    [108th Congress Public Law 173]
    [From the U.S. Government Publishing Office]

    [DOCID: f:publ173.108]

    [[Page 2065]]

     MEDICARE PRESCRIPTION DRUG, IMPROVEMENT, AND MODERNIZATION ACT OF 2003

    [[Page 117 STAT. 2066]]

    Public Law 108-173
    108th Congress

                                     An Act

        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. <<NOTE: Dec. 8, 2003 -  [H.R. 1]>>

        Be it enacted by the Senate and House of <<NOTE: Medicare
    Prescription Drug, Improvement, and Modernization Act of
    2003.>> Representatives of the United States of America in Congress
    assembled,

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

        (a) Short <<NOTE: 42 USC 1305 note.>> 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; <<NOTE: 42 USC 1301 note.>> 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 for 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.
    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.

    [[Page 117 STAT. 2067]]

                          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. Two-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. Two-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.

    [[Page 117 STAT. 2068]]

    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. One-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. One-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. Two-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.

    [[Page 117 STAT. 2069]]

    Sec. 630. Five-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).

    [[Page 117 STAT. 2070]]

                          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.

    [[Page 117 STAT. 2071]]

    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. Thirty-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. <<NOTE: 42 USC 1395w-101.>> (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.--

    [[Page 117 STAT. 2072]]

                              ``(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)

    [[Page 117 STAT. 2073]]

                          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)).

    [[Page 117 STAT. 2074]]

                              ``(ii) Notice.--In establishing special
                          enrollment periods under clause (i), the Secretary
                          shall take 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--

    [[Page 117 STAT. 2075]]

                        ``(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. <<NOTE: 42 USC 1395w-102.>> (a) Requirements.--
                ``(1) In general.--For purposes of this part and part C, the
            term `qualified prescription drug coverage' means either of the
            following:

    [[Page 117 STAT. 2076]]

                        ``(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:

    [[Page 117 STAT. 2077]]

                ``(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)

    [[Page 117 STAT. 2078]]

                          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-

    [[Page 117 STAT. 2079]]

                          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 zero 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.

    [[Page 117 STAT. 2080]]

                ``(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

    [[Page 117 STAT. 2081]]

                    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. <<NOTE: 42 USC 1395w-103.>> (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

    [[Page 117 STAT. 2082]]

                          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. <<NOTE: 42 USC 1395w-104.>> (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.

    [[Page 117 STAT. 2083]]

                        ``(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

    [[Page 117 STAT. 2084]]

                          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.

    [[Page 117 STAT. 2085]]

                        ``(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:

    [[Page 117 STAT. 2086]]

                        ``(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.

    [[Page 117 STAT. 2087]]

                        ``(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) <<NOTE: Deadline.>> 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

    [[Page 117 STAT. 2088]]

                    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

    [[Page 117 STAT. 2089]]

                                        ``(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) <<NOTE: Deadline.>> 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 <<NOTE: Contracts.>> 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).

    [[Page 117 STAT. 2090]]

                                        ``(II) Report <<NOTE: Deadline.>> 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 <<NOTE: Deadline.>> 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

    [[Page 117 STAT. 2091]]

            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

    [[Page 117 STAT. 2092]]

            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. <<NOTE: 42 USC 1395w-111.>> (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.

    [[Page 117 STAT. 2093]]

                        ``(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--

    [[Page 117 STAT. 2094]]

                        ``(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.--

    [[Page 117 STAT. 2095]]

                              ``(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.

    [[Page 117 STAT. 2096]]

                ``(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

    [[Page 117 STAT. 2097]]

            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.

    [[Page 117 STAT. 2098]]

                              ``(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 section 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.

    [[Page 117 STAT. 2099]]

        ``(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. <<NOTE: 42 USC 1395w-112.>> (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.

    [[Page 117 STAT. 2100]]

            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 <<NOTE: Applicability.>> 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.--

    [[Page 117 STAT. 2101]]

                        ``(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) <<NOTE: Deadline.>> 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

    [[Page 117 STAT. 2102]]

            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. <<NOTE: 42 USC 1395w-113.>> (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.

    [[Page 117 STAT. 2103]]

                ``(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.--

    [[Page 117 STAT. 2104]]

                              ``(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):

    [[Page 117 STAT. 2105]]

                        ``(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

    [[Page 117 STAT. 2106]]

                          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

    [[Page 117 STAT. 2107]]

                    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. <<NOTE: 42 USC 1395w-114.>> (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

    [[Page 117 STAT. 2108]]

                          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

    [[Page 117 STAT. 2109]]

                    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).

    [[Page 117 STAT. 2110]]

                              ``(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

    [[Page 117 STAT. 2111]]

                          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.--

    [[Page 117 STAT. 2112]]

                        ``(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--

    [[Page 117 STAT. 2113]]

                              ``(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. <<NOTE: 42 USC 1395w-115.>> (a) Subsidy Payment.--
    In order to reduce premium levels applicable to qualified prescription
    drug coverage

    [[Page 117 STAT. 2114]]

    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.

    [[Page 117 STAT. 2115]]

                ``(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

    [[Page 117 STAT. 2116]]

                    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

    [[Page 117 STAT. 2117]]

                    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

    [[Page 117 STAT. 2118]]

                                    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

    [[Page 117 STAT. 2119]]

                                        ``(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

    [[Page 117 STAT. 2120]]

            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. <<NOTE: 42 USC 1395w-116.>> (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);

    [[Page 117 STAT. 2121]]

                        ``(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.

    [[Page 117 STAT. 2122]]

    ``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. <<NOTE: 42 USC 1395w-131.>> (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

    [[Page 117 STAT. 2123]]

            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

    [[Page 117 STAT. 2124]]

            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.--

    [[Page 117 STAT. 2125]]

                ``(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. <<NOTE: 42 USC 1395w-132.>> (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.

    [[Page 117 STAT. 2126]]

                        ``(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

    [[Page 117 STAT. 2127]]

            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

    [[Page 117 STAT. 2128]]

            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. <<NOTE: 42 USC 1395w-133.>> (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.

    [[Page 117 STAT. 2129]]

                ``(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.

    [[Page 117 STAT. 2130]]

                        ``(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. <<NOTE: 42 USC 1395w-134.>> (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

    [[Page 117 STAT. 2131]]

            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. <<NOTE: 42 USC 1395w-141.>> (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 <<NOTE: Regulations.>> 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

    [[Page 117 STAT. 2132]]

                          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.--

    [[Page 117 STAT. 2133]]

                        ``(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

    [[Page 117 STAT. 2134]]

            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).

    [[Page 117 STAT. 2135]]

                              ``(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.

    [[Page 117 STAT. 2136]]

                        ``(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.--

    [[Page 117 STAT. 2137]]

                        ``(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.

    [[Page 117 STAT. 2138]]

                              ``(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.--

    [[Page 117 STAT. 2139]]

                        ``(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

    [[Page 117 STAT. 2140]]

                          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--

    [[Page 117 STAT. 2141]]

                        ``(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

    [[Page 117 STAT. 2142]]

                    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.

    [[Page 117 STAT. 2143]]

                ``(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

    [[Page 117 STAT. 2144]]

                    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

    [[Page 117 STAT. 2145]]

                    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

    [[Page 117 STAT. 2146]]

                          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

    [[Page 117 STAT. 2147]]

                    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) <<NOTE: Investments.>> 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.

    [[Page 117 STAT. 2148]]

                ``(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 <<NOTE: Appropriation
            authorization.>> 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. <<NOTE: 42 USC 1395w-151.>> (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).

