 
Using existing processes for coding considerations, the 
Secretary would be required to promptly evaluate existing codes 
for the administration of covered outpatient drugs and 
biologicals to ensure accurate reporting and billing for these 
services. Any payment increase in CY2005 that resulted from 
using supplemental survey data or reevaluating codes would not 
be subject to budget neutrality provisions, would be exempt 
from administrative and judicial review, and would be treated 
as a change in law and regulation in the sustainable growth 
rate determination. Nothing in this section would prevent the 
Secretary from providing for practice expense adjustments in 
subsequent years, subject to the budget neutrality provisions. 
The Secretary would be required to consult with the Comptroller 
General of the United States (GAO) and groups representing the 
affected physician specialties before publishing the notice of 
proposed rulemaking. Also, the Secretary would be required to 
adjust the non-physician work pool methodology so that practice 
expense relative values for these services are not 
disproportionately reduced as a result of the above changes. 
The provision would be effective upon enactment.
Senate Bill
      The Secretary would be required to establish the practice 
expense relative value for the physician fee schedule in CY2004 
using the survey data collected from a physician specialty 
organization as of January 1, 2003 if the data cover the 
practice expenses for oncology administration services and meet 
the Secretary's criteria for acceptable survey data. The 
Secretary would also be required to review and appropriately 
modify Medicare's payment policy for the administration of more 
than one anticancer chemotherapy agent to an individual patient 
on a single day. The increase in expenditures resulting from 
this provision would be exempt from the budget-neutrality 
requirement. Also, the Secretary would be required to adjust 
the non-physician work pool methodology so that practice 
expense relative values for these services are not 
disproportionately reduced as a result of the above changes. 
The provision would be effective upon enactment.
      The Secretary would not be able to revise payment amounts 
for a category of outpatient drugs or biologicals unless the 
Secretary concurrently adjusts the payment amounts 
foradministration of such category of drug or biological. The provision 
would be effective upon enactment.
      The provisions affecting the practice expense relative 
values, multiple chemotherapy agents administered on a single 
day, and treatment of other services currently in the non-
physician work pool would not be subject to administrative or 
judicial review under Sections 1869 and 1878 of the Social 
Security Act (SSA) or otherwise. The provision would be 
effective upon enactment.
Conference Agreement
      Beginning in 2004, the Secretary is required to make 
adjustments in practice expense relative value units for 
certain drug administration services when establishing the 
physician fee schedule. The Secretary is required to use the 
survey data submitted by the American Society of Clinical 
Oncology (ASCO) in 2002 because it meets criteria established 
under the BBRA for use.
      The Secretary is required to add work relative value 
units to certain drug administration services, equal to the 
work relative value units for a level 1 office medical visit 
for an established patient. These services are classified, as 
of October 1, 2003, within any of the following groups of 
procedures: therapeutic or diagnostic infusions (excluding 
chemotherapy), chemotherapy administration services, and 
therapeutic, prophylactic or diagnostic injections. Only those 
services for which national relative value units, but no work 
relative value units have been assigned by October 1, 2003 are 
included. These specified drug administration services are 
intended to be those classified as of October 1, 2003, within 
HCPCs codes 90780-90781, 96400, 96408-96425, 96520, 96530 and 
90782-90788, and as subsequently may be modified by CMS, to 
provide work relative value units for CPT code 99211 for a 
level 1 office medical visit for an established patient.
      Starting in 2005, the Secretary is required to use 
supplemental survey data to increase practice expense relative 
values for other drug administration services in the physician 
fee schedule if that supplemental survey data include 
information on the expense associated with administering drugs 
and biologicals, the survey meets criteria for acceptance, and 
the survey is submitted by March 1, 2004, for 2005, or March 1, 
2005 for 2006. This provision will apply only to a specialty 
that received 40% or more of its Medicare payments in 2002 from 
drugs and biologicals and would not apply to the ASCO survey 
submitted in 2002.
      The Secretary is also required to promptly evaluate 
existing drug administration codes for physicians' services to 
ensure accurate reporting and billing for these services. These 
codes should take into account levels of complexity of the 
administration and resource consumption. The Secretary is 
required to use existing processes for considering coding 
changes and for incorporating appropriate changes in the 
relative values for such services. As part of this process, the 
Secretary is required to consult with representatives of 
physician specialties affected by the changes in payment for 
drugs under this section and, within the scope of existing 
authority, expedite appropriate conclusions resulting from 
these coding evaluations.
      The adjustments in practice expense relative value units 
for certain drug administration services based on the ASCO 
survey data are exempt from the budget neutrality requirements 
in 2004. Adjustments in practice expense relative value units 
for other drug administration services in 2005, 2006, or 2007 
based on the surveys or coding changes described above are also 
exempt. Nothing in this section shall prevent the Secretary 
making these practice expense adjustments in subsequent years, 
subject to the budget neutrality provisions.
      The Secretary is required to make adjustments to the non-
physician work pool methodology so that the practice expense 
relative values for other services in the pool are not affected 
by the changes to practice expenses for drug administration. 
This provision is intended to protect the services in the non-
physician work pool from payment reductions resulting from 
changes made to the AWP payment methodology. The budget 
neutrality waiver was included in this section to ensure that 
the increase in practice expense relative value units for drug 
administration services (resulting from the use of new 
supplemental survey data) would not be offset by decreases in 
the other non-physician work pool services. The Secretary is 
further required to review and appropriately modify Medicare's 
payment policy in effect on October 1, 2003, for the 
administration of more than one drug or biological to an 
individual on a single day through the push technique. The 
increase in expenditures resulting from this provision will be 
exempt from the budget-neutrality requirement in 2004. The 
Conferees strongly urge the Secretary to make payment for these 
multiple pushes.
      A transitional adjustment or additional payment for 
services furnished from April 1, 2004, through December 31, 
2005 will be made for drug administration services. This Part B 
payment is to be made to the physician and equals a percentage 
of the payment otherwise made. The percent is 32 in 2004, and 3 
in 2005.
      MedPAC is required to review the payment changes as they 
affect payments for items and services furnished by oncologists 
and for drug administration services furnished by other 
specialists. This review will also include an examination of 
the effect of such changes on the quality of Part B services 
and beneficiary satisfaction with such care. The Commission is 
required to submit a report to the Secretary and Congress by 
January 1, 2006 on oncologists' payments and by January 1, 2007 
on drug administration services furnished by other specialists. 
The reports may include recommendations for further 
adjustments. The Secretary could make appropriate adjustments 
to payments as part of the rulemaking for physician payments 
for 2007.
      Section 303 exempts all physician specialties, other than 
oncology, from the payment adjustments made to both physicians' 
services and expenses for the administration of drugs and 
biologicals in this section, and does not apply to inhalation 
drugs in Section 305. Section 304 requires the Secretary to 
disregard this exemption and apply the adjustments in section 
303 to these other specialties. The intent in drafting the two 
sections in this manner is to segregate the savings achieved 
from adjustments to payments to oncologists from savings 
derived from other physician specialties. The specialties to 
which the provisions apply are the specialties as used by the 
carriers in administering Medicare.
Application of Market based Payment Systems (Sections 303(b) through 
        Sections 303(d) of the Conference Agreement, Section 303(b) of 
        the House Bill and Section 432(a) of the Senate Bill).
Present Law
      Although Medicare does not currently provide an 
outpatient prescription drug benefit, coverage of certain 
outpatient drugs is authorized by statute. Specifically, under 
Medicare PartB, outpatient prescription drugs and biologicals 
are covered if they are usually not self-administered and are provided 
incident to a physician's services. Drugs and biologicals are also 
covered if they are necessary for the effective use of covered durable 
medical equipment. In addition, Medicare will pay for certain self-
administered oral cancer and anti-nausea drugs, erythropoietin (used to 
treat anemia), immunosuppressive drugs after covered Medicare organ 
transplants and hemophilia clotting factors. Vaccines for diseases like 
influenza, pneumonia, and hepatitis B are considered drugs and are 
covered by Medicare. Payments for covered outpatient drugs are made 
under Medicare Part B and are generally calculated using the average 
wholesale price (AWP).
      The AWP is intended to represent the average price used 
by wholesalers to sell drugs to their customers. It has been 
based on prices reported by drug manufacturers, that are 
published in industry reference publications or drug price 
compendia. There are no uniform criteria for reporting these 
numbers. Moreover, these reported prices do not reflect the 
discounts that manufacturers and wholesalers customarily offer 
to providers and physicians. AWP has never been defined in 
either statute or regulation, but it is used to set 
reimbursement amounts for drugs and biologicals covered under 
the Medicare Part B benefit.
      The Balanced Budget Act of 1997 (BBA 97, P.L. 105-33) 
specified that Medicare payment for covered outpatient 
prescription drugs would equal 95 percent of AWP. Current 
Medicare payment rates are 95% of AWP for brand name drugs 
produced by a single manufacturer (referred to single source 
drugs.) Medicare pays 95% of the lower of (a) the median AWP of 
all generic drugs or (b) the lowest brand-name product AWP for 
drugs with 2 or more competing brand name drugs (referred to as 
multisource or multiple source drugs) or those drugs with 
available generic equivalents. Although Medicare uses a 
Healthcare Common Procedure Coding System (HCPCS) code to 
identify and pay for physician administered drugs, AWPs are 
reported on the basis of national drug codes (NDC), which are 
maintained by the Food and Drug Administration (FDA). Every 
drug sold in the United States has a unique NDC that provides 
information on its chemical molecule, drug manufacturer, 
dosage, dosage form and package size. In addition, there may be 
several multiple source or generic drugs within a specific 
HCPCS code.
      There is substantial evidence that indicates that AWPs 
for many Medicare-covered products far exceed the acquisition 
cost paid by suppliers and physicians. Reliance on AWP (instead 
of a market based price) has caused significantly increased 
payments, as some use AWP to inflate payments made for drugs to 
influence physician prescribing practices. This has resulted in 
Medicare paying more than $1 billion per year in excess 
overpayments for these products. Because Medicare beneficiaries 
are also required to pay coinsurance amounts equal to 20 
percent of the Medicare payment amount, the increased Medicare 
payment amounts resulting from inflated AWPs cause Medicare 
beneficiaries to pay hundreds of millions of extra dollars in 
inflated co-payments every year.
      Some physicians assert that the overpayment for drugs 
covers underpayment for practice expenses. They contend that 
Medicare does not adequately reimburse them for the practice 
expenses associated with providing care in outpatient settings. 
This section reduces the overpayment for drugs and biologics, 
while increasing physician practice expenses.
      Since 1992, the HHS Office of the Inspector General OIG 
(OIG) has raised concerns about how certain drug manufacturers 
have established AWPs for certain of their Medicare-covered 
drugs that were much higher than the prices generally paid by 
the health care providers to those drug companies. This 
difference--commonly referred to by the industry and the health 
care community as the ``spread''--results in a profit to 
providers each time they administer such drugs to Medicare 
patients. For example, in 1999, an oncologist could purchase 10 
mgs of doxorubicin, a chemotherapy agent, for $10.08, while 
Medicare's reimbursement for that same dose was $42.92, 
resulting in a profit to the providers of $32.84. The OIG, 
based on a review of 24 of the Medicare-covered drugs, estimate 
that such practices result in Medicare making $750 million each 
year in overpayments to these providers.
      Subsequently, the findings of this report were updated 
with more current drug pricing. This updated report found that, 
of the $3.7 billion Medicare spent for 24 drugs in 2000, if 
Medicare paid the actual wholesale prices available to 
physicians and suppliers for these 24 drugs, the program and 
its beneficiaries would have saved $887 million a year.
      In addition to the financial toll on the U.S. Treasury, 
these large spreads also affect Medicare beneficiaries, who are 
often required to pay dramatically inflated co-payments for the 
drugs they receive. These co-payments sometimes even exceed the 
actual price that the provider has paid for the drug. For 
example, leucovorin calcium, a chemotherapy agent, had a 
beneficiary co-payment of $3.60 per dosage, while the OIG 
estimated a provider could buy the same drug for $2.94, and 
would receive a total reimbursement (including beneficiary co-
payment) of $18.02 per dose. OIG estimated that if Medicare had 
paid reimbursements equal to widely available wholesale prices, 
beneficiaries would have paid $175 million less in coinsurance.
      A September, 2001, GAO report found that physicians can 
obtain Medicare-covered drugs at prices significantly below 
current Medicare payments. GAO found that the average discount 
from AWP ranged from 13 percent to 34 percent, and that two 
drugs had discounts of 65 percent and 86 percent.
      Evidence also suggests that certain types of health care 
providers may also be making treatment decisions based at least 
in part upon the amount of profit they can reap from the use of 
certain drugs. In one particularly disturbing example, a 
respiratory therapy drug, ipratropium bromide, saw its 
utilization skyrocket after certain drug manufacturers began to 
build a large spread in its price. In 1995, Medicare reimbursed 
providers $14 million dollars for their use of ipratropium 
bromide. After the spread was created, utilization increased 
dramatically, to the point where Medicare paid $250 million for 
the same drug in 1999, and over $300 million in 2000 and 2001.
      In its recommendations to the Congress, the GAO urged CMS 
to take steps to begin reimbursing providers for Part B-covered 
drugs and related services at levels reflecting providers' 
acquisition costs using information about actual market 
transaction prices. The GAO also recommended that CMS should 
evaluate expanding competitive bidding approaches to setting 
payment levels, and that CMS should monitor beneficiary access 
to covered drugs in light of any changes to reimbursement.
      The GAO also debunked some common myths generally held by 
many in the health care community. Specifically, the GAO found 
that despite concerns that the discounts available to large 
purchasers would not be available to physicians with a small 
number of drug claims, physicians with low volumes reported 
that their purchase prices were the same or less than the 
widely available prices GAO documented. GAO also believes that 
Medicare should pay for eachservice appropriately and not rely 
on overpayments for some services to offset inadequate payments for 
complementary services. The Committee shares this view, and believes 
the legislation achieves this goal.
      The Committee on Ways and Means, the Committee on Energy 
and Commerce and the Senate Finance Committee have all 
conducted independent investigations and held public hearings 
on the problems associated with using AWP as a reimbursement 
benchmark. All three Committees have also examined the 
reimbursement for drug administration through the Medicare 
physician payment structure. Both reimbursement systems were 
found to have serious flaws in methodology and application.
      More recently, the Centers for Medicare and Medicaid 
Services issued a proposed rule on August 20, 2003, to improve 
the way that Medicare pays for covered drugs and asked for 
public input on the best way to achieve that goal. The rule 
solicited comments on four differing approaches:
      Medicare would pay the same amounts for covered drugs 
that private insurers pay; Medicare would apply a discount of 
10 to 20 percent from the inflated average wholesale price in 
2004 and then establish more reasonable payment updates in 
future years; Medicare would use existing sources of market-
based prices and would develop additional sources to monitor 
market changes over time, such as drug price catalogs; or 
Medicare would establish a competitive bidding process for 
drugs and would also require drug companies to report their 
average sales prices.
      Because of the serious flawed reimbursement methodology 
in the current system, and absent a change in the statute, CMS 
has indicated they will move forward with the rule.
House Bill
      New sections 1847A and 1847B would be established. Under 
1847A, the Secretary would be required to establish a 
competitive acquisition program to acquire and pay for covered 
outpatient drugs. Under this program, at least 2 contractors 
would be established in each competitive acquisition area 
(which would be defined as an appropriate geographic region) 
throughout the United States. Each year, a physician would be 
able to select a contractor who would deliver covered drugs and 
biologicals to the physician; alternatively, a physician would 
be able to elect payment under the use of the average sales 
price payment methodology established by 1847B.
      Under the competitive acquisition program, there would be 
2 categories of drugs under this program: the oncology category 
(which would include drugs determined by the Secretary as 
typically primarily billed by oncologists or are otherwise used 
to treat cancer) which would be implemented beginning in 2005 
and the non-oncology category which would be implemented 
beginning in 2006. In this case, covered drugs means certain 
drugs currently covered under Section 1842(o) of the SSA which 
are not covered as part of the competitive acquisition for 
durable medical equipment. Blood clotting factors, drugs and 
biologicals furnished as treatment for end-stage renal disease 
(ESRD), radiopharmaceuticals, and vaccines would not be 
considered covered drugs under the competitive acquisition 
program. The Secretary would also be able to exclude other 
drugs and biologicals or classes of drugs and biologicals that 
are not appropriate for competitive bidding or would not 
produce savings.
      Certain contractor selection and contracting requirements 
for the competitive acquisition program would be established. 
Specifically, the Secretary would be required to establish an 
annual selection process for a contractor in each area for each 
of the 2 categories of drugs. The Secretary may not award the 
2-year contract to any entity that does not have the capacity 
to supply covered outpatient drugs within the applicable 
category or does not meet quality, service, and financial 
performance and solvency standards established by the 
Secretary. Specifically the entity would be required to have: 
(1) arrangements to ship covered drugs at least 5 days of the 
week and on an emergency basis; (2) procedures for the prompt 
response and resolution of physician and beneficiary complaints 
and inquiries; (3) grievance resolution procedures, including 
review by the Medicare Provider Ombudsman established in this 
legislation. The Secretary would not be able to contract with 
an entity that has had its license for distributing drugs 
(including controlled substances) suspended or revoked by the 
Federal or a State government or that has been excluded from 
program participation. A contractor would be required to comply 
with a specified code of conduct, including conflict of 
interest provisions as well as all applicable provisions 
relating to the prevention of fraud and abuse. A contract would 
be able to include the specifications with respect to secure 
facilities, safe and appropriate storage of covered drugs, 
examination of drugs, record keeping, written policies and 
procedures, and compliance personnel. Those contractors may be 
required to comply with additional product integrity safeguards 
for drugs susceptible to counterfeiting or diversion. Contracts 
would be able to be terminated by either the Secretary or the 
entity with appropriate advance notice. The Secretary would 
make the list of the available contractors accessible to 
physicians on an ongoing basis, through a directory posted on 
the Internet and provided by request.
      The Secretary would be able to limit the number of 
qualified entities in each category and area, but not below 
two. The Secretary would be required to base selection on bid 
prices for covered drugs, bid prices for distribution of those 
drugs, ability to ensure product integrity, customer service, 
past experience with drug distribution, and other factors. This 
bid price would include all costs related to the delivery of 
the drug or biological to the selecting physician or other 
delivery point as well as all dispensing and shipping costs. 
Costs relating to the administration of the drug or biological 
or waste, spillage or spoilage would not be included. As part 
of the awarded contract, the selected contractor would be 
required to disclose the reasonable, net acquisition costs 
regularly (but not more often than once a quarter) as specified 
by the Secretary. The selected contractor would also be 
required to disclose appropriate price adjustments over the 
period of the contract to reflect changes in reasonable, net 
acquisition costs.
      The Secretary would be able to reject the contract offer 
of an entity for a category of drugs and biologicals if the 
Secretary establishes that the aggregate average bid price 
exceeds the average sales price (as determined under Section 
1847B discussed subsequently). Nothing in the section would 
prevent a bidder from submitting a contract offer to cover all 
areas of the United States; nothing would prevent requiring a 
bidder to submit a contract offer to cover all areas of the 
United States. The amount of the bid price submitted under a 
contract offer would be required to be the same for all 
portions of the area. The Secretary would be permitted to waive 
certain provisions of the Federal Acquisition Regulation that 
are necessary for the efficient implementation of this program, 
other than those relating to confidentiality of information.
      The Secretary would be required to compute an area 
average of the bid prices submitted, in contract offers 
accepted for the category and the area, for each year or other 
contract period. The Secretary would apply special rules and 
alternative payment amounts to establish a price forspecific 
covered drugs including new drugs and biologicals, oral anti-cancer and 
immunosuppressive drugs. Generally, the Secretary would not be able to 
adjust payments for drugs under this section unless supplemental data 
is used to adjust the practice expense payment adjustment. Also, if the 
Secretary excludes a class of drugs or biologicals or a specific item 
from the competitive acquisition program, Medicare's payment would be 
based on the average sales price methodology discussed subsequently. 
Beneficiary liability would be limited to 20% of the payment basis for 
the covered drug or biological.
      The contractor supplying the physician in the area would 
submit the claim for the drug and would collect the cost-
sharing amount from the beneficiary after administration of the 
drug. Both program payment and beneficiary cost sharing amounts 
would only be made to the contractor; would only be made upon 
the administration of the drug; and would be based on the 
average bid of prices for the drug and biological in the area. 
The Secretary would be required to establish a process for 
recovery of payments billed at the time of dispensing for drugs 
that were not actually administered. The Secretary would be 
required to establish an appeals process for physicians that is 
comparable to those provided to a physician who prescribes 
durable medical equipment or a laboratory test.
      The appropriate contractor, as selected by the physician, 
would supply covered drugs directly to the physician, except 
under the circumstances when a beneficiary is presently able to 
receive a drug at home. The Secretary would be able to specify 
other non-physician office settings where a beneficiary would 
be able to receive a covered drug directly. However, the 
contractor would not be able to deliver drugs to a physician 
without first receiving a prescription as well as other 
necessary information specified by the Secretary. A physician 
would not be required to submit a prescription for each 
individual treatment. The Secretary would establish 
requirements, including adequate safeguards against fraud and 
abuse and consistent with safe drug practices, in order for a 
physician to maintain a supply of drugs that may be needed in 
emergency situations. In order to maintain such an inventory, a 
physician would be required to demonstrate that the drugs would 
be immediately required, not reasonably foreseen as immediately 
required, not able to be delivered by the contractor in a 
timely manner, and administered in an emergency situation. No 
applicable State requirements relating to the licensing of 
pharmacies would be waived.
      The Secretary would be able to establish an advisory 
committee to assist in the implementation of this program. The 
Secretary would be required to report to Congress on savings, 
reductions in cost-sharing, access to items and services, the 
availability of contractors as well as beneficiary and 
satisfaction under the competitive acquisition program. These 
reports would be due each year from 2005, 2006, and 2007.
      Alternatively, physicians would be able to elect payment 
for covered outpatient drugs under a separate methodology 
established in Section 1847B. Subject to the applicable 
beneficiary coinsurance and deductible amount, a single and 
multiple source drugs would be paid 112% of the applicable 
price in 2005 and 2006 and 100% of the price subsequently. The 
applicable price for all the products within multiple source 
drug codes would be the reported volume-weighted average of the 
average sales price; the applicable price for a single source 
drug would be the lesser of the manufacturer's average sales 
price for the NDC code or the reported wholesale acquisition 
cost. The payment amount would be determined without regard to 
any special packaging, labeling or identifiers on the dosage 
form or product or package.
      Starting for calendar quarters on or after April 1, 2004, 
the average sales price would be calculated by NDC code each 
calendar quarter by dividing a manufacturer's total sales by 
the total number of units sold in that quarter. Certain sales 
would be exempt from the calculation: (1) those sales that are 
exempt from the Medicaid drug rebate program including those to 
the Indian Health Service, the Department of Veterans Affairs, 
a state Veterans home, the Department of Defense, or the Public 
Health Services as well as any price charged under the Federal 
Supply Schedule or used under a state pharmaceutical assistance 
program; and (2) those sales that do not reflect market prices, 
as determined by the Secretary. The average sales price would 
take into account volume discounts, prompt pay discounts, cash 
discounts, chargebacks and certain rebates. The Secretary would 
be able to disregard the average sales price during the first 
quarter of a new drug's sales if the price data is not 
sufficient to determine an average amount payable. The average 
sales price would be determined by the manufacturer on a 
quarterly basis; to the extent that data on rebates and 
chargebacks is reported on a lagged basis, the manufacturer 
would apply the 12-month rolling average methodology to 
estimate the amount of such discounts, as specified by the 
Secretary. The wholesale acquisition cost would be the 
manufacturer's list price for the drug to wholesalers or direct 
purchasers in the United States for the most recent available 
month, not including discounts or other price reductions, as 
reported in wholesale price guides or other pricing 
publications. Payment rates would be updated on a quarterly 
basis and based on the most recent calendar quarter. The 
Secretary would be able to use carriers, fiscal intermediaries 
or other contractors to determine the payment amounts. Certain 
standards would be established with respect to the definition 
of multiple source and single source drugs. Certain 
determinations of pharmaceutical equivalence and bioequivalence 
would be established. There would be no administrative or 
judicial review of the determination of the manufacturer's 
average sale price.
      The Secretary would be able to use the wholesale 
acquisition cost or other reasonable measure of drug price 
instead of the manufacturer's average sale price in the case of 
certain public emergencies where there is a documented 
inability to access covered outpatient drugs and a related 
increase in price. The alternative price would be used until 
the price and availability of the drug or biological has 
stabilized and is substantially reflected in the manufacturer's 
average sale price.
      The Secretary would be required to submit an annual 
report to the Committees of jurisdiction on the trends in 
average sales prices, the administrative costs, and total value 
of payment as well as a comparison of the average 
manufacturer's sale price with the price established under the 
Medicaid drug rebate program. The provision would be effective 
upon enactment.
Senate Bill
      Drugs or biologicals furnished before January 1, 2004 
would be paid at 95% of the AWP. In 2004, existing drugs and 
biologicals would be paid the lower of the AWP or 85% of the 
listed AWP as of April 1, 2003. In subsequent years, this price 
would be increased by changing the consumer price index (CPI) 
for medical care for the previous year ending in June. Existing 
drugs and biologicals are those first available for payment on 
or before April 1, 2003. After January 1, 2004, payments for 
influenza virus, pneumococcal pneumonia, and hepatitis B 
vaccines would be equal to the AWP.
      The Secretary would be required to establish a process to 
determine whether the widely available market price to 
physicians and suppliers for drugs and biologicals furnished in 
a year is differentfrom the AWP amounts. This determination 
would be based on: (1) any report on market price published by the 
Inspector General (IG) of the Department of Health and Human Services 
(HHS) or GAO after December 31, 1999; (2) a review of market prices by 
the Secretary including information from insurers, private health 
plans, manufacturers, wholesalers, distributors, physician supply 
houses, specialty pharmacies, group purchasing arrangements, 
physicians, suppliers or any other appropriate source as determined by 
the Secretary; (3) data submitted by the manufacturer of the drug or 
biological or by another entity; and (4) other appropriate information 
as determined by the Secretary. If the market price for a drug or 
biological determined through this process differs from the AWP amount, 
that market price shall be treated as the AWP amount when determining 
Medicare's payment for a drug or biological in 2004 and subsequently. 
The Secretary would be able to make subsequent determinations with 
respect to the widely available market price for a given drug or 
biological. If not, the prior market price determination will be 
considered as the basis for Medicare's payment amount for such an item.
      If, however, the first market price determination for a 
given drug or biological would result in a payment amount that 
is 15% less than would otherwise be made, the Secretary would 
provide for an appropriate transition period where the price is 
reduced in annual increments equal to 15% of Medicare's payment 
amount in the previous year. At the end of the transition 
period, the market price (as determined) would serve as basis 
for Medicare's payment amount. This transition period would not 
apply to a drug or biological where a generic version of that 
drug or biological first enters the market on or after January 
1, 2004. The generic version would not be required to be 
marketed under the chemical name of the given drug or 
biological.
      New drugs and biologicals, those that are first available 
for Medicare payment after April 1, 2003, would be subject to 
certain requirements in order to obtain a code and receive 
Medicare payment. A manufacturer would be required to provide 
the Secretary with necessary and appropriate information on the 
estimated price that the manufacturer expects physicians and 
suppliers to pay to routinely obtain the drug or biological; 
the manufacturer would be able to provide the Secretary with 
other appropriate information as well. During the first year 
that the drug or biological is available for Medicare payment, 
the manufacturer would be required to provide the Secretary 
with updated information on the actual market prices paid by 
physicians or suppliers for such drugs and biologicals. These 
market prices would be equal to the lesser of the average 
wholesale price for the drug or biological or the amount 
determined by the Secretary based on information originally 
submitted by the manufacturer supplemented by other appropriate 
information. The market price of the drug or biological during 
the second year after becoming available for Medicare payment 
is subject to the same conditions as in the first year. In 
subsequent years, the market price would be equal to the lesser 
of the average wholesale price or the widely available market 
price as determined by the Secretary in the same fashion as for 
existing drugs. If no market price determination occurs, then 
Medicare's payment for the drug or biological in the prior year 
is updated by the change in the CPI for medical care for the 
previous year ending in June.
      The provision would be effective upon enactment.
      With respect to home infusion drugs and biologicals, the 
Secretary would be able to make separate payments for these 
drugs and biologicals furnished through covered DME on or after 
January 1, 2004, if such payments are determined to be 
appropriate. Total amount of payments for the infusion drugs in 
the year could not exceed the total amount of spending that 
would have occurred without enactment of this legislation. The 
provision would be effective upon enactment.
Conference Agreement
      Certain categories of drugs and biologicals will continue 
to be paid at 95 percent of the AWP; these include a drug or 
biological furnished before January 1, 2004; blood clotting 
factors furnished during 2004; a drug or biological furnished 
during 2004 that was not available for Part B payment as of 
April 1, 2003; pneumococcal, influenza, and hepatitis B 
vaccines; and a drug or biological (other than erythropoietin) 
furnished in connection with renal dialysis services that are 
separately billed by renal dialysis facilities; and 
radiopharmaceuticals and blood products. In general, payments 
for other drugs furnished in 2004 will equal 85 percent of the 
average wholesale price (determined as of April 1, 2003). 
Beginning in 2005, drugs and biologicals, except for 
pneumococcal, influenza, and hepatitis B vaccines and those 
associated with certain renal dialysis services, will be paid 
using either the average sales price methodology or through the 
competitive acquisition program. Infusion drugs furnished 
through covered durable medical equipment starting January 1, 
2004 will be paid at 95% of the AWP in effect on October 1, 
2003; those infusion drugs which may be furnished in a 
competitive acquisition area starting January 1, 2007 will be 
paid on the competitive price. Intravenous immune globulin will 
be paid at 95% of AWP in 2004 and paid according to the average 
sales price method beginning in 2005.
      The Secretary is authorized to substitute a different 
percent of the April 1, 2003 AWP, based on the Secretary's 
NPRM, but not less than 80%. Also, the Secretary may adjust the 
price based on data submitted by the manufacturer of the drug 
or biological by October 15, 2003.
      New sections 1847A and 1847B are established in the 
Social Security Act. New Section 1847A establishes the use of 
the average sales price methodology for payment for drugs and 
biologicals (except for pneumococcal, influenza, and hepatitis 
B vaccines, or drugs or biologicals furnished in connection 
with certain renal dialysis services, blood or blood products 
or radiopharmaceuticals) furnished starting January 1, 2005. 
This methodology does not apply in the case of a physician who 
elects to participate in the newly established competition 
acquisition program established in new Section 1847B; payments 
for drugs and biologicals will be paid under that section 
instead.
      Medicare's payment under the average sales price 
methodology will equal 106% of the applicable price for a 
multiple source drug or single source drug, subject to the 
applicable beneficiary deductible and coinsurance requirements. 
The manufacturer will be required to specify the unit 
associated with each National Drug Code (NDC) as part of its 
Medicaid reporting requirements. Unit is defined as the lowest 
identifiable quantity of the drug or biological by NDC 
(including package size) that is dispensed, exclusive of any 
diluents without reference to volume measures pertaining to 
liquids. After 2004, the Secretary may establish the counting 
method and unit for the manufacturer to report.
      The applicable price for all drug products within the 
same multiple source drug billing and payment code is the 
volume-weighted average of the sales prices. The applicable 
price for single source drugs is the lesser of the 
manufacturer's average sales price for an NDC or the wholesale 
acquisition cost (WAC). A limited number of single source drugs 
and biologicals are currently included in the same HCPCs codes, 
along with other similar single source products. The Conferees 
intend to exempt these products from the definition of single 
source drugs or biologicals, and continue to allow these 
products to be treated as multiple source drugs and be included 
within the same HCPCs code. The payment amount is determined 
without regard toany special packaging, labeling or identifiers 
on the dosage form or product or package. In the section, the term 
``payment and billing code'' shall mean the HCPCs code for such drug or 
biological.
      A manufacturer's average sales price is calculated by NDC 
code for each calendar quarter by dividing a manufacturer's 
total sales by the total number of units sold in that quarter. 
Certain sales are exempt from the calculation: (1) certain 
sales that are exempt from the Medicaid drug rebate program 
including those to the Indian Health Service, the Department of 
Veterans Affairs, a state Veteran's home, the Department of 
Defense, or the Public Health Services; and (2) sales that are 
nominal in amount, as used in the Medicaid rebate program. The 
average sales price will take into account volume discounts, 
prompt pay discounts, cash discounts, free goods that are 
contingent on any purchase requirement, chargebacks and certain 
rebates (not including Medicaid rebates). After 2004, the 
Secretary may include other price concessions that result in a 
price reduction to the purchaser as may be recommended by the 
Inspector General.
      The Secretary will be able to disregard the average sales 
price during the first quarter of a new drug's sales if the 
price data is not sufficient to determine an average amount 
payable. The average sales price will be calculated by the 
manufacturer on a quarterly basis; to the extent that data on 
rebates and chargebacks is reported on a lagged basis, the 
manufacturer will apply the 12-month rolling average 
methodology to estimate the amount of such discounts, as 
specified by the Secretary. After 2004, the Secretary may 
establish a uniform methodology to estimate and apply such 
costs. Payment rates will be updated on a quarterly basis. The 
Secretary may contract with appropriate entities to determine 
the payment amounts. The Secretary may implement any provision 
of this section by program instruction or otherwise.
      To monitor market prices, the Inspector General will 
conduct studies, which may include market surveys, to determine 
market prices of drugs and biologicals paid under this section. 
The Inspector General will compare average sales price under 
Medicare with the widely available market price and the average 
manufacturer price. The Secretary may disregard the average 
sales price reported by a manufacturer if this price exceeds 
the market price or average manufacturer price by a threshold 
percentage. In 2005 the threshold is 5%; in 2006 and subsequent 
years, the percentage threshold will be specified by the 
Secretary. If the Inspector General finds that the average 
sales price for a drug or biological exceeds the widely 
available market price or average manufacturer price by the 
applicable threshold, the Inspector General will inform the 
Secretary at specified times, and the Secretary will substitute 
a payment amount equal to the lesser of the widely available 
market price or 106 percent of the average manufacturer price.
      The section requires that in order to have a drug covered 
under both Medicare and Medicaid, a manufacturer must submit 
information quarterly on the manufacturer's average sales 
price, total number of units, wholesale acquisition cost and 
sales made at nominal price. The Conferees intend that if a 
manufacturer knowingly (as defined by section 3729(b) of the 
False Claims Act) submits false information, that such 
submission be considered a ``false record or statement'' made 
or used ``to get a false or fraudulent claim paid or approved 
by the government'' for purposes of section 3729(a)(2) of title 
31, United States Code, known as the False Claims Act. Thus if 
a manufacturer knowingly submits any false information, the 
manufacturer would be fully subject to liability under the 
False Claims Act.
      The Conferees intend that that the Secretary, in making 
determinations to use the widely available market price, rather 
than the ASP, would provide a number of procedural and 
substantive safeguards to ensure the reliability and validity 
of the data used to make such determinations. These safeguards 
would include notice and comment rulemaking, identification of 
the specific sources of information used to make such 
determinations, and explanations of the methodology and 
criteria for selecting such sources.
      If the Secretary determines that a manufacturer has 
misrepresented the average sales price of a drug, the Secretary 
may apply a civil monetary penalty of up to $10,000 for each 
price discrepancy and for each day in which the price 
misrepresentation was applied. In this subsection for drugs 
furnished in a year after 2004, the widely available market 
price is the price that a prudent physician or supplier would 
pay for a drug or biological, taking into account discounts, 
rebates and other price concessions routinely made available. 
The Secretary will consider information from one or more of the 
following sources including manufacturers, wholesalers, 
distributors, physician supply houses, specialty pharmacies, 
group purchasing arrangements, physician and supplier surveys 
as well as information on market prices from insurers and 
private health plans.
      The Secretary will be able to use the wholesale 
acquisition cost or other reasonable measure of drug price 
instead of the manufacturer's average sale price in the case of 
certain public emergencies where there is a documented 
inability to access covered outpatient drugs and a related 
increase in price (which is not reflected in the manufacturer's 
average sale price for one or more quarters). The alternative 
price will be used until the price and availability of the drug 
or biological has stabilized and is substantially reflected in 
the manufacturer's average sale price.
      There will be no administrative or judicial review of 
determinations of payment amounts including the assignment of 
NDCs to billing and payment codes; the identification of units 
and package size; the method to allocate rebates, chargebacks, 
and other price concessions to a quarter, the manufacturer 
average sales price when it is used for Medicare's price 
determinations, and the disclosure of the average manufacturer 
price under certain situations.
      The Secretary will conduct a study on the sales of drugs 
and biologicals to large volume purchasers such as pharmacy 
benefit managers to determine whether the price at which drugs 
and biologicals are sold to these purchasers represents the 
price made available to physicians. The Secretary will submit a 
report to Congress, including recommendations, on whether sales 
to large volume purchasers should be excluded from the 
computation of the manufacturer's average sale price. Upon 
completion of this report, the Secretary may require that 
manufacturers separately report these prices, which may also 
then be excluded from future calculations of ASP, if the 
Secretary determines that doing so would be better reflect 
prices available to prudent physicians.
      Under the new Section 1847B, the Secretary would be 
required to establish a competitive acquisition program to 
acquire and pay for competitively biddable drugs and 
biologicals. Under the program, competitive acquisition areas 
(defined as an appropriate geographic region) will be 
established throughout the United States. Each year, a 
physician would be able to select a contractor who would 
deliver covered drugs and biologicals to the physician; 
alternatively, a physician would be able to elect payment using 
the methodology established by Section 1847A. Conferees intend 
this choice to be completely voluntary on behalf of the 
physician. Use of this system should reduce administrative and 
inventory costs for physicians. In addition, because physicians 
do not take title to the drug, their liability is reduced.
      Under the competitive acquisition program, categories of 
competitively biddable drugs under this program will be 
established, and the program will be phased in beginning in 
2006. In order to promote competition and the efficient 
operation of the program, the Secretary would be able to waive 
provisions of the Federal Acquisition Regulation, other than 
those relating to confidentiality of information and other 
provisions deemed appropriate by the Secretary.
      Competitively biddable drugs and biologicals exclude 
pneumococcal, influenza, and hepatitis B vaccines or drugs or 
biologicals (other than erythropoietin) furnished in connection 
with renal dialysis services furnished starting January 1, 
2006, radiopharmaceuticals, IVIG products and blood products. 
Conferees do not intend to exclude therapeutic vaccines, such 
as new vaccines used to treat cancer that may be in 
development. The Secretary will be able to exclude 
competitively biddable drugs and biologicals including classes 
of such drugs and biologicals that are not appropriate for 
competitive bidding, if such inclusion is not likely to result 
in significant savings or is likely to have an adverse impact 
on access to the drugs and biologicals. The Secretary may 
provide for payment of these excluded drugs and biologicals (or 
class of same) using the average sale price methodology 
established in Section 1847A. Conferees intend the use of the 
exclusion authority to apply in exceptional cases. Such 
authority is not intended to be a system wide replacement for 
competitive bidding.
      The contractor supplying the physician in the area will 
submit the claim for the drugs and biologicals and will collect 
the cost-sharing amount from the beneficiary after 
administration of the drug. Both program payment and 
beneficiary cost sharing amounts will only be made to the 
contractor and will only be made upon the administration of the 
drug or biological. The Secretary is required to establish a 
process for recovery of payments billed at the time of 
dispensing of drugs or biologicals that were not actually 
administered as well as a process by which physicians submit 
information to contractors for the purposes of collection of 
any applicable deductible or coinsurance amounts. Payment could 
only be made to the contractor, provided the contractor has a 
contract and the physician elects that contractor for such 
category of drug or biological for the area. Alternatively, the 
physician may elect Section 1847A to apply.
      Certain contractor selection and contracting requirements 
for the competitive acquisition program are established. 
Specifically, the Secretary is required to establish an annual 
selection process for a contractor in each area for each 
category of drugs and biologicals. The selection of the 
contractor will be made at the time the physician elects to 
participate in the program established under Section 1847B. The 
Secretary will make a list of contractors in the different 
competitive acquisition area who are available to physicians on 
an ongoing basis through a directory posted on the Internet 
website of the Centers for Medicare & Medicaid Services, and 
through the annual CMS ``Dear Doctor'' campaign.
      The Secretary will conduct a competition among entities 
for the acquisition of at least one competitively biddable drug 
or biological that is a multiple source or a single source drug 
or biological within each billing and payment code within each 
category for each area. The competition within a HCPCS code for 
multiple source drug products is intended to produce 
competitive forces that will lower bid prices for drugs. 
Because multiple source drugs and generics within a HCPCS code 
are therapeutically equivalent, such competition will ensure 
access to appropriate therapeutic products. The Secretary may 
not award the 3-year contract to any entity that does not have 
the capacity to supply competitively biddable drugs or 
biologicals within the applicable category or does not meet 
quality, service, and financial performance and solvency 
standards established by the Secretary. Specifically, the 
entity would be required to have (1) sufficient arrangements to 
ship competitively biddable drugs and biologicals at least 5 
days of the week in order for the timely delivery (including 
for emergency situations) of such drugs and biologicals; (2) 
procedures for the prompt response and resolution of physician 
and beneficiary complaints and inquiries regarding the shipment 
of these drugs; and (3) a grievance and appeals process. Review 
of complaints by the Medicare Provider Ombudsman has been 
established in Section 923 of this legislation. The Secretary 
will not be able to contract with an entity that has had its 
license for distributing drugs (including controlled 
substances) suspended or revoked by the Federal or a State 
Government or that has been excluded from program 
participation.
      The Secretary will be able to limit the number of 
qualified entities in each category and area, but not below 2 
for any category and area. The Secretary is required to base 
selection on bid prices for competitively biddable drugs and 
biologicals, bid prices for distribution of those drugs and 
biologicals, ability to ensure product integrity, customer 
service, past experience with drug and biologic distribution, 
and other factors.
      The contract is subject to terms and conditions that the 
Secretary may specify. The contract will be for a term of 3 
years, but may be terminated by either the Secretary or the 
entity with appropriate notice. The Secretary must require that 
all drugs and biological products distributed by a contractor 
be acquired directly from the manufacturer or from a 
distributor that has acquired the products directly from the 
manufacturer. Nothing in this provision relieves or exempts any 
contractor from the requirements of the Federal Food, Drug, and 
Cosmetic Act that relate to the wholesale distribution of 
prescription drugs or biologicals. Conferees want to ensure the 
safe distribution of drugs and to ensure counterfeiting and 
adulteration is minimized. Such measures include includes the 
safe and appropriate storage of drugs and biologicals, 
disposition of damaged and outdated drugs and biologicals and 
appropriate record keeping and compliance personnel.
      Contractors will be required to comply with a code of 
conduct and fraud and abuse rules. Specifically, the contractor 
will comply with standards relating to conflicts of interest 
and all applicable provisions and guidelines relating to the 
prevention of fraud and abuse established by the Department of 
Justice and the Inspector General.
      The appropriate contractor, as selected by the physician, 
will supply competitively biddable drugs and biologicals 
directly to the physician, except under the circumstances when 
a beneficiary is presently able to receive a drug at home or 
other non-physician office settings as the Secretary may 
provide. The contractor shall not deliver drugs to a physician 
without first receiving a prescription as well as other 
necessary information specified by the Secretary. However, a 
physician would not be required to submit a prescription for 
each individual treatment or change a physician's flexibility 
in terms of writing a prescription for a single treatment or 
course of treatment. Conferees do not intend contractors to mix 
drug products prior to a patient's visit, but may do so should 
it be clinically advised. If specialty pharmacies mix products 
under the program for a specific patient, it should be done 
only to the benefit of the patient. Such cases may include a 
physician office that lacks the ability to mix Part B drugs in 
compliance with medical, clinical and environmental standards. 
In no way do conferees intend the requirements for the 
competition program to impair a patient's access to health 
treatment as a result of changes in the patient's health 
status, including pre-mixed drugs or biologics.
      The Secretary is required to establish rules allowing 
physicians to use drugs or biologics from their own inventories 
in emergency situations consistent with safe drug practices and 
with adequate safeguards against fraud and abuse. In order to 
resupply such an inventory, a physician will be required to 
demonstrate that the drugs are immediately required; that the 
immediate need could not reasonably have been foreseen, that 
the drugs could not be delivered by the contractor in a timely 
manner, and that the drugs were administered in an emergency 
situation. No applicable State requirements relating to the 
licensing of pharmacies are waived.
      The Secretary is required to base selection of the 
contractors on several factors including bid prices. Bid prices 
are those in effect and available through the entity for the 
contract period and includes all costs related to the delivery 
of the drug or biological to the selecting physician or other 
delivery point as well as all dispensing and shipping costs. 
Costs relating to the administration of the drug or biological 
or waste, spillage or spoilage are not included. As part of the 
awarded contract, the selected contractor will be required to 
disclose the reasonable, net acquisition costs regularly (but 
not more often than once a quarter) as specified by the 
Secretary. The selected contractor will also be required to 
disclose appropriate price adjustments over the period of the 
contract to reflect changes in reasonable, net acquisition 
costs.
      Payments would be based upon bids submitted and accepted, 
and the Secretary would determine a single payment amount for 
each drug in an area. The Secretary will apply special rules 
and alternative payment amounts to establish a price for 
specific competitively biddable drugs and biologicals, 
including new drugs and biologicals (for which an average bid 
price has not been previously determined) and other exceptional 
cases specified in regulations. Medicare's payment for these 
drugs equals 80% of the payment amount after the Medicare 
beneficiary meets the applicable deductible. Generally, these 
coinsurance and deductible amounts will be collected by the 
contractor that supplies the drug or biological which may be 
collected in a similar manner as those collected for durable 
medical equipment.
      Nothing in the section prevents a bidder from submitting 
a contract offer to cover all areas of the United States. 
Similarly, nothing would require a bidder to submit a contract 
offer to cover all areas of the United States. The amount of 
the bid price submitted under a contract offer is required to 
be the same for all portions of the area.
      The Secretary will establish a procedure under which a 
prescribing physician has certain appeal rights that are 
similar to those provided to a physician who prescribes durable 
medical equipment or a clinical diagnostic laboratory test. 
Certain provisions specified in Section 1842(o)(3) with respect 
to assignment will also apply to claims for competitively 
biddable drugs and biologicals. Certain protections against 
liability in case of adverse medical necessity determination 
will apply to Medicare beneficiaries. There shall be no 
administrative or judicial review with respect to the 
establishment of payment amounts, contract awards, 
establishment of competitive acquisition areas, the phased in 
implementation, the selection of categories of competitively 
biddable drugs and biologicals for competitive acquisition or 
the bidding structure or number of contractors who are 
selected.
      No later than July 1, 2008, the Secretary is required to 
report to Congress on savings, reductions in cost-sharing, 
access to competitively biddable drugs and biologicals, the 
range of choices of contractors available to providers as well 
as beneficiary and provider satisfaction under the competitive 
acquisition program. The report will also examine the 
information comparing prices for drugs in the competitive 
acquisition program and under the application of the average 
sales price methodology under Section 1847A.
      In developing rules to implement this section, the 
Secretary should seek public comment on factors that 
disadvantage certain covered drugs based on drug forms and 
delivery and dispensing modes, and which may result in 
increased Medicare expenditures.
Items and Services Relating to Furnishing of Blood Clotting Factors 
        (Section 303(e)(1) of the Conference Agreement and Section 
        303(f) of the House Bill).
Present Law
      Medicare will pay for blood clotting factors for 
hemophilia patients who are competent to use such factors to 
control bleeding without medical supervision, as well as the 
items related to the administration of such factors.
House Bill
      MedPAC would be required to submit to Congress specific 
recommendations with respect to payment for blood clotting 
factors and its administration in its 2004 annual report. The 
provision would be effective upon enactment.
Senate Bill
      The Secretary is required to review the GAO report on 
payment for blood clotting factors and provide a separate 
payment for the administration of these factors. The total 
amount of payments for blood clotting factors furnished in 
CY2004 would not exceed the amount that would have otherwise 
been expended. In CY2005 and subsequently, this separate 
payment amount would be updated by the change in the CPI for 
medical care for the previous year ending in June. The 
provision would be effective upon enactment.
Conference Agreement
      The Secretary is required to review the GAO report on 
payment for blood clotting factors and provide a separate 
payment for the administration of these factors. The payment 
amount may take into account the mixing (if appropriate) and 
delivery of factors to an individual, including special 
inventory management and storage requirements as well as 
ancillary supplies and patient training necessary for self-
administration. The total amount of payments for blood clotting 
factors furnished in CY2005 can not exceed the amount that 
would have otherwise been expended. In CY2006 and subsequently, 
this separate payment amount would be updated by the change in 
the CPI for medical care for the previous year ending in June.
Pharmacy Supplying Fee for Certain Drugs and Biologicals (Section 
        303(e)(2), Section 303(g) of the House Bill and Section 
        432(b)(8) of the Senate Bill).
Present Law
      Medicare pays for certain outpatient prescription drugs 
and biologicals. For instance, Medicare pays a dispensing fee 
in conjunction with inhalation therapy drugs used in 
nebulizers. Medicare does not pay a dispensing fee to 
pharmacists or providers who supply oral drugs.
House Bill
      The Secretary would be required to provide for separate 
payments in the physician fee schedule to cover the 
administration and acquisition costs associated with covered 
drugs and biologicals furnished by a contractor under the 
competitive acquisition program. The provision would be 
effective upon enactment.
Senate Bill
      Medicare would pay a dispensing fee (less the applicable 
deductible and coinsurance amounts) to licensed approved 
pharmacies for covered immunosuppressive drugs, oral anti-
cancer drugs, and oral anti-nausea drugs used as part of an 
anti-cancer chemotherapeutic regimen. Medicare would be able to 
pay a dispensing fee (less the applicable deductible and 
coinsurance amounts) to licensed approved pharmacies for other 
drugs and biologicals. The provision would be effective upon 
enactment.
Conference Agreement
      The Secretary is required to pay a supply fee (less the 
applicable deductible and coinsurance amounts) to licensed 
approved pharmacies for covered immunosuppressive drugs, oral 
anti-cancer drugs, and oral anti-nausea drugs used as part of 
an anti-cancer chemotherapeutic regimen. Such fee is not meant 
to be a dispensing fee. The intent of the Conferees is to not 
to include in such fee, amounts for cognitive services.
Linkage of Revised Drug Payments and Increases for Drug Administration 
        (Section 303(f) of the Conference Agreement and Section 
        432(b)(1) of the Senate Bill).
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      A linkage of revising drug payments to incorporate market 
prices and payment increases for drug administration would be 
established.
Conference Agreement
      The Secretary cannot implement the revision in payment 
amount for categories of drug or biological administered by 
physicians unless the Secretary concurrently makes the practice 
expense payment adjustment on the basis of survey data as 
specified earlier.
Prohibition of Administrative and Judicial Review (Section 303(g) of 
        the Conference Agreement and Section 432(d) of the Senate 
        Bill).
Present Law
      Medicare beneficiaries and, in certain circumstances, 
providers and suppliers of health care services may appeal 
adverse determinations regarding claims for benefits under Part 
A and Part B. Section 1869 of the SSA allows these parties who 
have been denied coverage of an item or service the right to 
appeal that decision through a series of administrative appeals 
and then into federal district court under certain 
circumstances. Section 1878 of the SSA allows providers who are 
dissatisfied with certain cost reporting determinations that 
affect their reimbursement amounts the right to appeal that 
decision in front of the Provider Reimbursement Review Board 
and then into federal district court if certain thresholds 
regarding the amount in dispute are met at each step of the 
appeals process.
House Bill
      No provision.
Senate Bill
      The provisions concerning Medicare's determination of 
payment amounts for existing and new drugs and biologicals 
including the administration of blood clotting factors, home 
infusion drugs and inhalation drugs would not be subject to 
administrative or judicial review under Sections 1869 and 1878 
of the SSA or otherwise. The provision would be effective upon 
enactment.
Conference Agreement
      The provisions concerning Medicare's determination of 
payment amounts, methods or adjustments including those with 
respect to a drug's widely available market price in 2004, the 
administration of blood clotting factors, and pharmacy 
supplying fees will not be subject to administrative or 
judicial review under Sections 1869 and 1878 of the SSA or 
otherwise. The provision would be effective upon enactment.
      The provisions concerning Medicare's determination of the 
budget neutral adjustments, adjustments to the practice expense 
relative value units for certain drug administration services 
and other drug administration services will not be subject to 
administrative or judicial review under Section 1869 of the SSA 
or otherwise. The provision would be effective upon enactment.
      The provisions concerning Medicare's treatment of other 
services currently in the non-physician work pool, payment for 
multiple chemotherapy agents furnished on a single day through 
the push technique, and the transitional adjustment will not be 
subject to administrative or judicial review under Sections 
1869 and Section 1878 of the SSA or otherwise. The provision 
would be effective upon enactment.
Continuation of Payment Methodology for Radiopharmaceuticals (Section 
        303(h) of the Conference Agreement and Section 303(c) of the 
        House Bill).
Present Law
      Under certain circumstances, Medicare makes a separate 
payment for supplies furnished in connection with a procedure. 
Medicare will pay separately for pharmaceutical or 
radiopharmaceutical supplies when procedures such as diagnostic 
radiolologic procedures or other diagnostic tests requiring a 
pharmacological stressing agent.
      Although Medicare uses the Healthcare Common Procedure 
Coding System (HCPCS) codes to identify and pay for physician 
administered drugs, the AWPs are established for national drug 
codes (NDC) codes that are maintained by the Food and Drug 
Administration (FDA). Until January 1, 2003, each Medicare 
carrier would convert NDC codes into HCPCS codes in order to 
develop AWP-based payments for physicians in its area. To 
address the variation in carrier-established drug pricing 
methods, CMS implemented a single drug pricer (SDP), a 
centrally administered fee schedule for covered outpatient 
drugs on January 1, 2003. The SDP excludes 
radiopharmaceuticals, outpatient hospital drugs, and drugs paid 
by the durable medical equipment regional carriers (DMERCs).
House Bill
      These provisions would not affect the existing carrier 
invoice pricing method used to pay for radiopharmaceuticals. 
The provision would be effective upon enactment.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement will not change the Part B 
payment methodology for radiopharmaceuticals including the use 
by carriers of the invoice pricing method.
Conforming Amendments (Section 303(i) of the Conference Agreement and 
        Section 303(d) of the House Bill).
Present Law
      No provision.
House Bill
      The provisions in this section would not affect the 
existing coverage for outpatient drugs. The collection of data 
to calculate the manufacturer's average sales price and the 
manufacturer's wholesale acquisition cost would be included as 
part of the Medicaid drug rebate program for calendar quarters 
beginning on or after April 1, 2004. Information on sales that 
were made at a nominal price would also be submitted and be 
subject to audit by the HHS Inspector General. The provision 
would be effective upon enactment.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement includes conforming amendments 
to the existing statutory language. A pharmacy-dispensing fee 
will not be paid when payment for a drug is made under the 
average sales price or competitive acquisition program. The 
provisions in this section will not affect the existing 
coverage for outpatient drugs. The list of services paid for 
under Part B will be amended to include drugs paid for under 
Sections 1847, 1847A, and 1847B. Information by NDC (including 
package size) on the manufacturer's average sales price and 
total number of units; the manufacturer's wholesale acquisition 
cost; sales that were made at a nominal price will be included 
as part of the Medicaid drug rebate program for calendar 
quarters beginning on or after January 1, 2004. This 
information will be subject to audit by the Inspector General. 
The Secretary will be able to survey wholesalers and 
manufacturers that directly distribute covered outpatient drugs 
to verify average sales price (including wholesale acquisition 
cost) under the Medicaid drug rebate program. The provisions 
with respect to the Congressional review of agency rulemaking 
will not apply with respect to regulations that implement 
adjustments to the physician fee schedule or the application of 
market based payment systems. The existing requirement that the 
Secretary study the effect on AWP of Medicare's policy to pay 
for covered outpatient drugs at 95% of AWP is repealed.
Extension
Payment for Inhalation Drugs and Certain Other Drugs (Section 305 of 
        the Conference Agreement, Section 602(c) of the House Bill, and 
        Section 432(b)(7) of the Senate Bill).
Present Law
      Medicare will cover outpatient prescription drugs and 
biologicals if they are necessary for the effective use of 
covered durable medical equipment (DME), including those drugs 
that must be put directly into the equipment such respiratory 
drugs given through a nebulizer (inhalation drugs).
House Bill
      GAO would be required to conduct a study to examine the 
adequacy of current reimbursements for inhalation therapy under 
the Medicare program and submit the results of the study in a 
report to Congress no later than May 1, 2004.
Senate Bill
      The Secretary would be able to increase payments for 
covered DME associated with inhalation drugs and biologicals 
and make separate payments for such drugs and biologicals 
furnished through covered DME on or after January 1, 2004, if 
such payments are determined to be appropriate. The associated 
spending attributed to the increased and separate payments for 
the covered DME and inhalation drugs and biologicals in the 
year would not exceed the 10% of thedifference between the 
savings in total spending for these drug and biologicals attributed to 
the prescription drug pricing changes enacted in this legislation. The 
provision would be effective upon enactment.
Conference Agreement
      Inhalation drugs or biologicals furnished through covered 
durable medical equipment that is not described in subparagraph 
(A)(iv) will be paid at 85% of AWP in 2004. In 2005, it will be 
the amount provided under the average sales price methodology.
      GAO is required to conduct a study to examine the 
adequacy of current reimbursements for inhalation therapy under 
the Medicare program and submit the results of the study in a 
report to Congress no later than 1 year from the enactment date 
of this legislation.
Demonstration Project for Use of Recovery Audit Contractors (Section 
        305 of the Conference Agreement and Section 304 of the House 
        Bill).
Present Law
      No provision.
House Bill
      The Secretary would be required to conduct a 
demonstration project for up to 3 years on the use of recovery 
audit contractors under the Medicare Integrity Program. The 
recovery audit contractors would identify underpayments and 
overpayments in the Medicare program and would recoup 
overpayments made to providers. Payment would be made to these 
contractors on a contingent basis, a percentage of the amount 
recovered by the contractors would be able to be retained by 
the Secretary and available to the program management account 
of Centers for Medicare & Medicaid Services (CMS), and the 
Secretary would be required to examine the efficacy of using 
these contractors with respect to duplicative payments, 
accuracy of coding, and other payment policies in which 
inaccurate payments arise. The demonstration project would be 
required to cover at least 2 states that are among the states 
with the highest per-capita utilization rates of Medicare 
services and have at least 3 recovery audit contractors. The 
Secretary would be able to waive Medicare statutory provisions 
to pay for the services of the recovery audit contractors. 
Recovery of an overpayment through this project would not 
prohibit the Secretary or the Attorney General from 
investigating and prosecuting appropriate allegations of fraud 
and abuse. Fiscal intermediaries, carriers, and Medicare 
Administrative Contractors would not be eligible to participate 
as a recovery audit contractor. The Secretary would be required 
to show preference to contracting with entities that have 
demonstrated more than 3 years direct management experience and 
a proficiency in recovery audits with private insurers or state 
Medicaid programs. Within 6 months of completion, the Secretary 
would be required to report to Congress on the project's 
savings to the Medicare program, including recommendations on 
the cost-effectiveness of extending or expanding the program. 
The provision would be effective upon enactment.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement requires the Secretary to 
conduct a demonstration project for up to 3 years on the use of 
recovery audit contractors under the Medicare Integrity 
Program. The recovery audit contractors will identify 
underpayments and overpayments in the Medicare program and 
recoup overpayments made to providers. Payment may be made to 
these contractors on a contingent basis, a percentage of the 
amount recovered by the contractors is to be retained by the 
Secretary and available to the program management account of 
the Centers for Medicare & Medicaid Services (CMS), and the 
Secretary is required to examine the efficacy of using these 
contractors with respect to duplicative payments, accuracy of 
coding, and other payment policies in which inaccurate payments 
arise.
      The demonstration project is required to cover at least 2 
states that are among the states with the highest per-capita 
utilization rates of Medicare services and that have at least 3 
recovery audit contractors. The Secretary is required to waive 
Medicare statutory provisions as necessary in order to pay for 
the services of the recovery audit contractors. The Secretary 
is required to show preference to contracting with entities 
that have demonstrated more than 3 years direct management 
experience and a proficiency in recovery audits with private 
insurers or state Medicaid programs. Fiscal intermediaries, 
carriers, and Medicare Administrative Contractors are not 
eligible to participate as a recovery audit contractor. 
Recovery of an overpayment through this project does not 
prohibit the Secretary or the Attorney General from 
investigating and prosecuting allegations of fraud or abuse 
arising from the overpayment. Within 6 months of completion, 
the Secretary is required to report to Congress on the 
project's savings to the Medicare program, including 
recommendations on the cost-effectiveness of extending or 
expanding the program. The provision is effective upon 
enactment.
Pilot Program for National and State Background Checks on Direct 
        Patient Access Employees of Long-Term Care Facilities or 
        Providers (Section 306 of the Conference Agreement and Section 
        620 of the Senate Bill).
Present Law
      Nursing homes and home health agencies may request the 
Federal Bureau of Investigation (FBI) to search its all-state 
national data bank of arrest and convictions for the criminal 
histories of applicants who would provide direct patient care, 
as long as states establish mechanisms for processing these 
requests. Most states have enacted laws that require or allow 
nursing homes and home health agencies to conduct these 
criminal background checks for certain categories of potential 
employees. The Attorney General may charge nursing homes and 
home health agencies fees of no greater than $50 per request.
      To conduct a criminal background check, nursing homes and 
home health agencies must provide a copy of an applicants 
fingerprints, a statement signed by the applicant authorizing 
the search, and other information to the appropriate state 
agency. Such information must be provided no later than 7 days 
after its acquisition by the nursing home or home health 
agency. Nursing facilities or home health care agencies that 
deny employment based on reasonable reliance on information 
from the Attorney General are exempt from liability for any 
action brought by the applicant. The information received from 
either the state or Attorney General may be used onlyfor the 
purpose of determining the suitability of the applicant for employment 
by the agency in a position involved in direct patient care.
      HHS maintains a national health care fraud and abuse data 
base, the Healthcare Integrity and Protection Data Bank 
(HIPDB), for the reporting of final adverse actions, including 
health care related civil judgments and criminal convictions of 
health care practitioners, providers and suppliers. This 
information is currently available for self-query by government 
agencies, health plans, health care providers, suppliers and 
practitioners. All states also maintain their own registries of 
persons who have completed nurse aide training and competency 
evaluation programs and other persons for whom the state 
determines meet the requirements to work as a nurse aide. 
Included in these registries are data describing state findings 
of resident neglect, abuse and/or the misappropriation of 
resident property.
      State agencies that survey providers to ensure they meet 
Medicare and/or Medicaid requirements for participation are 
referred to as survey and certification agencies, or state 
survey agencies. Under current law, state survey agencies are 
required to investigate allegations of resident neglect, abuse 
and/or the misappropriation of resident property in nursing 
homes.
House Bill
      No provision.
Senate Bill
      Medicare and/or Medicaid certified nursing homes, home 
health agencies, hospices, long-term care hospitals, 
intermediate care facilities for the mentally retarded (ICF/
MRs), and other entities providing long-term care services 
would be required to initiate background checks for certain 
workers. These workers would include those licensed, certified, 
nonlicensed, or contracted employee of a long term care 
facility or provider (other than a volunteer) that has access 
to a patient or resident, including nurse assistants, nurse 
aides, home health aides, individuals who provide home care, 
and personal care workers and attendants.
      Providers would be required to: (1) give written notice 
to workers about background checks, (2) obtain a written 
statement disclosing any conviction for a relevant crime or 
finding of patient or resident abuse from the worker, (3) 
receive written permission from workers authorizing a criminal 
background check, (4) obtain fingerprints or thumb prints of 
workers, (5) conduct self- queries of the HIPDB, and (6) comply 
with other information requirements specified by the Secretary. 
States would then be required to check state arrest and 
conviction data banks, and if appropriate, request the FBI to 
check national criminal history records on behalf of providers 
that are required to conduct these background checks.
      The long-term care providers would be prohibited from 
employing a worker who has any conviction for a relevant crime 
or a finding of patient or resident abuse. Those found to 
violate these requirements would be subject to criminal penalty 
fines and/or imprisonment. Providers that are found to violate 
these requirements would face civil monetary fines. Providers 
would be permitted to provisionally employ workers pending 
completion of the criminal background checks as long as they 
comply with supervisory requirements. Special consideration 
would be given to rural facilities and home health providers.
      Providers would be reimbursed for their costs associated 
with the requirements of this provision by the Secretary of 
HHS. The Attorney General could charge fees to any state 
requesting a search and exchange of records. States could also 
charge providers fees. Yet, providers could not charge fees to 
workers.
      The nurse aide registry would be expanded to include all 
employees of providers, including non-licensed workers, and 
renamed an employee registry. Survey and certification agencies 
would be required to investigate abuse and neglect allegations 
and misappropriation of resident property concerning any 
individual employed or used by any participating health and 
long-term care providers. $10.2 million would be authorized to 
be appropriated for FY 2004, with compliance with these 
provisions phases in for various groups of providers.
      Grants would be available to public or private non-profit 
entities to develop information on best practices in patient 
abuse prevention training (including behavior training and 
interventions) for managers and staff of hospital and health 
care facilities, and for other purposes.
      Long-term care providers could access the HIPDB data bank 
and HIPDB would be expanded to include findings of abuse, 
neglect, or misappropriation of resident property. A report 
would be due to Congress no later than 2 years after enactment 
on the number of requests for searches and exchanges of 
records, the disposition of requests, and the cost of 
responding to such requests.
Conference Agreement
      The conference agreement requires the Secretary to 
establish pilot projects in no more than 10 states for the 
purpose of expanding background checks for workers to other 
Medicare and Medicaid long-term care providers. Long-term care 
facilities or providers include Medicare- and/or Medicaid-
certified nursing homes, home health agencies, hospices, long-
term care hospitals, intermediate care facilities for the 
mentally retarded (ICF/MRs), and other entities that provide 
long-term care services (except for those paid through a self-
directed arrangement).
      States that agree to participate in this pilot project 
will be responsible for monitoring provider compliance and must 
establish procedures for workers to appeal or dispute the 
findings of the background checks. The Secretary will establish 
criteria for selecting those states seeking to participate and 
pay those states for the costs of conducting the pilot program 
(reserving 2% of the payments for the program's evaluation).
      Long-term care providers in participating states are 
required to: (1) give notice to new workers about background 
checks, and (2) obtain a written statement disclosing any 
conviction for a relevant crime or finding of patient or 
resident abuse from the worker, (3) receive written permission 
from workers authorizing a criminal background check, (4) 
obtain a rolled set of finger prints of workers, (5) obtain any 
other information specified by the state; and (6) initiate a 
check of available registries that document findings of 
resident or patient neglect, abuse, or misappropriation of 
property (if no information about a conviction of a relevant 
crime or finding of abuse are found). Providers must also 
obtain information on the workers from the state through a 10-
fingerprint background check to be conducted using state 
criminal records and the Integrated Automated Fingerprint 
Identification system of the Federal Bureau of Investigation. 
Disqualifying information for employment includes information 
about a conviction for a relevant crime, a finding of patient 
or resident abuse, or a felony conviction related to health 
care fraud or a controlled substance. Under the agreement, at 
least one state should test if providers couldcontract with 
employment agencies, subject to conditions specified by the state, to 
conduct these background checks.
      Pending completion of the national and state criminal 
history background checks, states may permit providers to 
provisionally employ workers as long as they comply with 
supervisory requirements established by the state. These 
requirements would take into account the cost or other burdens 
associated with small rural providers as well as the nature of 
care delivered by home health or hospice providers.
      The information obtained from the check may only be used 
for the purpose of determining the suitability of the applicant 
for employment. Providers are also protected from liability for 
denying employment based on reasonable reliance on information 
from the background checks. For fiscal years 2005 and 2006, $25 
million is appropriated from funds not otherwise appropriated.
GAO Study (Section 303(e) of the House Bill).
Present Law
      No provision.
House Bill
      GAO would be required to conduct a study to assess the 
impact of amendments made by this section on the delivery of 
services and their impact on access to drugs by beneficiaries. 
The report would be due no later than 2007.
Senate Bill
      GAO would be required to conduct a study that examines 
the impact of the drug payment and adjustment provisions on the 
access of Medicare beneficiaries' to covered drugs and 
biologicals. The report, including appropriate recommendations, 
would be due to Congress no later than January 1, 2006. The 
Inspector General would be required to conduct one or more 
studies that examine the market prices for Medicare covered 
drugs and biologicals, which are widely available to physicians 
and suppliers. The report would examine those drugs and 
biologicals that represent the largest portion of Medicare 
spending on such items and include a comparison of market 
prices with Medicare payment amounts.
Conference Agreement
      No provision.
Study on Codes for Non-Oncology Codes (Section 303(h) of the House 
        Bill).
Present Law
      No provision.
House Bill
      The Secretary would be required to submit a study to 
Congress within one year of enactment that examines the 
appropriateness of establishing and implementing separate codes 
for non-oncology infusions that address the level of complexity 
and resource consumption. If deemed appropriate, the Secretary 
would be able to implement appropriate changes in the payment 
methodology. The provision would be effective upon enactment.
Senate Bill
      No provision.
Conference Agreement
      No provision.
Payment for Chemotherapy Drugs Purchased But Not Administered by 
        Physicians (Section 432(b)(9) of the Senate Bill).
Present Law
      Medicare does not pay for chemotherapy drugs that 
purchased by physicians, are not dispensed, and must be 
discarded.
House Bill
      No provision.
Senate Bill
      The Secretary would be able to compensate a physician for 
chemotherapy drugs that are purchased with a reasonable intent 
to administer to a Medicare beneficiary but which cannot be 
administered despite the physician's reasonable efforts, 
because the beneficiary is too sick or the beneficiary's 
condition changes and the physician must discard the drugs. The 
Secretary would be able to increase the Medicare payment amount 
for all covered chemotherapy drugs, but the total amount of the 
increase could not exceed one percent of the payment for 
chemotherapy drugs. The beneficiary's cost sharing amounts 
would not be affected. The provision would be effective upon 
enactment.
Conference Agreement
      No provision.
Extension of Medicare Secondary Payer Rules for Individuals with End-
        Stage Renal Disease (Section 450F of the Senate Bill).
Present Law
      Generally, Medicare is the primary payer, that is, it 
pays health claims first, with an individual's private or other 
public plan filling in some or all of the coverage gaps. In 
certain cases, the beneficiary's other coverage pays first, 
while Medicare is the secondary payer. This is known as the 
Medicare secondary payer (MSP program). The MSP provisions 
apply to group health plans for the working aged, large group 
health plans for the disabled, and, for 30 months, employer 
health plans for the end-stage renal disease (ESRD) population.
House Bill
      No provision.
Senate Bill
      This provision would extend the limited time period that 
employer health plans are primary payer for beneficiaries with 
end-stage renal disease from 30 months to 36 months. The 
provision would apply for items and services furnished 
beginning January 1, 2004.
Conference Agreement
      No provision.

