    [United States Statutes at Large, Volume 117, 108th Congress, 1st Session]
    [From the U.S. Government Publishing Office, www.gpo.gov]

    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. <>

    Be it enacted by the Senate and House of <> 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 <> Title.--This Act may be cited
    as the ``Medicare Prescription Drug, Improvement, and Modernization Act
    of 2003''.

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

    (d) Table of Contents.--The table of contents 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.

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    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 2068]]
    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 2069]]
    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 2070]]
    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.

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    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. <> (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.--

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    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 2073]]
    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)).

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    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 2075]]
    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. <> (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 2076]]
    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 2077]]
    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 2078]]
    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 2079]]
    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 2080]]
    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 2081]]
    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. <> (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 2082]]
    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. <> (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 2083]]
    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 2084]]
    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 2085]]
    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 2086]]
    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 2087]]
    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) <> 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 2088]]
    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 2089]]
    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) <> 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 <> 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 2090]]
    117 STAT. 2090

    ``(II) Report <> to
    congress.--Not later than April 1, 2007,
    the Secretary shall submit to Congress a
    report on the evaluation conducted under
    subclause (I).
    ``(D) Final <> standards.--Based
    upon the evaluation of the pilot project under
    subparagraph (C)(iv)(I) and not later than April 1,
    2008, the Secretary shall promulgate uniform standards
    relating to the requirements described in paragraph (2).
    ``(5) Relation to state laws.--The standards promulgated
    under this subsection shall supersede any State law or
    regulation that--
    ``(A) is contrary to the standards or restricts the
    ability to carry out this part; and
    ``(B) pertains to the electronic transmission of
    medication history and of information on eligibility,
    benefits, and prescriptions with respect to covered part
    D drugs under this part.
    ``(6) Establishment of safe harbor.--The Secretary, in
    consultation with the Attorney General, shall promulgate
    regulations that provide for a safe harbor from sanctions under
    paragraphs (1) and (2) of section 1128B(b) and an exception to
    the prohibition under subsection (a)(1) of section 1877 with
    respect to the provision of nonmonetary remuneration (in the
    form of hardware, software, or information technology and
    training services) necessary and used solely to receive and
    transmit electronic prescription information in accordance with
    the standards promulgated under this subsection--
    ``(A) in the case of a hospital, by the hospital to
    members of its medical staff;
    ``(B) in the case of a group practice (as defined in
    section 1877(h)(4)), by the practice to prescribing
    health care professionals who are members of such
    practice; and
    ``(C) in the case of a PDP sponsor or MA
    organization, by the sponsor or organization to
    pharmacists and pharmacies participating in the network
    of such sponsor or organization, and to prescribing
    health care professionals.

    ``(f) Grievance Mechanism.--Each PDP sponsor shall provide
    meaningful procedures for hearing and resolving grievances between the
    sponsor (including any entity or individual through which the sponsor
    provides covered benefits) and enrollees with prescription drug plans of
    the sponsor under this part in accordance with section 1852(f).
    ``(g) Coverage Determinations and Reconsiderations.--
    ``(1) Application of coverage determination and
    reconsideration provisions.--A PDP sponsor shall meet the
    requirements of paragraphs (1) through (3) of section 1852(g)
    with respect to covered benefits under the prescription drug
    plan it offers under this part in the same manner as such
    requirements apply to an MA organization with respect to
    benefits it offers under an MA plan under part C.
    ``(2) Request for a determination for the treatment of
    tiered formulary drug.--In the case of a prescription drug plan
    offered by a PDP sponsor that provides for tiered cost-sharing
    for drugs included within a formulary and provides lower cost-
    sharing for preferred drugs included within the formulary, a
    part D eligible individual who is enrolled in the

    [[Page 2091]]
    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 2092]]
    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. <> (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 2093]]
    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 2094]]
    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 2095]]
    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 2096]]
    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 2097]]
    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 2098]]
    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 2099]]
    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. <> (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 2100]]
    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 <> 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 2101]]
    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) <> 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 2102]]
    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. <> (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 2103]]
    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 2104]]
    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 2105]]
    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 2106]]
    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 2107]]
    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. <> (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 2108]]
    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 2109]]
    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 2110]]
    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 2111]]
    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 2112]]
    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 2113]]
    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. <> (a) Subsidy Payment.--
    In order to reduce premium levels applicable to qualified prescription
    drug coverage

    [[Page 2114]]
    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 2115]]
    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 2116]]
    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 2117]]
    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 2118]]
    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 2119]]
    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 2120]]
    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. <> (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 2121]]
    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 2122]]
    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. <> (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 2123]]
    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 2124]]
    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 2125]]
    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. <> (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 2126]]
    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 2127]]
    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 2128]]
    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. <> (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 2129]]
    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 2130]]
    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. <> (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 2131]]
    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. <> (a) Establishment of
    Program.--
    ``(1) In general.--The Secretary shall establish a program
    under this section--
    ``(A) to endorse prescription drug discount card
    programs that meet the requirements of this section in
    order to provide access to prescription drug discounts
    through prescription drug card sponsors for discount
    card eligible individuals throughout the United States;
    and
    ``(B) to provide for transitional assistance for
    transitional assistance eligible individuals enrolled in
    such endorsed programs.
    ``(2) Period of operation.--
    ``(A) Implementation deadline.--The Secretary shall
    implement the program under this section so that
    discount cards and transitional assistance are first
    available by not later than 6 months after the date of
    the enactment of this section.
    ``(B) Expediting implementation.--
    The <> Secretary shall promulgate
    regulations to carry out the program under this section
    which may be effective and final immediately on an
    interim basis as of the date of publication of the
    interim final regulation. If the Secretary provides for
    an interim final regulation, the Secretary shall provide
    for a period of public comments on such regulation after
    the date of publication. The Secretary may change or
    revise such regulation after completion of the period of
    public comment.
    ``(C) Termination and transition.--
    ``(i) In general.--Subject to clause (ii)--
    ``(I) the program under this section
    shall not apply to covered discount card
    drugs dispensed after December 31, 2005;
    and
    ``(II) transitional assistance shall
    be available after such date to the
    extent the assistance relates to drugs
    dispensed on or before such date.
    ``(ii) Transition.--In the case of an
    individual who is enrolled in an endorsed discount
    card program as