    [[Page 117 STAT. 2149]]

                ``(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. <<NOTE: 42 USC 1395w-152.>> (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

    [[Page 117 STAT. 2150]]

    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 <<NOTE: 42 USC 1395w-101 note.>> 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 <<NOTE: Reports. 42 USC 1395w-101
    note.>> 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 <<NOTE: 42 USC 1395w-101 note.>> 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 <<NOTE: 42 USC 1395x note, 426, 1395i-4; 45
            USC 231f.>> 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

    [[Page 117 STAT. 2151]]

                          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 <<NOTE: 26 USC 6103.>> is amended by
            inserting ``or subsidies

    [[Page 117 STAT. 2152]]

            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

    [[Page 117 STAT. 2153]]

                          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).

    [[Page 117 STAT. 2154]]

                        ``(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 <<NOTE: 42 USC 1395w-21 note.>> 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 <<NOTE: 42 USC
                    1396v.>>  as section 1936; and
                        (B) by inserting after section 1934 the following
                    new section:

       ``special provisions relating to medicare prescription drug benefit

        ``Sec. 1935. <<NOTE: 42 USC 1396u-5.>> (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).

    [[Page 117 STAT. 2155]]

                ``(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

    [[Page 117 STAT. 2156]]

                    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--

    [[Page 117 STAT. 2157]]

                                        ``(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.--

    [[Page 117 STAT. 2158]]

                        ``(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.--

    [[Page 117 STAT. 2159]]

                ``(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--

    [[Page 117 STAT. 2160]]

                        (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 <<NOTE: Effective date. 42 USC 1396r-8
            note.>> 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 <<NOTE: 42 USC 1396a note.>> 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

    [[Page 117 STAT. 2161]]

                (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-

    [[Page 117 STAT. 2162]]

                    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

    [[Page 117 STAT. 2163]]

                          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

    [[Page 117 STAT. 2164]]

            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

    [[Page 117 STAT. 2165]]

            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 <<NOTE: 42 USC 1395ss note.>> 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

    [[Page 117 STAT. 2166]]

            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 <<NOTE: Applicability. 42 USC 1395w-141 note.>> 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) <<NOTE: Applicability.>> 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--

    [[Page 117 STAT. 2167]]

                (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 <<NOTE: 26 USC 6103.>>  (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 <<NOTE: 26 USC 7213.>> is amended
            by striking ``or (16)'' and inserting ``(16), or (19)''.

    [[Page 117 STAT. 2168]]

    SEC. 106. <<NOTE: 42 USC 1395w-101 note.>> 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.

    [[Page 117 STAT. 2169]]

        (d) <<NOTE: Deadline.>> 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 <<NOTE: 42 USC 1395w-111 note.>> 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 <<NOTE: Deadline.>> 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 <<NOTE: 42 USC 1395i-3 note.>> Report on Current
    Standards of Practice for Pharmacy Services Provided to Patients in
    Nursing Facilities.--
                (1) Review.--
                        (A) In <<NOTE: Deadline.>> 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.--

    [[Page 117 STAT. 2170]]

                        (A) In <<NOTE: Deadline.>> 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 <<NOTE: 42 USC 299 note.>> Study on Drug Safety and
    Quality.--
                (1) In <<NOTE: Contracts.>> 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

    [[Page 117 STAT. 2171]]

                    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 <<NOTE: 42 USC 1395w-27 note.>> 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 <<NOTE: Deadline.>> 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 <<NOTE: 42 USC 1395w-114 note.>> 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 <<NOTE: Deadline.>> 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 <<NOTE: 21 USC 352 note.>> 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

    [[Page 117 STAT. 2172]]

                    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 <<NOTE: Deadline.>> 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. <<NOTE: 42 USC 1395w-104 note.>> 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

    [[Page 117 STAT. 2173]]

                        (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 <<NOTE: 42 USC 1320c-3 note.>> Date.--The amendments
    made by this section shall apply on and after January 1, 2004.

        (d) IOM <<NOTE: 42 USC 1320c note.>> 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.

    [[Page 117 STAT. 2174]]

                        (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 <<NOTE: Deadline.>> 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 <<NOTE: 42 USC 1395w-101 note.>> 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 <<NOTE: Deadline.>> 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. <<NOTE: 42 USC 1395w-132 note.>> 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

    [[Page 117 STAT. 2175]]

            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 <<NOTE: Deadlines.>> 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

    [[Page 117 STAT. 2176]]

                (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. <<NOTE: 42 USC 1395w-21 note.>> 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. <<NOTE: Effective date.>>  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).

    [[Page 117 STAT. 2177]]

                              ``(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:

    [[Page 117 STAT. 2178]]

                        ``(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 <<NOTE: 42 USC 1395w-23 note.>> date.--The
            amendments made by paragraph (1) shall apply to contract years
            beginning on or after January 1, 2004.

        (f) MedPAC <<NOTE: 42 USC 1395w-23 note.>> 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 <<NOTE: Deadline.>> 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 <<NOTE: Deadline. 42 USC 1395w-21 note.>> 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

    [[Page 117 STAT. 2179]]

    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 <<NOTE: 42 USC 1395w-21 note.>> 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 <<NOTE: Deadline.>> 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 <<NOTE: 42 USC 1395w-23 note.>> Provisions.--
                (1) Announcement <<NOTE: Deadline.>> 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 <<NOTE: Applicability.>> 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.

    [[Page 117 STAT. 2180]]

                (4) Plans <<NOTE: Deadline.>> 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) <<NOTE: 42 USC 1395w-
            21.>> 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 <<NOTE: 42 USC 1395w-21 note.>> 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.--

    [[Page 117 STAT. 2181]]

                (1) In general.--Section 1859(b) <<NOTE: 42 USC 1395w-28.>>
            (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 <<NOTE: 42 USC 1395w-21
            note.>> 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. <<NOTE: 42 USC 1395w-27a.>> (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 <<NOTE: Deadline.>> 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

    [[Page 117 STAT. 2182]]

                    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

    [[Page 117 STAT. 2183]]

                    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.

    [[Page 117 STAT. 2184]]

                        ``(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

    [[Page 117 STAT. 2185]]

            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 two 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

    [[Page 117 STAT. 2186]]

                          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.

    [[Page 117 STAT. 2187]]

                              ``(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.

    [[Page 117 STAT. 2188]]

                              ``(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 <<NOTE: Deadline.>> 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--

    [[Page 117 STAT. 2189]]

                              ``(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 <<NOTE: Deadline.>> 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:

    [[Page 117 STAT. 2190]]

                        ``(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.--

    [[Page 117 STAT. 2191]]

                              ``(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 <<NOTE: Certification.>> 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

    [[Page 117 STAT. 2192]]

                    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 <<NOTE: Definition.>> 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)'';

    [[Page 117 STAT. 2193]]

                              (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) <<NOTE: 42
            USC 1395w-28.>>  (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 <<NOTE: Deadline.>> 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

    [[Page 117 STAT. 2194]]

                    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 <<NOTE: Guidelines.>> 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.--

    [[Page 117 STAT. 2195]]

                              ``(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

    [[Page 117 STAT. 2196]]

                          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.

    [[Page 117 STAT. 2197]]

                              ``(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),

    [[Page 117 STAT. 2198]]

            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

    [[Page 117 STAT. 2199]]

                          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

    [[Page 117 STAT. 2200]]

            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

    [[Page 117 STAT. 2201]]

                        (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

    [[Page 117 STAT. 2202]]

                              ``(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 <<NOTE: Deadline.>> 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 <<NOTE: Deadline.>> announcement.--The
                          Secretary shall determine, and shall announce (in
                          a manner intended

    [[Page 117 STAT. 2203]]

                          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

    [[Page 117 STAT. 2204]]

    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), <<NOTE: 42 USC 1395w-23.>>  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

    [[Page 117 STAT. 2205]]

                (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:

    [[Page 117 STAT. 2206]]

                        ``(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

    [[Page 117 STAT. 2207]]

                          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 <<NOTE: 42 USC 1395w-21 note.>> Date.--The amendments
    made by this subtitle shall apply with respect to plan years beginning
    on or after January 1, 2006.