                       TITLE IV--RURAL PROVISIONS

             Subtitle A--Provisions Relating to Part A Only

Equalizing Urban and Rural Standardized Payment Amounts under the 
        Medicare Inpatient Hospital Prospective Payment System (Section 
        401 of the Conference Agreement, Section 402 of the House Bill, 
        and Section 401 of the Senate Bill).
Present Law
      Medicare pays for inpatient services in acute hospitals 
in large urban areas using a standardized amount that is 1.6% 
more than the standardized amount used to pay hospitals in 
other areas (both rural areas and smaller urban areas). The 
Consolidated Appropriations Act of 2003 (P.L. 108-7) provided 
for a temporary payment increase for rural and small urban 
hospitals; all Medicare discharges from April 1, 2003, to 
September 30, 2003, will be paid on the basis of the large 
urban area amount. This temporary increase was further extended 
to discharges through March 31, 2004 by P.L. 108-89, which 
permitted the Secretary to delay implementation of the payment 
increase until November 1, 2003, if necessary.
      Under Medicare's prospective payment system for inpatient 
services, separate standardized amounts are used to establish 
payments for discharges from short-term general hospitals in 
Puerto Rico. The separate amounts are a blended calculation 
based on an equal proportion of the federal national amount and 
the local amount, which are computed using data from hospitals 
in Puerto Rico. Presently, two local amounts are calculated: 
one for hospitals in large urban areas and one for hospitals in 
other areas.
House Bill
      Beginning for discharges in FY2004, the standardized 
amount for hospitals located in areas other than large urban 
areas would be equal to the amount used to pay hospitals 
located in large urban areas. Technical conforming amendments 
would also be adopted.
Senate Bill
      Medicare would pay hospitals in rural and small urban 
areas in the fifty states using the standardized amount used to 
pay hospitals in large urban areas starting for discharges in 
FY2004. The Secretary would compute one standardized amount for 
hospitals in Puerto Rico equal to that for urban areas.
Conference Agreement
      Medicare will pay hospitals in rural and small urban 
areas in the fifty states using the standardized amount that 
would be used to pay hospitals in large urban areas starting 
for discharges in FY2004. The Secretary will compute one local 
standardized amount for all hospitals in Puerto Rico equal to 
that for hospitals in large urban areas in Puerto Rico starting 
for discharges in FY2004. The existing single standardized 
amount will continue for hospitals that are not in Puerto Rico 
are not affected. Hospitals in Puerto Rico will receive the 
legislated payment increase starting for discharges on April 1, 
2004.
Enhanced Disproportionate Share Hospital (DSH) Treatment for Rural 
        Hospitals and Urban Hospitals with Fewer than 100 Beds (Section 
        402 of the Conference Agreement, Section 401 of the House Bill, 
        and Section 404 of the Senate Bill).
Present Law
      Medicare makes additional payments to certain acute 
hospitals that serve a large number of low-income Medicare and 
Medicaid patients as part of its inpatient prospective payment 
system (IPSS). As specified by BIPA, starting with discharges 
occurring on or after April 1, 2001, all hospitals are eligible 
to receive Medicare disproportionate share hospital (DSH) 
payments when their DSH patient percentage or threshold amount 
exceeds 15%. Different formulas are used to establish a 
hospital's DSH payment adjustment, depending upon the 
hospital's location, number of beds and status as a rural 
referral center (RRC) or sole community hospital (SCH). 
Although a SCH or RRC can qualify for a higher DSH adjustment, 
generally, the DSH adjustment that a small urban or rural 
hospital can receive is limited to 5.25%. Large (100 beds and 
more) urban hospitals and large rural hospitals (500 beds and 
more) are eligible for a higher adjustment that can be 
significantly greater; the amount of the DSH adjustment 
received by these larger hospitals will depend upon its DSH 
percentage. Certain urban hospitals (Pickle hospitals) receive 
DSH payments under an alternative formula that considers the 
proportion of a hospital's patient care revenues that are 
received from state and local indigent care funds.
House Bill
      Starting for discharges after October 1, 2003, a hospital 
that is not a large urban hospital that qualifies for a DSH 
adjustment would receive its DSH payments using the current DSH 
adjustment formula for large urban hospitals, subject to a 
limit. The DSH adjustment for any of these hospitals, except 
for rural referral centers, would be capped at 10%. A Pickle 
hospital receiving a DSH adjustment under the alternative 
formula would not be affected.
Senate Bill
      Starting for discharges after October 1, 2004, a hospital 
that qualifies for a DSH adjustment when its DSH patient 
percentage exceeds the 15% DSH threshold would receive the DSH 
payments using the current formula that establishes the DSH 
adjustment for a large urban hospital. A Pickle hospital 
receiving a DSH adjustment under the alternative formula would 
not be affected.
Conference Agreement
      Starting for discharges after April 1, 2004, a hospital 
that is not a large urban hospital that qualifies for a DSH 
adjustment will receive its DSH payments using the current DSH 
adjustment formula for large urban hospitals, subject to a 
limit. The DSH adjustment for any of these hospitals, except 
for rural referral centers, will be capped at 12%. A Pickle 
hospital receiving a DSH adjustment under the alternative 
formula will not be affected by this provision.
Adjustment of the Medicare Inpatient Hospital Prospective Payment 
        System Wage Index to Revise the Labor-Related Share of Such 
        Index (Section 403 of the Conference Agreement, Section 416 of 
        the House Bill, and Section 402 of the Senate Bill).
Present Law
      Medicare's payments to acute hospitals are adjusted, 
either increased or decreased as appropriate, by the wage index 
of the area where the hospital is located or where it has been 
reassigned. Presently, approximately 71 percent of the 
standardized amount for each hospital discharge is adjusted by 
the area wage index. Decreasing this proportion or labor-
related share would increase Medicare payments to hospitals in 
areas with wage indices below one and decrease Medicare 
payments to hospitals in areas with wage indices above one.
House Bill
      For discharges occurring on or after October 1, 2003, the 
Secretary would be required to decrease the labor-related share 
to 62 percent of the standardized amount only if such change 
would result in higher total payments to the hospital. This 
provision would be applied without regard to certain budget-
neutrality requirements.
Senate Bill
      For cost reporting periods beginning on or after October 
1, 2004, the Secretary would be required to decrease the labor-
related share to 62 percent of the standardized amount only if 
such change would result in higher total payments to the 
hospital. This provision would be applied without regard to 
certain budget-neutrality requirements.
Conference Agreement
      For discharges on or after October 1, 2004, the Secretary 
is required to decrease the labor-related share to 62 percent 
of the standardized amount when such change will result in 
higher total payments to the hospital. This provision is 
applied without regard to certain budget-neutrality 
requirements. For discharges on or after October 1, 2004, the 
Secretary is also required to decrease the labor-related share 
to 62 percent of the standardized amount for hospitals in 
Puerto Rico when such change results in higher total payments 
to the hospital.
More Frequent Update in Weights Used in Hospital Market Basket (Section 
        404 of the Conference Agreement and Section 404 of the House 
        Bill).
Present Law
      Medicare's standardized amounts, which serve as the basis 
of its payment per discharge from an acute hospital, are 
increased annually using an update factor that is determined in 
part by the projected increase in the hospital market basket. 
The market basket is a fixed-weight hospital input price index, 
which measures the average change in the price of goods and 
services that hospitals purchase in order to furnish inpatient 
care. The Centers for Medicare and Medicaid Services (CMS) 
revises the cost category weights, reevaluates the price 
proxies for such categories, and rebases (or changes the base 
period) for the market basket every 5 years. CMS implemented a 
revised and rebased market basket using 1997 cost data to set 
the FY2003 Medicare hospital payment rates.
House Bill
      The Secretary would be required to revise the market 
basket weights to reflect the most currently available data and 
to establish a schedule for revising the cost category weights 
more often than once every 5 years. The Secretary would be 
required to submit a report to Congress by October 1, 2004 on 
the reasons for and the options considered in establishing such 
a schedule.
Senate Bill
      No provision.
Conference Agreement
      The Secretary is required to revise the market basket 
weights to reflect the most currently available data and to 
establish a schedule for revising the cost category weights 
more often than once every 5 years. The Secretary is required 
to publish the reasons for and the options considered in 
establishing such a schedule in the final rule establishing 
FY2006 inpatient hospital payments.
Improvements to the Critical Access Hospital (CAH) Program (Section 405 
        of the Conference Agreement, Section 405 of the House Bill, and 
        Section 405 of the Senate Bill).
Increase in Payment Amounts (Section 405(a) of the Conference Agreement 
        and Section 405(a) of the House Bill).
Present Law
      Generally, a critical access hospital (CAH) receives 
reasonable cost reimbursement for care rendered to Medicare 
beneficiaries. CAHs may elect either a cost-based hospital 
outpatient service reimbursement or an all-inclusive rate, 
which is equal to a reasonable cost reimbursement for facility 
services plus 115 percent of the fee schedule payment for 
professional services. Ambulance services that are owned and 
operated by CAHs are reimbursed on a reasonable cost basis if 
these ambulance services are 35 miles from another ambulance 
system.
House Bill
      Inpatient, outpatient, and covered skilled nursing 
facility services provided by a CAH would be reimbursed at 102 
percent of reasonable costs of services furnished to Medicare 
beneficiaries. This provision would apply to cost reporting 
periods beginning on or after October 1, 2003.
Senate Bill
      No provision.
Conference Agreement
      Inpatient, outpatient, and covered skilled nursing 
facility services provided by a CAH will be reimbursed at 101 
percent of reasonable costs of services furnished to Medicare 
beneficiaries. This provision applies to cost reporting periods 
beginning on or after January 1, 2004.
Coverage of Costs for Certain Emergency Room On-Call Providers (Section 
        405(b) of the Conference Agreement, Section 405(b) of the House 
        Bill, and Section 405(c) of the Senate Bill).
Present Law
      BIPA required the Secretary to include the costs of 
compensation (and related costs) of on-call emergency room 
physicians who are not present on the premises of a CAH, are 
not otherwise furnishing services, and are not on-call at any 
other provider or facility when determining the allowable, 
reasonable cost of outpatient CAH services.
House Bill
      Reimbursement of on-call emergency room providers would 
be expanded to include the costs associated with physician 
assistants, nurse practitioners, and clinical nurse specialists 
as well as emergency room physicians for covered Medicare 
services. This provision would apply to costs for services 
provided on or after January 1, 2004.
Senate Bill
      The provision would expand reimbursement of on-call 
emergency room providers to include physician assistants, nurse 
practitioners, and clinical nurse specialists as well as 
emergency room physicians for covered Medicare services 
provided on or after January 1, 2005.
Conference Agreement
      The provision expands reimbursement of on-call emergency 
room providers to include physician assistants, nurse 
practitioners, and clinical nurse specialists as well as 
emergency room physicians for the costs associated with covered 
Medicare services provided on or after January 1, 2005.
Authorization of Periodic Interim Payment (PIP) (Section 405(c) of the 
        Conference Agreement, Section 405(d) of the House Bill, and 
        Section 405(d) of the Senate Bill).
Present Law
      Eligible hospitals, skilled nursing facilities, and 
hospices which meet certain requirements receive Medicare 
periodic interim payments (PIP) every 2 weeks; these payments 
are based on estimated annual costs without regard to the 
submission of individual claims. At the end of the year, a 
settlement is made to account for any difference between the 
estimated PIP payment and the actual amount owed. A CAH is not 
eligible for PIP payments.
House Bill
      An eligible CAH would be able to receive payments made on 
a PIP basis for its inpatient services. The Secretary would be 
required to develop alternative methods based on the 
expenditures of the hospital for these PIP payments. This 
provision would apply to payments made on or after January 1, 
2004.
Senate Bill
      Starting with payments made on or after January 1, 2005, 
an eligible CAH would be able to receive payments made on a PIP 
basis for inpatient services. The provision would apply to 
payments for inpatient CAH services furnished on or after 
January 1, 2005.
Conference Agreement
      An eligible CAH will be able to receive payments made on 
a PIP basis for its inpatient services. The Secretary is 
required to develop alternative methods for the timing of PIP 
payments to these CAHs. This provision applies to payments made 
on or after July 1, 2004.
Condition for Application of Special Professional Service Payment 
        Adjustment (Section 405(d) of the Conference Agreement and 
        Section 405(e) of the House Bill).
Present Law
      As specified by BBRA, CAHs can elect to be paid for 
outpatient services using cost-based reimbursement for its 
facility fee and at 115 percent of the fee schedule for 
professional services otherwise included within its outpatient 
critical access hospital services for cost reporting periods 
starting on or after October 1, 2000.
House Bill
      The Secretary would not be able to require that all 
physicians providing services in a CAH assign their billing 
rights to the entity in order for the CAH to be able to be paid 
on the basis of 115 percent of the fee schedule for the 
professional services provided by the physicians. However, a 
CAH would not receive payment based on 115 percent of the fee 
schedule for any individual physician who did not assign 
billing rights to the CAH. This provision would be effective as 
if it had been included as part of BBRA.
Senate Bill
      No provision.
Conference Agreement
      The Secretary cannot require that all physicians or 
practitioners providing services in a CAH assign their billing 
rights to the entity in order for the CAH to be able to be paid 
on the basis of 115 percent of the fee schedule for the 
professional services provided by the physicians. However, a 
CAH will not receive payment based on 115 percent of the fee 
schedule for any individual physician or practitioner who did 
not assign billing rights to the CAH. This provision applies to 
cost reporting periods starting on or after July 1, 2004 except 
for those CAHs that have already elected payment for physician 
services on this basis in the past; this provision will apply 
to those CAHs starting for cost reporting periods on or after 
July 1, 2003.
Revision in Bed Limitation for Hospitals (Section 405(e) of the 
        Conference Agreement, Section 405(f) of the House Bill, and 
        Section 405(a) of the Senate Bill).
Present Law
      A CAH is a limited service facility that must provide 24-
hour emergency services and operate a limited number of 
inpatient beds in which hospital stays can average no more than 
96 hours. A CAH cannot operate more than 15 acute-care beds at 
one time, but can have an additional 10 swing beds that are set 
up for skilled nursing facility (SNF) level care. SNF beds in a 
unit of the facility that is licensed as a distinct-part 
skilled nursing facility at the time of the facility's 
application for CAH designation are not counted toward these 
bed limits.
House Bill
      The Secretary would be required to specify standards for 
determining whether a CAH has seasonal variations in patient 
admissions that would justify a 5-bed increase in the number of 
beds it can maintain (and still retain its classification as a 
CAH). CAHs that operate swing beds would be able to use up to 
25 beds for acute care services as long as no more than 10 beds 
at any time are used for non-acute services. Those CAHs with 
swing beds that made this election would not be eligible for 
the 5-bed seasonal adjustment. A CAH with swing beds that 
elects to operate 15 of its 25 beds as acute care beds would be 
eligible for the 5-bed seasonal adjustment. These provisions 
would only apply to CAH designations made before, on, or after 
January 1, 2004.
Senate Bill
      A CAH would be able to operate up to 25 swing beds or 
acute care beds, subject to the 96 hour average length of stay 
for acute care patients. The requirement that only 15 of the 25 
beds be used for acute care at any time would be dropped. The 
provision would be effective for designations made on or after 
October 1, 2004.
Conference Agreement
      A CAH will be able to operate up to 25 beds. The 
requirement that only 15 of the 25 beds be used for acute care 
at any time will be dropped. The provision will apply to CAH 
designations made before, on, or after January 1, 2004, but any 
election made pursuant to the regulations promulgated to 
implement this provision will only apply prospectively.
Provisions Relating to FLEX Grants (Section 405(f) of the Conference 
        Agreement, Section 405(g) of the House Bill, and Section 405(f) 
        of the Senate Bill).
Present Law
      The Secretary is able to make grants for specified 
purposes to states or eligible small rural hospitals that apply 
for such awards. For example, the Medicare Hospital Flexibility 
Program awards grants to states for rural health care planning 
and implementation activities, rural network development and 
implementation, to establish or expand rural emergency medical 
services and for CAH designations.
      The Secretary may also award grants to hospitals to 
assist eligible small rural hospitals in implementing data 
systems required under BBA 1997. Small rural hospitals are 
short term general hospitals with less than 50 beds that are 
located in rural areas.
      Funding for the rural hospital flexibility grant program 
was $25 million from FY1999 through FY2001; $40 million in 
FY2002; and $25 million in 2003. The authorization to award the 
grants expired in FY2002.
House Bill
      The authorization to award grants would be established 
from FY2004 through FY2008 from the Federal Hospital Insurance 
Trust Fund at amounts of up $25 million each year. The 
provision would be effective upon enactment.
Senate Bill
      The provision would permit the Secretary to award grants 
under the Small Rural Hospital Improvement Program to hospitals 
that have submitted applications to assist eligible small rural 
hospitals in reducing medical errors, increasing patient 
safety, protecting patient privacy, and improving hospital 
quality. These grants would not exceed $50,000 and would be 
able to be used to purchase computer software and hardware, 
educate and train hospital staff, and obtain technical 
assistance. The provision would authorize appropriations of $40 
million each year from FY2004 through FY2008 from the Federal 
Hospital Insurance Trust Fund for grants to states for 
specified purposes. States that are awarded grants would be 
required to consult with the hospital association and rural 
hospitals in the state on the most appropriate way to use such 
funds. The provision would also authorize $25 million each year 
from FY2004 through FY2008 for the Small Rural Hospital 
Improvement Program. This amount would be appropriated from 
amounts in the treasury not otherwise appropriated.
      The provisions would be effective upon enactment. They 
would apply to grants awarded on or after the date of enactment 
and would apply to grants awarded prior to the date of 
enactment to the extent that the funds have not yet been 
obligated.
Conference Agreement
      The authorization to award rural hospital flexibility 
grants is established at $35 million each year from FY2005 
through FY2008. Starting with funds appropriated for FY2005 and 
in subsequent years, a state is required to consult with the 
hospital association and rural hospitals in the state on the 
most appropriate way to use such funds. A state may not spend 
more than 15% of the grant amount or the states federally 
negotiated indirect rate for administrative purposes. Beginning 
with FY2005 up to 5% of the total amount appropriated for 
grants will be available to the Health Resources and Services 
Administration for administering these grants.
Exclusion of Certain Beds from Bed Count and Removal of Barriers to 
        Establishment of Distinct Part Units (Section 405(g) of the 
        Conference Agreement and Section 405(g) of the Senate Bill).
Present Law
      Beds in distinct part psychiatric or rehabilitation units 
operated by an entity seeking to become a CAH would not count 
toward the bed limit.
House Bill
      No provision.
Senate Bill
      The Secretary would not be able to count any beds in a 
distinct part psychiatric or rehabilitation unit operated by 
the entity seeking to become a CAH. The total number of beds in 
these distinct part units would not be able to exceed 25. A CAH 
would be able to establish a distinct part psychiatric or 
rehabilitation unit. The provision would apply to designations 
on or after October 1, 2003.
Conference Agreement
      A CAH can establish a distinct part psychiatric or 
rehabilitation unit that meets the applicable requirements for 
such beds established for a short-term, general hospital, 
specifically, a subsection (d) hospital as defined in 
1886(d)(1)(B). If the distinct part units do not meet these 
requirements during a cost reporting period, then no Medicare 
payment will be made to the CAH for services furnished in the 
unit during the period. Medicare payments will resume only 
after the CAH demonstrates that the requirements have been met. 
Medicare payments for services provided in the distinct part 
units will equal payments that are made on a prospective 
payment basis to distinct part units of short term general 
hospitals. The Secretary will not count any beds in the 
distinct part psychiatric or rehabilitation units toward the 
CAH bed limit. The total number of beds in these distinct part 
units cannot exceed 10. The provision will apply to cost 
reporting periods starting October 1, 2004.
Waiver Authority (Section 405(h) of the Conference Agreement).
Present Law
      Currently to qualify as a CAH, the rural, for-profit, non 
profit or public hospital must be located more than 35 miles 
from another hospital or 15 miles in areas with mountainous 
terrain or those where only secondary roads are available. 
These mileage standards may be waived if the hospital has been 
designated by the State as a necessary provider of health care.
House Bill
      No provision.
Senate Bill
      No provision.
Conference Report
      Currently to qualify as a CAH, the rural, for-profit, non 
profit or public hospital must be located more than 35 miles 
from another hospital or 15 miles in areas with mountainous 
terrain or those where only secondary roads are available. 
These mileage standards may be waived if the hospital has been 
designated by the state as a necessary provider of health care. 
This authority is eliminated 2 years after enactment.
Medicare Inpatient Hospital Payment Adjustment for Low-Volume Hospitals 
        (Section 406 of the Conference Agreement and Section 403 of the 
        Senate Bill).
Present Law
      Medicare pays inpatient acute hospital services on a 
discharge basis without regard for the number of beneficiaries 
discharged from any given hospital. Under certain 
circumstances, however, sole community hospitals (SCHs) and 
Medicare dependent hospitals with more than a 5% decline in 
total discharges from one period to the next may apply for an 
adjustment to their payment rates to partially account for 
higher costs associated with a drop in patient volume due to 
circumstances beyond its control.
House Bill
      No provision.
Senate Bill
      The provision would require the Secretary to provide for 
a graduated adjustment to Medicare's inpatient payment rates to 
account for the higher unit costs associated with low-volume 
hospitals. Certain hospitals with fewer than 2,000 total 
discharges during the 3 most recent cost reporting periods 
would be eligible for up to a 25% increase in their Medicare 
payment amount starting for FY2005 cost reporting periods. 
Eligible hospitals would be located at least 15 miles from a 
similar hospital or those determined by the Secretary to be so 
located due to factors such as weather conditions, travel 
conditions, or travel time to the nearest alternative source of 
appropriate inpatient care. Certain budget-neutrality 
requirements would not apply to this provision.
Conference Agreement
      The Secretary is required to provide for a graduated 
adjustment to Medicare's inpatient payment rates to account for 
the higher unit costs associated with low-volume hospitals 
starting for discharges occurring in FY2005. The Secretary 
shall determine the empirical relationship between the 
standardized cost per case, the number of discharges, and the 
additional incremental costs (if any) for low-volume hospitals; 
the percentage payment increase for these hospitals will be 
based on this relationship, but in no case will be greater than 
25%. A low-volume hospital is a short-term general hospital (as 
defined by 1886(d)(B) of the Social Security Act or SSA) that 
is located more than 25 road miles from another such hospital 
and that has less than 800 discharges during the fiscal year. A 
discharge means an inpatient acute care discharge of an 
individual regardless of whether the individual is entitled to 
Part A benefits. Certain budget-neutrality requirements would 
not apply to this provision. The determination of the 
percentage payment increase is not subject to administrative or 
judicial review.
Treatment of Missing Cost Reporting Periods for Sole Community 
        Hospitals (Section 407 of the Conference Agreement and Section 
        414 of the House Bill).
Present Law
      Sole community hospitals (SCHs) are hospitals that, 
because of factors such as isolated location, weather 
conditions, travel conditions, or absence of other hospitals, 
are the sole source of inpatient services reasonably available 
in a geographic area, or are located more than 35 road miles 
from another hospital. The primary advantage of an SCH 
classification is that these hospitals receive Medicare 
payments based on the current national PPS national 
standardized amount or on hospital-specific per discharge costs 
from either FY 1982, FY1987 or FY1996 updated to the current 
year, whatever amount will provide the highest Medicare 
reimbursement. The FY1996 base year option became effective for 
discharges on or after FY2001 on a phased in basis and will be 
fully implemented for SCH discharges on or after FY2004.
House Bill
      A hospital would not be able to be denied treatment as a 
SCH or receive payment as a SCH because data are unavailable 
for any cost reporting period due to changes in ownership, 
changes in fiscal intermediaries, or other extraordinary 
circumstances, so long as data from at least one applicable 
base cost reporting period is available. The provision would 
apply to cost reporting periods beginning on or after January 
1, 2004.
Senate Bill
      No provision.
Conference Agreement
      A hospital will not be able to be denied treatment as a 
SCH or receive payment as a SCH because data are unavailable 
for any cost reporting period due to changes in ownership, 
changes in fiscal intermediaries, or other extraordinary 
circumstances, so long as data from at least one applicable 
base cost reporting period is available. The provision applies 
to cost reporting periods beginning on or after January 1, 
2004.
Recognition of Attending Nurse Practitioners as Attending Physicians to 
        Serve Hospice Patients (Section 408 of the Conference 
        Agreement, Section 409 of the House Bill, and Section 407 of 
        the Senate Bill).
Present Law
      Medicare covers hospice services to care for the terminal 
illnesses of the beneficiary. In general, beneficiaries who 
elect the hospice benefit give up other Medicare services that 
seek to treat the terminal illness or that duplicate services 
provided by the hospice. Services are provided primarily in the 
patient's home by a Medicare approved hospice. Reasonable and 
necessary medical and support services for the management of 
the terminal illness are furnished under a written plan-of-care 
established and periodically reviewed by the patient's 
attending physician and the hospice. To be eligible for 
Medicare's hospice care, a beneficiary must be certified as 
terminally ill by an attending physician and the medical 
director or other physician at the hospice and elect hospice 
treatment. An attending physician who may be an employee of the 
hospice is identified by the patient as having the most 
significant role in the determination and delivery of the 
patient's medical care when the patient makes an election to 
receive hospice care.
House Bill
      A beneficiary electing hospice care would be able to 
identify a nurse practitioner as an attending physician. This 
nurse practitioner would not be able to certify the beneficiary 
as terminally ill for the purpose of entering hospice care. The 
provision would be effective upon enactment.
Senate Bill
      A terminally ill beneficiary under hospice care would be 
able to receive services provided by a physician assistant, 
nurse practitioner, or clinical nurse specialist who is not an 
employee of the hospice program and who the beneficiary 
identifies, when electing hospice care, as the health care 
provider having the most significant role in the determination 
of medical care provided to the beneficiary. A physician 
assistant, nurse practitioner, or clinical nurse specialist so 
identified by the beneficiary would be able to periodically 
review the beneficiary's written plan of care. The amendments 
would apply to hospice care furnished on or after October 1, 
2004.
Conference Agreement
      The conference agreement expands the definition of 
attending physician in hospice to include a nurse practitioner. 
A nurse practitioner is not permitted to certify a beneficiary 
as terminally ill for the purposes of receiving the hospice 
benefit. The provision would be effective upon enactment.
Rural Hospice Demonstration Project (Section 409 of the Conference 
        Agreement and Section 418 of the House Bill).
Present Law
      Medicare's hospice services are provided primarily in a 
patient's home to beneficiaries who are terminally ill and who 
elect such services. Medicare law prescribes that the aggregate 
number of days of inpatient care provided to Medicare 
beneficiaries who elect hospice care in any 12-month period 
cannot exceed 20% of the total number of days of hospice 
coverage provided to these persons.
House Bill
      The Secretary would be required to establish a 
demonstration project of no more than 5 years in 3 hospice 
programs to deliver hospice care to Medicare beneficiaries in 
rural areas. Those Medicare beneficiaries who lack an 
appropriate caregiver and are unable to receive home-based 
hospice care would be able to receive hospice care in a 
facility of 20 or fewer beds that offers a full range of 
hospice services within its walls. The facility would not be 
required to offer services outside of the home and the limit on 
the aggregate number of inpatient days provided to Medicare 
beneficiaries who elect hospice care would be waived. The 
Secretary would be able to require the program to comply with 
additional quality assurance standards. Payments for thehospice 
care would be made at the rates that would be otherwise applicable to 
Medicare. Upon completion of the demonstration project, the Secretary 
would be required to submit a report to Congress, including 
recommendations, regarding the extension of the project to hospice 
programs serving rural areas.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement requires the Secretary to 
establish a demonstration project in 3 hospice programs to 
deliver hospice care to Medicare beneficiaries in rural areas. 
A project is not permitted to last longer than 5 years. Those 
Medicare beneficiaries who lack an appropriate caregiver and 
are unable to receive home-based hospice care could receive 
hospice care in a facility of 20 or fewer beds that offers a 
full range of hospice services within its walls. The facility 
will not be required to offer services outside of the home. The 
limit on the aggregate number of inpatient days provided to 
Medicare beneficiaries who elect hospice care is waived under 
the demonstration. The Secretary may require the program to 
comply with additional quality assurance standards. Payments 
for the hospice care will be made at the rates that would be 
otherwise applicable to Medicare. Upon completion of the 
demonstration project, the Secretary is required to submit a 
report to Congress, including recommendations, regarding the 
extension of the project to hospice programs serving rural 
areas.
Establishment of Essential Rural Hospital Classification (Section 403 
        of the House Bill).
Present Law
      Under current law, a critical access hospital (CAH) is a 
limited service facility that must provide 24-hour emergency 
services and operate a limited number of inpatient beds in 
which hospital stays can average no more than 96 hours. A CAH 
is exempt from Medicare's inpatient prospective payment system 
(IPPS) and receives reasonable cost reimbursement for care 
rendered to Medicare beneficiaries. Certain acute care general 
hospitals, particularly those facilities identified as isolated 
or essential hospitals primarily located in rural areas, 
receive special treatment under IPPS.
House Bill
      The definition of CAH hospitals and services would be 
amended to add an essential rural hospital. An essential rural 
hospital would apply for such a classification, would have more 
than 25 licensed acute care beds, and would be located in a 
rural area as defined by IPPS. The Secretary would have to 
determine that the closure of this hospital would significantly 
diminish the ability of beneficiaries to obtain essential 
health care services based on the certain criteria. 
Specifically, the Secretary would determine that high 
proportion of Medicare beneficiaries residing in the service 
area of the hospital received basic inpatient care from the 
hospital; a hospital with more than 200 licensed beds would 
have to provide specialized surgical care to a high percentage 
of beneficiaries residing in the area who were hospitalized 
during the most recent year for which data are available. 
Regardless of the size of the hospital, almost all physicians 
in the area would have to have admitting privileges and provide 
their inpatient services primarily at the hospital. Also, the 
Secretary would have to determine the closure of the hospital 
would have a significant adverse impact on the availability of 
health care service in the absence of the hospital. In making 
such determination, the Secretary may also consider: (1) 
whether ambulatory care providers in the hospital's area are 
insufficient to handle the outpatient care of the hospital; (2) 
whether beneficiaries would have difficulty accessing care; and 
(3) whether the hospital has a significant commitment to 
provide graduate medical education in a rural area. The 
essential rural hospital would have to have a quality of care 
score above the median score for hospitals in the State. A 
hospital classified as an essential rural hospital would not be 
able to change such classification and would not be able to be 
treated as a sole community hospital, Medicare dependent 
hospital or rural referral center under IPPS. A hospital that 
is classified as an essential rural hospital for a cost 
reporting period beginning on or after October 1, 2004 would be 
reimbursed 102% of its reasonable costs for inpatient and 
outpatient services provided by acute hospitals Beneficiary 
cost-sharing amounts would not be affected and required billing 
for such services would not be waived. The provision would 
apply to cost reporting periods beginning on or after October 
1, 2004.
Senate Bill
      No provision.
Conference Agreement
      No provision.
Modification of the Isolation Test for Cost-Based CAH Ambulance 
        Services (Section 405(c) of the House Bill and Section 405(b) 
        of the Senate Bill).
Present Law
      Ambulance services provided by a CAH or provided by an 
entity that is owned or operated by a CAH is paid on a 
reasonable cost basis and not the ambulance fee schedule, if 
the CAH or entity is the only provider or supplier of ambulance 
services that is located within a 35-mile drive of the CAH.
House Bill
      The 35-mile requirement would not apply to the ambulance 
services that are furnished after the first cost reporting 
period beginning after the date of enactment by a provider or 
supplier of ambulance services who is determined by the 
Secretary to be a first responder to emergencies. This 
provision would apply to ambulance services furnished on or 
after the first cost reporting periods that begins after the 
date of enactment.
Senate Bill
      The provision would drop the requirement that the CAH or 
the related entity be the only ambulance provider with a 35-
mile drive in order to receive reasonable cost reimbursement 
for the ambulance services. The provision would apply to 
services furnished on or after January 1, 2005
Conference Agreement
      No provision.
Exclusion of New CAHs from PPS Hospital Wage Index Calculation (Section 
        405(e) of the Senate Bill).
Present Law
      Certain qualified small hospitals are converting to CAHs. 
After conversion, these facilities are paid on a reasonable 
cost basis and are not paid under the hospital inpatient 
prospective payment system (IPPS). Medicare's IPPS payments to 
acute hospitals are adjusted by the wage index of the area 
where the hospital is located or has been reassigned. Although 
the hospital wage index is recalculated annually, the wage 
index for any given fiscal year is based on data submitted as 
part of a hospital's cost report from 4 years previously. As 
established by regulation, starting for FY2004 payments, wage 
data from hospitals that have converted to CAHs will be 
excluded in the IPPS wage index calculation.
House Bill
      No provision.
Senate Bill
      The Secretary would be required to exclude wage data from 
hospitals that have converted to CAHs from the IPPS wage index 
calculation starting for cost reporting periods on or after 
January 1, 2004. The provision would be effective upon 
enactment.
Conference Agreement
      No provision.
Rural Community Hospital Demonstration Program (Section 410A of the 
        Conference Report and Section 414 of the Senate Bill).
Present Law
      No provision
House Bill
      No provision.
Senate Bill
      The Secretary would be required to establish a 5-year 
rural community hospital (RCH) demonstration program in 4 areas 
including Kansas and Nebraska that will pay for acute inpatient 
services, outpatient services, and certain home health services 
in qualifying hospitals either on the basis of its reasonable 
costs (without regard to the amount of customary charges) or 
using the respective prospective payment systems for those 
services. In this instance, reasonable cost reimbursement of 
capital costs would include a return on equity payment of 150% 
of the average rate of interest on obligations issued for 
purchase by the Federal Hospital Insurance (HI) Trust Fund.
      Eligible rural hospitals would be those (1) located in 
counties that have not been assigned to metropolitan 
statistical areas or those urban hospitals that have been 
designated as rural; (2) with less than 51 acute inpatient beds 
(psychiatric and rehabilitation beds in distinct part units 
would not be counted); (3) offering 24-hour emergency care 
services; and (4) have a provider agreement in effect and is 
open to the public as of January 1, 2003. Critical access 
hospitals would be able to participate in the demonstration. 
Entities with replacement facilities, obtaining a new provider 
number because of an ownership change, or with a binding 
agreement for the construction, reconstruction, lease, rental 
or financing of building on January 1, 2003 would not be 
prohibited from participating. A qualified-RCH based home 
health agency would be a provider based agency that is located 
in a county in which no main or branch office of another home 
health agency is located or is at least 35 miles from any main 
or branch office of another home health agency.
      Consolidated billing associated with skilled nursing 
facilities would be permitted. The cost of Medicare 
beneficiaries' bad debt would be reimbursed at 100%. 
Beneficiary copayments for hospital outpatient services would 
established as under the hospital outpatient prospective 
payment system. No cost sharing would apply to clinical 
diagnostic laboratory services. The cost sharing amounts 
associated with other services would be established according 
to the payment methodology selected by the provider for the 
services in question. Funding for the demonstration project 
would be transferred in appropriate proportions from the HI and 
the Federal Supplementary Insurance trust funds. The Secretary 
would be required to ensure that aggregate payments under this 
demonstration program do not exceed what would have been spent 
if the program had not been implemented. The Secretary would be 
permitted to waive administrative, peer review as well as fraud 
and abuse requirements in Title 11 and other Medicare 
requirements in Title 18 of the Social Security Act. The 
Secretary would be required to submit a report including 
recommendations to Congress no later than 6 months after 
completion of the demonstration. The Secretary would be 
required to implement the demonstration no later than January 
1, 2005, but not before October 1, 2004.
Conference Agreement
      The Secretary is required to establish a demonstration 
program in rural areas to test different payment methods for 
under 50 bed rural hospitals. The hospitals are paid their 
costs for inpatient and extended care (swing-bed) services for 
5 years, subject to a cap. The payment methodology is similar 
to the Tefra payment system used for Children's hospitals. The 
hospitals cannot be eligible for the CAH program.
      Critical Access Hospital Improvement Demonstration 
Program (Section 415 of the Senate Bill).
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      The Secretary would be required to establish a 5-year 
critical access hospital (CAH) demonstration program in 4 areas 
including Kansas and Nebraska to test various methods to 
improve the CAH program. Participating CAHs would be able to 
maintain distinct part psychiatric and rehabilitation units of 
up to 10 beds that would not be counted toward the CAH-bed 
limit. These psychiatric and rehabilitation services would be 
paid on a reasonable cost basis (without regard to the amount 
of customary charges). Home health agencies operated by 
participating CAHs would be able to opt out of the home health 
prospective payment system (PPS) and would be reimbursed on the 
basis of reasonable costs (without regard to the customary 
charge limit). Distinct part skilled nursing facilities (SNF) 
operated by a CAH would be exempt from SNF-PPS and would be 
reimbursed on the basis of reasonable costs (without regard to 
the customary charge limit). Consolidated billing associated 
with skilled nursing facilities would be permitted. In this 
instance reasonable cost reimbursement of capital costs 
associated with inpatient, outpatient, extended care, post-
hospital extended care, home health, and ambulance services 
would include a return on equity payment of 150% of the average 
rate of interest on obligations issued for purchase by the 
Federal Hospital Insurance (HI) Trust Fund.
      Eligible CAHs in the 4 demonstration areas would have to 
apply to participate in the demonstration project. Funding for 
the demonstration project would be transferred in appropriate 
proportions from the HI and the Federal Supplementary Insurance 
trust funds. The Secretary would be required to ensure that 
aggregate payments under this demonstration program do not 
exceed what would have been spent if the program had not been 
implemented. The Secretary would be permitted to waive 
administrative, peer review as well as fraud and abuse 
requirements in Title 11 and other Medicare requirements in 
Title 18 of the Social Security Act. The Secretary would be 
required to submit a report including recommendations to 
Congress no later than 6 months after completion of the 
demonstration. The Secretary would be required to implement the 
demonstration no later than January 1, 2005, but not before 
October 1, 2004.
Conference Agreement
      No provision.
      Increase in Payments for Certain Services Furnished by 
Small Rural Hospitals Under Medicare Prospective Payment System 
for Hospital Outpatient Department Services (Section 424 in the 
Senate Bill).
Present Law
      Under the OPPS, which was implemented in August, 2000, 
Medicare pays for covered services using a fee schedule based 
on ambulatory payment classifications (APCs). Beneficiary 
copayments are established as a percentage of Medicare's fee 
schedule payment and differ by APC. Certain hospitals, 
including rural hospitals with no more than 100 beds, are 
protected from financial losses that result from implementation 
of the new outpatient PPS under hold harmless provisions.
House Bill
      No provision.
Senate Bill
      The provision would increase Medicare payments for 
covered outpatient clinic and emergency room visits that are 
provided by rural hospitals with up to 100 beds on or after 
January 1, 2005 and before January 1, 2008. Applicable Medicare 
outpatient fee schedule amounts would be increased up by 5%. 
The beneficiary copayment amounts for these services would not 
be affected. The resulting increase in Medicare payments would 
not be considered as PPS payments when calculating whether a 
rural hospital's PPS payments are less than its pre-BBA payment 
amounts under the temporary hold harmless provisions. Also, the 
budget-neutrality provisions for Medicare's outpatient PPS 
would not be applicable. Finally, these increased payments 
would not affect Medicare payments for covered outpatient 
services after January 1, 2007.
Conference Agreement
      No provision.

             Subtitle B--Provisions Relating to Part B Only

2-Year Extension of Hold Harmless Provisions for Small Rural Hospitals 
        and Sole Community Hospitals Under Prospective Payment System 
        for Hospital Outpatient Department Services (Section 411 of the 
        Conference Agreement, Section 407 of the House Bill, and 
        Section 423 of the Senate Bill).
Present Law
      The prospective payment system (PPS) for services 
provided by outpatient departments (OPD) was implemented in 
August, 2000 for most acute care hospitals. Under the OPD PPS, 
Medicare pays for covered services using a fee schedule based 
on ambulatory payment classifications (APCs). Rural hospitals 
with no more than 100 beds are paid no less under this PPS 
system than they would have received under the prior 
reimbursement system for covered OPD services because of hold 
harmless provisions. The hold harmless provisions apply to 
services provided before January 1, 2004.
House Bill
      The hold harmless provisions governing OPD reimbursement 
for small rural hospitals would be extended until January 1, 
2006. The hold harmless provisions would be extended to sole 
community hospitals located in a rural area starting for 
services furnished on or after January 1, 2004 until January 1, 
2006. The Secretary would be required to conduct a study to 
determine if the costs, by APC groups, incurred by rural 
providers exceed those costs incurred by urbanproviders. If 
appropriate, the Secretary would provide a payment adjustment to 
reflect the higher costs of rural providers by January 1, 2005.
Senate Bill
      The hold harmless provisions governing OPD reimbursement 
for small rural hospitals would be extended until January 1, 
2006. These hold harmless provisions would be extended to sole 
community hospitals located in rural areas for services 
provided in 2006.
Conference Agreement
      The hold harmless provisions governing OPD reimbursement 
for small rural hospitals are extended until January 1, 2006. 
The hold harmless provisions are extended to sole community 
hospitals located in a rural area starting for services 
furnished on or after January 1, 2004 until January 1, 2006. 
The Secretary is required to conduct a study to determine if 
the costs, by APC groups, incurred by rural providers exceed 
those costs incurred by urban providers. If appropriate, the 
Secretary will provide for a payment adjustment to reflect the 
higher costs of rural providers by January 1, 2006.
Establishment of Floor on Work Geographic Adjustment (Section 412 of 
        the Conference Agreement, Section 605 of the House Bill, and 
        Section 421 of the Senate Bill).
Present Law
      Medicare's payment for physicians' services under a fee 
schedule has three components: the relative value for the 
service, geographic adjustment factors and a conversion factor 
into a dollar amount. A service's relative value is made up of 
a physician work component, a practice expense component, and a 
malpractice expense component. Each of these is then adjusted 
by a separate geographic adjustment factor and combined 
together to calculate an indexed relative value for that 
service provided in a given location. This locality adjusted 
relative value unit is multiplied by the conversion factor to 
calculate Medicare's payment for a service provided by a 
physician in a given area.
      The geographic adjustment factors are indices that 
reflect the relative cost difference in a given area in 
comparison to the national average. An area with costs above 
the national average would have an index greater than 1.00; 
alternatively, an area with costs below the national average 
would have an index less than 1.00. The physician work 
geographic adjustment factor is based on a sample of median 
hourly earnings in six professional specialty occupational 
categories. Unlike the other geographic adjustments, the work 
adjustment factor reflects only one-quarter of the cost 
differences in an area. The practice expense adjustment factor 
is based on employee wages, office rents, medical equipments 
and supplies, and other miscellaneous expenses. The malpractice 
adjustment factor reflects differences in malpractice insurance 
costs.
      The Secretary is required to periodically review and 
adjust the relative values affecting physician payment to 
account for changes in medical practice, coding changes, new 
data on relative value components, or the addition of new 
procedures. Under the budget-neutrality requirement, changes in 
these factors cannot cause expenditures to differ by more than 
$20 million from what would have been spent if such adjustments 
had not been made.
House Bill
      For services furnished after January 1, 2004 and before 
January 1, 2006, the Secretary would be required to increase 
the value of any work geographic index that is below 1.00 to 
1.00 unless the Secretary determines, based on the subsequent 
GAO study, that there is no sound economic rationale for such 
change. The provision would be effective upon enactment.
Senate Bill
      For services furnished after January 1, 2004, the 
Secretary would be required to increase the value of any work 
geographic index that is below .980 to .980. The values for 
work index would be raised to 1.0 for services furnished in 
2005, 2006, and 2007. The practice expense and malpractice 
geographic indices in low value localities areas would be 
raised to 1.00 for services furnished in 2005 through 2008.
Conference Agreement
      The Secretary is required to increase the value of any 
work geographic index that is below 1.0 to 1.0 for services 
furnished on or after January 1, 2004 and before January 1, 
2007.
Medicare Incentive Payment Program Improvements for Physician Scarcity 
        (Section 413 of the Conference Agreement, Section 417 of the 
        House Bill, and Section 422 of the Senate Bill).
Present Law
      Physicians providing services in a health professional 
shortage area (HPSA) are entitled to an incentive payment from 
the Medicare program. This incentive payment is a 10% increase 
over the amount which would otherwise be paid under the 
physician fee schedule. Physicians are responsible for 
indicating their eligibility for this bonus on their billing 
forms.
House Bill
      This provision would establish a new five percent bonus 
payment program for physicians providing care to Medicare 
beneficiaries in physician scarcity areas. The Secretary would 
calculate two measures of scarcity. A primary care scarcity 
area would be determined based on the number of primary care 
physicians per Medicare beneficiary--the primary care ratio. A 
specialty care scarcity area would be based on the number of 
specialty care physicians per Medicare beneficiary--the 
specialty care ratio. The number of physicians would be based 
on physicians who actively practice medicine or osteopathy, and 
would exclude physicians whose practice is exclusively for the 
Federal Government, physicians who are retired, or physicians 
who only provide administrative services.
      The Secretary would rank each county or area based on its 
primary care ratio. Primary care scarcity counties or areas 
would be those counties or areas with the lowest primary care 
ratios, such that 20 percent of Medicare beneficiaries reside 
in these counties, when each county or area is weighted by the 
number of Medicare beneficiaries in the county or area. 
Specialty care scarcity counties or areas would be identified 
in the same manner, using the specialty care ratio. There would 
be no administrative or judicial review of the identification 
of counties or areas, or of a specialty of any physician.
      To the extent feasible, the Secretary would treat a rural 
census tract of a metropolitan statistical area, as determined 
under the most recent modification of the Goldsmith 
Modification, as an equivalent area for purposes of qualifying 
as a primary care scarcity area or specialty care scarcity 
area.
      The Secretary would be required to publish a list of all 
areas which would qualify as primary care scarcity counties or 
specialty care scarcity counties as part of the proposed and 
final rules to implement the physician fee schedule.
      The provision would also include improvement to the 
Medicare Incentive Payment Program, which provides a 10 percent 
bonus to physicians in shortage areas. The Secretary would be 
required to establish procedures under which the Secretary, and 
not the physician furnishing the service, would be responsible 
for determining when a bonus payment should be made. As part of 
the physician proposed and final rule for the physician fee 
schedule, the Secretary would be required to include a list of 
all areas which would qualify as a health professional shortage 
area for the upcoming year.
Senate Bill
      The Secretary would be required to establish procedures 
to determine when the physician is eligible for a bonus 
payment. The Secretary would also be required to (1) establish 
an ongoing program to educate physicians about the incentive 
program; (2) establish an ongoing study of the incentive 
program to determine whether beneficiaries' access to 
physician's services within the HPSA has improved; and (3) 
submit annual reports including appropriate recommendations for 
necessary administrative or legislative action concerning 
improvements to the program. GAO would be required to conduct 
an ongoing study of the MIP program on beneficiary access to 
services and submit a report, including appropriate 
recommendations, no later than 1 year from the date of 
enactment.
Conference Agreement
      Additional Incentive Payment for Certain Physician 
Scarcity Areas (Section 413(a) of the Conference Agreement).
      The Conference Agreement establishes a new 5 percent 
incentive payment program designed to reward both primary care 
and specialist care physicians for furnishing services in the 
areas that have fewest physicians available to serve 
beneficiaries. The incentive payment will be made in counties 
accounting for 20 percent of Medicare beneficiaries, which is 
likely to represent more than 20 percent of counties. As with 
the current HPSA bonus program, the 5 percent bonus would be 
added to the amount that Medicare pays after deducting 
beneficiary cost sharing so that beneficiaries do not pay cost-
sharing on the incentive payment.
      The Secretary will calculate two measures of scarcity. A 
primary care scarcity area will be determined based on the 
number of primary care physicians per Medicare beneficiary--the 
primary care ratio. A specialty care scarcity area will be 
based on the number of specialty care physicians per Medicare 
beneficiary--the specialty care ratio. The number of physicians 
will be based on physicians who actively practice medicine or 
osteopathy, and will exclude physicians whose practice is 
exclusively for the Federal Government, physicians who are 
retired, or physicians who only provide administrative 
services.
      The provision requires identification of the county in 
which the service is furnished in order to apply to the bonus. 
Currently, it is the understanding of the Conferees that the 
address where the service is furnished, including the 5-digit 
zip code, is contained on the Medicare claim form. Since some 
zip codes cross county boundaries, the provision allows the 
Secretary to assign zip codes to counties based on the dominant 
county of the zip code as determined by the U.S. Postal Service 
or otherwise. However, nothing would preclude, nor require, the 
Secretary ultimately to use 9-digit zip codes to determine the 
county in which the service is furnished. The provision 
requires periodic review and revision of the counties eligible 
for the bonus, but not less often than once every three years. 
To the extent feasible, the Secretary will treat a rural census 
tract of a metropolitan statistical area, as determined under 
the most recent modification of the Goldsmith Modification, as 
an equivalent area for purposes of qualifying as a primary care 
scarcity area or specialty care scarcity area.
      There will be no administrative or judicial review of the 
designation of the county or area as a scarcity area, the 
designation of an individual physician's specialty, the 
assignment of a physician to a county or the assignment of a 
postal zip code to the county or other area.
      The Secretary will be required to publish a list of all 
areas which will qualify as primary care scarcity counties or 
specialty care scarcity counties as part of the proposed and 
final rules to implement the physician fee schedule.
      The list of eligible counties will be published each year 
in the proposed and final rule implementing the physician fee 
schedule. The list of counties will be posted on the Internet 
website of the Centers for Medicare and Medicaid Services 
(CMS).
      The new five percent bonus for physicians in either 
primary care scarcity counties or specialty care scarcity 
counties will increase financial incentives for physicians to 
provide care to Medicare beneficiaries in these areas with a 
shortage of physicians. This bonus payment will make it easier 
to recruit and retain physicians in these scarcity areas.
      Improvement to Medicare Incentive Payment Program 
(Section 413(b) of the Conference Agreement).
      The Conference Agreement requires the Secretary to pay 
the current law 10 percent Health Professional Shortage Area 
(HPSA) incentive payment for services furnished in full county 
primary care geographic area HPSAs automatically rather than 
having the physician identify that the services were furnished 
in such area. The implementation of the incentive payment will 
be the same as for the physician scarcity full county incentive 
payments, namely use of the 5 digit zip code with the dominant 
county of the zip code in cases where zip codes cross county 
boundaries. A physician will not need to report the HPSA 
modifier on the claim form for services furnished in full 
county HSPAs.
      The Conference Agreement does not contain a requirement 
to automate payment of incentive payments for services 
furnished in partial county HPSAs. However, the provision does 
not preclude the Secretary from automating payment in partial 
county HPSAs if the Secretary determines that it is feasible to 
do so based on information on the Medicare claim form.
      The Conference Agreement requires the Secretary to 
develop a user friendly web site through which physicians may 
obtain information on partial county HPSAs to facilitate 
reporting of the modifier to identify the applicability of the 
incentive payment in partial county HPSAs. The provision 
requires that before the beginning of a calendar year the 
Secretary will identify the HPSAs for which the incentive 
payments will be made for such calendar year. Since HRSA 
designates HPSAs, HRSA will transmit to CMS the list of 
applicable HPSAs with enough lead time for CMS to implement the 
incentive payments for the following calendar year.
      Improvements to the Medicare Incentive Program will shift 
responsibility for identifying eligibility for the 10 percent 
bonus from physicians to the Secretary. A service furnished in 
a county that is both a full county HPSA and a scarcity county 
would receive both bonuses--a total incentive payment of 15 
percent.
GAO Study of Geographic Differences in Payments for Physicians' 
        Services (Section 413(c) of the Conference Agreement, Section 
        413 of the House Bill, and Section 444 of the Senate Bill).
Present Law
      No provision.
House Bill
      GAO would be required to study geographic differences in 
payment amounts in the physician fee schedule including: (1) an 
assessment of the validity of each component of the geographic 
adjustment factors; (2) an evaluation of the measures and the 
frequency with which they are revised; and (3) an evaluation of 
the methods used to establish the costs of professional 
liability insurance including the variation between physician 
specialties and among different states, the update to the 
geographic cost of practice index, and the relative weights for 
the malpractice component. The study, including recommendations 
concerning use of more current data and use of cost data rather 
than price proxies, would be due to Congress within 1 year of 
enactment.
Senate Bill
      GAO would be required to study geographic differences in 
payment amounts in the physician fee schedule including: (1) an 
assessment of the validity of each component of the geographic 
adjustment factors; (2) an evaluation of the measures and the 
frequency with which they are revised; (3) an evaluation of the 
methods used to establish the costs of professional liability 
insurance including the variation between physician specialties 
and among different states, the update to the geographic cost 
of practice index, and the relative weighs for the malpractice 
component; (4) an evaluation of the economic basis for the 
floors on the geographic adjustments established previously in 
this legislation; (5) an evaluation of the effect of the 
geographic adjustments on physician retention, recruitment 
costs, physician mobility; (6) an evaluation of the 
appropriateness of extending such adjustment; (7) an evaluation 
of the adjustment of the work geographic practice cost index to 
reflect \1/4\ the area cost difference in physician work; (8) 
an evaluation of the effect of the geographic practice cost 
index on physician location and retention in higher cost areas; 
and (9) an evaluation of the 1/4 adjustment of such an index. 
The study would include recommendations concerning use of more 
current data and use of cost data rather than price proxies. 
The study would be due to Congress within 1 year of enactment.
Conference Agreement
      GAO will study payment differences under the physician 
fee schedule for different geographic areas, including: (1) an 
assessment of the validity of the geographic adjustment factors 
for each component of the fee schedule; (2) an evaluation of 
the measures used for such adjustment, including the frequency 
of revisions; (3) an evaluation of the method used to determine 
professional liability insurance costs including the variation 
between physician specialties and among different states, the 
update to the geographic cost of practice index, and the 
relative weighs for the malpractice component; and (4) an 
evaluation of the effect of the physician work geographic 
adjustment as modified by this legislation on physician 
location and retention taking into account differences in 
recruitment costs and retention rates for physicians (including 
specialists) between large urban areas and other areas and the 
mobility of physicians over the last decade. The study, 
including recommendations concerning use of more current data 
and use of cost data rather than price proxies, is due to 
Congress within 1 year of the enactment date.
Payment for Rural and Urban Ambulance Services
Phase-In Providing Floor Using Blend of Fee Schedule and Regional Fee 
        Schedule (Section 414(a) of the Conference Agreement and 
        Section 622 of the House Bill).
Present Law
      Traditionally, Medicare has paid suppliers of ambulance 
services on a reasonable charge basis and paid provider-based 
ambulances on a reasonable cost basis. BBA 1997 provided for 
the establishment of a national fee schedule which was to 
implemented in phases, in an efficient and fair manner. The 
required fee schedule became effective April 1, 2002 with full 
implementation by January, 2006. In the transition period, a 
gradually decreasing portion of the payment is to be based on 
the prior payment methodology (either reasonable costs or 
reasonable charges).
House Bill
      Payments for ambulance services would be based on the 
ambulance specific amount blended with the national fee 
schedule amount or a combined rate of the national fee schedule 
and a regional fee schedule, whichever resulted in the larger 
payment. The blended rate during the phase-in period would 
incorporate a decreasing portion of the payment based on 
regional fee schedules calculated for each of nine census 
regions. Generally, the regional fee schedules would be based 
on the same methodology and data used to construct the national 
fee schedule. For services provided in 2004, the blended rate 
would be based on 20% of the national fee schedule and 80% of 
the regional fee schedule; in 2005 blended rate would be based 
on a 40% national and 60% regional split; in 2006, the blended 
rate would be based on a 60% national and 40% regional split; 
in 2007, 2008 and 2009, the blended rate would be based on a 
80% national and 20% regional split; and in 2010 and 
subsequently, the ambulance fee schedule would be based on the 
national fee schedule.
Senate Bill
      No provision.
Conference Agreement
      Payments for ambulance services will be based on the 
ambulance specific amount blended with either the national fee 
schedule amount or a combined rate of the national fee schedule 
and a regional fee schedule, whichever resulted in the larger 
payment. The blended rate during the phase-in period will 
incorporate a decreasing portion of the payment based on 
regional fee schedules calculated for each of nine census 
regions. Generally, the regional fee schedules will be based on 
the same methodology and data used to construct the national 
fee schedule. For 2004, starting for services on July 1, 2004, 
the blended rate is based on 20% of the national fee schedule 
and 80% of the regional fee schedule; for 2005, the blended 
rate is based on a 40% national and 60% regional split; in 
2006, the blended rate is based on a 60% national and 40% 
regional split; in 2007, 2008 and 2009, the blended rate is 
based on a 80% national and 20% regional split; and in 2010 and 
subsequently, the ambulance fee schedule is based on the 
national fee schedule.
Adjustment in Payment for Certain Long Trips (Section 414(b) of the 
        Conference Agreement and Section 622 of the House Bill).
Present Law
      The fee schedule payment amount equals the base rate for 
the level of service plus payment for mileage and specified 
adjustment factors. Additional mileage payments are made in 
rural areas. BIPA increased payment for rural ambulance mileage 
for distances greater than 17 miles and up to 50 miles for 
services provided before January 1, 2004. The amount of the 
increase was at least one-half of the payment per mile 
established in the fee schedule for the first 17 miles of 
transport.
House Bill
      Medicare's payments for ground ambulance services would 
be increased by one quarter of the amount otherwise established 
for trips longer than 50 miles occurring on or after January 1, 
2004 and before January 1, 2009. The payment increase would 
apply regardless of where the transportation originated. GAO 
would be required to submit an initial report to Congress on 
the access and supply of ambulance services in regions and 
states where ambulance payments are reduced by December 31, 
2005. GAO would be required to submit a final report to 
Congress no later than December 31, 2007. The provision would 
apply to ambulance services furnished on or after January 1, 
2004.
Senate Bill
      No provision.
Conference Agreement
      Medicare's payments for ground ambulance services will be 
increased by one quarter of the payment per mile rate otherwise 
established for trips longer than 50 miles occurring on or 
after July 1, 2004 and before January 1, 2009. The payment 
increase applies regardless of where the transportation 
originates.
Improvement in Payments to Retain Emergency Capacity For Ambulance 
        Services in Rural Areas (Section 414(c) of the Conference 
        Agreement and Section 410 of the House Bill).
Present Law
      Traditionally, Medicare has paid suppliers of ambulance 
services on a reasonable charge basis and paid provider-based 
ambulances on a reasonable cost basis. BBA 1997 provided for 
the establishment of a national fee schedule which was to be 
implemented in phases, in an efficient and fair manner. The 
required fee schedule became effective April 1, 2002 with full 
implementation by January, 2006. In the transition period, a 
gradually decreasing portion of the payment is to be based on 
the prior payment methodology (either reasonable costs or 
reasonable charges).
      The fee schedule payment amount equals the base rate for 
the level of service plus payment for mileage and specified 
adjustment factors. Additional mileage payments are made in 
rural areas. BIPA increased payment for rural ambulance mileage 
for distances greater than 17 miles and up to 50 miles for 
services provided before January 1, 2004. The amount of the 
increase was at least one-half of the payment per mile 
established in the fee schedule for the first 17 miles of 
transport.
House Bill
      Starting for services provided January 1, 2004 the 
Secretary would be required to provide a percentage increase in 
the base rate of the fee schedule for ground ambulance services 
that originate in a qualified rural area. The increase would be 
estimated using the average cost per trip for the base rate in 
the lowest quartile as compared to the average cost for the 
base rate in the highest quartile of all rural counties. A 
qualified rural county is a rural area (a county not assigned 
to a metropolitan statistical area) with a population density 
of Medicare beneficiaries in the lowest quartile of all rural 
counties.
Senate Bill
      No provision.
Conference Agreement
      The Secretary will provide a percentage increase in the 
base rate of the fee schedule for ground ambulance services 
furnished on or after July 1, 2004 and before January 1, 2010 
that originate in a qualified rural area. The payment increase 
is estimated using the average cost per trip for the base rate 
(not taking into account mileage) in the lowest quartile as 
compared to the average cost for the base rate (not taking into 
account mileage) in the highest quartile of all rural counties. 
The Secretary will determine the population density for each 
rural area using 2000 Census data and rank each county 
accordingly. The qualified rural areas are those with the 
lowest population densities that collectively represent a total 
of 25% of the population in those areas. To the extent 
feasible, the Secretary is required to treat certain rural 
census tracts in metropolitan statistical areas as a rural 
area. There will be no administrative or judicial review under 
Sections 1869 and 1878 of the SSA or otherwise with respect to 
the identification of a qualified rural area. In order to 
promptly implement this provision, the Secretary may use data 
furnished by GAO.
Temporary Increase for Ground Ambulance Services (Section 414(d) of the 
        Conference Agreement and Section 425 of Senate Bill).
Present Law
      The ambulance fee schedule payment amount equals the base 
rate for the level of service plus payment for mileage and 
specified adjustment factors. Additional mileage payments are 
made in rural areas. BIPA increased payment for rural ambulance 
mileage for distances greater than 17 miles and up to 50 miles 
for services provided before January 1, 2004. The amount of the 
increase was at least one-half of the payment per mile 
established in the fee schedule for the first 17 miles of 
transport.
House Bill
      No provision.
Senate Bill
      The payments for ground ambulance services originating in 
a rural area or a rural census tract would be increased by 5% 
for services furnished on or after January 1, 2005 through 
December 31, 2007. The fee schedule for ambulances in other 
areas would be increased by 2%. These increased payments would 
not affect Medicare payments for covered ambulance services in 
subsequent periods. The conversion factor for ambulance 
services would not be adjusted downward because of the 
Secretary's evaluation of the prior year's conversion factor.
Conference Agreement
      The payments for ground ambulance services originating in 
a rural area or a rural census tract will be increased by 2% 
(after application of the long trip and low density payment 
increases) for services furnished on or after July 1, 2004 
through December 31, 2007. The fee schedule for ambulances in 
other areas (after application of the long trip adjustment) 
will increase by 1%. These increased payments will not affect 
Medicare payments for covered ambulance services after 2007.
      Implementation, GAO Report on Costs and Access, and 
Technical Amendments (Section 414(e)-(g) of the Conference 
Agreement).
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      No provision.
Conference Agreement
      The Secretary is able to implement the amendments made by 
Section 414 and revisions to the conversion factor on an 
interim, final basis or by program instruction. GAO is required 
to submit an initial report to Congress on cost differences 
among different types of ambulance providers, and the impact of 
payment reductions in the ambulance fee schedule on access, 
supply, and quality of ambulance services in regions and states 
with such reductions. Other technical amendments will also be 
adopted.
      Providing Appropriate Coverage of Rural Air Ambulance 
Services (Section 415 of the Conference Agreement and Section 
426 in the Senate Bill).
Present Law
      Medicare pays for ambulance services under a fee 
schedule. Seven categories of ground ambulance services, 
ranging from basic life support to specialty care transport, 
and two categories of air ambulance services are established. 
Payment for ambulance services can only be made if other 
methods of transportation are contraindicated by the patient's 
medical conditions, but only to the extent provided in 
regulations.
House Bill
      No provision.
Senate Bill
      The regulations governing ambulance services would be 
required to ensure that air ambulance services be reimbursed 
if: (1) the air ambulance service is medically necessary based 
on the health condition of the patient being transported at or 
immediately prior to the time of the transport service; and (2) 
the air ambulance service complies with the equipment and crew 
requirements established by the Secretary. An air ambulance 
service would be considered medically necessary when requested: 
(1) by a physician or hospital in accordance with their 
responsibilities under the Emergency Medical Treatment and 
Active Labor Act; (2) as a result of a protocol established by 
a state or regional emergency medical service agency; (3) by a 
physician, nurse practitioner, physician assistant, registered 
nurse, or emergency medical responder who reasonably determines 
or certifies that patient's condition is such that the time 
involved in land transport significantly increases the 
patient's medical risks; or (4) by a Federal or State agency to 
relocate patients following a natural disaster, an act of war, 
or a terrorist act. Air ambulance services would be defined as 
a fixed wing or rotary wing air ambulance services. The 
provision would apply to services furnished on or after January 
1, 2005.
Conference Agreement
      The regulations governing the use of ambulance services 
will provide that to the extent that any ambulance service 
(whether ground or air) may be covered, a rural air ambulance 
service will be at the air ambulance rate if: (1) the air 
ambulance service is reasonable and necessary based on the 
health condition of the patient being transported at or 
immediately prior to the time of the transport service; and (2) 
the air ambulance service complies with the equipment and 
crewrequirements established by the Secretary. An air ambulance service 
is considered reasonable and necessary when requested: (1) by a 
physician or other qualified medical personnel who reasonably 
determines or certifies that an individual's condition is such that the 
time needed to transport the individual by land or the instability of 
land transportation poses a threat to the individual's survival or 
seriously endangers the individual's health or (2) such services is 
furnished pursuant to a protocol under which the use of an air 
ambulance is recommended that is established by a state or regional 
emergency medical services (EMS) agency and recognized or approved by 
the Secretary. The EMS agency cannot have an ownership interest in the 
entity furnishing such service. Also, there cannot be a financial or 
employment relationship or a common ownership arrangement between the 
person requesting the rural air ambulance service and the furnishing 
entity or a financial relationship between an immediate family member 
of such requester and such an entity. This prohibition does not apply 
to instances when a hospital and an entity furnishing the rural air 
ambulance services are under common ownership if remuneration (through 
employment or other relationship) is for provider based physician 
services furnished in a hospital which are reimbursed under Part A and 
is unrelated directly or indirectly to the provision of rural air 
ambulance services. A rural air ambulance service is defined as a fixed 
wing or rotary wing air ambulance service where the individual's point 
of pick up is in a rural area or rural census tract. The provision 
applies to services furnished on or after January 1, 2005.
Treatment of Certain Clinical Diagnostic Laboratory Tests Furnished To 
        Hospital Outpatients in Certain Rural Areas (Section 416 of the 
        Conference Agreement and Section 427 of the Senate Bill).
Present Law
      Generally, hospitals that provide clinical diagnostic 
laboratory tests under Part B are reimbursed using a fee 
schedule. Sole community hospitals (SCHs) that provide some 
clinical diagnostic tests 24 hours a day qualify for a 2% 
increase in the amounts established in the outpatient 
laboratory fee schedule; no beneficiary cost-sharing amounts 
are imposed.
House Bill
      No provision.
Senate Bill
      SCHs that provide clinical diagnostic laboratory tests 
covered under Part B in 2005 and 2006 would be reimbursed their 
reasonable costs of furnishing the tests. No beneficiary cost 
sharing amounts would apply to these services.
Conference Agreement
      Hospitals with under 50 beds in qualified rural areas 
(low density population rural areas established under Section 
414(c) of this legislation) will receive 100% reasonable cost 
reimbursement for clinical diagnostic laboratory tests covered 
under Part B that are provided as outpatient hospital services. 
The Secretary will apply the rules that determine whether 
clinical diagnostic laboratory tests are furnished as an 
outpatient critical access hospital service to establish 
whether these clinical diagnostic laboratory tests are 
outpatient hospital services. The provision will apply to 
services furnished during a cost reporting period beginning 
during the 2-year period starting July 1, 2004.
Extension of the Telemedicine Demonstration Project (Section 417 of the 
        Conference Agreement and Section 415 of the House Bill).
Present Law
      BBA 1997 established a single 4-year demonstration 
project where an eligible health care provider telemedicine 
network would use high-capacity computer systems and medical 
infomatics to improve primary care and prevent health 
complications in Medicare beneficiaries with diabetes mellitus. 
The Informatics, Telemedicine, and Education Demonstration 
project uses modified home computers or home telemedicine units 
linked to clinical information systems to assist beneficiaries 
residing in medically under-served rural or medically under-
served inner-city areas, interaction with a nurse case manager, 
video conferencing, and access to health information and 
medical data, in both Spanish and English. The demonstration 
will expire in February 2004.
House Bill
      The demonstration project would be extended for 4 years 
and total funding would be increased from $30 million to $60 
million. The provision would be effective upon enactment.
Senate Bill
      No provision.
Conference Agreement
      The demonstration project is extended for 4 years and 
total funding will be increased from $30 million to $60 
million. The provision will be effective upon enactment.
      Report on Demonstration Project Permitting Skilled 
Nursing Facilities to Be Originating Telehealth Sites (Section 
418 of the Conference Agreement and Section 450H of the Senate 
Bill).
Present Law
      Medicare will pay for use of certain telecommunications 
systems as a substitute for face-to-face encounters to provide 
consultations, office or other outpatient visits, individual 
psychotherapy and pharmacologic management services to eligible 
beneficiaries. With certain exceptions, Medicare beneficiaries 
are eligible for telehealth services only if they are presented 
from an originating site located in either a rural health 
professional shortage area or in a county that is not in a 
metropolitan statistical area. An originating site is the 
location of the beneficiary at the time the services being 
furnished by the telecommunications system occurs. Originating 
sites defined in statute include the office of a physician or 
practitioner, a hospital, a critical access hospital, a rural 
health clinic or a federally qualified health center.
House Bill
      No provision.
Senate Bill
      This provision would add types of providers to the list 
of originating sites that can bill Medicare for telehealth 
services. The additional providers are both those defined by 
the statute and those that would be defined by the Secretary. 
Providers defined in the statute are: a skilled nursing 
facility (1918(a)), a community mental health center 
(1861(ff)(2)(B)), and a facility operated by the Indian Health 
Service or by an Indian tribe, tribal organization, or an urban 
Indian organization (as defined in Senate Section 4 of the 
Indian Health Care Improvement Act). Providers that would be 
defined by the Secretary are: an assisted-living facility, a 
board-and-care home, a county or community health clinic, and a 
long-term care facility (as defined by the Secretary.) In 
addition, the Secretary would be required to encourage and 
facilitate the adoption of State provisions allowing for multi-
state practitioner licensure across State boundaries. The 
provision would be effective upon enactment.
Conference Agreement
      The Secretary will evaluate a demonstration project under 
which a skilled nursing facility is treated as an originating 
site for telehealth services. The Secretary will delegate the 
evaluation to the Administrator of the Health Resources and 
Services Administration who will consult with the Administrator 
for the Centers for Medicare & Medicaid Services. No later than 
January 1, 2005, the Secretary will submit a report to Congress 
on the evaluation including recommendations on mechanisms to 
ensure that permitting a skilled nursing facility to serve as 
an originating site for the use of telehealth services or any 
other services delivered via a telecommunications system does 
not substitute for in-person required visits furnished by 
physicians, physician assistants, nurse practitioners or 
clinical nurse specialists at specified intervals as required 
by the Secretary. If the Secretary concludes that it is 
advisable to permit a skilled nursing facility to be an 
originating site for telehealth services, and the Secretary can 
establish the mechanisms to ensure such permission does not 
serve as a substitute for in-person visits, the Secretary may 
deem a skilled nursing facility to be an originating site 
beginning on January 1, 2006.
Exclusion of Certain Rural Health Clinic and Federally Qualified Health 
        Center Services from the Prospective Payment System for Skilled 
        Nursing Facilities (Section 410 of the Conference Report and 
        408 of the House Bill and Section 429 of the Senate Bill).
Present Law
      Under Medicare's prospective payment system (PPS), 
skilled nursing facilities (SNFs) are paid a predetermined 
amount to cover all services provided in a day, including the 
costs associated with room and board, nursing, therapy, and 
drugs; the daily payment will vary depending upon a patient's 
therapy, nursing and special care needs as established by one 
of 44 resource utilization groups (RUGs). Certain services and 
items provided an SNF resident, such as physicians' services, 
specified ambulance services, chemotherapy items and services, 
and certain outpatient services from a Medicare-participating 
hospital or critical access hospital, are excluded from the 
SNF-PPS and paid separately under Part B.
House Bill
      Services provided by a rural health clinic (RHCs) and a 
federally qualified health center (FQHC) after January 1, 2004 
would be excluded from SNF-PPS if such services would have been 
excluded if furnished by a physician or practitioner who was 
not affiliated with an RHC or FQHC. The provisions would apply 
to services furnished on or after January 1, 2004.
Senate Bill
      Services provided by a rural health clinic (RHC) and a 
federally qualified health center (FQHC) after January 1, 2005 
would be excluded from SNF-PPS if such services would have been 
excluded if furnished by a physician or practitioner who was 
not affiliated with an RHC or FQHC. Outpatient services that 
are beyond the general scope of SNF comprehensive care plans 
that are provided by an entity that is 100% owned as a joint 
venture by two Medicare-participating hospitals or critical 
access hospitals would be excluded from the SNF-PPS. The 
provision would apply to services furnished on or after January 
1, 2005.
Conference Agreement
      Services provided by a rural health clinic (RHC) and a 
federally qualified health center (FQHC) after January 1, 2004 
would be excluded from SNF-PPS if such services would have been 
excluded if furnished by a physician or practitioner who was 
not affiliated with an RHC or FQHC. The provisions would apply 
to services furnished on or after January 1, 2004.
      Improvement in Rural Health Clinic Reimbursement (Section 
428 in the Senate Bill).
Present Law
      BBA 1997 extended the per visit payment limits that had 
existed for independent rural health clinics to provider-based 
rural health clinics (RHC) except for those clinics based in 
small rural hospitals with fewer than 50 beds. For services 
rendered from January 1, 2003 through February 28, 2003, the 
RHC upper payment limit is $66.46, which reflects a 2.6% 
increase in the 2002 payment limit as established by the 2002 
Medicare Economic Index (MEI). For services rendered from March 
1, 2003 through December 31, 2003, the Medicare RHC upper 
payment limit is $66.72, which reflects a 3.0% increase in the 
2002 payment limit as established by the 2003 MEI. The 2002 MEI 
was used as an update for 3 months because of the delayed 
implementation of the 2003 MEI.
House Bill
      No provision.
Senate Bill
      The RHC upper payment would be increased to $80.00 for 
calendar year 2005. The MEI applicable to primary care services 
would be used to increase the payment limit in subsequent 
years. The provision would be effective upon enactment.
Conference Agreement
      No provision.
Frontier Extended Stay Clinic Demonstration Project (Section 434 of the 
        Conference Report and Section 457/Duplicative Provision 460 of 
        the Senate Bill).
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      The Secretary would be required to conduct a 
demonstration project that would treat frontier extended stay 
clinics as a Medicare provider. A frontier extended stay clinic 
is one that is located in a community where the closest acute 
care hospital or critical access hospital is at least 75 miles 
away or is inaccessible by public road. Such clinics are 
designed to address the needs of seriously or critically ill or 
injured patients who, due to adverse weather conditions or 
other reasons, cannot be transferred quickly to acute care 
referral centers; or patients who need monitoring and 
observation for a limited period of time. The provision would 
be effective upon enactment.
Conference Agreement
      The Secretary would be required to conduct a 
demonstration project that would treat frontier extended stay 
clinics as a Medicare provider. A frontier extended stay clinic 
is one that is located in a community where the closest acute 
care hospital or critical access hospital is at least 75 miles 
away or is inaccessible by public road and is designed to 
address the needs of seriously or critically ill or injured 
patients who, due to adverse weather conditions or other 
reasons, cannot be transferred quickly to acute care referral 
centers; or patients who need monitoring and observation for a 
limited period of time. The Secretary is required to develop 
life safety code standards for these clinics such as sprinkler 
systems because the patients stay overnight. The provision 
would be effective upon enactment and is budget neutral.

            Subtitle C--Provisions Relating to Parts A and B

1-Year Increase for Home Health Services Furnished in a Rural Area 
        (Section 421 of the Conference Agreement, Section 411 of the 
        House Bill, and Section 451 of the Senate Bill).
Present Law
      The Medicare home health PPS which was implemented on 
October 1, 2000 provides a standardized payment for a 60-day 
episode of care furnished to a Medicare beneficiary. Medicare's 
payment is adjusted to reflect the type and intensity of care 
furnished and area wages as measured by the hospital wage 
index. BIPA increased PPS payments by 10% for home health 
services furnished in the home of beneficiaries living in rural 
areas during the 2-year period beginning April 1, 2001, through 
March 31, 2003, without regard to certain budget-neutrality 
provisions applying to home health PPS. The temporary 
additional payment is not included in the base for 
determination of payment updates.
House Bill
      The provision would extend a 5% additional payment for 
home health care services furnished in a rural area during 
FY2004 and FY2005 without regard to certain budget-neutrality 
requirements. The provision would be effective upon enactment.
Senate Bill
      The provision would provide a temporary payment increase 
of 5% for home health care services furnished in a rural area 
on or after October 1, 2004 and before October 1, 2006 without 
regard to certain budget-neutrality requirements. The temporary 
additional payment would not be considered when determining 
future home health payment amounts. The provision would be 
effective upon enactment.
Conference Agreement
      The conference agreement provides a 1-year, 5% additional 
payment for home health care services furnished in a rural area 
without regard to certain budget-neutrality requirements. The 
temporary additional payment begins for episodes and visits 
ending on or after April 1, 2004 and before April 1, 2005 and 
is not to be used in calculating future home health payment 
amounts.
Redistribution of Unused Resident Positions (Section 422 of the 
        Conference Agreement and Section 406 of the House Bill).
Present Law
      Medicare has different resident limits for counting 
residents in its indirect medical education (IME) adjustment 
and for reimbursement for a teaching hospital's direct medical 
education (DGME) costs. Generally, a hospital's IME adjustment 
depends on a hospital's teaching intensity as measured by the 
ratio of the number of interns and residents per bed. Prior to 
BBA 1997, the number of residents that could be counted for IME 
purposes included only those in the hospital inpatient and 
outpatient departments. Effective October 1, 1997, under 
certain circumstances a hospital may now count residents in 
non-hospital sites for the purposes of IME. Medicare DGME 
payment to a teaching hospital is based on its updated cost per 
resident (subject to a locality adjustment and certain payment 
corridors), the weighted number of approved full-time-
equivalent (FTE) residents, and Medicare's share of inpatient 
days in the hospital. Medicare counts residents in their 
initial residency period (the lesser of the minimum number of 
years required for board eligibility in the physician's 
specialty or 5 years) as 1.0 FTE. Residents whose training has 
extended beyond their initial residency period count as 0.5 
FTE. Residents in certain specialties are allowed additional 
years in their initial residency period. Residents who are 
graduates from foreign medical schools do not count unless they 
pass certain exams.
      Generally, the resident counts for both IME and DGME 
payments are based on the number of residents in approved 
allopathic and osteopathic teaching programs that were reported 
by the hospital for the cost reporting period ending in 
calendar year 1996. The DGME resident limit is based on the 
unweighted resident counts. It may differ from the IME limit 
because in 1996 residents training in non-hospital sites were 
eligible for DGME payments but not for IME payments. Hospitals 
that established new training programs before August 5, 1997 
are partially exempt from the cap. Other exceptions apply to 
certain hospitals including those with new programs established 
after that date. Hospitals in rural areas (and nonrural 
hospitals operating training programs in rural areas) can be 
paid for 130% of the number of residents allowed by their cap. 
Under certain conditions, an affiliated group of hospitals 
under a specific arrangement may combine their resident limits 
into an aggregate limit. Subject to these resident limits, a 
teaching hospital's IME and DGME payments are based on a 3-year 
rolling average of resident counts, that is, the resident count 
will be based on the average of the resident count in the 
current year and the 2 preceding years. The rolling average 
calculation includes podiatry and dental residents.
House Bill
      A teaching hospitals total number of Medicare-reimbursed 
resident positions would be reduced for cost reporting periods 
starting January 1, 2004 if its resident reference level is 
less than its applicable resident limit. If so, the reduction 
would equal 75% of the difference between the hospitals limit 
and its resident reference level. The resident reference level 
would be the highest number of allopathic and osteopathic 
resident positions (before the application of any weighting 
factors) for the hospital during the reference period. A 
hospitals reference period would be the 3 most recent 
consecutive cost reporting periods for which a hospitals cost 
reports have been settled (or in the absence of such settled 
cost reports, submitted reports) on or before September 30, 
2002. The Secretary would be able to adjust a hospitals 
resident reference level, upon the timely request for such an 
adjustment, for the cost reporting period that includes July 1, 
2003.
      The Secretary would be authorized to increase the 
applicable resident limits for hospitals by an aggregate number 
that does not exceed the overall reduction in such limits. No 
increase would be permitted for any portion of cost reporting 
period that occurs before July 1, 2004 or before the date of a 
hospital's application for such an increase. No increase would 
be permitted unless the hospital applied for such an increase 
by December 31, 2005. The Secretary would consider the need for 
an increase in the physician specialty and the location 
involved. The Secretary would first distribute the increased 
resident count to programs in hospitals located in rural areas 
and hospitals that are not in large urban areas on a first-
come-first-served basis. The hospital would have to demonstrate 
that the resident positions would be filled; not more than 25 
positions would be given to any hospital. These hospitals would 
be reimbursed for DGME for the increase in resident positions 
at the locality adjusted national average per resident amount. 
Changes in a hospitals resident count established under this 
section would affect a hospitals IME adjustment. These 
provisions would not apply to reductions in residency programs 
that occurred as part of the voluntary reduction program or 
would affect the ability of certain hospitals to establish a 
new medical residency training program. The Secretary would be 
required to submit a report to Congress no later than July 1, 
2005 on whether to extend the application deadline for 
increases in resident limits. The provision would be effective 
upon enactment.
Senate Bill
      No provision.
Conference Agreement
      A teaching hospital's total number of Medicare-reimbursed 
resident positions will be reduced for cost reporting periods 
starting July 1, 2005 if its reference resident level is less 
than its applicable resident limit. Rural hospitals with less 
than 250 acute care inpatient beds would be exempt from such 
reductions. For other such hospitals, the reduction will equal 
75% of the difference between the hospital's limit and its 
reference resident level. The resident reference level is the 
highest number of allopathic and osteopathic resident positions 
(before the application of any weighting factors) for the 
hospital during the reference period. This reference level is 
either (1) the resident level of the most recent cost reporting 
period of the hospital for which a cost report has been settled 
(or submitted, subject to audit) on or before September 30, 
2002 or (2) the resident level for the cost reporting period 
that includes July 1, 2003, if requested on a timely basis by 
the hospital subject to audit. Upon this timely request at the 
discretion of the Secretary, a hospital's reference level will 
be adjusted to include the number of medical residents for the 
cost reporting period that includes July 1, 2003. Upon timely 
request of the hospital, the Secretary will adjust the 
reference resident level to include the number of medical 
residents that were approved in an application to the 
appropriate accrediting organization before January 1, 2002 if 
the program was not in operation by the cost reporting period 
in question (either September 30, 2002 or July 1, 2003 
depending upon the hospital's circumstances and the Secretary's 
approval). The reduction will apply to hospitals that are 
members of the same affiliated group as of July 1, 2003.
      The Secretary is authorized to increase the applicable 
resident limits for hospitals for portions of cost reporting 
periods occurring on or after July 1, 2005 by an aggregate 
number that does not exceed the overall reduction in such 
limits. The Secretary will take into account the demonstrated 
likelihood of the hospital filling the positions within the 
first 3 cost reporting periods beginning on or after July 1, 
2005 when determining which hospitals would receive an increase 
in their resident levels. The Secretary will establish a 
priority order to distribute the increased resident count first 
to programs in hospitals located in rural areas, then to 
hospitals that are not in large urban areas and finally to 
other hospitals in a state where there is no other training 
program for a particular specialty. The Secretary shall 
consider giving special consideration to hospitals that train a 
large share of graduates from historically large medical 
colleges. Increases to limits with the same priority category 
will be determined by the Secretary. Not more than 25 
additional FTEs will be given to any hospital. These hospitals 
will be reimbursed for DGME for the increase in resident 
positions at the locality adjusted national average per 
resident amount. Changes in a hospital's resident count 
established under this section will affect a hospital's IME 
adjustment; the IME adjustment will be calculated as if ``c'' 
is equal to 0.66 for these additional positions starting for 
discharges after July 1, 2005. These provisions will not apply 
to reductions in residency programs that occurred as part of 
the voluntary reduction program or will not affect the ability 
of certain hospitals to establish new medical residency 
training programs. The Secretary is required to submit a report 
to Congress no later than July 1, 2005 on whether to extend the 
application deadline for increases in resident limits. 
Requirement with respect to Federal information policy 
established by Chapter 35 of Title 44, United States Code will 
not apply to applications under this section.