    [[Page 2132]]
    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 2133]]
    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 2134]]
    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 2135]]
    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 2136]]
    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 2137]]
    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 2138]]
    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 2139]]
    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 2140]]
    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 2141]]
    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 2142]]
    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 2143]]
    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 2144]]
    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 2145]]
    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 2146]]
    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 2147]]
    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) <> 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 2148]]
    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 <> administrative expenses.--There are authorized
    to be appropriated to the Secretary such sums as may be
    necessary to carry out the Secretary's responsibilities under
    this section.
    ``(5) Transfer of any remaining balance to medicare
    prescription drug account.--Any balance remaining in the Account
    after the Secretary determines that funds in the Account are no
    longer necessary to carry out the program under this section
    shall be transferred and deposited into the Medicare
    Prescription Drug Account under section 1860D-16.
    ``(6) Construction.--Nothing in this section shall be
    construed as authorizing the Secretary to provide for payment
    (other than payment of an enrollment fee on behalf of a
    transitional assistance eligible individual under subsection
    (g)(1)(A)) to a sponsor for administrative expenses incurred by
    the sponsor in carrying out this section (including in
    administering the transitional assistance provisions of
    subsections (f) and (g)).

    ``Subpart 5--Definitions and Miscellaneous Provisions

    ``definitions; treatment of references to provisions in part c

    ``Sec. 1860D-41. <> (a) Definitions.--For
    purposes of this part:
    ``(1) Basic prescription drug coverage.--The term `basic
    prescription drug coverage' is defined in section 1860D-2(a)(3).
    ``(2) Covered part d drug.--The term `covered part D drug'
    is defined in section 1860D-2(e).
    ``(3) Creditable prescription drug coverage.--The term
    `creditable prescription drug coverage' has the meaning given
    such term in section 1860D-13(b)(4).
    ``(4) Part d eligible individual.--The term `part D eligible
    individual' has the meaning given such term in section 1860D-
    1(a)(4)(A).
    ``(5) Fallback prescription drug plan.--The term `fallback
    prescription drug plan' has the meaning given such term in
    section 1860D-11(g)(4).
    ``(6) Initial coverage limit.--The term `initial coverage
    limit' means such limit as established under section 1860D-
    2(b)(3), or, in the case of coverage that is not standard
    prescription drug coverage, the comparable limit (if any)
    established under the coverage.
    ``(7) Insurance risk.--The term `insurance risk' means, with
    respect to a participating pharmacy, risk of the type commonly
    assumed only by insurers licensed by a State and does not
    include payment variations designed to reflect performance-based
    measures of activities within the control of the pharmacy, such
    as formulary compliance and generic drug substitution.
    ``(8) MA plan.--The term `MA plan' has the meaning given
    such term in section 1860D-1(a)(4)(B).
    ``(9) MA-PD plan.--The term `MA-PD plan' has the meaning
    given such term in section 1860D-1(a)(4)(C).

    [[Page 2149]]
    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. <> (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 2150]]
    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 <> of Legislative
    Proposal.--Not later than 6 months after the date of the enactment of
    this Act, the Secretary shall submit to the appropriate committees of
    Congress a legislative proposal providing for such technical and
    conforming amendments in the law as are required by the provisions of
    this title and title II.

    (c) Study on Transitioning <> Part B Prescription Drug Coverage.--Not later than January 1,
    2005, the Secretary shall submit a report to Congress that makes
    recommendations regarding methods for providing benefits under subpart 1
    of part D of title XVIII of the Social Security Act for outpatient
    prescription drugs for which benefits are provided under part B of such
    title.

    (d) Report <> on Progress in
    Implementation of Prescription Drug Benefit.--Not later than March 1,
    2005, the Secretary shall submit a report to Congress on the progress
    that has been made in implementing the prescription drug benefit under
    this title. The Secretary shall include in the report specific steps
    that have been taken, and that need to be taken, to ensure a timely
    start of the program on January 1, 2006. The report shall include
    recommendations regarding an appropriate transition from the program
    under section 1860D-31 of the Social Security Act to prescription drug
    benefits under subpart 1 of part D of title XVIII of such Act.

    (e) Additional Conforming Changes.--
    (1) Conforming <> references to previous part d.--Any reference in law
    (in effect before the date of the enactment of this Act) to part
    D of title XVIII of the Social Security Act is deemed a
    reference to part E of such title (as in effect after such
    date).
    (2) Conforming amendment permitting waiver of cost-
    sharing.--Section 1128B(b)(3) (42 U.S.C. 1320a-7b(b)(3)) is
    amended--
    (A) by striking ``and'' at the end of subparagraph
    (E);
    (B) by striking the period at the end of
    subparagraph (F) and inserting ``; and''; and
    (C) by adding at the end the following new
    subparagraph:
    ``(G) the waiver or reduction by pharmacies (including
    pharmacies of the Indian Health Service, Indian tribes, tribal
    organizations, and urban Indian organizations) of any cost-
    sharing imposed under part D of title XVIII, if the conditions
    described in clauses (i) through (iii) of section 1128A(i)(6)(A)
    are met with respect to the waiver or reduction (except that, in
    the case of such a waiver or reduction on behalf of a subsidy
    eligible individual (as defined in section 1860D-14(a)(3)),
    section 1128A(i)(6)(A) shall be applied without regard to
    clauses (ii) and (iii) of that section).''.
    (3) Medicare prescription drug account.--
    (A) Section 201(g) (42 U.S.C. 401(g)) is amended--
    (i) in paragraph (1)(B)(i)(V), by inserting
    ``(and, of such portion, the portion of such costs
    which should

    [[Page 2151]]
    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 <> is amended by
    inserting ``or subsidies

    [[Page 2152]]
    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 2153]]
    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 2154]]
    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 <> date.--The
    amendments made by this subsection shall apply on and after
    January 1, 2006.