        (b) Issuance <<NOTE: 42 USC 1395w-21 note.>> 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) <<NOTE: 42 USC 1395w-28.>> 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

    [[Page 117 STAT. 2208]]

                          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) <<NOTE: 42 USC 1395w-28.>>  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 <<NOTE: 42 USC 1395w-21 note.>> 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 <<NOTE: Deadline. 42 USC 1395w-21 note.>> 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 <<NOTE: 42 USC 1395w-21 note.>> general.--The
            amendments made by subsections (a), (b), and (c) shall take
            effect upon the date of the enactment of this Act.
                (2) Deadline <<NOTE: Regulations. 42 USC 1395w-28
            note.>> 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''.

    [[Page 117 STAT. 2209]]

        (c) Effective <<NOTE: 42 USC 1395w-24 note.>> 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'';
                        (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 <<NOTE: 42 USC 1395w-22 note.>> 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

    [[Page 117 STAT. 2210]]

            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. TWO-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).

    [[Page 117 STAT. 2211]]

                ``(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

    [[Page 117 STAT. 2212]]

            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 <<NOTE: 42 USC 1395cc note.>> 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.--

    [[Page 117 STAT. 2213]]

                        (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) <<NOTE: 42 USC 1395w-23.>>
                    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 <<NOTE: 42 USC 1320a-7b note.>> 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. <<NOTE: 42 USC 1395ll note.>> INSTITUTE OF MEDICINE EVALUATION
                AND REPORT ON HEALTH CARE PERFORMANCE MEASURES.

        (a) Evaluation.--
                (1) In <<NOTE: Deadline. Contracts.>> 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

    [[Page 117 STAT. 2214]]

            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 <<NOTE: Deadline.>> 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:

    [[Page 117 STAT. 2215]]

                   ``comparative cost adjustment (cca) program

        ``Sec. 1860C-1. <<NOTE: 42 USC 1395w-29.>> (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

    [[Page 117 STAT. 2216]]

                        ``(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.

    [[Page 117 STAT. 2217]]

                        ``(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 <<NOTE: Applicability.>> 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.--One 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

    [[Page 117 STAT. 2218]]

                    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

    [[Page 117 STAT. 2219]]

                    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

    [[Page 117 STAT. 2220]]

                              ``(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.

    [[Page 117 STAT. 2221]]

                ``(2) No <<NOTE: Applicability.>> 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 <<NOTE: 42 USC 1395w-29 note.>> 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--

    [[Page 117 STAT. 2222]]

                (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) <<NOTE: 42 USC 1395y note.>> 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).

    [[Page 117 STAT. 2223]]

    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) <<NOTE: Deadline.>> 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. <<NOTE: Publication.>> Such standards shall be
                    applied prospectively and shall be published on the
                    Internet website of the Centers for Medicare & Medicaid
                    Services.''.

    [[Page 117 STAT. 2224]]

                (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) <<NOTE: Effective date.>> 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 <<NOTE: Contracts.>> 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--

    [[Page 117 STAT. 2225]]

                              ``(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

    [[Page 117 STAT. 2226]]

            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.

    [[Page 117 STAT. 2227]]

                        ``(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.

    [[Page 117 STAT. 2228]]

                        ``(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.

    [[Page 117 STAT. 2229]]

                              ``(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) <<NOTE: Deadline.>> 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) <<NOTE: Deadline.>> 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

    [[Page 117 STAT. 2230]]

                    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) <<NOTE: 42 USC 1395w-3 note.>> 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) <<NOTE: Deadline.>> 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

    [[Page 117 STAT. 2231]]

                        ``(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) <<NOTE: Deadline. 42 USC 1395m note.>> 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).

    [[Page 117 STAT. 2232]]

                        ``(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)'';

    [[Page 117 STAT. 2233]]

                        (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) <<NOTE: 42 USC 1395w-3 note.>> 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. <<NOTE: Deadline.>> 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.--

    [[Page 117 STAT. 2234]]

                (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

    [[Page 117 STAT. 2235]]

                          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

    [[Page 117 STAT. 2236]]

                          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 <<NOTE: 42 USC 1395w-4 note.>> 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 <<NOTE: 42 USC 1395w-4 note.>> 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).

    [[Page 117 STAT. 2237]]

                (4) Transitional <<NOTE: 42 USC 1395w-4
            note.>> 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 <<NOTE: 42 USC 1395w-4 note.>> 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 <<NOTE: Deadlines.>> 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).

    [[Page 117 STAT. 2238]]

        (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.

    [[Page 117 STAT. 2239]]

        ``(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. <<NOTE: 42 USC 1395w-3a.>> (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,

    [[Page 117 STAT. 2240]]

                    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).

    [[Page 117 STAT. 2241]]

                        ``(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)).

    [[Page 117 STAT. 2242]]

                        ``(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

    [[Page 117 STAT. 2243]]

                          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

    [[Page 117 STAT. 2244]]

                    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 <<NOTE: Applicability.>> 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 <<NOTE: Definition.>> 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;

    [[Page 117 STAT. 2245]]

                ``(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 <<NOTE: 42 USC 1395w-3a note.>> 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 <<NOTE: Deadline.>> 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 <<NOTE: 42 USC 1395w-3a note.>> 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 <<NOTE: Deadline.>> 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. <<NOTE: 42 USC 1395w-3b.>> 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--

    [[Page 117 STAT. 2246]]

                              ``(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

    [[Page 117 STAT. 2247]]

                    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 <<NOTE: Procedures.>> 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 <<NOTE: Internet.>> 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.

    [[Page 117 STAT. 2248]]

                        ``(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.

    [[Page 117 STAT. 2249]]

                        ``(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,

    [[Page 117 STAT. 2250]]

                    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--

    [[Page 117 STAT. 2251]]

                        ``(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.

    [[Page 117 STAT. 2252]]

        ``(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 <<NOTE: Deadline. 42 USC 1395w-3b
            note.>> 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.

    [[Page 117 STAT. 2253]]

                ``(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 <<NOTE: 42 USC 1395u note.>> 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 <<NOTE: 42 USC 1395w-4 note.>> 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 <<NOTE: 42 USC 1395u note.>> of Payment Methodology
    for Radiopharmaceuticals.--Nothing in the amendments made by this
    section shall be construed as changing the payment methodology under

    [[Page 117 STAT. 2254]]

    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)--

    [[Page 117 STAT. 2255]]

                              (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 <<NOTE: 42 USC 1395u
            note.>> 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 <<NOTE: 42 USC 1395u note.>> 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. <<NOTE: 42 USC 1395u note.>> 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 <<NOTE: 42 USC 1395l note.>> 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 <<NOTE: Deadline.>> later than 1 year after
            the date of the enactment of this Act, the Comptroller General
            shall submit

    [[Page 117 STAT. 2256]]

            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.

    [[Page 117 STAT. 2257]]

        (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 <<NOTE: Deadline.>> 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. <<NOTE: 42 USC 1395aa note.>> 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

    [[Page 117 STAT. 2258]]

                          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.--

    [[Page 117 STAT. 2259]]

                (1) In general.--The <<NOTE: Contracts.>> 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

    [[Page 117 STAT. 2260]]

                                    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)  <<NOTE: Grants. Contracts.>> 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

    [[Page 117 STAT. 2261]]

    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

    [[Page 117 STAT. 2262]]

                    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

    [[Page 117 STAT. 2263]]

                              (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.''.

    [[Page 117 STAT. 2264]]

                (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).''.

    [[Page 117 STAT. 2265]]

        (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.''.