                      Subtitle D--Other Provisions

Providing Safe Harbor for Certain Collaborative Efforts that Benefit 
        Medically Underserved Populations (Section 431 of the 
        Conference Agreement and Section 412 of the House Bill).
Present Law
      People who knowingly and willfully offer or pay a 
kickback, a bribe, or rebate directly or indirectly to induce 
referrals or the provision of services under a Federal program 
may be subject to financial penalties and imprisonment. Certain 
exceptions or safe harbors that are not considered violations 
of the anti-kickback statute have been established.
House Bill
      Remuneration in the form of a contract, lease, grant, 
loan or other agreement between a public or non-profit private 
health center and an individual or entity providing goods or 
services to the health center would not be a violation of the 
anti-kickback statute if such an agreement would contribute to 
the ability of the health center to maintain or increase the 
availability or quality of services provided to a medically 
underserved population. The Secretary would be required to 
establish standards, on an expedited basis, related to this 
safe harbor that would consider whether the arrangement (1) 
resulted in savings of Federal grant funds or increased 
revenues to the health center; (2) expanded or limited a 
patient's freedom of choice; and (3) protected a health care 
professional's independence regarding the provision of 
medically appropriate treatment. The Secretary would also be 
able to include other standards that are consistent with 
Congressional intent in enacting this exception. The Secretary 
would be required to publish an interim final rule in the 
Federal Register no later than 180 days from enactment that 
would establish these standards. The rule would be effective 
immediately, subject to change after a public comment period of 
not more than 60 days. The provision would be effective upon 
enactment.
Senate Bill
      No provision.
Conference Agreement
      Remuneration in the form of a contract, lease, grant, 
loan or other agreement between a public or non-profit private 
health center and an individual or entity providing goods or 
services to the health center would not be a violation of the 
anti-kickback statute if such an agreement would contribute to 
the ability of the health center to maintain or increase the 
availability or quality of services provided to a medically 
underserved population. The Secretary would be required to 
establish standards, on an expedited basis, related to this 
safe harbor that would consider whether the arrangement (1) 
results in savings of Federal grant funds or increased revenues 
to the health center; (2) expands or limits a patient's freedom 
of choice; and (3) protects a health care professional's 
independence regarding the provision of medically appropriate 
treatment. The Secretary would also be able to include other 
standards that are consistent with Congressional intent in 
enacting this exception. The Secretary would be required to 
publish a final regulation establishing these standards no 
later than 1 year from the date of enactment.
Office of Rural Health Policy Improvement (Section 432 of the 
        Conference Agreement and Section 637 of the Senate Bill).
Present Law
      Within the Department of Health and Human Services, the 
Office of Rural Health Policy advises the Secretary on the 
effects of current policies and proposed statutory, regulatory, 
administrative, and budgetary changes in Medicare and Medicaid 
program on the financial viability of small rural hospitals, 
the ability of rural areas to attract and retain physicians and 
other health professionals, and access to and the quality of 
health care in rural areas. In addition to advising the 
Secretary, the Office has other responsibilities including 
coordinating the activities within HHS that relate to rural 
health care.
House Bill
      No provision.
Senate Bill
      The list of explicit responsibilities of the Office is 
expanded to include administering grants, cooperative 
agreements, and contracts to provide technical assistance and 
other activities as necessary to support activities related to 
improving health care in rural areas. The provision would be 
effective upon enactment.
Conference Agreement
      The functions of the Office of Rural Health Policy will 
be expanded; it will be authorized to administer grants, 
cooperative agreements, and contracts to provide technical 
assistance and other necessary activities to support activities 
related to improving rural health care. The provision is 
effective on enactment.
      MedPAC Study on Rural Payment Adjustments (Section 433 of 
the Conference Agreement).
Present Law
      No provision.
House Bill
      No provision.
Conference Agreement
      MedPAC will study the effect on specified rural 
provisions in this legislation (specifically, Sections 401 
through 405, 411, 416, and 504) including total payments, 
growth in costs, capital spending and other payment factors. An 
interim report on changes to the critical access hospital 
program (in Section 405) is due to Congress no later than 18 
months from the date of enactment. MedPAC's final report on all 
topics is due to Congress no later than 3 years from the date 
of enactment.

                 TITLE V--PROVISIONS RELATING TO PART A

                Subtitle A--Inpatient Hospital Services

Revision of Acute Hospital Payment Updates (Section 501(a) and 501(b) 
        of the Conference Agreement and Section 501 of the House Bill).
Present Law
      Each year, Medicare's operating payments to hospitals are 
increased or updated by a factor that is determined in part by 
the projected annual change in the hospital market basket (MB). 
Congress establishes the update for Medicare's inpatient 
prospective payment system (IPSS) for operating costs, often 
several years in advance. Currently, acute hospitals will 
receive the MB as an update for FY2004 and subsequently. CMS 
has asked hospital to report on 10 JCAHO/CMS measures, 
developed by the National Quality Foundation. For example, 
whether a patient with an acute myocardial infarction receives 
aspirin at arrival. As of October 9, 2003, 420 hospitals (out 
of the over 5,000 acute care hospitals that bill Medicare) had 
provided CMS with one or more measures.
House Bill
      Acute hospitals would receive an operating update of the 
MB minus 0.4 percentage points for FY2004 through FY2006. The 
operating update would be the MB increase in FY2007 and 
subsequently. The provision would be effective upon enactment.
Senate Bill
      No provision.
Conference Agreement
      An acute hospital will receive an operating update of the 
MB in FY2004. An acute hospital will receive an operating 
update of the MB from FY2005 through FY2007 if it submits data 
on the 10 quality indicators established by the Secretary as of 
November 1, 2003. The Secretary will specify the form, manner, 
and time of the data submission except that any data collection 
and editing must be done before the start of the fiscal year. 
For FY2005, the Secretary will provide for a 30-day grace 
period for the submission of the required data. A hospital that 
does not submit data to the Secretary will receive an update of 
the MB minus 0.4 percentage points for the fiscal year in 
question. The Secretary will not take into account this 
reduction when computing the applicable percentage increase in 
subsequent years.
      The Secretary is directed to compile and clarify the 
procedures and policies for billing for blood and blood costs 
in the hospital inpatient and outpatient settings as well as 
the operation of the collection of the blood deductible.
      Inpatient rehabilitation facilities (IRF) provide 
Medicare patients with rehabilitation services. They are 
distinguished from acute care settings by a number of criteria 
including that 75 percent of their cases must be in ten 
categories--stroke, spinal cord injury, congenital deformity, 
amputation, major multiple trauma, fracture of femur, brain 
injury, and polyarthritis, including rheumatoid arthritis, 
neurological disorders, and burns. This criterion is commonly 
referred to as the ``75 percent rule.''
      On September 2, 2003, CMS issued proposed changes in 
classifying IRFs. The Conferees are concerned that the rule, as 
written, would have severe consequences for access to inpatient 
rehabilitation hospital services. The Conferees concur with the 
Medicare Payment Advisory Commission (MedPAC) finding that 
further analysis should be conducted to identify which 
conditions are clinically appropriate for inclusion in the 
calculation of the 75 percent rule used to determine 
eligibility for reimbursement under the inpatient 
rehabilitation facility prospective payment system. The 
Conferees direct the GAO to issue a report, in consultation 
with experts in the field of physical medicine and 
rehabilitation to look at whether the current list of 
conditions represents a clinically appropriate standard for 
defining IRF services and, if not, which additional conditions 
should be added to the list. During the study period, the 
Committee urges the Secretary to delay implementation of the 
rule and not accept new IRF applications until the report is 
finished.
GAO Study and Report on Appropriateness of Payments Under the 
        Prospective Payment System for Inpatient Hospital Services 
        (Section 501(c) of the Conference Agreement and Section 413 of 
        the Senate Bill).
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      GAO would be required to use the most current data 
available to conduct a study to determine (1) the appropriate 
level and distribution of Medicare payments in relation to 
costs to short-term general hospitals under the inpatient 
prospective payment system (IPPS) and (2) the need for 
geographic adjustments to reflect legitimate differences in 
hospital costs across geographic areas, kinds of hospitals, and 
types of cases. The study, including recommendations for 
necessary legislative and administrative action, would be due 
to Congress within 18 months of enactment.
Conference Agreement
      GAO is required to use the most current data available to 
conduct a study to determine: (1) the appropriate level and 
distribution of Medicare payments in relation to costs for 
short-term general hospitals under the inpatient prospective 
payment system (IPPS) and (2) the need for geographic 
adjustments to reflect legitimate differences in hospital costs 
across geographic areas, kinds of hospitals, and types of 
cases. The study, including recommendations for necessary 
legislative and administrative action, is due to Congress 
within 24 months of enactment.
Revision of the Indirect Medical Education (IME) Adjustment Percentage 
        (Section 502 of the Conference Agreement and Section 418 of the 
        Senate Bill).
Present Law
      A hospital's IME payment to a hospital is based on a 
percentage add-on to the PPS rate that is established by a 
curvilinear formula that currently provides a payment increase 
of approximately 5.5% for each 10% increase in the hospital's 
intern and resident-to-bed (IRB) ratio. The following formula 
is multiplied by a hospital's base payment rate for each 
Medicare discharge to determine the IME payment: 1.35 X [(1+ 
IRB)0.405 -1]. The multiplier of 1.35 increases the 
level of the IME adjustment to the existing target level of 
5.5%. Congress has periodically changed the multiplier (or 
``c'') to decrease or increase IME payments to teaching 
hospitals.
House Bill
      No provision.
Senate Bill
      The IME multiplier in 2004 and in 2005 would be 1.36; on 
or after 2005, the multiplier would be 1.355. This would 
increase payments to teaching hospitals by $300 million over 10 
years. The provision would apply to discharges on or after 
October 1, 2003.
Conference Agreement
      From April 1, 2004 until September 30, 2004, the IME 
multiplier is equal to 1.47; during FY2005, the IME multiplier 
is 1.42; during FY2006, the IME multiplier is 1.37; during 
FY2007, the IME multiplier is 1.32; and, starting October 1, 
2007, the IME multiplier is equal to 1.35.
Recognition of New Medical Technologies Under Inpatient Hospital 
        Prospective Payment System (Section 503 of the Conference 
        Agreement and Section 502 of the House Bill).
Current Law
      BIPA established that Medicare's inpatient hospital 
payment system should include a mechanism to recognize the 
costs of new medical services and technologies for discharges 
beginning on or after October 1, 2001. The additional hospital 
payments can be made by the means of a new technology groups, 
an add-on payment, a payment adjustment, or other mechanism, 
but cannot be a separate fee schedule and must be budget-
neutral. A medical service or technology will be considered to 
be new if it meets criteria established by the Secretary after 
notice and the opportunity for public comment. The Centers for 
Medicare and Medicaid (CMS) published the final regulation 
implementing these provisions on September 7, 2001. This 
regulation changed the meeting schedule for decisions on the 
creation and implementation of new billing codes. (ICD-9-CM 
codes). The regulation also established that technology that 
provided a substantial improvement to existing treatments would 
qualify for additional payments. The add-on payment for 
eligible new technology would occur when the standard diagnosis 
related group (DRG) payment was inadequate; this threshold, 
which was established as one standard deviation above the mean 
standardized DRG. In these cases, the add-on payment for new 
technology would be the lesser of (a) 50% of the costs of the 
new technology or (b) 50% of the amount by which the costs 
exceeded the standard DRG payment; however if the new 
technology payments are estimated to exceed the budgeted target 
amount of 1% of the total operating inpatient payments, the 
add-on payments are reduced prospectively.
House Bill
      The Secretary would be required to add new diagnosis and 
procedure codes in April 1 of each year but would not be 
required to affect Medicare's payment or DRG classification 
until the fiscal year that begins after that date. The 
Secretary would not be able to deny a service or technology 
treatment as a new technology because the service (or 
technology) has been in use prior to the 2-to-3 year period 
before it was issued a billing code and a sample of specific 
discharges where the service has been used can be identified. 
When establishing whether DRG payments are inadequate, the 
Secretary would be required to apply a threshold that is the 
lesser of 75% of the standardized amount (increased to reflect 
the difference between costs and charges) or 75% of one 
standard deviation for DRG involved. The Secretary would be 
required to provide additional clarification in regulation on 
the criteria used to determine whether a new service represents 
an advance in technology that substantially improves the 
existing diagnosis or treatment. The Secretary would be 
required to deem that a technology provide a substantial 
improvement on an existing treatment if the technology in 
question is a drug or biological that is designated under 
section 506 of the Federal Food, Drug, and Cosmetic Act, 
approved under section 314.510 or 601.41 of Title 21, Code of 
Federal Regulations, designated for priority review when the 
marketing application was filed, is a medical device for which 
an exemption has been granted under section 520(m) of such Act, 
or for which priority or expedited review has been provided 
under section 515(d)(5). For other technologies that may be 
substantial improvements, the Secretary would be required to: 
(1) maintain and update a public list of pending applications 
for specific services and technologies to be evaluated for 
eligibility for additional payment; (2) accept comments 
recommendations and data from the public regarding whether a 
service or technology represents a substantial improvement; and 
(3) provide for a meeting at which organizations representing 
physicians, beneficiaries, manufacturers or other interested 
parties may present comments, recommendations, and data to the 
clinical staff of CMS regarding whether a service or technology 
represents a substantial improvement. These actions would occur 
prior to the publication of the proposed regulation. Before 
establishing an add-on payment as the appropriate reimbursement 
mechanism, the Secretary would be directed to identify one or 
more DRGs and assign the technology to that DRG, taking into 
account similar clinical or anatomical characteristics and the 
relative cost of the technology. The Secretary would assign an 
eligible technology into a DRG where the average cost of care 
most closely approximates the cost of the new technology. In 
such a case, no add-on payment would be made; the application 
of the budget-neutrality requirement with respect to annual DRG 
reclassifications and recalculation of associated DRG weights 
would not be affected. The Secretary would be required to 
increase the percentage associated with add-on payments from 
50% to the marginal rate or percentage that Medicare reimburses 
inpatient outlier cases. The provisions would not affect the 
Secretary's authority to determine whether services are 
medically necessary and appropriate. Funding for this new 
technology would no longer be budget neutral.
      The Secretary would be required to implement these 
provisions to new technology determinations beginning in 
FY2005. The Secretary would be required to automatically 
reconsider an application as a new technology that was denied 
for FY2004 as an application under these new provisions. If 
such an application is granted, the maximum time 
periodotherwise permitted for such classification as a new technology 
would be extended by 12 months.
Senate Bill
      No provision.
Conference Agreement
      The Secretary is required to add new diagnosis and 
procedure codes in April 1 of each year but is not required to 
affect Medicare's payment or DRG classification until the 
fiscal year that begins after that date. When establishing 
whether DRG payments are inadequate, the Secretary would be 
required to apply a threshold that is the lesser of 75% of the 
standardized amount (increased to reflect the difference 
between costs and charges) or 75% of one standard deviation for 
the DRG involved. The Secretary should collect at least 2 years 
of data before incorporating the technology into a permanent 
group. The Secretary is required to: (1) maintain and update a 
public list of pending applications for specific services and 
technologies to be evaluated for eligibility for additional 
payment; (2) accept comments recommendations and data from the 
public regarding whether a service or technology represents a 
substantial improvement; and (3) provide for a meeting at which 
organizations representing physicians, beneficiaries, 
manufacturers or other interested parties may present comments, 
recommendations, and data to the clinical staff of CMS 
regarding whether a service or technology represents a 
substantial improvement. These actions will occur prior to the 
publication of the proposed regulation. Before establishing an 
add-on payment as the appropriate reimbursement mechanism, the 
Secretary is directed to identify one or more DRGs and assign 
the technology to that DRG, taking into account similar 
clinical or anatomical characteristics and the relative cost of 
the technology. The Secretary will assign an eligible 
technology into a DRG where the average cost of care most 
closely approximates the cost of the new technology. In such a 
case, no add-on payment would be made; the application of the 
budget-neutrality requirement with respect to annual DRG 
reclassifications and recalculation of associated DRG weights 
will not be affected. The Secretary should consider increasing 
the percent of payment associated with the add-on payments up 
to the marginal rate used for the inpatient outlier. Funding 
for new technology will no longer be budget neutral.
      The Secretary is required to implement these provisions 
to new technology determinations beginning in FY2005. The 
Secretary is required to automatically reconsider an 
application as a new technology that was denied for FY2005 as 
an application under these new provisions. If such an 
application is granted, the maximum time period otherwise 
permitted for such classification as a new technology is 
extended by 12 months.
Increase in Federal Rate for Hospitals in Puerto Rico (Section 504 of 
        the Conference Agreement, Section 503 of the House Bill, and 
        Section 409 of the Senate Bill).
Present Law
      Under Medicare's prospective payment system for inpatient 
services, a separate standardized amount is used to establish 
payments for discharges from short-term general hospitals in 
Puerto Rico. BBA 97 provides for an adjustment of the Puerto 
Rico rate from a blended amount based on 25% of the federal 
national amount and 75% of the local amount to a blended amount 
based on a 50/50 split between national and local amounts.
House Bill
      Hospitals in Puerto Rico would receive Medicare payments 
based on a 50/50 split between federal and local amounts before 
October 1, 2003. From FY2004 through FY2007, an increasing 
amount of the payment rate would be based on federal national 
rates as follows: during FY2004, payment would be 59% national 
and 41% local; this would change to 67% national and 33% local 
during FY2005 and 75% national and 25% local during FY2006 and 
subsequently.
Senate Bill
      Hospitals in Puerto Rico would receive Medicare payments 
based on a 50/50 split between national and local amounts until 
September 30, 2003. These hospitals would receive Medicare 
payments based on 100% of the federal rate for discharges on or 
after October 1, 2004 and before October 1, 2009. The rate for 
hospitals Puerto Rico would revert to a 50/50 split after 
October 1, 2009.
Conference Agreement
      Hospitals in Puerto Rico will receive Medicare payments 
based on a 50/50 split between federal and local amounts before 
April 1, 2004. Starting April 1, 2004 through September 30, 
2004, payment will be based on 62.5% national amount and 37.5% 
local amount; this will change to 75% national and 25% local 
after October 1, 2004 and in subsequent years.
Wage Index Adjustment Reclassification Reform (Section 505 of the 
        Conference Agreement and Section 504 of the House Bill).
Present Law
      Unlike other providers, acute hospitals may apply to the 
Medicare Geographic Classification Review Board (MGCRB) for a 
change in classification from a rural area to an urban area, or 
reassignment from one urban area to another urban area. The 
MGCRB was created to determine whether a hospital should be 
redesignated to an area with which it has close proximity for 
purposes of using the other area's wage index. If 
reclassification is granted, the new wage index will be used to 
calculating Medicare's payment for inpatient and outpatient 
services.
      Generally, hospitals must demonstrate a close proximity 
to the areas where they seek to be reclassified. This proximity 
can be established if one of two conditions is met: (1) an 
urban hospital must be no more than 15 miles and a rural 
hospital must be no more than 35 miles from the area where it 
wants to be reclassified; or (2) at least 50% of the hospital's 
employees reside in the area. A rural referral center (RRC) or 
a sole community hospital (SCH) or a hospital that is both a 
RRC and a SCH does not have to meet the proximity test. After 
establishing appropriate proximity, a hospital may qualify for 
the payment rate of another area if it proves that its incurred 
costs are comparable to those of hospitals in that area under 
established criteria. To use an area's wage index, a rural 
hospital must demonstrate that its average hourly wage is equal 
to at least 82% of the average hourly wage of hospitals in the 
area to which it seeks redesignation; an urban hospital must 
demonstrate that its average hourly wage is at least 84% ofsuch 
an area. Also an urban hospital cannot be reclassified unless average 
hourly wage is at least 108% of the average hourly wage of the area in 
which it is located; this standard is 106% for rural hospitals seeking 
reclassification to an area.
      For redesignations starting in FY2003, the average hourly 
wage comparisons used to determine whether a hospital can use 
another area's wage index are based on 3 years worth of lagged 
data submitted by hospitals as part of their cost report. For 
instance, FY2003 wage index reclassifications were based on 
weighted 3-year averages of average hourly wages using data 
from FY1997, FY1998, and FY1999 cost reports. Wage index 
reclassifications are effective for 3 years unless the hospital 
notifies the MCGRB and withdraws or terminates its 
reclassification.
House Bill
      The Secretary would be required to establish an 
application process and payment adjustment to recognize the 
commuting patterns of hospital employees. A hospital that 
qualified for such a payment adjustment would have average 
hourly wages that exceed the average wages of the area in which 
it is located and have at least 10% of its employees living in 
1 or more areas that have higher wage index values. This 
qualifying hospital would have its wage index value increased 
by the percentage of its total employees who live in any area 
with a higher wage index value. The process would be based on 
the MGCRB reclassification process and schedule with respect to 
data submitted. Such an adjustment would be effective for 3 
years unless a hospital withdraws or elects to terminate its 
payment. A hospital that receives a commuting wage adjustment 
would not be eligible for reclassification into another area by 
the MCGRB. These commuting wage adjustments would not affect 
the computation of the wage index of the area in which the 
hospital is located or any other area. It would also be exempt 
from certain budget neutrality requirements. The provisions 
would apply to discharges on or after October 1, 2004.
Senate Bill
      No provision.
Conference Agreement
      The Secretary is required to establish a process and 
payment adjustment to recognize the out-migration of hospital 
employees who reside in a county and work in different area 
with a higher wage index. A hospital that receives such a 
payment adjustment will be located in a qualifying county that 
meets criteria established by the Secretary. This criteria will 
include (1) a threshold percentage of the weighted average of 
the area wage index or indices for the higher wage index areas; 
(2) a threshold of not less than 10 percent for minimum out-
migration to a higher wage index area or areas and (3) a 
requirement that the average hourly wage of the hospitals in 
the qualifying county equals or exceeds the average hourly wage 
of all the hospitals in the area where the county is located. A 
qualifying hospital will have its wage index value increased by 
the percentage of the hospital employees residing in the 
qualifying county who are employed in any area with a higher 
wage value. The adjustment will equal the sum of the products 
of the difference between the wage index value of any higher 
wage area and the qualifying county multiplied by the number of 
hospital employee who reside in the qualifying county but are 
employed in any higher wage index area. The application process 
for this adjustment is based on the MGCRB reclassification 
process and schedule with respect to data submitted. Such an 
adjustment is effective for 3 years unless a hospital withdraws 
or elects to terminate its payment.
      The Secretary may require acute hospitals and other 
hospitals as well as critical access hospitals to submit data 
regarding the location of their employee's residence or the 
Secretary may use data from other sources. A hospital that 
receives a commuting wage adjustment is not eligible for 
reclassification into another area by the MCGRB. The commuting 
wage adjustment does not affect the computation of the wage 
index of the area in which the hospital is located or any other 
area. It is also exempt from certain budget neutrality 
requirements. The thresholds and other qualifying criteria for 
the commuting wage adjustment is not subject to judicial 
review. The provisions apply to discharges on or after October 
1, 2004. In initially implementing this adjustment, the 
Secretary may modify the deadlines otherwise applicable to data 
submission and actions on applications for geographic 
reclassification.
Limitation on Charges for Inpatient Hospital Contract Health Services 
        Provided to Indians by Medicare Participating Hospitals 
        (Section 506 of the Conference Agreement and Section 412 of the 
        Senate Bill).
Present Law
      The Indian Health Service (IHS) provides health care both 
directly, through tribes and tribal consortia, and through 
urban Indian organizations. The Indian Health Care Improvement 
Act (P.L. 94-437) authorized IHS to collect directly from 
Medicare, Medicaid, and other third party insurers for health 
services covered by those programs. In addition to care 
provided directly from IHS and tribal providers, contract 
health services are purchased by IHS and the tribes from more 
than 2,000 private providers, if the local facility is unable 
to provide the needed care. These health services are provided 
principally for members of tribes who live in contract health 
service delivery areas. Contract support funding across all IHS 
programs has been insufficient to cover all IHS and tribal 
costs. When the costs are not reimbursed through 
appropriations, the tribes and IHS use program funds to make up 
the difference.
House Bill
      No provision.
Senate Bill
      The amendment would prohibit hospitals that participate 
in Medicare and that provide Medicare covered inpatient 
hospital services under the contract health services program 
funded by the Indian Health Services from charging more than 
the Medicare established rates for these services. This 
provision would apply to contract health services programs 
operated by the Indian Health Service, an Indian tribe or 
tribal organization or an urban Indian organization. The 
provision would apply to Medicare participation agreements in 
effect or entered into by a date specified by the Secretary. In 
no case would this provision be applicable later than 6 months 
from the date of enactment.
Conference Agreement
      Hospitals that participate in Medicare and that provide 
Medicare covered inpatient hospital services under the contract 
health services program funded by the Indian Health Services 
and operated by the Indian Health Service, an Indian tribe, an 
Indian tribal organization, or an urban Indian organization 
will be paid in accordance with regulations promulgated by the 
Secretaryregarding admission practices, payment methodologies, 
and rates of payments. This will include the requirement to accept 
these rates as payment in full. This provision will apply to Medicare 
participation agreements in effect or entered into by a date specified 
by the Secretary. In no case will this date be later than 1 year after 
the date of enactment.
Clarifications to Certain Exceptions to Medicare Limits on Physician 
        Referrals (Section 507 of the Conference Agreement, Section 505 
        of the House Bill and Section 453 of the Senate Bill).
Present Law
      Physicians are generally prohibited from referring 
Medicare patients to facilities in which they (or their 
immediate family member) have financial interests. Physicians, 
however, are not prohibited from referring patients to whole 
hospitals (and several other entities) in which they have 
ownership or investment interests.
House Bill
      The Medicare Payment Advisory Commission (MedPAC) would 
be required to conduct a study of specialty hospitals compared 
with other similar general acute hospitals including the number 
and extent of patients referred by physicians with an 
investment interest in the facility, the quality of care 
furnished, the impact of the specialty hospital on the acute 
general hospital, and the differences in the scope of services, 
Medicaid utilization and the amount of uncompensated care that 
is furnished. The report, including recommendations, would be 
due to Congress no later than 1 year from enactment.
Senate Bill
      The exception for physician investment and self-referral 
would not extend to specialty hospitals. In this instance, a 
specialty hospital would be one that is primarily or 
exclusively engaged in the care and treatment of patients with 
cardiac or orthopedic conditions, those receiving a surgical 
procedure, or other specialized categories of patients or cases 
deemed appropriate. A specialty hospital would not include any 
hospital that is determined by the Secretary to be in 
operation, under development as of such date, with the same 
number of beds and physician investors as of June 12, 2002. The 
Secretary would consider the following factors in determining 
whether a hospital is under development: whether the 
architectural plans have been completed; funding has been 
received; zoning requirements have been met; necessary 
approvals from appropriate State agencies have been received 
and other appropriate evidence.
      The rural provider exception would be modified. These 
rural providers would not include specialty hospitals and the 
Secretary would determine, with respect to the entity, that 
such services would not be available in such area but for the 
ownership or investment interest.
Conference Agreement
      For a period of 18 months from the date of enactment, the 
``whole hospital'' exception would be amended to exclude those 
circumstances in which a physician's ownership interest is in a 
subsection d hospital devoted primarily or exclusively to 
cardiac, orthopedic surgical, or other specialties designated 
by the Secretary. Specialty hospitals in operation or under 
development as of November 18, 2003 would be exempt from the 
provision. Within a period of 15 months from the date of 
enactment MedPAC, in consultation with the General Accounting 
Office (GAO), and HHS would study the effects of the whole-
hospital exception for physician-ownership in specialty 
hospitals.
      In order to qualify for exception from this provision, a 
specialty hospital must have been in operation or under 
development (as defined in this bill) as of November 18, 2003. 
Additionally, in order to maintain the exception, a specialty 
hospital may not increase the number of physician investors as 
of November 18, 2003; change or expand the field of 
specialization it treats; expand beyond the main campus; or 
increase the total number of beds in its facilities by more 
than the greater of 5 beds or 50 percent of the number of beds 
in the hospital as of November 18, 2003. The Secretary shall 
determine what constitutes the number of beds in a hospital 
that is considered under development as of November 18, 2003. 
The Secretary may evaluate all relevant development plans and 
documents in order to make this determination.
      Long-term acute care hospitals, rehabilitation hospitals, 
psychiatric hospitals, cancer hospitals, and children's 
hospitals are not considered to be specialty hospitals for 
purposes of this section. When studying the effects of the 
whole-hospital exception, MedPAC, in consultation with GAO 
shall undertake a study in accordance with the legislation.
Effective Date
      Beginning on the date of enactment, this provision would 
establish an 18-month moratorium on physician self-referrals to 
specialty hospitals. Hospitals in existence or under 
development as of November 18, 2003 would be exempt from the 
moratorium. A study would be completed within 15 months of date 
of enactment.
MedPAC Study and Report Regarding Medicare Disproportionate Share 
        Hospital Adjustments (Section 404A of the Senate Bill).
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      The Medicare Payment Advisory Commission (MedPAC) would 
be required to conduct a study to determine (1) whether 
disproportionate share hospital (DSH) payments should be made 
in the same manner as Medicare's graduate medical education 
payments; (2) the extent that hospitals receiving Medicaid DSH 
payments also receive Medicare DSH payments; and (3) whether to 
add uncompensated care costs to the Medicare DSH formula. The 
report, including recommendations, would be due to Congress 
within 1 year from enactment. The provision would be effective 
upon enactment.
Conference Agreement
      No provision.
Treatment of Grandfathered Long-Term Care Hospitals (Section 416/
        Duplicate Provision 420B of the Senate Bill).
Present Law
      A hospital-in-a-hospital is a long-term hospital that is 
physically located in an acute care hospital and provides 
inpatient services that are paid at a higher rate than would 
apply if the long term hospital were treated by Medicare as an 
acute care hospital. The Centers for Medicare and Medicaid 
Services (CMS) has established certain requirements for a 
hospital-in-a-hospital to be excluded from the inpatient 
prospective payment system and be paid as a long-term hospital. 
For instance, a hospital-within-a-hospital has to be able to 
independently perform certain basic hospital functions. CMS 
exempted existing hospitals-with-a-hospital (those that were in 
existence on or before September 30, 1995) when these 
requirements were established. On May 19, 2003, CMS proposed to 
revise the conditions of the hospitals' exemption; a hospital-
within-a hospital would only be exempt from the existing 
requirements if it continues to operate within the same terms 
and conditions that were in effect as of September 30, 1995.
House Bill
      No provision.
Senate Bill
      The Secretary would not be able to impose any special 
conditions on the operation, size, and number of beds or 
location of an existing long-term hospital in order to continue 
participating in Medicare or Medicaid or to continue being 
classified as a long-term hospital. The Secretary would not be 
able to adopt a proposed regulation that would implement such 
conditions or any revision to such regulation that have a 
comparable effect. The provisions would apply to cost reporting 
periods ending on or after December 31, 2002.
Conference Agreement
      No provision.
Treatment of Certain Entities For Purposes of Payments Under the 
        Medicare Program (Section 417 of the Senate Bill).
Present Law
      Acute care hospitals may apply to the Medicare Geographic 
Classification Review Board (MGCRB) for a change in 
classification from a rural area to an urban area, or 
reassignment from one urban area to another urban area. The 
MGCRB was created to determine whether a hospital should be 
redesignated to an area with which it has close proximity for 
purposes of using the other area's standardized amount or wage 
index, or both. (If, as proposed, the standardized amount for 
all hospitals will equal the amount used to pay hospitals in 
large urban areas, a hospital's need to reclassify to use of 
another area's standardized amount will virtually disappear.) 
If reclassification is granted, the new wage index will be used 
to calculating Medicare's payment for inpatient and outpatient 
services. Hospital reclassifications are established on a 
budget-neutral basis so aggregate inpatient prospective payment 
system expenditures will not increase as a result.
      Generally, hospitals must demonstrate a close proximity 
to the areas where they seek to be reclassified. After 
establishing appropriate proximity, a hospital may qualify for 
the payment rate of another area if it proves that its incurred 
costs are comparable to those of hospitals in that area. Aside 
from reclassifications through the MGCRB, hospitals have also 
been reclassified by law.
House Bill
      No provision.
Senate Bill
      Starting on or after October 1, 2003, Iredell County and 
Rowan County, North Carolina would be deemed to be located in 
the Charlotte-Gastonia-Rock Hill, North Carolina, South 
Carolina Metropolitan Statistical Area for the purpose of 
Medicare's inpatient and outpatient acute hospital 
reimbursement. The Secretary would be required to adjust the 
wage index values of all hospitals in North Carolina to assure 
that aggregate payments for hospital inpatient operating costs 
are not greater than they would have been without such a 
change.
      Starting on or after October 1, 2003, Iredell County and 
Rowan County, North Carolina would be deemed to be located in 
the Charlotte-Gastonia-Rock Hill, North Carolina, and South 
Carolina Metropolitan Statistical Area for the purpose of 
Medicare's skilled nursing facility (SNF) and home health 
reimbursement. This change will be made in a way to ensure that 
aggregate payments for SNF and home health services in North 
Carolina are not greater than they would have been without such 
a change.
Conference Agreement
      No provision.
Calculation of Wage Indices for Hospitals (Conference Report Section 
        508 and Section 419 of the Senate Bill).
Present Law
      Acute hospitals may apply to the Medicare Geographic 
Classification Review Board (MGCRB) for a change in 
classification from a rural area to an urban area, or 
reassignment from one urban area to another urban area but no 
later than February 15, 2004. If reclassification is granted, 
the new wage index will be used to calculating Medicare's 
payment for inpatient and outpatient services. Generally, 
hospitals must demonstrate a close proximity to the areas where 
they seek to be reclassified. After establishing appropriate 
proximity, a hospital may qualify for the payment rate of 
another area if it proves that its incurred costs are 
comparable to those of hospitals in that area. The 
reclassification standards which are established by regulation 
are different for urbanthan for rural hospitals. It is easier 
for a rural hospital to reclassify to a different area. Aside from 
reclassifications through the MGCRB, hospitals have also been 
reclassified by law.
House Bill
      No provision.
Senate Bill
      The Secretary would be able to waive established 
reclassification criteria in calculating the wage index in a 
state when making payments for hospital discharges in FY2004. 
The provision would be effective upon enactment.
Conference Agreement
      The Secretary shall establish by instruction not later 
than January 1, 2004 or otherwise a one-time process under 
which a hospital may appeal the wage index classification 
otherwise applicable to the hospital and select another area 
within the State (or at the discretion of the Secretary to a 
contiguous state. A qualifying hospital is not eligible for a 
wage index classification on the basis of distance and/or 
commuting. It also must meet such other criteria, such as 
quality, as the Secretary may specify by instruction or 
otherwise. The reclassification will be effective for three 
years beginning with April 1, 2004. Hospitals can waive 
reclassification under this provision during the three year 
period. The Secretary shall limit the additional expenditures 
to $900 million.

                      Subtitle B--Other Provisions

Payment for Covered Skilled Nursing Facility Services (Section 511 of 
        the Conference Agreement and Section 511 of the House Bill).
Present Law
      Medicare uses a system of daily rates to pay for care in 
a skilled nursing facility (SNF). There are 44 daily rates 
categories, known as resource utilization groups (RUGs) and 
each group reflects a different case mix and intensity of 
services, such as skilled nursing care and/or various therapy 
and other services.
House Bill
      The per diem RUG payment for a SNF resident with acquired 
immune deficiency syndrome (AIDS) would be increased by 128%. 
This payment increase would not apply on after such date when 
the Secretary certifies that the SNF case mix adjustment 
adequately compensates for the facility's increased costs 
associated with caring for a resident with AIDS. The provision 
would be effective for services on or after October 1, 2003.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement increases the per diem RUG 
payment for a SNF resident with acquired immune deficiency 
syndrome (AIDS) by 128% (the BBRA temporary RUG add-on does not 
apply in this case). This payment increase would not apply on 
after such date when the Secretary certifies that the SNF case 
mix adjustment adequately compensates for the facility's 
increased costs associated with caring for a resident with 
AIDS. The provision is effective for services on or after 
October 1, 2004.
Coverage of Hospice Consultation Services (Section 512 of the 
        Conference Agreement and Section 512 of the House Bill).
Present Law
      Current law authorized coverage of hospice services, in 
lieu of certain other Medicare benefits, for terminally ill 
beneficiaries who elect such coverage.
House Bill
      Coverage of certain physician's services for certain 
terminally ill individuals would be authorized. Persons 
entitled to these services would be individuals who have not 
elected the hospice benefit and have not previously received 
these physician's services. Covered services would be those 
furnished by a physician who is the medical director or 
employee of a hospice program. Services would include 
evaluating the individual's need for pain and symptom 
management, counseling the individual with respect to end-of-
life issues and care options, and advising the individual 
regarding advanced care planning. Payment for such services 
would equal the amount established for similar services under 
the physician fee schedule, excluding the practice expense 
component. The provision would apply to consultation services 
provided by a hospice program on or after January 1, 2004.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement provides coverage of certain 
physician's services for certain terminally ill individuals. 
Beneficiaries entitled to these services are those who have not 
elected the hospice benefit and have not previously received 
these physician's services. Covered services are those 
furnished by a physician who is the medical director or 
employee of a hospice program. The covered services are: 
evaluating the beneficiary's need for pain and symptom 
management, including the individual's need for hospice care; 
counseling the beneficiary with respect to end-of-life issues 
and care options, and advising the beneficiary regarding 
advanced care planning. Payment for such services equals the 
amount established for similar services under the physician fee 
schedule, excluding the practice expense component. The 
provision would apply to consultation services provided by a 
hospice program on or after January 1, 2005.
Increase for Hospitals with Disproportionate Indigent Care Revenues 
        (Section 420A of the Senate Bill).
Present Law
      Certain hospitals receive additional Medicare payments 
because they serve a disproportionate share of poor Medicare 
and Medicaid patients measured by a formula that incorporates 
the proportion of the hospital's Medicare inpatient days 
provided to poor Medicare beneficiaries (those who receive 
Supplemental Security Income or SSI) added to the proportion of 
total hospital days provided to Medicaid recipients. A few 
urban hospitals receive disproportionate share hospital (DSH) 
payments under the Pickle Amendment (named after former 
Representative Pickle from Texas) which establishes an 
alternative formula that considers the proportion of a 
hospital's patient care revenues that are received from state 
and local indigent care funds. If a hospital receives at least 
30% of its patient care revenue from these indigent care funds, 
it qualifies as a ``Pickle'' hospital and will get a 35% 
increase in its Medicare operating payments. The Pickle 
hospitals receive a capital DSH adjustment of 14.16%. The 
capital adjustment is calculated with the presumption that 
other urban hospitals would have had a DSH patient share 
percentage of 65.4% in order to receive a 35% operating DSH 
adjustment. If so, 65.4% DSH adjustment entered into the 
capital formula (a complicated calculation involving ``e is the 
natural antilog of 1'') would equal 14.16%.
House Bill
      No provision.
Senate Bill
      Hospitals that qualify for the DSH adjustment under the 
Pickle amendment would receive a DSH operating and capital 
adjustment of 40% for discharges on or after October 1, 2003. 
The provision would be effective upon enactment.
Conference Agreement
      No provision.
Equitable Treatment for Children's Hospitals (Section 450J of the 
        Senate Bill).
Present Law
      Outpatient hospital prospective payment contains a 
permanent ``hold harmless'' for cancer hospitals and children's 
hospitals. Under this hold harmless, payments to these 
hospitals cannot fall below what these hospitals would have 
received under the payment system in place before PPS.
House Bill
      No provision.
Senate Bill
      The provision would modify the hold harmless that certain 
children's hospitals receive. To receive the hold harmless a 
children's hospital would be required to be located in a state 
with an inpatient PPS waiver (Maryland is the only state that 
continues its waiver under 1814(b)(3)) and to have an 
outpatient PPS payment that is less than either what the 
hospital would have received under the previous payment system 
or the hospital's reasonable operating and capital costs. A 
children's hospital meeting these criteria would receive 
payment reflecting the greater difference between the 
outpatient PPS amount and the greater of either the previous 
payment system amount or the reasonable costs. The provision 
would be effective for services furnished on or after October 
1, 2003.
Conference Agreement
      No provision.

                TITLE VI--PROVISIONS RELATING TO PART B

        Subtitle A--Provisions Relating to Physicians' Services

Revision of Updates for Physicians' Services (Section 601 of the 
        Conference Agreement, Section 601 of the House Bill, and 
        Sections 464/Duplicative Provisions 622 and 629 of the Senate 
        Bill).
Present Law
      Medicare pays for services of physicians and certain non-
physician practitioners on the basis of a fee schedule. The fee 
schedule, in place since 1992, is intended to relate payments 
for a given service to the actual resources used in providing 
that service. The fee schedule assigns relative values to 
services. These relative values reflect physician work (i.e., 
the time, skill, and intensity it takes to provide the 
service), practice expenses, and malpractice costs. The 
relative values are adjusted for geographic variations in 
costs. The adjusted relative values are then converted into a 
dollar payment amount by a conversion factor.
      The law provides a specific formula for calculating the 
annual update to the conversion factor. The intent of the 
formula is to place a restraint on overall increases in 
spending for physicians' services. Several factors enter into 
the calculation of the formula. These include: (1) the 
sustainable growth rate (SGR), which is essentially a target 
for Medicare spending growth for physicians' services; (2) the 
Medicare economic index (MEI), which measures inflation in the 
inputs needed to produce physicians' services; and (3) an 
adjustment that modifies the update, which would otherwise be 
allowed by the MEI, to bring spending in line with the SGR 
target. The SGR target is not a limit on expenditures. Rather, 
the fee schedule update reflects the success or failure in 
meeting the target. If expenditures exceed the target, the 
update for a future year is reduced.
      The annual percentage update to the conversion factor 
equals the MEI, subject to an adjustment (known as the update 
adjustment factor) to match target spending for physicians 
services under the SGR system. (During a transition period, 
2001-2005, an additional adjustment is made to achieve budget 
neutrality.) The update adjustment sets the conversion factor 
at a level so that projected spending for the year will meet 
allowed spending by the end of the year. Allowed spending for 
the year is calculated using the SGR. However, in no case can 
the update adjustment factor be less than minus 7% or more than 
plus 3%.
      The update adjustment factor is the sum of: (1) the prior 
year adjustment component, and (2) the cumulative adjustment 
component. The prior year adjustment component is determined 
by: (1) computing the difference between allowed expenditures 
for physicians' services for the prior year and the amount of 
actual expenditures for that year; (2) dividing this amount by 
the actual expenditures for that year; and (3) multiplying that 
amount by 0.75. The cumulative adjustment component is 
determined by: (1) computing the difference between allowed 
expenditures for physicians' services from April 1, 1996 
through the end of the prior year and the amount of actual 
expenditures during such period; (2) dividing that difference 
by actual expenditures for the prior year as increased by the 
SGR for the year for which the update adjustment factor is to 
be determined; and (3) multiplying that amount by 0.33. Use of 
both the prior year adjustment component and the cumulative 
adjustment component allows any deviation between cumulative 
actual expenditures and cumulative allowed expenditures to be 
corrected over several years rather than a single year.
      The law also specifies a formula for calculating the SGR. 
It is based on changes in four factors: (1) estimated changes 
in fees; (2) estimated change in the average number of Part B 
enrollees (excluding Medicare+Choice beneficiaries); (3) 
estimated projected growth in real gross domestic product (GDP) 
growth per capita; and (4) estimated change in expenditures due 
to changes in law or regulations. This system is designed to 
adjust for how well actual expenditures meet SGR target 
expenditures.
      Provisions in the Consolidated Appropriations Resolution 
of 2003 (P.L. 108-7) permitted redeterminations of SGR for 
prior years. As a result, the conversion factor for 2003 was 
increased 1.6% over the 2002 level. Other aspects of the 
formula for the annual payment rate were not addressed. CMS 
reports an update factor of -4.5% for 2004.
House Bill
      The update to the conversion factor for 2004 and 2005 
would be not less than 1.5% and would be exempt from the budget 
neutrality adjustment. This modification would not be treated 
as a change in law and regulation in SGR determination.
      The formula for calculating the sustainable growth rate 
would be modified. The GDP factor would be based on the annual 
average change over the preceding 10 years (a 10-year rolling 
average). This calculation would replace the current GDP factor 
which measures the 1-year change from the preceding year. The 
10-year rolling average calculation of the GDP would apply to 
computations of the SGR starting in 2003.
Senate Bill
      The provision expresses a sense of the Senate that 
Medicare beneficiary access to quality care may be compromised 
if Congress does not prevent cuts in 2004 and following years 
that stem from the sustainable growth rate (SGR) formula.
      The provision provides a sense of the Senate that the 
reductions in Medicare's physician fee schedule are untenable 
if not destabilizing, primarily caused by the sustainable 
growth rate calculation, and that CMS should use its discretion 
to make certain exclusions and adjustments to the calculation.
Conference Agreement
      The update to the conversion factor for 2004 and 2005 
will not be not less than 1.5% and will be exempt from the 
budget neutrality adjustment, instead of -4.5% in 2004 and a 
smaller reduction in 2005. This modification would not be 
treated as a change in law and regulation in SGR determination.
      The formula for calculating the sustainable growth rate 
will be modified. The GDP factor will be based on the annual 
average change over the preceding 10 years (a 10-year rolling 
average).This calculation will replace the current GDP factor 
which measures the 1-year change from the preceding year. The 10-year 
rolling average calculation of the GDP will apply to computations of 
the SGR starting in 2003.
Treatment of Physicians' Services furnished in Alaska (Section 602 of 
        the Conference Agreement and Section 450K of the Senate Bill).
Current Law
      Physicians who provide services to Medicare beneficiaries 
are paid based on a physician fee schedule, which has three 
components: the relative value for the service, a geographic 
adjustment factor and a conversion factor. The geographic 
adjustment factor is the sum of three geographic practice cost 
indices (GPCIs), namely a work GPCI, a practice expense GPCI, 
and a malpractice GPCI. An area with costs above the national 
average would have a GPCI greater than 1.00; an area with costs 
below the national average would have a GPCI less than 1.00.
House Bill
      No provision.
Senate Bill
      For calendar year 2004, physicians providing Medicare 
services in Alaska would be paid 90 percent of the Veterans 
Affairs (VA) fee schedule for physician services that was used 
for fiscal year 2001. For calendar year 2005, this payment 
amount would be increased by the update amount for the Medicare 
physician fee schedule for 2005. If no VA fee schedule amount 
existed for a physician service, the payment amount would be 
the sum of the Medicare payment amount plus 90% of the 
percentage difference between the Medicare fee schedule and the 
VA fee schedule (on a claims-weighted basis). The provision 
would be effective for services furnished on or after January 
1, 2004 and before January 1, 2006.
Conference Agreement
      In calendar years 2004 and 2005, for physician services 
provided in Alaska, the Secretary is required to increase 
geographic practice cost indices to a level of 1.67 for each of 
the work, practice expense and malpractice cost indices.
Inclusion of Podiatrists, Dentists, and Optometrists under Private 
        Contracting Authority (Section 603 of the Conference Agreement 
        and Section 604 of the House Bill).
Present Law
      Private contracting allows a physician and Medicare 
beneficiary not to submit a claim for a service which would 
otherwise be covered and paid for by Medicare. Under private 
contracting, physicians can bill patients at their discretion 
without being subject to upper payment limits specified by 
Medicare. If a physician decides to enter into a private 
contract with a Medicare beneficiary, that physician must agree 
to forego any reimbursement by Medicare for all Medicare 
beneficiaries for 2 years. The patient is not subject to the 2-
year limit and is able to receive services from other 
physicians who do not have such private contracts and have 
Medicare pay for the services. Both physicians and 
practitioners may enter private contracts. In this instance, a 
physician is limited to a doctor of medicine and osteopathy; 
chiropractors, podiatrists, dentists, and optometrists are not 
included. Practitioners are physician assistants, nurse 
practitioners, clinical nurse specialists, certified registered 
nurse anesthetists, certified nurse midwives, clinical 
psychologists, and clinical social workers.
House Bill
      Doctors of dental surgery or of dental medicine and 
doctors of podiatric medicine would be able to enter into 
private contracts with Medicare beneficiaries. The provision 
would be effective upon enactment.
Senate Bill
      No provision.
Conference Agreement
      Doctors of dental surgery or of dental medicine, doctors 
of podiatric medicine, and doctors of optometry will be able to 
enter into private contracts with Medicare beneficiaries. The 
provision will be effective upon enactment.
GAO Study on Access to Physicians' Services (Section 604 of the 
        Conference Agreement and Sections 602(a) and 602(b) of the 
        House Bill).

        GAO Study on Beneficiary Access to Physicians' Services

Present Law
      Periodic analyses by the Physician Payment Review 
Commission, and subsequently MedPAC, as well as CMS showed that 
access to physicians' services generally remained good for most 
beneficiaries through 1999. Detailed data are not available for 
a subsequent period; however, several surveys have showed a 
decline in the percentage of physicians accepting new Medicare 
patients.
House Bill
      GAO would be required to conduct a study on access of 
Medicare beneficiaries to physician's services under Medicare. 
The study would include an assessment of beneficiaries' use of 
services through an analysis of claims data. It would also 
examine changes in use of physicians' services over time. 
Further, it would examine the extent to which physicians are 
not accepting new Medicare beneficiaries as patients. GAO would 
be required to submit a report to Congress on this study within 
18 months of enactment. The report would determine whether data 
from claims submitted by physicians indicate potential access 
problems for beneficiaries in certain geographic areas. The 
report would determine whether access by beneficiaries to 
physicians' services has improved, remained constant, or 
deteriorated over time.
      The Secretary would be required to request the Institute 
of Medicine to conduct a study on the adequacy of the supply of 
physicians (including specialists) in the country and the 
factors thataffect supply. The Secretary would be required to 
submit the results of the study in a report to Congress no later than 2 
years of the date of enactment.
Senate Bill
      No provision.
Conference Agreement
      GAO is required to conduct a study on access of Medicare 
beneficiaries to physicians' services under Medicare. The study 
will include an assessment of beneficiaries' use of physician 
services through an analysis of claims data. It will also 
examine changes in use of physicians' services over time. 
Further, it will examine the extent to which physicians are not 
accepting new Medicare beneficiaries as patients. GAO is 
required to submit a report to Congress on this study within 18 
months of enactment. The report will determine whether data 
from claims submitted by physicians indicate potential access 
problems for beneficiaries in certain geographic areas. The 
report will also determine whether access by beneficiaries to 
physicians' services has improved, remained constant, or 
deteriorated over time.
Collaborative Demonstration-based Review of Physician Practice Expense 
        Geographic Adjustment Data (Section 605 of the Conference 
        Report and Section 421 of the Senate Bill).
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      For services furnished after January 1, 2004, the 
Secretary would be required to increase the value of any work 
geographic index that is below .980 to .980. The values for 
work index would be raised to 1.0 for services furnished in 
2005, 2006, and 2007. The practice expense and malpractice 
geographic indices in low value localities areas would be 
raised to 1.00 for services furnished in 2005 through 2008.
Conference Agreement
      The Secretary is required to review and consider 
alternative data sources than those currently used to establish 
the geographic index for the practice expense component under 
Medicare's physician fee schedule no later than January 1, 
2005. The Secretary will collaborate with State and other 
appropriate organizations representing physicians, and other 
appropriate persons. The Secretary will select 2 physician 
payment localities for this evaluation; one of the localities 
will be a rural area and one will be a statewide locality that 
includes both urban and rural areas. The Secretary will submit 
a report to Congress including recommendations on alternative 
data sources, including their accuracy and validity, the 
feasibility of using the alternative data, and the estimated 
impact of using these data for the practice expense adjustment. 
The report is due no later than January 1, 2006.
MedPAC Report on Payment for Physicians' Services (Section 606 of the 
        Conference Agreement and Section 603 of the House Bill).
Present Law
      Medicare pays for physicians' services on the basis of a 
fee schedule. The fee schedule assigns relative values to 
services. These relative values reflect physician work, 
practice expenses and malpractice expenses. Resource-based 
practice expense relative values were phased-in beginning in 
1999. Beginning in 2002, the values were totally resource-
based.
      Certain services have a professional component and a 
technical component. The technical component does not include a 
relative value for physician work. A global value includes both 
the professional and technical components. The physician must 
bill for the global value if the physician furnishes both the 
professional component and the technical component.
House Bill
      MedPAC would be required to report to Congress on the 
effects of refinements to the practice expense component of 
payments for physicians' services after full implementation of 
the resource-based payment in 2002. The report is to examine 
the following by specialty: (1) the effect of refinements on 
payments for physicians services; (2) interaction of the 
practice expense component with other components of and 
adjustments to payment for physicians' services; (3) 
appropriateness of the amount of compensation by reason of such 
refinements; (4) effect of such refinements on access to care 
by Medicare beneficiaries to physicians' services; and (5) 
effect of such refinements on physician participation under the 
Medicare program. The report would be due within 1 year of 
enactment. MedPAC would also be required to study the extent to 
which increases in the volume of physician services improves 
beneficiaries' health and well-being. MedPAC would be required 
to analyze the trends in components included in the sustainable 
growth rate calculation; the growth in volume of physician 
services provided to Medicare beneficiaries in comparison to 
other populations; the extent to which coverage determinations 
and new technology has affected growth in volume; the effect of 
demographic changes on volume; the effect of shifts in sites of 
services; and the extent to which the impact of law and 
regulations is taken into account.
Senate Bill
      No provision.
Conference Agreement
      MedPAC is required to report to Congress on the effects 
of refinements to the practice expense component of payments 
for physicians' services after full implementation of the 
resource-based payment in 2002. The report will examine the 
following by specialty: (1) the effect of refinements on 
payments for physicians' services; (2) the interaction of the 
practice expense component with other components of and 
adjustments to payment for physicians' services; (3) the 
appropriateness of the amount of compensation by reason of such 
refinements; (4) the effectof such refinements on access to 
care by Medicare beneficiaries to physicians' services; and (5) the 
effect of such refinements on physician participation under the 
Medicare program. The report is due within 1 year of enactment. MedPAC 
is also required to study the extent to which increases in the volume 
of physician services improves beneficiaries' health and well-being. 
MedPAC is required to analyze the trends in components included in the 
sustainable growth rate calculation; the growth in volume of physician 
service provided to Medicare beneficiaries in comparison to other 
populations; the extent to which coverage determinations and new 
technology has affected growth in volume; the effect of demographic 
changes on volume; the effect of shifts in sites of services; and the 
extent to which the impact of law and regulations is taken into 
account. The report is due within 1 year of enactment.
GAO Report Section (Section 605(b) of the House Bill).
Present Law
      No provision.
House Bill
      As part of the previously mandated study of geographic 
differences in physician payments, GAO would be required to 
evaluate (1) whether a sound economic basis for raising the 
geographic work adjustment exists; (2) the effect of such 
adjustment of physician location and retention including 
differences in recruitment cost and physician mobility; and the 
appropriateness of establishing a floor of 1.00 on the work 
geographic adjustment. GAO would be required to submit the 
report to Congress and the Secretary by September 1, 2004.
Senate Bill
      No provision.
Conference Agreement
      No provision.
GAO Study and Report on the Propagation of Concierge Care (Section 447 
        of the Senate Bill).
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      GAO would be required to conduct a study on concierge 
care provided to Medicare beneficiaries and its affect on their 
access to Medicare covered services and submit a report to 
Congress, including recommendations, no later than 12 months 
from enactment. In this instance, concierge care would be an 
arrangement where a physician or practitioner charges an 
individual seeking care a membership fee or other fee or 
requires the purchase of an item or service as a prerequisite 
for providing the care. The provision would be effective upon 
enactment.
Conference Agreement
      No provision.

                    Subtitle B--Preventive Services

Coverage of An Initial Preventive Physical Examination (Section 611 of 
        the Conference Agreement and Section 611 of the House Bill).
Present Law
      Medicare covers a number of preventive services. However, 
it does not cover routine physical examinations.
House Bill
      Medicare coverage of an initial preventive physical 
examination would be authorized. The physical examination would 
be defined as physicians' services consisting of a physical 
examination with the goal of health promotion and disease 
detection. It would include items and services (excluding 
clinical laboratory tests) consistent with the recommendations 
of the United States Preventive Services Task Force as 
determined by the Secretary. A covered initial preventive 
physical examination would be one performed no later than 6 
months after the individual's initial coverage date under Part 
B. Initial preventive physical exams would be included in the 
definition of physicians' services for purposes of the 
physician fee schedule. The Part B deductible and coinsurance 
would be waived for initial preventive physical exams. The 
provision would apply to services furnished on or after January 
1, 2004 for those individuals whose coverage begins on or after 
such date.
Senate Bill
      No provision.
Conference Agreement
      Medicare coverage of an initial preventive physical 
examination is authorized, subject to deductible and 
beneficiary cost sharing. The physical examination is defined 
as physicians' services consisting of a physical examination 
(including measurement of height, weight, and blood pressure, 
and an electrocardiogram) with the goal of health promotion and 
disease detection. The examination includes education, 
counseling, and referral with respect to specific screening 
services and other preventive services, but does not include 
clinical laboratory tests.The screening and preventive services 
are certain vaccines, screening mammography, screening pap smear and 
screening pelvic exam, prostate cancer screening tests, colorectal 
cancer screening tests, diabetes outpatient self management, bone mass 
measurement, screening for glaucoma, medical nutrition therapy, 
cardiovascular screening blood tests and diabetes screening tests. A 
covered initial preventive physical examination is performed no later 
than 6 months after the individual's initial coverage date under Part 
B. Initial preventive physical exams are included in the definition of 
physicians services for purposes of the physician fee schedule. The 
provision applies to services furnished on or after January 1, 2005, 
but only for those individuals whose coverage begins on or after such 
date.
      The Conference encourages the United States Preventive 
Services Task Force to examine aortic aneurysm screening using 
ultrasound. Aortic aneurysms are a leading cause of death in 
the United States, and many in the medical community believe 
that most, if not all, of the approximately 15,000 known deaths 
each year would be prevented with appropriate screening.
Coverage of Cardiovascular Screening Blood Tests (Section 612 of the 
        Conference Agreement, Section 612 of the House Bill, and 
        Section 450D of the Senate Bill).
Present Law
      Medicare covers a number of preventive services. However, 
it does not cover cardiovascular screening tests.
House Bill
      Medicare coverage of cholesterol and blood lipid 
screening would be authorized. The screening would be defined 
as diagnostic testing of cholesterol and other lipid levels of 
the blood for the purpose of early detection of abnormal 
cholesterol and other lipid levels. The Secretary would be 
required to establish standards regarding the frequency and 
type of these screening tests, but not more often than once 
every 2 years. The provision would apply to services furnished 
on or after January 1, 2005.
Senate Bill
      Medicare coverage of cardiovascular screening tests would 
be authorized. The screening would be defined as diagnostic 
testing for the early detection of cardiovascular disease 
including tests for cholesterol levels, lipid levels of the 
blood, and other appropriate tests for cardiovascular disease. 
The Secretary would be required to consult with appropriate 
organizations and to establish standards regarding the 
frequency and type of these screening tests, but not more often 
than once every 2 years. The provision would apply to services 
furnished on or after January 1, 2005.
Conference Agreement
      Medicare coverage of cardiovascular screening blood tests 
is authorized. The screening is defined as a blood test for the 
early detection of cardiovascular disease (or abnormalities 
associated with an elevated risk of cardiovascular disease) 
including tests for cholesterol levels and other lipid or 
triglyceride levels as well as such other indications 
associated with the presence of (or an elevated risk for) 
cardiovascular disease as the Secretary may approve for all 
individuals or for some individuals determined to be at risk 
for such disease. These indications may include indications 
measured by non-invasive testing. The Secretary cannot approve 
an indication for any individual unless a blood test for such 
is recommended by the United States Preventive Services Task 
Force. The Secretary is required to consult with appropriate 
organizations and to establish standards regarding the 
frequency and type of these screening tests, but the frequency 
may not be more often than once every 2 years. The provision 
applies to services furnished on or after January 1, 2005.
Coverage of Diabetes Screening Tests (Section 613 of the Conference 
        Agreement and Section 630 of the House Bill).
Present Law
      On July 1, 1998, Medicare began covering diabetes self-
management training services. These educational and training 
services are provided on an outpatient basis by physicians or 
other certified providers who have experience in diabetes self-
management training services. Blood testing strips and home 
blood glucose monitors are used by diabetics to measure blood 
glucose levels to determine if these levels are being 
maintained adequately. Medicare covers blood testing strips and 
blood glucose monitors for all individuals with diabetes 
regardless of whether they are insulin-dependent. The Secretary 
is also required to consult with appropriate organizations to 
establish outcome measures to assess improvements in the health 
status of individuals with diabetes. Based on this information, 
the Secretary will make recommendations to Congress on changes 
to Medicare's coverage of services for these beneficiaries. 
Medicare does not presently cover laboratory diagnostic tests 
and other services that are used to screen for diabetes.
House Bill
      Diabetes screening tests and services would be included 
as a covered medical service. In this instance, diabetes 
screening tests would include fasting plasma glucose tests and 
other appropriate tests provided to an individual at risk for 
diabetes. Individuals at risk for diabetes would have any or a 
combination of the following conditions: (1) have a family 
history of diabetes; (2) are overweight with a body mass index 
greater than or equal to 25 kg/m\2\; (3) are habitually 
physically inactive; (4) are a member of a high-risk ethnic or 
racial group; (5) have previously been identified with an 
elevated impaired fasting glucose; (6) have hypertension; (7) 
have dyslipidemia; (8) have a history of gestational diabetes 
mellitus or have delivered a baby weighing more than 9 pounds; 
or (9) have polycystic ovary syndrome. The Secretary would be 
required to establish standards, in consultation with 
appropriate organizations regarding the frequency of screening 
tests except the tests would not be covered more often that 
twice in the 12-month period following the date of the 
individual's most recent diabetes screening test. The provision 
would apply to tests furnished on or after 90 days from 
enactment.
Senate Bill
      No provision.
Conference Agreement
      Diabetes screening tests furnished to an individual at 
risk for diabetes for the purpose of early detection of 
diabetes are included as a covered medical service. In this 
instance, diabetes screening tests include fasting plasma 
glucose tests as well as other tests and modifications to those 
tests deemed appropriate by the Secretary after consultation 
with appropriate organizations. Individuals at risk for 
diabetes have any or a combination of the following conditions: 
(1) hypertension; (2) dyslipidemia; (3) obesity, with a body 
mass index greater than or equal to 30 kg/m\2\; (4) previous 
identification of an elevated impaired fasting glucose; (5) 
previous identification of impaired glucose tolerance or (6) a 
risk factor of at least 2 of the following characteristics: 
overweight with a body mass index of greater than 25, but less 
than 30, kg/m\2\; a family history of diabetes; a history of 
gestational diabetes mellitus or delivery of a baby weighing 
more than 9 pounds; or age of 65 years or more. The Secretary 
is required to establish standards, in consultation with 
appropriate organizations regarding the frequency of screening 
tests except the tests will not be covered more often that 
twice in the 12-month period following the date of the 
individual's most recent diabetes screening test. The provision 
applies to tests furnished starting January 1, 2005.
Improved Payment for Certain Mammography Services (Section 614 of the 
        Conference Agreement, Section 614 of the House Bill, and 
        Section 445 of the Senate Bill).
Present Law
      Screening mammography coverage includes the radiological 
procedure as well as the physician's interpretation of the 
results of the procedure. The usual Part B deductible is waived 
for tests. Payment is made under the physician fee schedule.
      Certain services paid under fee schedules or other 
payment systems including ambulance services, services for 
patients with end-stage renal disease paid under the ESRD 
composite rate, professional services of physicians and non-
physician practitioners paid under the physician fee schedule, 
and laboratory services paid under the clinical diagnostic 
laboratory fee schedule are excluded from Medicare's outpatient 
prospective payment system (OPPS).
House Bill
      Unilateral and bilateral diagnostic mammography as well 
as screening mammography services would be excluded from OPPS. 
The Secretary would be required to provide an appropriate 
adjustment to the physician fee schedule for the technical 
component of the diagnostic mammography based on the most 
recent cost data available. This adjustment would be applied to 
services provided on or after January 1, 2004.
Senate Bill
      Unilateral and bilateral diagnostic mammography as well 
as screening mammography services would be excluded from OPPS. 
The Secretary would be required to provide an appropriate 
adjustment to the physician fee schedule for the technical 
component of the diagnostic mammography based on the most 
recent cost data available. This adjustment would be applied to 
services provided on or after January 1, 2005.
Conference Agreement
      Screening mammography and diagnostic mammography will be 
excluded from OPPS. This provision will apply to screening 
mammography services furnished on or after the date of 
enactment and will apply to diagnostic mammography services 
furnished on or after January 1, 2005.
Waiver of Deductible for Colorectal Cancer Screening Tests (Section 613 
        of the House Bill).
Present Law
      Covered colorectal screening tests for prevention 
purposes include (1) an annual fecal-occult blood test for 
individuals age 50 and older; (2) flexible sigmoidoscopy every 
4 years for individuals age 50 and older; (3) colonoscopy for 
high-risk individuals every 2 years and for other individuals 
every 10 years; and (4) screening barium enemas every 4 years 
for individuals age 50 and older who are not at high risk of 
developing colorectal cancer or every 2 years for high risk 
individuals. Payment is made according to the applicable 
payment system for the provider performing the test.
      Unless otherwise specified, Part B services are subject 
to beneficiary cost sharing amounts, including an annual 
deductible and coinsurance amount. Colorectal screening tests 
are subject to the deductible and coinsurance.
House Bill
      The Part B deductibles would be waived for colorectal 
cancer screening tests. The provision would apply to items and 
services furnished on or after January 1, 2004.
Senate Bill
      No provision.
Conference Agreement
      No provision.