    SEC. 103. MEDICAID AMENDMENTS.

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

    ``special provisions relating to medicare prescription drug benefit

    ``Sec. 1935. <> (a) Requirements Relating to
    Medicare Prescription Drug Low-Income Subsidies and Medicare
    Transitional Prescription Drug Assistance.--As a condition of its State
    plan under this title under section 1902(a)(66) and receipt of any
    Federal financial assistance under section 1903(a), a State shall do the
    following:
    ``(1) Information for transitional prescription drug
    assistance verification.--The State shall provide the Secretary
    with information to carry out section 1860D-31(f)(3)(B)(i).

    [[Page 2155]]
    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 2156]]
    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 2157]]
    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 2158]]
    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 2159]]
    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 2160]]
    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 <> general.--Section 1927(c)(1)(C)(i)(VI) of the Social
    Security Act, as added by paragraph (1), shall apply to prices
    charged for drugs dispensed on or after January 1, 2006.

    (f) Extension of Medicare Cost-Sharing for Part B Premium for
    Qualifying Individuals Through September 2004.--
    (1) In general.--Section 1902(a)(10)(E)(iv) (42 U.S.C.
    1396a(a)(10)(E)(iv)), as amended by section 401(a) of Public Law
    108-89, is amended by striking ``ending with March 2004'' and
    inserting ``ending with September 2004''.
    (2) Total amount available for allocation.--Section 1933(g)
    (42 U.S.C. 1396u-3(g)), as added by section 401(c) of Public Law
    108-89, is amended--
    (A) in the matter preceding paragraph (1), by
    striking ``March 31, 2004'' and inserting ``September
    30, 2004''; and
    (B) in paragraph (2), by striking ``$100,000,000''
    and inserting ``$300,000,000''.
    (3) Effective <> date.--The
    amendments made by this subsection shall apply to calendar
    quarters beginning on or after April 1, 2004.

    (g) Outreach by the Commissioner of Social Security.--Section 1144
    (42 U.S.C. 1320b-14) is amended--
    (1) in the section heading, by inserting ``and subsidies for
    low-income individuals under title xviii'' after ``cost-
    sharing'';
    (2) in subsection (a)--
    (A) in paragraph (1)--
    (i) in subparagraph (A), by inserting ``for
    the transitional assistance under section 1860D-
    31(f), or for premium and cost-sharing subsidies
    under section 1860D-14'' before the semicolon; and
    (ii) in subparagraph (B), by inserting ``,
    program, and subsidies'' after ``medical
    assistance''; and
    (B) in paragraph (2)--
    (i) in the matter preceding subparagraph (A),
    by inserting ``, the transitional assistance under
    section 1860D-31(f), or premium and cost-sharing
    subsidies under section 1860D-14'' after
    ``assistance''; and
    (ii) in subparagraph (A), by striking ``such
    eligibility'' and inserting ``eligibility for
    medicare cost-sharing under the medicaid
    program''; and

    [[Page 2161]]
    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 2162]]
    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 2163]]
    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 2164]]
    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 2165]]
    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 <> 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 2166]]
    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 <> for
    Implementation.--The following rules shall apply to the medicare
    prescription drug discount card and transitional assistance program
    under section 1860D-31 of the Social Security Act, as added by section
    101(a):
    (1) In promulgating regulations pursuant to subsection
    (a)(2)(B) of such section 1860D-31--
    (A) section 1871(a)(3) of the Social Security Act
    (42 U.S.C. 1395hh(a)(3)), as added by section 902(a)(1),
    shall not apply;
    (B) chapter 35 of title 44, United States Code,
    shall not apply; and
    (C) sections 553(d) and 801(a)(3)(A) of title 5,
    United States Code, shall not apply.
    (2) <> Section 1857(c)(5) of the
    Social Security Act (42 U.S.C. 1395w-27(c)(5)) shall apply with
    respect to section 1860D-31 of such Act, as added by section
    101(a), in the same manner as it applies to part C of title
    XVIII of such Act.
    (3) The administration of such program shall be made without
    regard to chapter 35 of title 44, United States Code.
    (4)(A) There shall be no judicial review of a determination
    not to endorse, or enter into a contract, with a prescription
    drug card sponsor under section 1860D-31 of the Social Security
    Act.
    (B) In the case of any order issued to enjoin any provision
    of section 1860D-31 of the Social Security Act (or of any
    provision of this section), such order shall not affect any
    other provision of such section (or of this section) and all
    such provisions shall be treated as severable.

    (d) Conforming Amendments to Federal SMI Trust Fund for Transitional
    Assistance Account.--Section 1841 (42 U.S.C. 1395t), as amended by
    section 101(e)(3)(C), is amended--

    [[Page 2167]]
    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 <>  (relating
    to disclosure of returns and return information for purposes
    other than tax administration) is amended by adding at the end
    the following new paragraph:
    ``(19) Disclosure of return information for purposes of
    providing transitional assistance under medicare discount card
    program.--
    ``(A) In general.--The Secretary, upon written
    request from the Secretary of Health and Human Services
    pursuant to carrying out section 1860D-31 of the Social
    Security Act, shall disclose to officers, employees, and
    contractors of the Department of Health and Human
    Services with respect to a taxpayer for the applicable
    year--
    ``(i)(I) whether the adjusted gross income, as
    modified in accordance with specifications of the
    Secretary of Health and Human Services for
    purposes of carrying out such section, of such
    taxpayer and, if applicable, such taxpayer's
    spouse, for the applicable year, exceeds the
    amounts specified by the Secretary of Health and
    Human Services in order to apply the 100 and 135
    percent of the poverty lines under such section,
    (II) whether the return was a joint return, and
    (III) the applicable year, or
    ``(ii) if applicable, the fact that there is
    no return filed for such taxpayer for the
    applicable year.
    ``(B) Definition of applicable year.--For the
    purposes of this subsection, the term `applicable year'
    means the most recent taxable year for which information
    is available in the Internal Revenue Service's taxpayer
    data information systems, or, if there is no return
    filed for such taxpayer for such year, the prior taxable
    year.
    ``(C) Restriction on use of disclosed information.--
    Return information disclosed under this paragraph may be
    used only for the purposes of determining eligibility
    for and administering transitional assistance under
    section 1860D-31 of the Social Security Act.''.
    (2) Confidentiality.--Paragraph (3) of section 6103(a) of
    such Code is amended by striking ``or (16)'' and inserting
    ``(16), or (19)''.
    (3) Procedures and recordkeeping related to disclosures.--
    Subsection (p)(4) of section 6103 of such Code is amended by
    striking ``(l)(16) or (17)'' each place it appears and inserting
    ``(l)(16), (17), or (19)''.
    (4) Unauthorized disclosure or inspection.--Paragraph (2) of
    section 7213(a) of such Code <> is amended
    by striking ``or (16)'' and inserting ``(16), or (19)''.