    [[Page 117 STAT. 2266]]

    SEC. 404. <<NOTE: 42 USC 1395ww note.>> 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)  <<NOTE: 42 USC 1395f note.>> 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)  <<NOTE: 42 USC 1395m note.>> 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;''.

    [[Page 117 STAT. 2267]]

                (2)  <<NOTE: 42 USC 1395g note.>> 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)  <<NOTE: Effective date. 42 USC 1395g
            note.>> 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)  <<NOTE: 42 USC 1395m note.>> 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)  <<NOTE: Applicability. 42 USC 1395i-4 note.>> 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)

    [[Page 117 STAT. 2268]]

            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

    [[Page 117 STAT. 2269]]

                          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)  <<NOTE: 42 USC 1395f note.>> 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)  <<NOTE: Applicability.>> 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).

    [[Page 117 STAT. 2270]]

                        ``(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)  <<NOTE: 42 USC 1395ww note.>> 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))

    [[Page 117 STAT. 2271]]

    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 <<NOTE: 42 USC 1395d
                note.>> 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)  <<NOTE: 42 USC 1395yy note.>> Effective Date.--The amendments
    made by subsection (a) shall apply to services furnished on or after
    January 1, 2005.

    [[Page 117 STAT. 2272]]

    SEC. 410A. <<NOTE: 42 USC 1395ww note.>> 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)  <<NOTE: Deadline.>> 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

    [[Page 117 STAT. 2273]]

            (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)  <<NOTE: Deadline.>> 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).

    [[Page 117 STAT. 2274]]

                 Subtitle B--Provisions Relating to Part B Only

    SEC. 411. TWO-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)  <<NOTE: 42 USC 1395l note.>> 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.''.

    [[Page 117 STAT. 2275]]

    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

    [[Page 117 STAT. 2276]]

                          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

    [[Page 117 STAT. 2277]]

            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)  <<NOTE: 42 USC 1395l note.>> Effective date.--The
            amendments made by paragraph (1) shall apply to physicians'
            services furnished on or after January 1, 2005.

        (c)  <<NOTE: 42 USC 1395w-4 note.>> 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

    [[Page 117 STAT. 2278]]

                    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)  <<NOTE: Deadline.>> 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

    [[Page 117 STAT. 2279]]

            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

    [[Page 117 STAT. 2280]]

                          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)  <<NOTE: 42 USC 1395m note.>> 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)  <<NOTE: 42 USC 1395m note.>> 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)  <<NOTE: Deadlines. 42 USC 1395m note.>> 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.

    [[Page 117 STAT. 2281]]

        (g) Technical Amendments.--(1) Section 221(c) of BIPA (114 Stat.
    2763A-487) <<NOTE: 42 USC 1395m note.>> 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 reimbursed
                    under 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

    [[Page 117 STAT. 2282]]

                          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)  <<NOTE: 42 USC 1395b-1.>> Effective Date.--The amendments made
    by this subsection shall apply to services furnished on or after January
    1, 2005.

    SEC. 416. <<NOTE: 42 USC 1395l-4.>> 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)  <<NOTE: Applicability.>> 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 <<NOTE: 42 USC 1395b-1 note.>> 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''.

    [[Page 117 STAT. 2283]]

    SEC. 418. <<NOTE: 42 USC 1395m note.>> 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)  <<NOTE: Deadline.>> 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. <<NOTE: 42 USC 1395fff note.>> ONE-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--

    [[Page 117 STAT. 2284]]

                (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

    [[Page 117 STAT. 2285]]

                                    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

    [[Page 117 STAT. 2286]]

                          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: <<NOTE: Applicability.>> ``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) <<NOTE: 42 USC 1395ww note.>> 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)  <<NOTE: Deadline. 42 USC 1395ww note.>> 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

    [[Page 117 STAT. 2287]]

    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) <<NOTE: 42 USC 1320a-7b.>> (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)  <<NOTE: 42 USC 1320a-7b note.>> 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)  <<NOTE: Regulations.>> 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).

    [[Page 117 STAT. 2288]]

    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. <<NOTE: 42 USC 1395ww note.>> 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)  <<NOTE: Deadlines.>> 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. <<NOTE: 42 USC 1395x note.>> 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.--

    [[Page 117 STAT. 2289]]

                (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) Three-Year Period.--The Secretary shall conduct the
    demonstration under this section for a 3-year period.
        (f)  <<NOTE: Deadline.>> 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. <<NOTE: Applicability.>> 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

    [[Page 117 STAT. 2290]]

    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)  <<NOTE: 42 USC 1395ww note.>> 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)  <<NOTE: Deadline.>> 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''.

    [[Page 117 STAT. 2291]]

        (c)  <<NOTE: 42 USC 1395ww note.>> 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) <<NOTE: Public information. Records.>> 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

    [[Page 117 STAT. 2292]]

    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)  <<NOTE: 42 USC 1395ww note.>> 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)  <<NOTE: 42 USC 1395ww note.>> 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) <<NOTE: Extension date.>> 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;

    [[Page 117 STAT. 2293]]

                ``(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) <<NOTE: Procedures.>> 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) <<NOTE: Guidelines.>> 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

    [[Page 117 STAT. 2294]]

    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)  <<NOTE: 42 USC 1395ww note.>> 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--

    [[Page 117 STAT. 2295]]

                        ``(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)  <<NOTE: 42 USC 1395cc note.>> 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)  <<NOTE: 42 USC 1395cc note.>> 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) <<NOTE: Effective date.>> 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.

    [[Page 117 STAT. 2296]]

                              ``(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) <<NOTE: Effective date.>> 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)  <<NOTE: 42 USC 1395nn note.>> 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

    [[Page 117 STAT. 2297]]

                    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)  <<NOTE: Deadline.>> 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. <<NOTE: 42 USC 1395ww note.>> ONE-TIME APPEALS PROCESS FOR
                HOSPITAL WAGE INDEX CLASSIFICATION.

        (a) Establishment of Process.--
                (1)  <<NOTE: Deadline.>> 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) <<NOTE: Deadline.>> 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.

    [[Page 117 STAT. 2298]]

                (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). <<NOTE: Effective date.>> 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)  <<NOTE: Effective date. Termination date.>> 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.--

    [[Page 117 STAT. 2299]]

                        ``(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)  <<NOTE: 42 USC 1395yy note.>> 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)''.

    [[Page 117 STAT. 2300]]

        (d)  <<NOTE: 42 USC 1395d note.>> 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. <<NOTE: 42 USC 1395yy note.>> 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)  <<NOTE: Deadline.>> 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.''.

    [[Page 117 STAT. 2301]]

                (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)  <<NOTE: 42 USC 1395w-4 note.>> 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)  <<NOTE: 42 USC 1395w-4 note.>> 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. <<NOTE: 42 USC
                1395ll note.>>

        (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.

    [[Page 117 STAT. 2302]]

        (b)  <<NOTE: Deadline.>> 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. <<NOTE: Deadlines. 42 USC 1395w-4 note.>> 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. <<NOTE: Deadlines. 42 USC 1395w-4 note.>> 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.

    [[Page 117 STAT. 2303]]

                (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)  <<NOTE: Deadline. Reports.>> 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

    [[Page 117 STAT. 2304]]

    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;''; and
                (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)  <<NOTE: Applicability. 42 USC 1395w-4 note.>> 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:

    [[Page 117 STAT. 2305]]

                ``(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) <<NOTE: Standards.>> 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)  <<NOTE: 42 USC 1395x note.>> 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.

    [[Page 117 STAT. 2306]]

        ``(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/m<SUP>2</SUP>.
                ``(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/m<SUP>2</SUP>.
                        ``(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) <<NOTE: Standards.>> 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)  <<NOTE: 42 USC 1395x note.>> 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)  <<NOTE: Applicability. 42 USC 1395l note.>> 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.