                      Subtitle C--Other Provisions

Hospital Outpatient Department (HOPD) Payment Reform (Section 621 of 
        the Conference Report, Section 621(a) of the House Bill, and 
        Section 436 of the Senate Bill).
Payment for Drugs (Section 621(a) of the Conference Agreement, Sections 
        621(a) and 621(d) of the House Bill, and Section 436 of the 
        Senate Bill).
Present Law
      Under hospital outpatient department (HOPD) prospective 
payment system (OPPS), the unit of payment is the individual 
service or procedure as assigned to one of about 570 ambulatory 
payment classifications (APCs) groups. Services are classified 
into APCs based on theirHealthcare Common Procedure Coding 
System (HCPCS), a standardized coding system used to identify products, 
supplies, and services for claims processing and payment purposes. To 
the extent possible, integral services and items including drugs are 
bundled or packaged within each APC. For instance, an APC for a 
surgical procedure will include operating and recovery room services, 
anesthesia and surgical supplies. Medicare's payment for HOPD services 
is calculated by multiplying the relative weight associated with an APC 
by a geographically adjusted conversion factor. The conversion factor 
is updated on a calendar year schedule and the annual updates are based 
on the hospital market basket (MB). Currently, the CY2004 HOPD update 
will equal the projected change in the MB.
      Medicare pays for covered outpatient drugs in one of 
three ways: (1) as a transitional pass-through payment; (2) as 
a separate APC payment; or (3) as packaged APC payment with 
other services.
      Transitional pass-through payments are supplemental 
payments to cover the incremental cost associated with new 
medical devices, drugs and biologicals that are inputs to an 
existing service. The additional payment for a given item is 
established for 2 or 3 years and then the costs are 
incorporated into the APC relative weights. BBRA specified that 
pass-through payments would be made for current orphan drugs, 
as designated under section 526 of the Federal Food, Drug, and 
Cosmetic Act; current cancer therapy drugs, biologicals, and 
brachytherapy; current radiophamaceutical drugs and biological 
products; and new drugs and biological agents.
      Generally, CMS has established that a pass-through 
payment for an eligible drug is based on the difference between 
95% of its average wholesale price and the portion of the 
otherwise applicable APC payment rate attributable to the 
existing drug, subject to a budget neutrality provision. The 
pass-through amount for new drugs with a substitute drug 
recognized in a separate drug APC payment is the difference 
between 95% of new drug's AWP and the payment rate for the 
comparable dose of the associated drugs APC.
      CMS imputes the hospital costs for these drugs to 
establish the beneficiary copayment amounts as well as to 
project the amount of pass-through spending in order to 
calculate the uniform reduction to payments under the budget 
neutrality constraint. This imputed value is calculated by 
multiplying the average wholesale price (AWP) for the drug by 
the applicable cost-to-charge ratio which varies by the class 
of drug. For CY2003, the average ratio of cost to AWP for sole-
source drugs manufactured by one entity is 0.71, for multiple 
source drugs is 0.68, and for multiple source drugs with 
generic competitors is 0.43. There is enormous variation within 
a category from close to zero to above 100% of AWP.
      Current drugs and biologicals that have been in 
transitional pass-through status on or prior to January 1, 2000 
were removed from that payment status effective January 1, 
2003. CMS established separate APC payments for certain of 
these drugs, including orphan drugs, blood and blood products, 
and selected higher cost drugs in CY2003. CMS established a 
threshold of $150 per claim line for a drug to qualify for a 
separate APC payment as a higher-cost drug. Other drugs that 
had qualified for a transitional pass-through payment were 
packaged in to procedural APCs. For example, in some instances, 
brachytherapy seeds (radioactive isotopes used in cancer 
treatments) were packaged into payments for brachytherapy 
procedures. Essentially, the payment rates for these drug-
related APCs are based on a relative weight calculated in the 
same way as procedural APCs are calculated. However, the cost 
to charge ratios are from only one department.
House Bill
      Under Section 621(a), starting for services furnished on 
or after January 1, 2004, certain covered OPD drugs would be 
paid no more than 95% of AWP or be less than the transition 
percentage of the AWP from CY2004 through CY2006. In subsequent 
years, payment would be equal to average price for the drug in 
the area and year established by the competitive acquisition 
program under 1847A. The covered OPD drugs affected by this 
provision are radiopharmceuticals and outpatient drugs that 
were paid on a pass-through basis on or before December 31, 
2002. These would not include drugs for which pass-through 
payments are first made on or after January 1, 2003 or those 
drugs for which a temporary HCPCS code has not been assigned. 
Drugs for which a temporary HCPCS code has not been assigned 
would be reimbursed at 95% of the AWP.
      The transition percentage to AWP for sole-source drugs 
manufactured by one entity is 83% in CY2004, 77% in CY2005, and 
71% in CY2006. The transition percentage to AWP for innovator 
multiple source drugs is 81.5% in CY2004, 75% in CY2005, and 
68% in CY2006. The transition percentage to AWP for multiple 
source drugs with generic drug competitors is 46% in CY2004 
through CY2006. Generally, a multiple source drug is a covered 
drug for which there are 2 or more therapeutically equivalent 
drug products. An innovator multiple source drug is a multiple 
source drug that was originally marketed under an original new 
drug application approved by the Food and Drug Administration 
(FDA). A sole source drug is not a multiple source drug. The 
additional expenditures resulting from these provisions would 
not be subject to the budget neutrality requirement.
      Starting in CY2004, the Secretary would be required to 
lower the threshold for establishing a separate APC group for 
higher costs drugs from $150 to $50 per administration. These 
separate drug APC groups would not be eligible for outlier 
payments. Starting in CY2004, Medicare's transitional pass-
through payments for drugs and biologicals covered under a 
competitive acquisition contract would reflect the amount paid 
under that contract, not 95% of AWP.
      Under Section 621(d), the Secretary would be required to 
study the hospital acquisition costs related to covered 
outpatient drugs that cost $50 per administration and more that 
are reimbursed under the HOPD-PPS. The study would encompass a 
representative sample of urban and rural hospitals. The report 
including recommendations on the usefulness of the cost data 
and frequency of subsequent data collection efforts would be 
due to Congress no later than January 1, 2006. The report would 
also discuss whether the data is appropriate for making 
adjustments to payments made under the competitive acquisition 
contract established by section 1847A and whether separate 
estimates can be made for overhead costs including handling and 
administering drugs. The provision would be effective upon 
enactment.
Senate Bill
      A new payment mechanism for certain drugs and biologicals 
provided in hospital outpatient departments (OPD) would be 
established from January 1, 2005 and before January 1, 2007. 
The drugs and biologicals would be those for which hospitals 
received transitional pass-through payments prior to January 1, 
2005 and those that would have been paid in such a manner but 
for the application of this provision or those that are 
assigned to drug specific APCs on or after thedate of 
enactment. Payments made under this provision would be exempt from the 
budget neutrality requirement in FY2005 and FY2006.
      In 2005, these drugs or biologicals furnished as part of 
a current OPD service would be paid as follows: a single source 
or orphan product would be paid at 94% of the AWP existing on 
May 1, 2003; a multiple source drug would be paid at 91% of the 
AWP existing on May 1, 2003; and a multiple source drug with 
generic equivalents would be paid at 71% of AWP on May 1, 2003. 
Drugs and biologicals that were furnished as part of other OPD 
services would be paid using the same applicable percentage of 
the AWP that would have been determined on May 1, 2003 if 
payment could have been made on that date. For 2006, these 
payment amounts would be increased by the percentage increase 
in the consumer price index for all urban consumers for the 12-
month period ending in June of the previous year.
      The Secretary would be required to contract with an 
eligible organization (a private nonprofit organization) to 
conduct a study to determine the hospital acquisition, pharmacy 
services, and handling costs for each of the drugs paid in this 
fashion. The study would be required to be accurate with 3% of 
the true mean hospital acquisition and handling costs for each 
drug and biological at the 95% confidence level; begin not 
later than January 1, 2005; and be updated annually. Each year, 
beginning January 1, 2006, the Secretary would be required to 
submit a report to Congress, including recommendations, on the 
drug costs. These drug costs would be used in determining the 
payment amounts for each drug and biological provided as part 
of a covered OPD service furnished on or after January 1, 2007.
Conference Agreement
      Starting for services furnished on or after January 1, 
2004, specified covered OPD drugs would be paid based on a 
percentage of the reference average wholesale price for the 
drug. The percentage of the reference price for sole-source 
drugs manufactured by one entity can be no less than 88% and no 
greater than 95% in CY2004 and no less than 83% and no greater 
than 95% in CY2005. The percentage of the reference price for 
innovator multiple source drugs can be no greater than 68% in 
CY2004 and CY2005. The percentage of the reference price for 
noninnovator multiple source drugs can be no greater than 46% 
in CY2004 and CY2006. The reference average wholesale price is 
the average wholesale price for the drug as of May 1, 2003.
      A sole source drug is biological product approved under a 
biologics license application under section 351 of the Public 
Health Services Act or a single source drug produced or 
distributed under an original new drug application approved by 
the Food and Drug Administration (FDA) which includes a drug 
product marketed by appropriate cross-licensed producers or 
distributors as established in Section 1927(k)(7)(A)(iv) of the 
Social Security Act (the Act); an innovator multiple source 
drug is a multiple source drug that was originally marketed 
under an original new drug application approved by FDA as 
established in Section 1927(k)(7)(A)(ii) of the Act; and, a 
noninnovator multiple source drug is a multiple source drug 
that is not an innovator multiple source drug as established in 
1927(k)(7)(A)(iii) of the Act. A biological includes any 
product that the Centers for Medicare and Medicaid services has 
determined to be a biological under section 1861(t)(1) of the 
Act.
      It is the intent of the Conference that products eligible 
for the transitional payment under the hospital outpatient 
department section include all products paid by Medicare on a 
pass-through list as a drug or biologic prior to December 31, 
2002, or as a radiopharmaceutical product as a pass-through 
product are in a separate ambulatory payment classification 
(APC). This section clarifies that radiopharmaceuticals are 
drugs under the hospital outpatient department section and that 
the term ``specified covered outpatient drug'' includes 
radiopharmaceuticals.
      In subsequent years, payment will be equal to the average 
acquisition cost for the drug for that year (which may vary by 
hospital group taking into account hospital volume or other 
hospital characteristics) or if hospital acquisition cost data 
are not available, the average price for the drug in the year 
other than radiopharmacuticals established under Sections 
1842(o), 1847A or 1847B as calculated and adjusted by the 
Secretary. The covered OPD drugs affected by this provision are 
outpatient drugs that were paid on a pass-through basis on or 
before December 31, 2002. These would not include drugs for 
which pass-through payments are first made on or after January 
1, 2003; those drugs for which a temporary HCPCS code has not 
been assigned; or, during 2004 and 2005, orphan drugs. Drugs 
for which a temporary HCPCS code has not been assigned will be 
reimbursed at 95% of the AWP. Orphan drugs during this 2 year 
time period will be paid at an amount specified by the 
Secretary.
       GAO is required to conduct an acquisition cost survey 
for each specified covered drug in 2004 and 2005. The surveys 
(those done by GAO and then subsequently by the Secretary) will 
be based on a large sample of hospitals that is sufficient to 
generate a statistically significant estimate of the average 
hospital acquisition cost for each specified covered outpatient 
drug. No later than April 1, 2005, GAO will furnish this survey 
data to the Secretary to use in setting payment rates for 2006. 
GAO will evaluate the 2006 payment rates and submit a report to 
Congress on their appropriateness no later than 30 days after 
the date the Secretary promulgates the proposed rule setting 
forth these rates.
      Upon completion of their surveys, GAO will submit 
recommendations regarding the survey methodology and survey 
frequency to the Secretary for subsequent surveys. The 
Secretary will conduct periodic surveys to determine the 
hospital acquisition costs for each specified covered 
outpatient drug to set subsequent payment rates. GAO will 
report to Congress on the justification for the size of the 
sample used in order to assure the validity of the estimates; 
the extent of variation in hospital acquisition costs among 
hospitals based on the volume of covered OPD services or other 
relevant characteristics.
      MedPAC will submit a report to the Secretary on the 
payment adjustment to ambulatory payment classifications for 
specified covered outpatient drugs that takes into account 
overhead and related expenses (such as pharmacy services and 
handling costs). The report will include (1) a description and 
analysis of the available data; (2) a recommendation as to 
whether the payment adjustment should be made; and (3) if such 
an adjustment should be made, a recommendation regarding the 
appropriate methodology. The Secretary is authorized to adjust 
the weights for ambulatory payment classification based on such 
a recommendation.
      The additional expenditures that result from the previous 
changes will not be taken into account in establishing the 
conversion, weighting and other adjustment factors for 2004 and 
2005, but will be taken into account in subsequent years.
      For drugs and biologicals furnished in 2004 and 2005, the 
Secretary is required to lower the threshold for establishing a 
separate APC group for higher costs drugs from $150 to $50 per 
administration. These separate drug APC groups are not be 
eligible for outlier payments.Starting in CY2004, Medicare's 
transitional pass-through payments for drugs and biologicals covered 
under a competitive acquisition contract will equal the average price 
for the drug or biological for all competitive acquisition areas 
calculated and adjusted by the Secretary for that year.
Special Payment for Brachytherapy (Section 421(b) of the Conference 
        Report, Section 621(b) of the House Bill and Section 450A of 
        the Senate Bill).
Present Law
      Current drugs and biologicals that have been in 
transitional pass-through status on or prior to January 1, 2000 
were removed from that payment status effective January 1, 
2003. The Center for Medicare and Medicaid Services (CMS) 
established separate APC payments for certain of these drugs, 
including orphan drugs, blood and blood products, and selected 
higher cost drugs in CY2003. CMS established a threshold of 
$150 per claim line for a drug to qualify for a separate APC 
payment as a higher-cost drug. Essentially, the payment rates 
for these drug-related APCs are based on a relative weight 
calculated in the same way as procedural APCs are calculated. 
Other drugs that had qualified for a transitional pass-through 
payment were packaged in to procedural APCs. For example, in 
some instances, brachytherapy seeds (radioactive isotopes used 
in cancer treatments) were packaged into payments for 
brachytherapy procedures. Essentially, the payment rates for 
these drug-related APCs are based on a relative weight 
calculated in the same way as procedural APCs are calculated.
House Bill
      From January 1, 2004 through December 31, 2006, 
Medicare's payments for brachytherapy devices would equal the 
hospital's charges adjusted to cost. The Secretary would be 
required to create separate APCs to pay for these devices that 
reflect to the number, isotope, and radioactive intensity of 
such devices. This would include separate groups for palladium-
103 and iodine-125 devices. GAO would be required to study the 
appropriateness of payments for brachytherapy devices and 
submit a report including recommendations to Congress no later 
than January 1, 2005. The provision would be effective upon 
enactment.
Senate Bill
      The Secretary would be required to conduct a 3-year 
demonstration project that would exclude brachytherapy devices 
from the OPPS and paid on the basis of the hospital's charges 
for each device, adjusted to cost. The Secretary would be 
required to create separate, additional groups of covered HOPD 
services for brachytherapy devices to reflect the number, 
isotope, and radioactive intensity of such devices. The 
Secretary would be required to assure that aggregate payments 
under this project would not exceed what otherwise would have 
been spent. The project would begin 90 days after the date of 
enactment. The Secretary would be required to submit a report 
on the evaluation of patient outcomes and cost effectiveness of 
the project to Congress no later than January 1, 2007.
Conference Agreement
      The provision would require the Secretary to make payment 
for each brachytherapy device furnished under the hospital 
outpatient prospective payment system equal to the hospital's 
charges for the brachytherapy device adjusted to cost for all 
brachytherapy devices furnished on or after January 1, 2004 and 
before January 1, 2007. Charges for such devices will not be 
included in determining any outlier payment.
      The provision also would require the Secretary to create 
and use ambulatory payment classification (APC) groups that 
classify brachytherapy devices separately from all the other 
services and items paid for under the hospital outpatient 
prospective payment system. The Secretary must reflect the 
number, the radioactive isotope and the radioactive intensity 
of the brachytherapy devices furnished to each patient, 
including the use of separate APCs for brachytherapy devices 
made from palladium-103 and iodine-125.
Limitation of Application of Functional Equivalence Test (Section 622 
        of the Conference Agreement, Section 621(c) of the House Bill, 
        and Section 437 of the Senate Bill).
Present Law
      In the November, 1 2002 Federal Register, CMS established 
a new concept of functional equivalence for drugs to an 
existing treatment. The transitional pass-through rate for a 
drug was reduced to zero starting for services in 2003.
House Bill
      The Secretary would be prohibited from applying a 
functional equivalence standard or any similar standard in 
order to deem a particular drug or biological to be similar or 
functionally equivalent to another drug unless the Commissioner 
of the Food and Drug Administration establishes such a standard 
and certifies that the two products are functionally 
equivalent. The Secretary would be able to implement this 
standard after applicable rulemaking requirements.
      This provision would apply to the application of a 
functional equivalent on or after the date of enactment. The 
provision prohibits the application of this standard to a drug 
or biological prior to June 13, 2003.
Senate Bill
      The Secretary would be prohibited from publishing 
regulations that apply a functional equivalence standard to a 
drug or biological for transitional pass-through payments under 
OPPS. This prohibition would apply to the application of the 
functional equivalence standard on or after the date of 
enactment, unless such application was made prior to enactment 
and the Secretary applies such standard to the drug only for 
the purposes of transitional pass-through payments. This 
provision would not affect the Secretary authority to deem a 
particular drug to be identical to another drug if the 2 
products are pharmaceutically equivalent and bioequivalent, as 
determined by the Commissioner of the Food and Drug 
Administration.
Conference Agreement
      The Secretary is prohibited from publishing regulations, 
program memorandum local medical review policies or any other 
guidance (including the HOPD-PPS payment rate rules) that apply 
a functional equivalence or similar standard to a drug or 
biological for transitional pass-through payments under OPPS. 
This prohibition applies to the application of the functional 
equivalencestandard on or after the date of enactment, unless 
such application was made prior to enactment and the Secretary applies 
such standard to the drug only for the purposes of transitional pass-
through payments. This provision does not affect the Secretary's 
authority to deem a particular drug to be identical to another drug if 
the 2 products are pharmaceutically equivalent and bioequivalent, as 
determined by the Commissioner of the Food and Drug Administration.
Payment for Renal Dialysis Services (Section 623 of the Conference 
        Agreement, Section 623 of the House Bill, Section 432(b)(5) of 
        the Senate Bill).
Present Law
      Dialysis facilities providing care to beneficiaries with 
end-stage renal disease (ESRD) receive a fixed prospectively 
determined payment amount (the composite rate) for each 
dialysis treatment, regardless of whether services are provided 
at the facility or in the patient's home. The composite rate 
includes the dialysis costs but excludes separately billable 
drugs and biologicals and laboratory services. Providers 
receive 95% of the AWP for separately billable injectable 
medications other than erythropoietin (EPO) administered during 
treatments at the facility. Medicare pays separately for EPO 
which is used to treat anemia for persons with chronic renal 
failure who are on dialysis. Congress has set Medicare's 
payment for (EPO) at $10 per 1,000 units whether it is 
administered intravenously or subcutaneously in dialysis 
facilities or in patients' homes.
      BBRA increased the composite rates by 1.2% for dialysis 
services furnished in both 2000 and 2001. BIPA subsequently 
increased the 2001 update to 2.4%. The composite rate has not 
been increased since then.
      Prior to BIPA, an increase in the composite rate would 
trigger an opportunity for facilities to request an exception 
to the composite rate in order to receive higher payments. BIPA 
prohibited the Secretary from granting new exceptions to the 
composite rate (after applications received after July 1, 
2001).
      In 2003, Secretary announced a demonstration project 
establishing a disease-management program that will allow 
organizations experienced with treating end-stage renal disease 
(ESRD) patients to develop financing and delivery approaches to 
better meet the needs of beneficiaries with ESRD. CMS is 
soliciting a variety of types of organizations to coordinate 
care to patients with ESRD, encourage the provision of disease-
management services for these patients, collect clinical 
performance data and provide incentives for more effective 
care.
House Bill
      The provision would increase the ESRD composite payment 
rate by 1.6% for 2004.
      The prohibition on exceptions contained in BIPA section 
422(a)(2) would not apply to pediatric ESRD facilities as of 
October 1, 2002. Pediatric facilities would be defined as a 
renal facility with 50% of its patients under 18 years old. The 
provision would be effective upon enactment.
      The provision would require the Secretary to establish an 
advisory board for the ESRD disease management demonstration. 
The advisory board would be comprised of representatives of 
patient organizations, clinicians, the Medicare Payment 
Advisory Commission (MedPAC), the National Kidney Foundation, 
the National Institute of Diabetes and Digestive and Kidney 
Diseases of the National Institutes of Health, ESRD networks, 
Medicare contractors to monitor quality of care, providers of 
services and renal dialysis facilities furnishing ESRD 
services, economists, and researchers. The provision would be 
effective upon enactment.
Senate Bill
      The composite rate for dialysis services furnished during 
2004 would be increased by an amount to ensure that the sum of 
the total amount of the composite rate payments plus the 
payments that are billed separately for drugs and biologicals 
(but not EPO) would equal the composite rate payments plus 
payments made for separately billed drugs and biologicals (not 
including EPO) as if the drug pricing provisions of this 
legislation were not enacted. During 2005, the ESRD composite 
rate would be increased by 0.05% and further increased by 1.6%. 
During 2006, the ESRD composite rate of the previous year would 
be increased by 0.05% and then further increased by 1.6%. 
During 2007 and subsequently, the composite ESRD rate of the 
previous year would be increased by 0.05%. In any year after 
2004, the Secretary would be required to provide for additional 
increases in the composite rate to account for any payment 
reductions for separately administered drugs and biologicals 
(but not EPO) in the same manner as in 2004. These payment 
amounts, methods or adjustments would not be subject to 
administrative or judicial review under the statutory appeals 
processes as established by Senate section 1869 of the SSA, by 
the Provider Reimbursement Review Board established by Senate 
section 1878 of the SSA, or otherwise. The provision would be 
effective upon enactment.
Conference Agreement
      The conference agreement increases the composite rate for 
renal dialysis by 1.6% for 2005.
      The prohibition on exceptions contained in BIPA section 
422(a)(2) does not apply to pediatric ESRD facilities as of 
October 1, 2002. Pediatric ESRD facilities are defined as renal 
facilities with 50% of their patients under 18 years old. The 
provision is effective upon enactment.
      The Inspector General of HHS is required to conduct 2 
studies regarding drugs and biologicals (including 
erythropoietin) furnished to ESRD patients and billed 
separately to Medicare by ESRD facilities. The first study will 
address existing drugs and biologicals--those for which a 
billing code exists prior to January 1, 2004--and is required 
to be submitted to the Secretary by April 1, 2004. The second 
study is of new drugs and biologicals--those for which a 
billing code does not exist prior to January 1, 2004--and is 
due to the Secretary by April 1, 2006. Each study is required 
to determine the difference, or spread, between the Medicare 
payment amount to ESRD facilities for drugs and biologicals, 
and the facilities' acquisition costs for the drugs and 
biologicals which are separately billed by the facilities. The 
studies are also to estimate the rates of growth of 
expenditures for these drugs and biologicals.
      The conference agreement requires the Secretary to 
establish a basic case-mix adjusted prospective payment system 
for dialysis services. The basic case-mix adjusted system is 
required to begin for services furnished on January 1, 2005. 
The system is required to adjust for a limited number of 
patient characteristics (the case-mix).
      The basic case-mix adjusted system is composed of two 
components: (1) those services which currently comprise the 
composite rate (including the 1.6% increase in 2005), and (2) 
the spreadon separately billed drugs and biologicals (including 
erythropoietin and as determined by the Inspector General reports).
      Drugs and biologicals (including erythropoietin) 
currently billed separately, will continue to be billed 
separately under the basic case-mix adjusted system at 
acquisition costs. They cannot be bundled into the new system.
      In addition, the Secretary is also required to adjust the 
basic case-mix adjusted system payment rates by a geographic 
index. If the geographic index is different from the one used 
with the composite rate, then the Secretary is required to 
phase-in the application over a multi-year period.
      Overall, spending for ESRD services included under the 
basic case-mix adjusted system is required to result in the 
same aggregate amount of expenditures as would occur if the 
current system continued in 2005.
      The system would be updated in 2006 for growth in drug 
spending for the portion of the basic case-mix adjusted payment 
amount that is represented by what is current spread on 
separately billed drugs and biologicals. However, the provision 
does not provide for an update to the composite rate portion of 
the base rate in 2006 and forward. The increase for drug growth 
for the spread component would be adjusted downward by its 
proportionate share (of the spread and composite rate 
components) and the resulting increase applied to the sum. An 
adjustment would be made in 2007 for the spread calculated for 
new drugs and biologicals (those for which a billing code does 
not exist prior to January 1, 2004) using the 2006 Inspector 
General study.
      Payments for separately billed drugs and biologicals will 
be 95% of the AWP for 2004 and acquisition costs in 2005, and, 
beginning in 2006 the Secretary has the authority to apply a 
payment methodology he determines appropriate which may include 
the average sales price payment methodology (under the new 
section 1847A found in section 303(c) of the conference 
agreement) or acquisition costs.
      No administrative or judicial review is permitted of the 
case-mix system, the relative weights, payment amounts, the 
geographic adjustment factor, or the update of the basic case-
mix adjusted system portion related to drug spending growth 
applied to spread, or in the determination of the difference 
between Medicare payment amounts and acquisition costs for 
separately billed drugs and biologicals.
      By October 1, 2005, the Secretary is required to report 
to Congress on the elements and features for the design and 
implementation of a fully case-mix adjusted, bundled 
prospective payment system for services furnished by ESRD 
facilities, including to the extent feasible, drugs, clinical 
laboratory tests, and other items that are separately billed by 
ESRD facilities. The report is required to include a 
description of the methodology to be used for the establishment 
of payment rates including the bundle of items and services, 
case-mix, wage index, rural area payment adjustments, other 
adjustments, and update framework.
      The Secretary is required to establish a 3-year 
demonstration project of the fully case-mix adjusted payment 
system for ESRD services, beginning January 1, 2006. The fully 
case-mix adjusted system is to include a case-mix system for 
patient characteristics identified in the report and to bundle 
separately billed drugs and biologicals and related clinical 
laboratory tests into the payment rates. The Secretary is 
required to ensure that sufficient numbers of providers of 
dialysis services and ESRD facilities participate in the 
demonstration, but not to exceed 500. The Secretary is required 
to ensure that urban, rural, not-for-profit, for-profit, 
independent, and specialty providers and facilities are 
included in the demonstration. During the demonstration, the 
Secretary is required to increase payment rates that would 
otherwise apply by 1.6% for dialysis services furnished by 
demonstration participants. In carrying out the demonstration, 
the Secretary is required to establish an advisory board 
comprised of representatives of: patient organizations; 
individuals with expertise in ESRD services, such as 
clinicians, economists, and researchers; the Medicare Payment 
Advisory Commission, the National Institutes of Health, network 
organizations; Medicare contractors to monitor quality of care; 
and providers of services and renal dialysis facilities. The 
advisory panel is required to terminate December 31, 2008. 
Appropriations are authorized from the Medicare trust funds in 
the amount of $5 million in FY 2006 to conduct this 
demonstration.
1-Year Moratorium on Therapy Caps; Provisions Relating to Report 
        (Section 624 of the Conference Agreement and Section 624 of the 
        House Bill).
Present Law
      Medicare provides that therapy patients must be under the 
care of a physician; a plan of treatment must be developed by 
the physician or therapist; and the plan must be periodically 
reviewed by the physician.
      BBA 97 established annual payment limits per beneficiary 
for all outpatient therapy services provided by non-hospital 
providers. The limits applied to services provided by 
independent therapists as well as to those provided by 
comprehensive outpatient rehabilitation facilities (CORFs) and 
other rehabilitation agencies. There are 2 beneficiary limits. 
The first is a $1,500 per beneficiary annual cap for all 
outpatient physical therapy services and speech language 
pathology services. The second is a $1,500 per beneficiary 
annual cap for all outpatient occupational therapy services. 
Beginning in 2002, the amount would increase by the Medicare 
Economic Index (MEI), rounded to the nearest multiple of $10. 
The limits did not apply to outpatient services provided by 
hospitals. BBRA 99 suspended application of the therapy limits 
in 2000 and 2001. BIPA extended the suspension through 2002. 
The therapy caps became effective in September 2003.
      BBA 97 required the Secretary to report to Congress by 
January 1, 2001, on recommendations on a revised coverage 
policy of outpatient physical therapy and occupational therapy 
services based on a classification of individuals by diagnostic 
category and prior use of services, in both inpatient and 
outpatient settings, in place of uniform dollar limitations. 
BIPA required the Secretary to conduct a study on the 
implications of eliminating the ``in the room'' supervision 
requirement for Medicare payment for physical therapy 
assistants who are supervised by physical therapists and the 
implications of this requirement on the physical therapy cap. A 
report on the study was due within 18 months of enactment.
House Bill
      Application of the therapy caps would be suspended in 
2004. The Secretary would be required to submit the reports 
required by BBA 97 and BIPA by December 31, 2002. The 
Secretarywould be required to request the Institute of Medicine to 
identify conditions or diseases that should justify conducting an 
assessment of the need to waive the therapy caps. The Secretary would 
be required to submit to Congress a preliminary report on the 
conditions and diseases identified by July 1, 2004. A final report, 
including recommendations, would be due by October 1, 2004.
Senate Bill
      No provision.
Conference Agreement
      Application of the therapy caps is suspended as of the 
date of enactment through calendar year 2005. The 
implementation of this provision shall not be deemed to have 
any retroactive impact upon beneficiaries who exceeded their 
caps prior to the date of enactment. The Secretary is required 
to submit the reports required by BBA 97 and BIPA by March 31, 
2004 relating to the alternatives to a single annual dollar cap 
on outpatient therapy and the utilization patterns for 
outpatient therapy. The GAO is required to identify conditions 
or diseases that may justify waiving the application of the 
therapy caps and report to Congress by October 1, 2004. The 
report is required to include a recommendation of criteria, 
with respect to the conditions and diseases, under which a 
waiver of the therapy caps would apply.
Waiver of Part B Late Enrollment Penalty for Certain Military Retirees; 
        Special Enrollment Period (Section 625 of the Conference 
        Agreement, Section 627 of the House Bill, and Section 439 of 
        the Senate Bill).
Present Law
      A late enrollment penalty is required to be imposed on 
beneficiaries who do not enroll in Medicare part B upon 
becoming eligible for Medicare.
House Bill
      Congress enacted TRICARE for Life, which re-established 
TRICARE health care coverage as a wraparound to Medicare for 
military retirees, age 65 and older. To take advantage of the 
TRICARE for Life program, military retirees must be enrolled in 
Medicare Part B. There is a late enrollment penalty for 
military retirees who do not enroll in Medicare Part B upon 
becoming eligible for Medicare. This provision would waive the 
late enrollment penalty for military retirees, 65 and older, 
who enroll(ed) in the TRICARE for Life program from 2001-2004.
      The Secretary would also be required to provide a special 
Part B enrollment period for these military retirees beginning 
as soon as possible after enactment and ending December 31, 
2004. The provision would apply to premiums for months 
beginning January 2004. The Secretary would be required to 
rebate premium penalties paid for months on or after January 
2004 for which a penalty does not apply as a result of this 
provision, but for which a penalty was collected.
Senate Bill
      Beginning January 2005, the provision would waive the 
late enrollment penalty for certain military retirees who 
enrolled in Part B during 2002, 2003, 2004 or 2005. A special 
enrollment period, beginning 1 year after enactment and ending 
December 31, 2005 would be provided.
Conference Agreement
      Congress enacted TRICARE for Life, which re-established 
TRICARE health care coverage as a wraparound to Medicare for 
military retirees, age 65 and older. To take advantage of the 
TRICARE for Life program, military retirees must be enrolled in 
Medicare Part B. The provision waives the late enrollment 
penalty for military retirees who did not enroll in Medicare 
Part B upon becoming eligible for Medicare. The waiver applies 
to the late enrollment penalty for military retirees, 65 and 
over, who enroll(ed) in the TRICARE for Life program from 2001 
to 2004.
      The Secretary is required to provide a special Part B 
enrollment period for these military retirees beginning as soon 
as possible after enactment and ending December 31, 2004. The 
provision applies to premiums for months beginning January 
2004. The Secretary is required to rebate premium penalties 
paid for months on or after January 2004 for which a penalty 
does not apply as a result of this provision, but for which a 
penalty was collected.
Payments for Services Furnished in Ambulatory Surgical Centers (Section 
        626 of the Conference Agreement and Section 625 of the House 
        Bill).
Present Law
      Medicare uses a fee schedule to pay for the facility 
services related to a surgery provided in an ambulatory surgery 
center (ASC). The associated physician services (surgery and 
anesthesia) are reimbursed under the physician fee schedule. 
CMS maintains the list of approved ASC procedures which is 
required to be updated every 2 years. The Secretary is required 
to update ASC rates based on a survey of the actual audited 
costs incurred by a representative sample of ASCs every 5 years 
beginning no later than January 1, 1995. Between revisions, the 
rates are to be updated annually on a calendar year schedule 
using the CPI-U. From FY1998 through FY2002, the update was 
established as the CPI-U minus 2.0 percentage points, but not 
less than zero.
      In June 1998, CMS issued a proposed notice which would 
have implemented a prospective payment system (PPS) for ASCs. 
The Balanced Budget Refinement Act of 1999 required that full 
implementation of the proposed ASC rates be phased in over a 3-
year period. The Benefits Improvement and Protection Act of 
2000 (BIPA) delayed implementation of the PPS before January 1, 
2002. BIPA also required that CMS use 1999 or later cost survey 
data in the PPS. A final rule implementing the new payment 
system for ASCs has not yet been issued.
House Bill
      The reduction in the update would be extended. ASCs would 
get an increase calculated as the CPI-U minus 2.0 percentage 
points (but not less than zero) in each of the fiscal years 
from 2004 through 2008.
Senate Bill
      No provision.
Conference Agreement
      In FY2004, starting April 1, 2004, the ASC update will be 
the CPI-U (estimated as of March 31, 2003 minus 3.0 percentage 
points. In FY2005, the last quarter of calendar year 2005, and 
each of the calendar years 2006 through 2009 the update will be 
0%. Upon implementation of the new ASC payment system, the 
Secretary will no longer be required to update ASC rates based 
on a survey of the actual audited costs incurred by a 
representative sample of ASCs every 5 years. Subject to GAO's 
recommendations (discussed subsequently), the Secretary will 
implement a revised payment system for surgical services 
furnished in an ASC. This payment system will be designed to be 
budget neutral in the year it is implemented; the amount of 
aggregate expenditures for such services under the new system 
will be the same as would have occurred under the old system. 
The new system will be implemented so that it is first 
effective on or after January 1, 2006 and not later than 
January 1, 2008. There will be no administrative or judicial 
review of the ASC classification system, relative weights, 
payment amounts and any geographic adjustment factor. GAO will 
conduct a comparative study of the relative costs of procedures 
furnished in ASCs to those furnished in hospital outpatient 
departments under OPPS. The study will examine the accuracy of 
the ambulatory payment categories with respect to the 
procedures furnished in the ASCs. GAO will submit 
recommendations and consider ASC data with respect to: (1) the 
appropriateness of using groups and relative weights 
established for the outpatient hospital PPS as the basis of the 
new ASC payment system; (2) if such weights are appropriate, 
whether the ASC payments should be based on a uniform 
percentage of such weights, whether the percentages should 
vary, or whether the weights should be revised for certain 
procedures or types of services; and (3) the appropriateness of 
a geographic adjustment in the ASC payment system and if 
appropriate, the labor and non-labor shares of such payment.
Payment for Certain Shoes and Inserts under the Fee Schedule for 
        Orthotics and Prosthetics (Section 627 of the Conference 
        Agreement, and Section 626 of the House Bill).
Present Law
      Subject to specified limits and under certain 
circumstances, Medicare will pay for extra-depth shoes with 
inserts or custom molded shoes with inserts for an individual 
with severe diabetic foot disease. Coverage is limited to one 
of the following within a calendar year: (1) one pair of 
custom-molded shoes (including inserts provided with such 
shoes) and two additional pairs of inserts, or (2) one pair of 
extra-depth shoes (not including inserts provided with such 
shoes) and three pairs of inserts. An individual may substitute 
modifications of custom-molded or extra-depth shoes instead of 
obtaining one pair of inserts, other than the initial pair of 
inserts. Footwear must be fitted and furnished by a podiatrist 
or other qualified individual such as a pedorthist, orthotist, 
or prosthetist. The certifying physician may not furnish the 
therapeutic shoe unless the physician is the only qualified 
individual in the area.
      Payment is made on a reasonable charge basis, subject to 
upper limits established by the Secretary. These limits are 
based on 1988 amounts that were set forth in Section 1833(o) of 
the Act and then adjusted by the same percentage increases 
allowed for DME fees except that if the updated limit is not a 
multiple of $1, it is rounded to the nearest multiple of $1. 
The Secretary or a carrier may establish lower payment limits 
than established by statute if shoes and inserts of an 
appropriate quality are readily available at lower amounts.
      Although updates in payment for diabetic shoes are 
related to that used to increase the DME fee schedule, the 
shoes are not subject to DME coverage rules or the DME fee 
schedule. In addition, diabetic shoes are neither considered 
DME nor orthotics, but a separate category of coverage under 
Medicare Part B.
House Bill
      Payment for diabetic shoes would be limited by the amount 
that would be paid if they were considered to be a prosthetic 
or orthotic device. The Secretary would be able to establish 
lower payment limits than these amounts if shoes and inserts of 
an appropriate quality are readily available at lower amounts. 
The Secretary would be required to establish a payment amount 
for an individual substituting modifications to the covered 
shoe that would assure that there is no net increase in 
Medicare expenditures. The provision would apply to items 
furnished on or after January 1, 2004.
Senate Bill
      No provision.
Conference Agreement
      Payment for diabetic shoes is limited under the 
conference agreement by the amount that would be paid if they 
were considered to be a prosthetic or orthotic device. The 
Secretary may establish lower payment limits than these amounts 
if shoes and inserts of an appropriate quality are readily 
available at lower amounts. The Secretary is required to 
establish a payment amount for an individual substituting 
modifications to the covered shoe that would assure that there 
is no net increase in Medicare expenditures. The provision 
applies to items furnished on or after January 1, 2005.
Payment for Clinical Diagnostic Laboratory Tests (Section 628 of the 
        Conference Agreement, Section 431 of Senate Bill).
Present Law
      Medicare payment for clinical diagnostic laboratory test 
is made using a fee schedule. The fee schedule is updated on a 
calendar year basis using the CPI-U. BBA 97 froze the fee 
schedule from 1998 through 2002. The update for 2003 was equal 
to the full CPI-U increase. No beneficiary cost-sharing is 
imposed.
House Bill
      No provision.
Senate Bill
      Medicare would pay all clinical laboratories 80% of the 
applicable fee schedule amount. Hospital-based and physician 
office and independent laboratories would be able to charge 
beneficiaries a 20% coinsurance amount. The Medicare Part B 
deductible would apply to clinical diagnostic laboratory tests 
furnished across all settings; except for those tests provided 
by sole community hospitals (see Senate Section 427). The 
provision would apply to tests furnished on or after January 1, 
2004.
Conference Agreement
      The conference agreement does not provide for any updates 
to the clinical diagnostic laboratory test fee schedule for 
2004 through 2008.
Indexing Part B Deductible to Inflation (Section 629 of the Conference 
        Agreement, Section 628 of the House Bill, Section 433 of the 
        Senate Bill).
Present Law
      Under Part B, Medicare generally pays 80 percent of the 
approved amount for covered services after the beneficiary pays 
an annual deductible of $100. The Part B deductible has been 
set at $100 since 1991.
House Bill
      Starting for January 1, 2004, the Medicare Part B 
deductible would be increased by the same percentage as the 
Part B premium increase. Specifically, the annual percentage 
increase in the monthly actuarial value of benefits payable 
from the Federal Supplementary Medical Insurance Trust Fund 
would be used as the update. The amount would be rounded to the 
nearest dollar. The provision would be effective upon 
enactment.
Senate Bill
      The Medicare Part B deductible would be set at $100 
through 2005 and then increased to $125 in 2006. Effective 
January 1 of subsequent years, the deductible would be 
increased annually by the percentage change in the CPI-U for 
the previous year ending in June. The amount would be rounded 
to the nearest dollar. The provision would be effective upon 
enactment.
Conference Agreement
      The Medicare Part B deductible will remain $100 through 
2004. The deductible will be $110 for 2005, and in subsequent 
years the deductible will be increased by the same percentage 
as the Part B premium increase. Specifically, the annual 
percentage increase in the monthly actuarial value of benefits 
payable from the Federal Supplementary Medical Insurance Trust 
Fund will be used as the update. The deductible amount will be 
rounded to the nearest dollar. The provision is effective upon 
enactment.
      In 1966, Medicare's $50 Part B deductible equaled about 
45 percent of Part B charges. Today's $100 deductible equals 
about three percent of such charges. Indexing the Part B 
deductible to grow at the same rate as total Part B spending 
per beneficiary would maintain the deductible at 3 percent of 
such charges over time.
      An unchanged Part B deductible is a benefit increase over 
time, as costs of medical care rise. Beneficiaries pay about 25 
percent of this benefit increase, through increased Part B 
premiums; taxpayers finance the remaining 75 percent. The Part 
B deductible has increased only three times since the beginning 
of Medicare, when it was $50. The deductible has since been 
increased to $60 in 1973, $75 in 1982, and $100 in 1991. About 
one-half of beneficiaries are insulated from Part B deductibles 
through Medigap, Medicaid, or employer-sponsored supplemental 
insurance that covers the Part B deductible. The Part B 
deductible has increased only three times since Medicare began 
in 1965, when it was $50. It was raised to $60 in 1973, $75 in 
1982, and $100 in 1991.
5-year Authorization of Reimbursement for All Medicare Part B Services 
        Furnished by Certain Indian Hospitals and Clinics (Section 630 
        of the Conference Agreement and Section 450C of the Senate 
        Bill).
Present Law
      Medicare covers specified Part B services provided by a 
hospital or ambulatory care clinic (whether provider-based or 
freestanding) that is operated by the Indian Health Service, by 
an Indian tribe, or by a tribal organization. These services 
include physicians' services, health practitioners (physician 
assistant, nurse practitioner, or clinical nurse specialist; 
certified registered nurse anesthetist; certified nurse-
midwife; clinical social worker; clinical psychologist; and a 
registered dietitian or nutrition professional) and outpatient 
physical therapy services provided by physical or occupational 
therapists.
House Bill
      No provision.
Senate Bill
      The provision would expand covered Medicare Part B items 
and services provided in hospitals or ambulatory care clinics 
(whether provider-based or freestanding) that are operated by 
the Indian Health Service or by an Indian tribe or tribal 
organization. All covered Part B items and services would be 
paid when provided in a hospital or ambulatory care clinic 
operated by the Indian Health Service or by an Indian tribe or 
tribal organization. The provision would apply to items and 
services furnished on or after October 1, 2004.
Conference Agreement
      The conference agreement provides a 5-year expansion of 
the items and services covered under Medicare Part B when 
furnished in Indian hospitals and ambulatory care clinics. The 
conference agreement applies to items and services furnished on 
or after January 1, 2005.
Conforming Changes Regarding Federally Qualified Health Centers 
        (Section 420 of the Senate Bill).
Present Law
      Medicare pays federally qualified health centers (FQHCs) 
for their services on a reasonable cost basis.
House Bill
      No provision.
Senate Bill
      Medicare would exclude the costs incurred by a FQHC for 
providing services and receiving payments through a contract 
with an eligible entity operating a Medicare prescription drug 
plan. The provision would be effective upon enactment.
Conference Agreement
      No provision.
Reimbursement for Total Body Orthotic Management for Certain Nursing 
        Home Patients (Section 450B of the Senate Bill).
Present Law
      Orthotics are rigid devices, often called braces, which 
are applied to the outside of the body as a means of support 
for a weak or deformed body member or restricting or 
eliminating motion in a diseased or injured part of the body. 
They are categorized into one of three groups of devices: 
custom fitted, which require alterations to a prefabricated 
product; custom fabricated, which are made for a specific 
patient from his/her individual measurements; and molded to 
patient model, which are created from a cast of the patient's 
body part. Examples of orthotics include spinal body jackets, 
hip abductors, and knee braces. Add-ons, such as straps and 
linings, are billed separately. Suppliers of orthotics include 
certified orthotists, medical equipment companies, and 
physicians' offices.
      Orthotics (e.g., leg, arm, back, and neck braces) are 
covered Part B benefits when furnished in an institutional 
setting, such as in a hospital or skilled nurses facility, 
while durable medical equipment (DME) is not covered in those 
settings. Medicare considers a brace as an orthotic device when 
it can be used independently of DME. On the other hand, if a 
brace must be used in conjunction with, or is an accessory of, 
a DME item, then the brace is considered an item of DME. 
Orthotic devices include braces that are part of a bracing 
system even if the system depends on attachment to an external 
structure or frame.
      At one point, the Centers for Medicare and Medicaid (CMS) 
in HCFA Ruling, No. 96-1, declared that bracing systems should 
be characterized as DME rather than orthotics. That ruling was 
deemed invalid because it made a substantive change in Medicare 
coverage rules and was not properly promulgated. Although the 
braces in a bracing system are attached to an external frame, 
they perform the functions of braces and the external frame is 
assistive in nature rather than determinative of the system's 
classification. Since the patients who need bracing systems 
typically are cared for in the nursing home environment, the 
classification of the bracing systems is crucial because 
orthotics are covered when furnished to nursing home patient, 
while DME is not. However, under the Benefits Improvement and 
Protection Act of 2000 (BIPA) (Pub. L. No. 106-554), no payment 
may be made for prosthetics and certain custom-fabricated 
orthotics unless they are furnished by a qualified practitioner 
and fabricated by a qualified practitioner or a qualified 
supplier at an approved facility. Affected custom-fabricated 
orthotics are items requiring education, training, and 
experience to custom-fabricate and that are on a list to be 
published by the Secretary.
House Bill
      No provision.
Senate Bill
      The Secretary would be required to issue product codes 
that qualified practitioners and suppliers may use to receive 
Medicare reimbursement for qualified total body orthotic 
management devices no later than 60 days from enactment. These 
medically prescribed devices would consist of custom fitted 
individual braces with adjustable points at the hip, knee, 
ankle, elbow and wrists when the braces are attached to a frame 
that is integral to the device and the frame serves no purpose 
without the braces. The device would be designed to improve 
function, retard the progression of musculoskeletal deformity 
or restrict, eliminate, or assist in the functioning of the 
upper or lower extremities for a beneficiary who is in the full 
time care of a skilled nursing facility who requires such care 
for medical reasons. The provision would be effective upon 
enactment.
Conference Agreement
      No provision.
Medicare Coverage of Self Injected Biologicals (Section 450E of the 
        Senate Bill).
      Although Medicare does not currently provide an 
outpatient prescription drug benefit, coverage of certain 
outpatient drugs and biologicals is specifically authorized by 
statute. For example, under Medicare Part B, outpatient 
prescription drugs and biologicals are covered if they are 
usually not self-administered and are provided incident to a 
physician's services. Generally, Medicare will cover an 
outpatient drug as usually self-administered if it is delivered 
by intramuscular injection, but not if it is injected 
subcutaneously.
House Bill
      No provision.
Senate Bill
      From January 1, 2004 and before January 1, 2006, Medicare 
would cover self-injected biologicals that are approved by the 
Food and Drug Administration and that are prescribed as 
complete replacements for drugs or biologicals that are 
currently covered in physicians' offices or as hospital 
services provided to outpatients that are usually self-
administered and provided incident to a physician's services. 
Medicare would cover self-injected drugs that are used totreat 
multiple sclerosis. The provision would apply to drugs and biologicals 
furnished on or after January 1, 2004 and before January 1, 2006.
Conference Agreement
      No provision.
Requiring the Internal Revenue Service to Deposit Installment Agreement 
        and Other Fees in the Treasury as Miscellaneous Receipts 
        (Section 450G of the Senate Bill).
Present Law
      The Secretary of the Treasury was granted the authority 
by Senate Section 3 of the Administrative Provisions of the 
Internal Revenue Service of Public Law 103-286, the Treasury, 
Postal Service and General Government Appropriations Act of 
1995 to establish new fees (if the fee is authorized by another 
law) or raise fees for services provided by the Internal 
Revenue Service to supplement appropriations made available to 
the Internal Revenue Service. The fees must be based on the 
costs of providing the specific services (to the persons paying 
the fees), and the Secretary must report quarterly to the 
Congress on the collection of such fees and how they are spent.
House Bill
      No provision.
Senate Bill
      The Secretary of the Treasury must deposit any fees 
collected under the authority provided by Senate Section 3 of 
the Administrative Provisions of the Internal Revenue Service 
of Public Law 103-286, the Treasury, Postal Service and General 
Government Appropriations Act of 1995 into the Treasury as 
miscellaneous receipts. The fees collected are only available 
to the Internal Revenue Service if authority is provided in 
advance in an appropriations Act. The provision would be 
effective upon enactment.
Conference Agreement
      No provision.
Medicare Coverage of Kidney Disease Education Services (Section 456 of 
        the Senate Bill).
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      Kidney disease education services would be covered under 
Medicare. The services covered would be those: furnished to an 
individual with kidney disease who will require dialysis or a 
kidney transplant; furnished upon the referral of the physician 
managing the individual's kidney condition; and designed to 
provide comprehensive information regarding the management of 
comorbidities, the prevention of uremic complications, and each 
option for renal replacement therapy (including peritoneal 
diaylsis, hemodialysis and transplantation) and to ensure that 
the individual has the opportunity to actively participate in 
the choice of therapy. Kidney disease education services would 
be paid using the physician fee schedule on an assignment-
related basis (thus prohibiting balance billing) outside the 
ESRD composite rate.
      The Secretary would be required to ensure (and to monitor 
implementation to ensure) that each beneficiary who is entitled 
to kidney disease education services under Medicare receives 
such services in a timely manner that ensures that the 
beneficiary receives the maximum benefit of the services.
      The Secretary would be required to report to Congress 
annually on the number of Medicare beneficiaries who are 
entitled to these education services and who received these 
services. In addition, the report would include any 
recommendations for legislative and administrative action as 
the Secretary determines appropriate. The first report would be 
due April 1, 2004. The provision would apply to services 
furnished on or after January 1, 2004.
Conference Agreement
      No provision.

  Subtitle D--Additional Demonstrations, Studies and Other Provisions

Demonstration Project for Coverage of Certain Prescription Drugs and 
        Biologics (Section 641 of the Conference Agreement and Section 
        631 of the House Bill).
Present Law
      No provision.
House Bill
      The Secretary would be required to conduct a 2-year 
demonstration project in 3 states covering more than 10,000 
patients under Part B of the Medicare program that would pay 
for drugs and biologicals that are prescribed as replacements 
for existing covered drugs that are furnished incident to a 
physician's professional service which are not usually self-
administered including oral anticancer chemotherapeutic agents. 
The project would not extend beyond December 31, 2005 and would 
not cost more than $100 million. The Secretary would be 
required to submit an evaluation to Congress concerning patient 
access and outcomes as well as the project's cost 
effectiveness. The Secretary would also be required to examine 
any cost savings attributed to reduced physicians' services and 
hospital outpatient department services for the 
administrationof the biological. The demonstration project would begin 
90 days from enactment and would end no later than December 31, 2005.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement requires the Secretary to 
conduct a 2-year demonstration project in 6 states covering 
more than 50,000 patients under Medicare Part B that pays for 
drugs and biologics that are prescribed as replacements for 
existing covered drugs that are furnished incident to a 
physician's professional service which are not usually self-
administered, including oral anticancer chemotherapeutic 
agents. The project is required to provide for cost-sharing 
applicable with respect to the drugs or biologics in the same 
manner as the cost-sharing applicable under part D for standard 
prescription drug coverage. The project is not permitted to 
cost more than $500 million. No less than 40 percent of the 
funding shall be for oral cancer. The Secretary is required to 
submit an evaluation to Congress concerning patient access and 
outcomes as well as the project's cost effectiveness. The 
Secretary is also required to examine any cost savings 
attributed to reduced physicians' services and hospital 
outpatient department services for the administration of the 
biological. The demonstration project is required to begin 90 
days following enactment and end no later than December 31, 
2005.
      The managers intend that this provision of the 
demonstration will provide immediate Part B coverage for all 
immunomodulating drugs and biologicals used when treating 
multiple sclerosis. Coverage will be extended without regard to 
whether there is medical or other supervision with respect to 
the administration of such drug or biological, and include the 
biological administered via intramuscular injection currently 
covered under Section 1861(s)(2)(A) or (B) of the Social 
Security Act.
Extension of Coverage of Intravenous Immune Globulin (IVIG) for the 
        Treatment of Primary Immune Deficiency Diseases in the Home 
        (Section 642 of the Conference Agreement and Section 629 of the 
        House Bill).
Present Law
      Intravenous immune globulin (IVIG) is a blood product 
prepared from the pooled plasma of donors. It has been used to 
treat a variety of autoimmune diseases, including mucocutaneous 
blistering diseases. It has fewer side effects than steroids or 
immunosuppressive agents. Effective October 1, 2002, IVIG is 
covered for the treatment of certain conditions including 
pemphigus vulgaris, pemphigus foliaceus, and epidermolysis 
bullosa acquisita for the following specific patient 
subpopulations: (1) patients who have failed conventional 
therapy; (2) patients in whom conventional therapy is otherwise 
contraindicated; and (3) patients with rapidly progressive 
disease in whom a clinical response could not be affected 
quickly enough using conventional agents. IVIG for the 
treatment of autoimmune mucocutaneous blistering diseases must 
be used only for short term therapy and not as a maintenance 
therapy. Contractors have discretion to define what constitutes 
a failure of conventional therapy and what constitutes short-
term therapy.
House Bill
      Intravenous immune globulin for the treatment of primary 
immune deficiency diseases in the home would be included as a 
covered medical service. Intravenous immune globulin would be 
defined as an approved pooled plasma derivative for the 
treatment in the patient's home of a patient with a diagnosed 
primary immune deficiency disease, if a physician determines 
administration of the derivative in the patient's home is 
medically appropriate. This would not include items or services 
related to the administration of the derivative. Intravenous 
immune globulin would be paid at 80 percent of the lesser of 
actual charge or the payment amount. This provision would apply 
to items furnished on or after January 1, 2004.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement includes intravenous immune 
globulin for the treatment in the home of primary immune 
deficiency diseases as a covered medical service under 
Medicare. Intravenous immune globulin is defined as an approved 
pooled plasma derivative for the treatment, in the patient's 
home, of a patient with a diagnosed primary immune deficiency 
disease, if a physician determines administration of the 
derivative in the patient's home is medically appropriate. 
Items or services related to the administration of the 
derivative are not included in the definition. Intravenous 
immune globulin is to be paid at 80 percent of the lesser of 
actual charge or the payment amount. This provision applies to 
items furnished on or after January 1, 2004.
MedPAC Study of Coverage of Surgical First Assisting Services of 
        Certified Registered Nurse First Assistants (Section 643 of the 
        Conference Agreement and Section 450I of the Senate Bill).
Present Law
      Surgical first assisting services are not separately 
covered services of Medicare and certified registered nurse 
first assistants are not able to bill the Medicare program 
directly for their services. Their services are paid by 
surgeons who are paid under the Medicare physician fee 
schedule.
House Bill
      No provision.
Senate Bill
      The Secretary would be required to conduct a 3-year 
demonstration in 5 states that would pay for ``surgical first 
assisting services'' to Medicare beneficiaries furnished by a 
certified registered nurse first assistant. These services 
would consist of assisting a physician with surgery and related 
preoperative, intraoperative, and postoperative care furnished 
by a certified registered nurse first assistant. Payment would 
be 80% of the lesser of: the actual charge for the services 
or85% of the physician fee schedule amount. Aggregate payments for the 
demonstration would be required not to exceed the amount that would 
have been paid if this demonstration project had not been implemented. 
The Secretary would be required to report to Congress on the evaluation 
of patient outcomes and on the cost-effectiveness of the demonstration 
by January 1, 2007. The demonstration is required to begin 90 days 
after enactment.
Conference Agreement
      The conference agreement requires that MedPAC study the 
feasibility and advisability of Medicare Part B payment for 
surgical first assisting services furnished to Medicare 
beneficiaries by a certified registered nurse first assistant. 
MedPAC is required to submit the report by January 1, 2005 and 
to include recommendations for legislation or administrative 
action.
      MedPAC Study of Payment for Cardio-Thoracic Surgeons 
(Section 644 of the Conference Agreement).
Present Law
      Cardio-thoracic surgeons are paid under the Medicare 
physician fee schedule for their services.
House Bill
      No provision.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement requires the MedPAC to study the 
practice expense relative values in the Medicare physician fee 
schedule for the specialty of thoracic surgery to determine 
whether such values adequately take into account the attendant 
costs of nurse assistants at surgery. The study is required to 
be submitted to Congress by January 1, 2005 and to include 
recommendations for legislative or administrative action.
Study on Coverage of Outpatient Vision Services Furnished by Vision 
        Rehabilitation Professionals Under Part B (Section 645 of the 
        Conference Agreement and Section 446 of the Senate Bill).
Present Law
      Medicare does not cover routine eye care or related 
services and will not pay for eyeglasses; most contact lenses; 
eye examinations for the purpose of prescribing, fitting, or 
changing eyeglasses or contact lenses; and most procedures 
performed to determine the refractive state of the eyes.
      Medicare pays for prosthetic devices (other than dental) 
which replace all or part of an internal body organ (including 
contiguous tissue) when furnished incident to physicians' 
services or on a physician's order. The law specifically 
provides coverage for one pair of conventional eyeglasses or 
contact lenses furnished subsequent to each cataract surgery 
with insertion of an intraocular lens.
      The Rehabilitation Act of 1973 as amended prohibits 
discrimination in programs conducted by federal agencies, in 
programs receiving federal financial assistance, in federal 
employment and employment practices of federal contractors. The 
act provides much of the basis for the Americans with 
Disabilities Act including its standards for determining 
employment discrimination.
House Bill
      No provision.
Senate Bill
      Medicare Part B would cover vision rehabilitation 
services furnished to a beneficiary who is diagnosed with 
certain vision impairments. These vision impairments would be 
vision loss that constitutes a significant limitation of visual 
capability that cannot be corrected by conventional means and 
that is manifested by one or more of the following conditions: 
(1) best corrected visual acuity of less than 20/60 or 
significant central field defect; (2) significant peripheral 
field defect including homonymous or heteronymous bilateral 
visual field defect or generalized contraction or constriction 
of field; (3) reduced peak contrast sensitivity; and (4) other 
appropriate diagnoses or indications. Covered services would be 
established by a plan of care developed by a qualified 
physician or qualified occupational therapist whose plan of 
care is periodically reviewed by a qualified physician. These 
services would be provided in an appropriate setting by a 
qualified physician, qualified occupational therapist, or 
vision rehabilitation professional under the general 
supervision of a qualified physician using a plan of care 
established and reviewed by the qualified physician. A 
qualified physician would be an ophthalmologist or a doctor of 
optometry. A vision rehabilitation professional would include 
an orientation and mobility specialist, a rehabilitation 
teacher, or a low vision therapist who is appropriately 
licensed and certified under prevailing state laws with 
appropriate education and training.
      Medicare would pay for the services under the physician 
fee schedule. These services would not be paid under the 
hospital outpatient department prospective payment system. 
Payment would be made to the qualified physician or the 
facility (such as a rehabilitation agency, a clinic, or other 
facility) through which services are furnished under the plan 
care if there is a contractual arrangement between the vision 
rehabilitation specialist and the facility where the facility 
submits the bill for the services. Medicare's coverage of 
vision rehabilitation services would not be taken into account 
for any purpose under the Rehabilitation Act of 1973.
      The Secretary would be required to publish an interim 
final rule in the Federal Register no later than 180 days from 
the date of enactment; the regulation, although effective 
immediately, would be subject to at least a 60-day public 
comment period. The Secretary would be required to consult with 
qualified professional and consumer groups including the 
National Vision Rehabilitation Cooperative, the Association for 
Education and Rehabilitation of the Blind and Visually 
Impaired, the Academy for Certification of Vision 
Rehabilitation and EducationProfessionals, the American Academy 
of Ophthalmology, the American Occupational Therapy Association, and 
the American Optometric Association.
Conference Agreement
      The conference agreement requires the Secretary to study 
the feasibility and advisability of: (1) providing for payment 
for vision rehabilitation services furnished by vision 
rehabilitation professionals, and (2) implementing a 
demonstration project for vision care PPO networks to furnish 
and pay for conventional eyeglasses subsequent to each cataract 
surgery with the insertion of intra ocular lens. The Secretary 
is urged to examine any licensure or certification difficulties 
faced by vision rehabilitation professionals. The report is due 
to Congress by January 1, 2005 and is to include 
recommendations for legislation or administrative action. In 
reviewing reimbursement for vision rehabilitation 
professionals, the report shall examine payments through 
qualified physicians to vision rehabilitation professionals for 
either directly supervised services or services delivered under 
generalized supervision.
Medicare Health Care Quality Demonstration Programs (Section 646 of the 
        Conference Agreement and Section 441 of the Senate Bill).
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      The Secretary would be required to establish a 5-year 
demonstration program that examines the health delivery factors 
which encourage the delivery of improved patient care quality 
including: (1) incentives to improve the safety of care 
provided to beneficiaries; (2) appropriate use of best practice 
guidelines; (3) reduction of scientific uncertainty through 
examination of service variation and outcomes measurement; (4) 
encouragement of shared decision making between providers and 
patients; (5) the provision of incentives to improve safety, 
quality, and efficiency; (6) appropriate use of culturally and 
ethnically sensitive care; and (7) related financial effects 
associated with these changes. The participants would include 
appropriate health care groups including physician groups, 
integrated health care delivery systems, or regional 
coalitions. These health care groups may implement alternative 
payment systems that encourage the delivery of high quality 
care and streamline documentation and reporting requirements. 
They may also offer benefit packages distinct from those that 
are currently available under Medicare Parts A and B and under 
the Part C Medicare Advantage plan. To qualify for this 
demonstration, health care groups must meet Secretary-
established quality standards; implement quality improvement 
mechanisms that integrate community-based support, primary 
care, and referral care; encourage patient participation in 
decisions; among other requirements.
      The Secretary may waive Medicare and Peer Review and 
Administrative Simplification (Title XI) requirements as 
necessary and may direct agencies within Health and Human 
Services (HHS) to evaluate, analyze, support, and assist in the 
demonstration project. The demonstration program would be 
subject to budget-neutrality requirements. The Secretary would 
not be permitted to implement the program before October 1, 
2004.
Conference Agreement
      The conference agreement requires the Secretary to 
establish a 5-year demonstration program that examines the 
health delivery factors which encourage the delivery of 
improved patient care quality including: (1) incentives to 
improve the safety of care provided to beneficiaries; (2) 
appropriate use of best practice guidelines; (3) reduction of 
scientific uncertainty through examination of service variation 
and outcomes measurement; (4) encouragement of shared decision 
making between providers and patients; (5) the provision of 
incentives to improve safety, quality, and efficiency; (6) 
appropriate use of culturally and ethnically sensitive care; 
and (7) related financial effects associated with these 
changes. Health care groups that may participate are physician 
groups, integrated health care delivery systems, and regional 
coalitions. These health care groups may implement alternative 
payment systems that encourage the delivery of high quality 
care and streamline documentation and reporting requirements. 
They may also offer benefit packages distinct from those that 
are currently available under Medicare Parts A and B and under 
the Part C Medicare Advantage plan.
      To qualify for this demonstration, health care groups 
must meet Secretary-established quality standards; implement 
quality improvement mechanisms that integrate community-based 
support, primary care, and referral care; encourage patient 
participation in decisions; among other requirements. The 
Secretary may waive Medicare and Peer Review and Administrative 
Simplification (Title XI) requirements as necessary and may 
direct agencies within Health and Human Services (HHS) to 
evaluate, analyze, support, and assist in the demonstration 
project. The demonstration program is subject to budget-
neutrality requirements.
GAO Study on Coverage of Marriage and Family Therapist Services and 
        Mental Health Counselor Services Under Part B of the Medicare 
        Program (Section 647 of the Conference Agreement and Section 
        448 of the Senate Bill).
Present Law
      Medicare's Part B payment for outpatient mental health 
services is limited to 62.5% of covered expenses incurred in 
any calendar year in connection with the treatment of a mental, 
psychoneurotic, or personality disorder of an individual who is 
not an inpatient of a hospital at the time such expenses are 
incurred. The term ``treatment'' does not include brief office 
visits for the sole purpose of monitoring or changing drug 
prescriptions used in the treatment of such disorders or 
partial hospitalization services that are not directly provided 
by the physician. This 62.5% payment limitation applies to 
outpatient mental health treatments furnished by physicians, 
comprehensive outpatient rehabilitation facilities (CORFs), 
physician assistants, clinical psychologists, and clinical 
social workers. Items and supplies furnished by physicians or 
other mental health practitioners in connection with treatment 
are also subject to the limitation. The limitation is applied 
only to therapeutic services (e.g., psychotherapy) and to 
follow-up diagnostic services performed to evaluate the 
progress of a course of treatment. Charges for initial 
diagnostic services (i.e., psychiatric testing and evaluation 
used to diagnose the patient's illness) are not subject to this 
limitation. The 62.5% limitation is subject to Part B 
deductible and coinsurance requirements.
      Medicare covers outpatient hospital partial 
hospitalization services connected with the treatment of mental 
illness. Partial hospitalization services are covered only if 
the individual would otherwise require inpatient psychiatric 
care. The 62.5% payment limitation does not apply to partial 
hospitalization services, except for services that are directly 
provided by a physician. Under this benefit, Medicare covers: 
(A) individual and group therapy with physicians or 
psychologists (or other authorized mental health 
professionals); (B) occupational therapy; (C) services of 
social workers, trained psychiatric nurses, and other staff 
trained to work with psychiatric patients; (D) drugs and 
biologicals furnished for therapeutic purposes that cannot be 
self-administered; (E) individualized activity therapies that 
are not primarily recreational or diversionary; (F) family 
counseling (for treatment of the patient's condition); (G) 
patient training and education; and (H) diagnostic services. 
Partial hospitalization services are also covered in community 
mental health centers. Family counseling services with members 
of the household are covered only where the primary purpose of 
such counseling is the treatment of the patient's condition.
House Bill
      No provision.
Senate Bill
      Medicare would cover marriage and family therapist 
services and mental health counselor services for the diagnosis 
and treatment of mental illness. The therapists would be 
legally authorized to provide such services under State law and 
would provide services that would be otherwise covered if 
furnished by a physician or furnished incident to a physician's 
professional service. No facility or other provider would 
charge or be paid for these services. The amount of payment 
would be 80% of the lesser of the actual charge or 75% of the 
amount paid to a psychologist. These services would be subject 
to assignment. These services would be excluded from the 
skilled nursing facility prospective payment system. Rural 
health clinics, federally qualified health centers, hospice 
programs would be authorized to provide such services. Marriage 
and family therapists would be authorized to develop post 
hospital discharge plans for patients. The provisions would 
apply to services furnished on or after January 1, 2004.
Conference Agreement
      The conference agreement requires the GAO to study the 
feasibility and advisability of providing Medicare Part B 
coverage of marriage and family therapist services and mental 
health counselors and of the appropriate settings and payment 
methodologies of such services. Recommendations for legislation 
or administrative actions are also required to be included in 
the study. The report is required to be submitted to Congress 
no later than January 1, 2005.
MedPAC Study on Direct Access to Physical Therapy Services (Section 648 
        of the Conference Agreement, Section 624 of the House bill and 
        Section 449 of the Senate bill).
Present Law
      No provision.
House Bill
      GAO would be required to conduct a study on access to 
physical therapist services in States authorizing access to 
such services without a physician referral compared to States 
that require such a physician referral. The study would: (1) 
examine the use of and referral patterns for physical therapist 
services for patients age 50 and older in states that authorize 
such services without a physician referral and in states that 
require such a referral; (2) examine the use of and referral 
patterns for physical therapist services for patients who are 
Medicare beneficiaries; (3) examine the physical therapist 
services within the facilities of the Department of Defense; 
and (4) analyze the potential impact on beneficiaries and on 
Medicare expenditures of eliminating the need for a physician 
referral for physical therapist services under the Medicare 
program. GAO would be required to submit a report to Congress 
on the study within one year of enactment.
Senate Bill
      The Secretary would be required to establish a 3-year 
demonstration project in at least 5 states to examine the costs 
and patient satisfaction associated with allowing Medicare fee-
for-service beneficiaries direct access to outpatient physical 
therapy services and comprehensive outpatient rehabilitation 
facility (CORF) services. In this instance, the beneficiary 
would not be required to be under the care of or referred by a 
physician to receive physical therapy services. Also, a 
physician or qualified physical therapist would be permitted to 
certify, recertify, establish and periodically review the 
beneficiary's plan of care. To the extent possible, the 
demonstration project would be conducted on a statewide basis. 
The project would be required to be established not later than 
1 year after the date of enactment. The Secretary would be 
allowed to terminate the operation of a project at a site if, 
based on actual data, Medicare expenditures are greater than 
they otherwise would be without implementation of the 
demonstration project. The Secretary would be able to waive 
Medicare requirements as necessary and appropriate. The 
Secretary would be required to conduct interim and final 
evaluations of the project which would be submitted to the 
Congressional committees of jurisdiction no later than the end 
of the second year of operation and no later than 180 days 
after the end of the project. This provision would be effective 
upon enactment.
Conference Agreement
      The conference agreement requires MedPAC to study the 
feasibility and advisability of allowing Medicare beneficiaries 
in fee-for-service direct access to outpatient physical therapy 
services and those physical therapy services that are furnished 
as comprehensive rehabilitation facility services. For the 
purposes of the study, direct access is defined as access to 
physical therapy services without the requirement that 
beneficiaries be under the care of, or referred by, a 
physician. Further, the services provided are not required to 
be under the supervision of a physician. Finally, either a 
physician or a qualified physical therapist could satisfy any 
requirement for certification, recertification and 
establishment and review of a plan of care. This study, 
together with recommendations for legislation or administrative 
actions, must be submitted to Congress no later than January 1, 
2005.
Demonstration Project for Consumer Directed Chronic Outpatient Services 
        (Section 648 of the Conference Report and Section 736 of the 
        House bill)
Present Law
      No provision. Medicare coverage requires that a 
beneficiary need medically necessary care. In general, Medicare 
pays the provider that delivers skilled health care services.
House Bill
      The Secretary would be required to establish no fewer 
than 3 demonstration projects that evaluate methods to improve 
the quality of care provided to Medicare beneficiaries with 
chronic conditions and that reduce expenditures that would 
otherwise be made on their behalf by Medicare. The methods 
would be required to include permitting beneficiaries to direct 
their own health care needs and services. In designing the 
demonstrations, the Secretary would be required to evaluate 
practices used by group health plans and practices under State 
Medicaid programs that permit patients to self-direct the 
provision of personal care services and to determine the 
appropriate scope of personal care services that would apply 
under the demonstration projects.
      The Secretary would be required to establish the 
demonstrations within 2 years of enactment. Demonstrations 
would be required to be located in an urban area, a rural area, 
and an area that has a Medicare population with a diabetes rate 
that significantly exceeds the national average rate. The 
Secretary would be required to evaluate the clinical and cost 
effectiveness of the demonstrations. Reports to Congress would 
be required biannually beginning 2 years after the 
demonstrations begin.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement requires the Secretary to 
establish no fewer than 3 demonstration projects that evaluate 
methods to improve the quality of care provided to Medicare 
beneficiaries with chronic conditions and that reduce 
expenditures that would otherwise be made on their behalf by 
Medicare. The methods are required to include permitting 
beneficiaries to direct their own health care needs and 
services. In designing the demonstrations, the Secretary is 
required to evaluate practices used by group health plans and 
practices under State Medicaid programs that permit patients to 
self-direct the provision of personal care services and to 
determine the appropriate scope of personal care services that 
apply under the demonstration projects.
      The Secretary is required to establish the demonstrations 
within 2 years of enactment. Demonstrations are required to be 
located in an urban area, a rural area, and an area that has a 
Medicare population with a diabetes rate that significantly 
exceeds the national average rate. The Secretary is required to 
evaluate the clinical and cost effectiveness of the 
demonstrations. Reports to Congress are required biannually 
beginning 2 years after the demonstrations begin.
Medicare Care Management Performance Demonstration (Section 649 of the 
        Conference Report and Section 736 of the House Bill).
Current Law
      No provision.
House Bill
      No provision.
Senate Bill
      The Secretary would be required to establish a 3-year 
demonstration program to promote continuity of care, help 
stabilize medical conditions, prevent or minimize acute 
exacerbations of chronic conditions, and reduce adverse health 
outcomes before October 1, 2004. Six sites would be designated 
for the demonstration, 3 in urban areas and at least 1 in a 
rural area. One site would be required to be located in 
Arkansas. Any Medicare beneficiary enrolled in part B who has 
at least 4 complex medical conditions and is unable to manage 
their own care or has a functional limitation and resides in a 
demonstration area may participate in the program if the 
beneficiary identifies a principal care physician who agrees to 
manage the complex clinical care of the beneficiary under the 
demonstration.
      Each principal care physician who agrees to manage the 
complex clinical care of a beneficiary eligible to participate 
would be required to agree to: (1) serve as the primary contact 
of the beneficiary in accessing items and services under 
Medicare; (2) maintain medical information related to care and 
services furnished by other health care providers including 
clinical reports, medication and treatments prescribed by other 
physicians, hospital and hospital outpatient services, skilled 
nursing home care, home health care, and medical equipment 
services; (3) monitor and advocate for the continuity of care 
of the beneficiary and the use of evidence-based guidelines; 
(4) promote self-care and family care giver involvement where 
appropriate; (5) have appropriate staffing arrangements to 
conduct patient self-management and other care coordination 
activities as specified by the Secretary; refer the beneficiary 
to community service organizations and coordinate the services 
of such organizations with the care provided by health care 
providers; and (7) meet such other complex care management 
requirements as the Secretary may specify.
      The Secretary would pay each principal care physician a 
monthly complex care management fee developed by the Secretary. 
The fee would be the full payment for all the functions 
performed by the principal care physician including any 
functions performed by other qualified practitioners acting on 
behalf of the physician, appropriate staff under the 
supervision of the physician, and any other person under a 
contract with the physician, including any person who conducts 
patient self-management and caregiver education. Aggregate 
payments by Medicare could not exceed the amount that would 
otherwise have been paid if the demonstration program had not 
been implemented. The Secretary would be required to report to 
Congress on the demonstration program 6 months after its 
completion.
Conference Agreement
      The Secretary would be required to establish a 3-year 
demonstration program to promote continuity of care, help 
stabilize medical conditions, prevent or minimize acute 
exacerbations of chronic conditions, and reduce adverse health 
outcomes. Four sites would be designated for the demonstration: 
with at least two in urban areas and one in a rural area. One 
of the demonstration sites would be in a state with a medical 
school with a geriatrics department that manages rural outreach 
sites and is capable of managing patients with multiple chronic 
conditions, one of which is dementia. Any Medicare beneficiary 
enrolled in part A and B who has one or morechronic medical 
conditions specified by the Secretary (one of which may be a cognitive 
impairment) and is unable to manage their own care or has a functional 
limitation and resides in a demonstration area may participate in the 
program if the beneficiary identifies a principal care physician who 
agrees to manage the complex clinical care of the beneficiary under the 
demonstration.
      The conferees encourage CMS to work with Agency for 
Healthcare Research and Quality (AHRQ) to provide grants to 
assist physicians in carrying out the health information 
technology aspect of the demonstration. In particular, the 
grants should focus on issues involving clinical decision 
support tools, clinical reminders, and improved communication 
between patients, providers and payors. AHRQ is currently 
working to provide grant programs in this area.
Demonstration of Coverage of Chiropractic Services under Medicare 
        (Section 440 of the Senate Bill).
Present Law
      No specific provision with respect to a demonstration 
project. Medicare covers limited chiropractic services, 
specifically manual manipulation for correction of a dislocated 
or misaligned vertebra or subluxation.
House Bill
      No provision.
Senate Bill
      The Secretary would be required to establish a 3-year 
demonstration program at 6 sites to evaluate the feasibility 
and desirability of covering additional chiropractic services 
under Medicare. These projects may not be implemented before 
October 1, 2004. The chiropractic services included in the 
demonstration shall include, at a minimum, care for 
neuromusculoskeletal conditions typical among eligible 
beneficiaries as well as diagnostic and other services that a 
chiropractor is legally authorized to perform. An eligible 
beneficiary participating in the demonstration project, 
including those enrolled in Medicare +Choice or Medicare 
Advantage plans, would not be required to receive approval by 
physician or other practitioner in order to receive 
chiropractic services under the demonstration project.
      The Secretary would be required to consult with 
chiropractors, organizations representing chiropractors, 
beneficiaries and organizations representing beneficiaries in 
establishing the demonstration projects. Participation by 
eligible beneficiaries would be on a voluntary basis. The 6 
sites would be equally split between rural and urban areas; at 
least one of the sites would be in a health professional 
shortage area. The Secretary would be required to evaluate the 
demonstration projects to determine (1) whether the 
participating beneficiaries used fewer Medicare covered 
services than those who did not participate; (2) the cost of 
providing such chiropractic services under Medicare; (3) the 
quality of care and satisfaction of participating 
beneficiaries; and (4) other appropriate matters.
      The Secretary would be required to submit a report, 
including recommendations, to Congress on the evaluation no 
later than 1 year after the demonstration projects conclude. 
The Secretary would waive Medicare requirements as necessary. 
The demonstration program would be subject to a budget-
neutrality requirement. Appropriations from the Federal 
Supplementary Insurance Trust Fund are authorized as necessary 
to conduct this demonstration. The provision would be effective 
upon enactment.
Conference Agreement
      The Secretary would be required to establish a 2-year 
demonstration program at 4 sites to evaluate the feasibility 
and desirability of covering additional chiropractic services 
under Medicare. These projects may not be implemented before 
October 1, 2004. The chiropractic services included in the 
demonstration shall include, at a minimum, care for 
neuromusculoskeletal conditions typical among eligible 
beneficiaries as well as diagnostic and other services that a 
chiropractor is legally authorized to perform by the State or 
jurisdiction where treatment occurs. An eligible beneficiary 
participating in the demonstration project, including those 
enrolled in Medicare +Choice or Medicare Advantage plans, would 
not be required to receive approval by physician or other 
practitioner in order to receive chiropractic services under 
the demonstration project.
      The Secretary would be required to consult with 
chiropractors, organizations representing chiropractors, 
beneficiaries and organizations representing beneficiaries in 
establishing the demonstration projects. Participation by 
eligible beneficiaries would be on a voluntary basis. The 4 
sites would be equally split between rural and urban areas; at 
least one of the sites would be in a health professional 
shortage area. The Secretary would be required to evaluate the 
demonstration projects to determine (1) whether the 
participating beneficiaries used fewer Medicare covered 
services than those who did not participate; (2) the cost of 
providing such chiropractic services under Medicare; (3) the 
quality of care and satisfaction of participating 
beneficiaries; and (4) other appropriate matters.
      The Secretary would be required to submit a report, 
including recommendations, to Congress on the evaluation no 
later than 1 year after the demonstration projects conclude. 
The Secretary would waive Medicare requirements as necessary. 
The demonstration program would be subject to a budget-
neutrality requirement. Appropriations from the Federal 
Supplementary Insurance Trust Fund are authorized as necessary 
to conduct this demonstration.
Demonstration Project to Examine What Weight Loss Weight Management 
        Services Can Cost-Effectively Reach the Same Result as the NIH 
        Diabetes Primary Prevention Trial Study: A 50 Percent Reduction 
        in the Risk for Type 2 Diabetes for Individuals Who Have 
        Impaired Glucose Tolerance and Are Obese (Section 450I of the 
        Senate Bill).
Present Law
      No provision regarding the demonstration. Medicare covers 
medical nutrition therapy services for beneficiaries with 
diabetes or a renal disease who (1) have not received diabetes 
outpatient self-management training services within a time 
period to be determined by the Secretary, (2) are not receiving 
maintenance dialysis, and (3) meet other criteria to be 
established by the Secretary. Nutrition therapy services are 
nutritional diagnostic, therapy, and counseling services for 
the purpose of disease management. The services must be 
provided by a registered dietitian or nutritional professional 
pursuant to a referral by a physician. Payment is based on the 
lower of actual charges or 85% of the physician fee schedule on 
an assignment-related basis.
House Bill
      No provision.
Senate Bill
      The Secretary would be required to establish a 
demonstration project that would examine the cost effectiveness 
and health benefits of providing group weight loss management 
services for Medicare beneficiaries who are obese and have 
impaired glucose tolerance. Group weight loss management 
services are those furnished to beneficiaries who have been 
diagnosed and referred by a physician for assessment and 
treatment based on individual needs or a specific program or 
method that has demonstrated efficacy to produce and maintain 
weight loss through results published in peer-reviewed 
scientific journals. The program would be required to provide 
assessment of current body weight and recording of weight 
status at each meeting session; provision of a healthy eating 
plan; provision of an activity plan; provision of a behavior 
modification plan; and a weekly group support meeting.
      Expenditures would be constrained by 2 limitations: the 
costs of group weight loss management services could not exceed 
the annual cost per recipient of the medical nutritional 
therapy benefit and the total amount of payments made under the 
demonstration could not exceed $2.5 million for each fiscal 
year of the project. Medical nutrition therapy services that 
would be furnished under the demonstration project would be 
covered under part B of Medicare and payment would be 80% of 
the lesser of the actual charge for the services or 85% of the 
applicable physician fee schedule amount. Group weight loss 
management professionals would be paid by Medicare on an 
assignment-related basis and balance billing would not be 
permitted.
      The demonstration project would be conducted for 2 years 
at sites designated by the Secretary. The Secretary would be 
required to give preference to sites located in rural areas or 
areas that have a high concentration of Native Americans with 
type 2 diabetes. The Secretary would be required to submit 
interim reports on this demonstration project to the Committee 
on Ways and Means and the Committee on Finance. A final report 
to both Committees would be due 6 months after the date the 
demonstration project concludes. The provision would be 
effective upon enactment.
Conference Agreement
      No provision.