    [[Page 2168]]
    117 STAT. 2168

    SEC. 106. <> STATE PHARMACEUTICAL
    ASSISTANCE TRANSITION COMMISSION.

    (a) Establishment.--
    (1) In general.--There is established, as of the first day
    of the third month beginning after the date of the enactment of
    this Act, a State Pharmaceutical Assistance Transition
    Commission (in this section referred to as the ``Commission'')
    to develop a proposal for addressing the unique transitional
    issues facing State pharmaceutical assistance programs, and
    program participants, due to the implementation of the voluntary
    prescription drug benefit program under part D of title XVIII of
    the Social Security Act, as added by section 101.
    (2) Definitions.--For purposes of this section:
    (A) State pharmaceutical assistance program
    defined.--The term ``State pharmaceutical assistance
    program'' means a program (other than the medicaid
    program) operated by a State (or under contract with a
    State) that provides as of the date of the enactment of
    this Act financial assistance to medicare beneficiaries
    for the purchase of prescription drugs.
    (B) Program participant.--The term ``program
    participant'' means a low-income medicare beneficiary
    who is a participant in a State pharmaceutical
    assistance program.

    (b) Composition.--The Commission shall include the following:
    (1) A representative of each Governor of each State that the
    Secretary identifies as operating on a statewide basis a State
    pharmaceutical assistance program that provides for eligibility
    and benefits that are comparable or more generous than the low-
    income assistance eligibility and benefits offered under section
    1860D-14 of the Social Security Act.
    (2) Representatives from other States that the Secretary
    identifies have in operation other State pharmaceutical
    assistance programs, as appointed by the Secretary.
    (3) Representatives of organizations that have an inherent
    interest in program participants or the program itself, as
    appointed by the Secretary but not to exceed the number of
    representatives under paragraphs (1) and (2).
    (4) Representatives of Medicare Advantage organizations,
    pharmaceutical benefit managers, and other private health
    insurance plans, as appointed by the Secretary.
    (5) The Secretary (or the Secretary's designee) and such
    other members as the Secretary may specify.

    The Secretary shall designate a member to serve as Chair of the
    Commission and the Commission shall meet at the call of the Chair.
    (c) Development of Proposal.--The Commission shall develop the
    proposal described in subsection (a) in a manner consistent with the
    following principles:
    (1) Protection of the interests of program participants in a
    manner that is the least disruptive to such participants and
    that includes a single point of contact for enrollment and
    processing of benefits.
    (2) Protection of the financial and flexibility interests of
    States so that States are not financially worse off as a result
    of the enactment of this title.
    (3) Principles of medicare modernization under this Act.

    [[Page 2169]]
    117 STAT. 2169

    (d) <> Report.--By not later than January 1, 2005,
    the Commission shall submit to the President and Congress a report that
    contains a detailed proposal (including specific legislative or
    administrative recommendations, if any) and such other recommendations
    as the Commission deems appropriate.

    (e) Support.--The Secretary shall provide the Commission with the
    administrative support services necessary for the Commission to carry
    out its responsibilities under this section.
    (f) Termination.--The Commission shall terminate 30 days after the
    date of submission of the report under subsection (d).

    SEC. 107. STUDIES AND REPORTS.

    (a) Study <> Regarding Regional
    Variations in Prescription Drug Spending.--
    (1) In general.--The Secretary shall conduct a study that
    examines variations in per capita spending for covered part D
    drugs under part D of title XVIII of the Social Security Act
    among PDP regions and, with respect to such spending, the amount
    of such variation that is attributable to--
    (A) price variations (described in section 1860D-
    15(c)(2) of such Act); and
    (B) differences in per capita utilization that is
    not taken into account in the health status risk
    adjustment provided under section 1860D-15(c)(1) of such
    Act.
    (2) Report <> and recommendations.--Not
    later than January 1, 2009, the Secretary shall submit to
    Congress a report on the study conducted under paragraph (1).
    Such report shall include--
    (A) information regarding the extent of geographic
    variation described in paragraph (1)(B);
    (B) an analysis of the impact on direct subsidies
    under section 1860D-15(a)(1) of the Social Security Act
    in different PDP regions if such subsidies were adjusted
    to take into account the variation described in
    subparagraph (A); and
    (C) recommendations regarding the appropriateness of
    applying an additional geographic adjustment factor
    under section 1860D-15(c)(2) that reflects some or all
    of the variation described in subparagraph (A).