    [[Page 117 STAT. 2307]]

                          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

    [[Page 117 STAT. 2308]]

                          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 <<NOTE: Deadline.>> 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. <<NOTE: Reports.>> 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)  <<NOTE: Reports.>> 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

    [[Page 117 STAT. 2309]]

                          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)  <<NOTE: Deadline. Reports.>> 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)  <<NOTE: Deadline.>> 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

    [[Page 117 STAT. 2310]]

                    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), <<NOTE: 42
            USC 1935l.>> 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)  <<NOTE: 42 USC 1395l note.>> 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

    [[Page 117 STAT. 2311]]

                    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)  <<NOTE: 42 USC 1395l note.>> 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 <<NOTE: Deadline.>> 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

    [[Page 117 STAT. 2312]]

                          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 <<NOTE: 42 USC
            1395rr note.>> 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 <<NOTE: 42 USC 1395rr note.>> 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

    [[Page 117 STAT. 2313]]

                    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)  <<NOTE: Deadlines.>> 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) <<NOTE: Effective dates.>> 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) <<NOTE: Applicability.>> 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.

    [[Page 117 STAT. 2314]]

        ``(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

    [[Page 117 STAT. 2315]]

    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)  <<NOTE: 42 USC 1395rr note.>> 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) <<NOTE: Effective date.>> 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.--

    [[Page 117 STAT. 2316]]

                        (A)  <<NOTE: Establishment.>> 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)  <<NOTE: 42 USC 1395rr note.>> Report on a Bundled Prospective
    Payment System for End Stage Renal Disease Services.--
                (1) Report.--
                        (A)  <<NOTE: Deadline.>> 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.

    [[Page 117 STAT. 2317]]

                        (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. TWO-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)  <<NOTE: 42 USC 1395l note.>> 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 <<NOTE: Deadline. 42 USC 1395l
    note.>> 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)  <<NOTE: Deadline.>> 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.--

    [[Page 117 STAT. 2318]]

                (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)  <<NOTE: 42 USC 1395r note.>> Effective date.--The
            amendment made by paragraph (1) shall apply to premiums for
            months beginning with January 2004. <<NOTE: Procedures.>> 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)  <<NOTE: 42 USC 1395p note.>> 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 <<NOTE: Effective date. Termination date.>> 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) <<NOTE: Effective date.>> 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.

    [[Page 117 STAT. 2319]]

        ``(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) <<NOTE: Effective date.>> 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)  <<NOTE: 42 USC 1395l note.>> 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

    [[Page 117 STAT. 2320]]

                    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)  <<NOTE: Deadline.>> 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

    [[Page 117 STAT. 2321]]

    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)  <<NOTE: 42 USC 1395l note.>> 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. FIVE-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. <<NOTE: 42 USC 1395l note.>> 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)  <<NOTE: Effective date.>> Duration.--The Secretary shall
    conduct the demonstration project for the 2-year period beginning on the
    date that is 90

    [[Page 117 STAT. 2322]]

    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)  <<NOTE: Deadline.>> 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)  <<NOTE: 42 USC 1395l note.>> 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)  <<NOTE: Deadline. 42 USC 1395x note.>> Report.--Not later than
    January 1, 2005, the Commission shall submit to Congress a report on the
    study conducted under

    [[Page 117 STAT. 2323]]

    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. <<NOTE: 42 USC 1395w-4 note.>> 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)  <<NOTE: Deadline.>> 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. <<NOTE: 42 USC 1395x note.>> 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)  <<NOTE: Deadline.>> 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.

    [[Page 117 STAT. 2324]]

        (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 <<NOTE: Deadline.>> 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. <<NOTE: 42 USC 1395cc-3.>> 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

    [[Page 117 STAT. 2325]]

    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--

    [[Page 117 STAT. 2326]]

                        ``(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. <<NOTE: 42 USC 1395n note.>> 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

    [[Page 117 STAT. 2327]]

    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)  <<NOTE: Deadline.>> 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. <<NOTE: 42 USC 1395b-8 note.>> 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

    [[Page 117 STAT. 2328]]

                    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 <<NOTE: Deadline.>> 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 <<NOTE: Deadlines.>> 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

    [[Page 117 STAT. 2329]]

    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. <<NOTE: 42 USC 1395b-1 note.>> 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) two shall be in an urban area;
                        (B) one shall be in a rural area; and
                        (C) one 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).

    [[Page 117 STAT. 2330]]

                (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

    [[Page 117 STAT. 2331]]

            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.
    and 1395 et seq.) as may be necessary for the purpose of carrying out
    the demonstration program under this section.
        (g) Report.--Not <<NOTE: Deadline.>> 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 email communication, clinical
            alerts and reminders, and other information technology that
            meets such functionality, interoperability, and other standards
            as prescribed by the Secretary.

    SEC. 650. <<NOTE: 42 USC 1395cc note.>> 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 <<NOTE: Deadline.>> later than the date that is 12
    months after the date of enactment of this Act, the Comptroller General
    of

    [[Page 117 STAT. 2332]]

    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. <<NOTE: 42 USC 1395x note.>> 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.

    [[Page 117 STAT. 2333]]

                        (B) Geographic diversity.--Of the sites described in
                    subparagraph (A)--
                              (i) two shall be in rural areas; and
                              (ii) two 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 <<NOTE: Deadline.>> 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.

    [[Page 117 STAT. 2334]]

                (2) Evaluation <<NOTE: Appropriation authorization.>> 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''.

    [[Page 117 STAT. 2335]]

    SEC. 702. <<NOTE: 42 USC 1395x note.>> DEMONSTRATION PROJECT TO CLARIFY
                THE DEFINITION OF HOMEBOUND.

        (a) Demonstration <<NOTE: Deadline.>> 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 <<NOTE: Deadline.>> 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.

    [[Page 117 STAT. 2336]]

                (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. <<NOTE: 42 USC 1395fff note.>> 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

    [[Page 117 STAT. 2337]]

            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. <<NOTE: Deadline.>>  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--

    [[Page 117 STAT. 2338]]

                        (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. <<NOTE: 42 USC 1395fff note.>> 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

    [[Page 117 STAT. 2339]]

                        (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 <<NOTE: Deadline.>> 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. <<NOTE: 42 USC 1395fff note.>> 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 <<NOTE: Deadline.>> 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.

    [[Page 117 STAT. 2340]]

        ``(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. <<NOTE: 42 USC 1395ww note.>> 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. <<NOTE: 42 USC 1395ww note.>> TREATMENT OF VOLUNTEER
                SUPERVISION.

        (a) Moratorium <<NOTE: Effective date. Applicability.>> 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

    [[Page 117 STAT. 2341]]

    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 <<NOTE: Deadline.>> 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. <<NOTE: 42 USC 1395b-8.>> (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

    [[Page 117 STAT. 2342]]

                    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 <<NOTE: Contracts.>> 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. <<NOTE: Deadline.>>  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

    [[Page 117 STAT. 2343]]

            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 <<NOTE: Contracts.>> 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. <<NOTE: Effective date.>>  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 <<NOTE: Procedures.>> 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.

    [[Page 117 STAT. 2344]]

                        ``(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

    [[Page 117 STAT. 2345]]

                        ``(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

    [[Page 117 STAT. 2346]]

                    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 <<NOTE: Deadlines. 42 USC 1395b-8
    note.>> 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

    [[Page 117 STAT. 2347]]

            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 <<NOTE: Regulations.>> 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.

    [[Page 117 STAT. 2348]]

                              ``(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 <<NOTE: 42 USC 1395w-22 note.>> Date.--The amendments
    made by this section shall apply with respect to contract years
    beginning on and after January 1, 2006.