            TITLE VII--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

Update in Home Health Services (Section 701 of the Conference Agreement 
        and Section 701 of the House Bill).
Present Law
      Home health service payments are increased on a federal 
fiscal year basis that begins in October. The FY 2004 statutory 
update will be the full increase in the market basket index. 
The prospective payment system provides for outlier payment B 
payments for extraordinarily costly cases B with the total 
amount of outlier payment (the outlier pool) not exceeding 5 
percent of estimated total home health prospective payments.
House Bill
      This provision would increase home health agency payments 
by the home health market basket percentage increase minus 0.4 
percentage points for 2004 through 2006. The update for 
subsequent years would be the full market basket percentage 
increase. The provision would also change the time frame for 
the update from the federal fiscal year to a calendar year 
basis. The home health prospective payment rates would not 
increase for the October 1 through December 31, 2003 period.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement changes the time frame for the 
home health update from the federal fiscal year to a calendar 
year basis beginning with 2004. Home health agency payments are 
increased by the full market basket percentage for the last 
quarter of 2003 (October, November, and December) and for the 
first quarter of 2004 (January, February, and March). The 
update for the remainder of 2004 and for 2005 and 2006 is the 
home health market basket percentage increase minus 0.8 
percentage points. The size of the outlier pool for home health 
prospective payment may not exceed 3 percent of the total 
payment projected under the payment system beginning January 1, 
2004, total payments are not increased to account for the 
difference.
Demonstration Project to Clarify the Definition of Homebound (Section 
        702 of the Conference Agreement, Section 704 of the House Bill, 
        and Section 450 of the Senate Bill).
Present Law
      Home health services are covered only if the Medicare 
beneficiary is confined to the home, needs skilled nursing care 
on an intermittent basis or needs physical or occupational 
therapy or speech-language pathology services, has had a plan 
of care established that is periodically reviewed by a 
physician, and is under a physician's care. Any absence of a 
beneficiary from the home for purposes of receiving health care 
treatment, including regular absences for participating in 
therapeutic, psychosocial, or medical treatment in an adult 
daycare program does not disqualify an individual from being 
considered confined to the home (or homebound). Further, any 
other absence of a beneficiary from the home cannot disqualify 
an individual from being considered homebound if the absence is 
of infrequent or of relatively short duration. Absence from the 
home to attend a religious service is considered an absence of 
infrequent or short duration.
House Bill
      The Secretary would be required to conduct a 2-year 
demonstration project where beneficiaries with chronic 
conditions would be deemed to be homebound in order to receive 
home health services under Medicare. A beneficiary would have 
to have been certified by a physician to have a permanent and 
severe condition that will not improve; to permanently need 
assistance with at least 3 out of the 5 activities of daily 
living (eating, toileting, transferring, bathing, and 
dressing); to permanently require skilled nursing services (not 
including medication management); to need either an attendant 
during the day to monitor and treat the beneficiary's medical 
condition or daily skilled nursing; and to require 
technological assistance or the assistance of another person to 
leave the home.
      The Secretary would be required to select 3 states in 
which to conduct the demonstration in the northeast, midwest 
and western regions of the United States. Up to 15,000 
beneficiaries would be permitted to participate. Data would be 
required to be collected regarding the quality of care, patient 
outcomes, and additional costs, if any to Medicare. The 
demonstration would be required to begin within 6 months of 
enactment. Within 1 year of completing the demonstration, the 
Secretary would be required to report to Congress on whether 
the subject of the demonstration adversely affected the 
provision of home health services under Medicare or directly 
caused an unreasonable increase of expenditures under Medicare; 
specific data showing any increase in expenditures directly 
attributable to the demonstration project; and specific 
recommendations to exempt permanently and severely disabled 
homebound beneficiaries from restrictions on the length, 
frequency, and purpose of their absences from the home to 
qualify for home health services without incurring additional 
unreasonable costs to Medicare. The provision would be 
effective upon enactment.
Senate Bill
      The Secretary would be required to conduct a 2-year 
demonstration project where beneficiaries with chronic 
conditions would be deemed to be homebound in order to receive 
home health services under Medicare. A beneficiary would have 
to have been certified by a physician to have a permanent and 
severe condition that will not improve; to permanently need 
assistance with at least 3 out of the 5 activities of daily 
living (eating, toileting, transferring, bathing, and 
dressing); to permanently require skilled nursing services (not 
including medication management); to need either an attendant 
during the day to monitor and treat the beneficiary's medical 
condition or daily skilled nursing; and to require 
technological assistance or the assistance of another person to 
leave the home.
      The Secretary would be required to select 3 states in 
which to conduct the demonstration in the northeast, midwest 
and western regions of the United States. Up to 15,000 
beneficiaries would be permitted to participate. Data would be 
required to be collected regarding the quality of care, patient 
outcomes, and additional costs, if any to Medicare. The 
demonstration would be required to begin within 6 months of 
enactment. Within 1 year of completing the demonstration, the 
Secretary would be required to report to Congress on whether 
the subject of the demonstration adversely effected the 
provision of home health services under Medicare or directly 
caused an unreasonable increase of expenditures under Medicare; 
specific data showing any increase in expenditures directly 
attributable to the demonstration project; and specific 
recommendations to exempt permanently and severely disabled 
homebound beneficiaries from restrictions on the length, 
frequency, and purpose of their absences from the home to 
qualify for home health services without incurring additional 
unreasonable costs to Medicare. The provision would be 
effective upon enactment.
Conference Agreement
      The Secretary is required to conduct a 2-year 
demonstration project where beneficiaries enrolled in Medicare 
Part B with specified chronic conditions would be deemed to be 
homebound in order to receive home health services under 
Medicare. A beneficiary is eligible to be deemed to be 
homebound if the beneficiary: (1) has been certified by a 
physician to have a permanent and severe condition that is not 
expected to improve; (2) permanently needs assistance with at 
least 3 out of the 5 activities of daily living (eating, 
toileting, transferring, bathing, and dressing); (3) 
permanently requires skilled nursing services (not including 
medication management); (4) needs either an attendant during 
each day to monitor and treat the beneficiary's medical 
condition or to assist the beneficiary with activities of daily 
living; (5) requires technological assistance or the assistance 
of another person to leave the home; and (6) does not regularly 
work in a paid position full-time or part-time outside the 
home.
      The Secretary is required to select 3 states in the 
northeast, midwest and western regions of the United States in 
which to conduct the demonstration. Up to 15,000 beneficiaries 
can participate. Data must be collected regarding the quality 
of care, patient outcomes, and additional costs, if any to 
Medicare. The demonstration is required to begin within 6 
months of enactment. Within 1 year of completing the 
demonstration, the Secretary is required to report to Congress 
on: whether the subject of the demonstration adversely effected 
the provision of home health services under Medicare or has 
directly caused an unreasonable increase of expenditures under 
Medicare; specific data showing any increase in expenditures 
directly attributable to the demonstration project; and 
specific recommendations to exempt permanently and severely 
disabled homebound beneficiaries from restrictions on the 
length, frequency, and purpose of their absences from the home 
to qualify for home health services without incurring 
additional unreasonable costs to Medicare. Payment for the 
costs of carrying out the demonstration project will be made 
from the Part B Trust Fund. The provision is effective upon 
enactment.
Demonstration Project for Medical Adult Day Care Services (Section 703 
        of the Conference Agreement, Section 732 of the House Bill, 
        Section 454 of the Senate Bill).
Present Law
      No provision
House Bill
      Subject to earlier provisions, the Secretary would be 
required to establish a demonstration project under which a 
home health agency, directly or under arrangement with a 
medical adult day care facility, provide medical adult day care 
services as a substitute for a portion of home health services 
otherwise provided in a beneficiary's home. Such services would 
have to be provided as part of a plan for an episode of care 
for home health services established for a beneficiary. Payment 
for the episode would equal 95% of the amount that would 
otherwise apply. In no case would the agency or facility be 
able to charge the beneficiary separately for the medical adult 
day care services. The Secretary would reduce payments made 
under the home health prospective payment system to offset any 
amounts spent on the demonstration project. The 3-year 
demonstration project would be conducted in not more than 5 
sites (which can include multiple facilities) in states that 
license or certify providers of medical adult day care 
services, asselected by the Secretary. Participation of up to 
15,000 Medicare beneficiaries would be on a voluntary basis.
      When selecting participants, the Secretary would give 
preference to home health agencies that are currently licensed 
to furnish medical adult day care services and have furnished 
such services to Medicare beneficiaries on a continuous basis 
for a prior 2-year period. A medical adult day care facility 
would (1) have been licensed or certified by a State to furnish 
medical adult day care services for a continuous 2-year period; 
(2) have been engaged in providing skilled nursing services or 
other therapeutic services directly or under arrangement with a 
home health agency; and (3) would meet quality standards and 
other requirements as established by the Secretary. The 
Secretary would be able to waive necessary Medicare 
requirements except that beneficiaries must be homebound in 
order to be eligible for home health services.
      The Secretary would be required to evaluate the project's 
clinical and cost effectiveness and submit a report to Congress 
no later than 30 months after its commencement. The report 
would include: (1) an analysis of patient outcomes and 
comparative costs relative to beneficiaries who receive only 
home health services for the same health conditions and (2) 
recommendations concerning the extension, expansion, or 
termination of the project. The provision would be effective 
upon enactment.
Senate Bill
      Subject to earlier provisions, the Secretary would be 
required to establish a demonstration project under which a 
home health agency, directly or under arrangement with a 
medical adult day care facility, provide medical adult day care 
services as a substitute for a portion of home health services 
otherwise provided in a beneficiary's home. Such services would 
have to be provided as part of a plan for an episode of care 
for home health services established for a beneficiary. Payment 
for the episode would equal 95% of the amount that would 
otherwise apply. In no case would the agency or facility be 
able to charge the beneficiary separately for the medical adult 
day care services. The Secretary would reduce payments made 
under the home health prospective payment system to offset any 
amounts spent on the demonstration project. The 3-year 
demonstration project would be conducted in not more than 5 
sites in states that license or certify providers of medical 
adult day care services, as selected by the Secretary. 
Participation of up to 15,000 Medicare beneficiaries would be 
on a voluntary basis.
      When selecting participants, the Secretary would give 
preference to home health agencies that are currently licensed 
to furnish medical adult day care services and have furnished 
such services to Medicare beneficiaries on a continuous basis 
for a prior 2-year period. A medical adult day care facility 
would (1) have been licensed or certified by a State to furnish 
medical adult day care services for a continuous 2-year period; 
(2) have been engaged in providing skilled nursing services or 
other therapeutic services directly or under arrangement with a 
home health agency; and (3) would meet quality standards and 
other requirements as established by the Secretary. The 
Secretary would be able to waive necessary Medicare 
requirements except that beneficiaries must be homebound in 
order to be eligible for home health services.
      The Secretary would be required to evaluate the project's 
clinical and cost effectiveness and submit a report to Congress 
no later than 30 months after its commencement. The report 
would include: (1) an analysis of patient outcomes and 
comparative costs relative to beneficiaries who receive only 
home health services for the same health conditions and (2) 
recommendations concerning the extension, expansion, or 
termination of the project. The provision would be effective 
upon enactment.
Conference Agreement
      Subject to earlier provisions in the conference 
agreement, the conference agreement requires the Secretary to 
establish a demonstration project under which a home health 
agency, directly or under arrangement with a medical adult day 
care facility, provides medical adult day care services as a 
substitute for a portion of home health services otherwise 
provided in a beneficiary's home. Such services would be 
provided as part of a plan for an episode of care for home 
health services established for a beneficiary. Payment for the 
episode will equal 95% of the amount that would otherwise apply 
subject to budget neutrality provisions. The agency or facility 
is prohibited from charging the beneficiary separately for the 
medical adult day care services. The Secretary is required to 
reduce payments made to medical adult day care facilities under 
the demonstration to offset excess spending. The 3-year 
demonstration project is to be conducted in not more than 5 
sites in states that license or certify providers of medical 
adult day care services, as selected by the Secretary. 
Participation of up to 15,000 Medicare beneficiaries is on a 
voluntary basis.
      When selecting participants, the Secretary is required to 
give preference to home health agencies that are currently 
licensed to furnish medical adult day care services and have 
furnished such services to Medicare beneficiaries on a 
continuous basis for a prior 2-year period. A medical adult day 
care facility is one that: (1) has been licensed or certified 
by a State to furnish medical adult day care services for a 
continuous 2-year period; (2) has been engaged in providing 
skilled nursing services or other therapeutic services directly 
or under arrangement with a home health agency; and (3) would 
meet quality standards and other requirements as established by 
the Secretary. The Secretary is able to waive necessary 
Medicare requirements except that beneficiaries must be 
homebound in order to be eligible for home health services.
      The Secretary is required to evaluate the project's 
clinical and cost effectiveness and submit a report to Congress 
no later than 6 months after completion of the demonstration. 
The report is required to include: (1) an analysis of patient 
outcomes and comparative costs relative to beneficiaries who 
receive only home health services for the same health 
conditions, and (2) recommendations concerning the extension, 
expansion, or termination of the project. The provision is 
effective upon enactment.
      Temporary Suspension of OASIS Requirement for Collection 
of Data on Non-Medicare and Non-Medicaid Patients (Section 704 
of the Conference Agreement, Section 954 in the House Bill, 
Section 630 in the Senate Bill).
Present Law
      Medicare is required to monitor the quality of home 
health care and services for all patients as part of the survey 
process with a standardized, reproducible assessment 
instrument. The purpose of the monitoring is to determine 
whether the agency is helping all patients achieve and maintain 
the highest functional capacity that is possible as is 
reflected in the care plan the home health agency has developed 
for the patient. Medicare has implemented this requirement 
using the Outcomes and Assessment Information Set (OASIS). The 
OASIS data are used for Medicarepayment (under home health 
prospective payment) and for quality improvement purposes for all 
patients.
House Bill
      The requirement that home health agencies must collect 
OASIS data on private pay (non-Medicare, non-Medicaid) patients 
would be suspended until after the Secretary (1) reported to 
Congress on the benefits of these data, the value of the data 
compared to the administrative burden of data collection in 
small agencies, and the use of the OASIS information by both 
large and small agencies and then (2) published final 
regulations regarding the collection and use of non-Medicare/
non-Medicaid OASIS data. The provision would not prohibit home 
health agencies from collecting OASIS data on private pay 
patients for the agencies' own use.
Senate Bill
      Same provision.
Conference Agreement
      The conference agreement suspends the requirement that 
home health agencies must collect OASIS data on private pay 
(non-Medicare, non-Medicaid) until the Secretary (1) reports to 
Congress on the benefits of these data, the value of the data 
compared to the administrative burden of data collection in 
small agencies, and the use of the OASIS information by both 
large and small agencies, and then (2) publishes final 
regulations regarding the collection and use of OASIS. The 
provision does not prohibit home health agencies from 
collecting OASIS data on private pay patients for the agencies' 
own use.
MedPAC Study of Medicare Margins of Home Health Agencies (Section 705 
        of the Conference Agreement and Section 703 of the House Bill).
Present Law
      No provision.
House Bill
      The provision would require MedPAC to study payment 
margins of home health agencies paid under the Medicare home 
health prospective payment system. The study would examine 
whether systematic differences in payment margins were related 
to differences in case mix, as measured by home health resource 
groups (HHRGs). MedPAC would be required to submit a report to 
Congress on the study within 2 years of enactment.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement requires MedPAC to study payment 
margins of home health agencies paid under the Medicare home 
health prospective payment system, using cost reports filed by 
agencies. The study is required to examine whether systematic 
differences in payment margins are related to differences in 
case mix, as measured by home health resource groups (HHRGs), 
among agencies. MedPAC is required to submit a report to 
Congress on the study within 2 years of enactment.
      Coverage of Religious Nonmedical Health Care Institution 
Services Furnished In the Home. (Section 706 of the Conference 
Report).
Present Law
      No provision
House Bill
      No provision
Conference Report
A religious nonmedical health care institution can provide home health 
        services to individuals that meet the criteria laid out in 
        1821.
      Increase in Medicare Payment for Certain Home Health 
Services (Section 451/Duplicative Provisions 459 and 463 of the 
Senate Bill).
Present Law
      Home health PPS provides payment for a 60-day episode of 
care furnished to a Medicare beneficiary. Medicare's payment is 
adjusted to reflect the type and intensity of care furnished 
and area wages as measured by the hospital wage index. BIPA 
increased PPS payments by 10% for home health services 
furnished in the home of beneficiaries living in rural areas 
during the 2-year period beginning April 1, 2001, through March 
31, 2003, without regard to certain budget-neutrality 
provisions applying to home health PPS. The temporary 
additional payment was not included in the base for 
determination of payment updates.
      Home health PPS is required to make payments for 
extraordinarily costly cases. The total amount of the outlier 
payment may not exceed 5% of the total payment estimated to be 
made for the fiscal year.
House Bill
      No provision.
Senate Bill
      A 10% additional payment for home health care services 
furnished in a rural area during FY 2005 and FY 2006 would be 
provided without regard to certain budget-neutrality 
requirements. The total amount of outlier payments would be 
reduced to no more than 3% of total payments in FY 2004 and 4% 
for FYs 2005 and 2006. The provision would be effective for 
services furnished on or after October 1, 2003.
Conference Agreement
      No provision.
Limitation on Reduction in Area Wage Adjustment Factors under the 
        Prospective Payment System for Home Health Services (Section 
        452 of the Senate Bill).
Present Law
      Home health agencies are paid under Medicare using the 
prospective payment system. In calculating payment, the portion 
of the base payment amount that is attributable to wages and 
wage related costs is required to be adjusted for those costs. 
The Secretary is required to calculate an area wage adjustment 
factor that is actually used to adjust the base payment amount. 
The factors change annually as new wage data are reported and 
areas change in relative costliness.
House Bill
      No provision.
Senate Bill
      The provision would limit any reduction in the home 
health area wage adjustment factor for fiscal years 2005 and 
2006. Any reduction could be no more than 3% less than the area 
wage adjustment factor applicable to home health services for 
the area in the previous year. The provision would be effective 
upon enactment.
Conference Agreement
      No provision.

                 Subtitle B--Graduate Medical Education

Extension of Update Limitation on High Cost Programs (Section 711 of 
        the Conference Agreement and Section 711 of the House Bill).
Present Law
      Medicare pays hospitals for its share of direct graduate 
medical education (DGME) costs in approved programs using a 
count of the hospital's number of full-time equivalent 
residents and a hospital-specific historic cost per resident, 
updated for inflation. BBRA changed Medicare's methodology for 
calculating DGME payments to teaching hospitals to incorporate 
a national average amount based on FY1997 hospital specific per 
resident amounts. Starting in FY2001, hospitals received no 
less than 70% of a geographically adjusted national average 
amount. BIPA increased this floor to 85% of the locality 
adjusted, updated, and weighted national PRA starting for cost 
report periods beginning during FY2002. Hospitals with per 
resident amounts above 140% of the geographically adjusted 
national average amount had payments frozen at current levels 
for FY2001 and FY2002, and in FY2003-FY2005 would receive an 
update equal to the Consumer Price Index (CPI) increase minus 2 
percentage points. Currently, hospitals with per resident 
amounts between 85% and 140% of the geographically adjusted 
national average would continue to receive payments based on 
their hospital-specific per resident amounts updated for 
inflation.
House Bill
      The hospitals with per resident amounts above 140% of the 
geographically adjusted national average amount would not get 
an update from FY2004 through FY2013.
Senate Bill
      No provision.
Conference Agreement
      Hospitals with per resident amounts about 140% of the 
geographically adjusted national average amount would not get 
an update from FY2004 through FY2013.
Exception to the Initial Residency Period for Geriatric Residency or 
        Fellowship Programs (Section 712 of the Conference Agreement 
        and Section 410 of the Senate Bill).
Present Law
      Medicare counts residents in their initial residency 
period (the lesser of the minimum number of years required for 
board eligibility in the physician's specialty or 5 years) as 
1.0 FTE. Residents whose training has extended beyond their 
initial residency period count as 0.5 FTE. Residents in certain 
specialties are allowed additional years in their initial 
residency period.
      Geriatrics is a subspecialty of family practice, internal 
medicine and psychiatry. A 1-year fellowship is required for 
certification in geriatrics, following an initial residency in 
one of those three areas. The certifying boards agreed to 
reduce the minimum fellowship requirement from 2 years to 1 
year, beginning with the 1998 exam. Those physicians interested 
in an academic career in geriatrics are encouraged to pursue 2-
year and 3-year fellowships.
House Bill
      No provision.
Senate Bill
      The Secretary would be required to promulgate interim 
final regulations after notice and comment that establish a 2-
year exception to the initial residency program for certain 
geriatrictraining programs. The regulations would be effective 
for cost reporting periods on or after October 1, 2003. The provision 
would be effective upon enactment.
Conference Agreement
      The conference agreement clarifies that Congress intended 
to provide an exception to the initial residency period for 
geriatric fellowship programs to accommodate programs that 
require 2 years of training to initially become board eligible 
in the geriatric specialty. The Secretary is required to 
promulgate interim final regulations after notice and comment 
consistent with this intent after notice and subject to public 
comment. The regulations will be effective for cost reporting 
periods on or after October 1, 2003. The conferees also clarify 
that under section 1886(h) (5)(F), the initial residency period 
for any residency for which the ACGME requires a preliminary or 
general clinical year of training is to be determined in the 
resident's second year of training.
      The Conference Committee is pleased that the Secretary 
has published a proposed rule, on January 12, 2001, to provide 
Medicare payment for clinical psychology internship training 
programs. The Committee notes that Congress has consistently 
urged the Secretary to initiate payment for the training of 
clinical psychologists since 1997 and still awaits a final 
rule.
      The Committee is concerned that delay in the rules will 
mean that hospitals and institutions will continue to reduce or 
eliminate psychology training programs as has been occurring in 
recent years to the detriment of Medicare beneficiaries. The 
Committee directs implementation of the rule within six months 
of the date of enactment of the law to which this report is 
attached. The Committee notes that clinical psychologists 
provide valuable and unique services to Medicare beneficiaries 
during their training. Regarding their training, clinical 
psychologists are distinguishable from other health care 
professionals in that they are the only doctoral level mental 
health professionals fully participating in Medicare whose 
clinical training is not currently reimbursed. In addition, 
their clinical internship training is entirely controlled, 
administered, supervised, evaluated, and certified by the 
hospital or institution, separately accredited, and distinct 
from any university training they receive. Clinical 
psychologists are hospital-based in the final stages of their 
training function in a parallel status to medical interns and 
residents, not medical nursing or health professional students. 
Where a clinical psychologist has clearly finished his or her 
educational curriculum and is training solely in the hospital 
setting, it is the intention of Congress that the hospital be 
reimbursed if that training is hospital-based.
      Authority to Include Costs of Training of Psychologists 
in Payments to Hospitals Under Medicare (Section 408 of the 
Senate).
Present Law
      Medicare pays hospitals for its share of direct costs 
associated with approved hospital-based training programs for 
nurses and certain other allied health professionals including 
inhalation therapists, nurse anesthetists, occupational and 
physical therapists. Medicare will not pay for such costs 
associated with psychologists' training.
House Bill
      No provision.
Senate Bill
      Medicare would reimburse its share of the reasonable 
costs of approved education activities of psychologists under 
the allied health professional training provisions. The 
provision would apply for cost reporting periods beginning on 
or after October 1, 2004.
Conference Agreement
      No provision.
Clarification of Congressional Intent Regarding the Counting of 
        Residents in a Nonprovider Setting and a Technical Amendment 
        Regarding the 3-year Rolling Ratio and the IME Ratio (Section 
        411 of the Senate Bill).
Present Law
      Medicare has different resident limits for counting 
residents its indirect medical education (IME) adjustment and 
for reimbursement for a teaching hospital's direct medical 
education (DGME) costs. Generally, a hospital's IME adjustment 
depends on a hospital's teaching intensity as measured by the 
ratio of the number of interns and residents per bed (the IRB 
ratio). Prior to BBA 1997, the number of residents that could 
be counted for IME purposes included only those in the hospital 
inpatient and outpatient departments. Effective October 1, 
1997, under certain circumstances, a hospital may now count 
residents in non-hospital sites for the purposes of IME. 
Medicare's DGME payment to teaching hospital is based on its 
updated cost per resident (subject to a locality adjustment and 
certain payment corridors), the weighted number of approved 
full-time-equivalent (FTE) residents, and Medicare's share of 
inpatient days in the hospital. Medicare counts residents in 
their initial residency period (the lesser of the minimum 
number of years required for board eligibility in the 
physician's specialty or 5 years) as 1.0 FTE. Residents whose 
training has extended beyond their initial residency period 
count as 0.5 FTE. Residents in certain specialties are allowed 
additional years in their initial residency period. Residents 
who are graduates from foreign medical schools do not count 
unless they pass certain exams.
      Generally, the resident counts for both IME and DGME 
payments are based on the number of residents in approved 
allopathic and osteopathic teaching programs that were reported 
by the hospital for the cost reporting period ending in 
calendar year 1996. The DGME resident limit is based on the 
unweighted resident counts. It may differ from the IME limit 
because in 1996 residents training in non-hospital sites were 
eligible for DGME payments but not for IME payments. Hospitals 
that established new training programs before August 5, 1997 
are partially exempt from the cap. Other exceptions apply to 
certain hospitals including those with new programs established 
after that date. Hospitals in rural areas (and non-rural 
hospitals operating training programs in rural areas) can be 
reimbursed for 130% of the number of residents allowed by their 
cap. Under certain conditions, an affiliated group of hospitals 
under a specific arrangement may combine their resident limits 
into an aggregate limit.
      Subject to these resident limits, a teaching hospital's 
IME and DGME payments are based on a 3-year rolling average of 
resident counts, that is, the resident count will be based on 
the average of the resident count in the current year and the 2 
preceding years. The rolling average calculation includes 
podiatry and dental residents. If a hospital is above its 
limit, the count forthe purposes of the rolling average is the 
FTE cap. In addition to the resident limit, BBA 1997 also places a 
limit on the IRB ratio itself. A hospital's IRB ratio used to calculate 
its IME adjustment for the current payment year cannot exceed its IRB 
ratio from the immediately preceding cost reporting period.
      CMS has published regulations that limit Medicare's 
graduate medical payments when existing residents are 
transferred from a non-hospital entity to a teaching hospital, 
particularly when the non-hospital entity has historically paid 
for the training costs without hospital funding. CMS seeks to 
limit reimbursement to those residents that rotate from a 
hospital setting to non-hospital sites in order to (1) 
encourage hospitals to broaden physician training in ways that 
will encompass different primary care settings; and (2) prevent 
cost shifting from existing support within the community to 
Medicare.
House Bill
      No provision.
Senate Bill
      The Secretary would be required to reimburse teaching 
hospitals for residents in non-hospital locations, when 
hospitals incur all, or substantially all, the costs of the 
training in that site starting from the effective date of a 
written agreement between the hospital and the entity owning or 
operating the non-hospital site. The effective date of the 
written agreement would be determined according to generally 
accepted accounting principles. The Secretary would not be able 
to take into account the fact that the hospital costs incurred 
are lower than actual Medicare reimbursement. Starting for 
FY2004, dental and podiatric residents would be removed from 
the 3-year rolling average calculation for IME and DGME 
reimbursements. The provision would be effective upon 
enactment.
Conference Agreement
      For 12 months as of January 1, teaching hospitals can 
count residents in non-hospital locations regardless of the 
financial arrangement between the hospital and the teaching 
physician at the nonhospital clinic site participating in a 
family practice program. Provisions regarding the payment of 
IME and DME for training in non-hospital sites that were 
included in the Balanced Budget Act of 1997 Congress were 
intended to encourage placement of residents in rural and other 
underserved areas and in ambulatory sites that are more in 
alignment with the types of practice they would have upon 
practice. The purpose was two-fold: to increase access to care 
by increasing the numbers of residents training in those 
settings, and to increase the likelihood of physicians placing 
themselves in practice in rural and underserved areas.
      For programs established after January 1, 2002, the 
Secretary shall clarify in future regulation its definition of 
reasonableness of payment for supervisory physicians.
      The Secretary shall initiate a study on the training of 
residents in non-hospital settings, and the use of volunteer 
faculty in those settings. The study is due within six months 
of enactment. The study shall include the following:
      Examination of the effect of the change in the BBA that 
allowed payment by Medicare for graduate medical education in 
non-hospital settings, to include whether access and numbers of 
physicians placing in rural and underserved areas has 
increased.
      Examination of programs on a national level regarding 
evidence of possible misuse of federal money with respect to 
volunteering supervisory physicians.
      A determination whether supervisory physicians are freely 
volunteering their time.
      A description of what incentives are available in each 
state that are offered to physicians who volunteer their time 
as supervisory physicians (eg. CME credit hours, hospital 
privileges, etc.)

                  Subtitle C--Chronic Care Improvement

Voluntary Chronic Care Improvement Under Traditional Fee-For-Service 
        (Section 721 of the Conference Agreement, Section 721 of the 
        House Bill, and Section 442 of the Senate Bill).
Present Law
      No provision.
      A hearing was held by the Ways and Means Committee, 
Health Subcommittee on February 25, 2003 on the importance of 
providing chronic care management in fee-for-service Medicare. 
Statistics from the Robert Wood Johnson Foundation state 84% of 
Medicare beneficiaries have one or more chronic conditions and 
account for 95% of Medicare spending. With Americans living 
longer due to advances in medical procedures and increased 
availability to medications, Medicare costs will continue to 
escalate. Thus, chronic care programs should be implemented in 
both traditional fee-for-service and private plans to target 
these individuals, improve health outcomes and save money.
      The Centers for Medicare & Medicaid Services (CMS) has 
run demonstration programs in the Medicare program targeting 
high cost seniors. Currently, CMS is managing more than a dozen 
disease management demonstration projects. The BBA allowed for 
the continuation of demonstration projects that were cost-
effective, improved quality of care and patient/beneficiary 
satisfaction. These demonstration sites enrolled more than 
7,600 Medicare beneficiaries. CMS has also started on disease 
management demonstrations authorized by BIPA of 2000, to 
provide disease management services to Medicare beneficiaries 
with congestive heart failure, diabetes, or coronary heart 
disease. CMS estimates that enrollment will include around 
30,000 Medicare beneficiaries. BIPA also required a physician 
group demonstration to encourage coordination and reward 
physicians for improving beneficiary health outcomes. CMS has 
demonstrated significant progress in integrating chronic care 
management programs into fee-for-service Medicare and HMOs. The 
following provision would increase the number of chronic care 
management programs (also known as disease management programs) 
in fee-for-service Medicare, with the intention of expanding 
these programs nationwide if health outcomes improve and 
Medicare costs decrease.
      Additionally, a 1999 survey showed 56% of employers offer 
disease management services to their employees, along with 67% 
of HMOs and 64% of POS plans. Private plans continue to offer 
disease management programs to reduce costs, improve health 
outcomes, and increase patient and provider satisfaction. 
Because many of these health plans offer chronic caremanagement 
programs already, it is important to require Medicare Advantage to 
offer these programs, as well.
House Bill
      The Secretary would be required to establish a process 
for providing chronic care improvement programs for Medicare 
beneficiaries in fee-for-service Medicare (Parts A and B) who 
have certain chronic conditions such as congestive heart 
failure, diabetes, chronic obstructive pulmonary disease 
(COPD), stroke or other diseases identified by the Secretary 
for inclusion in the program. The Secretary would establish 
administrative regions (called CCMA regions) within the United 
States for the chronic care improvement programs. Within each 
region, the Secretary would select at least two contractors 
under a competitive bidding process on the basis of the ability 
of each bidder to achieve improved health outcomes of 
beneficiaries and improved financial outcomes of the Medicare 
program. A contractor could be a disease improvement 
organization, health insurer, provider organization, a group of 
physicians, or any other legal entity that the Secretary 
determines appropriate. Contractors would be required to meet 
certain clinical, quality improvement, financial, and other 
requirements specified by the Secretary. Subcontractors could 
be used by the contractors. The Secretary would be able to 
phase-in implementation of the program beginning one year after 
enactment.
      Each program would be required to have a method for 
identifying targeted Medicare beneficiaries who would be 
offered participation in the program. The Secretary would be 
required to assist the program in identifying beneficiaries. 
Each beneficiary would be assigned to only one contractor that 
would be responsible for guiding beneficiaries in managing 
their health, including all co-morbidities. Initial contact 
with a Medicare beneficiary would be from the Secretary who 
would provide information about the program, a description of 
advantages in participating, notification that the contractor 
could contact the beneficiary directly concerning 
participation, the voluntary nature of program participation, 
and a means to decline participation or decline being contacted 
by the program. Each program would be required to develop an 
individualized, goal-oriented chronic care improvement plan 
with the beneficiary. The chronic care improvement plan would 
be required to contain: a single point of contact to coordinate 
care; self-improvement education for the individual and support 
education for health care providers, primary caregivers, and 
family members; coordination between prescription drug 
benefits, home health, and other health care services; 
collaboration with physicians and other providers to enhance 
communication of relevant clinical information; the use of 
monitoring technologies, where appropriate; and information 
about hospice care, pain and palliative care, and end-of-life 
care, as appropriate. In developing the chronic care 
improvement plan, programs would be required to use decision 
support tools such as evidence-based practice guidelines to 
track and monitor each beneficiary across care settings and 
evaluate outcomes using a clinical information database. The 
program would be required to meet any additional requirements 
that the Secretary finds appropriate. Programs that have been 
accredited by qualified organizations would be deemed to have 
met such requirements as specified by the Secretary.
      Contractor payments for each chronic care improvement 
program would be required to result in Medicare program outlays 
that would otherwise have been incurred in the absence of the 
program for the three-year contract period. The Secretary would 
be required to assure that there would be no net aggregate 
increase in Medicare payments, in entering into a contract for 
the program over the 3-year period, including program outlays, 
administrative expenses (that would not have been paid under 
Medicare without this demonstration), and contractor fees. 
Contracts for chronic care improvement programs would be 
treated as a risk-sharing arrangement. In addition, payment to 
contractors would be subject to the contractor meeting clinical 
and financial performance standards established by the 
Secretary.
      Program contractors would be required to report to the 
Secretary on the quality of care and efficacy of the program in 
terms of process measures (such as reductions in errors of 
treatment and rehospitalization rates), beneficiary and 
provider satisfaction, health outcomes, and financial outcomes. 
The Secretary would be required to submit to Congress annual 
reports on the program including information on progress made 
toward national coverage, common delivery models, and 
information on improvements in health outcomes as well as 
financial efficiencies resulting from the program. The 
Secretary would also be required to conduct a randomized 
clinical trial to assess the potential for cost reductions 
under Medicare by comparing costs of beneficiaries enrolled in 
chronic care improvement programs and beneficiaries who are 
eligible to participate but are not enrolled.
      Appropriations of such sums as necessary to provide for 
contracts with chronic care improvement programs would be 
authorized from the Medicare Trust Funds, but in no case would 
the funding be permitted to exceed $100 million over 3 years.
      The provision would be effective upon enactment and the 
Secretary would be required to begin implementing the chronic 
care improvement programs no later than 1 year after enactment.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement requires the Secretary to 
establish and implement chronic care improvement programs. If 
the programs are established, they are required to improve 
clinical quality and beneficiary satisfaction and achieve 
spending targets for Medicare for beneficiaries with certain 
chronic health conditions.
      The chronic care improvement (CCI) program is required to 
(1) have a process to screen each targeted beneficiary for 
conditions other than the specified chronic conditions, such as 
impaired cognitive ability and co-morbidities, in order to 
develop an individualized, goal-oriented care management plan; 
(2) provide each targeted beneficiary participating in the 
program with the care management plan; and (3) carry out the 
plan and other chronic care improvement activities. The care 
management plan is required to be developed with the 
beneficiary and, to the extent appropriate, include: (1) a 
designated point of contact responsible for communications with 
the beneficiary and for facilitating communications with other 
health care providers; (2) self-care education for the 
beneficiary (through approaches such as disease management or 
medical nutrition therapy) and education for primary caregivers 
and family members; (3) education for physicians and other 
providers and collaboration to enhance communication of 
relevant clinical information; (4) the use of monitoring 
technologies that enable patient guidance through the exchange 
of pertinent clinical information, such as vital signs, 
symptomatic information, and health self-assessment; and (5) 
the provision of information about hospice care, pain and 
palliative care, and end-of-life care. To the extent that a 
care management plan includes medicalnutrition therapy, such 
services should be delivered by a registered dietician or nutrition 
professional as defined in Section 1861 of the Social Security Act (42 
U.S.C. 1395x.)
      The Secretary is required to develop a method for 
identifying targeted beneficiaries who may benefit from 
participation in a chronic care improvement program and to 
communicate with the targeted beneficiary regarding the 
opportunity to participate. Targeted beneficiaries who are 
eligible to participate cannot be enrolled in a plan under 
Medicare Part C and must have one or more of the threshold 
conditions including: congestive heart failure, diabetes, 
chronic obstructive pulmonary disease (COPD), or other diseases 
or conditions specified by the Secretary. Beneficiary 
participation is voluntary.
      In carrying out the care management plan, the chronic 
care improvement organization is required to: (1) guide the 
participant in managing the participant's health (including all 
co-morbidities, relevant health care services, and 
pharmaceutical needs) and in performing activities as specified 
under the elements of the care management plan of the 
participant; (2) use decision-support tools such as evidence-
based practice guidelines or other criteria as determined by 
the Secretary; and (3) develop a clinical information database 
to track and monitor each participant across settings and to 
evaluate outcomes.
      The establishment of the chronic care improvement program 
is conducted in 2 parts. In phase I, the developmental phase, 
the Secretary is required to enter into contracts with chronic 
care improvement organizations for the development, testing, 
and evaluation of chronic care improvement programs using 
randomized controlled trials. The first contract is required 12 
months after enactment for a 3-year period. The Secretary is 
required to enter into contracts to ensure that chronic care 
improvement programs cover geographic areas in which at least 
10 percent of Medicare beneficiaries reside. The Secretary is 
further required to ensure that each chronic care improvement 
program includes at least 10,000 targeted beneficiaries along 
with a sufficient number of Medicare beneficiaries to serve as 
a control group. The Secretary is required to contract for an 
independent evaluation of each chronic care improvement 
program. The evaluation is required to include quality 
improvement measures, such as adherence to evidence-based 
guidelines and rehospitalization rates; beneficiary and 
provider satisfaction; health outcomes; and financial outcomes, 
including any cost savings to Medicare.
      If the Secretary finds that the chronic care improvement 
programs have improved the clinical quality of care, improved 
beneficiary satisfaction, and achieved specified spending 
targets, then the Secretary is required to expand the program 
to additional geographic areas not covered during phase I. 
Phase II may include national expansion of the program and is 
required to begin no later than 6 months after the completion 
of phase I (nor earlier than 2 years after phase I began). The 
Secretary is also required to evaluate phase II programs using 
the same criteria used in the phase I evaluation.
      Chronic care improvement organizations are required to 
monitor and report to the Secretary on health care quality, 
cost, and outcomes, in a time and manner specified by the 
Secretary. The organizations are also required to comply with 
any additional requirements the Secretary may specify. The 
Secretary may deem chronic care improvement organizations which 
are accredited by qualified organizations to have met 
requirements that the Secretary may specify.
      The Secretary is not permitted to contract with an 
organization to operate a chronic care improvement program 
unless the organization meets the requirements for a chronic 
care improvement program and such clinical, quality 
improvement, financial, and other requirements as the Secretary 
deems to be appropriate for the target beneficiaries to be 
served; and the organization demonstrates (to the satisfaction 
of the Secretary) that it is able to assume financial risk for 
performance under the contract. Each contract is required to 
specify performance standards for each of the specified 
evaluation factors including clinical quality and Medicare 
spending targets, against which the performance of the chronic 
care improvement organization under the contract is measured. 
Contractual adjustments are required if the contractor fails to 
meet specified performance standards. Further, the contract is 
required to provide for full recovery by the government of any 
amount by which the fees paid to the contractor exceed the 
estimated savings to Medicare that are attributable to the 
implementation of the contract. The Secretary is required to 
ensure that aggregate Medicare benefit expenditures for 
targeted beneficiaries participating in the chronic care 
improvement program do not exceed estimated Medicare 
expenditures for a comparable population in the absence of such 
a program.
      Appropriations of such sums as necessary to provide for 
contracts with chronic care improvement programs would be 
authorized from the Medicare Trust Funds, but in no case would 
the funding be permitted to exceed $100 million over 3 years, 
beginning October 1, 2003.
      The Secretary is required to submit an interim report to 
Congress on the scope of implementation of the program, the 
design of the programs, and the preliminary cost and quality 
findings based on the evaluation criteria no later than 2 years 
after implementation. No later than 3\1/2\ years after 
implementation, the Secretary is required to submit an update 
to the interim report to Congress. The Secretary is further 
required to submit to Congress 2 additional biennial reports on 
the chronic care improvement programs. The first is due no 
later than 2 years after the update report.
Medicare Advantage Quality Improvement Programs (Section 722 of the 
        House Bill and Sections 202 and 442 of the Senate Bill).
Present Law
      Under the Medicare+Choice program, organizations are 
required to have quality assurance programs that include 
measuring outcomes, monitoring and evaluating high volume and 
high risk services and the care of acute and chronic 
conditions, and evaluating the effectiveness of the efforts.
House Bill
      Each Medicare Advantage plan offered would be required to 
have a chronic care improvement program for enrollees with 
multiple or sufficiently severe chronic conditions such as 
congestive heart failure, diabetes, chronic obstructive 
pulmonary disease (COPD), stroke, prostate and colon cancer, 
hypertension, or other disease identified by the Secretary. The 
program would be required to have a method for monitoring and 
identifying enrollees with multiple or sufficiently severe 
chronic conditions and to develop with an enrollee's consent an 
individualized, goal-oriented chronic care improvement plan.
      The chronic care improvement plan would be required to 
include: a single point of contact to coordinate care; self-
improvement education for the individual and support education 
for health care providers, primary caregivers, and family 
members; coordination between prescription drugbenefits, home 
health, and other health care services; collaboration with physicians 
and other providers to enhance communication of relevant clinical 
information; the use of monitoring technologies, where appropriate; and 
information about hospice care, pain and palliative care, and end-of-
life care, as appropriate. In developing the chronic care improvement 
plan, programs would be required to use decision support tools such as 
evidence-based practice guidelines to track and monitor each 
beneficiary across care settings and evaluate outcomes using a clinical 
information database. The program would be required to meet any 
additional requirements that the Secretary finds appropriate. Programs 
that have been accredited by qualified organizations would be deemed to 
have met such requirements as specified by the Secretary.
      Each Medicare Advantage organization would be required to 
report to the Secretary on the quality of care and efficacy of 
the chronic care improvement program in terms of process 
measures (such as reductions in errors of treatment and 
rehospitalization rates), beneficiary and provider 
satisfaction, health outcomes, and financial outcomes. The 
provision would apply for contract years beginning on or after 
one year after enactment.
Senate Bill
      The quality assurance program for Medicare Advantage 
plans would be required to provide access to disease management 
and chronic care services and to provide access to preventive 
benefits and information for enrollees on the benefits in 
addition to current quality assurance requirements.
      The Secretary would be required to establish a 
demonstration program that uses qualified care management 
organizations to provide health risk assessment and care 
management services to Medicare beneficiaries that are at high-
risk (as defined by the Secretary but including beneficiaries 
with multiple sclerosis or other disabling chronic conditions, 
nursing home residents or beneficiaries at risk for nursing 
home placement, or beneficiaries that are also eligible for 
Medicaid). The Secretary would select 6 sites, giving 
preference to sites located in rural areas. The demonstration 
program would last 5 years but would not be implemented before 
October 1, 2004.
      Any high-risk beneficiary residing in a designated area 
who is not a member of a Medicare+Choice plan may participate 
if the beneficiary identifies a care management organization 
that agrees to furnish care management services to the 
beneficiary under the demonstration program. The Secretary 
would be required to contract with care management 
organizations to provide care management services to 
beneficiaries eligible to participate in the demonstration. The 
Secretary may contract with more than one care management 
organization in a geographic area.
      The Secretary would pay the care management organization 
a fee that is based on bids submitted by care management 
organizations. The fee would be required to place the care 
management organization partially at risk. Payment of the full 
fee would depend upon the care management organization meeting 
benchmarks for quality and cost. The Secretary may cancel a 
contract with a care management organization if the 
organization does not meet negotiated savings or quality 
outcome targets for the year. Aggregate payments by Medicare 
could not exceed the amount that would otherwise have been paid 
if the demonstration program had not been implemented. The 
Secretary would be required to report to Congress six months 
after the completion of the demonstration on the program. The 
provision would be effective upon enactment.
Conference Agreement
      The conference agreement requires each Medicare Advantage 
organization to have an on-going quality improvement program 
for improving the quality of care provided to enrollees (except 
for private fee-for-service plans or MSA plans) effective for 
contract years beginning January 1, 2006. As part of the 
quality improvement program, each MA organization is required 
to have a chronic care improvement program. Each chronic care 
improvement program is required to have a method for monitoring 
and identifying enrollees with multiple or sufficiently severe 
chronic conditions that meet criteria established by the 
organization for participation under the program.
      Each MA organization is required to provide for the 
collection, analysis and reporting of data that permit 
measurement of health outcomes and other indicators of quality. 
The Secretary will establish through regulation appropriate 
reporting requirements for regional PPOs. The Secretary is 
permitted to change the types of data that are required of 
plans only after submitting to Congress a report on the reasons 
for the changes that was prepared in consultation with MA plans 
and private accrediting bodies. The Secretary is not permitted 
to collect data on quality, outcomes, and beneficiary 
satisfaction for the purposes of consumer choice and program 
administration if the data were not already being collected as 
of November 1, 2003. However, these provisions regarding data 
are not to be construed as restricting the ability of the 
Secretary to carry out the comparative information 
dissemination provisions regarding plan quality and performance 
that are contained in section 1851(d)(4)(D).
      The conference agreement also provides that MA 
organizations are deemed to meet the quality improvement 
program requirements as the Secretary determines to be 
appropriate if the MA organization is accredited (and 
periodically reaccredited) by a private accrediting 
organization under a process that the Secretary has determined 
ensures that the accrediting organization applies and enforces 
standards that meet or exceed the standards established by the 
Secretary.
  Chronically Ill Medicare Beneficiary Research, Data, Demonstration 
        Strategy (Section 723 of the Conference Agreement).
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement requires the Secretary to 
develop a plan to improve quality of care and to reduce the 
cost of care for chronically ill Medicare beneficiaries within 
6 months after enactment. The plan is required to use existing 
data and identify data gaps, develop researchinitiatives, and 
propose intervention demonstration programs to provide better health 
care for chronically ill Medicare beneficiaries. The plan is required 
to: (1) integrate existing datasets including the Medicare Current 
Beneficiary Survey, the Minimum Data Set, the Outcome and Assessment 
Information Set, data from the Quality Improvement Organizations, and 
claims data; (2) identify any new data needs and a methodology to 
address new data needs; (3) plan for the collection of such data in a 
data warehouse; and (4) develop a research agenda using the data. In 
developing the plan, the Secretary is required to consult with experts 
in the fields of care for the chronically ill (including clinicians) 
and is required to enter into contracts with appropriate entities for 
the development of the plan. The Secretary is required to implement the 
plan no later than 2 years after enactment. Appropriations are 
authorized from amounts in the Treasury not otherwise appropriated, 
such sums as may be necessary in fiscal years 2004 and 2005 to carry 
out this provision.

                      Subtitle D--Other Provisions

Improvements in the National and Local Coverage Determination Process 
        to Respond to Changes in Technology (Section 731 of the 
        Conference Agreement, Section 733 of the House Bill, and 
        Sections 458 and 554 of the Senate Bill).
Present Law
      Coverage Determinations. Under administrative 
authorities, CMS announced in March 2003 the establishment of a 
technology council charged with improving Medicare coverage, 
coding and payment for emerging technologies. Council 
membership includes senior CMS staff.
      Clinical Trials. No explicit statutory authorization 
regarding category A clinical trials. Under existing 
authorities, Medicare covers the routine costs of qualifying 
clinical trials which includes items or services typically 
provided absent a clinical trial and items or services needed 
for the diagnosis or treatment of complications. Medicare does 
not pay for certain aspects of the clinical trial including: 
the investigational item or service, items and services not 
used in the direct clinical management of the patient, and 
items and services customarily provided by the research sponsor 
free of charge for any enrollee in the trial.
      Coding. The Secretary issues temporary national Health 
care Common Procedure Coding System (HCPCS) codes under 
Medicare Part B that are used until permanent codes are 
established.
House Bill
      Coverage. The Secretary would be required to make 
available to the public the factors considered in making 
national coverage determinations of whether an item or service 
is reasonable and necessary. The Secretary would be required to 
develop guidance documents similar to those required by the 
Federal Food, Drug and Cosmetic Act (21 U.S.C. 371(h)). The 
provision would establish a time frame for decisions regarding 
national coverage determinations of 6 months after a request 
when a technology assessment is not required and 9 months when 
a technology assessment is required and in which a clinical 
trial is not requested.
      Following the 6- or 9-month period, the Secretary would 
be required to make a draft of the proposed decision available 
in the HHS website or by other means; to provide a 30-day 
public comment period; to make a final decision on the request 
within 60 days following the conclusion of the public comment 
period; make the clinical evidence and data used in making the 
decision available to the public when the decision differs from 
the recommendations of the Medicare Coverage Advisory 
Committee; and in the case of a decision to grant the coverage 
determination, assign a temporary or permanent code and 
implement the coding change. In instances where a request for a 
national coverage determination is not reviewed by the Medicare 
Coverage Advisory Committee, the Secretary would be required to 
consult with appropriate outside clinical experts.
      The Secretary would also be required to develop a plan to 
evaluate new local coverage determinations to decide which 
local decisions should be adopted nationally and to decide to 
what extent greater consistency can be achieved among local 
coverage decisions, to require the Medicare contractors within 
an area to consult on new local coverage policies, and to 
disseminate information on local coverage determination among 
Medicare contractors to reduce duplication of effort. The 
provision would be effective for determinations as of January 
1, 2004.
      Clinical Trials. Medicare would cover the routine costs 
of care for beneficiaries participating in clinical trials that 
are conducted in accordance with an investigational device 
exemption approved under section 530(g) of the Federal Food, 
Drug, and Cosmetic Act. The provision would be effective for 
clinical trials begun before, on, or after the date of 
enactment and to items and services furnished on or after 
enactment.
      Coding. The Secretary would be required to implement 
revised procedures for the issuance of temporary national HCPCS 
codes by January 1, 2004. The provision would further require 
the Secretary to use data reflecting prices and costs of 
products in the United States in setting payment rates. The 
provision would be effective upon enactment.
Senate Bill
      Coverage. The provision would establish a time frame for 
decisions regarding national coverage determinations of 6 
months after a request when a technology assessment is not 
required and 9 months when a technology assessment is required 
and in which a clinical trial is not requested. Following the 
6- or 9-month period, the Secretary would be required to make a 
draft of the proposed decision available in the HHS website or 
by other means; to provide a 30-day public comment period; to 
make a final decision on the request within 60 days following 
the conclusion of the public comment period; make the clinical 
evidence and data used in making the decision available to the 
public when the decision differs from the recommendations of 
the Medicare Coverage Advisory Committee; and in the case of a 
decision to grant the coverage determination, assign a 
temporary or permanent code and implement the coverage decision 
at the end of the 60-day period. The provision would apply to 
national coverage determinations as of January 1, 2004.
      The Secretary would be required to establish a Council 
for Technology and Innovation composed of senior CMS staff and 
clinicians to coordinate coverage, coding, and payment 
processes under Title XVIII and the exchange of information on 
new technologies between CMS and other entities that make 
similar decisions. The provision would be effective upon 
enactment.
      Clinical Trials. The routine costs of care for Medicare 
beneficiaries participating in clinical trials that are 
conducted in accordance with an investigational device 
exemption approved under Senate Section 530(g) of the Federal 
Food, Drug, and Cosmetic Act would be covered. This provision 
would not require the Secretary to modify the existing 
regulations and cover the cost of a medical device that is the 
subject of an investigational device exemption by the Food and 
Drug Administration. The Secretary would be required to ensure 
that total Medicare expenditures associated with this provision 
do not exceed: $32 million in 2005; $34 million in 2006; $36 
million in 2007; $38 million in 2008; $40 million in 2009; $42 
million in 2010; $44 million in 2011; $48 million in 2012; and 
$50 million in 2013. The Secretary would be required to take 
appropriate steps to stay within these funding limitations, 
including limiting the number of clinical trials covered and 
paying for only a portion of the associated routine costs. The 
provision would be effective for clinical trials begun before, 
on, or after the date of enactment and to items and services 
furnished on or after January 1, 2005.
      Coding. No provision.
Conference Agreement
      Coverage. The conference agreement requires the Secretary 
to make available to the public the factors considered in 
making national coverage determinations of whether an item or 
service is reasonable and necessary. The Secretary is required 
to develop guidance documents similar to those required by the 
Federal Food, Drug and Cosmetic Act (21 U.S.C. 371(h)). The 
provision establishes a timeframe for decisions regarding 
national coverage determinations of 6 months after a request 
when a technology assessment is not required and 9 months when 
a technology assessment is required and in which a clinical 
trial is not requested.
      Following the 6- or 9-month period, the Secretary is 
required to make a draft of the proposed decision available in 
the HHS website or by other means; to provide a 30-day public 
comment period; to make a final decision on the request with 60 
days following the conclusion of the public comment period; 
make the clinical evidence and data used in making the decision 
available to the public when the decision differs from the 
recommendations of the Medicare Coverage Advisory Committee; 
and in the case of a decision to grant the coverage 
determination, assign a temporary or permanent code and 
implement the coding change. In instances where a request for a 
national coverage determination is not reviewed by the Medicare 
Coverage Advisory Committee, the Secretary is required to 
consult with appropriate outside clinical experts.
      The Secretary is also required to develop a plan to 
evaluate new local coverage determinations to decide which 
local decisions should be adopted nationally and to decide to 
what extent greater consistency can be achieved among local 
coverage decisions, to require the Medicare contractors within 
an area to consult on new local coverage policies, and to 
disseminate information on local coverage determination among 
Medicare contractors to reduce duplication of effort. The 
provision is effective for national determinations as of 
January 1, 2004 and for local coverage determinations made on 
or after July 1, 2004.
      Clinical Trials. The conference agreement prohibits the 
Secretary from excluding from Medicare coverage the routine 
costs of care incurred by a Medicare beneficiary participating 
in a category A clinical trial, beginning with routine costs 
incurred on and after January 1, 2005. The conference agreement 
makes clear that this provision does not apply to, or affect, 
Medicare coverage or payment for a non-experimental/
investigational (category B) device.
      Coding. The conference agreement requires the Secretary 
to implement revised procedures for issuing temporary national 
HCPCS codes under Medicare Part B no later than July 1, 2004.
Extension of Treatment for Certain Physician Pathology Services Under 
        Medicare (Section 732 of the Conference Agreement, Section 734 
        of the House Bill, and Section 435 of the Senate Bill).
Present Law
      In general, independent laboratories cannot directly bill 
for the technical component of pathology services provided to 
Medicare beneficiaries who are inpatients or outpatients of 
acute care hospitals. BIPA permitted independent laboratories 
with existing arrangements with acute care hospitals to bill 
Medicare separately for the technical component of pathology 
services provided to the hospitals' inpatients and outpatients. 
The arrangement between the hospital and the independent 
laboratory had to be in effect as of July 22, 1999. The direct 
payments for these services apply to services furnished during 
a 2-year period starting on January 1, 2001 and ending December 
31, 2002.
House Bill
      Medicare would make direct payments for the technical 
component of pathology services furnished to beneficiaries who 
are inpatients or outpatients of acute care hospitals on or 
after January 1, 2004 until December 31, 2008. A change in 
hospital ownership would not affect these direct billing 
arrangements. The provision would be effective as if it had 
been included in BIPA.
Senate Bill
      Direct payments for the technical component for these 
pathology services would be made for services furnished during 
2005. The provision would be effective upon enactment.
Conference Agreement
      Direct payments for the technical component for these 
pathology services will be made for services furnished during 
2005 and 2006.
Payment for Pancreatic Islet Cell Investigational Transplants for 
        Medicare Beneficiaries in Clinical Trials (Section 733 of the 
        Conference Agreement, Section 735 of the House Bill, and 
        Section 462 of the Senate Bill).
Present Law
      No explicit statutory authorization. Under existing 
authorities, Medicare covers the routine costs of qualifying 
clinical trials which includes items or services typically 
provided absent a clinical trial and items or services needed 
for the diagnosis or treatment of complications. Medicare 
doesnot pay for certain aspects of the clinical trial including: the 
investigational item or service, items and services not used in the 
direct clinical management of the patient, and items and services 
customarily provided by the research sponsor free of charge for any 
enrollee in the trial.
House Bill
      Medicare would be required to pay for the routine costs 
for items and services that beneficiaries receive as part of a 
clinical investigation of pancreatic islet cell transplants 
conducted by the National Institute of Health. The provision 
would be effective upon enactment.
Senate Bill
      The Secretary would be required to establish a 5-year 
demonstration project to pay for pancreatic islet cell 
transplantation and related items and services for Medicare 
beneficiaries who have type 1 diabetes and end-stage renal 
disease. The Secretary would be required to establish an 
appropriate methodology to pay for the items and services 
furnished under the demonstration. A report to Congress would 
be required on the project 4 months after the demonstration 
ends. The provision would be effective upon enactment.
Conference Agreement
      The conference agreement requires the Secretary, acting 
through the National Institute of Diabetes and Digestive and 
Kidney Disorders, to conduct a clinical investigation of 
pancreatic islet cell transplantation which includes Medicare 
beneficiaries. Beginning no earlier than October 1, 2004, the 
Secretary is required to pay for the routine costs as well as 
transplantation and appropriate related items and services for 
Medicare beneficiaries who are participating in such a trial.
      In implementing the clinical investigation of pancreatic 
islet cell transplantations, CMS, in working with NIH, should 
ensure that a sufficient number of Medicare beneficiaries 
participate so that the results are applicable to the broader 
Medicare population with Type 1 diabetes and Medicare is able 
to make an informed decision regarding coverage of pancreatic 
islet transplantation.
Restoration of Trust Funds (Section 734 of the Conference Agreement and 
        Section 623 of the Senate Bill).
Present Law
      The Federal Hospital Insurance (HI) Trust Fund was 
established on July 30, 1965 as a separate account in the U.S. 
Treasury. All of the HI financial operations are handled 
through this fund. The trust fund's primary source of income 
consists of amounts appropriated to it, under permanent 
authority, on the basis of taxes paid by workers, their 
employers, and individuals with self-employment income. Up to 
85% of an individual or a couples Old Age and Survivors, 
Disability Insurance (OASDI) benefits may be subject to federal 
income taxation if their income exceeds certain thresholds. The 
income tax revenue attributable to the first 50% of the OASDI 
benefits is allocated to the OAS and DI trust funds. The 
revenue associated with the amount between 50% and 85% is 
allocated to the HI trust funds. An incorrect amount of income 
from the taxation of OASDI benefits was transferred into the HI 
Trust Fund in April 2001, because of clerical error. An 
additional amount was transferred into the HI Trust Fund in 
December, 2001 to correct for the principal component of the 
error. Correction of the interest component associated with the 
clerical error requires legislation.
House Bill
      No provision.
Senate Bill
      After consultation with the Secretary of HHS, the 
Secretary of the Treasury would be required to transfer into 
the HI Trust fund an amount that would have been held by that 
fund if the clerical error had not occurred within 120 days of 
enactment.
Conference Agreement
      The conference agreement requires the Secretary of the 
Treasury to transfer into the HI Trust Fund an amount that 
would have been held by that fund if the clerical error had not 
occurred. Such money is appropriated to the HI Trust Fund. The 
appropriation is made and transfer is required within 120 days 
of enactment of this Act. In the case of a clerical error that 
occurs after April 15, 2001, the Secretary of the Treasury is 
required to notify the appropriate committees of Congress about 
the error and the actions to be taken, before such action is 
taken.
Modifications to Medicare Payment Advisory Commission (MedPAC) (Section 
        735 of the Conference Agreement and Section 731 of the House 
        Bill).
Present Law
      The Medicare Payment Advisory Commission is a 17-member 
body that reports and makes recommendations to Congress 
regarding Medicare payment policies. The Comptroller General is 
required to establish a public disclosure system for 
Commissioners to disclose financial and other potential 
conflicts of interest.
House Bill
      MedPAC would be required to examine the budgetary 
consequences of a recommendation before making the 
recommendation and to review the factors affecting the 
efficient provision of expenditures for services in different 
health care sectors under Medicare fee-for-service. MedPAC 
would be required to submit 2 additional reports no later than 
June 1, 2004. The first report would study the need for current 
data, and the sources of current data available, to determine 
the solvency and financial circumstances of hospitals and other 
Medicare providers. MedPAC would be required to examine data on 
uncompensated care, as well as the share of uncompensated care 
accounted for by the expenses for treating illegal aliens. The 
second report would address investments and capital financing 
of hospitals participating under Medicare and access to capital 
financing for private and not-for-profit hospitals. The 
provision would also require that members of the Commission be 
treated as employees of Congress for purposes of financial 
disclosure requirements.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement requires that MedPAC is to 
examine the budgetary consequences of a recommendation before 
making the recommendation and to review the factors affecting 
the efficient provision of expenditures for services in 
different health care sectors under Medicare fee-for-service. 
MedPAC is required to submit 2 additional reports no later than 
June 1, 2004. The first report is to study the need for current 
data and the sources of current data available, to determine 
the solvency and financial circumstances of hospitals and other 
Medicare providers. The second report is to address investments 
and capital financing of hospitals participating under Medicare 
and access to capital financing for private and not-for-profit 
hospitals.
      The conference agreement requires that the Comptroller 
General appoint experts in the area of pharmaco-economics or 
prescription drug benefit programs to MedPAC. In addition, 
members of the Commission are required to be treated as 
employees of Congress for purposes of financial disclosure 
requirements and the Comptroller General is required to ensure 
compliance with this requirement.
      Technical Amendments (Section 736 of the Conference 
Agreement).
Present Law
      The Medicare, Medicaid, and SCHIP Benefit Improvement and 
Protection Act of 2000 (BIPA) contains certain grammatical 
omissions.
House Bill
      No provision.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement corrects the grammatical 
omissions.
Institute of Medicine Report (Section 723 of the House Bill).
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      No provision.
Conference Agreement
      No provision.
      MedPAC Report (Section 724 of the House Report).
Present Law
      No provision.
House Bill
      MedPAC would be required to evaluate the chronic care 
improvement program. The evaluation would be required to 
include a description of the status of the implementation of 
the programs, the quality of health care services provided to 
individuals participating in the program, and the cost savings 
attributed to the implementation of the program. The report of 
the evaluation would be required to be submitted to Congress 
not later than two years after the implementation of the 
programs. The provision would be effective upon enactment.
Senate Bill
      No provision.
Conference Agreement
      No provision.
MedPAC Study on Medicare Payments and Efficiencies in the Health Care 
        System (Section 455 of the Senate Bill).
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      MedPAC would be required to make recommendations to 
Congress regarding ways to recognize and reward efficiencies 
and lower utilization of services created by the practice of 
medicine in historically efficient and low-cost areas. The 
recommendations would be required to be made within established 
Medicare payment methodologies for hospitals and physicians. 
The measures of efficiency would include: shorter than average 
hospital stays; fewer than average physician visits; fewer than 
average laboratory tests; greater than average utilization of 
hospice services; and the efficacy of disease management and 
preventive health services. The recommendations would be due 18 
months after enactment.
Conference Agreement
      No provision.

                      TITLE VIII--COST CONTAINMENT

                      Subtitle A: Cost Containment

      Inclusion in Annual Report of Medicare Trustees of 
Information on Status of Medicare Trust Funds (Section 801 of 
the Conference Agreement, Section 131 of House Bill; Sections 
131 and 132 of Senate Bill ).
Current Law
      The Medicare Board of Trustees was established under the 
Social Security Act to oversee the financial operations of the 
Medicare Hospital Insurance (HI) trust fund and the Medicare 
Supplementary Medical Insurance (SMI) trust fund. The Trustees 
are required to submit annual reports to the Congress.
      The HI trust fund revenues come primarily from payroll 
taxes. Employers and employees each pay 1.45% of their 
earnings, while self-employed workers pay 2.9% of their net 
income. Other HI revenue sources include interest on the 
investments of the trust fund, federal income taxes on Social 
Security benefits, premiums from voluntary enrollees into Part 
A, railroad retirement account transfers and reimbursement for 
certain uninsured persons. Medicare Part A pays for 
beneficiaries medical expenses incurred in hospitals, skilled 
nursing facilities, hospices, and a portion of home health care 
services.
      The SMI trust fund revenues are composed of beneficiary 
premiums to purchase Part B and general revenues. The Part B 
premium is set at an amount so that aggregate premiums are 
estimated to equal 25% of program costs and the monthly premium 
for 2003 is $58.70. General revenues comprise the remaining 75% 
of Part B program costs. Medicare Part B pays for the 
following: physician and other health care practitioner 
services; other medical and health services, including 
laboratory and diagnostic tests; outpatient hospital services 
and clinic services; and therapy and ambulance services; 
durable medical equipment, and home health services not covered 
under Part A.
House Bill
      The provision would require the trustees to submit a 
combined report on the status of the two trust funds and the 
Prescription Drug Trust Fund. The report would include a 
statement of the total amounts obligated during the preceding 
fiscal year from the General Revenues of the Treasury for 
payment of benefits and the percentage such amount bore to all 
other general revenue obligations of the Treasury in that year. 
This information would be provided for each year beginning with 
the inception of Medicare. Ten-year and 75-year projections 
would also be required. The report would also provide a 
comparison to the rate of growth in the gross domestic product. 
Each report would be published by the Committees on Ways and 
Means and Energy and Commerce and be made available on the 
Internet.
Senate Bill
      Section 131 would require the trustees to submit a 
combined report on the status of the two trust funds including 
the Prescription Drug Account. The report would include a 
statement of the total amounts obligated during the preceding 
fiscal year from the General Revenues of the Treasury and the 
percentage such amount bore to all other obligations of the 
Treasury in that year. This calculation would be made 
separately for Medicare benefits and for administrative and 
other expenses. This information would be provided for each 
year beginning with the inception of Medicare. Ten-year and 50-
year projections would also be required. The report would also 
provide a comparison of the rates of growth for both benefits 
and administrative costs to the rates of growth in the gross 
domestic product, health insurance costs in the private sector, 
employment-based health insurance costs in the public and 
private sectors, and other areas as determined appropriate by 
the Board of Trustees.
      The section would express the sense of the Congress that 
the committees of jurisdiction would hold hearings on these 
reports.
      Section 132 would require the 2004 reports to include an 
analysis of the total amount of unfunded obligation of 
Medicare. The analysis would compare long-term obligations, 
including the combined obligations of the HI and SMI trust 
funds, to the dedicated funding sources for the program (not 
including transfers of general revenue).
Conference Agreement
      Beginning with their report in 2005, the Trustees' annual 
report is required to include information on: (1) projections 
of growth of general revenue Medicare spending as a percentage 
of the total Medicare outlays for the fiscal year and each of 
the succeeding 6 fiscal years, 10, 50, and 75 years after the 
fiscal year, and previous fiscal years; (2) comparisons with 
the growth trends for the gross domestic product, private 
health costs, national health expenditures, and other 
appropriate measures; (3) expenditures and trends in 
expenditures under Part D; and (4) a financial analysis of the 
combined Medicare trust funds if general revenue funding for 
Medicare is limited to 45 percent of total Medicare outlays. 
The trust fund reports are also required to include a 
determination as to whether there is projected to be ``excess 
general revenue Medicare funding'' (as defined in the paragraph 
below) for any of the succeeding 6 fiscal years in its annual 
reports of Medicare's trust funds.
      ``Excess general revenue Medicare funding'' is defined as 
general revenue Medicare funding expressed as a percentage of 
total Medicare outlays in excess of 45 percent. This measure is 
calculated by dividing total Medicare outlays minus dedicated 
Medicare financing sources by total Medicare outlays.
      An affirmative determination of excess general revenue 
funding of Medicare for 2 consecutive annual reports will be 
treated as funding warning for Medicare in the second year for 
the purposes of requiring Presidential submission of 
legislation to Congress. Whenever any Trustees report includes 
a determination that within the 7-fiscal-year period there will 
be excess general revenue Medicare funding, Congress and the 
President are advised to address the matter under existing 
rules and procedures.
      Dedicated Medicare financing sources include amounts 
appropriated to the HI trust fund for payroll taxes, transfers 
from the Railroad Retirement accounts, reimbursements for 
uninsured persons, and reimbursement for transitional insured 
coverage; taxation of certain OASDI benefits and tier II 
railroad retirement taxes, state transfers for Medicare 
coverage of eligible individuals who receive public assistance; 
premiums for Parts A, B, and D paid by non-Federal 
sourcesincluding amounts from voluntary enrollees (Part A), adjustments 
(Part B) and the MA monthly prescription drug beneficiary premiums paid 
under Part C that are attributable to basic prescription drug coverage 
(Part D); and gifts received by the Medicare trust funds. The premium 
amounts are determined without regard to any reduction in the Part B 
premiums attributable to the beneficiary rebate under the MA program 
and Part D premium amounts are deemed to include any penalties for late 
enrollment.
      Medicare outlays means total outlays from the Medicare 
trust funds and include payments made to plans under part C 
that are attributable to any rebates under the Medicare 
Advantage program and Medicare administrative expenditures. 
These outlays are required to be offset by the amount of fraud 
and abuse collection when applied to or deposited into a 
Medicare trust fund.
      The Medicare trust funds are defined as the Federal 
Hospital Insurance Trust Fund and the Federal Supplementary 
Medical Insurance Trust Fund which includes the Medicare 
Prescription Drug Account.
      Presidential Submission of Legislation (Section 802 of 
the Conference Agreement).
House Bill
      No provision.
Senate Bill
      No provision.
Conference Agreement
      In the event that a Medicare funding warning is made, the 
President is required to submit to Congress proposed 
legislation to respond to the warning. This must be completed 
within the 15-day period beginning on the date of the budget 
submission to Congress for the succeeding year it is made. If 
during the year in which the warning is made, legislation is 
enacted which eliminates excess general revenue Medicare 
funding for the 7-fiscal year period, then the President is not 
required to make a legislative proposal. The conference 
agreement expresses a sense of Congress that legislation 
submitted in this regard should be designed to eliminate excess 
general revenue Medicare funding for the 7-fiscal year period 
that begins in such year, as certified by the Board of Trustees 
not later than 30 days after the date of enactment.
      Procedures in the House of Representatives (Section 803 
of the Conference Agreement).
House Bill
      No provision.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement sets out the procedures for 
House consideration of the President's legislative proposal. 
Within 3 days of receiving the President's legislative 
proposal, the Majority Leader and Minority Leader of the House, 
or their designees, are required to introduce the proposal. Any 
legislation introduced is required to be referred to the 
appropriate committees which are required to report Medicare 
funding legislation no later than June 30. The chairman of the 
Committee on the Budget is required to certify whether or not 
Medicare funding legislation eliminates excess general revenue 
Medicare funding for any year within the 7-fiscal year period 
and whether the legislation would eliminate excess general 
revenue Medicare funding within the 7-fiscal year period.
      If the House fails to vote on final passage of the 
legislation by July 30, fallback procedures are provided for 
under the conference agreement. After 30 calendar days (and 
concurrently 5 legislative days) after the introduction of the 
legislation, a move to discharge any committee to which the 
legislation has been referred is in order, under specified 
circumstances, and debate on the motion to discharge is limited 
to one hour.
      The conference agreement provides for floor consideration 
in the House of the discharged legislation by the Committee of 
the Whole no later than 3 legislative days after discharge.
House Bill
      No provision.
Senate Bill
      No provision.
Conference Agreement
      Section 804 provides for some limited special procedures 
in the Senate for consideration of legislation arising from the 
Medicare Trustees determination that there will be ``excess 
general revenue Medicare funding'' under section 801.
      If the Medicare Trustees report, pursuant to section 801, 
includes a ``medicare funding warning'' and if the President 
submits the legislation described in section 802 in response to 
such warning, that legislation (along with any other qualifying 
legislation otherwise introduced in the Senate or received from 
the House) will be entitled to the special procedures set out 
in section 804.
      Section 804(a) requires the Majority Leader and the 
Minority Leader (or their designees) to introduce the 
President's legislation. Such legislation must be entitled ``A 
bill to respond to a medicare funding warning.'' This bill, 
regardless of the subject matter and notwithstanding any 
jurisdictional precedents of the Senate, shall be referred to 
the Committee on Finance. Any other legislation introduced by 
any member of the Senate, bearing this same title, shall also 
be referred to the Committee on Finance. Such referrals shall 
not be considered to create any jurisdictional precedents for 
the Senate.
      Section 804(c) provides that this ``medicare funding 
legislation'' will be entitled to the special rules set out in 
subsections (d) and (e) only if: (1) it was passed by the House 
or (2) it is limited to matters within the jurisdiction of the 
Committee on Finance. This subsection ensures that a measure is 
subject to the special rules (whether it be the President's 
bill or one introduced by a member of the Senate) only if its 
contents are limited to matters solely within the jurisdiction 
of Finance. Thus the President or any member of the Senate may 
propose any type of legislation in the name of eradicating the 
``excess general revenue Medicare funding'', but only those 
measures which conform with the jurisdictional constraints of 
the Committee on Finance, shall be entitled to the special 
procedures set out in this section.
      Clearly however, the Senate can not dictate the content 
of the House-passed measure. Thus subsection (c) explicitly 
states that a bill coming over from the House would still be 
entitled to these special procedures. The conferees intend that 
these procedures apply to the House-passed bill regardless of 
any jurisdictional issues, but limit the application of the 
procedures to a Senate-originated matter that is within the 
jurisdiction of Finance. If a measure does not qualify for 
these special procedures, then it shall be considered under the 
regular order in the Senate.
      Section 804(d) provides a unique mechanism in the Senate: 
a motion to discharge a specific piece of legislation. 
Subsection (d) states that if the Committee on Finance has not 
reported any ``medicare funding legislation'' by June 30 then 
it is in order for any Senator to move to discharge the 
committee from any one of the pieces of ``medicare funding 
legislation'' that has been referred to that committee. Only 
one motion may be made in any session of Congress and such 
motion may only refer to a single piece of legislation. This 
motion is not amendable and debate of the motion and any 
related appeals is limited to 2 hours. The 2 hours is to be 
equally divided and controlled between the maker of the motion 
and the Majority Leader (or their designees). If the Majority 
Leader supports the motion, then the time in opposition will be 
controlled by the Minority Leader (or the Minority Leader's 
designee).
      Unlike other instances of limited debate, in this case, a 
point of order may be made at any time during the 2 hours--a 
Senator need not await the expiration or yielding back of time 
to do so. Any appeal made within the 2 hours, may be debated 
for whatever time remains if any Senator desires to debate the 
appeal. Any motion or appeal made after the 2 hours shall be 
decided without debate. It is not in order to move to proceed 
to the consideration of any other measure or matter while the 
motion to discharge (or the motion to reconsider the vote with 
respect to the motion to discharge) is pending. The only 
motions in order during the 2 hours (or at the conclusion of 
the 2 hours) of debate are as follows: to postpone to a day 
certain, to postpone indefinitely, to lay on the table, to take 
a recess, to adjourn to a day certain, to adjourn. These 
motions shall have the same precedence as described in Rule 
XXII of the Standing Rules of the Senate. Note that pursuant to 
subsection (d)(2), the motion to proceed to executive business 
(which is listed in Rule XXII) as well as the motion to proceed 
to any other legislative matter is explicitly precluded.
      Pursuant to subsection (d)(4), this special motion to 
discharge is no longer available if the Chairman of the 
Committee on the Budget certifies that ``medicare funding 
legislation'' which eliminates the ``excess general revenue 
medicare funding'' described in section 801(c) has been enacted 
in that session.
      Subsection (e) reiterates the fact that under existing 
Senate procedures once ``medicare funding legislation'' has 
been placed on the Calendar (having been either reported or 
discharged from the committee) it is in order for any member of 
the Senate to make a motion to proceed to the consideration of 
that measure. Such motion and all subsequent actions in the 
Senate shall be considered under the Standing Rules of the 
Senate and the precedents thereto or pursuant to any unanimous 
consent agreements reached, as the case may be. This section 
should not be interpreted as creating a ``privileged'' measure 
in the Senate. Consequently, it is the intent of the Conferees 
that there will be no further special procedures (such as a 
waiver or alteration of the procedures with respect to reports 
set out in Rule XVII or any other rule of the Standing Rules of 
the Senate) available to such measures as a result of this Act.

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

Present Law
      The Medicare Part B premium is currently set each year to 
cover 25 percent of Medicare's benefits under Part B. When 
Medicare was created in 1965, the Part B premium was set to 
cover 50 percent of the costs of the Part B benefits. The share 
of Part B spending covered by the premium declined between 1975 
and 1983 to less than 25 percent of spending, because during 
that time premium increases were limited by the cost-of-living 
adjustment for Social Security benefits. During the late 1980s 
and early 1990s, Congress routinely voted to set the Part B 
premium at 25 percent of Part B costs, and that percentage was 
codified in the Balanced Budget Act of 1997 (BBA 97).
      All seniors over age 65 who elect Part B during their 
initial enrollment period pay the same Part B premium, 
regardless of income.
House Bill
      No provision.
Senate Amendment
      No provision.
Conference Agreement
      In order to begin to address the fiscal challenges facing 
the Medicare program, beginning in 2007, Medicare beneficiaries 
with incomes over $80,000 for an individual or $160,000 for a 
married couple will be asked to contribute more to the cost of 
their Medicare benefits through payment of a higher premium. 
Approximately 4 percent of Medicare beneficiaries have incomes 
above these levels. All beneficiaries will continue to receive 
some level of premium assistance, and all beneficiaries will 
continue to be eligible for the full range of Medicare 
benefits. This proposal will target taxpayer dollars at those 
who need it the most by reducing the government subsidy for 
those who have the resources to cover more of their own costs.
      Beneficiaries with incomes under $80,000 for an 
individual and $160,000 for a married couple will continue to 
receive a government subsidy at 75 percent and pay premiums at 
the 25 percent rate. Those with incomes between $80,000 and 
$100,000 ($160,000 and $200,000 for a married couple) will 
receive a 65 percent subsidy and pay 35 percent as a premium. 
Those with incomes between $100,000 and $150,000 ($200,000 and 
$300,000 for a couple) will receive a 50 percent subsidy and 
pay a premium at 50 percent. Those with incomes between 
$150,000 and $200,000 ($300,000 and $400,000 for a married 
couple) will receive a 35 percent subsidy and pay a premium at 
a 65 percent rate. Those with incomes above $200,000 ($400,000 
for a married couple) will receive a 20 percent subsidy and pay 
a premium at an 80 percent rate.
      Beneficiaries who are affected will be notified of their 
premium levels at the start of the year. They may appeal their 
premium level based on major changes in life circumstances, 
such as divorce, marriage, or death of a spouse. Although this 
policy affects only a small number of beneficiaries, it will 
have a significant impact in controlling the growth of Medicare 
spending in the future.
      To facilitate the income-related reduction in Part B 
premium subsidy, the conference agreement authorizes the 
disclosure of certain return information to employees and 
contractors of the Social Security Administration. Upon written 
request from the Commissioner of Social Security, the IRS may 
disclose certain items of return information with respect to a 
taxpayer whose premium may be subject to adjustment. With 
respect to such taxpayers, the IRS may disclose (1) taxpayer 
identity information; (2) filing status; (3) adjusted gross 
income; (4) the amounts excluded from such taxpayer's gross 
income under sections 135 and 911 of the Internal Revenue Code 
(relating to income from United States Savings bonds used to 
pay higher education tuition and fees, and foreign earned 
income); (5) tax-exempt interest received or accrued during the 
taxable year to the extent such information is available; (6) 
amounts excluded from such taxpayer's gross income by sections 
931 and 933 of the Internal Revenue Code (relating to income 
from sources within Guam, American Samoa, the Northern Mariana 
Islands, or Puerto Rico); (7) for nonfilers only, such other 
information relating to the liability of the taxpayer as the 
Secretary may prescribe by regulation, as might indicate that 
the amount of the premium of the taxpayer may be subject to 
adjustment (including estimated tax payments and income 
information derived from Form W-2, Form 1099, or similar 
information returns); and (8) the taxable year with respect to 
which the preceding information relates. Return information 
disclosed under this authority may be used by employees and 
contractors of the Social Security Administration only for 
purposes of, and to the extent necessary in, establishing the 
appropriate amount of any Part B premium adjustment. Employees 
and contractors of the Social Security Administration are 
subject to the penalties for unauthorized disclosure and 
inspection, as well as the applicable safeguard requirements.