    (b) Review and <> Report on Current
    Standards of Practice for Pharmacy Services Provided to Patients in
    Nursing Facilities.--
    (1) Review.--
    (A) In <> general.--Not later than
    12 months after the date of the enactment of this Act,
    the Secretary shall conduct a thorough review of the
    current standards of practice for pharmacy services
    provided to patients in nursing facilities.
    (B) Specific matters reviewed.--In conducting the
    review under subparagraph (A), the Secretary shall--
    (i) assess the current standards of practice,
    clinical services, and other service requirements
    generally used for pharmacy services in long-term
    care settings; and
    (ii) evaluate the impact of those standards
    with respect to patient safety, reduction of
    medication errors and quality of care.
    (2) Report.--

    [[Page 2170]]
    117 STAT. 2170

    (A) In <> general.--Not later than
    the date that is 18 months after the date of the
    enactment of this Act, the Secretary shall submit a
    report to Congress on the study conducted under
    paragraph (1)(A).
    (B) Contents.--The report submitted under
    subparagraph (A) shall contain--
    (i) a description of the plans of the
    Secretary to implement the provisions of this Act
    in a manner consistent with applicable State and
    Federal laws designed to protect the safety and
    quality of care of nursing facility patients; and
    (ii) recommendations regarding necessary
    actions and appropriate reimbursement to ensure
    the provision of prescription drugs to medicare
    beneficiaries residing in nursing facilities in a
    manner consistent with existing patient safety and
    quality of care standards under applicable State
    and Federal laws.

    (c) IOM <> Study on Drug Safety and
    Quality.--
    (1) In <> general.--The Secretary shall
    enter into a contract with the Institutes of Medicine of the
    National Academies of Science (such Institutes referred to in
    this subsection as the ``IOM'') to carry out a comprehensive
    study (in this subsection referred to as the ``study'') of drug
    safety and quality issues in order to provide a blueprint for
    system-wide change.
    (2) Objectives.--
    (A) The study shall develop a full understanding of
    drug safety and quality issues through an evidence-based
    review of literature, case studies, and analysis. This
    review will consider the nature and causes of medication
    errors, their impact on patients, the differences in
    causation, impact, and prevention across multiple
    dimensions of health care delivery-including patient
    populations, care settings, clinicians, and
    institutional cultures.
    (B) The study shall attempt to develop credible
    estimates of the incidence, severity, costs of
    medication errors that can be useful in prioritizing
    resources for national quality improvement efforts and
    influencing national health care policy.
    (C) The study shall evaluate alternative approaches
    to reducing medication errors in terms of their
    efficacy, cost-effectiveness, appropriateness in
    different settings and circumstances, feasibility,
    institutional barriers to implementation, associated
    risks, and the quality of evidence supporting the
    approach.
    (D) The study shall provide guidance to consumers,
    providers, payers, and other key stakeholders on high-
    priority strategies to achieve both short-term and long-
    term drug safety goals, to elucidate the goals and
    expected results of such initiatives and support the
    business case for them, and to identify critical success
    factors and key levers for achieving success.
    (E) The study shall assess the opportunities and key
    impediments to broad nationwide implementation of
    medication error reductions, and to provide guidance to
    policy-makers and government agencies (including the
    Food and Drug Administration, the Centers for Medicare &
    Medicaid

    [[Page 2171]]
    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 <> Multi-year Contracts.--
    (1) In general.--The Secretary shall provide for a study on
    the feasibility and advisability of providing for contracting
    with PDP sponsors and MA organizations under parts C and D of
    title XVIII on a multi-year basis.
    (2) Report.--Not <> later than January 1,
    2007, the Secretary shall submit to Congress a report on the
    study under paragraph (1). The report shall include such
    recommendations as the Secretary deems appropriate.

    (e) GAO <> Study Regarding Impact of
    Assets Test for Subsidy Eligible Individuals.--
    (1) Study.--The Comptroller General of the United States
    shall conduct a study to determine the extent to which drug
    utilization and access to covered part D drugs under part D of
    title XVIII of the Social Security Act by subsidy eligible
    individuals differs from such utilization and access for
    individuals who would qualify as such subsidy eligible
    individuals but for the application of section 1860D-
    14(a)(3)(A)(iii) of such Act.
    (2) Report.--Not <> later than September
    30, 2007, the Comptroller General shall submit a report to
    Congress on the study conducted under paragraph (1) that
    includes such recommendations for legislation as the Comptroller
    General determines are appropriate.

    (f) Study <> on Making Prescription
    Pharmaceutical Information Accessible for Blind and Visually-Impaired
    Individuals.--
    (1) Study.--
    (A) In general.--The Secretary shall undertake a
    study of how to make prescription pharmaceutical
    information, including drug labels and usage
    instructions, accessible to blind and visually-impaired
    individuals.
    (B) Study to include existing and emerging
    technologies.--The study under subparagraph (A) shall
    include a review of existing and emerging technologies,
    including assistive technology, that makes essential

    [[Page 2172]]
    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 <> general.--Not later than
    18 months after the date of the enactment of this Act,
    the Secretary shall submit a report to Congress on the
    study required under paragraph (1).
    (B) Contents of report.--The report required under
    paragraph (1) shall include recommendations for the
    implementation of usable formats for making prescription
    pharmaceutical information available to blind and
    visually-impaired individuals and an estimate of the
    costs associated with the implementation of each format.

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

    (a) In General.--The Secretary is authorized to make grants to
    physicians for the purpose of assisting such physicians to implement
    electronic prescription drug programs that comply with the standards
    promulgated or modified under section 1860D-4(e) of the Social Security
    Act, as inserted by section 101(a).
    (b) Awarding of Grants.--
    (1) Application.--No grant may be made under this section
    except pursuant to a grant application that is submitted and
    approved in a time, manner, and form specified by the Secretary.
    (2) Considerations and preferences.--In awarding grants
    under this section, the Secretary shall--
    (A) give special consideration to physicians who
    serve a disproportionate number of medicare patients;
    and
    (B) give preference to physicians who serve a rural
    or underserved area.
    (3) Limitation on grants.--Only 1 grant may be awarded under
    this section with respect to any physician or group practice of
    physicians.

    (c) Terms and Conditions.--
    (1) In general.--Grants under this section shall be made
    under such terms and conditions as the Secretary specifies
    consistent with this section.
    (2) Use of grant funds.--Funds provided under grants under
    this section may be used for any of the following:
    (A) For purchasing, leasing, and installing computer
    software and hardware, including handheld computer
    technologies.
    (B) Making upgrades and other improvements to
    existing computer software and hardware to enable e-
    prescribing.
    (C) Providing education and training to eligible
    physician staff on the use of technology to implement
    the electronic transmission of prescription and patient
    information.
    (3) Provision of information.--As a condition for the
    awarding of a grant under this section, an applicant shall
    provide to the Secretary such information as the Secretary may
    require in order to--
    (A) evaluate the project for which the grant is
    made; and

    [[Page 2173]]
    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 <> Date.--The amendments
    made by this section shall apply on and after January 1, 2004.