    SEC. 723. <<NOTE: 42 USC 1395b-8 note.>> CHRONICALLY ILL MEDICARE
                BENEFICIARY RESEARCH, DATA, DEMONSTRATION STRATEGY.

        (a) Development <<NOTE: Deadline.>> 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.

    [[Page 117 STAT. 2349]]

        (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 <<NOTE: Deadline.>> 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 <<NOTE: Public information.>> 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. <<NOTE: Guidelines.>>  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 <<NOTE: Deadlines.>> 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

    [[Page 117 STAT. 2350]]

                        ``(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 <<NOTE: Deadlines.>> 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.

    [[Page 117 STAT. 2351]]

                ``(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 <<NOTE: 42 USC 1395y note.>> 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 <<NOTE: 42 USC 1395y note.>> 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 <<NOTE: 42 USC 1395y note.>> 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 <<NOTE: Deadlines. Procedures. 42 USC 1395u note.>> 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.

    [[Page 117 STAT. 2352]]

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

        Section 542(c) of BIPA (114 Stat. 2763A-551) <<NOTE: 42 USC 1395w-4
    note.>>  is amended by inserting ``, and for services furnished during
    2005 and 2006'' before the period at the end.

    SEC. 733. <<NOTE: 42 USC 1395l note.>> 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 <<NOTE: Effective date.>> 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. <<NOTE: 42 USC 1395i note.>> RESTORATION OF MEDICARE TRUST
                FUNDS.

        (a) Definitions.--In this section:

    [[Page 117 STAT. 2353]]

                (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

    [[Page 117 STAT. 2354]]

            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 <<NOTE: 42 USC 1395b-6 note.>> date.--The
            amendment made by paragraph (1) shall take effect on January 1,
            2004.

        (d) Additional <<NOTE: Deadlines.>> 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 <<NOTE: 42 USC 1395b-6
            note.>> 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''.

    [[Page 117 STAT. 2355]]

        (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)''.

    [[Page 117 STAT. 2356]]

        (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) <<NOTE: 42 USC
    1395b-1 note.>>  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)''.

    [[Page 117 STAT. 2357]]

        (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. <<NOTE: 42 USC 1395i note.>> 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.

    [[Page 117 STAT. 2358]]

        (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.

    [[Page 117 STAT. 2359]]

                        (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 <<NOTE: Reports.>> 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 the 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

    [[Page 117 STAT. 2360]]

            under paragraph (2) beginning with the report in 2005 shall
            include the information specified in section 801(a) of the
            Medicare Prescription Drug, Improvement, and Modernization Act
            of 2003.''.

        (e) Notice <<NOTE: President.>> 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) <<NOTE: Deadline.>> 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. <<NOTE: 31 USC 1105 note.>> 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 <<NOTE: Deadline.>> 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 <<NOTE: Reports. Deadline.>> 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.

    [[Page 117 STAT. 2361]]

                (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) <<NOTE: Deadline.>> In the House, not later than 3
            legislative days after any committee has been discharged from
            further consideration

    [[Page 117 STAT. 2362]]

            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--

    [[Page 117 STAT. 2363]]

                (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. <<NOTE: 31 USC 1105 note.>> 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 <<NOTE: Applicability.>> 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

    [[Page 117 STAT. 2364]]

            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--

    [[Page 117 STAT. 2365]]

                        ``(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 groThe applicable............................
        is:
                                  percentage is:............................

    More than $80,000 but not more than                          35 percent
        $100,000
    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) <<NOTE: Applicability.>> 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

    [[Page 117 STAT. 2366]]

                              ``(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 <<NOTE: Termination date.>>  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 <<NOTE: Regulations.>> 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

    [[Page 117 STAT. 2367]]

                          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)--

    [[Page 117 STAT. 2368]]

                              (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 <<NOTE: 26 USC 6103.>> 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

    [[Page 117 STAT. 2369]]

                    (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) <<NOTE: 26 USC
                    6103.>>  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) <<NOTE: 26 USC
                    7213.>>  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 <<NOTE: Establishment.>> 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. <<NOTE: 42 USC 1395b-9.>> (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,

    [[Page 117 STAT. 2370]]

            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 <<NOTE: 5 USC 5314 note.>> 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)--

    [[Page 117 STAT. 2371]]

                                        (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'';

    [[Page 117 STAT. 2372]]

                        (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) <<NOTE: 26 USC 6103.>>  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''.

    [[Page 117 STAT. 2373]]

                (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

    [[Page 117 STAT. 2374]]

                    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 <<NOTE: Fraud. 42 USC 1395kk-1 note.>> 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:

    [[Page 117 STAT. 2375]]

                                   ``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 <<NOTE: Federal Register, publication.>> 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 <<NOTE: Reports.>> 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 <<NOTE: 42 USC 1395hh note.>> 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.''.

    [[Page 117 STAT. 2376]]

                (2) Effective <<NOTE: 42 USC 1395hh note.>> 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 <<NOTE: 42 USC 1395hh note.>> 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 <<NOTE: 42 USC 1395hh note.>> 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

    [[Page 117 STAT. 2377]]

            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 <<NOTE: 42 USC 1395hh note.>> 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 <<NOTE: 42 USC 1395hh note.>> 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.

    [[Page 117 STAT. 2378]]

        ``(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. <<NOTE: 42 USC 1395kk-1 note.>> (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

    [[Page 117 STAT. 2379]]

            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.--

    [[Page 117 STAT. 2380]]

                        ``(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. <<NOTE: Notification.>>  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.

    [[Page 117 STAT. 2381]]

                        ``(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 <<NOTE: Reports.>> 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 <<NOTE: 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,

    [[Page 117 STAT. 2382]]

            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--

    [[Page 117 STAT. 2383]]

                              ``(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 <<NOTE: 42 USC 1395kk-1 note.>> 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)--

    [[Page 117 STAT. 2384]]

                              (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)--

    [[Page 117 STAT. 2385]]

                              (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 <<NOTE: 42 USC 1395kk-1 note.>> 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

    [[Page 117 STAT. 2386]]

                    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 <<NOTE: 42 USC 1395kk-1 note.>> 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 <<NOTE: 42 USC 1395kk-1 note.>> 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 <<NOTE: 42 USC 1395kk-1 note.>> 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 <<NOTE: Deadline.>> 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.

    [[Page 117 STAT. 2387]]

    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

    [[Page 117 STAT. 2388]]

                          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 <<NOTE: Reports.>> 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 <<NOTE: 42 USC 1395kk-1 note.>> 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. <<NOTE: 42 USC 1395zz.>> (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 <<NOTE: 42 USC 1395zz note.>> 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.--

    [[Page 117 STAT. 2389]]

                (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 <<NOTE: 42 USC 1395kk-1 note.>> 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

    [[Page 117 STAT. 2390]]

            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 <<NOTE: 42 USC 1395kk-1 note.>> date.--The
            amendment made by paragraph (1) shall take effect October 1,
            2004.
                (3) Application <<NOTE: 42 USC 1395kk-1 note.>> 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

    [[Page 117 STAT. 2391]]

            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 <<NOTE: Appropriation
            authorization.>> 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 <<NOTE: 42 USC 1395zz note.>> 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 <<NOTE: 42 USC 1395zz note.>> 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:

    [[Page 117 STAT. 2392]]

        ``(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 <<NOTE: 42 USC 1395zz note.>> date.--The
            amendment made by paragraph (1) shall take effect on the date of
            the enactment of this Act.

    SEC. 922. <<NOTE: 42 USC 1395zz note.>> 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.

    [[Page 117 STAT. 2393]]

        (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 <<NOTE: Reports.>> 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;

    [[Page 117 STAT. 2394]]

                        ``(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 <<NOTE: Reports.>> 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 <<NOTE: 42 USC 1395b-9 note.>> 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.''.