         TITLE IX--REGULATORY REDUCTION AND CONTRACTING REFORM

Administrative Improvements within the Centers for Medicare & Medicaid 
        Services (CMS) (Section 900 of the Conference Agreement, 
        Sections 801 and 802 of the House Bill, Sections 301 and 302 of 
        the Senate Bill).
Present Law
      The authority for administering the Medicare program 
resides with the Secretary of Health and Human Services. The 
Secretary originally created the agency that administers the 
Medicare and Medicaid programs in 1977 under his administrative 
authority. Regulations regarding Medicare are required to be 
promulgated by the Secretary. The Medicare statute requires 
that the Administrator of the Centers for Medicare & Medicaid 
Services (CMS formerly known as the Health Care Financing 
Administration) be appointed by the President with the advice 
and consent of the Senate. Title 5 of the U.S. Code sets the 
Administrator's salary at level IV of the Executive Schedule. 
The Medicare statute requires that the HCFA administrator 
appoint a Chief Actuary who reports directly to such 
administrator and is paid at the highest rate of basic pay for 
the Senior Executive Service.
House Bill
      The section would amend title XVIII to add new section 
1809 which, under subsection (a), would establish a new 
Medicare Benefits Administration (MBA) within the Department of 
Health and Human Services.
      Subsection (b) would provide for an Administrator and 
Deputy Administrator of the MBA. Both would be appointed by the 
President with the advice and consent of the Senate for 4-year 
terms. If a successor did not take office at the end of the 
term, the Administrator would continue in office until the 
successor enters the office. In that event, the confirmed 
successor's term would be the balance of the 4-year period. The 
Administrator would be paid at level III of the Executive 
Schedule and the Deputy Administrator at level IV of the 
Executive Schedule. The Administrator would be responsible for 
the exercise of all powers and the discharge of duties of the 
MBA and has authority and control over all personnel. The 
provision would permit the Administrator to prescribe such 
rules and regulations as the Administrator determined necessary 
or appropriate to carry out the functions of MBA, subject to 
the Administrative Procedure Act. The Administrator would be 
able to establish different organizational units within the MBA 
except for any unit, component, or provision specifically 
provided for by section 1809. The Administrator may assign 
duties, delegate, or authorize redelegations of authority to 
MBA officers and employees as needed. The Secretary of Health 
and Human Services shall ensure appropriate coordination 
between the Administrator of MBA and the Administrator of the 
Centers for Medicare & Medicaid Services (CMS) in administering 
the Medicare program. The provision also would establish a 
position of Chief Actuary within the MBA who would be appointed 
by the Administrator and paid at the highest rate of basic pay 
for the Senior Executive Service. The Chief Actuary would 
exercise such duties as are appropriate for the office of Chief 
Actuary and in accordance with professional standards of 
actuarial independence.
      Subsection (c) would prescribe the duties of the 
Administrator and administrative provisions relating to the 
MBA. In administering parts C, D, and E of Medicare, the 
Administrator would be required to negotiate, enter into and 
enforce contracts with Medicare Advantage plans and enhanced 
fee-for-service plans and with prescription drug plan sponsors 
for Medicare prescription drug plans. The Administrator would 
be required to carry out any duty provided for under part C, D, 
or E of Medicare including implementing the prescription drug 
discount card endorsement program and demonstration programs 
(that are carried out in whole or in part under part C, D, or 
E). The provision specifically prohibits the Administrator from 
requiring a particular formulary or instituting a price 
structure for the reimbursement of covered drugs, from 
interfering in any way with negotiations between prescription 
drug plan sponsors and Medicare Advantage organizations and 
enhanced fee-for-service organizations and drug manufacturers, 
wholesalers, or other suppliers of covered drugs; and otherwise 
interfering with the competitive nature of providing 
prescription drug coverage through such entities and 
organizations. These negotiations would be carried out by 
private plans, eager to capture market share through lower 
premiums, and manufacturers, willing to negotiate discounts for 
volume assurance. Such private sector entities are far better 
suited to achieve maximum discounts and lower premiums for plan 
participants than a disinterested Administrator.
      The Administrator would be required to submit a report to 
Congress and the President on the administration of parts C, D, 
and E during the previous year by not later than March 31 of 
each year.
      The Administrator, with the approval of the Secretary, 
would be permitted to hire staff to administer the activities 
of MBA without regard to chapter 31 of title 5 of the U.S. 
Code, except for 12 sections. The Administrator would be 
required to employ staff with appropriate and necessary 
experience in negotiating contracts in the private sector. The 
staff of MBA would be paid without regard to chapter 51 (other 
than section 5101 requiring classification of positions 
according to certain principles) and chapter 53 (other than 
section 5301 relating to the principles of pay systems) of 
title 5 of the U.S. Code. The rate of compensation for staff of 
MBA would not be able to exceed level IV of the Executive 
Schedule. The Administrator would be limited in the number of 
full-time-equivalent (FTEs) employees for the MBA to the number 
of FTEs within CMS performing the functions being transferred 
at the time of enactment. The Secretary, the Administrator of 
MBA and the Administrator of CMS would be required to establish 
an appropriate transition of responsibility to redelegate the 
administration of Medicare part C from CMS to MBA. The 
provision would require the Secretary to ensure that the 
Administrator of CMS transfers such information and data as the 
Administrator of MBA requires to carry out the duties of MBA.
      Subsection (d) would require the Secretary to establish 
an Office of Beneficiary Assistance within MBA to coordinate 
Medicare beneficiary outreach and education activities, and 
provide Medicare benefit and appeals information to Medicare 
beneficiaries under parts C, D, and E.
      Subsection (e) would establish the Medicare Policy 
Advisory Board (the Board) within the MBA to advise, consult 
with, and make recommendations to the Administrator regarding 
the administration and payment policies of parts C, D, and E. 
The Board would be required to report to Congress and to the 
Administrator of MBA such reports as the Board determines 
appropriate and may contain recommendations that the Board 
considers appropriate regarding legislative or administrative 
changes to improve the administration of parts C, D, and E 
including: increasing competition under part C, D, or E for 
services furnished to beneficiaries; improving efforts to 
provide beneficiaries information and education about Medicare, 
parts C, D, and E, and Medicare enrollment; evaluating 
implementation of risk adjustment under parts C and E; and 
improving competition and access to plans under parts C, D, and 
E. The reports would be required to be published in the Federal 
Register. The reports would be submitted directly to Congress 
and no officer or agency of the government would be allowed to 
require the Board to submit a report for approval, comments, or 
review prior to submission to Congress. Not later than 90 days 
after a report is submitted to the Administrator, the 
Administrator would be required to submit to Congress and the 
President an analysis of the recommendations made by the Board. 
The analysis would be required to be published in the Federal 
Register.
      The Board would be made up of 7 members serving three-
year terms, with 3 members appointed by the President, 2 
appointed by the Speaker of the House of Representatives, and 2 
appointed by the President pro tempore of the Senate. Board 
members may be reappointed but may not serve for more than 8 
years. The Board shall elect the Chair to serve for 3 years. 
The Board is required to meet at least three times a year and 
at the call of the Chair.
      The Board would be required to have a director who, with 
the approval of the Board, may appoint staff without regard to 
chapter 31 of title 5 of the United States Code (which 
addresses authority for employment). In addition, the director 
and staff could be paid without regard to the provisions of 
chapter 51 and 53 of title 5 which are related to 
classification and pay rates and pay systems--although the rate 
of compensation is capped at level IV of the Executive 
Schedule. The Board could contract with and compensate 
government and private agencies or persons to carry out its 
duties without regard to section 3709 of the Revised Statutes 
(41 U.S.C. 5).
      Subsection (f) would authorize an appropriation of such 
sums as are necessary from the Federal Hospital Insurance Trust 
Fund and from the Federal Supplementary Medical Insurance Trust 
Fund (including the Prescription Drug Account) to carry out 
section 1808.
      The provision would be effective upon enactment, however, 
the enrollment and eligibility functions and implementation of 
parts C and E would be effective January 1, 2006.
Senate Bill
      The section would amend title XVIII to add new section 
1808, which, under subsection (a), would establish a new Center 
for Medicare Choices (CMC) within the Department of Health and 
Human Services by no later than March 1, 2004, to administer 
parts C and D of Medicare.
      Subsection (b) would provide for an Administrator of CMC 
who would be appointed by the President with the advice and 
consent of the Senate for 5-year terms. The Administrator would 
be able to appoint a Deputy Administrator. If a successor did 
not take office at the end of the term, the Administrator would 
continue in office until the successor enters the office. In 
that event, the confirmed successor's term would be the balance 
of the 5-year period. The Administrator would be paid at level 
III of the Executive Schedule and the Deputy Administrator at 
level IV of the Executive Schedule. The Administrator would be 
responsible for the exercise of all powers and the discharge of 
duties of CMC and has authority and control over all personnel. 
The provision would permit the Administrator to prescribe such 
rules and regulations as the Administrator determined necessary 
or appropriate to carry out the functions of CMC, subject to 
the Administrative Procedure Act. The Administrator would be 
able to establishdifferent organizational units within the CMC 
except for any unit, component, or provision provided by section 1808. 
The Administrator may assign duties, delegate, or authorize 
redelegations of authority to CMC officers and employees as needed. The 
Secretary of Health and Human Services shall ensure appropriate 
coordination between the Administrator of CMC and the Administrator of 
the Centers for Medicare & Medicaid Services in administering the 
Medicare program.
      Subsection (c) would prescribe the duties of the 
Administrator and administrative provisions relating to the 
CMC. In administering parts C and D of Medicare, the 
Administrator would be required to negotiate, enter into and 
enforce contracts with MedicareAdvantage plans and with 
eligible entities for Medicare prescription drug plans. The 
Administrator would be required to carry out any duty provided 
for under part C or D of Medicare including demonstration 
programs (that are carried out in whole or in part under parts 
C or D). The Administrator of the agency, to the extent 
possible, would not be able interfere in any way with 
negotiations between eligible entities, MedicareAdvantage 
organizations, hospitals, physicians, other entities or 
individuals furnishing items and services under this title 
(including contractors for such items and services), and drug 
manufacturers, wholesalers, or other suppliers of covered 
drugs. The Administrator would be required to submit a report 
to Congress and the President on the administration of the 
voluntary prescription drug delivery program not later than 
March 31 of each year.
      The Administrator, with the approval of the Secretary, 
would be able to employ management staff as determined 
appropriate. The Administrator would be able to compensate such 
managers up to the highest rate of basic pay for the Senior 
Executive Service. Any such manager would be required to have 
demonstrated, by their education and experience (either in the 
public or private sectors) superior expertise in the review, 
negotiation, and administration of health care contracts, the 
design of health care benefit plans, actuarial sciences, 
compliance and health plan contracts, consumer education and 
decision-making.
      Subsection (d) would require the Secretary to establish 
an Office of Beneficiary Assistance within CMC to make Medicare 
eligibility determinations, enroll beneficiaries into Medicare, 
provide Medicare benefit and appeals information, and carry out 
any other activities relating to Medicare beneficiaries under 
title XVIII. Within the Office of Beneficiary Assistance, a 
Beneficiary Ombudsman would be established who is appointed by 
the Secretary. The Ombudsman would be required to receive 
complaints, grievances, and requests for information submitted 
by a Medicare beneficiary regarding any aspect of the Medicare 
program; to provide assistance with the complaints, grievances 
and requests including assisting beneficiaries with appeals; 
and with problems arising from disenrolling from a 
MedicareAdvantage plan or a prescription drug plan. The 
Ombudsman would be required to submit annual reports to 
Congress, the Secretary, and the Medicare Competitive Policy 
Advisory Board describing the activities of the Ombudsman's 
office and including any recommendations for improvement in the 
administration of title XVIII. The Ombudsman would also be 
required to coordinate with state medical ombudsmen programs, 
and with state- and community-based consumer organizations to 
provide information about the Medicare program and to conduct 
education outreach regarding resolution or avoidance of 
disputes and problems under the Medicare program.
      Subsection (e) would establish the Medicare Competitive 
Policy Advisory Board (the Board) within the CMC to advise, 
consult with, and make recommendations to the Administrator 
regarding the administration and payment policies of parts C 
and D. The Board would be required to report to Congress and to 
the Administrator of CMC such reports as the Board determines 
appropriate and may contain recommendations that the Board 
considers appropriate regarding legislative or administrative 
changes to improve the administration of parts C and D 
including: stability and solvency of the program, increasing 
competition, improving the quality of benefits, incorporating 
disease management, improving competition and access to plans 
in rural areas, and improving beneficiary information and 
education for the entire Medicare program. The reports would be 
required to be published in the Federal Register. The reports 
would be submitted directly to Congress and no officer or 
agency of the government would be allowed to require the Board 
to submit a report for approval, comments, or review prior to 
submission to Congress. Not later than 90 days after a report 
is submitted to the Administrator, the Administrator would be 
required to submit to Congress and the President an analysis of 
the recommendations made by the Board. The analysis would be 
required to be published in the Federal Register. The 
Administrator of CMC is required to provide information and 
assistance to the Board as is requested to carry out its 
functions.
      The Board would be made up of 7 members serving three-
year terms, with three members appointed by the President, two 
appointed by the Speaker of the House of Representatives, and 
two appointed by the President pro tempore of the Senate. Board 
members may be reappointed but may not serve for more than 8 
years. The Board shall elect the Chair to serve for three 
years. The Board is required to meet at least three times a 
year and at the call of the Chair. The Board is required to 
have an executive director who, with the approval of the Board, 
may appoint staff as appropriate.
      Subsection (f) would authorize an appropriation of such 
sums as are necessary from the Federal Hospital Insurance Trust 
Fund and from the Federal Supplementary Medical Insurance Trust 
Fund (including the Prescription Drug Account) to carry out 
section 1808.
      The provision would also require that the Secretary 
provide 1-800-Medicare as a means by which individuals seeking 
information about or assistance with Medicare can receive 
assistance. The Secretary would be required to route calls to 
the appropriate entity to provide the assistance or 
information. The 1-800-Medicare number would be included in the 
Medicare handbook in place of the listing of phone numbers of 
individual contractors.
      The Administrator of CMC would be added as Co-Secretary 
of the Board of Trustees of the Medicare Trust Funds. In 
addition, the pay level for the Administrator of CMS would be 
increased from level IV of the Executive Schedule to level III.
      The CMC would be required to be established by the 
Secretary no later than March 1, 2004.
Conference Agreement
      The conference agreement creates a new section 1808 of 
the Social Security Act establishing a center within the 
Centers for Medicare & Medicaid Services to administer Parts C 
and D of Medicare, provide notice and information to 
beneficiaries (as required under section 1804 of the Social 
Security Act), and other such duties as specified by the 
Secretary. The person heading the Center is required to report 
to the Administrator of CMS. The Secretary is required to 
ensure that the Center is carrying out these duties by no later 
than January 1, 2008.
      The conference agreement permits the Secretary to employ 
management staff as he determines to be appropriate. If such 
staff are employed, the staff must have demonstrated superior 
expertise in at least one of the following areas: (1) the 
review, negotiation, and administration of health care 
contracts; (2) the design of health care benefit plans; (3) 
actuarial sciences; (4) consumer education and decision making; 
(5) any other area specified by the Secretary that requires 
specialized management or other expertise. The Secretary is 
required to establish the rate of pay taking into account 
expertise, experience, and performance. The pay rate cannot 
exceed the highest rate of basic pay for the Senior Executive 
Service under section 5382(b) of title 5, United States Code 
(currently ES-6). Such flexibility ensures those with private 
sector, real world experience managing benefit plans are hired 
and utilized to ensure the success of the new Medicare plans. 
This expertise will help mitigate against potential failure in 
coaxing integrated plans that promote coordinated care and 
modern health delivery into the Medicare program.
      The conference agreement requires that an actuary within 
the office of the Chief Actuary of CMS have duties exclusively 
related to Parts C and D of Medicare and related provisions. 
The pay grade for the Administrator of CMS is increased to 
Executive Level III beginning January 1, 2004. The conferees 
strongly encourage the hiring of a separate actuary within the 
office of the actuary to assist the functions of the center. 
Because the analysis of the fee-for-service actuary can effect 
payment rates in private plan reimbursement, the two should be 
kept independent and answer directly to the Secretary.
      In addition, the conference agreement changes statutory 
references from the Health Care Financing Administration to the 
Centers for Medicare & Medicaid Services.
Construction; Definition of Supplier (Section 901 of the Conference 
        Agreement, Section 901 of the House Bill).
Present Law
      Section 1861 of the Social Security Act contains 
definitions of services, institutions, and so forth under 
Medicare. Supplier is not explicitly defined.
House Bill
      Nothing in this title would be construed as compromising 
or affecting existing legal remedies for addressing fraud or 
abuse, whether it be criminal prosecution, civil enforcement or 
administrative remedies (including the False Claims Act) or to 
prevent or impede HHS from its efforts to eliminate waste, 
fraud, or abuse in Medicare. The provision also would clarify 
that consolidation of the Medicare administrative contractors 
does not consolidate the Federal Hospital Insurance Trust Fund 
and the Federal Supplementary Medical Insurance Trust Fund. The 
provision would also clarify that the term ``supplier'' means a 
physician or other practitioner, a facility or other entity 
(other than a provider of services) furnishing items or 
services under Medicare. The provision would be effective upon 
enactment.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement provides that nothing in this 
title shall be construed as compromising or affecting existing 
legal remedies for addressing fraud or abuse, whether it be 
criminal prosecution, civil enforcement or administrative 
remedies (including the False Claims Act) or to prevent or 
impede HHS from its efforts to eliminate waste, fraud, or abuse 
in Medicare. The conference agreement also clarifies that 
consolidating the Medicare administrative contractors does not 
consolidate the Federal Hospital Insurance Trust Fund and the 
Federal Supplementary Medical Insurance Trust Fund. The 
agreement also clarifies that the term ``supplier'' means a 
physician or other practitioner, a facility or other entity 
(other than a provider of services) furnishing items or 
services under Medicare. The provision is effective upon 
enactment.
Issuance of Regulations (Section 902 of the Conference Agreement, 
        Section 902 of the House Bill, Section 501 of the Senate Bill).
Present Law
      The Secretary is required to prescribe regulations that 
are necessary to administer the Medicare program. The Secretary 
must publish proposed regulations in the Federal Register, with 
at least 30 days to solicit public comment before issuing the 
final regulation except in the following circumstances: (1) the 
statute permits the regulation to be issued in interim final 
form or provides for a shorter public comment period; (2) the 
statutory deadline for implementing a provision is less than 
150 days after the date of enactment of the statute containing 
the provision; (3) under the good cause exception contained in 
the rule-making provision of title 5 of the United States Code, 
notice and public comment procedures are deemed impracticable, 
unnecessary or contrary to the public interest. The Secretary 
must publish a list of all manual instructions, interpretative 
rules, statements of policy, and guidelines, which are 
promulgated to carry out Medicare law in the Federal Register 
no less frequently than every 3 months.
      There is no explicit statutory instruction on logical 
outgrowth. The courts have repeatedly held that new matter in 
final regulations must be a ``logical outgrowth of the proposed 
rule'' and is an inherent aspect of notice and comment 
rulemaking.
House Bill
      The provision would require the Secretary, in 
consultation with the Director of the Office of Management and 
Budget, to establish and publish a regular timeline for the 
publication of final regulations based on the previous 
publication of a proposed rule or an interim final regulation. 
The timeframe established would not be permitted to be longer 
than three years, except under extraordinary circumstances. If 
the Secretary were to vary the timeline he established, the 
provision would require him to publish a notice in the Federal 
Register with the new timeline and an explanation of the 
variation. In the case of interim final regulations, the 
provision would require that if the Secretary did not meet his 
established timeframe, then the interim final regulation would 
not be able to continue in effect unless the Secretary 
published a notice of continuation of the regulation that 
included an explanation of why the regular time line had not 
been complied with. This provision regarding timelines would be 
effective upon enactment.
      The provision also would require that a measure in a 
final regulation that is not a logical outgrowth of the 
proposed regulation or interim final regulation would be 
treated as a proposed regulation. The measure would not be able 
to take effect until public comment occurred and the measure 
was published as a final regulation. This provision would apply 
to final regulations published on or after the date of 
enactment.
Senate Bill
      The Secretary would be required to publish a final 
regulation within 12 months of the publication of an interim 
final regulation or the interim final regulation would no 
longer be effective. Subject to appropriate notice, the 
Secretary would be able to extend this deadline for up to 12 
additional months. The Secretary would be required to publish a 
notice in the Federal Register 6 months after the date of 
enactment providing the status of each interim final regulation 
for which no final regulation has been published and providing 
the date by which the final regulation is planned to be 
published. This provision would be effective upon enactment.
Conference Agreement
      The conference agreement requires the Secretary, in 
consultation with the Director of the Office of Management and 
Budget, to establish and publish a regular timeline for the 
publication of final regulations based on the previous 
publication of a proposed rule or an interim final regulation. 
The timeframe established is not permitted to be longer than 3 
years, except under extraordinary circumstances. If the 
Secretary varies the timeline he established, he is required to 
publish a notice in the Federal Register with the new timeline 
and an explanation of the variation. In the case of interim 
final regulations, if the Secretary does not meet his 
established timeframe, then the interim final regulation cannot 
continue in effect unless the Secretary publishes a notice of 
continuation of the regulation that includes an explanation of 
why the regular timeline was not complied with. This agreement 
regarding timelines is effective upon enactment.
      The conference agreement also requires that a measure in 
a final regulation that is not a logical outgrowth of the 
proposed regulation or interim final regulation is to be 
treated as a proposed regulation. The measure could not take 
effect until public comment occurred and the measure is 
published as a final regulation. This agreement applies to 
final regulations published on or after enactment.
Compliance with Changes in Regulation and Policies. (Section 903 of the 
        Conference Agreement, Section 903 of the House Bill, Sections 
        502 and 533 of the Senate Bill).
Present Law
      No explicit statutory instruction. As a result of case 
law, there is a strong presumption against retroactive 
rulemaking. In Bowen v. Georgetown University Hospital, the 
Supreme Court ruled that there must be explicit statutory 
authority to engage in retroactive rulemaking.
House Bill
      The provision would bar retroactive application of any 
substantive changes in regulation, manual instructions, 
interpretative rules, statements of policy, or guidelines 
unless the Secretary determines retroactive application is 
needed to comply with the statute or is in the public interest, 
effective upon enactment. No substantive change would go into 
effect until 30 days after the change is issued or published 
unless it would be needed to comply with statutory changes or 
was in the public interest. Compliance actions would be able to 
be taken for items and services furnished only on or after the 
effective date of the change, effective upon enactment. If a 
provider or supplier follows written guidance provided by the 
Secretary or a Medicare contractor when furnishing items or 
services or submitting a claim and the guidance is inaccurate, 
the provider or supplier would not be subject to penalty or 
repayment of overpayment (unless the inaccurate information was 
due to a clerical or technical operational error).
Senate Bill
      Same provisions.
Conference Agreement
      The conference agreement bars retroactive application of 
any substantive changes in regulation, manual instructions, 
interpretative rules, statements of policy, or guidelines 
unless the Secretary determines retroactive application is 
needed to comply with the statute or is in the public interest. 
No substantive change could go into effect until 30 days after 
the change is issued or published unless it is needed to comply 
with statutory changes or in the public interest. Compliance 
actions could be taken for items and services furnished only on 
or after the effective date of the change, effective upon 
enactment. If a provider or supplier follows written guidance 
provided by the Secretary or a Medicare contractor when 
furnishing items or services or submitting a claim and the 
guidance is inaccurate, the provider or supplier is not subject 
to penalty or interest (unless the inaccurate information was 
due to a clerical or technical operational error).
      The conference agreement also makes clear that a provider 
or supplier is not subject to any penalty or interest on a 
repayment plan (including under section 1893 of the Social 
Security Act, relating to the Medicare Integrity Program, or 
otherwise) relating to the provision of such items or services 
or a claim if the provider or supplier reasonably relied on the 
guidance. The conference agreement applies to a sanction 
imposed with respect to guidance provided on or after July 24, 
2003.
Reports and Studies Relating to Regulatory Reform. (Section 904 of the 
        Conference Agreement, Section 904 of the House Bill, Section 
        503 of the Senate Bill).
Present Law
      No provision.
House Bill
      The GAO would be required to study the feasibility and 
appropriateness of the Secretary providing legally binding 
advisory opinions on appropriate interpretation and application 
of Medicare regulations. The report would be due to Congress 1 
year after enactment.
      The Secretary would be required to report to Congress 
every 2 years on the administration of Medicare and areas of 
inconsistency or conflict among various provisions under law 
and regulation. The report would include recommendations for 
legislation or administrative action that the Secretary 
determines appropriate to further reduce such inconsistency or 
conflicts. The first report would be due to Congress 2 years 
after enactment.
Senate Bill
      Requires the Secretary to report to Congress in 2 years, 
and every 3 years thereafter, on the administration of Medicare 
and areas of inconsistency or conflict among various provisions 
under law and regulation and recommendations for legislation or 
administrative action that the Secretary determines appropriate 
to further reduce such inconsistency or conflicts.
Conference Agreement
      The conference agreement requires the GAO to study the 
feasibility and appropriateness of the Secretary providing 
legally binding advisory opinions on appropriate interpretation 
and application of Medicare regulations. The report is due to 
Congress 1 year after enactment.
      The Secretary is required to report to Congress in 2 
years and every 3 years thereafter on the administration of 
Medicare and areas of inconsistency or conflict among various 
provisions under law and regulation. The report is to include 
recommendations for legislation or administrative action that 
the Secretary determines appropriate to further reduce such 
inconsistency or conflicts.
Increased Flexibility in Medicare Administration. (Section 911 of the 
        Conference Agreement, Section 911 of the House Bill, Section 
        521 of the Senate Bill).
Present Law
      The Secretary is authorized to enter into agreements with 
fiscal intermediaries nominated by different provider 
associations to make Medicare payments for health care services 
furnished by institutional providers. For Medicare Part B 
claims, the Secretary is authorized to enter into contracts 
only with health insurers (or carriers) to make Medicare 
payments to physicians, practitioners and other health care 
suppliers. Section 1834(a)(12) of the Act authorizes separate 
regional carriers for the payment of durable medical equipment 
(DME) claims. The Secretary is also authorized to contract for 
certain program safeguard activities under the Medicare 
Integrity Program (MIP).
      Certain terms and conditions of the contracting 
agreements for fiscal intermediaries and carriers are specified 
in the Medicare statute. Medicare regulations coupled with 
long-standing agency practices have further limited the way 
that contracts for claims administration services can be 
established.
      Certain functions and responsibilities of the fiscal 
intermediaries and carriers are specified in the statute as 
well. The Secretary may not require that carriers or 
intermediaries match data obtained in its other activities with 
Medicare data in order to identify beneficiaries who have other 
insurance coverage as part of the Medicare Secondary Payer 
(MSP) program. With the exception of prior authorization of DME 
claims, an entity may not perform activities (or receive 
related payments) under a claims processing contract to the 
extent that the activities are carried out pursuant to a MIP 
contract. Performance standards with respect to the timeliness 
of reviews, fair hearings, reconsiderations and exemption 
decisions are established as well.
      A Medicare contract with an intermediary or carrier may 
require any of its employees certifying or making payments 
provide a surety bond to the United States in an amount 
established by the Secretary. Neither the contractor nor the 
contractor's employee who certifies the amount of Medicare 
payments is liable for erroneous payments in the absence of 
gross negligence or intent to defraud the United States. 
Neither the contractor nor the contractor's employee who 
disburses payments is liable for erroneous payments in the 
absence of gross negligence or intent to defraud the United 
States, if such payments are based upon a voucher signed by the 
certifying employee.
House Bill
      This provision would add a new Section 1874A to the 
Social Security Act and would permit the Secretary to 
competitively contract with any eligible entity to serve as a 
Medicare contractor. The provision would eliminate the 
distinction between Part A contractors (fiscal intermediaries) 
and Part B contractors (carriers) and take the separate 
authorities for fiscal intermediaries and carriers and merge 
them into a single authority for the new contractor. These new 
contractors would be called Medicare Administrative Contractors 
(MACs) and would assume all the functions of the current fiscal 
intermediaries and carriers: determining the amount of Medicare 
payments required to be made to providers and suppliers, making 
the payments, providing education and outreach to 
beneficiaries, providers and suppliers, communicating with 
providers and suppliers, and additional functions as are 
necessary.
      The Secretary would be permitted to renew the MAC 
contracts annually for up to 5 years. All contracts would be 
required to be re-competed at least every 5 years using 
competitive processes. Federal Acquisition Regulations (FAR) 
would apply to these contracts except to the extent any 
provisions are inconsistent with a specific Medicare 
requirement, including incentive contracts. The contracts would 
be required to contain performance requirements that would be 
developed by the Secretary who could consult with beneficiary, 
provider, and supplier organizations, would be consistent with 
written statements of work and would be used for evaluating 
contractor performance. MAC would be required to furnish the 
Secretary such timely information as he may require and to 
maintain and provide access to records the Secretary finds 
necessary. The Secretary could require a surety bond from the 
MAC or certain officers or employees as the Secretary finds 
appropriate. The Secretary would be prohibited from requiring 
that the MAC match data from other activities for Medicare 
secondary payer purposes.
      The provision would limit liability of certifying and 
disbursing officers and the Medicare Administrative Contractors 
except in cases of reckless disregard or the intent to defraud 
the United States. This limitation on liability would not limit 
liability under the False Claims Act. The provision also 
establishes circumstances where contractors and their employees 
would be indemnified, both in the contract and as the Secretary 
determines appropriate.
      The provision would make numerous conforming amendments 
as the authorities for the fiscal intermediaries and carriers 
are stricken. After enactment of the bill, but before October 
1, 2005, the Secretary would be permitted to enter into new 
fiscal intermediary agreements without regard to any of the 
provider nomination provisions.
      The Secretary would be required to submit a report to 
Congress and the GAO by no later than October 1, 2004, that 
describes the plan for implementing these provisions. The GAO 
is required to evaluate the Secretary's plan and, within six 
months of receiving the plan, report on the evaluation to 
Congress and make any recommendations the Comptroller General 
believes appropriate. The Secretary is also required to report 
to Congress by October 1, 2008 on the status of implementing 
the contracting reform provisions including the number of 
contracts that have been competitively bid, the distribution of 
functions among contracts and contractors, a timeline for 
complete transition to full competition, and a detailed 
description of how the Secretary has modified oversight and 
management of Medicare contractors to adapt to full 
competition.
      Competitive bidding for the MACs would be required to 
begin for annual contract periods that begin on or after 
October 1, 2005.
Senate Bill
      Same provision, containing three main differences: First, 
contracts would be required to be recompeted every 6 years. 
Second, a MAC with a contract to perform local coverage 
determinations would be required to designate at least 1 
different individual to serve as a medical director for each 
state for which local coverage determinations are made; use the 
medical director in making the local coverage determinations; 
and appoint a contractor advisory committee for each state for 
which local coverage determinations are made to participate in 
an advisory capacity in the development of the local 
determinations. Finally, competitive bidding for the MACs would 
be required to begin for annual contract periods that begin on 
or after October 1, 2011.
Conference Agreement
      The conference agreement adds a new Section 1874A to the 
Social Security Act into which the Medicare contractor 
authority is consolidated. The conference agreement permits the 
Secretary to competitively contract with any eligible entity to 
serve as a Medicare Administrative Contractor (MAC). The 
conference agreement eliminates the distinction between Part A 
contractors (fiscal intermediaries) and Part B contractors 
(carriers) and takes the separate authorities for fiscal 
intermediaries and carriers and merges them into a single 
authority for the new contractor. All the functions of the 
current fiscal intermediaries and carriers are assumed by the 
new MACs: determining the amount of Medicare payments required 
to be made to providers and suppliers, making the payments, 
providing education and outreach to beneficiaries, providers 
and suppliers, communicating with providers and suppliers, and 
additional functions as are necessary.
      The Secretary is permitted to renew the MAC contracts 
annually for up to 5 years. All contracts must be re-competed 
at least every 5 years using competitive processes. Federal 
Acquisition Regulations (FAR) apply to MAC contracts except to 
the extent any provisions are inconsistent with a specific 
Medicare requirement, including incentive contracts. (The 
conference agreement does not extend FAR provision to other 
contractors under title XVIII.) The Secretary is required to 
develop contract performance requirements to carry out the 
functions described in the provision and to develop standards 
for measuring the extent to which a contractor has met the 
requirements. The Secretary is required to consult with 
beneficiary and provider organizations, and organizations and 
agencies performing other Medicare functions. The Secretary is 
required to make the performance requirements and measurement 
standards available to the public and must include provider and 
beneficiary satisfaction levels as one of the requirements.
      MAC performance requirements are required to be included 
in the contract and consistent with written statements of work 
and used for evaluating contractor performance. MACs are 
required to furnish the Secretary such timely information as he 
may require and to maintain and provide access to records the 
Secretary finds necessary. The Secretary may require a surety 
bond from the MAC or certain officers or employees as the 
Secretary finds appropriate. The Secretary is prohibited from 
requiring that the MAC match data from other activities for 
Medicare secondary payer purposes.
      The conference agreement limits the liability of 
certifying and disbursing officers and the Medicare 
Administrative Contractors except in cases of reckless 
disregard or the intent to defraud the United States. The 
standard does not limit liability for conduct that constitutes 
a violation of the False Claims Act. The conference agreement 
also establishes circumstances where contractors and their 
employees are indemnified, both in the contract and as the 
Secretary determines appropriate.
      The conference agreement makes numerous conforming 
amendments as the statutory authorities for the fiscal 
intermediaries and carriers are stricken. After enactment of 
the bill, but before October 1, 2005, the Secretary is 
authorized to enter into new fiscal intermediary agreements 
without regard to any of the provider nomination provisions 
under section 1816 of the Social Security Act and may enter 
into new carrier contracts. The Secretary is required to take 
such steps as are necessary to provide for an appropriate 
transition from the fiscal intermediary agreements and carrier 
contracts to the MAC contracts. In addition, the Secretary is 
explicitly authorized to continue Medicare Integrity Program 
fiscal intermediary agreements and carrier contracts from the 
enactment of this provision through October 1, 2011.
      The Secretary is required to submit a legislative 
proposal providing technical and conforming amendments to this 
provision to the appropriate committees of Congress within 6 
weeks of enactment. The Secretary is required to submit a 
report to Congress and the GAO by no later than October 1, 
2004, that describes the plan for implementing these 
provisions. The GAO is required to evaluate the Secretary's 
plan and, within 6 months of receiving the plan, report on the 
evaluation to Congress and make any recommendations the 
Comptroller General believes appropriate. The Secretary is also 
required to report to Congress by October 1, 2008, on the 
status of implementing the contracting reform provisions 
including the number of contracts that have been competitively 
bid, the distribution of functions among contracts and 
contractors, a timeline for complete transition to full 
competition, and a detailed description of how the Secretary 
has modified oversight and management of Medicare contractors 
to adapt to full competition.
      Competitive bidding for the MACs would be required to 
begin October 1, 2005 and all contracts should have been bid 
under the new structure by September 30, 2011.
Requirements for Information Security for Medicare Administrative 
        Contractors (Section 912 of the Conference Agreement, Section 
        912 of the House Bill).
Present Law
      No provision.
House Bill
      Medicare administrative contractors (as well as fiscal 
intermediaries and carriers until the MACs are established) 
would be required to implement a contractor-wide information 
security program to provide information security for the 
operation and assets of the contractor for Medicare functions. 
The information security program would be required to meet 
certain requirements for information security programs imposed 
on Federal agencies under title 44 of the United States Code. 
Medicare administrative contractors would be required to 
undergo an annual independent evaluation of their information 
security programs. Existing contractors would be required to 
undergo the first independent evaluation within one year after 
the date of enactment and new contractors would be required to 
have such a program in place before beginning the claim 
determination and payment activities. The results of the 
independent evaluations would be submitted to the Secretary and 
the HHS Inspector General. The Inspector General of HHS would 
be required to report to Congress annually on the results of 
the evaluations. The Secretary would be required to address the 
results of the evaluations in required management reports.
Senate Bill
      No comparable provision.
Conference Agreement
      The conference agreement requires Medicare administrative 
contractors (as well as fiscal intermediaries and carriers 
until the MACs are established) to implement a contractor-wide 
information security program to provide information security 
for the operation and assets of the contractor for Medicare 
functions. The information security program is required to meet 
certain requirements for information security programs imposed 
on Federal agencies under title 44 of the United States Code. 
Medicare administrative contractors are required to undergo an 
annual independent evaluation of their information security 
programs. Current fiscal intermediaries and carriers are 
required to undergo the first independent evaluation within one 
year after the date of enactment and new contractors would be 
required to have such a program in place before beginning the 
claim determination and payment activities. The MACs are 
required to submit the results of the independent evaluations 
to the Secretary and the HHS Inspector General. The Inspector 
General of HHS is required to report to Congress annually on 
the results of the evaluations. The Secretary is required to 
address the results of the evaluations in required management 
reports.
Provider Education and Technical Assistance. (Section 921 of the 
        Conference Agreement, Section 921 of the House Bill, Sections 
        531 and 532 of the Senate Bill).
(a) Coordination of Education Funding.
Present Law
      Medicare's provider education activities are funded 
through the program management appropriation and through 
Education and Training component of the Medicare Integrity 
Program (MIP). Both claims processing contractors (fiscal 
intermediaries and carriers) and MIP contractors may undertake 
provider education activities.
House Bill
      The provision would add Section 1889 to the Social 
Security Act, which would require the Secretary to coordinate 
educational activities through the Medicare contractors to 
maximize the effectiveness of education efforts for providers 
and suppliers and to report to Congress with a description and 
evaluation of the steps taken to coordinate provider education 
funding. The provision would be effective upon enactment. The 
Secretary would be required to report to Congress on the steps 
taken to coordinate the funding of provider education under the 
provision by October 1, 2004.
Senate Bill
      The provision would require the Secretary to coordinate 
educational activities through the Medicare contractors to 
maximize the effectiveness of education efforts for providers 
and suppliers. The provision would be effective upon enactment.
Conference Agreement
      The conference agreement adds section 1889 to the Social 
Security Act requiring the Secretary to coordinate educational 
activities through the Medicare contractors to maximize the 
effectiveness of education efforts for providers and suppliers 
and to report to Congress with a description and evaluation of 
the steps taken to coordinate provider education funding. The 
agreement is effective upon enactment. The Secretary is 
required to report to Congress on the steps taken to coordinate 
the funding of provider education under the provision by 
October 1, 2004.
(b) Incentives to Improve Contractor Performance.
Present Law
      No specific statutory provision. Since FY1996, as part of 
the audit required by the Chief Financial Officers Act, an 
estimate of improper payments in Medicare fee-for-service has 
been established annually. As a recent initiative, CMS is 
implementing a comprehensive error rate-testing program to 
produce national, contractor specific, benefit category 
specific and provider specific paid claim error rates.
House Bill
      The Secretary would be required to use specific claims 
payment error rates (or similar methodology) to provide 
incentives for contractors to implement effective education and 
outreach programs for providers and suppliers. The provision 
would require the Comptroller General to submit to Congress and 
the Secretary a study and to make recommendations on 
theadequacy of the Secretary's methodology by October 1, 2004. The 
Secretary would be required to report to Congress by October 1, 2004 
regarding how he intends to use the methodology in assessing Medicare 
contractor performance.
Senate Bill
      The provision would require the Secretary to use specific 
claims payment error rates (or similar methodology) to provide 
incentives for contractors to implement effective education and 
outreach programs for providers and suppliers by October 1, 
2004. The Conferees agree that any such methodology shall 
include non-responses in the measurement of the error rate. The 
Comptroller General would be required to study the adequacy of 
the methodology and make recommendations to the Secretary. The 
Secretary would be required to report to Congress regarding how 
he intends to use the methodology in assessing Medicare 
contractor performance.
Conference Agreement
      The conference agreement requires the Secretary to use 
specific claims payment error rates (or similar methodology) to 
provide incentives for contractors to implement effective 
education and outreach programs for providers and suppliers. 
The Comptroller General is required to submit to Congress and 
the Secretary a study of the adequacy of the methodology and to 
make recommendations. The Secretary is required to report to 
Congress by October 1, 2004 regarding how he intends to use the 
methodology in assessing Medicare contractor performance.
(c) Provision of Access to and Prompt Responses from Medicare 
        Administrative Contractors.
Present Law
      No specific statutory provision. Statutory provisions 
generally instruct carriers to assist providers and others who 
furnish services in developing procedures relating to 
utilization practices and to serve as a channel of 
communication relating information on program administration. 
Fiscal intermediaries are generally instructed to (1) provide 
consultative services to institutions and other agencies to 
enable them to establish and maintain fiscal records necessary 
for program participation and payment and (2) serve as a center 
for any information as well as a channel for communication with 
providers.
House Bill
      The Secretary would be required to develop a strategy for 
communicating with beneficiaries, providers and suppliers. 
Medicare contractors would be required to provide responses to 
written inquiries that are clear, concise and accurate within 
45 business days of the receipt of the written inquiry. The 
Secretary would be required to ensure that Medicare contractors 
have a toll-free telephone number where beneficiaries, 
providers and suppliers may obtain information regarding 
billing, coding, claims, coverage, and other appropriate 
Medicare information. Medicare contractors would be required to 
maintain a system for identifying the person supplying 
information to beneficiaries, providers, and suppliers and to 
monitor the accuracy, consistency, and timeliness of the 
information provided. The Secretary would be required to 
establish and make public standards to monitor the accuracy, 
consistency, and timeliness of written and telephone responses 
of Medicare contractors as well as to evaluate the contractors 
against these standards. The provision would be effective 
October 1, 2004.
Senate Bill
      Identical provision.
Conference Agreement
      The conference agreement requires the Secretary to 
develop a strategy for communicating with beneficiaries, 
providers and suppliers, beginning October 1, 2004. Medicare 
contractors are required to provide responses to written 
inquiries that are clear, concise and accurate within 45 
business days of the receipt of the written inquiry. The 
Secretary is required to ensure that Medicare contractors have 
a toll-free telephone number where beneficiaries, providers and 
suppliers may obtain information regarding billing, coding, 
claims, coverage, and other appropriate Medicare information. 
Medicare contractors would be required to maintain a system for 
identifying the person supplying information to beneficiaries, 
providers, and suppliers and to monitor the accuracy, 
consistency, and timeliness of the information provided. The 
Secretary is required to establish and make public standards to 
monitor the accuracy, consistency, and timeliness of written 
and telephone responses of Medicare contractors as well as to 
evaluate the contractors against these standards. The 
conference agreement authorizes to be appropriated such sums as 
are necessary to carry out this subsection.
(d) Improved Provider Education and Training.
Present Law
      In FY 2003, approximately $122 million was budgeted by 
CMS for provider education and training.
House Bill
      The provision would authorize $25 million to be 
appropriated from the Medicare Trust Funds for fiscal years 
2005 and 2006, and such sums as necessary for succeeding fiscal 
years for Medicare contractors to increase education and 
training activities for providers and suppliers. Medicare 
contractors would be required to tailor education and training 
activities to meet the special needs of small providers or 
suppliers. The provision defines a small provider as an 
institution with fewer than 25 full-time equivalents (FTEs) and 
a small supplier as one with fewer than 10 FTEs.
Senate Bill
      The provision would provide increased funding for the 
Medicare Integrity Program of $35 million beginning with FY2004 
for increased provider and supplier education. Also would 
require Medicare contractors to take into consideration the 
special needs of small providers or suppliers when conducting 
education and training activities and permits provision of 
technical assistance beginning January 1, 2004.
Conference Agreement
      The conference agreement authorizes such sums as 
necessary to be appropriated for fiscal years beginning with FY 
2005 to be used to increase education and training activities 
for providers and suppliers regarding billing, coding, and 
other appropriate items and may be used to improve the 
accuracy, consistency, and timeliness of contractor responses. 
Beginning October 1, 2004, Medicare contractors are required to 
tailor education and training activities to meet the special 
needs of small providers or suppliers. Technical assistance is 
permitted to be included in the education and training 
activities. The provision defines a small provider as an 
institution with fewer than 25 full-time equivalents (FTEs) and 
a small supplier as one with fewer than 10 FTEs.
(e) Requirement to Maintain Internet Sites.
Present Law
      No statutory provision. CMS and the Medicare contractors 
currently maintain internet sites.
House Bill
      The provision would require that the Secretary and the 
Medicare contractors maintain Internet sites to answer 
frequently asked questions and provide published materials of 
the contractors beginning October 1, 2004.
Senate Bill
      No provision.
Conference Agreement
      Beginning October 1, 2004, the conference agreement 
requires the Secretary and the Medicare contractors to maintain 
Internet sites to answer frequently asked questions and provide 
published materials of the contractors.
(f) Additional Provider Education Provisions.
Present Law
      No provision.
House Bill
      The provision would bar Medicare contractors from using a 
record of attendance (or non-attendance) at educational 
activities to select or track providers or suppliers in 
conducting any type of audit or prepayment review. The 
provision would not require Medicare contractors to disclose 
information that would compromise law enforcement activities or 
reveal findings of law enforcement-related audits. This 
provision would be effective upon enactment.
Senate Bill
      The provision would bar Medicare contractors from using a 
record of attendance (or non-attendance) at educational 
activities to select or track providers or suppliers in 
conducting any type of audit or prepayment review. The 
provision would not require Medicare contractors to disclose 
the screens used for identifying claims that will be subject to 
medical review or information that would compromise pending law 
enforcement activities or reveal findings of law enforcement-
related audits. This provision would be effective upon 
enactment.
Conference Agreement
      The conference agreement bars Medicare contractors from 
using a record of attendance (or non-attendance) at educational 
activities to select or track providers or suppliers in 
conducting any type of audit or prepayment review. Nothing in 
section 1889 or 1893(g) shall be construed as providing for 
disclosure by a Medicare contractor of the screens used for 
identifying claims that will be subject to medical review or of 
information that would compromise pending law enforcement 
activities or reveal findings of law enforcement-related 
audits. The agreement is effective upon enactment.
Small Provider Technical Assistance Demonstration Program. (Section 922 
        of the Conference Agreement, Section 922 of the House Bill).
Present Law
      No provision.
House Bill
      The Secretary would be required to establish a 
demonstration program to provide technical assistance to small 
providers and suppliers, when they have requested the 
assistance, to improve compliance with Medicare requirements. 
If errors are found, the Secretary would be barred from 
recovering any overpayments barring evidence of fraud and if 
the problem that is the subject of the compliance review has 
been satisfactorily corrected within 30 days and the problem 
remains corrected. Providers participating would be expected to 
pay 25 percent of the cost of the technical assistance. A GAO 
study would be required not later than 2 years after the 
demonstration program begins. Appropriations would be 
authorized for $1 million for FY 2005 and $6 million for FY 
2006 to carry out the demonstration.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement requires the Secretary to 
establish a demonstration program to provide technical 
assistance to small providers and suppliers, when they have 
requested the assistance, in order to improve compliance with 
Medicare requirements. Technical assistance includes direct and 
in-person examination of billing systems and internal controls 
to determine program compliance and to suggest more efficient 
or effective means of achieving compliance. Providers 
participating are expected to pay 25 percent of the cost of the 
technical assistance. Appropriations of such sums as may be 
necessary to carry out this demonstration program areauthorized 
from amounts not otherwise appropriated in the Treasury. The GAO is 
required to evaluate the demonstration no later than 2 years after it 
begins and submit a report to the Congress and the Secretary. The GAO 
is required to include in the report recommendations regarding the 
continuation or extension of the demonstration.
Medicare Provider Ombudsman; Medicare Beneficiary Ombudsman. (Section 
        923 of the Conference Agreement, Section 923 of the House Bill, 
        Sections 301 and 534 of the Senate Bill).
Present Law
      No provision.
House Bill
      A Medicare Provider Ombudsman would be required to be 
appointed by the Secretary and located within the Department of 
Health and Human Services. The Provider Ombudsman would be 
required to provide confidential assistance to providers and 
suppliers regarding complaints, grievances, requests for 
information, and resolution of unclear or conflicting guidance 
about Medicare. The Ombudsman would submit recommendations to 
the Secretary regarding improving the administration of 
Medicare, addressing recurring patterns of confusion under 
Medicare, and ways to provide for an appropriate and consistent 
response in cases of self-identified overpayments by providers 
and suppliers. Such sums, as necessary, would be authorized and 
be appropriated for FY 2004 and subsequent years.
      A Medicare Beneficiary Ombudsman would be required to be 
appointed by the Secretary and located within HHS. The 
Secretary would be required to appoint both ombudsmen not later 
than one year from the date of enactment. The Beneficiary 
Ombudsman would be required to have expertise and experience in 
health care, education of, and assistance to Medicare 
beneficiaries. The Beneficiary Ombudsman would be required to 
receive complaints, grievances, and requests for information 
submitted by Medicare beneficiaries. The Beneficiary Ombudsman 
would also be required to assist beneficiaries in collecting 
relevant information to seek an appeal of a decision or 
determination made by the Secretary, a Medicare contractor, or 
a Medicare+Choice organization and assisting a beneficiary with 
any problems arising from disenrolling in a Medicare+Choice 
plan and with presenting income information for purposes 
relating to the prescription drug benefit. The Beneficiary 
Ombudsman would be required to work with state Health Insurance 
Counseling Programs, to the extent possible.
      Such sums as are necessary are authorized to be 
appropriated for FY 2004 and each succeeding fiscal year to 
carry out the ombudsmen provisions.
      This provision would also require the use of 1-800-
MEDICARE for all individuals seeking information about, or 
assistance with Medicare. Rather than listing individual 
telephone numbers for Medicare contractors in the Medicare 
handbook, only 1-800-MEDICARE would be shown. The Comptroller 
General would be required to study the accuracy and consistency 
of information provided by the 1-800-MEDICARE line and to 
assess whether the information sufficiently answers the 
questions of beneficiaries. The report on the study would be 
required to be submitted to Congress not later than one year 
after enactment.
Senate Bill
      Same provisions.
Conference Agreement
      The conference agreement creates a new section 1810 
establishing a Medicare Beneficiary Ombudsman. The Secretary is 
required to appoint an Ombudsman with expertise and experience 
in the fields of health care and education of (and assistance 
to) Medicare beneficiaries not later than 1 year after the date 
of enactment. The Ombudsman will receive complaints, 
grievances, and requests for information from Medicare 
beneficiaries, and provide assistance in these matters and 
matters relating to appeals decisions made by Medicare 
contractors, Medicare+Choice organizations or the Secretary, as 
well as assistance to beneficiaries with any problems 
disenrolling from a Medicare+Choice plan. In addition, the 
Ombudsman will assist beneficiaries in presenting information 
relating to the income-related premium adjustment. The 
Beneficiary Ombudsman is required to work with State Health 
Insurance Counseling Programs, to the extent possible. The 
Ombudsman is prohibited from advocating for any increases in 
payment or new coverage of services, but may identify issues 
and problems in payment or coverage policies.
      Appropriations are authorized to be appropriated in such 
sums as are necessary for FY 2004 and each succeeding fiscal 
year to carry out the Beneficiary Ombudsman provision.
      The conference agreement also requires making 1-800-
MEDICARE available to all individuals seeking information 
about, or assistance with, Medicare. Rather than listing 
individual telephone numbers for Medicare contractors in the 
Medicare handbook, only 1-800-MEDICARE would be shown. The 
Comptroller General is required to study the accuracy and 
consistency of information provided on the 1-800-MEDICARE line 
and to assess whether the information sufficiently answers the 
questions of beneficiaries. The report on the study is due to 
Congress not later than one year after enactment.
      It is the intent of the Conferees that Medicare 
beneficiaries have access to prescription drugs for the 
treatment of mental illness and neurological diseases resulting 
in severe epileptic episodes under the new provisions of Part 
D. To fulfill this purpose the Administrator of the Center for 
Medicare Choices shall take the appropriate steps before the 
first open enrollment period to ensure that Medicare 
beneficiaries have clinically appropriated access to 
pharmaceutical treatments for mental illness, including but not 
limited to schizophrenia, bipolar disorder, depression, anxiety 
disorder, dementia, and attention deficit disorder/attention 
deficit hyperactivity disorder and neurological illnesses 
resulting in epileptic episodes.
      The conferees anticipate that disabled individuals will 
enroll in one of the many private sector prescription drug 
plans or MA-PD plans. Competition will necessitate plans 
offering the full complement of medicines, including atypical 
antipsychotics, to treat the severely mentally ill. If a plan 
chooses not to offer or restrict access to a particular 
medication to treat the mentally ill, the disabled will have 
the freedom to choose a plan that has appropriate access to the 
medicine needed. The Conferees believe this is critical as the 
severely mentally ill are a unique population with unique 
prescription drug needs as individual responses to mental 
health medications are different.
Beneficiary Outreach Demonstration Program. (Section 924 of the 
        Conference Agreement, Section 924 of the House Bill, Section 
        535 of the Senate Bill).
Present Law
      No provision.
House Bill
      The Secretary would be required to conduct a 3-year 
demonstration program where Medicare specialists would provide 
assistance to beneficiaries in at least 6 local Social Security 
offices (2 would be located in rural areas) that have a high 
volume of visits by Medicare beneficiaries. The Secretary would 
be required to evaluate the results of the demonstration 
regarding the feasibility and cost-effectiveness of permanently 
out-stationing Medicare specialists at local Social Security 
offices and report to Congress. The provision would be 
effective upon enactment.
Senate Bill
      Same provision.
Conference Agreement
      The conference agreement requires the Secretary to 
conduct a 3-year demonstration program where Medicare 
specialists would provide assistance to beneficiaries in at 
least 6 local Social Security offices (2 would be located in 
rural areas) that have a high volume of visits by Medicare 
beneficiaries. The Secretary is required to evaluate the 
results of the demonstration regarding the feasibility and 
cost-effectiveness of permanently out-stationing Medicare 
specialists at local Social Security offices and report to 
Congress. The agreement is effective upon enactment.
Inclusion of Additional Information in Notices to Beneficiaries About 
        Skilled Nursing Facility Benefits. (Section 925 of the 
        Conference Agreement, Section 925 of the House Bill, Section 
        551 of the Senate Bill).
Present Law
      Although the statute requires that beneficiaries receive 
a statement listing the items and services for which payment 
has been made, there is no explicit statutory instruction that 
requires the notice to include information about the number of 
days of coverage remaining in either the hospital or skilled 
nursing facility (SNF) benefit or the spell of illness.
House Bill
      The Secretary would be required to provide information 
about the number of days of coverage remaining under the SNF 
benefit and the spell of illness involved in the explanation of 
Medicare benefits. The provision would be effective for notices 
provided during calendar quarters beginning more than 6 months 
after the date of enactment.
Senate Bill
      Same provision.
Conference Agreement
      The conference agreement requires the Secretary to 
provide information about the number of days of coverage 
remaining under the SNF benefit and the spell of illness 
involved in the explanation of Medicare benefits. The agreement 
applies to notices provided during calendar quarters beginning 
more than 6 months after the date of enactment.
Information on Medicare-Certified Skilled Nursing Facilities in 
        Hospital Discharge Plans. (Section 926 of the Conference 
        Agreement, Section 926 of the House Bill, Section 552 of the 
        Senate Bill).
Present Law
      The hospital discharge planning process requires 
evaluation of a patient's likely need for post-hospital 
services including hospice and home care.
House Bill
      The Secretary would be required to make information 
publicly available regarding whether SNFs are participating in 
the Medicare program. Hospital discharge planning would be 
required to evaluate a patient's need for SNF care.
      The provision would apply to discharge plans made on or 
after the date specified by the Secretary, but not later than 
six months after the Secretary provides information regarding 
SNFs that participate in the Medicare program.
Senate Bill
      Same provision.
Conference Agreement
      The conference agreement requires the Secretary to make 
information publicly available regarding whether SNFs are 
participating in the Medicare program. Hospital discharge 
planning is required to evaluate a patient's need for SNF care.
      The agreement applies to discharge plans made on or after 
the date specified by the Secretary, but not later than six 
months after the Secretary provides information regarding SNFs 
that participate in the Medicare program.
Transfer of Responsibility for Medicare Appeals. (Section 931 of the 
        Conference Agreement, Section 931 of the House Bill, Sections 
        511 and 519 of the Senate Bill).
Present Law
      Denials of claims for Medicare payment may be appealed by 
beneficiaries (or providers who are representing the 
beneficiary) or in certain circumstances, providers or 
suppliers directly. The third level of appeal is to an 
administrative law judge (ALJ). The ALJs that hear Medicare 
cases are employed by the Social Security Administration--a 
legacy from the inception of the Medicare program when Medicare 
was part of Social Security. BIPA section 522 requires that 
appeals of local coverage determinations be heard by ALJs of 
the Social Security Administration (SSA). As a result, if the 
ALJ function were moved from SSA to HHS, these local coverage 
determination appeals would still need to be heard by SSA ALJs.
House Bill
      The Secretary and the Commissioner of the Social Security 
Administration (SSA) would be required to develop a plan to 
transfer the functions of the administrative law judges (ALJs) 
who are responsible for hearing Medicare cases from SSA to HHS. 
This plan would be due to Congress not later than October 1, 
2004. A GAO evaluation of the plan would be due within 6 months 
of plan's submission. ALJ functions would be transferred no 
earlier than July 1, 2005 and no later than October 1, 2005.
      The Secretary would be required to place the ALJs in an 
administrative office that is organizationally and functionally 
separate from the Centers for Medicare & Medicaid Services and 
the ALJs would be required to report to, and be under the 
general supervision of the Secretary. No other official within 
the Department would be permitted to supervise the ALJs. The 
Secretary would be required to provide for appropriate 
geographic distribution of ALJs, would have the authority to 
hire ALJs and support staff, and would be required to enter 
into arrangements with the Commissioner, as appropriate, to 
share office space, support staff and other resources with 
appropriate reimbursement.
      Authorizes to be appropriated such sums as are necessary 
for FY2005 and each subsequent fiscal year to increase the 
number of ALJs, improve education and training of ALJs and to 
increase the staff of the Departmental Appeals Board (the final 
level of appeal).
Senate Bill
      The Secretary and Commissioner of Social Security would 
be required to develop and transmit to Congress and the 
Comptroller General a plan for transferring the functions of 
administrative law judges (ALJs) responsible for hearing cases 
under Medicare from the Social Security Administration to HHS 
no later than April 1, 2004. The plan would be required to 
include information on: workload; cost projections and 
financing; transition timetable; regulations; development of a 
case tracking system; feasibility of precedential authority; 
feasibility of electronic appeals filings and teleconference; 
steps needed to assure independence of ALJs, including assuring 
that they are in an office that is operationally and 
functionally separate from the Centers for Medicare & Medicaid 
Services and the Center for Medicare Choices; geographic 
distribution of ALJs; steps for hiring ALJs; performance 
standards of ALJs; sharing resources with Social Security 
regarding ALJs; training; and recommendations for further 
Congressional action. The GAO would be required to evaluate the 
Secretary's and Commissioner's plan and report to Congress on 
the result of the evaluation within 6 months of receiving the 
plan. The Secretary would be prohibited from implementing the 
plan developed until no earlier than 6 month after the GAO 
report.
      The statutory language that requires SSA ALJs be used to 
hear appeals of local coverage determinations would be 
eliminated. The requirement that these appeals be heard by ALJs 
would be retained. The provision would be effective upon 
enactment.
Conference Agreement
      The conference agreement requires the Secretary and the 
Commissioner of Social Security to develop a plan to transfer 
the administrative law judge function from SSA to HHS for 
Medicare appeals. Their plan is due to Congress and the 
Comptroller General not later than April 1, 2004. The plan is 
required to include information on: anticipated workload and 
staffing requirements; funding requirements; transition 
timetable; regulations; case tracking system; feasibility of 
developing a process to give Department Appeals Board decisions 
binding precedential authority; feasibility of filing appeals 
with ALJs electronically and conducting hearings using tele- or 
video-conferencing technologies; steps that should be taken to 
ensure the independence of ALJs; steps that should be taken to 
provide for an appropriate geographic distribution of ALJs 
throughout the United States; steps that should be taken to 
hire ALJs and support staff; appropriateness of establishing 
performance standards; steps that should be taken to carry out 
any needed shared resources with SSA; needed training; and any 
additional recommendations for further Congressional action.
      A GAO evaluation of the plan is required within 6 months 
of the plan's submission. ALJ functions are required to be 
transferred no earlier than July 1, 2005 and no later than 
October 1, 2005.
      The Secretary is required to place the ALJs in an 
administrative office that is organizationally and functionally 
separate from the Centers for Medicare & Medicaid Services and 
the ALJs would be required to report to, and be under the 
general supervision of the Secretary. No other official within 
the Department is permitted to supervise the ALJs. The 
Secretary is required to provide for appropriate geographic 
distribution of ALJs, would have the authority to hire ALJs and 
support staff, and is required to enter into arrangements with 
the Commissioner, as appropriate, to share office space, 
support staff and other resources with appropriate 
reimbursement.
      In addition to any amounts otherwise appropriated, the 
agreement authorizes to be appropriated such sums as are 
necessary for 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).
      The conference agreement strikes the statutory language 
that requires SSA ALJs be used to hear appeals of local 
coverage determinations. The requirement that these appeals be 
heard by ALJs is retained. This provision is effective upon 
enactment.
Process for Expedited Access to Review. (Section 932 of the Conference 
        Agreement, Section 932 of the House Bill, Sections 512 and 513 
        of the Senate Bill).
Present Law
      In general, administrative appeals must be exhausted 
prior to judicial review. The statute requires the automatic 
suspension of nurse aide training programs in skilled nursing 
facilities thathave been subject to extended survey (that is, 
found to provide substandard care), have had serious sanctions imposed, 
or have waivers for required licensed nurse staffing.
House Bill
      The Secretary would be required to establish a process 
where a provider, supplier, or a beneficiary may obtain 
expedited access to judicial review when a 3-member review 
panel (composed of ALJs, members of the Departmental Appeals 
Board, or qualified individuals from qualified independent 
contractors designated by the Secretary) determines, within 60 
days of a complete written request, that it does not have the 
authority to decide the question of law or regulation and where 
material facts are not in dispute. The decision would not be 
subject to review by the Secretary. Interest would be assessed 
on any amount in controversy and would be awarded by the 
reviewing court in favor of the prevailing party. This 
expedited access to judicial review would also be permitted for 
cases where the Secretary does not enter into or renew provider 
agreements.
      Expedited review would also be established for certain 
remedies imposed against SNFs. The remedies in the provision 
are termination of participation, denial of payments, and 
imposition of temporary management. The Secretary would be 
required to develop a process for reinstating approval of nurse 
aide training programs that have been terminated (before the 
end of the mandatory 2-year disapproval period) if the only 
reason for the termination was the assessment of a civil money 
penalty of $5,000 or more. The appropriation of such sums as 
needed for FY2005 and subsequent years would be authorized to 
reduce by 50% the average time for administrative 
determinations, to increase the number of ALJs and appellate 
staff at the DAB, and to educate these judges and their staffs 
on long-term care issues. This provision would be effective for 
appeals filed one or after October 1, 2004.
Senate Bill
      The Secretary would be required to establish a process 
where a provider, supplier, or a beneficiary may obtain 
expedited access to judicial review when a review entity (up to 
3 qualified reviewers drawn from the ALJs or Departmental 
Appeals Board) determines, within 60 days of a complete written 
request, that it does not have the authority to decide the 
question of law or regulation and where material facts are not 
in dispute. The decision would not be subject to review by the 
Secretary. Interest would be assessed on any amount in 
controversy and is awarded by the reviewing court in favor of 
the prevailing party. Expedited access to judicial review would 
be permitted for cases where the Secretary does not enter into 
or renew provider agreements. The provision would be effective 
for appeals filed on or after October 1, 2004.
      The Secretary also would be required to develop and 
implement a process to expedite review for certain remedies 
imposed against skilled nursing facilities (SNFs): termination 
of participation, immediate denial of payments, immediate 
imposition of temporary management, and suspension of nurse 
aide training programs.
      This provision would authorize the appropriation of such 
sums as needed for FY2004 and subsequent years to reduce by 50% 
the average time for administrative determinations, to increase 
the number of ALJs and appellate staff at the DAB, and to 
educate these judges and their staffs on long-term care issues.
      The Comptroller General would be required to report to 
Congress on the access of Medicare beneficiaries and health 
care providers to judicial review of actions of the Secretary 
and HHS after February 29, 2000 (the date of the decision of 
Shalala v. Illinois Council on Long Term Care, Inc. (529 U.S. 1 
(2000)). The report would be due not later than one year after 
enactment.
Conference Agreement
      The conference agreement requires the Secretary to 
establish a process where a provider, supplier, or a 
beneficiary may obtain access to judicial review when a review 
entity (up to 3 qualified reviewers drawn from the ALJs or 
Departmental Appeals Board) determines, within 60 days of a 
complete written request, that it does not have the authority 
to decide the question of law or regulation and where material 
facts are not in dispute. The decision is subject to review by 
the Secretary. Interest is assessed on any amount in 
controversy and is awarded by the reviewing court in favor of 
the prevailing party. Expedited access to judicial review is 
permitted for cases where the Secretary does not enter into or 
renew provider agreements. The conference agreement is 
effective for appeals filed on or after October 1, 2004.
      The agreement requires the Secretary to establish a 
process to expedite appeals of provider terminations and 
certain other remedies imposed on skilled nursing facilities, 
including denial of payment for new admissions and temporary 
management, if imposed on an immediate basis. Providers who are 
subject to the remedies of denial of payment or temporary 
management may only access the expedited process when these 
remedies are imposed on an immediate basis and where the 
facility has no opportunity to correct the deficiency. The 
agreement would also allow an expedited appeal where a finding 
of substandard quality of care has resulted in the disapproval 
of a skilled nursing facility's nurse aide training program. 
The agreement requires the Secretary to give priority to cases 
where termination has been imposed on a provider.
      The agreement includes a provision allowing the Secretary 
to waive disapproval of a nurse aide training program, upon 
application by a nursing facility if the disapproval resulted 
from the imposition of a civil monetary penalty that was not 
related to quality of care provided to residents of the 
facility. Quality of care in such instances refers to direct, 
hands on care provided to residents of a facility. This 
agreement does not permit the Secretary to waive the CMP.
      In addition to any amounts otherwise appropriated, the 
conference agreement authorizes the appropriation of such sums 
as needed for FY2004 and subsequent years in order to reduce by 
50% the average time for administrative determinations, to 
increase the number of ALJs and appellate staff at the DAB, and 
to educate these judges and their staffs on long-term care 
issues.
Revisions to Medicare Appeals Process. (Section 933 of the Conference 
        Agreement, Section 933 of the House Bill, Section 514 of the 
        Senate Bill).
(a) Requiring Full and Early Presentation of Evidence
Present Law
      No provision. New evidence can be presented at any stage 
of the appeals process.
House Bill
      The provision would require providers and suppliers to 
present all evidence for an appeal at the reconsideration level 
that is conducted by a qualified independent contractor (QIC) 
unless good cause precluded the introduction of the evidence. 
The provision would be effective October 1, 2004.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement requires providers and suppliers 
to present all evidence for an appeal at the reconsideration 
level that is conducted by a qualified independent contractor 
(QIC) unless good cause precluded the introduction of the 
evidence. The conference agreement provision is effective 
October 1, 2004.
(b) Use of Patients' Medical Records
Present Law
      No provision.
House Bill
      The provision would provide for the use of beneficiaries' 
medical records in appeals reconsiderations by qualified 
independent contractors (QICs). The provision would be 
effective upon enactment.
Senate Bill
      Beneficiaries' medical records would be able to be used 
in appeals reconsiderations by qualified independent 
contractors. The provision would be effective upon enactment.
Conference Agreement
      The conference agreement provides for the use of 
beneficiaries' medical records in appeals reconsiderations by 
QICs. The conference agreement is effective upon enactment.
(c) Notice Requirements for Medicare Appeals
Present Law
      No statutory provision. Determinations and denials of 
appeals currently include the policy, regulatory, or statutory 
reason for the denial and information on how to appeal the 
denial. The Benefits Improvement and Protection Act (BIPA) of 
2000, changed the appeals process and created a new independent 
review (the qualified independent contractors or QICs), which 
has not yet been implemented.
House Bill
      The provision would require that when claims are denied 
the written notice of determination include the reasons for the 
determination, including whether a local medical review policy 
or a local coverage determination was used; the procedures for 
obtaining additional information concerning the determination 
including, when requested, the specific provision of the 
policy, manual, or regulation used in making the determination; 
and notification of the right to seek an appeal and 
instructions for appealing the determination.
      In the case when a redetermination (the first level of 
appeal) is denied, the written notice would be required to 
include: the specific reasons for the redetermination; as 
appropriate, a summary of the clinical or scientific evidence 
used in making the redetermination; a description of the 
procedures for obtaining additional information concerning the 
redetermination. The notice would be required to be written in 
a manner calculated to be understood by a beneficiary. A 
beneficiary receiving such a notice would be permitted to 
request and receive information on the specific provision of 
the policy, manual, or regulation used in making the 
redetermination.
      In the case when a reconsideration (the second level of 
appeal) is decided, the written notice would be required to be 
written in a manner calculated to be understood by the 
beneficiary and information regarding appeal rights and 
processes provided.
      For appeals (to either the ALJ or Departmental Appeals 
Board (DAB)), the notice of the decision would be required to 
be in writing and written in a manner calculated to be 
understood by the beneficiary, to include the specific reasons 
for the determination, including to the extend appropriate a 
summary of the clinical or scientific evidence used in making 
the determination; the procedures for obtaining additional 
information regarding the decision; and notification of the 
right to appeal and how to initiate such an appeal. The 
provision also requires that the qualified independent 
contractor submit information that is needed for an appeal of a 
decision.
Senate Bill
      The provision would require that when claims are denied, 
the written notice of the decision at every level of the appeal 
or with the initial determination would be required to be 
written in a manner to be understood by the beneficiary and 
include notification of the right to appeal the decision and 
instruction on how to initiate an appeal.
      In addition, the determination would be required to 
include the reasons for the determination including, as 
appropriate, the provision of the policy, manual, or regulation 
that resulted in the denial if requested; and the procedures 
for obtaining additional information concerning the 
determination.
      In the case when a redetermination (the first level of 
appeal) is denied, the written notice would be required to 
include: the reasons for the decision and, as appropriate, the 
provision of the policy, manual, or regulation that resulted in 
the denial if requested, and a summary of the clinical or 
scientific evidence used in making the redetermination; and a 
description of the procedures for obtaining additional 
information concerning the redetermination.
      In the case when a reconsideration (the second level of 
appeal) is decided, the written notice would be required to 
include a detailed explanation of the decision as well as a 
discussionof the pertinent facts and applicable regulations 
applied in making the decision, to the extent appropriate; and in the 
case of a decision regarding whether an item or service is reasonable 
and necessary for the diagnosis or treatment of illness or injury, an 
explanation of the medical or scientific rationale for the decision.
      For appeals (to either the ALJ or Departmental Appeals 
Board (DAB)), the notice of the decision would be required to 
include the specific reasons for the determination including, 
to the extent appropriate, a summary of the clinical or 
scientific evidence used in making the determination; and the 
procedures for obtaining additional information concerning the 
decision.
Conference Agreement
      The conference agreement requires that when claims are 
denied in either the initial determination or in subsequent 
appeals, a written notice of the decision is required and to be 
written in a manner calculated to be understood by the 
beneficiary and to include notification of the right to appeal 
the decision and instruction on how to initiate an appeal.
      In addition, the determination is required to include the 
reasons for the determination, including whether a local 
medical review policy or a local coverage determination was 
used; and the procedures for obtaining additional information 
concerning the determination including, when requested, the 
specific provision of the policy, manual, or regulation used in 
making the determination.
      In the case when a redetermination (the first level of 
appeal) is denied, the written notice is required to include: 
the specific reasons for the redetermination; as appropriate, a 
summary of the clinical or scientific evidence used in making 
the redetermination; a description of the procedures for 
obtaining additional information concerning the 
redetermination. A beneficiary receiving such a notice is 
permitted to request and receive information on the specific 
provision of the policy, manual, or regulation used in making 
the redetermination.
      In the case when a reconsideration (the second level of 
appeal) is decided, the written notice is required to be 
written in a manner calculated to be understood by the 
beneficiary and information regarding appeal rights and 
processes provided.
      For appeals (to either the ALJ or Departmental Appeals 
Board (DAB)), the notice of the decision is required to be in 
writing and written in a manner calculated to be understood by 
the beneficiary, to include the specific reasons for the 
determination, including to the extend appropriate a summary of 
the clinical or scientific evidence used in making the 
determination; the procedures for obtaining additional 
information regarding the decision; and notification of the 
right to appeal and how to initiate such an appeal.
      The conference agreement also requires that the qualified 
independent contractor submit information that is needed for an 
appeal of a decision. The conference agreement is effective 
upon enactment.
(d) Qualified Independent Contractors
Present Law
      BIPA established a new and independent second level of 
appeal called the qualified independent contractors (QICs). 
BIPA called for at least 12 QICs. The QICs have not yet been 
implemented.
House Bill
      The provision would clarify eligibility requirements for 
qualified independent contractors and their reviewer employees 
including medical and legal expertise, independence 
requirements, and the prohibition on compensation being linked 
to decisions rendered. The required number of qualified 
independent contractors would be reduced from not fewer than 12 
to not fewer than 4. The provisions regarding the eligibility 
requirements of QICs and QIC reviews would be effective as if 
included in the enactment of BIPA.
Senate Bill
      The provision would clarify eligibility requirements for 
qualified independent contractors and their reviewer employees 
including medical and legal expertise, independence 
requirements, and prohibitions on compensation being linked to 
decisions rendered. The required minimum number of qualified 
independent contractors would be reduced from 12 to 4.
      In addition, the provision would delay the effective date 
of certain appeals provisions until December 1, 2004. Expedited 
determinations would be delayed until October 1, 2003. The 
provision would allow the transitional use of peer review 
organizations (now called quality improvement organizations by 
the Secretary) to conduct expedited determinations until the 
QICs are operating.
Conference Agreement
      The conference agreement clarifies eligibility 
requirements for qualified independent contractors and their 
reviewer employees including medical and legal expertise, 
independence requirements, and the prohibition on compensation 
being linked to decisions rendered. The required number of 
qualified independent contractors is reduced from not fewer 
than 12 to not fewer than 4. The provisions regarding the 
eligibility requirements of QICs and QIC reviews are effective 
as if included in the enactment of BIPA.
Implementation of Certain BIPA Effective Dates
Present Law
      The BIPA claims appeals provisions were effective October 
1, 2002 but have not been implemented.
House Bill
      No provision.
Senate Bill
      The provision would delay the effective date of certain 
appeals provisions until December 1, 2004. Expedited 
determinations would be delayed until October 1, 2003. The 
provision would allow the transitional use of peer review 
organizations (now called quality improvement organizations by 
the Secretary) to conduct expedited determinations until the 
QICs are operating.
Conference Agreement
      No provision.
Prepayment Review. (Section 934 of the Conference Agreement, Section 
        934 of the House Bill, Section 541 of the Senate Bill).
Present Law
      No explicit statutory instruction. Under administrative 
authorities, CMS has instructed the contractors to use random 
prepayment reviews to develop contractor-wide and program-wide 
error rates. Non-random payment reviews are permitted in 
certain circumstances laid out in instructions to the 
contractors.
House Bill
      Medicare contractors would be permitted to conduct random 
prepayment reviews only to develop a contractor-wide or 
program-wide error rate or such additional circumstances as the 
Secretary provides for in regulations that were developed in 
consultation with providers and suppliers. Random prepayment 
review would only be permitted in accordance with standard 
protocol developed by the Secretary. Nonrandom payment reviews 
would be permitted only when there was a likelihood of 
sustained or high level of payment error. The Secretary would 
be required to issue regulations regarding the termination and 
termination dates of non-random prepayment review. Variation in 
termination dates would be permitted depending upon the 
differences in the circumstances triggering prepayment review.
      The Secretary would be required to issue the required 
regulations not later than one year after enactment. The 
provision regarding the use of standard protocols when 
conducting prepayment reviews would apply to random prepayment 
reviews conducted on or after the date specified by the 
Secretary (but not later than one year after enactment). The 
remaining provisions would be effective one year after 
enactment.
Senate Bill
      The conduct of random prepayment review would be limited 
only to those done in accordance with a standard protocol 
developed by the Secretary. Non-random reviews would be 
prohibited unless a likelihood of sustained or high level of 
payment error (as defined by the Secretary) existed and the 
Secretary would be required to establish protocols for 
terminating the non-random reviews within one year of 
enactment. The Secretary would be required to publish 
implementing regulations and develop and publish protocols not 
later than one year after enactment. The provision would be 
effective for random reviews conducted on or after the date 
specified by the Secretary (but not later than one year after 
enactment).
Conference Agreement
      The conference agreement permits Medicare contractors to 
conduct random prepayment reviews only to develop a contractor-
wide or program-wide error rate or such additional 
circumstances as the Secretary provides for in regulations that 
are developed in consultation with providers and suppliers. 
Random prepayment reviews are only permitted in accordance with 
standard protocol developed by the Secretary. Nonrandom payment 
reviews are permitted only when there is a likelihood of 
sustained or high level of payment error. The Secretary is 
required to issue regulations regarding the termination and 
termination dates of non-random prepayment review. Variation in 
termination dates is permitted depending upon the differences 
in the circumstances triggering prepayment review.
      The Secretary is required to issue the required 
regulations not later than 1 year after enactment. The 
provision regarding the use of standard protocols when 
conducting prepayment reviews applies to random prepayment 
reviews conducted on or after the date specified by the 
Secretary (but not later than 1 year after enactment). The 
remaining provisions are effective 1 year after enactment.
Recovery of Overpayments. (Section 935 of the Conference Agreement, 
        Section 935 of the House Bill, Section 542 of the Senate Bill).
Present Law
      No explicit statutory instruction. Under administrative 
authorities, CMS negotiates extended repayment plans with 
providers that need additional time to repay Medicare 
overpayments.
House Bill
      In situations where repaying a Medicare overpayment 
within 30 days would be a hardship for a provider or supplier, 
the Secretary would be required to enter into an extended 
repayment plan of at least 6 months duration. The repayment 
plan would not be permitted to go beyond 3 years (or 5 years in 
the case of extreme hardship, as determined by the Secretary). 
Interest would be required to accrue on the balance through the 
repayment period. Hardship would be defined if, for providers 
that file cost reports, the aggregate amount of the overpayment 
exceeded 10 percent of the amount paid by Medicare to the 
provider for the time period covered by the most recently 
submitted cost report. In the case of a provider or supplier 
that is not required to file a cost report, hardship would be 
defined if the aggregate amount of the overpayment exceeded 10 
percent of the amount paid under Medicare for the previous 
calendar year. The Secretary would be required to develop rules 
for the case of a provider or supplier that was not paid under 
Medicare during the previous year or for only a portion of the 
year. Any other repayment plans that a provider or supplier has 
with the Secretary, would not be taken into account by the 
Secretary in calculating hardship. If the Secretary has reason 
to suspect that the provider or supplier may file for 
bankruptcy or otherwise cease to do business or discontinue 
participation in Medicare or there is an indication of fraud or 
abuse, the Secretary would not be obligated to enter into an 
extended repayment plan with the provider or supplier. If a 
provider or supplier fails to make a payment according to the 
repayment plan, the Secretary would be permitted to immediately 
seek to offset or recover the total outstanding balance of the 
repayment plan, including interest.
      The Secretary would be prohibited from recouping any 
overpayments until a reconsideration-level appeal (or a 
redetermination by the fiscal intermediary or carrier if the 
QICs are not yet in place) was decided, if a reconsideration 
was requested. Interest would be required to be paid to the 
provider if the appeal was successful (beginning from the time 
the overpayment is recouped) or that interest would be required 
to be paid to the Secretary if the appeal was unsuccessful (and 
if the overpayment was not paid to the Secretary).
      Extrapolation would be limited to those circumstances 
where there is a sustained or high level of payment error, as 
defined by the Secretary in regulation, or documented 
educational intervention has failed to correct the payment 
error.
      Medicare contractors would be permitted to request the 
periodic production of records or supporting documentation for 
a limited sample of submitted claims to ensure that the 
previous practice is not continuing in the case of a provider 
or supplier with prior overpayments.
      The Secretary would be able to use consent settlements to 
settle projected overpayments under certain conditions. 
Specifically the Secretary would be required to communicate 
with the provider or supplier that medical record review has 
indicated an overpayment exists, the nature of the problems 
identified, the steps needed to address the problems, and 
afford the provider or supplier 45 days to furnish additional 
information regarding the medical records for the claims 
reviewed. If, after reviewing the additional information an 
overpayment continues to exist, the Secretary would be required 
to provide notice and an explanation of the determination and 
then may offer the provider two mechanisms to resolve the 
overpayment: either an opportunity for a statistically valid 
random sample or a consent settlement (without waiving any 
appeal rights).
      The Secretary would be required to establish a process to 
provide notice to certain providers and suppliers in cases 
where billing codes were over-utilized by members of that class 
in certain areas, in consultation with organizations that 
represent the affected provider or supplier class.
      If post-payment audits were conducted, the Medicare 
contractor would be required to provide the provider or 
supplier with written notice of the intent to conduct the 
audit. The contractor would further be required to give the 
provider or supplier a full and understandable explanation of 
the findings of the audit and permit the development of an 
appropriate corrective action plan, inform the provider or 
supplier of appeal rights and consent settlement options, and 
give the provider or supplier the opportunity to provide 
additional information to the contractor, unless notice or 
findings would compromise any law enforcement activities.
      The Secretary would be required to establish a standard 
methodology for Medicare contractors to use in selecting a 
sample of claims for review in cases of abnormal billing 
patterns.
      In general the provisions would be effective upon 
enactment. The limitation on extrapolation would apply to 
samples initiated after the date that is 1 year after the date 
of enactment. The Secretary would be required to establish the 
process for notice of overutilization of billing codes not 
later than 1 year after enactment. The Secretary would be 
required to establish a standard methodology for selecting 
sample claims for abnormal billing patterns not later than 1 
year after enactment.
Senate Bill
      This provision would add a new subsection (h) to 1874A 
that would require establishment of at least a 1 year repayment 
plan--but not longer than three years--when a provider requests 
a repayment plan, unless the Secretary believes the provider 
may declare bankruptcy. If a provider or supplier fails to make 
a scheduled payment, the Secretary could immediately offset or 
recover the outstanding balance. The Secretary would be 
required to develop standards for the recovery of overpayments 
not later than one year after enactment.
      The Secretary would be barred from recouping any 
overpayments until a reconsideration-level appeal was decided 
(if one were requested). The paragraph provides that interest 
would be required to be paid to the provider if the appeal was 
successful (beginning from the time the overpayment is 
recouped) or that interest would be required to be paid to the 
Secretary if the appeal was unsuccessful (and if the 
overpayment was not paid to the Secretary).
      The provision would also require that if post-payment 
audits were conducted, the Medicare contractor would be 
required to provide the provider or supplier with written 
notice of the intent to conduct the audit. The contractor would 
further be required to give the provider or supplier a full and 
understandable explanation of the findings of the audit and 
permit the development of an appropriate corrective action 
plan, inform the provider or supplier of appeal rights and 
consent settlement options, and give the provider or supplier 
the opportunity to provide additional information to the 
contractor, unless notice or findings would compromise any law 
enforcement activities.
      The Secretary would be required to establish a process to 
provide notice to certain providers and suppliers in cases 
where billing codes were over-utilized by members of that class 
in certain areas, in consultation with organizations that 
represent the affected provider or supplier class. The process 
would be required not later than one year after enactment.
      Not later than one year after enactment, the Secretary 
would be required to establish a standard methodology for 
Medicare contractors to use in selecting a sample of claims for 
review in cases of abnormal billing patterns.
      The Secretary would be authorized to use a consent 
settlement process to settle projected overpayments under 
certain specified conditions.
      The provisions affecting post-payment audits and consent 
settlements would be effective to audits initiated and consent 
settlements entered into after the date of enactment. Other 
provisions would be effective for action taken 1 year after 
enactment.
Conference Agreement
      In situations where repaying a Medicare overpayment 
within 30 days would be a hardship for a provider or supplier, 
the conference agreement requires the Secretary to enter into 
an extended repayment plan of at least 6 months duration. The 
repayment plan is not permitted to go beyond 3 years (or 5 
years in the case of extreme hardship, as determined by the 
Secretary). Interest is required to accrue on the balance 
through the repayment period. Hardship is defined if, for 
providers that file cost reports, the aggregate amount of the 
overpayment exceeded 10 percent of the amount paid by Medicare 
to the provider for the time period covered by the mostrecently 
submitted cost report. In the case of a provider or supplier that is 
not required to file a cost report, hardship is defined if the 
aggregate amount of the overpayment exceeded 10 percent of the amount 
paid under Medicare for the previous calendar year. The Secretary is 
required to develop rules for the case of a provider or supplier that 
was not paid under Medicare during the previous year or for only a 
portion of the year. Any other repayment plans that a provider or 
supplier has with the Secretary, are not taken into account by the 
Secretary in calculating hardship. If the Secretary has reason to 
suspect that the provider or supplier may file for bankruptcy or 
otherwise cease to do business or discontinue participation in Medicare 
or there is an indication of fraud or abuse, the Secretary is not 
obligated to enter into an extended repayment plan with the provider or 
supplier. If a provider or supplier fails to make a payment according 
to the repayment plan, the Secretary may immediately seek to offset or 
recover the total outstanding balance of the repayment plan, including 
interest.
      The Secretary is prohibited from recouping any 
overpayments until a reconsideration-level appeal (or a 
redetermination by the fiscal intermediary or carrier if the 
QICs are not yet in place) was decided, if a reconsideration 
was requested. Interest is required to be paid to the provider 
if the appeal is successful (beginning from the time the 
overpayment is recouped) or interest is required to be paid to 
the Secretary if the appeal is unsuccessful (and if the 
overpayment was not paid to the Secretary).
      Extrapolation is limited to those circumstances where 
there is a sustained or high level of payment error, as defined 
by the Secretary in regulation, or document educational 
intervention has failed to correct the payment error.
      Medicare contractors are permitted to request the 
periodic production of records or supporting documentation for 
a limited sample of submitted claims to ensure that the 
previous practice is not continuing in the case of a provider 
or supplier with prior overpayments.
      The Secretary is permitted to use consent settlements to 
settle projected overpayments under certain conditions. 
Specifically the Secretary is required to communicate with the 
provider or supplier that medical record review has indicated 
an overpayment exists, the nature of the problems identified, 
the steps needed to address the problems, and afford the 
provider or supplier 45 days to furnish additional information 
regarding the medical records for the claims reviewed. If, 
after reviewing the additional information an overpayment 
continues to exist, the Secretary is required to provide notice 
and an explanation of the determination and then may offer the 
provider two mechanisms to resolve the overpayment: either an 
opportunity for a statistically valid random sample or a 
consent settlement (without waiving any appeal rights).
      The Secretary is required to establish a process to 
provide notice to certain providers and suppliers in cases 
where billing codes were over-utilized by members of that class 
in certain areas, in consultation with organizations that 
represent the affected provider or supplier class.
      If post-payment audits are conducted, the Medicare 
contractor is required to provide the provider or supplier with 
written notice of the intent to conduct the audit. The 
contractor is further required to give the provider or supplier 
a full and understandable explanation of the findings of the 
audit and permit the development of an appropriate corrective 
action plan, inform the provider or supplier of appeal rights 
and consent settlement options, and give the provider or 
supplier the opportunity to provide additional information to 
the contractor, unless notice or findings would compromise any 
law enforcement activities.
      The Secretary is required to establish a standard 
methodology for Medicare contractors to use in selecting a 
sample of claims for review in cases of abnormal billing 
patterns.
      In general, the provisions are effective upon enactment. 
The limitation on extrapolation would apply to samples 
initiated after the date that is 1 year after the date of 
enactment. The Secretary is required to establish the process 
for notice of overutilization of billing codes not later than 1 
year after enactment. The Secretary is required to establish a 
standard methodology for selecting sample claims for abnormal 
billing patterns not later than 1 year after enactment.
Provider Enrollment Process; Right of Appeal. (Section 936 of the 
        Conference Agreement, Section 936 of the House Bill, Section 
        515 of the Senate Bill).
Present Law
      No explicit statutory instruction. Under administrative 
authorities, CMS has established provider enrollment processes 
in instructions to the contractors.
House Bill
      The Secretary would be required to establish in 
regulation a provider enrollment process with hearing rights in 
the case of a denial or non-renewal. The process would be 
required to include deadlines for actions on applications for 
enrollment and enrollment renewals. The Secretary would be 
required to monitor the performance of the Medicare contractors 
in meeting the deadlines he establishes. Before changing 
provider enrollment forms, the Secretary would be required to 
consult with providers and suppliers. The provision would also 
establish hearing rights in cases where the applications have 
been denied.
      The enrollment process would be required to be 
established within 6 months of enactment. The consultation 
process on provider enrollment forms would be required for 
changes in the form beginning January 1, 2004. The provision of 
hearing rights would apply to denials that occur 1 year after 
enactment or an earlier date specified by the Secretary.
Senate Bill
      Same provisions.
Conference Agreement
      The conference agreement requires the Secretary to 
establish in regulation a provider enrollment process with 
hearing rights in the case of a denial or non-renewal. The 
process is required to include deadlines for actions on 
applications for enrollment and enrollment renewals. The 
Secretary is required to monitor the performance of the 
Medicare contractors in meeting the deadlines he establishes. 
Before changing provider enrollment forms, the Secretary is 
required to consult with providers and suppliers. The 
conference agreement also establishes hearing rights in cases 
where the applications have been denied.
      The enrollment process is required to be established 
within 6 months of enactment. The consultation process on 
provider enrollment forms is required for changes in the form 
beginningJanuary 1, 2004. The provision of hearing rights 
applies to denials that occur 1 year after enactment or an earlier date 
specified by the Secretary.
Process for Correction of Minor Errors and Omissions without Pursuing 
        Appeals Process. (Section 937 of the Conference Agreement, 
        Section 937 of the House Bill, Section 543 of the Senate Bill).
Present Law
      No explicit statutory instruction. Administratively, the 
Medicare contractors send a claim's denial when a claim has 
been submitted that lacks required information. Amendments to 
cost reports are not allowed once a cost report is settled.
House Bill
      This provision would require the Secretary to establish a 
process so providers and suppliers could correct minor errors 
in claims that were submitted for payment. The provision would 
also require the Secretary to permit hospitals to correct wage 
data errors that affect geographic reclassification even if the 
cost report has been settled. For FY 2004 alone, resubmittal of 
the application for geographic reclassification would be 
permitted. The provision would be effective upon enactment.
Senate Bill
      This provision would require the Secretary to establish a 
process so providers and suppliers could correct minor errors 
in claims that were submitted for payment. The provision would 
require that the process be developed not later than 1 year 
after enactment.
Conference Agreement
      The conference agreement requires the Secretary to 
establish a process so providers and suppliers could correct 
minor errors in claims that were submitted for payment within 1 
year after enactment.
Prior Determination Process for Certain Items and Services; Advance 
        Beneficiary Notices. (Section 938 of the Conference Agreement, 
        Section 938 of the House Bill, Section 535(b) of the Senate 
        Bill).
Present Law
      Medicare law prohibits payment for items and services 
that are not medically reasonable and necessary for the 
diagnosis or treatment of an illness or an injury. Under 
certain circumstances, however, Medicare will pay for 
noncovered services that have been provided if both the 
beneficiary and the provider of the services did not know and 
could not have reasonably been expected to know that Medicare 
payment would not be made for these services.
      A provider may be held liable for providing uncovered 
services, if, for example, specific requirements are published 
by the Medicare contractor or the provider has received a 
denial or reduction of payment on the same or similar service. 
In cases where the provider believes that the service may not 
be covered as reasonable and necessary, an acceptable advance 
notice of Medicare's possible denial of payment must be given 
to the patient if the provider does not want to accept 
financial responsibility for the service. The notice must be 
given in writing, in advance of providing the service; include 
the patient's name, date and description of service as well as 
reasons why the service would not be covered; and must be 
signed and dated by the patient to indicate that the 
beneficiary will assume financial liability for the service if 
Medicare payment is denied or reduced.
House Bill
      The Secretary would be required to establish a process 
through regulation where physicians and beneficiaries can 
establish whether Medicare covers certain categories of items 
and services before such services are provided. An eligible 
requestor would be a physician, but only in case of items and 
services for which the physician is paid directly and a 
Medicare beneficiary who receives an advance beneficiary notice 
from a physician would receive direct payment for that service. 
The provisions would establish (1) that such prior 
determinations would be binding on the Medicare contractor, 
absent fraud or misrepresentation of facts; (2) the right to 
redetermination in the case of a denial; (3) the applicability 
of existing deadlines with respect to those redeterminations; 
(4) that contractors' advance determinations (and 
redeterminations) are not subject to further administrative or 
judicial review; and (5) an individual retains all rights to 
usual administrative or judicial review after receiving the 
service or receiving a determination that a service would not 
be covered. These provisions would not affect a Medicare 
beneficiary's right not to seek an advance determination. The 
prior determination process would be established in time to 
address such requests that are filed by 18 months of enactment. 
The Secretary would be required to collect data on the advance 
determinations and to establish a beneficiary outreach and 
education program. GAO is required to report on the use of the 
advance beneficiary notice and prior determination process 
within 18 months of its implementation.
Senate Bill
      The Secretary would be required to establish a 
demonstration project to test the administrative feasibility of 
providing a process for beneficiaries and providers to request 
and receive a determination as to whether the item or service 
is covered under Medicare by reasons of Medical necessity, 
before the item or service involved is furnished to the 
beneficiary.
Conference Agreement
      The conference agreement requires the Secretary to 
establish a prior determination process through regulation 
where physicians and beneficiaries can determine whether 
Medicare covers certain physician services before such services 
are provided. An eligible requestor is a physician, but only in 
case of services for which the physician is paid directly, or a 
Medicare beneficiary, who receives an advance beneficiary 
notice from a physician who would receive direct payment for 
that service. The provision establishes (1) that such prior 
determinations would be binding on the Medicare contractor, 
absent fraud or misrepresentation of facts; (2) the right to 
redetermination in the case of a denial; (3) the applicability 
of existing deadlines with respect to those redeterminations; 
(4) that contractors' advance determinations (and 
redeterminations) are not subject to further administrative or 
judicial review; and (5) an individual retains all rights to 
usual administrative or judicial review after receiving the 
serviceor receiving a determination that a service would not be 
covered. These provisions do not affect a Medicare beneficiary's right 
not to seek an advance determination. The prior determination process 
is required to be established in time to address such requests that are 
filed by 18 months after enactment and it sunsets 5 years later. For 
purposes of calculating the physician fee schedule sustainable growth 
rate, this provision is not to be considered to be a change in law or 
regulation. The Secretary is required to collect data on the advance 
beneficiary notices and to establish a beneficiary outreach and 
education program. GAO is required to report on the use of the advance 
beneficiary notices within 18 months of the implementation of the prior 
determination process. The GAO is also required to report on the use of 
the prior determination process within 36 months of the implementation 
of the prior determination process.
Appeals by Providers When There is No Other Party Available. (Section 
        939 of the Conference Agreement, Section 516 of the Senate 
        Bill).
Present Law
      Section 1870 of the Social Security Act provides for the 
recovery of overpayments and the settlement of claims for 
benefits on behalf of a deceased beneficiary
House Bill
      No provision.
Senate Bill
      In the case where a beneficiary dies before assigning 
appeal rights, a provider or supplier would be permitted to 
appeal a payment denial by a Medicare contractor. The provision 
would be effective for items and services furnished on or after 
enactment.
Conference Agreement
      In the case where a beneficiary dies before assigning 
appeal rights, the conference agreement permits a provider or 
supplier to appeal a payment denial by a Medicare contractor. 
The provision is effective for items and services furnished on 
or after enactment.
Revisions to Appeals Timeframes and Amounts. (Section 940 of the 
        Conference Agreement, Section 518 of the Senate Bill).
Present Law
      BIPA revised the timeframes for Medicare appeals. For the 
first level of appeal, the ``redetermination'' level, the 
timeframe for decisions was reduced from 90 days for a part A 
appeal and 45 days for a part B appeal to 30 days; for the 
second level, the ``reconsideration'' level, the timeframe was 
reduced from 120 days for a part B appeal to 30 days (this is a 
new level of appeal for part A appeals); for the third level, 
appeals before administrative law judges, the timeframe was 
reduced from no time limit to 90 days; and the fourth level, 
appeals before the Department Appeals Board, the timeframe was 
reduced from no time limit to 90 days. BIPA also provided that 
a beneficiary could ``escalate'' his or her appeal to the next 
level if the appeal was not decided in a timely fashion.
      To appeal a claim, the beneficiary must have an ``amount 
in controversy'' of $100 or more. Judicial review is available 
only for amounts in controversy of $1,000 or more. Claims are 
permitted to be aggregated in order to reach the amount in 
controversy if certain conditions are met.
House Bill
      No provision.
Senate Bill
      This provision would add 30 days to the timeframe for 
deciding an appeal at each of the four levels of appeal. No 
provision regarding the indexing of amounts in controversy.
Conference Agreement
      The conference agreement adds 30 days to the timeframe 
for deciding an appeal at the redetermination and 
reconsideration levels of appeal (that is, the first two levels 
of appeal). The conference agreement also indexes the amount in 
controversy for appeals to the CPI-U, rounded to the nearest 
multiple of $10 beginning in 2005.
Mediation Process for Local Coverage Determinations (Section 940A of 
        the Conference Agreement, Section 517 of the Senate Bill).
Present Law
      Only beneficiaries have standing to appeal local coverage 
decisions by Medicare contractors. Mediation is not currently 
used in Medicare to resolve disputes.
House Bill
      No provision.
Senate Bill
      The parties that have standing to appeal local coverage 
decisions would be expanded to include providers or suppliers 
adversely affected by the determination. The Secretary would be 
required to establish a process whereby a provider or supplier 
may request a local coverage determination under certain 
circumstances. A provider or supplier could seek a local 
coverage determination if the Secretary determined that: (A) 
there have been at least five reversals by an ALJ of 
redeterminations made by a Medicare contractor in at least two 
different cases; (B) that each reversal involved substantially 
similar material facts; (C) each reversal involved the same 
medical necessity issue; and (D) at least 50% of the total 
claims submitted by the provider within the past year involving 
the requisite facts and medical necessity issue have been 
denied and then reversed by an ALJ. Such sums as necessary to 
carry out the provisions above would be authorized to be 
appropriated. Also the provision would require the Secretary to 
study and report to Congress on the feasibility and 
advisability of requiring Medicare contractors to track the 
subject and status of claims denials that are appealed and 
final determinations.
      The expansion in standing would be effective for any 
review or request of any local coverage determination filed on 
or after October 1, 2003 and for any local coverage 
determination made on or after October 1, 2003. The requirement 
to establish a process for a provider or supplier to request a 
local coverage determination would be effective for requests 
filed on or after the date of enactment. The report would be 
due to Congress not later than one year after the date of 
enactment.
Conference Agreement
      The conference agreement requires the Secretary to 
establish a mediation process using a physician trained in 
mediation and employed by CMS. This process is to be used to 
mediate disputes between groups representing providers, 
physicians, and suppliers and the medical director for the 
Medicare contractor in any area that the relevant CMS regional 
administrator determines that there is a systematic pattern and 
a large volume of complaints from such groups regarding 
decisions of the medical director or there is a complaint from 
the co-chair of the advisory committee for that contractor. The 
Secretary is required to include in the contract with Medicare 
Administrative Contractors the performance duties expected of a 
medical director including professional relations. The 
provision is effective upon enactment.
Policy Development Regarding Evaluation and Management (E&M) 
        Documentation Guidelines. (Section 941 of the Conference 
        Agreement, Section 941 of the House Bill, Section 553 of the 
        Senate Bill).
Present Law
      No provision.
House Bill
      The Secretary would not be permitted to implement any new 
documentation guidelines for, or clinical examples of, 
evaluation and management (E&M) physician services unless the 
Secretary: (1) developed the guidelines in collaboration with 
practicing physicians (both generalists and specialists) and 
provided for an assessment of the proposed guidelines by the 
physician community; (2) established a plan containing specific 
goals, including a schedule, for improving the use of the 
guidelines; (3) conducted pilot projects to test modifications 
to the guidelines; (4) finds the guidelines have met 
established objectives; and (5) established and implemented an 
education program on the use of the guidelines with appropriate 
outreach. The Secretary would make changes to existing E&M 
guidelines to reduce paperwork burdens on physicians. The 
provision establishes objectives for modifications of the E&M 
guidelines: (1) identification of clinically relevant 
documentation needed to code accurately and assess coding 
levels accurately; (2) decrease the level of non-clinically 
pertinent and burdensome documentation time and content in the 
medical record; (3) increase accuracy of reviewers; and (4) 
education of physicians and reviewers.
      The pilot projects would be required to be conducted on a 
voluntary basis in consultation with practicing physicians 
(both generalists and specialists) and be of sufficient length 
to educate physicians and contractors on E&M guidelines. A 
range of different projects would be established and include at 
least one project: using a physician peer review method, using 
an alternative method based on face-to-face encounter time with 
the patient, in a rural area, outside a rural area, and where 
physicians bill under physician services in a teaching setting 
and nonteaching setting. The projects would examine the effect 
of modified E&M guidelines on different types of physician 
practices in terms of the cost of compliance. Data collected 
under these projects would not be the basis for overpayment 
demands or post-payment audits. This protection would apply to 
claims filed as part of the project, would last the duration of 
the project and would last for as long as the provider 
participated in the project. Each pilot conducted would examine 
the effect of the new E&M documentation guidelines on different 
types of physician practices (including those with fewer than 
10 full-time equivalent employees) and the costs of physician 
compliance including education implementation, auditing, and 
monitoring. The Secretary would be required to submit periodic 
reports to Congress on these pilot projects.
      The provision would require a study of an alternative 
system for documenting physician claims. Specifically the 
Secretary would be required to study developing a simpler 
system for documenting claims for evaluation and management 
services and to consider systems other than current coding and 
documentation requirements. The Secretary would be required to 
consult with practicing physicians in designing and carrying 
out the study. This study would be due to Congress no later 
than October 1, 2005. MedPAC would be required to analyze the 
results of the study and report to Congress. The Secretary 
would also be required to study the appropriateness of coding 
in cases of extended office visits in which no diagnosis is 
made and report to Congress no later than October 1, 2005. The 
Secretary would be required to include in the report 
recommendations on how to code appropriately for these visits 
in a manner that takes into account the amount of time the 
physician spent with the patient.
Senate Bill
      The Secretary would be required to ensure, before making 
changes in documentation guidelines for, or clinical examples 
of, or codes to report E&M physician services, that the process 
used in developing the guidelines, examples, or codes was 
widely consultative among physicians, reflects a broad 
consensus among specialties, and would allow verification of 
reported and furnished services.
Conference Agreement
      The conference agreement does not permit the Secretary to 
implement any new or modified documentation guidelines 
(including clinical examples) for evaluation and management 
(E&M) physician services unless the Secretary has: (1) 
developed the guidelines in collaboration with practicing 
physicians (both generalists and specialists) and provided for 
an assessment of the proposed guidelines by the physician 
community; (2) established a plan containing specific goals, 
including a schedule, for improving the use of the guidelines; 
(3) conducted pilot projects to test modifications to the 
guidelines; (4) found the guidelines have met established 
objectives; and (5) established and implemented an education 
program on the use of the guidelines with appropriate outreach. 
The conference agreement requires the Secretary to make changes 
to existing E&M guidelines to reduce paperwork burdens on 
physicians. The conference agreement establishes objectives for 
modifications of the E&M guidelines: (1) identification of 
clinically relevant documentation needed to code accurately and 
assess coding levels accurately; (2) decrease the level of non-
clinically pertinent and burdensome documentation time and 
content in the medical record; (3) increase accuracy of 
reviewers; and (4) education of physicians and reviewers.
      The pilot projects are required to be conducted on a 
voluntary basis in consultation with practicing physicians 
(both generalists and specialists) and are of sufficient length 
(but, in no case longer than 1 year) to educate physicians and 
contractors on E&M guidelines. A range of different projects 
would be established and include at least one project that: (1) 
uses a physician peer review method (that is not used by a 
Medicare contractor) that evaluates medical record information 
for claims submitted by physicians identified as statistical 
outliers relative to codes used for billing purposes for these 
services; (2) uses an alternative method based on face-to-face 
encounter time with the patient; (3) is conducted for services 
furnished in a rural area and one for services furnished 
outside a rural area; and (4) is conducted in a setting where 
physicians bill under physician services in a teaching setting 
and one in a nonteaching setting. The projects would examine 
the effect of modified E&M guidelines on different types of 
physician practices in terms of the cost of compliance. Each 
pilot conducted is required to examine the effect of the new 
E&M documentation guidelines on different types of physician 
practices (including those with fewer than 10 full-time 
equivalent employees) and the costs of physician compliance 
including education implementation, auditing, and monitoring. 
The provision requires the Secretary to submit a report to 
Congress on these pilot projects within 6 months of completion 
of the pilots.
      A study of an alternative system for documenting 
physician claims is also required. Specifically, the Secretary 
is required to study developing a simpler system for 
documenting claims for evaluation and management services and 
to consider systems other than current coding and documentation 
requirements. The Secretary is required to consult with 
practicing physicians in designing and carrying out the study. 
This study is due to Congress no later than October 1, 2005. 
MedPAC would be required to analyze the results of the study 
and report to Congress. The Secretary is also required to study 
the appropriateness of coding in cases of extended office 
visits in which no diagnosis is made and report to Congress no 
later than October 1, 2005. The Secretary is required to 
include in the report recommendations on how to code 
appropriately for these visits in a manner that takes into 
account the amount of time the physician spent with the 
patient.
Improvement in Oversight of Technology and Coverage. (Section 942 of 
        the Conference Agreement, Section 942 of the House bill, 
        Section 554 of the Senate Bill).
(a) Council for Technology and Innovation
Present Law
      No provision.
House Bill
      The Secretary would be required to establish a Council 
for Technology and Innovation within the Centers for Medicare & 
Medicaid Services (CMS). The council would be composed of 
senior CMS staff and clinicians with a chairperson designated 
by the Secretary who reports to the CMS administrator. The 
Chairperson would serve as the Executive Coordinator for 
Technology and Innovation would be the single point of contact 
for outside groups and entities regarding Medicare coverage, 
coding, and payment processes. The Council would coordinate 
Medicare's coverage, coding, and payment processes as well as 
information exchange with other entities with respect to new 
technologies and procedures, including drug therapies.
Senate Bill
      The provision would require the Secretary to establish a 
Council for Technology and Innovation composed of senior CMS 
staff and clinicians to coordinate coverage, coding, and 
payment processes under Title XVIII and the exchange of 
information on new technologies between CMS and other entities 
that make similar decisions.
Conference Agreement
      The conference agreement requires the Secretary establish 
a Council for Technology and Innovation within the Centers for 
Medicare & Medicaid Services (CMS). The council is to be 
composed of senior CMS staff and clinicians with a chairperson 
designated by the Secretary who reports to the CMS 
administrator. The Chairperson will serve as the Executive 
Coordinator for Technology and Innovation and will be the 
single point of contact for outside groups and entities 
regarding Medicare coverage, coding, and payment processes. The 
Council is required to coordinate Medicare's coverage, coding, 
and payment processes as well as information exchange with 
other entities with respect to new technologies and procedures, 
including drug therapies.
(b) Methods for Determining Payment Basis for New Lab Tests
Present Law
      Outpatient clinical diagnostic laboratory tests are paid 
on the basis of area wide fee schedules. The law establishes a 
cap on the payment amounts, which is currently set at 74 
percent of the median for all fee schedules for that test. The 
cap is set at 100 percent of the median for tests performed 
after January 1, 2001 that the Secretary determines are new 
tests for which no limitation amount has previously been 
established.
House Bill
      The Secretary would be required to establish procedures 
(by regulation) for determining the basis for and amount of 
payments for new clinical diagnostic laboratory tests. New 
laboratory tests would be defined as those assigned a new, or 
substantially revised Health Care Procedure Coding System 
(HCPCS) code on or after January 1, 2005. The Secretary, as 
part of this procedure, would be required to (1) provide a list 
(on an Internet site or other appropriate venue) of tests for 
which payments are being established in that year; (2) publish 
a notice of a meeting in the Federal Register on the day the 
list becomes available; (3) hold the public meeting no earlier 
than 30 days after the notice to receive public comments and 
recommendations; (4) take into account the comments, 
recommendations and accompanying data in both proposed and 
final payment determinations. The Secretary would set forth the 
criteria for making these determinations; make public the 
available data considered in making such determinations; and 
could convene other public meetings as necessary. Effective for 
codes assigned on or after January 1, 2005.
Senate Bill
      No provision.
Conference agreement
      The conference agreement requires the Secretary to 
establish procedures (by regulation) for determining the basis 
for and amount of payments for new clinical diagnostic 
laboratory tests. New laboratory tests are defined as those 
assigned a new, or substantially revised Health Care Procedure 
Coding System (HCPCS) code on or after January 1, 2005. The 
Secretary, as part of this procedure, is required to (1) 
provide a list (on an Internet site or other appropriate venue) 
of tests for which payments are being established in that year; 
(2) publish a notice of a meeting in the Federal Register on 
the day the list becomes available; (3) hold the public meeting 
no earlier than 30 days after the notice to receive public 
comments and recommendations; (4) take into account the 
comments, recommendations and accompanying data in both 
proposed and final payment determinations. The Secretary sets 
forth the criteria for making these determinations, which 
include whether a test should be established through gap-
filling or cross-walking to an existing code. In these cases, 
carriers and CMS cannot substitute an alternative service for a 
gap filled amount, the Secretary shall make public the 
available data considered in making such determinations; and 
convenes other public meetings as necessary. The provision is 
effective for codes assigned on or after January 1, 2005.
      (c) GAO Study on Improvements in External Data Collection 
for Use in the Medicare Inpatient Payment System.
Present Law
      No provision.
House Bill
      The GAO would be required to study which external data 
can be collected in a shorter time frame by CMS to use in 
calculating payments for inpatient hospital services. The GAO 
could evaluate feasibility and appropriateness of using 
quarterly samples or special surveys and would include an 
analysis of whether other executive agencies are best suited to 
collect this information. The report would be due to Congress 
no later than October 1, 2004.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement requires the GAO to study which 
external data can be collected in a shorter time frame by CMS 
to use in calculating payments for inpatient hospital services. 
The GAO may evaluate feasibility and appropriateness of using 
quarterly samples or special surveys and is required to include 
an analysis of whether other executive agencies are best suited 
to collect this information. The report is due to Congress no 
later than October 1, 2004.
(d) Process for Adoption of ICD Codes as Data Standard
Present Law
      The Secretary is required to rely on the recommendations 
from the National Committee on Vital and Health Statistics 
(NCVHS) before adopting health information standards and codes. 
The current standard for procedure codes is the International 
Classification of Diseases, 9th Revision, clinical modification 
(ICD-9-CM is the basis of the Medicare inpatient hospital PPS 
payment system). The NCVHS made a recommendation on November 
5th to the Secretary about adopting the latest revision, the 
ICD-10-PCS (Procedure Coding System) or ICD-10-CM as a coding 
standard.
House Bill
      The Secretary would be permitted to adopt the ICD-10-PCS 
and the ICD-10-CM within 1 year of enactment without receiving 
a recommendation from the National Committee on Vital and 
Health Statistics (NCVHS).
Senate Bill
      No provision.
Conference Agreement
      No provision. Because the NCVHS made a recommendation to 
the Secretary, Conferees believed the House provision was no 
longer necessary.
      Conferees urge the Secretary, however, to accept the 
recommendation of the NCVHS and issue a notice of proposed rule 
making to initiate the regulatory process for the concurrent 
adoption of ICD-10-CM and ICD-10-PCS. ICD-10 would replace the 
23-year-old ICD-9-CM coding classification system, which has 
highly limited reporting capabilities for today's needs and 
growth capacity for future needs, making it an unacceptable 
coding classification system for both inpatient and outpatient 
diagnosis. ICD-10 would be able to keep pace with advances in 
modern medicine, thus ensuring accurate reimbursement rates for 
emerging technologies and patient access to the highest quality 
care.
      Since 1997, NCVHS has closely examined this issue and 
received testimonies and letters from more than 80 public- and 
private-sector groups representing the full range of interests 
in the health care community. NCVHS and other parties have 
commissioned numerous studies, all of which NCVHS also has 
carefully considered. The Committee finds that the 
recommendation made by NCVHS is based on sound evidence and is, 
in the words of NCVHS, ``in the best interests of the country 
as a whole.'' Conferees encourage the Secretary to implement 
the recommendation as quickly as possible.
Treatment of Hospitals for Certain Services Under Medicare Secondary 
        Payor (MSP) Provisions. (Section 943 of the Conference 
        Agreement, Section 943 of the House Bill).
Present Law
      In certain instances when a beneficiary has other 
insurance coverage, Medicare becomes the secondary insurance. 
Medicare Secondary Payer is the Medicare program's coordination 
ofbenefits with other insurers. Section 1862(b)(6) of the 
Social Security Act requires an entity furnishing a Part B service to 
obtain information from the beneficiary on whether other insurance 
coverage is available.
House Bill
      The Secretary would not require a hospital or a critical 
access hospital to ask questions or obtain information relating 
to the Medicare secondary payer provisions in the case of 
reference laboratory services if the same requirements are not 
imposed upon those provided by an independent laboratory. 
Reference laboratory services would be those clinical 
laboratory diagnostic tests and interpretations of same that 
are furnished without a face-to-face encounter between the 
beneficiary and the hospital where the hospital submits a claim 
for the services.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement prohibits the Secretary from 
requiring a hospital or a critical access hospital to ask 
questions or obtain information relating to the Medicare 
secondary payer provisions in the case of reference laboratory 
services if the same requirements are not imposed upon those 
provided by an independent laboratory. Reference laboratory 
services are those clinical laboratory diagnostic tests and 
interpretations of same that are furnished without a face-to-
face encounter between the beneficiary and the hospital where 
the hospital submits a claim for the services.
EMTALA Improvements. (Section 944 of the Conference Agreement, Section 
        944 of the House Bill).
Present Law
      Medicare requires participating hospitals that operate an 
emergency room to provide necessary screening and stabilization 
services to any patient who comes to an emergency room 
requesting examination or treatment in order to determine 
whether an emergency medical situation exists.
      Hospitals that are found to be in violation of Emergency 
Medical Treatment and Active Labor Act (EMTALA) requirements 
may face civil monetary penalties and termination of their 
provider agreement. Prior to imposing a civil monetary penalty, 
the Secretary is required to request a peer review organization 
(PRO--currently called quality improvement organizations or 
QIOs) to assess whether the involved beneficiary had an 
emergency condition, which had not been stabilized and provide 
a report on its findings. Except in the case where a delay 
would jeopardize the health or safety, the Secretary provides 
60-day period for the requested PRO review.
House Bill
      Emergency room services provided to screen and stabilize 
a Medicare beneficiary furnished after January 1, 2004, would 
be evaluated for Medicare's ``reasonable and necessary'' 
requirement on the basis of the information available to the 
treating physician or practitioner at the time the services 
were ordered; this would include the patient's presenting 
symptoms or complaint and not the patient's principal 
diagnosis. The Secretary would not be able to consider the 
frequency with which the item or service was provided to the 
patient before or after the time of admission or visit. The 
Secretary would be required to establish a procedure to notify 
hospitals and physicians when an EMTALA investigation is 
closed.
      Except in the case where a delay would jeopardize the 
health and safety of individuals, the Secretary would be 
required to request a PRO review before making a compliance 
determination that would terminate a hospital's Medicare 
participation because of EMTALA violations and provide a period 
of 5 business days for such review. The PRO would be required 
to provide a copy of the report on its findings to the hospital 
or physician, consistent with existing confidentiality 
requirements. This provision would apply to terminations 
initiated on or after enactment
Senate Bill
      No provision.
Conference Agreement
      The conference agreement requires emergency room services 
provided to screen and stabilize a Medicare beneficiary 
furnished after January 1, 2004, to be evaluated for Medicare's 
``reasonable and necessary'' requirement on the basis of the 
information available to the treating physician or practitioner 
at the time the services were ordered; this includes the 
patient's presenting symptoms or complaint and not the 
patient's principal diagnosis. The Secretary is prohibited from 
considering the frequency with which the item or service was 
provided to the patient before or after the time of admission 
or visit.
      The Secretary is required to establish a procedure to 
notify hospitals and physicians when an EMTALA investigation is 
closed.
      Except in the case where a delay would jeopardize the 
health and safety of individuals, the Secretary is required to 
request a PRO review before making a compliance determination 
that would terminate a hospital's Medicare participation 
because of EMTALA violations and provide a period of 5 business 
days for such review. The PRO is required to provide a copy of 
the report on its findings to the hospital or physician, 
consistent with existing confidentiality requirements. This 
provision applies to terminations initiated on or after 
enactment.
Emergency Medical Treatment and Active Labor Act (EMTALA) Technical 
        Advisory Group. (Section 945 of the Conference Agreement, 
        Section 945 of the House Bill).
Present Law
      No provision.
House Bill
      The Secretary would be required to establish a 19-member 
technical advisory group under specified requirements to review 
issues related to EMTALA. The advisory group would be comprised 
of: the CMS Administrator; the HHS Inspector General; 4 
hospital representatives who have EMTALA experience, (2 of whom 
have not experienced EMTALA violations) 7 practicing physicians 
with specified experience; 2 patient representatives; 2 
regional CMS staff involved in EMTALA investigations; 1 
representative from a State survey organization and 1 from peer 
review organization. The Secretary would select qualified 
individuals who are nominated by organizations representing 
providers and patients.
      The advisory group would review EMTALA regulations; 
provide advice and recommendations to the Secretary; solicit 
public comments from interested parties; and disseminate 
information on the application of the EMTALA regulations. The 
advisory group would be required to (1) elect a member to as 
chairperson; (2) schedule its first meeting at the direction of 
the Secretary and meet at least twice a year subsequently; and 
(3) terminate 30 months after the date of its first meeting. 
The Secretary would be required to establish the advisory group 
regardless of any limitation that may apply to the number of 
advisory committees that may be established within HHS.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement requires the Secretary to 
establish a 19-member technical advisory group under specified 
requirements to review issues related to EMTALA. The advisory 
group would be comprised of: the CMS Administrator; the HHS 
Inspector General; 4 hospital representatives who have EMTALA 
experience (2 of whom have not experienced EMTALA violations); 
7 practicing physicians with specified experience; 2 patient 
representatives; 2 regional CMS staff involved in EMTALA 
investigations; 1 representative from a State survey 
organization and 1 from peer review organization. The Secretary 
is required to select qualified individuals who are nominated 
by organizations representing providers and patients.
      The advisory group will review EMTALA regulations; 
provide advice and recommendations to the Secretary; solicit 
public comments from interested parties; and disseminate 
information on the application of the EMTALA regulations. The 
advisory group is required to: (1) elect a member to as 
chairperson; (2) schedule its first meeting at the direction of 
the Secretary and meet at least twice a year subsequently; and 
(3) terminate 30 months after the date of its first meeting. 
The Secretary is required to establish the advisory group 
regardless of any limitation that may apply to the number of 
advisory committees that may be established within HHS.
Authorizing Use of Arrangements to Provide Core Hospice Services in 
        Certain Circumstances. (Section 946 of the Conference 
        Agreement, Section 946 of the House Bill, Section 406 of the 
        Senate Bill).
Present Law
      A hospice is a public agency or private organization that 
is primarily engaged in providing and making available certain 
care to a terminally ill Medicare beneficiary under a written 
plan.
House Bill
      A hospice would be permitted to (1) enter into 
arrangements with another hospice program to provide care in 
extraordinary, exigent or other non-routine circumstances, such 
as unanticipated high patient loads, staffing shortages due to 
illness, or temporary travel by a patient outside the hospice's 
service area; and (2) bill and be paid for the hospice care 
provided under these arrangements. The provision would be 
effective for hospice care provided on or after the date of 
enactment.
Senate Bill
      Same provision.
Conference Agreement
      The conference agreement permits a hospice to: (1) enter 
into arrangements with another hospice program to provide care 
in extraordinary, exigent or other non-routine circumstances, 
such as unanticipated high patient loads, staffing shortages 
due to illness, or temporary travel by a patient outside the 
hospice's service area; and (2) bill and be paid for the 
hospice care provided under these arrangements. The provision 
is effective for hospice care provided on or after the date of 
enactment.
Application of OSHA Bloodborne Pathogens Standard to Certain Hospitals. 
        (Section 947 of the Conference Agreement, Section 947 of the 
        House Bill).
Present Law
      Section 1866 establishes certain conditions of 
participation that providers must meet in order to participate 
in Medicare.
House Bill
      Public hospitals that are not otherwise subject to the 
Occupational Safety and Health Act of 1970 would be required to 
comply with the Bloodborne Pathogens standard under section 
1910.1030 of title 29 of the Code of Federal Regulations. A 
hospital that fails to comply with the requirement would be 
subject to a civil monetary penalty, but would not be 
terminated from participating in Medicare. The provision would 
apply to hospitals as of July 1, 2004.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement requires that public hospitals, 
not otherwise subject to the Occupational Safety and Health Act 
of 1970, comply with the Bloodborne Pathogens standard under 
section 1910.1030 of title 29 of the Code of Federal 
Regulations. A hospital that fails to comply with the 
requirement will be subject to a civil monetary penalty, but 
cannot be terminated from participating in Medicare. The 
provision applies to hospitals as of July 1, 2004.
BIPA-Related Technical Amendments and Corrections. (Section 948 of the 
        Conference Agreement, Section 948 of the House Bill).
Present Law
      BIPA established an advisory process for national 
coverage determinations where panels of experts formed by 
advisory committees could forward their recommendations 
directly to the Secretary without prior approval of the 
advisory committee or the Executive Committee.
House Bill
      The statutory reference in BIPA would be changed from the 
Social Security Act to the Public Health Service Act. Other 
BIPA references would be changed from ``policy'' to 
``determinations.'' The provision is effective as if included 
in the enactment of BIPA.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement changes the statutory reference 
in BIPA from the Social Security Act to the Public Health 
Service Act. Other BIPA references would be changed from 
``policy'' to ``determinations.'' The provision is effective as 
if included in the enactment of BIPA.
Conforming Authority to Waive a Program Exclusion. (Section 949 of the 
        Conference Agreement, Section 949 of the House Bill, Section 
        544 of the Senate Bill).
Present Law
      The Secretary is required to exclude individuals and 
entities from participation in federal health programs that are 
(1) convicted of a criminal offense related to health care 
delivery under Medicare or under state health programs; (2) 
convicted of a criminal offense related to patient abuse or 
neglect under federal or state law; (3) convicted of a felony 
relating to fraud, theft, or financial misconduct relating to a 
health care program finance or operated by the federal, state 
or local government; or (4) convicted of a felony related to a 
controlled substance.
House Bill
      The administrator of a federal health program would be 
permitted to waive certain 5-year exclusions if the exclusion 
of a sole community physician or source of specialized services 
in a community would impose a hardship. The mandatory 
exclusions that could be waived would be those related to 
convictions associated with program-related crimes; health care 
fraud and controlled substance. The provision would be 
effective upon enactment.
Senate Bill
      Same provision.
Conference Agreement
      The conference agreement permits the administrator of a 
federal health program to waive certain 5-year exclusions if 
the exclusion of a sole community physician or source of 
specialized services in a community will impose a hardship. The 
mandatory exclusions that can be waived are those related to 
convictions associated with program-related crimes; health care 
fraud and controlled substance. The provision is effective upon 
enactment.
Treatment of Certain Dental Claims. (Section 950 of the Conference 
        Agreement, Section 950 of the House Bill, Section 555 of the 
        Senate Bill).
Present Law
      The Medicare benefit does not include most dental 
services. Some insurers may require a claim denial from 
Medicare before accepting the dental claim for payment review, 
even if the service is not covered by Medicare.
House Bill
      A group health plan providing supplemental or secondary 
coverage to Medicare beneficiaries would not be able to require 
dentists to obtain a claim denial from Medicare for noncovered 
dental services before paying the claim. The provision would be 
effective 60 days after enactment.
Senate Bill
      Same provision.
Conference Agreement
      The conference agreement provides that a group health 
plan providing supplemental or secondary coverage to Medicare 
beneficiaries cannot require dentists to obtain a claim denial 
from Medicare for dental services that are not covered by 
Medicare before paying the claim. The provision is effective 60 
days after enactment.
Furnishing Hospitals with Information to Compute DSH Formula. (Section 
        951 of the Conference Agreement, Section 951 of the House 
        Bill).
Present Law
      Disproportionate share hospital (DSH) payments under 
Medicare are calculated using a formula that includes the 
number of patient days for patients eligible for Medicaid.
House Bill
      The provision would require the Secretary to provide 
information that hospitals need to calculate the number of 
Medicaid patient days used in the Medicare DSH payment formula, 
not later than 1 year after enactment.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement requires the Secretary to 
arrange for the provision of information that hospitals need to 
calculate the Medicare DSH payment formula not later than 1 
year after enactment.
Revisions to Reassignment Provisions (Section 952 of the Conference 
        Agreement, Section 952 of the House Bill, Section 434 of the 
        Senate Bill).
Present Law
      In general, Medicare Part B payments may be made only to 
a Medicare beneficiary or to physician or other person who 
provided the service. Section 1842(b)(6) of the Social Security 
Act establishes the Medicare reassignment prohibitions and does 
not permit physicians to reassign their Medicare payments to 
entities with which they have a relationship on an independent 
contractor basis. In order for an independent contractor to 
reassign Medicare benefits, the services must be performed on 
the premises of the entity to which the benefits will be 
reassigned.
House Bill
      Medicare payment for Part B services would be permitted 
to be made to an entity, as defined by the Secretary, that has 
a contractual arrangement with the physician or other person 
who provided the service for the entity to bill for the service 
and the contractual arrangement meets program integrity and 
other safeguards specified by the Secretary.
      The provision would be effective for payments made on or 
after one year after the date of enactment.
Senate Bill
      Same provision, but would include a conforming amendment.
Conference Agreement
      This provision amends the Social Security Act to allow 
physicians and non-physician practitioners to reassign payment 
for Medicare-covered services, regardless of where the 
arrangement (including but not limited to a hospital, clinic, 
medical group, a physician practice management organization, or 
a staffing company) so long as there is a contractual 
arrangement between the physician and the entity under which 
the entity submits the bill for such service. As a result, the 
Secretary could enroll these entities in the Medicare program. 
The Secretary may also provide for other enrollment 
qualifications to assure program integrity, including joint and 
several liability.
      This provision will streamline Medicare enrollment while 
also enhancing HHS' program integrity efforts. By permitting 
entities that retain independent contractors to enroll with the 
Medicare program and thereby directly bill the Medicare 
program, HHS will be able to monitor the claims submitted by 
the entities that retain independent contractors as well as 
those entities that employ physicians. The Committee supports 
appropriate program integrity efforts (e.g. joint and several 
liability) for any entities billing the Medicare program 
including entities with employees as well as independent 
contractors. Further, the Committee believes that physicians' 
and non-physician practitioners' should be entitled to 
unrestrictive access to billings submitted on their behalf by 
the entity with which they have contracted. The Committee 
intends that the Secretary will implement this provision via 
program instructions to the Medicare contractors. The changes 
made by this provision shall apply to Medicare payments made on 
or after date of enactment.
      The provision is effective upon enactment.
Other Provisions. (Section 953 of the Conference Agreement, Section 953 
        of the House Bill).
Present Law
      No provisions.
House Bill
      GAO Report on Physician Compensation. No later than six 
months from enactment, GAO would be required to report to 
Congress on the appropriateness of the updates in the 
conversion factor including the appropriateness of the 
sustainable growth rate (SGR) formula for 2002 and 
subsequently. The report would examine the stability and the 
predictability of the updates and rate as well as the 
alternatives for use of the SGR in the updates. No later than 
12 months from enactment, GAO would be required to report to 
Congress on all aspects of physician compensation for Medicare 
services. The report would review the alternatives for the 
physician fee schedule.
      Annual Publication of List of National Coverage 
Determinations. The Secretary would be required to publish an 
annual list of nation coverage determinations made under 
Medicare in the previous year. Included would be information on 
how to get more information about the determinations. The list 
would be published to the public in an appropriate annual 
publication.
      GAO Report on Flexibility in Applying Home Health 
Conditions of Participation to Patients Who Are Not Medicare 
Beneficiaries. The GAO would be required to report to Congress 
on the implications if the Medicare conditions of participation 
for home health agencies were applied flexibly with respect to 
groups or types of patients who are not Medicare beneficiaries. 
The report would include an analysis of the potential impact of 
this flexibility on clinical operations and the recipients of 
such services and an analysis of methods for monitoring the 
quality of care provided to these recipients. The report would 
be due no later than six months after enactment.
      OIG Report on Notices Relating to Use of Hospital 
Lifetime Reserve Days. The Inspector General of HHS would be 
required to report to Congress on the extent to which hospitals 
provide notice to Medicare beneficiaries, in accordance with 
applicable requirements, before they use the 60 lifetime 
reserve days under the hospital benefit. The report would also 
include the appropriateness and feasibility of hospitals 
providing a notice to beneficiaries before they exhaust the 
lifetime reserve days. The report would be due no later than 
one year after enactment.
Senate Bill
      No provision.
Conference Agreement
      GAO Report on Physician Compensation. The conference 
agreement requires that, no later than six months from 
enactment, the GAO report to Congress on the appropriateness of 
the updates in the conversion factor including the 
appropriateness of the sustainable growth rate (SGR) formula 
for 2002 and subsequent years. The report will examine the 
stability and the predictability of the updates and rate as 
well as the alternatives for use of the SGR in the updates. No 
later than 12 months from enactment, GAO is required to report 
to Congress on all aspects of physician compensation for 
Medicare services. The report is required to review the 
alternatives for the physician fee schedule.
      Annual Publication of List of National Coverage 
Determinations. The conference agreement requires the Secretary 
publish an annual list of national coverage determinations made 
under Medicare in the previous year. Information on how to get 
more information about the determinations is required to be 
included in the publication. The list and the information are 
required to be published in an appropriate annual publication 
that is publicly available.
      GAO Report on Flexibility in Applying Home Health 
Conditions of Participation to Patients Who Are Not Medicare 
Beneficiaries. The conference agreement requires the GAO to 
report to Congress on the implications if the Medicare 
conditions of participation for home health agencies were 
applied flexibly with respect to groups or types of patients 
who are not Medicare beneficiaries. The report is required to 
include an analysis of the potential impact of this flexibility 
on clinical operations and the recipients of such services and 
an analysis of methods for monitoring the quality of care 
provided to these recipients. The report is due no later than 
six months after enactment.
      OIG Report on Notices Relating to Use of Hospital 
Lifetime Reserve Days. The conference agreement requires the 
Inspector General of HHS to report to Congress on the extent to 
which hospitals provide notice to Medicare beneficiaries, in 
accordance with applicable requirements, before they use the 60 
lifetime reserve days under the hospital benefit. The report is 
required to include the appropriateness and feasibility of 
hospitals providing a notice to beneficiaries before they 
exhaust the lifetime reserve days. The report is due no later 
than one year after enactment.
Streamlining and Simplification of Medicare Regulations (Section 504 of 
        the Senate Bill)
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      The Secretary would be required to analyze Medicare 
regulations for the purposes of determining how to streamline 
the regulations and reduce the number of words in the 
regulations by two-thirds by October 1, 2004. If the Secretary 
determines that the two-thirds reduction is infeasible, he 
would be required to inform Congress in writing by July 1, 2004 
of the reasons and then establish a feasible reduction to be 
achieved by January 1, 2005. The provision would be effective 
upon enactment.
Conference Agreement
      No provision.
Elimination of the Requirement for De Novo Review by the Departmental 
        Appeals Board (Section 520 of the Senate Bill)
Present Law
      BIPA section 521 requires that the Departmental Appeals 
Board (DAB), the fourth level of appeal, review appeals cases 
de novo. Prior to BIPA, the DAB reviewed appeals based on the 
record established during the previous three levels of appeal.
House Bill
      No provision.
Senate Bill
      The DAB would be required to review a decision and render 
a decision or remand the appeal to the ALJ within the 90-day 
period. The provision would be effective upon enactment.
Conference Agreement
      No provision.