    (d) IOM <> Study of QIOs.--
    (1) In general.--The Secretary shall request the Institute
    of Medicine of the National Academy of Sciences to conduct an
    evaluation of the program under part B of title XI of the Social
    Security Act. The study shall include a review of the following:
    (A) An overview of the program under such part.
    (B) The duties of organizations with contracts with
    the Secretary under such part.
    (C) The extent to which quality improvement
    organizations improve the quality of care for medicare
    beneficiaries.
    (D) The extent to which other entities could perform
    such quality improvement functions as well as, or better
    than, quality improvement organizations.

    [[Page 2174]]
    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 <> to congress.--Not later than
    June 1, 2006, the Secretary shall submit to Congress a report on
    the results of the study described in paragraph (1), including
    any recommendations for legislation.
    (3) Increased competition.--If the Secretary finds based on
    the study conducted under paragraph (1) that other entities
    could improve quality in the medicare program as well as, or
    better than, the current quality improvement organizations, then
    the Secretary shall provide for such increased competition
    through the addition of new types of entities which may perform
    quality improvement functions.

    SEC. 110. CONFLICT <> OF INTEREST STUDY.

    (a) Study.--The Federal Trade Commission shall conduct a study of
    differences in payment amounts for pharmacy services provided to
    enrollees in group health plans that utilize pharmacy benefit managers.
    Such study shall include the following:
    (1) An assessment of the differences in costs incurred by
    such enrollees and plans for prescription drugs dispensed by
    mail-order pharmacies owned by pharmaceutical benefit managers
    compared to mail-order pharmacies not owned by pharmaceutical
    benefit managers, and community pharmacies.
    (2) Whether such plans are acting in a manner that maximizes
    competition and results in lower prescription drug prices for
    enrollees.

    (b) Report.--Not <> later than 18 months after the
    date of the enactment of this Act, the Commission shall submit to
    Congress a report on the study conducted under subsection (a). Such
    report shall include recommendations regarding any need for legislation
    to ensure the fiscal integrity of the voluntary prescription drug
    benefit program under part D of title XVIII, as added by section 101,
    that may be appropriated as the result of such study.

    (c) Exemption From Paperwork Reduction Act.--Chapter 35 of title 44,
    United States Code, shall not apply to the collection of information
    under subsection (a).

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

    (a) Study.--The Comptroller General of the United States shall
    conduct an initial and final study under this subsection to examine
    trends in employment-based retiree health coverage (as defined in 1860D-
    22(c)(1) of the Social Security Act, as added by section 101), including
    coverage under the Federal Employees Health Benefits Program (FEHBP),
    and the options and incentives available under this Act which may have
    an effect on the voluntary provision of such coverage.
    (b) Content of Initial Study.--The initial study under this section
    shall consider the following:
    (1) Trends in employment-based retiree health coverage prior
    to the date of the enactment of this Act.
    (2) The opinions of sponsors of employment-based retiree
    health coverage concerning which of the options available under
    this Act they are most likely to utilize for the provision of

    [[Page 2175]]
    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 <> 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 2176]]
    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. <> IMPLEMENTATION OF MEDICARE
    ADVANTAGE PROGRAM.

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

    Subtitle B--Immediate Improvements

    SEC. 211. IMMEDIATE IMPROVEMENTS.

    (a) Equalizing Payments With Fee-for-Service.--
    (1) In general.--Section 1853(c)(1) (42 U.S.C. 1395w-
    23(c)(1)) is amended by adding at the end the following:
    ``(D) 100 percent of fee-for-service costs.--
    ``(i) In general.--For each year specified in
    clause (ii), the adjusted average per capita cost
    for the year involved, determined under section
    1876(a)(4) and adjusted as appropriate for the
    purpose of risk adjustment, for the MA payment
    area for individuals who are not enrolled in an MA
    plan under this part for the year, but adjusted to
    exclude costs attributable to payments under
    section 1886(h).
    ``(ii) Periodic rebasing.--The provisions of
    clause (i) shall apply for 2004 and for subsequent
    years as the Secretary shall specify (but not less
    than once every 3 years).

    [[Page 2177]]
    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 2178]]
    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 <> date.--The
    amendments made by paragraph (1) shall apply to contract years
    beginning on or after January 1, 2004.

    (f) MedPAC <> Study of AAPCC.--
    (1) Study.--The Medicare Payment Advisory Commission shall
    conduct a study that assesses the method used for determining
    the adjusted average per capita cost (AAPCC) under section
    1876(a)(4) of the Social Security Act (42 U.S.C. 1395mm(a)(4))
    as applied under section 1853(c)(1)(A) of such Act (as amended
    by subsection (a)). Such study shall include an examination of--
    (A) the bases for variation in such costs between
    different areas, including differences in input prices,
    utilization, and practice patterns;
    (B) the appropriate geographic area for payment of
    MA local plans under the Medicare Advantage program
    under part C of title XVIII of such Act; and
    (C) the accuracy of risk adjustment methods in
    reflecting differences in costs of providing care to
    different groups of beneficiaries served under such
    program.
    (2) Report.--Not <> later than 18 months
    after the date of the enactment of this Act, the Commission
    shall submit to Congress a report on the study conducted under
    paragraph (1).