    [[Page 117 STAT. 2395]]

                (2) Monitoring <<NOTE: 42 USC 1395b-2 note.>> 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. <<NOTE: 42 USC 1395b-3 note.>> 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.

    [[Page 117 STAT. 2396]]

    SEC. 925. <<NOTE: 42 USC 1395b-7 note.>> 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. <<NOTE: 42 USC 1395x note.>> 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 <<NOTE: 42 USC 1395x note.>> 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. <<NOTE: 42 USC 1395ff note.>> 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

    [[Page 117 STAT. 2397]]

                    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

    [[Page 117 STAT. 2398]]

            under section 1869 of the Social Security Act (42 U.S.C. 1395ff)
            (as amended by this Act).
                (4) GAO <<NOTE: Reports.>> evaluation.--The Comptroller
            General of the United States shall evaluate the plan and, not
            later than the date that is 6 months after the date on which the
            plan is received by the Comptroller General, shall submit to
            Congress a report on such evaluation.

        (b) Transfer of Adjudication Authority.--
                (1) In general.--Not earlier than July 1, 2005, and not
            later than October 1, 2005, the Commissioner of Social Security
            and the Secretary shall implement the transition plan under
            subsection (a) and transfer the administrative law judge
            functions described in such subsection from the Social Security
            Administration to the Secretary.
                (2) Assuring independence of judges.--The Secretary shall
            assure the independence of administrative law judges performing
            the administrative law judge functions transferred under
            paragraph (1) from the Centers for Medicare & Medicaid Services
            and its contractors. In order to assure such independence, the
            Secretary shall place such judges in an administrative office
            that is organizationally and functionally separate from such
            Centers. Such judges shall report to, and be under the general
            supervision of, the Secretary, but shall not report to, or be
            subject to supervision by, another 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 <<NOTE: Appropriation authorization.>> 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

    [[Page 117 STAT. 2399]]

    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--

    [[Page 117 STAT. 2400]]

                                        ``(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

    [[Page 117 STAT. 2401]]

    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 <<NOTE: Appropriation
            authorization.>> 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

    [[Page 117 STAT. 2402]]

            (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 <<NOTE: 42 USC 1395i-3 note.>> 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 <<NOTE: 42 USC 1395ff note.>> 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--

    [[Page 117 STAT. 2403]]

                              ``(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

    [[Page 117 STAT. 2404]]

                        (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

    [[Page 117 STAT. 2405]]

                              ``(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:

    [[Page 117 STAT. 2406]]

                        ``(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 <<NOTE: 42 USC 1395ff note.>> 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 <<NOTE: 42 USC 1395ff note.>> 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'

    [[Page 117 STAT. 2407]]

                    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 <<NOTE: Regulations.>> 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 <<NOTE: 42 USC 1395kk-1 note.>> 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 <<NOTE: 42 USC 1395kk-1 note.>> 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

    [[Page 117 STAT. 2408]]

                    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

    [[Page 117 STAT. 2409]]

                    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

    [[Page 117 STAT. 2410]]

                              ``(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

    [[Page 117 STAT. 2411]]

                          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 <<NOTE: 42 USC 1395ddd note.>> 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:

    [[Page 117 STAT. 2412]]

        ``(j) Enrollment Process for Providers of Services and Suppliers.--
                ``(1) Enrollment process.--
                        ``(A) In <<NOTE: Regulations.>> general.--The
                    Secretary shall establish by regulation a process for
                    the enrollment of providers of services and suppliers
                    under this title.
                        ``(B) Deadlines.--
                    The <<NOTE: Regulations.>> 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 <<NOTE: 42 USC 1395cc note.>> 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. <<NOTE: 42 USC 1395ff note.>> 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).

    [[Page 117 STAT. 2413]]

    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 <<NOTE: Regulations.>> 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 <<NOTE: Notification.>> 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

    [[Page 117 STAT. 2414]]

                              ``(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'

    [[Page 117 STAT. 2415]]

                    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 <<NOTE: 42 USC 1395ff note.>> 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 <<NOTE: 42 USC 1395pp note.>> 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

    [[Page 117 STAT. 2416]]

            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 <<NOTE: 42 USC 1395gg note.>> 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

    [[Page 117 STAT. 2417]]

                          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.''.

    [[Page 117 STAT. 2418]]

                      Subtitle E--Miscellaneous Provisions

    SEC. 941. <<NOTE: 42 USC 1395kk-1 note.>> 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 <<NOTE: Paperwork reduction.>> 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;

    [[Page 117 STAT. 2419]]

                        (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

    [[Page 117 STAT. 2420]]

            simplification under part C of title XI of the Social Security
            Act.
                (5) Report <<NOTE: Deadline.>> 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. <<NOTE: Reports.>> 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,

    [[Page 117 STAT. 2421]]

            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) <<NOTE: Regulations.>> 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 <<NOTE: Public information. Records.>> 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) <<NOTE: Federal Register, publication.>> 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

    [[Page 117 STAT. 2422]]

                ``(ii) <<NOTE: Public information.>> 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 <<NOTE: Deadline.>> not later than October
            1, 2004, the Comptroller General shall submit a report to
            Congress on the study under paragraph (1).

    SEC. 943. <<NOTE: 42 USC 1395y note.>> 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

    [[Page 117 STAT. 2423]]

    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 <<NOTE: 42 USC 1395y note.>> date.--The
            amendment made by paragraph (1) shall apply to items and
            services furnished on or after January 1, 2004.

        (b) Notification of Providers When EMTALA Investigation Closed.--
    Section 1867(d) (42 U.S.C. 42 U.S.C. 1395dd(d)) is amended by adding at
    the end the following new paragraph:
                ``(4) Notice upon closing an investigation.--The Secretary
            shall establish a procedure to notify hospitals and physicians
            when an investigation under this section is closed.''.

        (c) Prior Review by Peer Review Organizations in EMTALA Cases
    Involving Termination of Participation.--
                (1) In general.--Section 1867(d)(3) (42 U.S.C. 1395dd(d)(3))
            is amended--
                        (A) in the first sentence, by inserting ``or in
                    terminating a hospital's participation under this
                    title'' after ``in imposing sanctions under paragraph
                    (1)''; and
                        (B) by adding at the end the following new
                    sentences: ``Except in the case in which a delay would
                    jeopardize the health or safety of individuals, the
                    Secretary shall also request such a review before making
                    a compliance determination as part of the process of
                    terminating a hospital's participation under this title
                    for violations related to the appropriateness of a
                    medical screening examination, stabilizing treatment, or
                    an appropriate transfer as required by this section, and
                    shall provide a period of 5 days for such review. The
                    Secretary shall provide a copy of the organization's
                    report to the hospital or physician consistent with
                    confidentiality requirements imposed on the organization
                    under such part B.''.
                (2) Effective <<NOTE: 42 USC 1395dd note.>> 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. <<NOTE: 42 USC 1395dd note.>> 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;

    [[Page 117 STAT. 2424]]

                (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

    [[Page 117 STAT. 2425]]

    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 <<NOTE: 42 USC 1395f note.>> 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 <<NOTE: 42 USC 1395cc note.>> 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 <<NOTE: 42 USC 1395y.>>
            and added at the end of such section; and

    [[Page 117 STAT. 2426]]

                (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 <<NOTE: 42 USC 1314 note.>> 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:

    [[Page 117 STAT. 2427]]

        ``(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 <<NOTE: 42 USC 1395y note.>> 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. <<NOTE: 42 USC 1395ww note.>> 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 <<NOTE: 42 USC 1395u note.>> 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

    [[Page 117 STAT. 2428]]

            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 <<NOTE: 42 USC 1395w-4 note.>> 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 <<NOTE: 42 USC 1395y note.>> 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 <<NOTE: 42 USC 1395d note.>> 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--

    [[Page 117 STAT. 2429]]

                (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).''.