             TITLE X--MEDICAID AND MISCELLANEOUS PROVISIONS

                    Subtitle A--Medicaid Provisions

Medicaid Disproportionate Share (DSH) Hospital Payments--Temporary 
        Increase. (Section 1001(a) of the Conference Agreement, Section 
        1001 of the House Bill, and Section 601 of the Senate Bill)
Present Law
      Hospitals that serve a large number of uninsured patients 
and Medicaid enrollees receive additional Medicaid 
disproportionate share hospital (DSH) payments. As established 
in the BBA 1997, the federal share of Medicaid DSH payments is 
capped at specified amounts for each state for FY1998 through 
FY2002. For most states, those specified amounts declined over 
the 5-year period. A state's allotment for FY2003 and for later 
years is equal to its allotment for the previous year increased 
by the percentage change in the consumer price index for urban 
consumers (CPI-U) for the previous year. In addition, each 
state's DSH payment for FY2003 and subsequent years is limited 
to no more than 12% of total spending for medical assistance in 
each state for that year.
      BIPA provided states with a temporary reprieve from the 
declining allotments by establishing a special rule for the 
calculation of DSH allotments for 2 years, raising allotments 
for FY2001 and for FY2002. The provision also clarified that 
the FY2003 allotments were to be calculated as specified under 
BBA 1997, using the lower, pre-BIPA levels for FY2002 in those 
calculations.
      DSH payments to each inpatient general hospital are 
limited to some percentage of the costs of providing inpatient 
and outpatient services to Medicaid and uninsured patients at 
that hospital, less payments received from or on behalf of 
Medicaid and uninsured patients. These costs are considered to 
be unreimbursed costs. DSH payments to private hospitals may be 
no greater than 100% of unreimbursed costs. Public hospitals, 
for the two state fiscal years beginning after September 2002, 
cannot receive DSH payments that exceed 175% of unreimbursed 
costs. Thereafter, those hospitals would be limited to DSH 
payments of no more than 100% of unreimbursed costs.
House Bill
      The provision would establish a temporary increase in DSH 
allotments for FY2004 and for certain subsequent fiscal years. 
Allotments for FY2004 would be set at 120% of FY2003 allotments 
as under BIPA and would not be subject to the ceiling capping 
states' allotments at 12% of medical assistance payments. 
Allotments for subsequent years would be equal to the 
allotments for FY2004 unless the Secretary determines that the 
allotments as would have been calculated prior to the enactment 
of this bill would equal or exceed the FY2004 amounts. For such 
fiscal years, allotments would be equal to allotments for the 
prior fiscal year increased by the percentage change in the 
consumer price index for all urban consumers for the previous 
fiscal year. The provision would be effective upon enactment.
Senate Bill
      The special DSH rule established by BIPA that raised DSH 
allotments, subject to the current law limit of 12% of spending 
for medical assistance, would be extended for FY2004 and 
FY2005. Allotments for FY2004 would be calculated to be equal 
to FY2004 allotments (as established by BBA 1997) increased by 
the product of 0.50; and the difference between: (a) FY2002 
allotments (as established by BIPA 2000) increased by the 
percentage change in the CPI-U for each of fiscal years 2002 
and 2003, and (b) FY2004 allotments (as established by BBA 
1997). Allotments FY2005 would be calculated to be equal to 
FY2005 allotments (as established by BBA 1997) increased by the 
product of 0.50; and the difference between: (a) FY2002 
allotments (as established by the BIPA 2000) increased by the 
percentage change in the CPI-U for each of fiscal years, 2002, 
2003, and 2004, and (b) FY2005 allotments (as established by 
BBA 1997). For FY2006 and thereafter, DSH allotments would be 
calculated based on the previous years' amount (as established 
by BBA 1997 and subject to the current law limit of 12% of 
spending for medical assistance) increased by the percentage 
change in the CPI-U for the previous fiscal year. All 
allotments would remain subject to the current law limit of 12% 
of medical assistance spending.
      A separate calculation of the DSH allotment for the 
District of Columbia for FY2004 would be specified. The DSH 
allotment for the District of Columbia for FY2004 would be 
raised, subject to the current law limit of 12% of spending for 
medical assistance, by multiplying $49 million by the 
percentage change in the CPI-U for each of FY2000, FY2001, 
FY2002, and FY2003. The provision would be effective upon 
enactment.
Conference Agreement
      The conference agreement will establish a temporary 
increase in DSH allotments for FY2004 and for certain 
subsequent fiscal years. Allotments for FY2004 are to be set at 
116% of FY2003 allotments as under BIPA and will not be subject 
to the ceiling capping states' allotments at 12% of medical 
assistance payments. Allotments for subsequent years will be 
equal to the allotments for FY2004 unless the Secretary 
determines that the allotments as would have been calculated 
prior to the enactment of this bill would equal or no longer 
exceed the FY2004 amounts. For such fiscal years, allotments 
will be equal to allotments for the prior fiscal year increased 
by the percentage change in the consumer price index for all 
urban consumers for the previous fiscal year. The provision is 
effective upon enactment.
Increase in the Floor for Treatment as an Extremely Low DSH States 
        Under the Medicaid Program for Fiscal Years 2004 and 2005. 
        (Section 1001(b) of the Conference Agreement, Section 602 of 
        the Senate Bill)
Present Law
      Extremely low DSH states are those states whose FY1999 
federal and state DSH expenditures (as reported to CMS on 
August 31, 2000) are greater than zero but less than 1% of the 
state's total medical assistance expenditures during that 
fiscal year. DSH allotments for the extremely low DSH states 
for FY2001 would be equal to 1% of the state's total amount of 
expenditures under their plan for such assistance during that 
fiscal year. For subsequent fiscal years, the allotments for 
extremely low DSH states would be equal to their allotment for 
the previous year, increased by the percentage change in the 
CPI-U for theprevious year, subject to a ceiling of 12% of that 
state's total medical assistance payments in that year.
House Bill
      No provision.
Senate Bill
      Allotments for certain extremely low DSH states for 
FY2004 and FY2005 would be increased. For states with DSH 
expenditures for FY2000 (as reported to CMS as of August 31, 
2003) that are greater than zero but less than 3% of the 
state's total medical assistance expenditures during that 
fiscal year, the provision would raise the DSH allotments for 
FY2004 to 3% of the state's total amount of expenditures for 
such assistance during that fiscal year. States with DSH 
expenditures for FY2001 (as reported to CMS as of August 31, 
2004) that are greater than zero but less than 3% of the 
state's total medical assistance expenditures during that 
fiscal year would have the DSH allotments for FY2005 equal to 
such state's DSH allotment for FY2004 increased by the 
percentage change in the CPI-U for FY2004.
      A special DSH allotment adjustment for certain states 
would be specified for FY2004 and FY2005. For Tennessee, if its 
state-wide Section 1115 waiver is revoked or terminated during 
FY2004 and/or FY2005, the Secretary of HHS would permit the 
state to submit an amendment to its state plan that would 
describe the methodology to be used by the state to identify 
and make payments for disproportionate share hospitals 
(including children's hospitals, and institutions for mental 
diseases, or other mental health facilities--other than state-
owned institutions or facilities), based on the proportion of 
patients served by such hospitals that are low-income patients 
with special needs. The state would be required to provide data 
for the computation of an appropriate DSH allotment that does 
not result in greater expenditures under this title than would 
have been made if such waiver had not been revoked or 
terminated. The provision would be effective upon enactment.
Conference Agreement
      The conference agreement will raise the temporary floor 
for extremely low DSH states as defined under current law for 
fiscal years 2004 through 2008 by 16% above current amounts.
Increased Reporting Requirements to Ensure the Appropriateness of 
        Payment Adjustments to Disproportionate Share Hospitals Under 
        the Medicaid Program. (Section 1001(c) of the Conference 
        Agreement, Section 603 of the Senate Bill)
Present Law
      BBA 1997 required each state to submit to the Secretary 
an annual report describing the disproportionate share payments 
made to each disproportionate share hospital (DSH) and the 
methodology used by the state for prioritizing payments to such 
hospitals.
House Bill
      No provision.
Senate Bill
      As a condition of receiving federal Medicaid payments for 
FY2004 and each fiscal year thereafter, the provision would 
require each state to submit to the Secretary an annual report 
(for the previous fiscal year) identifying each 
disproportionate share hospital that received a payment, the 
amount such hospital received, as well as other information the 
Secretary determines necessary to ensure the appropriateness of 
the DSH payments for the previous fiscal year. The provision 
would be effective upon enactment.
Conference Agreement
      As a condition of receiving federal Medicaid payments for 
FY2004 and each fiscal year thereafter, the conference 
agreement will require each state to submit to the Secretary an 
annual report (for the previous fiscal year) identifying each 
disproportionate share hospital that received a payment, the 
amount such hospital received, as well as other information the 
Secretary determines necessary to ensure the appropriateness of 
the DSH payments for the previous fiscal year. In addition, the 
conference agreement will require states to submit annually to 
the Secretary an independent certified audit verifying: the 
extent to which hospitals receiving DSH payments have reduced 
their uncompensated care costs to reflect DSH payments 
received; the states' compliance with the hospital-specific 
payment ceilings; the methodology used to calculate those 
ceilings; and the documentation maintained by the states 
regarding claimed costs, expenditures and payments under this 
section. The conference agreement will be effective upon 
enactment.
Clarification of Inclusion of Inpatient Drug Prices Charged to Certain 
        Public Hospitals in the Best Price Exemptions for the Medicaid 
        Drug Rebate Program. (Section 1002 of the Conference Agreement, 
        Section 1002 of the House Bill, and Section 604 of the Senate 
        Bill)
Present Law
      Medicaid drug rebates are calculated based on the 
difference between the average manufacturer's price (AMP) and 
the manufacturer's ``best price.'' In determining the ``best 
price'' for a drug sold by a manufacturer, certain discounted 
prices and fee schedules are disregarded. The special 
discounted prices for outpatient drugs negotiated by the Office 
of Pharmacy Affairs (of HHS) with drug manufacturers on behalf 
of certain clinics and safety net providers are one example of 
prices excluded from Medicaid's ``best price'' determination. 
Because of this exclusion from Medicaid's ``best price'' 
definition, the discounts available to safety net providers 
have no bearing on the calculation of drug rebates under the 
Medicaid program, allowing those providers to negotiate better 
rates with manufacturers, since Medicaid rebates will not 
change with the size of their negotiated discounts. Discounted 
prices for inpatient drugs for many safety net providers, 
however, are not disregarded in the Medicaid ``best price'' 
determination.
House Bill
      The provision would modify the definition of ``best 
price'' for the purpose of calculating Medicaid drug rebates, 
to also disregard the discounted inpatient drug prices charged 
to certain public safety net hospitals. Those hospitals would 
also be subject to the same auditing andrecord keeping 
requirements as other providers with similar exemptions from Medicaid's 
``best price'' determination. The provision would be effective upon 
enactment.
Senate Bill
      The provision would modify the definition of ``best 
price'' for the purpose of calculating Medicaid drug rebates, 
to also exclude the discounted inpatient drug prices charged to 
certain public safety net hospitals. Those hospitals would also 
be subject to the same auditing and record keeping requirements 
as other providers with similar exemptions from Medicaid's 
``best price'' determination. The provision would be effective 
October 1, 2003.
Conference Agreement
      The conference agreement will modify the definition of 
``best price'' for the purpose of calculating Medicaid drug 
rebates, to also exclude the discounted inpatient drug prices 
charged to certain public safety net hospitals. Those hospitals 
will also be subject to the same auditing and record keeping 
requirements as other providers with similar exemptions from 
Medicaid's ``best price'' determination. The provision will be 
effective upon enactment.
Assistance for States for Legal Immigrants
Present Law
      ``Qualified aliens'' who entered the United States after 
the enactment of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996 (PRWORA, August 22, 
1996) are not eligible to receive federally funded benefits 
under Medicaid or SCHIP for 5 years. Qualified aliens who 
entered the United States prior to the enactment of PRWORA are 
eligible for federally funded Medicaid coverage as a state 
option, as are qualified aliens arriving after August 22, 1996 
who have been present in the United States for more than 5 
years.
      A person who executed an affidavit of support for an 
alien under Senate Section 213A of the Immigration and 
Nationality Act (INA) is liable to reimburse the federal or 
state government for the public benefits received by the 
sponsored alien until the alien naturalizes or has accumulated 
40 quarters of work. Senate Section 213A was enacted as a part 
of PRWORA on August 22, 1996.
House Bill
      No provision.
Senate Bill
      The provision would lift the 5-year ban and would allow 
states the option to provide medical assistance to certain 
lawfully residing individuals under Medicaid (including under a 
waiver authorized by the Secretary) or SCHIP for any of fiscal 
years 2005 through 2007. Those eligible would include lawfully 
residing women during pregnancy and the 60-day period after 
delivery, and children otherwise eligible for Medicaid or SCHIP 
as defined by the state plan. States opting to provide coverage 
to such lawfully residing individuals under SCHIP must also 
provide coverage to such individuals under Medicaid. If 
services are provided under the Medicaid program, the alien's 
sponsor would not be liable to reimburse the federal or state 
government for the cost of such services. The provision would 
be effective upon enactment.
Conference Agreement
      No provision.
GAO Study Regarding Impact of Assets Test for Low-income Beneficiaries. 
        (Section 607 of the Senate Bill)
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      The provision would require the General Accounting Office 
(GAO) to conduct a study to determine the extent to which drug 
utilization and access to covered drugs differs between: (1) 
individuals who qualify for the transitional assistance 
prescription drug card program or for the premiums and cost 
sharing subsidies available to certain low-income beneficiaries 
(including qualified Medicare beneficiaries, specified low-
income Medicare beneficiaries or qualifying individual under 
Senate Section 1860(D)), and (2) individuals who do not qualify 
for the transitional assistance prescription drug card program 
or for the premiums and cost sharing subsidies available to 
certain low-income beneficiaries solely as a result of the 
application of an assets test to the income eligibility 
requirements of such individuals. The GAO would be required to 
submit to Congress the final report (including recommendations 
for legislation) no later than September 30, 2007. The 
provision would be effective upon enactment.
Conference Agreement
      No provision.
Clarification Regarding Non-Regulation of Transfers
Present Law
      No specific provision.
House bill
      No provision.
Senate bill
      No provision.
Conference Agreement
      The final conference agreement permits the Secretary, in 
limited instances, to allow a publicly-owned regional medical 
center to utilize the disproportionate share hospital allotment 
of another State. This provision will apply through December 
31, 2005.
Urban Health Provider Adjustment. (Section 625 of the Senate Bill)
Present Law
      There are two other types of ceilings on DSH payments, in 
addition to the state-wide allotments. The ``hospital-
specific'' ceiling limits payments to hospitals to some 
percentage of the each hospital's costs of providing inpatient 
and outpatient services to Medicaid and uninsured patients, 
less payments received from or on behalf of Medicaid and 
uninsured patients (''unreimbursed costs''). DSH payments to 
public hospitals are limited to 100% of these unreimbursed 
costs except in fiscal years 2003 and 2004 when the percentage 
of unreimbursed costs that can be covered by DSH rises to 175%. 
The hospital-specific ceiling for private hospitals is 100% of 
unreimbursed costs and for certain public hospitals in the 
state of California is 175% permanently.
House Bill
      No provision.
Senate Bill
      DSH payments made to hospitals that are owned and 
operated by the state of Indiana and located in Marion County 
would be made without regard to the state's DSH allotment 
limitation so long as those payment amounts, fit FY2004 and 
each fiscal year thereafter do not exceed 175% of the 
``unreimbursed costs'' of furnishing hospital services.
Conference Agreement
      No provision.
100% FMAP for Medical Assistance Provided to a Native Hawaiian Through 
        a Federally-Qualified Health Center or a Native Hawaiian Health 
        Care System Under the Medicaid Program. (Section 632 of the 
        Senate Bill)
Present Law
      The Medicaid program is jointly financed by the states 
and the federal government. The federal government share is 
based on each state's federal medical assistance percentage 
(FMAP). The FMAP for a state is calculated using a formula 
reflecting the state per capita income relative to the average 
U.S. per capita income. The formula is designed to give a 
higher FMAP to states with a per capita income below the U.S. 
average. No state can have an FMAP of less than 50% or more 
than 83%. Certain services including family planning are paid 
at an alternative FMAP rate, as are administrative expenses. In 
addition, the law provides that services provided through an 
Indian Health Service facility operated by the Indian Health 
Service or an Indian tribe or tribal organization have an FMAP 
of 100%.
      The Jobs and Growth Tax Relief Reconciliation Act of 2003 
(JEGTRRA, P.L. 108-026) altered the statutory calculation of 
the FMAPs by providing a hold harmless for declines from the 
prior year for each state FMAP, and a temporary increase of 
2.95 percentage points for the last 2 quarters of fiscal year 
2003 and the first three quarters of fiscal year 2004. The 
calculated statutory FMAPs for Hawaii would be 58.77% for 
fiscal year 2003 and 58.90% for fiscal year 2004. The JEGTRRA 
changes result in an FMAP of 61.75% for the last 2 quarters of 
fiscal year 2003, and 61.85% for the first three quarters of 
fiscal year 2004. The FMAP for services provided to a Native 
Hawaiian is the same as for services provided to other Medicaid 
beneficiaries in Hawaii.
House Bill
      No provision.
Senate Bill
      For services provided to a Native Hawaiian by a federally 
qualified health center or a Native Hawaiian health care 
system, the FMAP would be 100%. Services qualifying for the 
100% FMAP would include those provided by referral, and under 
contract or other arrangement between a health care provider 
and the federally qualified health center or Native Hawaiian 
health care system. The provision would be effective for 
medical assistance provided on or after the date of enactment.
Conference Agreement
      No provision.
Extension of Moratorium. (Section 633 of the Senate Bill)
Present Law
      Medicaid payment for services provided by an institution 
for mental disease (IMD) may be made only for beneficiaries who 
are under age 21 or over 65. IMD means a hospital, nursing 
facility, or other institution of more than 16 beds, that is 
primarily engaged in providing diagnosis, treatment, or care of 
persons with mental diseases, including medical attention, 
nursing care, and related services. For two facilities in 
Michigan--Kent Community Hospital Complex and Saginaw Community 
Hospital--previous legislation has imposed a moratorium on 
determination of the facilities as IMDs through December 31, 
2002.
House Bill
      No provision.
Senate Bill
      The moratorium on the determination of Saginaw Community 
Hospital as an IMD would be permanently extended. The provision 
would be effective as if included in the Balanced Budget Act of 
1997.
Conference Agreement
      The moratorium on the determination of Saginaw Community 
Hospital as an IMD would be extended for 2 years. The provision 
would be effective as if included in the Balanced Budget Act of 
1997.