    (g) Report on <> Impact of
    Increased Financial Assistance to Medicare Advantage Plans.--Not later
    than July 1, 2006, the Secretary shall submit to Congress a report that
    describes the impact of additional financing provided under this Act and
    other Acts (including the Medicare, Medicaid, and SCHIP Balanced

    [[Page 2179]]
    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 <> Study and Report on
    Clarification of Authority Regarding Disapproval of Unreasonable
    Beneficiary Cost-Sharing.--
    (1) Study.--The Medicare Payment Advisory Commission, in
    consultation with beneficiaries, consumer groups, employers, and
    organizations offering plans under part C of title XVIII of the
    Social Security Act, shall conduct a study to determine the
    extent to which the cost-sharing structures under such plans
    affect access to covered services or select enrollees based on
    the health status of eligible individuals described in section
    1851(a)(3) of the Social Security Act (42 U.S.C. 1395w-
    21(a)(3)).
    (2) Report.--Not <> later than December 31,
    2004, the Commission shall submit a report to Congress on the
    study conducted under paragraph (1) together with
    recommendations for such legislation and administrative actions
    as the Commission considers appropriate.

    (i) Implementation of <> Provisions.--
    (1) Announcement <> of revised medicare
    advantage payment rates.--Within 6 weeks after the date of the
    enactment of this Act, the Secretary shall determine, and shall
    announce (in a manner intended to provide notice to interested
    parties) MA capitation rates under section 1853 of the Social
    Security Act (42 U.S.C. 1395w-23) for 2004, revised in
    accordance with the provisions of this section.
    (2) Transition <> to revised payment
    rates.--The provisions of section 604 of BIPA (114 Stat. 2763A-
    555) (other than subsection (a)) shall apply to the provisions
    of subsections (a) through (d) of this section for 2004 in the
    same manner as the provisions of such section 604 applied to the
    provisions of BIPA for 2001.
    (3) Special rule for payment rates in 2004.--
    (A) January and february.--Notwithstanding the
    amendments made by subsections (a) through (d), for
    purposes of making payments under section 1853 of the
    Social Security Act (42 U.S.C. 1395w-23) for January and
    February 2004, the annual capitation rate for a payment
    area shall be calculated and the excess amount under
    section 1854(f)(1)(B) of such Act (42 U.S.C. 1395w-
    24(f)(1)(B)) shall be determined as if such amendments
    had not been enacted.
    (B) March through december.--Notwithstanding the
    amendments made by subsections (a) through (d), for
    purposes of making payments under section 1853 of the
    Social Security Act (42 U.S.C. 1395w-23) for March
    through December 2004, the annual capitation rate for a
    payment area shall be calculated and the excess amount
    under section 1854(f)(1)(B) of such Act (42 U.S.C.
    1395w-24(f)(1)(B)) shall be determined, in such manner
    as the Secretary estimates will ensure that the total of
    such payments with respect to 2004 is the same as the
    amounts that would have been if subparagraph (A) had not
    been enacted.
    (C) Construction.--Subparagraphs (A) and (B) shall
    not be taken into account in computing such capitation
    rate for 2005 and subsequent years.

    [[Page 2180]]
    117 STAT. 2180

    (4) Plans <> required to provide notice of
    changes in plan benefits.--In the case of an organization
    offering a plan under part C of title XVIII of the Social
    Security Act that revises its submission of the information
    described in section 1854(a)(1) of such Act (42 U.S.C. 1395w-
    23(a)(1)) for a plan pursuant to the application of paragraph
    (2), if such revision results in changes in beneficiary
    premiums, beneficiary cost-sharing, or benefits under the plan,
    then by not later than 3 weeks after the date the Secretary
    approves such submission, the organization offering the plan
    shall provide each beneficiary enrolled in the plan with written
    notice of such changes.
    (5) Limitation on review.--There shall be no administrative
    or judicial review under section 1869 or section 1878 of the
    Social Security Act (42 U.S.C. 1395ff and 1395oo), or otherwise
    of any determination made by the Secretary under this subsection
    or the application of the payment rates determined pursuant to
    this subsection.

    (j) Additional Amendments.--Section 1852(d)(4) (42 U.S.C. 1395w-
    22(d)(4)) is amended--
    (1) in subparagraph (B), by inserting ``(other than deemed
    contracts or agreements under subsection (j)(6))'' after ``the
    plan has contracts or agreements''; and
    (2) in the last sentence, by inserting before the period at
    the end the following: ``, except that, if a plan entirely meets
    such requirement with respect to a category of health care
    professional or provider on the basis of subparagraph (B), it
    may provide for a higher beneficiary copayment in the case of
    health care professionals and providers of that category who do
    not have contracts or agreements (other than deemed contracts or
    agreements under subsection (j)(6)) to provide covered services
    under the terms of the plan''.

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

    SEC. 221. ESTABLISHMENT OF MA REGIONAL PLANS.

    (a) Offering of MA Regional Plans.--
    (1) In general.--Section 1851(a)(2)(A) <> is amended--
    (A) by striking ``Coordinated care plans.--
    Coordinated'' and inserting the following: ``Coordinated
    care plans (including regional plans).--
    ``(i) In general.--Coordinated'';
    (B) by inserting ``regional or local'' before
    ``preferred provider organization plans''; and
    (C) by inserting `` (including MA regional plans)''
    after ``preferred provider organization plans''.
    (2) Moratorium <> on new local
    preferred provider organization plans.--The Secretary shall not
    permit the offering of a local preferred provider organization
    plan under part C of title XVIII of the Social Security Act
    during 2006 or 2007 in a service area unless such plan was
    offered under such part (including under a demonstration project
    under such part) in such area as of December 31, 2005.

    (b) Definition of MA Regional Plan; MA Local Plan.--

    [[Page 2181]]
    117 STAT. 2181

    (1) In general.--Section 1859(b) <>
    (42 U.S.C. 1395w-29(b)) is amended by adding at the end the
    following new paragraphs:
    ``(4) MA regional plan.--The term `MA regional plan' means
    an MA plan described in section 1851(a)(2)(A)(i)--
    ``(A) that has a network of providers that have
    agreed to a contractually specified reimbursement for
    covered benefits with the organization offering the
    plan;
    ``(B) that provides for reimbursement for all
    covered benefits regardless of whether such benefits are
    provided within such network of providers; and
    ``(C) the service area of which is one or more
    entire MA regions.
    ``(5) MA local plan.--The term `MA local plan' means an MA
    plan that is not an MA regional plan.''.
    (2) Construction.--Nothing <> in part C of title XVIII of the Social Security Act
    shall be construed as preventing an MSA plan or MA private fee-
    for-service plan from having a service area that covers one or
    more MA regions or the entire nation.