    [[Page 117 STAT. 2430]]

        (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:

    [[Page 117 STAT. 2431]]

                        ``(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 <<NOTE: 42 USC 1396b note.>> 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 services;
                        (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)''.

    [[Page 117 STAT. 2432]]

        (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. <<NOTE: 42 USC 1395dd note.>> 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.

    [[Page 117 STAT. 2433]]

                (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;

    [[Page 117 STAT. 2434]]

                        (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:

    [[Page 117 STAT. 2435]]

                (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. <<NOTE: 42 USC 242b note.>> 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.--

    [[Page 117 STAT. 2436]]

                (1) Number and appointment.--The Commission shall be
            composed of 11 members appointed as follows:
                        (A) The President shall appoint three members, one
                    of whom the President shall designate as Chairperson.
                        (B) The Majority Leader of the Senate shall appoint
                    two members.
                        (C) The Minority Leader of the Senate shall appoint
                    two members.
                        (D) The Speaker of the House of Representatives
                    shall appoint two members.
                        (E) The Minority Leader of the House of
                    Representatives shall appoint two 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

    [[Page 117 STAT. 2437]]

            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.

    [[Page 117 STAT. 2438]]

    SEC. 1013. <<NOTE: 42 USC 299b-7.>> 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.--

    [[Page 117 STAT. 2439]]

                        (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--

    [[Page 117 STAT. 2440]]

                              (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

    [[Page 117 STAT. 2441]]

                              (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. <<NOTE: 42 USC 299 note.>> 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.

    [[Page 117 STAT. 2442]]

                (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) <<NOTE: Deadline.>> Designation of the Chairperson.--Not later
    than 15 days after the date on which all members of the Working Group
    have

    [[Page 117 STAT. 2443]]

    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

    [[Page 117 STAT. 2444]]

                              (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.

    [[Page 117 STAT. 2445]]

                        (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 the same 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

    [[Page 117 STAT. 2446]]

    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 <<NOTE: Reports. Deadline.>> 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, 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.

    [[Page 117 STAT. 2447]]

    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. <<NOTE: 42 USC 1395hhh.>> (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;

    [[Page 117 STAT. 2448]]

                        ``(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 <<NOTE: Loans.>> 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. THIRTY-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

    [[Page 117 STAT. 2449]]

                    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) <<NOTE: Deadline.>> 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:

    [[Page 117 STAT. 2450]]

                        ``(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

    [[Page 117 STAT. 2451]]

                                    the subject of the certification
                                    referred to in subparagraph (B)(iii)
                                    unless--
                                                ``(aa) the 45-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 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

    [[Page 117 STAT. 2452]]

                                    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

    [[Page 117 STAT. 2453]]

                        ``(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)'';

    [[Page 117 STAT. 2454]]

                                        (II) <<NOTE: Effective date.>> 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) <<NOTE: Effective date.>> 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) <<NOTE: Effective date.>> 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,

    [[Page 117 STAT. 2455]]

                                    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 45-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

    [[Page 117 STAT. 2456]]

                                    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)  <<NOTE: 21 USC 355 note.>> 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.

    [[Page 117 STAT. 2457]]

                (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

    [[Page 117 STAT. 2458]]

                          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.

    [[Page 117 STAT. 2459]]

                                                ``(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.

    [[Page 117 STAT. 2460]]

                              ``(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 <<NOTE: 21 USC 355 note.>> 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

    [[Page 117 STAT. 2461]]

            between the drug and the listed drug in safety and therapeutic
            effect.''.

        (b) Effect <<NOTE: 21 USC 355 note.>> 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. <<NOTE: 21 USC 355 note.>> 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. <<NOTE: 21 USC 3155 note.>> NOTIFICATION OF AGREEMENTS.

        (a) Agreement With Brand Name Drug Company.--

    [[Page 117 STAT. 2462]]

                (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

    [[Page 117 STAT. 2463]]

            involved shall file written descriptions of such agreement that
            are sufficient to disclose all the terms and conditions of the
            agreement.

    SEC. 1113. <<NOTE: 21 USC 355 note.>> 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. <<NOTE: 21 USC 355 note.>> 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. <<NOTE: 21 USC 355 note.>> 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. <<NOTE: 21 USC 355 note.>> 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. <<NOTE: 21 USC 355 note.>> 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.

    [[Page 117 STAT. 2464]]

    SEC. 1118. <<NOTE: 21 USC 355 note.>> 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.) <<NOTE: 21 USC 535.>>  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

    [[Page 117 STAT. 2465]]

            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.

    [[Page 117 STAT. 2466]]

                        ``(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 <<NOTE: Records.>> 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 <<NOTE: Confidentiality.>> 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

    [[Page 117 STAT. 2467]]

    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 <<NOTE: Regulations.>> 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;

    [[Page 117 STAT. 2468]]

                        ``(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

    [[Page 117 STAT. 2469]]

                              ``(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. <<NOTE: 21 USC 384 note.>> 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. <<NOTE: 21 USC 381 note.>> 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 <<NOTE: 26 USC 223, 224.>>  and by inserting after section
    222 the following new section:

    ``SEC. 223. HEALTH <<NOTE: 26 USC 223.>> 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--

    [[Page 117 STAT. 2470]]

                        ``(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 beginning The additional............................
                                  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))--

    [[Page 117 STAT. 2471]]

                              ``(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).

    [[Page 117 STAT. 2472]]

                        ``(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

    [[Page 117 STAT. 2473]]

                    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).

    [[Page 117 STAT. 2474]]

                ``(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

    [[Page 117 STAT. 2475]]

                    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,

    [[Page 117 STAT. 2476]]

                                    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 <<NOTE: 26 USC
    62.>> 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 <<NOTE: 26 USC 220.>> (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.--

    [[Page 117 STAT. 2477]]

                (1) Exclusion from income tax.--Section 106 of such Code
            (relating <<NOTE: 26 USC 106.>> 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 <<NOTE: 26 USC 3231.>>  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 <<NOTE: 26 USC 3306.>>  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 <<NOTE: 26 USC 3401.>>  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 <<NOTE: 26 USC
            6051.>>  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:

    [[Page 117 STAT. 2478]]

                ``(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. <<NOTE: 26 USC 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 <<NOTE: 26 USC
    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.

    [[Page 117 STAT. 2479]]

    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 <<NOTE: 26 USC 4975.>>
            (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 <<NOTE: 26 USC 6693.>>
    (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) <<NOTE: 26 USC 848.>>  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) <<NOTE: 26 USC 125.>>  (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 <<NOTE: 26 USC 62 note.>> Date.--The amendments made
    by this section shall apply to taxable years beginning after December
    31, 2003.

    [[Page 117 STAT. 2480]]

    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. <<NOTE: 26 USC 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 <<NOTE: 26 USC 56.>>  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 <<NOTE: 26 USC 56 note.>> 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 <<NOTE: 26 USC 6041.>>  (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 <<NOTE: 26 USC 6041 note.>> Date.--The amendment made
    by this section shall apply to payments made after December 31, 2002.

        Approved December 8, 2003.

    LEGISLATIVE HISTORY--H.R. 1 (S. 1):
    ---------------------------------------------------------------------------

    HOUSE REPORTS: No. 108-391 (Comm. of Conference).
    CONGRESSIONAL RECORD, Vol. 149 (2003):
                June 26, considered and passed House.
                July 7, considered and passed Senate, amended, in lieu of S.
                    1.
                Nov. 21, House agreed to conference report.
                Nov. 25, Senate agreed to conference report.
    WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 39 (2003):
                Dec. 8, Presidential remarks and statement.

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