                  Subtitle B--Miscellaneous Provisions

Employer Flexibility. (Section 1011 of the Conference Agreement, and 
        Section 631 of the Senate Bill)
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      The provision would amend the Age Discrimination in 
Employment Act of 1967 to allow an employee benefit plan that 
provides medical benefits to be offered to retirees who are not 
eligible for Medicare benefits or benefits provided under a 
State plan without offering medical benefits, or the same 
medical benefits, to Medicare-eligible retirees or retirees 
eligible for benefits under a State plan. Under the provision, 
an employee benefit plan that distinguishes between those 
retirees and other retirees would not violate the ADEA. The 
provision would be effective upon enactment.
Conference Agreement
      No provision. However, the conferees reviewed the ADEA 
and its legislative history and believe the legislative history 
clearly articulates the intent of Congress that employers 
should not be prevented from providing voluntary benefits to 
retirees only until they become eligible to participate in the 
Medicare program.
Federal Reimbursement of Emergency Health Services Furnished to 
        Undocumented Aliens
Present Law
      The Balanced Budget Act of 1997 (BBA97) provided $25 
million in funding for state emergency health services 
furnished to undocumented aliens for each of FY1998 through 
2001. Funds were distributed among the 12 states with the 
highest number of undocumented aliens. In a fiscal year, each 
state's portion of the total funds available was based on its 
share of total undocumented aliens in all of the eligible 
states. The share of undocumented aliens in each state were 
based on the estimates provided by the Statistics Division of 
the Immigration and Naturalization Service (INS).
House Bill
      No provision.
Senate Bill
      For each of fiscal years 2005 through 2008 the provision 
would appropriate for allotment among states $250 million in 
funds for emergency health services furnished to undocumented 
aliens. Each such fiscal year the Secretary would distribute 
$167 million of $250 million among all states. Each state would 
receive an amount equal to the product of the total amount 
available in each fiscal year, and the proportion of the 
state's share of undocumented aliens to the total count of 
undocumented aliens residing in all states as determined by the 
Statistics Division of the Immigration and Naturalization 
Service, as of January 2003, based on the decennial census.
      For each of fiscal years 2005 through 2008, the Secretary 
would distribute $83 million of $250 million among the 6 states 
with the highest number of undocumented alien apprehensions for 
such fiscal year. Each such state would receive an amount that 
bears the same ratio to the total amount available for 
allotments to such states (in each fiscal year) as the ratio of 
the number of undocumented alien apprehensions in the state (in 
each fiscal year) to the total number of undocumented alien 
apprehensions for all such states (in each fiscal year) based 
on the four most recent quarterly apprehensions rates for 
undocumented aliens as reported by the Immigration and 
Naturalization Service.
      From the state allotments described above, the Secretary 
would pay directly to local governments, hospitals, or other 
providers located in the state (including providers of services 
rendered through an Indian Health Service facility) for costs 
incurred in providing emergency health care services furnished 
to undocumented aliens during that fiscal year (even if the 
care is furnished to aliens who have been allowed to enter for 
the sole purpose of receiving emergency health care services). 
No later than September 1, 2004, the Secretary would be 
required to establish a process that includes measures to 
protect against fraud and abuse, under which entities would 
apply for reimbursement from the state's allotments for claims 
associated with emergency health care services furnished to 
undocumented aliens. Advanced payments would be made quarterly 
based on the applicant's projected expenditures. The Secretary 
would also be required to set up a process to allow for prior 
period adjustments resulting from underpayment or overpayment 
to an entity in a prior quarter. Funds shall remain available 
until they are expended. The provision would be effective upon 
enactment.
Conference Agreement
      For each of fiscal years 2005 through 2008 the Conference 
agreement appropriates for allotment among eligible providers 
in the 50 states and the District of Columbia $250 million in 
additional federal funding for emergency health services 
furnished to undocumented aliens. For each such fiscal year, 
the Secretary must distribute $167 million of $250 million 
among eligible providers in all states. Each state's share of 
this amount will be based on its proportion of totalnumber of 
undocumented aliens in all states as determined by the Statistics 
Division of the Immigration and Naturalization Service, as of January 
2003, based on the decennial census.
      For each of fiscal years 2005 through 2008, the Secretary 
must distribute $83 million of $250 million among eligible 
providers in the six states with the highest number of 
undocumented alien apprehensions for such fiscal year. Each 
state's share of this amount is equal to the product of the 
total amount available for allotments to such states (in each 
fiscal year), and the proportion of the number of undocumented 
alien apprehensions in the state (in each fiscal year) to the 
total number of undocumented alien apprehensions for all such 
states (in the preceding fiscal year) based on apprehensions 
rates for undocumented aliens as reported by the Immigration 
and Naturalization Service in the four consecutive-quarter 
periods ending before the beginning of the fiscal year for 
which such information is available.
      From the $250 million in state allotments described 
above, the Secretary will pay directly to eligible providers 
located in the state (including hospitals, physicians, or 
providers of ambulance services, and Indian Health Service 
facilities) for unreimbursed costs incurred by providing 
emergency health care services during that fiscal year to: (1) 
undocumented aliens; (2) aliens who have been paroled in the 
United States at a port of entry for the purpose of receiving 
eligible services; and (3) Mexican citizens permitted to enter 
the United States for not more than 72 hours under the 
authority of a specified identification card. In establishing a 
payment methodology, the Secretary may establish different 
methodologies for different types of eligible providers, may 
calculate payments to hospitals based on hospital-specific 
cost-to-charge ratios, and shall make quarterly payments to 
eligible providers. Hospitals may elect to receive payment for 
hospital and all physician services in which case they may pass 
on payments for physician services directly to physicians 
without charging hospital administrative fees. If the amount of 
funds allotted to a state is insufficient to ensure that each 
eligible provider receives the amount described above, then the 
Secretary is required to reduce the amount of payment to 
eligible providers to ensure that each eligible provider is 
paid.
      No later than September 1, 2004, the Secretary must 
establish a process that includes measures to protect against 
fraud and abuse to ensure that inappropriate, excessive or 
fraudulent payments are not made from allotments. Advance 
payments may be made quarterly based on the applicants 
projected expenditures. The Secretary is also required to set 
up a process to allow for prior period adjustments resulting 
from underpayments or overpayments. Funds will remain available 
until they are expended. The provision will be effective upon 
enactment.
Commission on Systematic Interoperability. (Section 1013 of the 
        Conference Agreement)
Pediatric Palliative Care Demonstration
      Medicare is designed for aged and disabled individuals 
(typically people over 65 years of age). It was not designed 
with children in mind.
      The conferees are aware of potential barriers in the 
current system for children with life-threatening illnesses. 
First, in order to qualify for hospice, a doctor must certify 
that a child has 6 months to live. Determining how long a child 
has to live is often difficult. Second, the current system does 
not allow a patient to receive curative and palliative care 
simultaneously. This means that children can either receive 
treatment for their disease or they can receive palliative 
care.
      HHS should conduct a demonstration project in up to 6 
geographically diverse sites to determine whether palliative 
care for children may be improved under circumstances where 
such barriers are reduced or eliminated. Such demonstration 
shall take place over at least a three-year period.
      The Secretary, in conducting such demonstration project, 
should take into account the recommendations of the Institute 
of Medicine in its report: ``When Children Die: Improving 
Palliative and End-of-Life Care for Children and Their 
Families.''
      In particular, the Secretary should consider including as 
part of the demonstration:
      1. Waivers To Elect Hospice Care and Receive Curative 
Treatment.
      2. Care coordination from diagnosis to end of life.
      3. Features to ensure that parents have information about 
existing pediatric hospice and palliative care programs to make 
decisions about the care of their child.
      4. Bereavement counseling for the family and 
reimbursement to provider.
      The conferees believe that it is important that the 
Secretary have flexibility when conducting such demonstration 
to provide additional benefits so long as they are consistent 
with the recommendations contained in the IOM Report and they 
are provided in budget neutral manner. The conferees also 
believe that the Secretary should provide reports to Congress, 
as appropriate, that include an evaluation of the short- and 
long-term costs and benefits of palliative care under 
traditional Medicare and the demonstration projects, determine 
the quality and duration of palliative care under the 
demonstration project, and evaluate whether there is an offset 
of savings by providing pediatric palliative care, and the 
projected cost of implementing the demonstrations on a national 
basis.
Present Law
      No provision.
House Bill
      No provision.
Senate Provision
      No provision.
Conference Agreement
      The conference agreement instructs the Secretary to 
establish a Commission on Systemic Interoperability to develop 
a comprehensive strategy for the adoption and implementation of 
health care information technology standards. In developing its 
strategy, the Commission must consider the costs and benefits 
of the standards, the current demand on industry resources to 
implement these and other electronic standards (including the 
HIPAA administrativesimplification standards), and the most 
cost-effective and efficient means for industry to implement the 
standards. The Commission must not interfere with any ongoing process 
of developing or adopting standards, nor shall it replicate activities 
related to such standards or to the HHS National Health Information 
Infrastructure initiative. Not later than October 31, 2005, the 
Commission must submit a report to the Secretary and the Congress 
describing its strategy.
      The Commission shall be composed of 11 members. The 
President shall appoint three members, including a Chairperson; 
the Senate Majority Leader, the Senate Minority Leader, the 
Speaker, and the House Minority Leader shall each appoint two 
members. Commission membership must include nationally 
recognized experts in health finance and economics, health 
plans and integrated delivery systems, health care 
reimbursement, health care technology and information systems, 
and other related fields, as well as physicians, pharmacists, 
and other health care providers, who provide a mix of 
professionals, broad geographic representation, and a balance 
between urban and rural representation. Each member shall be 
appointed for the life of the Commission.
      Commission members shall be paid for each day (including 
travel days) of service at a rate not exceeding the rate of 
basic pay for level IV of the Executive Schedule. Each member 
shall also receive travel expenses and a per diem. Federal 
employees who serve on the Commission may not receive any 
financial compensation.
      A majority of Commission members shall constitute a 
quorum but a lesser number may hold hearings. The Commission 
Chairperson must appoint a Director, to be paid at a rate not 
exceeding the rate of basic pay for level IV of the Executive 
Schedule. With the Commission's approval, the Director may 
appoint additional staff, as well as temporary experts and 
consultants. Employees of federal agencies may also be detailed 
to the Commission to assist in carrying out its duties.
      The Commission may, as appropriate, hold hearings, take 
testimony, and receive evidence. Any Commission member or agent 
may, if so authorized by the Commission, take any action which 
the Commission is authorized to take. The Commission may obtain 
official information from a federal agency and may accept, use 
and dispose of gifts, bequests, or devises of services or 
property, both real and personal. Gifts, bequests, or devises 
or money and proceeds from sales of other property received as 
gifts, bequests, or devices shall be deposited in the Treasury 
and available for disbursement upon order of the Commission. 
The Commission may use the U.S. mail under the same conditions 
as other federal agencies and may enter into contracts as may 
be necessary to conduct its work. Upon the Commission's 
request, the Administrator of General Services must provide 
administrative support services to the Commission on a 
reimbursable basis.
      The Commission shall terminate 30 days after submitting 
its report to the Secretary and the Congress. The conference 
report authorizes to be appropriated such sums as may be 
necessary to carry out this Section.
Research on Outcomes of Health Care Items and Services. (Section 1014 
        of the Conference Agreement)
Present Law
      The Agency for Healthcare Research and Quality (AHRQ) is 
an agency within the Department of Health and Human Services. 
AHRQ's mission is to support, conduct, and disseminate research 
that improves access to care and the outcomes, quality, cost, 
and utilization of health care services. The research agenda is 
designed to be responsive to the needs of its customers, 
including patients, clinicians, institutions, plans, 
purchasers, and federal, state and local governments. The 
research conducted by AHRQ is used to inform medical practice, 
educate consumer understanding of health care, and expand 
policymakers' ability to monitor and evaluate the impact of 
system changes on outcomes, quality, access, cost, and use of 
health care, and to devise policies to improve system 
performance.
House Bill
      No provision.
Senate Bill
      No provision.
Conference Agreement
      The conference agreement authorizes and appropriates $50 
million for fiscal year 2004 for the Secretary through the 
Agency for Healthcare Research and Quality to conduct research 
to address the scientific information needs and priorities 
identified by the Medicare, Medicaid, and State Children's 
Health Insurance Programs. The information needs and priorities 
will relate to the clinical effectiveness and appropriateness 
of specified health services and treatments, and the health 
outcomes associated with such services and treatments. The 
needs and priorities also will address strategies for improving 
the efficiency and effectiveness of those health care programs. 
The Secretary is required to establish a process for developing 
research priorities. Not later than 6 months after the date of 
enactment, the Secretary must establish an initial list of 
priorities. The Secretary must complete the evaluation and 
synthesis of the scientific evidence related to that initial 
list within 18 months after development of such a list and 
disseminate the research findings to the public, prescription 
drug plans, and other plans. Not later than 18 months after the 
date of enactment, the Secretary is required to identify 
voluntary options that could be undertaken by public and 
private entities to improve information sharing regarding 
outcomes and quality of care, adopt innovative quality 
improvement strategies, develop management tools to improve 
oversight by state officials, support federal and state 
initiatives to improve the quality, safety, and efficiency of 
services, and provide a basis for estimating the fiscal and 
coverage impact of federal or state policy changes of the 
Medicare, Medicaid, and State Children's Health Insurance 
Programs. The Administrator for the Center for Medicare and 
Medicaid Services may not use data from the research conducted 
to withhold coverage of a prescription drug, to mandate a 
national standard, or require a specific approach to quality 
measurement and reporting.
Health Care that Works for All Americans--Citizens Health Care Working 
        Group. (Section 1015 of the Conference Agreement, and Section 
        620 of the Senate Bill)
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      The bill would authorize $3 million for each of the 
fiscal years 2005 and 2006 for the Secretary of HHS, acting 
through the Agency for Healthcare Research and Quality, to 
establish a group that would be called the ``Citizens' Health 
Care Working Group.'' The 25 members of the group would come 
from health care stakeholders and would be appointed by 
Congressional leaders. Working Group member appointments could 
not be made from elected officials. Appointments would be for a 
2-year period. Once all the members of the Working Group have 
been appointed, Congressional leaders would appoint a 
chairperson from among the members. The Working Group would be 
responsible for holding hearings and producing public reports 
regarding expanding coverage options, the cost of health care, 
innovative state and community strategies to expand coverage or 
reduce costs, and the role of evidence-based medicine and 
technology in improving quality and lowering costs. The first 
hearing would be required to be held within 90 days after the 
chairperson was appointed and additional hearings would be 
permitted. Within 90 days of completing hearings, the Working 
Group would be required to prepare a report that discusses 
numerous health care issues including health care and related 
services used by individuals throughout their lifetimes, the 
cost of health care services, sources of coverage and payment, 
and reasons for uninsurance and underinsurance.
      In addition to hearings, the Working Group would be 
required to hold community meetings throughout the United 
States in sufficient number to reflect geographic differences, 
diverse populations, and a balance among urban and rural 
populations. The Working Group would be required to prepare an 
interim set of recommendations on health care coverage and ways 
to improve and strengthen the health care system based on the 
information and preferences expressed at the community meetings 
within 180 days after the conclusion of the community meetings. 
There would be a 90-day public comment period on the 
recommendations. Not later than 120 days after the end of the 
public comment period, the Working Group would be required to 
submit to Congress and the President a final set of 
recommendations. Not later than 45 days after receiving the 
final recommendations, the President would be required to 
submit a report to Congress with additional views and comments 
on the recommendations and recommendations for legislation and 
administrative actions. Each congressional committee of 
jurisdiction would be required to hold at least one hearing on 
the report and the final recommendations.
      The Working Group would be staffed by an Executive 
Director appointed by the chairperson, up to 20 Federal 
Government employees on detail, and could procure temporary or 
intermittent services of individuals. The Working Group would 
be required to report to Congress annually a detailed 
description of the expenditures of the Working Group used to 
carry out its duties. The Working Group would terminate when 
the report with the final recommendations is submitted to 
Congress, but not later than two years after the date on which 
Working Group members were appointed. The provision would be 
effective upon enactment.
Conference Agreement
      The conference agreement authorizes $3 million for each 
of the fiscal years 2005 and 2006 for the Secretary of HHS, 
acting through the Agency for Healthcare Research and Quality, 
to establish a group called the ``Citizens' Health Care Working 
Group.'' The working group will be composed of 15 members; one 
member will be the Secretary and the other 14 members will be 
appointed by the Comptroller General. Appointments will include 
certain consumers of heath services, and individuals with 
expertise in the health care industry. Appointment will not 
include elected officials. The duration of appointments will be 
for the life of the Working Group. Not later than 15 days after 
which all appointments have been made, the Comptroller General 
will designate a chairperson from the members. The Working 
Group will be responsible for holding hearings and producing 
public reports regarding expanding coverage options, the cost 
of health care, innovative state and community strategies to 
expand coverage or reduce costs, and the role of evidence-based 
medicine and technology in improving quality and lowering 
costs. The first hearing must be held within 90 days after 
designation of the chairperson, and additional hearings would 
be permitted as long as such hearings do not delay the Working 
Group's other activities. Within 90 days of completing 
hearings, the Working Group will prepare a report that 
discusses numerous health care issues including health care and 
related services used by individuals throughout their 
lifetimes, the cost of health care services, sources of 
coverage and payment, and reasons for uninsurance and 
underinsurance.
      In addition to hearings, the Working Group will hold 
community meetings throughout the United States in sufficient 
number to reflect geographic differences, diverse populations, 
and a balance among urban and rural populations. The Working 
Group will prepare an interim set of recommendations on health 
care coverage, and ways to improve and strengthen the health 
care system based on the information and preferences expressed 
at the community meetings within 180 days after the conclusion 
of such meetings. There will be a 90-day public comment period 
on the recommendations.
      Not later than 120 days after the end of the public 
comment period, the Working Group will submit to Congress and 
the President a final set of recommendations. Not later than 45 
days after receiving the final recommendations, the President 
will submit a report to Congress with additional views and 
comments on the recommendations, and recommendations for 
legislative and administrative actions. Each congressional 
committee of jurisdiction will hold at least one hearing on the 
report and the final recommendations.
      The Working Group will be staffed by an Executive 
Director appointed by the chairperson, up to 20 Federal 
Government employees on detail, and could procure temporary or 
intermittent services of individuals. The Working Group will 
report annually to Congress a detailed description of the 
expenditures used by the Working Group to carry out its duties. 
The Working Group will terminate within 2 years after the date 
on which all members of the Working Group were appointed.
Establishment of Consumer Ombudsman Account. (Section 606 of the Senate 
        Bill)
Present Law
      The Omnibus Budget Reconciliation Act of 1990 established 
State Health Insurance Counseling Assistance grants to states 
to provide education and information to Medicare beneficiaries. 
Funding has been subject to annual appropriations.
House Bill
      No provision.
Senate Bill
      A Consumer Ombudsman Account would be established in the 
Medicare Trust Fund and $1 for every Medicare beneficiary would 
be appropriated to the account from the Trust Fund beginning 
with fiscal year 2005. The account would be used to make grants 
to State Health Insurance Counseling Programs. The provision 
would be effective upon enactment.
Conference Agreement
      No provision.
Health Care Infrastructure Improvement. (Section 1016 of the Conference 
        agreement and Section 608 of the Senate Bill)
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      A loan program would be established to improve the 
cancer-related health care infrastructure in certain geographic 
areas of the United States. Examples of potentially eligible 
projects would include the construction, renovation, or other 
capital improvement of any hospital, medical research facility 
or other medical facility or the purchase of any equipment to 
be used in a hospital, research facility or other medical 
research facility. In order to receive assistance, the project 
applicant would be required to: (1) be engaged in research in 
the causes, prevention, and treatment of cancer; (2) be 
designated as a cancer center for the National Cancer Institute 
(NCI) or be designated by the state as the sole official 
comprehensive cancer effort for the state; and (3) be located 
in a state that on the date of enactment of this title has a 
population of less than 3 million individuals. $49 million in 
budget authority would be authorized for July 1, 2004 through 
FY2008 to carry out the loan program, $2 million of which may 
be used each year for administration of the program by the 
Secretary. Not later than 4 years after enactment, the 
Secretary would be required to submit to Congress a report 
summarizing the financial performance of the projects that have 
received assistance under this program, including 
recommendations on the future operation of the program. The 
provision would be effective upon enactment.
Conference Agreement
      A loan program would be established to improve the 
cancer-related health care hospital infrastructure in the 
United States. Examples of potentially eligible projects would 
include the construction, renovation, or other capital 
improvement of any hospital. In order to receive assistance, 
the project applicant would be required to: (1) be engaged in 
research in the causes, prevention, and treatment of cancer; 
(2) be designated as a cancer center for the National Cancer 
Institute (NCI) or be designated by the state as the sole 
official comprehensive cancer effort for the state. $200 
million in budget authority would be authorized for July 1, 
2004 through FY2008 to carry out the loan program, $2 million 
of which may be used each year for administration of the 
program by the Secretary. Not later than 4 years after 
enactment, the Secretary would be required to submit to 
Congress a report summarizing the financial performance of the 
projects that have received assistance under this program, 
including recommendations on the future operation of the 
program. The provision would be effective upon enactment.
Capital Infrastructure Revolving Loan Program. (Section 609 of the 
        Senate Bill)
Present Law
      The Public Health Services Act establishes a fund in the 
Treasury from which the Secretary of HHS can make loans or loan 
guarantees in the amounts that have been specified in 
appropriations Acts from time to time. Under the Medicare Rural 
Hospital Flexibility Program established as part of Title 
XVIII, the Secretary may award grants to rural hospitals to 
cover the implementation costs associated with data systems 
needed to meet the BBA 97 requirements.
House Bill
      No provision.
Senate Bill
      The Secretary would be able to make loans to any rural 
entity to acquire land, renovate buildings, and purchase major 
moveable equipment or other appropriate projects. A rural 
entity would include rural health clinics, a medical facility 
with less than 50 beds in a county that is not part of a 
metropolitan statistical area or is in a rural census tract of 
such area, a hospital that is a rural referral center or a sole 
community hospital. An entity that has been geographically 
reclassified for the purposes of Medicare reimbursement would 
not be precluded from being considered a rural provider. Loan 
guarantees and interest subsidies of up to 3% of the net 
effective interest rate would be authorized. The total of the 
government's exposure with respect to this program would not 
exceed $50 million per year. The total of the principal amount 
of all loans directly made or guaranteed in any year may not 
exceed $250 million per year. In addition, rural providers 
could apply to receive $50,000 planning grants to help assess 
capital and infrastructure needs. The grants awarded in any 
year would not exceed $2.5 million. The program would expire 
after September 30, 2008. The provision would be effective upon 
enactment.
Conference Agreement
      No provision.
Increase in Appropriation to the Health Care Fraud and Abuse Control 
        Account. (Section 611 of the Senate Bill)
Present Law
      The Health Insurance Portability and Accountability Act 
of 1996 (HIPAA, P.L. 104-91) established the Health Care Fraud 
and Abuse Control (HCFAC) Program which is administered by the 
HHS Office of Inspector General and the Department of Justice. 
Funds for the HCFAC program are appropriated from the Federal 
Hospital Insurance Trust Fund. HIPAA provided for annual 
increases of 15% in HCFAC funding through 2003, after which the 
appropriation for HCFAC and the amount earmarked for HHS-OIG 
remains the same. In FY2003 the available appropriation for 
HCFAC was $240,558,320 of which $150 million to $160 million 
was available to the HHS-OIG.
House Bill
      No provision.
Senate Bill
      Additional appropriations to HCFAC would be authorized. 
In FY2004, the increase would be $10 million over the FY2003 
appropriation limit; in FY2005 the increase would be $15 
million over the FY2003 limit; in FY2006 the increase would be 
$25 million above the FY2003 limit. Subsequent years 
appropriations would be at the 2003 limit. The HHS-OIG 
earmarked appropriations would increase as well: to $170 
million in FY2004, $175 million in FY2005, $185 million in 
FY2006. In subsequent years, it would be not more than $150 
million and not more than $160 million. The provision would be 
effective upon enactment.
Conference Agreement
      No provision.
Increase in Civil Penalties Under the False Claims Act. (Section 612 of 
        the Senate Bill)
Present Law
      The False Claims Act imposes a liability on those who 
knowingly present or cause to be presented a false or 
fraudulent claim for payment by the government. In certain 
instances, the person may be liable for a civil penalty of not 
less than $5,000 and not more than $10,000, plus treble 
damages.
House Bill
      No provision.
Senate Bill
      For violations occurring on or after January 1, 2004, the 
minimum amount of the civil penalty would be increased from 
$5,000 to $7,500 and the maximum amount would increase from 
$10,000 to $15,000. The provision would be effective for 
violations occurring on or after January 1, 2004.
Conference Agreement
      No provision.
Increase in Civil Monetary Penalties under the Social Security Act. 
        (Section 613 of the Senate Bill)
Present Law
      The Office of the Inspector General (OIG) has the 
authority to impose civil monetary penalties (CMPs) on any 
person (including an organization or other entity, but not a 
beneficiary) who knowingly presents, or causes to be presented, 
to a state or federal government employee or agent certain 
false or improper claims for medical or other items or 
services. CMPs may also be imposed for other fraudulent 
activities such as inflating charges for services, providing 
services when not a properly licensed physician, billing for 
medically unnecessary services, falsely certifying that an 
individual meets the requirements for home health services, and 
offering or soliciting remuneration to influence the provision 
of medical services. Depending upon the violation, Section 
1128A of the SSA authorizes the imposition of CMPs up to 
$10,000 for each item or service involved, up to $15,000 for 
individuals who provide false or misleading information in 
certain instances, and up to $50,000 per act in other instances 
as well as treble damages.
House Bill
      No provision.
Senate Bill
      The amount of penalties would be increased for violations 
that occur on or after January 1, 2004. In instances where 
penalties are limited to $10,000 would be increased to $12,500; 
those penalties that are limited to $15,000 would be increased 
to $18,750; and those that are limited to $50,000 would be 
increased to $62,500. The provision would be effective for 
violations occurring on or after January 1, 2004.
Conference Agreement
      No provision.
Extension of Customs User Fees. (Section 614 of the Senate Bill)
Present Law
      The U.S. Customs Service, the federal government's oldest 
revenue collecting agency is responsible for regulating the 
movement of persons, carriers, merchandise, and commodities 
between the United States and other countries. Its authority to 
impose user fees for certain services lapsed on September 30, 
2003, but was subsequently restored.
House Bill
      No provision.
Senate Bill
      The authority to impose user fees would be extended until 
September 30, 2013.
Conference Agreement
      No provision.
Provision of Information on Advance Directives. (Section 616 of the 
        Senate Bill)
Present Law
      Information about advance directives is required to be 
given to patients in hospitals, skilled nursing facilities, and 
served by home health agencies. The Secretary is required to 
provide Medicare beneficiaries annual information about 
Medicare benefits, limitations on payment, and a description of 
the limited benefits for long-term care. This information is 
provided to Medicare beneficiaries in the Medicare & You 
handbook that is mailed annually to all beneficiaries.
House Bill
      No provision.
Senate Bill
      The Secretary would be required to provide information on 
advance directives in the Medicare & You handbook. The 
information would be required to be presented in a separate 
Senate section on advance directives and would include specific 
information about living wills and durable power of attorney 
for health care. The Secretary would further be required to 
note the inclusion of this information in the introductory 
letter that accompanies the handbook. The provision would be 
effective upon enactment.
Conference Agreement
      No provision.
Sense of the Senate Regarding Implementation of the Prescription Drug 
        and Medicare Improvement Act of 2003. (Section 617 of the 
        Senate Bill)
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      The provision expresses a sense of the Senate that the 
Committee on Finance should hold at least four hearings to 
monitor implementation of the Prescription Drug and Medicare 
Improvement Act of 2003. The first hearing should be held 
within 60 days after enactment of the Act, the remaining 
hearings should be held May 2004, October 2004, and May 2005. 
The provision would be effective upon enactment.
Conference Agreement
      No provision.
Extension of Municipal Health Service Demonstration Projects. (Section 
        618 of the Senate Bill)
Present Law
      Under the Consolidated Omnibus Budget Reconciliation Act 
of 1985, as amended, the Municipal Health Service Demonstration 
projects will expire on December 31, 2004. The municipal health 
services demonstration program is a multi-site demonstration 
intended to improve access to primary care services in 
underserved urban areas and to reduce the cost of health care. 
BBA 1997 authorized the Secretary to extend the project through 
December 31, 2000, but only with respect to persons who had 
received at least one service for the period of January 1, 
1996-August 7, 1997 (the enactment date of BBA 97). Sites who 
wanted the demonstration project extended were required to 
submit plans for the orderly transition of participants to a 
non-demonstration health care delivery system. Subsequent 
legislation extended the project through December 31, 2004.
House Bill
      No provision.
Senate Bill
      This provision would extend these demonstration projects 
to December 31, 2009, for individuals who reside in the city in 
which the project is operated. The provision would be effective 
upon enactment.
Conference Agreement
      No provision.
Study on Making Prescription Pharmaceutical Information Accessible for 
        Blind and Visually Impaired Individuals. (Section 619 of the 
        Senate Bill)
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      The Secretary would be required to study how to make 
prescription drug information, including drug labels and usage 
instructions, accessible to blind and visually impaired 
individuals. The study would be required to include a review of 
existing and emerging technologies. A report would be required 
within 18 months of enactment and would include recommendations 
for implementing usable formats and an estimate of the 
associated costs. The provision would be effective upon 
enactment.
Conference Agreement
      No provision.
GAO Study of Pharmaceutical Price Controls and Patient Protections in 
        the G-7 Countries. (Section 621/Duplicative Provision 634 of 
        the Senate Bill)
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      The GAO would be required to study price controls on 
pharmaceuticals in France, Germany, Italy, Japan, the United 
Kingdom, and Canada to review the impact they have on 
consumers, including American consumers, and on innovation in 
medicine. The provision would be effective upon enactment.
Conference Agreement
      No provision.
Safety Net Organizations and Patient Advisory Commission. (Section 624/
        Duplicative Provision 635 of the Senate Bill)
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      The provision would establish the Safety Net 
Organizations and Patient Advisory Commission that would 
conduct an ongoing review of the health care safety net 
programs including Medicaid, the State Children's Health 
Insurance Program (SCHIP), Maternal and Child Health Services 
Block Grant Programs, Federally qualified health center (FQHC) 
programs, rural health clinic (RHC) programs, disproportionate 
share hospital (DSH) payment programs, and the Emergency 
Medical Treatment and Active Labor Act (EMTALA). The Commission 
would review a variety of issues and data related to the safety 
net programs.
      The Commission would be required to submit annual reports 
to the appropriate committees of Congress on the health care 
needs of the uninsured and the financial and infrastructure 
stability of the Nation's core health care safety net. The 
first report would be due June, 2005. Additional reports could 
be made if requested by the chairpersons or ranking minority 
members of appropriate committees of Congress or if the 
Commission deems such additional reviews and reports 
appropriate.
      The Commission would have 13 members appointed by the 
Comptroller General of the United States in consultation with 
the appropriate committees of Congress. Members would be drawn 
from health professionals, employers, third-party payers, 
researchers, recipients of care from core health care safety 
net and individuals who provide and manage the delivery of care 
by the core health care safety net. The term of the members 
would be 3 years, although the initial appointments would be on 
a staggered basis. The Comptroller General would be required to 
establish a system for public disclosure of financial and other 
potential conflicts of interest by members of the Commission. 
The Commission could hire an executive director and other 
personnel without regard to the provisions of Title V of the 
United States Code. The Comptroller General would be required 
to appoint the initial members of the Commission by June 1, 
2004.
Conference Agreement
      No provision.
Committee on Drug Compounding. (Section 626 of the Senate Bill)
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      The Secretary would be required to establish a committee 
on drug compounding within the Food and Drug Administration to 
ensure that patients are receiving necessary, safe, and 
accurate dosages of compounded drugs. The members of the 
committee would be appointed by the Secretary and would include 
representatives from the National Association of Boards of 
Pharmacy; pharmacy groups; physician groups; consumer and 
patient advocate groups; theUnited States Pharmacopoeia; and 
other individuals determined appropriate by the Secretary. The 
Committee would be required to submit a report with recommendations of 
the Committee to improve and protect patient safety within 1 year of 
enactment. The Committee would terminate 1 year after enactment.
Conference Agreement
      No provision.
    Sense of the Senate Concerning the Structure of Medicare 
Reform and the Prescription Drug Benefit. (Section 627 of the 
Senate Bill).
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      The provision provides a sense of the Senate that 
Medicare reform legislation should achieve certain principles.
Conference Agreement
      No provision.
Sense of the Senate Regarding the Establishment of a Nationwide 
        Permanent Lifestyle Modification Program for Medicare 
        Beneficiaries. (Section 628 of the Senate Bill).
Present Law
      No provision.
House Bill
      No provision.
Senate Bill
      The provision provides a sense of the Senate that 
coronary disease is expensive, the Medicare Lifestyle 
Modification Program has been operating in 12 states as a 
demonstration program, and such program of behavior 
modification should be conducted on a national basis for those 
beneficiaries who elect to participate. The provision would be 
effective upon enactment.
Conference Agreement
      No provision.

             TITLE XI--ACCESS TO AFFORDABLE PHARMACEUTICALS

Current Law
      Section 804 of the Federal Food, Drug, and Cosmetic Act--
Importation of Covered Products--was established under the 
medicine Equity and Drug Safety Act of 2000 (P.L. 106-387). 
This section of current law has not been implemented.
House Bill
      Section 1121(a) of H.R. 1 would replace the existing 
Section 804 entirely. The House bill directs the Secretary to 
establish, upon certification of safety and cost savings, a 
program that would allow for the importation of drugs from 
Canada by pharmacists, wholesalers, and individuals. The House 
bill incorporates new safety measures such as: (1) the use of 
tamper-resistant and counterfeit-proof packaging; (2) a new 
requirement that drugs must contain a statement informing the 
consumer that the drug has left the country; (3) any drug may 
only be shipped back to the country by the first Canadian 
recipient; (4) new authority to the Secretary of HHS to limit 
importation to certain ports of entry; (5) the importer would 
be required to keep detailed records and to conduct drug 
testing; and (6) a manufacturer must provide the importer with 
approved labeling of the drug. This provision applies to 
prescription drugs as subject to section 503(b) of the Federal 
Food, Drug, and Cosmetic Act other than a controlled substance, 
a biological product, an infused drug, an intravenously 
injected drug, a drug that is inhaled during surgery, or a 
parenteral drug that the Secretary determines poses a threat to 
the public health.
Senate Bill
      Section 801(a) of S. 1 would replace the existing Section 
804 entirely. The Senate bill directs the Secretary to 
establish, upon certification of safety and cost savings, a 
program that would allow for the importation of drugs from 
Canada by pharmacists, wholesalers, and individuals. The Senate 
bill incorporates new safety provisions as well as provides new 
authority to the Secretary of HHS to suspend the program if 
public safety is compromised. Specifically, between 12 and 18 
months after the regulations are implemented, if the Secretary 
certifies to Congress that, based on substantial evidence, the 
benefits of the implementation of the importation program do 
not outweigh any detriment, drug imports under this section 
would cease 30 days after the certification is submitted. 
However, the certification may not be submitted unless, after a 
public hearing, the Secretary finds it is more likely than not 
that implementation will result in an increased risk to the 
public health. This provision applies to prescription drugs as 
subject to section 503(b) of the Federal Food, Drug, and 
Cosmetic Act other than a controlled substance, a biological 
product, an infused drug, an intravenously injected drug, or a 
drug that is inhaled during surgery that the Secretary 
determines poses a threat to the public health.
Conference Agreement
      The Conference agreement, virtually identical to Section 
801(a) of S. 1, gives the Secretary, upon certification of 
safety and cost savings, authority to create a system for the 
importation of drugs from Canada by pharmacists, wholesalers, 
and individuals.
      The agreement directs the Secretary of HHS, in 
consultation with appropriate government agencies, to conduct a 
comprehensive study that identifies current problems with the 
implementation of existing law as well as examines a range of 
issues associated with the importation of drugs. In conducting 
the study, the Secretary shall take into account the 
distinctions between--
Drugs that are biological products with licenses under section 
351 of the Public Health Service Act; and
Drugs with approved applications under subsection (b) or (j) of 
section 505 of the Federal Food, Drug, and Cosmetic Act.
      The details of the study shall include the following:
      Identification of the limitations, including limitations 
in resources and, if applicable, in current law authorities 
that may inhibit the Secretary's ability to certify the safety 
of pharmaceutical products imported into the U.S.
      Assessment of the pharmaceutical distribution chain and 
the need for, and feasibility of, modifications, in order to 
assure the safety of products that may be imported into the 
U.S.
      Analysis of whether anti-counterfeiting technologies 
could improve the safety of products in the domestic market as 
well as those products that could be imported from foreign 
nations. This analysis shall identify the types of 
technologies, if available, and assess the limitations of these 
technologies to the distribution chain.
      Estimate of costs borne by entities within the 
pharmaceutical distribution chain to utilize any new 
technologies identified in paragraph (3).
      Assess the scope, volume, and safety of unapproved drugs, 
including controlled substances, entering the United States via 
mail shipment. This assessment should include the percentage of 
drugs commercially available in other countries that conform in 
all respects to FDA requirements, and the limitations of visual 
inspection, sampling, and other testing methods to determine 
its quality.
      The extent to which foreign health agencies are willing 
and/or able to ensure the safety of drugs being exported from 
their country into the United States, including drugs that are 
transshipped through their countries.
      Assessment of the potential short and long-term impacts 
on drug prices and prices for consumers and other system costs 
associated with importation of pharmaceuticals from Canada and 
other countries into the U.S.
      Assessment of the impact on the research and development 
of drugs--and the associated impact on consumers and patients--
if importation were permitted.
      Estimation of agency resources, including additional 
field personnel, needed to adequately inspect the current 
amount of pharmaceutical products entering into the country. 
This estimate shall detail the number of field personnel needed 
in order to appropriately secure all ports of entry on a daily 
basis.
      Identification of liability protections, if any, that 
should be in place, if importation is permitted, for entities 
within the pharmaceutical distribution chain.
      Identify the ways in which importation could violate 
United States and international intellectual property rights 
and describe the additional legal protections and agency 
resources that would be needed to assure the effective 
enforcement of these rights.
      The Conference agreement directs the Secretary to submit 
a report providing the findings of the study under this section 
to the appropriate committees of Congress no later than 12 
months after the date of enactment of this Act.
Report on Trade in Pharmaceuticals
      The Conference agreement directs the Secretary of 
Commerce, in consultation with the International Trade 
Commission, the Secretary of Health and Human Services and the 
United States Trade Representative, to conduct a study and 
report on drug pricing practices of countries that are members 
of the Organization for Economic Cooperation and Development 
and whether those practices utilize nontariff barriers with 
respect to trade in pharmaceuticals. The study shall include an 
analysis of the use of price controls, reference pricing, and 
other actions that affect the market access of United States 
pharmaceutical products.
      The study shall include the following:
      Identification of the countries that use price controls 
or other such practices with respect to pharmaceutical trade.
      Assessment of the price controls and other such practices 
used by the countries identified.
      Estimate of additional costs to U.S. consumers because of 
such price controls and other such practices, and the extent to 
which additional costs would be reduced for U.S. consumers if 
price controls and other such practices are reduced or 
eliminated.
      Estimate of the impact such price controls, intellectual 
property laws, and other such measures have on fair pricing, 
innovation, generic competition, and research and development 
in the United States and each country identified.
      Not later than 9 months after the date of enactment of 
this Act, the report shall be submitted to the Committees on 
Finance, the Judiciary, and Health, Education, Labor, and 
Pensions of the Senate, and the Committees on Ways and Means, 
the Judiciary, and Energy and Commerce of the House of 
Representatives.
      In addition, the United States Trade Representative, the 
Secretary of Commerce, and the Secretary of Health and Human 
Services shall analyze whether bilateral or multilateral trade 
or other negotiations present an opportunity to address these 
price controls and other such practices and shall develop a 
strategy to address such issues in appropriate negotiations. In 
so doing, these agencies shall bear in mind the negotiating 
objective set forth in the Bipartisan Trade Promotion Authority 
Act of 2002 to achieve the elimination of government measures 
such as price controls and reference pricing which deny full 
market access for United States products. In so doing, the 
agencies shall provide periodic and timely briefings for the 
Committees of the House and Senate listed above, with an 
interim briefing no later than 90 days after enactment to 
address negotiations to establish a U.S.-Australia Free Trade 
Agreement and, as appropriate, other current negotiations.

                 Provisions Related to Hatch-Waxman Law

                       AMENDMENTS AND SUPPLEMENTS

      In including this provision, Congress does not intend 
this provision to alter current U.S. Food and Drug 
Administration's (``FDA'') practice regarding acceptance of 
supplements to approved new drug applications (``NDAs''), or 
amendments and supplements to pending and approved abbreviated 
new drug applications (``ANDAs''). Instead, Congress intends 
this provision to reflect the FDA's current practice regarding 
those changes and variations to both innovator and generic 
drugs that may be approved under amendments and supplements to 
previously filed NDAs and ANDAs, and expects the Agency to 
maintain its current policy in designating ``listed drugs.'' 
The conferees intend that FDA continue to use its existing 
scientific discretion to determine whether different polymorphs 
present safety, effectiveness, or bioavailability differences 
and therefore should be considered the same or different active 
ingredients.
      The single 30-month stay provisions are a centerpiece of 
this legislation, allowing lower-priced generic products to 
enter the market more quickly. As a result, this provision must 
not be construed as requiring an ANDA applicant to file a new 
application where, before its enactment, the applicant would 
have been allowed to file an amendment or supplement to an 
existing application. Such a construction would run directly 
contrary to Congress' intent.

                         DECLARATORY JUDGMENTS

      The conferees expect that courts will find jurisdiction, 
where appropriate, to prevent an improper effort to delay 
infringement litigation between generic drug manufacturers and 
pioneer drug companies. The conferees expect courts to apply 
the ``reasonable apprehension'' test in a manner that provides 
generic drug manufacturers appropriate access to declaratory 
judgment relief to the extent required by Article III.
      Through the modifications in this Act, the conferees do 
not intend for the courts to modify their application of the 
requirements under Article III that a declaratory judgment 
plaintiff must, to the extent required by the Constitution, 
demonstrate a ``reasonable apprehension'' of suit to establish 
jurisdiction. See, e.g., Fina Oil and Chemical Co. v. Ewen, 123 
F.3d 1466, 1471 (Fed. Cir. 1997). The conferees expect the 
courts to examine as part of their analysis the particular 
policies served by the Hatch-Waxman Act.
      In determining whether a reasonable apprehension of suit 
exists where an ANDA has been filed with a paragraph IV 
certification and the patentee has not brought an infringement 
suit within the 45 days, the conferees expect courts to examine 
these specific factors as part of the totality of the 
circumstances. See, e.g., Vanguard Research, Inc. v. Peat, 
Inc., 304 F.3d 1249, 1254 (Fed. Cir. 2002). In any given case, 
the conferees expect a court may or may not find a reasonable 
apprehension of suit where these two specific factors are 
present.
Counterclaims
      Section 1101 of the Conference agreement prohibits the 
recovery of damages resulting from a successful counterclaim in 
a paragraph IV patent suit by an ANDA applicant seeking removal 
of a patent listed in the Orange Book. It is not the intent of 
Congress to prohibit the recovery by a counterclaimant in a 
paragraph IV suit of anti-trust or any other damages as a 
result of the improper listing of a patent in the Orange Book. 
The language found in this section simply means that in the 
absence of any other cause of action, a ruling in favor of the 
counterclaimant resulting in the removal of the patent does not 
entitle the counterclaimant to recover damages.

                  TITLE XII--HEALTH SAVINGS INCENTIVES

      Health Savings Accounts and Health Savings Security 
Accounts (sec. 1202 of the House bill and new sec. 223 of the 
Code)
Present Law

                                OVERVIEW

      Present law contains a number of provisions dealing with 
the Federal tax treatment of health expenses and health 
insurance coverage.

                   EMPLOYER-PROVIDED HEALTH COVERAGE

      In general, employer contributions to an accident or 
health plan are excludable from an employee's gross income (and 
wages for employment tax purposes).\1\ This exclusion generally 
applies to coverage provided to employees (including former 
employees) and their spouses, dependents, and survivors. 
Benefits paid under employer-provided accident or health plans 
are also generally excludable from income to the extent they 
are reimbursements for medical care.\2\ If certain requirements 
are satisfied, employer-provided accident or health coverage 
offered under a cafeteria plan is also excludable from an 
employee's gross income and wages.\3\ Present law provides for 
two general employer-provided arrangements that can be used to 
pay for or reimburse medical expenses of employees on a tax-
favored basis: flexible spending arrangements (``FSAs'') and 
health reimbursement arrangements (``HRAs''). While these 
arrangements provide similar tax benefits (i.e., the amounts 
paid under the arrangements for medical care are excludable 
from gross income and wages for employment tax purposes), they 
are subject to different rules. A main distinguishing feature 
between the two arrangements is that while FSAs are generally 
part of a cafeteria plan and contributions to FSAs are made on 
a salary reduction basis, HRAs cannot be part of a cafeteria 
plan and contributions cannot be made on a salary-reduction 
basis.\4\
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    \1\ Secs. 106, 3121(a)(2), and 3306(b)(2). All ``section,'' 
``sec.,'' and ``Code'' references are to the Internal Revenue Code of 
1986, as amended.
    \2\ Sec. 105. In the case of a self-insured medical reimbursement 
arrangement, the exclusion applies to highly compensated employees only 
if certain nondiscrimination rules are satisfied. Sec. 105(h). Medical 
care is defined as under section 213(d) and generally includes amounts 
paid for qualified long-term care insurance and services.
    \3\ Secs. 125, 3121(a)(5)(G), and 3306(b)(5)(G). Long-term care 
insurance and services may not be provided through a cafeteria plan.
    \4\ Notice 2002-45, 2002-28 I.R.B. 93 (July 15, 2002); Rev. Rul. 
2002-41, 2002-28 I.R.B. 75 (July 15, 2002).
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      Amounts paid or accrued by an employer within a taxable 
year for a sickness, accident, hospitalization, medical 
expense, or similar health plan for its employees are generally 
deductible as ordinary and necessary business expenses.\5\
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    \5\ Sec. 162.
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                       SELF-EMPLOYED INDIVIDUALS

      The exclusion for employer-provided health coverage does 
not apply to self-employed individuals. However, under present 
law, self-employed individuals (i.e., sole proprietors or 
partners in a partnership) \6\ are entitled to deduct 100 
percent of the amount paid for health insurance for themselves 
and their spouse and dependents.\7\
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    \6\ Self-employed individuals include more than two-percent 
shareholders of S corporations who are treated as partners for purposes 
of fringe benefit rules pursuant to section 1372.
    \7\ Sec. 162(l).
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                ITEMIZED DEDUCTION FOR MEDICAL EXPENSES

      Under present law, individuals who itemize deductions may 
deduct amounts paid during the taxable year (to the extent not 
reimbursed by insurance or otherwise) for medical care of the 
taxpayer, the taxpayer's spouse, and dependents, to the extent 
that the total of such expenses exceeds 7.5 percent of the 
taxpayer's adjusted gross income.\8\
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    \8\ Sec. 213. The adjusted gross income percentage is 10 percent 
for purposes of the alternative minimum tax. Sec. 56(b)(1)(B).
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                    ARCHER MEDICAL SAVINGS ACCOUNTS

                               In General

      In general, an Archer medical savings account (``MSA'') 
is a tax-exempt trust or custodial account created exclusively 
for the benefit of the account holder that is subject to rules 
similar to those applicable to individual retirement 
arrangements.\9\
---------------------------------------------------------------------------
    \9\ Sec. 220.
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      Within limits, contributions to an Archer MSA are 
deductible in determining adjusted gross income if made by an 
eligible individual and are excludable from gross income and 
wages for employment tax purposes if made by the employer of an 
eligible individual. Earnings on amounts in an Archer MSA are 
not includible in gross income in the year earned (i.e., inside 
buildup is not taxable). Distributions from an Archer MSA for 
qualified medical expenses are not includible in gross income. 
Distributions not used for qualified medical expenses are 
includible in gross income and subject to an additional 15-
percent tax unless the distribution is made after death, 
disability, or the individual attains the age of Medicare 
eligibility (i.e., age 65).
      Qualified medical expenses are generally defined as under 
section 213(d), except that qualified medical expenses do not 
include expenses for health insurance other than long-term care 
insurance, premiums for health coverage during any period of 
continuation coverage required by Federal law, and premiums for 
health care coverage while an individual is receiving 
unemployment compensation under Federal or State law. For 
purposes of determining the itemized deduction for medical 
expenses, distributions from an Archer MSA for qualified 
medical expenses are not treated as expenses paid for medical 
care under section 213.

                          ELIGIBLE INDIVIDUALS

      Archer MSAs are available only to employees of a small 
employer who are covered under an employer-sponsored high 
deductible health plan and to self-employed individuals covered 
under a high deductible health plan.\10\ An employer is a small 
employer if it employed, on average, no more than 50 employees 
on business days during either of the two preceding calendar 
years. An individual is not eligible for an Archer MSA if he or 
she is covered under any other health plan that is not a high 
deductible health plan (other than a plan providing certain 
limited types of coverage). Individuals entitled to benefits 
under Medicare are not eligible individuals. Eligible 
individuals do not include individuals who may be claimed as a 
dependent on another person's tax return.
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    \10\ Self-employed individuals include more than two-percent 
sharholders of S corporations who are treated as partners for purposes 
of fringe benefit rules pursuant to section 1372.
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                       TREATMENT OF CONTRIBUTIONS

      Individual contributions to an Archer MSA are deductible 
(within limits) in determining adjusted gross income (i.e., 
``above-the-line''). In addition, employer contributions are 
excludable from gross income and wages for employment tax 
purposes (within the same limits), except that this exclusion 
does not apply to contributions made through a cafeteria plan. 
In the case of an employee, contributions can be made to an 
Archer MSA either by the individual or by the individual's 
employer, but not by both.
      The maximum annual contribution that can be made to an 
Archer MSA for a year is 65 percent of the annual deductible 
under the high deductible health plan in the case of self-only 
coverage and 75 percent of the annual deductible in the case of 
family coverage.
      If an employer provides a high deductible health plan 
coupled with Archer MSAs for employees and makes employer 
contributions to the Archer MSAs, the employer must make 
available a comparable contribution on behalf of all employees 
with comparable coverage during the same period. Contributions 
are considered comparable if they are either of the same amount 
or the same percentage of the deductible under the high 
deductible health plan. If employer contributions do not 
satisfy the comparability rule during a period, then the 
employer is subject to an excise tax equal to 35 percent of the 
aggregate amount contributed by the employer to Archer MSAs of 
the employer for that period.

               DEFINITION OF HIGH DEDUCTIBLE HEALTH PLAN

      A high deductible health plan is a health plan with an 
annual deductible of at least $1,700 and no more than $2,500 in 
the case of self-only coverage and at least $3,350 and no more 
than $5,050 in the case of family coverage. In addition, the 
maximum out-of-pocket expenses with respect to allowed costs 
must be no more than $3,350 in the case of self-only coverage 
and no more than $6,150 in the case of family coverage.\11\ 
Out-of-pocket expenses include deductibles, co-payments, and 
other amounts (other than premiums) that the individual must 
pay for covered benefits under the plan. A plan does not fail 
to qualify as a high deductible health plan merely because it 
does not have a deductible for preventive care as required 
under State law. A plan does not qualify as a high deductible 
health plan if substantially all of the coverage under the plan 
is certain permitted insurance or is coverage (whether provided 
through insurance or otherwise) for accidents, disability, 
dental care, vision care, or long-term care.
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    \11\ The deductible and out-of-pocket expenses dollar amounts are 
for 2003. These amounts are indexed for inflation in 450 increments.
---------------------------------------------------------------------------

                  TREATMENT OF DEATH OF ACCOUNT HOLDER

      Upon death, any balance remaining in the decedent's 
Archer MSA is includible in his or her gross estate. If the 
account holder's surviving spouse is the named beneficiary of 
the Archer MSA, then, after the death of the account holder, 
the Archer MSA becomes the Archer MSA of the surviving spouse 
and the amount of the Archer MSA balance may be deducted in 
computing the decedent's taxable estate, pursuant to the estate 
tax marital deduction.\12\ If, upon the account holder's death, 
the Archer MSA passes to a named beneficiary other than the 
decedent's surviving spouse, the Archer MSA ceases to be an 
Archer MSA as of the date of the decedent's death, and the 
beneficiary is required to include the fair market value of the 
Archer MSA assets as of the date of death in gross income for 
the taxable year that includes the date of death. The amount 
includible in gross income is reduced by the amount in the 
Archer MSA used, within one year after death, to pay qualified 
medical expenses incurred prior to the death. If there is no 
named beneficiary for the decedent's Archer MSA, the Archer MSA 
ceases to be an Archer MSA as of the date of death, and the 
fair market value of the assets in the Archer MSA as of such 
date is includible in the decedent's gross income for the year 
of the death.
---------------------------------------------------------------------------
    \12\ Sec. 2056.
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        LIMIT ON NUMBER OF MSAS; TERMINATION OF MSA AVAILABILITY

      The number of taxpayers benefiting annually from an 
Archer MSA contribution is limited to a threshold level 
(generally 750,000 taxpayers). The number of Archer MSAs 
established has not exceeded the threshold level.
      After 2003, no new contributions can be made to Archer 
MSAs except by or on behalf of individuals who previously had 
Archer MSA contributions and employees who are employed by a 
participating employer.
House Bill

                               In General

      The House bill creates health savings accounts (``HSAs'') 
and health savings security accounts (``HSSAs''), which provide 
tax-favored treatment for current medical expenses as well as 
the ability to save on a tax-favored basis for future medical 
expenses. In general, HSAs and HSSAs are tax-exempt trusts or 
custodial accounts created exclusively to pay for the qualified 
medical expenses of the account holder and his or her spouse 
and dependents that are subject to rules similar to those 
applicable to individual retirement arrangements.\13\ Unless 
otherwise provided, the following description applies to both 
HSAs and HSSAs (jointly referred to as ``health accounts'').
---------------------------------------------------------------------------
    \13\ As under Archer MSAs, the House bill provision provides that 
the present-law requirement applicable to insurance companies that 
certain policy acquisition expenses must be capitalized and amortized 
(sec. 848) does not apply in the case of any contract that is a health 
account.
---------------------------------------------------------------------------
      Within limits, contributions to health accounts are 
deductible if made by an eligible individual and are excludable 
from gross income and wages for employment tax purposes if made 
by the employer of an eligible individual. In the case of HSSAs 
only, family members may make nondeductible contributions on 
behalf of an eligible individual. Distributions from health 
accounts for qualified medical expenses are not includible in 
gross income. Distributions that are not for qualified medical 
expenses are includible in gross income and subject to an 
additional 15 percent tax. The additional 15 percent tax does 
not apply after death, disability, or the individual attains 
the age of Medicare eligibility (i.e., age 65).

                          Eligible Individuals

                                  HSAS

      Eligible individuals for HSAs are individuals who are 
covered by a high deductible health plan and no other health 
plan that is not a high deductible health plan. Individuals 
entitled to benefits under Medicare are not eligible to make 
contributions to an HSA. Eligible individuals do not include 
individuals who may be claimed as a dependent on another 
person's tax return.
      An individual with other coverage in addition to a high 
deductible health plan is still eligible for an HSA if such 
other coverage is certain permitted insurance or permitted 
coverage. Permitted insurance is: (1) insurance if 
substantially all of the coverage provided under such insurance 
relates to (a) liabilities incurred under worker's compensation 
law, (b) tort liabilities, (c) liabilities relating to 
ownership or use of property (e.g., auto insurance), or (d) 
such other similar liabilities as the Secretary may prescribe 
by regulations; (2) insurance for a specified disease or 
illness; and (3) insurance that provides a fixed payment for 
hospitalization. Permitted coverage is coverage (whether 
provided through insurance or otherwise) for accidents, 
disability, dental care, vision care, or long-term care.
      A high deductible health plan is a health plan that in 
the case of self-only coverage has an annual deductible between 
$1,000 and $2,500 and in the case of family coverage has an 
annual deductible between $2,000 and $5,050 (for 2003).\14\ The 
maximum out-of-pocket expenses must be no more than $3,350 in 
the case of self-only coverage and no more than $6,150 in the 
case of family coverage. The annual deductible maximum and 
minimum and out-of-pocket expense amounts are indexed for 
inflation. A plan is not a high deductible health plan if 
substantially all of the coverage is for permitted coverage or 
coverage that may be provided by permitted insurance, as 
described above.
---------------------------------------------------------------------------
    \14\ Special rules apply for determining whether a health plan that 
is a preferred provider organization plan meets the requirements of a 
high deductible plan.
---------------------------------------------------------------------------

                                 HSSAS

      Individuals eligible for HSSAs are individuals who (1) 
are covered under a health plan meeting minimum deductible 
requirements and no other health plan that does not meet the 
minimum deductible requirements, or (2) are uninsured. 
Individuals entitled to benefits under Medicare are not 
eligible to make contributions to an HSSA. Eligible individuals 
do not include individuals who may be claimed as a dependent on 
another person's tax return.
      An individual with other coverage in addition to a plan 
meeting the minimum deductible requirements is still eligible 
for an HSSA if such other coverage is for permitted coverage or 
coverage that may be provided by permitted insurance, as 
described above. In addition, an individual is treated as 
uninsured if his or her only coverage is permitted coverage or 
coverage that may be provided by permitted insurance.
      A plan meets the minimum deductible requirements if the 
plan is a health plan with an annual deductible of at least 
$500 in the case of self-only coverage and at least $1,000 in 
the case of family coverage. These dollar amounts are indexed 
for inflation. There are no maximum deductible requirements and 
no limits on out-of-pocket expenses. A plan is not a minimum 
deductible plan if substantially all of the coverage is for 
permitted coverage or coverage that may be provided by 
permitted insurance, as described above.

              TAX TREATMENT OF AND LIMITS ON CONTRIBUTIONS

      Contributions to a health account made by an eligible 
individual are deductible (within limits) in determining 
adjusted gross income (i.e., ``above-the-line''). In addition, 
employer contributions to a health account (including salary 
reduction contributions made through a cafeteria plan) are 
excludable from gross income and wages for employment tax 
purposes to the extent the contribution would be deductible if 
made by the employee (e.g., in the case of an HSSA, subject to 
the adjusted gross income limits).\15\ Nondeductible 
contributions may be made to an HSSA by a family member of an 
eligible individual. In the case of an employee, contributions 
to a health account may be made by both the individual (and 
family members in the case of an HSSA) and the individual's 
employer. All contributions are aggregated for purposes of the 
maximum annual contribution limit.
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    \15\ Employer contributions to a health account are excludable from 
wages for employment tax purposes if, at the time of payment, it is 
reasonable to believe that the employee will be able to exclude such 
payment from income (e.g., a reasonable basiss to believe that the 
employee's income is within the applicable adjusted gross income limits 
for an HSSA).
---------------------------------------------------------------------------
      The maximum aggregate annual contribution that can be 
made to an HSA is 100 percent of the annual deductible under 
the high deductible plan.\16\
---------------------------------------------------------------------------
    \16\ The annual contribution limit for a health account is the sum 
of the limits determined separately for each month, based on the 
individual's status and health plan coverage as of the first day of the 
month.
---------------------------------------------------------------------------
      The maximum aggregate annual contribution that can be 
made to an HSSA is (1) $2,000 for (a) persons with self-only 
coverage and (b) uninsured individuals with no dependents \17\ 
who do not file a joint return, and (2) $4,000 for (a) 
individuals with family coverage and (b) uninsured individuals 
with dependents or who file a joint return. In the case of 
individuals age 55 and older, the $2,000 and $4,000 HSSA annual 
contribution limits are increased by $500 in 2004, $600 in 
2005, $700 in 2006, $800 in 2007, $900 in 2008, and $1,000 in 
2009 and thereafter.
---------------------------------------------------------------------------
    \17\ Written declarations releasing a claim to a dependency 
exemption under section 152(e)(2) are disregarded in determining 
whether an individual has dependents.
---------------------------------------------------------------------------
      The maximum allowable contribution to an HSSA is phased 
out for taxpayers with adjusted gross income \18\ above certain 
levels. In the case of individuals with self-only coverage 
(other than individuals filing a joint return), the phase-out 
range is $75,000 to $85,000. For individuals with family 
coverage and individuals filing a joint return, the phase-out 
range is $150,000 to $170,000. The adjusted gross income limits 
apply to HSSA contributions from all sources (e.g., both 
individual and employer contributions).
---------------------------------------------------------------------------
    \18\ Adjusted gross income is defined generally as under the rules 
relating to individual retirement arrangements (``IRAs''), and is 
computed after the deduction for contributions to IRAs and before the 
deductions provided by the provision.
---------------------------------------------------------------------------
      The maximum annual contribution limits for the health 
accounts are coordinated so that contributions to one type of 
health account reduce the annual contribution limit for the 
other type of health account.\19\
---------------------------------------------------------------------------
    \19\ The contribution limits are also coordinated with 
contributions to Archer MSAs.
---------------------------------------------------------------------------
      An excise tax applies to contributions in excess of the 
maximum contribution amount for the health account. The excise 
tax is generally equal to six percent of the cumulative amount 
of excess contributions that are not distributed from the 
health account to the contributor.\20\
---------------------------------------------------------------------------
    \20\ Ordering rules apply to determine the nature of any 
distributed excess contributions (e.g., nondeductible family 
contributions in the case of an HSSA or employer contributions).
---------------------------------------------------------------------------
      Amounts can be rolled over into a health account from an 
Archer MSA or a health FSA on a tax-free basis. Amounts can be 
rolled over into an HSA from another HSA or HSSA and into an 
HSSA from another HSSA on a tax-free basis. Rollovers from an 
HSA into an HSSA are not permitted. Amounts transferred from 
another health account or Archer MSA are not taken into account 
under the annual contribution limits.
      If an employer makes contributions to employees' health 
accounts, the employer must make available comparable 
contributions on behalf of all employees with comparable 
coverage during the same period. Contributions are considered 
comparable if they are either of the same amount or the same 
percentage of the deductible under the plan. The comparability 
rule is applied separately to part-time employees (i.e., 
employees who are customarily employed for fewer than 30 hours 
per week). The comparability rule does not apply to amounts 
transferred from an employee's health account, health FSA, or 
Archer MSA or to contributions made through a cafeteria plan.
      If employer contributions do not satisfy the 
comparability rule during a period, then the employer is 
subject to an excise tax equal to 35 percent of the aggregate 
amount contributed by the employer to health accounts of the 
employer for that period. The excise tax is designed as a proxy 
for the denial of the deduction for employer contributions. In 
the case of a failure to comply with the comparability rule 
which is due to reasonable cause and not to willful neglect, 
the Secretary may waive part or all of the tax imposed to the 
extent that the payment of the tax would be excessive relative 
to the failure involved. For purposes of the comparability 
rule, employers under common control are aggregated.

                       TAXATION OF DISTRIBUTIONS

      Distributions from a health account for qualified medical 
expenses of the individual and his or her spouse or dependents 
generally are excludable from gross income. In general, amounts 
in a health account can be used for qualified medical expenses 
even if the individual is not currently eligible for 
contributions to the health account.\21\
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    \21\ However, in any year for which a contribution is made to an 
HSA, withdrawals from the HSA maintained by that individual generally 
are excludable from income only if the individual for whom the expenses 
were incurred was covered under a high deductible plan for the month in 
which the expenses were incurred. The rule does not apply for 
continuation coverage or coverage while the individual is receiving 
unemployment compensation even if for an individual who is not an 
eligible individual.
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      Qualified medical expenses generally are defined as under 
section 213(d) and include expenses for diagnosis, cure, 
mitigation, treatment, or prevention of disease, including 
prescription drugs, transportation primarily for and essential 
to such care, and qualified long-term care expenses. Qualified 
medical expenses do not include expenses for insurance other 
than for (1) long-term care insurance, (2) premiums for health 
coverage during any period of continuation coverage required by 
Federal law, and (3) premiums for health care coverage while an 
individual is receiving unemployment compensation under Federal 
or State law. In the case of HSSAs, qualified medical expenses 
also include (1) health insurance meeting the minimum 
deductible requirements if no portion of the cost of the 
insurance is paid by the employer or former employer of the 
individual or the individual's spouse,\22\ and (2) health 
insurance for individuals who are older than age 65 (including 
Medicare expenses). For purposes of determining the itemized 
deduction for medical expenses, distributions from a health 
account for qualified medical expenses are not treated as 
expenses paid for medical care under section 213.
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    \22\ Amounts paid by the employer include salary reduction 
contributions.
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      Distributions from a health account that are not for 
qualified medical expenses are includible in gross income 
(except to the extent that the distribution is attributable to 
a return of nondeductible family contributions in the case of 
an HSSA).\23\ Distributions includible in gross income are also 
subject to an additional 15-percent tax unless made after 
death, disability, or the individual attains the age of 
Medicare eligibility (i.e., age 65).
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    \23\ Ordering rules apply to determine the extent to which 
distributions are attributable to nondeductible contributions.
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              TAX TREATMENT OF HSAS AND HSSAS AFTER DEATH

      Upon death, any balance remaining in the decedent's 
health account is includible in his or her gross estate.
      If the health account holder's surviving spouse is the 
named beneficiary of the health account, then, after the death 
of the health account holder, the health account becomes the 
health account of the surviving spouse and the amount of the 
health account balance may be deducted in computing the 
decedent's taxable estate, pursuant to the estate tax marital 
deduction.\24\ The surviving spouse is not required to include 
any amount in gross income as a result of the death; the 
general rules applicable to the health account apply to the 
surviving spouse's health account (e.g., the surviving spouse 
is subject to income tax only on distributions from the health 
account for nonqualified expenses). The surviving spouse can 
exclude from gross income amounts withdrawn from the health 
account for expenses incurred by the decedent prior to death, 
to the extent they otherwise are qualified medical expenses.
---------------------------------------------------------------------------
    \24\ Sec. 2056.
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      If, upon death, the health account passes to a named 
beneficiary other than the decedent's surviving spouse, the 
health account ceases to be a health account as of the date of 
the decedent's death, and the beneficiary is required to 
include the fair market value of health account assets as of 
the date of death in gross income for the taxable year that 
includes the date of death. The amount includible in income is 
reduced by the amount in the health account used, within one 
year after death, to pay qualified medical expenses incurred by 
the decedent prior to the death. As is the case with other 
health account distributions, whether the expenses are 
qualified medical expenses is determined as of the time the 
expenses were incurred. In computing taxable income, the 
beneficiary may claim a deduction for that portion of the 
Federal estate tax on the decedent's estate that was 
attributable to the amount of the health account balance.\25\
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    \25\ The deduction is calculated in accordance with the present-law 
rules relating to income in respect of a decedent set forth in section 
691(c).
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      If there is no named beneficiary of the decedent's health 
account, the health account ceases to be a health account as of 
the date of death, and the fair market value of the assets in 
the health account as of such date is includible in the 
decedent's gross income for the year of the death.
      This rule applies in all cases in which there is no named 
beneficiary, even if the surviving spouse ultimately obtains 
the right to the health account assets (e.g., if the surviving 
spouse is the sole beneficiary of the decedent's estate).

                         REPORTING REQUIREMENTS

      Employer contributions are required to be reported on the 
employee's Form W-2. Trustees of health accounts may be 
required to report to the Secretary of the Treasury amounts 
with respect to contributions, distributions, and other matters 
as determined appropriate by the Secretary. In addition, 
providers of health insurance are required to report 
information as may be prescribed by the Secretary.
      Effective date.--The House bill provision is effective 
for taxable years beginning after December 31, 2003.
Senate Amendment
      No provision.
Conference Agreement
      The conference agreement does not include the House bill 
provision relating to HSSAs. The conference agreement includes 
the HSA provision from the House bill, with the following 
modifications.\26\
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    \26\ The rules for HSAs generally follow those of Archer MSAs 
unless otherwise provided.
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      The conference agreement modifies the definition of a 
high deductible health plan applicable to HSAs by removing the 
limitation on the maximum amount of the deductible and 
increasing the limit on out-of-pocket expenses. Under the 
conference agreement, a high deductible health plan is a health 
plan that has a deductible that is at least $1,000 for self-
only coverage or $2,000 for family coverage \27\ and that has 
an out-of-pocket expense limit that is no more than $5,000 in 
the case of self-only coverage and $10,000 in the case of 
family coverage.\28\ As under present law, out-of-pocket 
expenses include deductibles, co-payments, and other amounts 
(other than premiums) that the individual must pay for covered 
benefits under the plan.
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    \27\ The $1,000 limit is indexed for inflation. The family coverage 
limit will always be twice the individual limit (as indexed for 
inflation).
    \28\ In the case of the plan using a network of providers, the plan 
does not fail to be a high deductible health plan (if it would 
otherwise meet the requirements of a high deductible health plan) 
solely because the out of-pocket expense limit for services provised 
outside of the network exceeds the $5,000 and $10,000 out-of-pocket 
expense limits. In addition, such plan's deductible for out-of-network 
services is not taken into account in determining the annual 
contribution limit (i.e., the deductible for services within the 
network is used for such purpose).
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      Under the conference agreement, the maximum aggregate 
annual contribution \29\ that can be made to an HSA is the 
lesser of (1) 100 percent of the annual deductible under the 
high deductible health plan, or (2) the maximum deductible 
permitted under an Archer MSA high deductible health plan under 
present law, as adjusted for inflation. For 2004, the amount of 
the maximum high deductible is estimated to be $2,600 in the 
case of self-only coverage and $5,150 in the case of family 
coverage.
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    \29\ The maximum annual contribution limit is calculated as the sum 
of limits determined for each month based on the individual's health 
plan coverage on the first day of the month.
---------------------------------------------------------------------------
      Under the conference agreement, contributions made by or 
on behalf of an eligible individual are deductible by the 
individual. Thus, for example, contributions made by an 
eligible individual's family members are deductible by the 
eligible individual to the extent the contributions would be 
deductible if made by the individual.\30\ As under the House 
bill, all contributions by or on behalf of an eligible 
individual are aggregated for purposes of the maximum annual 
contribution limit. Contributions to Archer MSAs reduce the 
annual contribution limit for HSAs.
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    \30\ Under present law, contributions made on behalf of another 
individual are generally treated as gifts. The present-law gift tax 
rules apply to contributions made on behalf of another individual.
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      The conference agreement increases the annual 
contribution limits for individuals who have attained age 55 by 
the end of the taxable year. In the case of policyholders and 
covered spouses who are age 55 or older, the HSA annual 
contribution limit is greater than the otherwise applicable 
limit by $500 in 2004, $600 in 2005, $700 in 2006, $800 in 
2007, $900 in 2008, and $1,000 in 2009 and thereafter.\31\ As 
under the House bill, contributions, including catch-up 
contributions, cannot be made once an individual is eligible 
for Medicare. Under the conference agreement, qualified medical 
expenses are expanded to include health insurance premiums for 
individuals eligible for Medicare, other than premiums for 
Medigap policies. Qualified health insurance premiums include, 
for example, Medicare Part A and Part B premiums, Medicare HMO 
premiums, and the employee share of premiums for employer- 
sponsored health insurance including employer-sponsored retiree 
health insurance.
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    \31\ As in determining the general annual contribution limit, the 
increase in the annual contribution limit for individuals who have 
attained age 55 is also determined on a monthly basis.
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      Except as otherwise provide by the Secretary, 
preventative care is defined as under section 1871 of the 
Social Security Act. It is intended that the Secretary of the 
Treasury will amend the definition of preventative care if the 
definition used under the Social Security Act is inconsistent 
with the purposes of the provision. Under the conference 
agreement, the additional tax on nonqualified distributions is 
reduced to 10 percent (rather than 15 percent as in the House 
bill).
      Under the conference agreement, amounts can be rolled 
over into an HSA from another HSA or from an Archer MSA. The 
conference agreement also clarifies information reporting 
requirements in the House bill.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2003.
Disposition of Unused Health Benefits in Flexible Spending Arrangements 
        (sec. 1203 of the House bill and sec. 125 of the Code)
Present Law
      A flexible spending arrangement (``FSA'') is defined 
under the Code as a benefit program which provides employees 
with coverage under which specified incurred expenses may be 
reimbursed and the maximum amount of reimbursement which is 
reasonably available to a participant for such coverage is less 
than 500 percent of the value of such coverage.\32\ A health 
FSA is an FSA that provides for reimbursement of medical 
expenses.\33\ Health FSAs are typically part of a cafeteria 
plan and may be funded through salary reduction.\34\ Health 
FSAs are commonly used, for example, to reimburse employees for 
medical expenses not covered by insurance. There is no special 
exclusion for benefits provided under an FSA. Thus, health 
benefits provided under an FSA are excludable from income only 
if they qualify for exclusion under sections 105 or 106.
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    \32\ Sec. 106(c).
    \33\ FSAs may also be used to provide certain other nontaxable 
benefits, such as dependent care.
    \34\ Long-term care insurance cannot be offered through a cafeteria 
plan. Sec. 125(f).
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      FSAs that are part of a cafeteria plan must comply with 
the rules applicable to cafeteria plans generally. One of these 
rules is that a cafeteria plan may not offer deferred 
compensation except through a qualified cash or deferred 
arrangement.\35\ Under proposed Treasury regulations, a 
cafeteria plan is considered to permit the deferral of 
compensation if it includes a health FSA which reimburses 
participants for medical expenses incurred beyond the end of 
the plan year.\36\ Thus, amounts in an employee's health 
account that are not used for medical expenses incurred before 
the end of a plan year must be forfeited. This rule is often 
referred to as the ``use it or lose it'' rule.
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    \35\ Sec. 401(k).
    \36\ Prop. Treas. Reg. sec. 1.125-2 Q&A-5(a).
---------------------------------------------------------------------------
House Bill
      The House bill allows up to $500 of unused health 
benefits in an employee's health FSA to be carried forward to 
the employee's health account for the next plan year of the 
health FSA or transferred to an HSA or HSSA maintained for the 
benefit of the employee.\37\ Amounts transferred to an HSA or 
HSSA are treated as employer contributions for purposes of the 
HSA and HSSA rules. Under the House bill, if an individual is 
not eligible to contribute to an HSA or HSSA for the taxable 
year, the individual may transfer up to $500 of unused health 
benefits in the employee's health FSA to a tax-qualified 
retirement plan, a tax-sheltered annuity (section 403(b)), an 
individual retirement arrangement (``IRA''), or an eligible 
deferred compensation plan of a State or local government 
(section 457). An employee's unused health benefit is the 
excess of the maximum amount of reimbursement allowable to the 
employee over the actual amount of reimbursement made during 
the year. Amounts transferred are subject to the rules and 
limits on contributions that would otherwise apply to 
contributions to the transferee plan.
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    \37\ Section 2 of the bill provides the eligibility rules for 
contributions to an HSA or HSSA.
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      Effective date.--The House bill provision applies to 
taxable years beginning after December 31, 2003.
Senate Amendment
      No provision.
Conference Agreement
      The conference agreement does not include the House bill 
provision.
Exclusion from Gross Income of Certain Federal Subsidies for 
        Prescription Drug Plans (new sec. 139A of the Code)
Present Law
      Gross income includes all income from whatever source 
derived unless a specific exclusion applies.\38\
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    \38\ Sec. 61.
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House Bill
      No provision.
Senate Amendment
      No provision.
Conference Agreement
      The conference agreement provides that gross income does 
not include any special subsidy payment received under section 
1860D-22 of the Social Security Act. The exclusion applies for 
purposes of both the regular tax and the alternative minimum 
tax (including the adjustment for adjusted current earnings).
      The exclusion is not taken into account in determining 
whether a deduction is allowable with respect to costs taken 
into account in determining the subsidy payment. Accordingly, 
ataxpayer could claim a deduction for prescription drug expenses 
incurred even though the taxpayer also received an excludible subsidy 
related to the same expenses.
      Effective date.--The provision is effective for taxable 
years ending after the date of enactment.
Exception to Information Reporting Requirements for Certain Health 
        Arrangements (sec. 1204 of the House bill and sec. 6041 of the 
        Code)
Present Law
      Any person in a trade or business who, in the course of 
that trade or business, makes specified payments to another 
person totaling $600 or more in a year, must provide an 
information report to the IRS (as well as a copy to the 
recipient) on the payments.\39\ Reporting is required to be 
done on Form 1099. In general, these information reports remind 
taxpayers of amounts of income that should be reflected on 
their tax returns and assist the IRS in verifying that 
taxpayers have correctly reported these amounts.
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    \39\ Sec. 6041.
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      Treasury regulations specify that fees for professional 
services, including the services of physicians, must be 
reported.\40\ Treasury regulations also provide a general 
exception from these information reporting requirements for 
payments made to corporations, except that this exception is 
inapplicable if the corporation is ``engaged in providing 
medical and health care services.'' \41\ Earlier this year, the 
IRS issued a revenue ruling describing whether employer-
provided expense reimbursements made through debit or credit 
cards or other electronic media are excludible from gross 
income.\42\ The ruling states that ``payments made to medical 
service providers through the use of debit, credit, and stored 
value cards are reportable by the employer on Form 1099-MISC 
under section 6041.'' \43\
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    \40\ Treas. Reg. sec. 1.6041-1(d)(2).
    \41\ Treas. Reg. sec. 1.6041-3(p)(1). These regulations also 
provide an exception from these information reporting requirements if 
the payment is made to a hospital that is tax-exempt or that is owned 
and operated by a government entity.
    \42\ Rev. Rul. 2003-43, 2003-21 I.R.B. 935 (May 27, 2003).
    \43\ Id.
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House Bill
      The House bill provides an exception from the generally 
applicable information reporting provisions for payments for 
medical care made under either: (1) a flexible spending 
arrangement,\44\ or (2) a health reimbursement arrangement that 
is treated as employer-provided coverage.
---------------------------------------------------------------------------
    \44\ This term is defined in sec. 106(c)(2).
---------------------------------------------------------------------------
      Effective date.--The House bill provision applies to 
payments made after December 31, 2002.
Senate Amendment
      No provision.
Conference Agreement
      The conference agreement follows the House bill.

                        TAX COMPLEXITY ANALYSIS

      Section 4022(b) of the Internal Revenue Service Reform 
and Restructuring Act of 1998 (the ``IRS Reform Act'') requires 
the Joint Committee on Taxation (in consultation with the 
Internal Revenue Service and the Department of the Treasury) to 
provide a tax complexity analysis. The complexity analysis is 
required for all legislation reported by the Senate Committee 
on Finance, the House Committee on Ways and Means, or any 
committee of conference if the legislation includes a provision 
that directly or indirectly amends the Internal Revenue Code 
(the ``Code'') and has widespread applicability to individuals 
or small businesses.
      The staff of the Joint Committee on Taxation has 
determined that a complexity analysis is not required under 
section 4022(b) of the IRS Reform Act because the bill contains 
no provisions that amend the Code and that have ``widespread 
applicability'' to individuals or small businesses
                                   Billy Tauzin,
                                   William Thomas,
                                   Michael Bilirakis,
                                   Nancy L. Johnson,
                                   Tom DeLay,
                                 Managers on the Part of the House.

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

                                
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