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

    ``special rules for ma regional plans

    ``Sec. 1858. <> (a) Regional Service Area;
    Establishment of MA Regions.--
    ``(1) Coverage of entire ma region.--The service area for an
    MA regional plan shall consist of an entire MA region
    established under paragraph (2) and the provisions of section
    1854(h) shall not apply to such a plan.
    ``(2) Establishment of ma regions.--
    ``(A) MA region.--For purposes of this title, the
    term `MA region' means such a region within the 50
    States and the District of Columbia as established by
    the Secretary under this paragraph.
    ``(B) Establishment.--
    ``(i)
    Initial <> establishment.--Not
    later than January 1, 2005, the Secretary shall
    first establish and publish MA regions.
    ``(ii) Periodic review and revision of service
    areas.--The Secretary may periodically review MA
    regions under this paragraph and, based on such
    review, may revise such regions if the Secretary
    determines such revision to be appropriate.
    ``(C) Requirements for ma regions.--The Secretary
    shall establish, and may revise, MA regions under this
    paragraph in a manner consistent with the following:
    ``(i) Number of regions.--There shall be no
    fewer than 10 regions, and no more than 50
    regions.
    ``(ii) Maximizing availability of plans.--The
    regions shall maximize the availability of MA
    regional plans to all MA eligible individuals
    without regard to health status, especially those
    residing in rural areas.
    ``(D) Market survey and analysis.--Before
    establishing MA regions, the Secretary shall conduct a
    market survey and analysis, including an examination of
    current

    [[Page 2182]]
    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 2183]]
    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 2184]]
    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 2185]]
    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 2186]]
    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 2187]]
    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 2188]]
    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 <> 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 2189]]
    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 <> 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 2190]]
    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 2191]]
    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 <> 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 2192]]
    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 <> 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 2193]]
    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) <>  (42 U.S.C. 1395w-29(c)) is amended by adding at
    the end the following:
    ``(5) MA local area.--The term `MA local area' is defined in
    section 1853(d)(2).''.
    (3) Application of special benefit rules to ppos and
    regional plans.--Section 1852(a) (42 U.S.C. 1395w-22(a)) is
    amended--
    (A) in paragraph (1), by inserting ``and except as
    provided in paragraph (6) for MA regional plans'' after
    ``MSA plans''; and
    (B) by adding at the end the following new
    paragraph:
    ``(6) Special benefit rules for regional plans.--In the case
    of an MA plan that is an MA regional plan, benefits under the
    plan shall include the benefits described in paragraphs (1) and
    (2) of section 1858(b).''.
    (4) Application of capitation rates to local areas.--Section
    1853(c)(1) (42 U.S.C. 1395w-23(c)(1)) is amended by inserting
    ``that is an MA local area'' after ``for a Medicare+Choice
    payment area''.
    (5) Network adequacy hospital payments.--Section 1851(i)(2)
    (42 U.S.C. 1395w-21(i)(2)) is amended by inserting ``1858(h),''
    after ``1857(f)(2),''.

    SEC. 222. COMPETITION PROGRAM BEGINNING IN 2006.

    (a) Submission of Bidding and Rebate Information Beginning in
    2006.--
    (1) In general.--Section 1854 (42 U.S.C. 1395w-24) is
    amended--
    (A) by amending paragraph (1) of subsection (a) to
    read as follows:
    ``(1) In general.--
    ``(A) Initial <> submission.--Not
    later than the second Monday in September of 2002, 2003,
    and 2004 (or the first Monday in June of each subsequent
    year), each MA organization shall submit to the
    Secretary, in a form and manner specified by the
    Secretary and for each MA plan for the service area (or
    segment of such an area if permitted under subsection
    (h)) in which it intends to be offered in the following
    year the following:
    ``(i) The information described in paragraph
    (2), (3), (4), or (6)(A) for the type of plan and
    year involved.
    ``(ii) The plan type for each plan.
    ``(iii) The enrollment capacity (if any) in
    relation to the plan and area.
    ``(B) Beneficiary rebate information.--In the case
    of a plan required to provide a monthly rebate under
    subsection (b)(1)(C) for a year, the MA organization
    offering the plan shall submit to the Secretary, in such
    form and

    [[Page 2194]]
    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 <> 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 2195]]
    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 2196]]
    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 2197]]
    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 2198]]
    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 2199]]
    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 2200]]
    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 2201]]
    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 2202]]
    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 <> 2005.--The Secretary
    shall determine, and shall announce (in a manner
    intended to provide notice to interested parties), not
    later than the second Monday in May of 2004, with
    respect to each MA payment area, the following:
    ``(i) MA capitation rates.--The annual MA
    capitation rate for each MA payment area for 2005.
    ``(ii) Adjustment factors.--The risk and other
    factors to be used in adjusting such rates under
    subsection (a)(1)(C) for payments for months in
    2005.
    ``(B) For 2006 and subsequent years.--For a year
    after 2005--
    ``(i)
    Initial <> announcement.--The
    Secretary shall determine, and shall announce (in
    a manner intended

    [[Page 2203]]
    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 2204]]
    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), <>  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 2205]]
    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 2206]]
    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 2207]]
    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 <> Date.--The amendments
    made by this subtitle shall apply with respect to plan years beginning
    on or after January 1, 2006.

    (b) Issuance <> of Regulations.--The
    Secretary shall revise the regulations previously promulgated to carry
    out part C of title XVIII of the Social Security Act to carry out the
    provisions of this Act.

    Subtitle D--Additional Reforms

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

    (a) Treatment as Coordinated Care Plan.--Section 1851(a)(2)(A) (42
    U.S.C. 1395w-21(a)(2)(A)), as amended by section 221(a), is amended by
    adding at the end the following new clause:
    ``(ii) Specialized ma plans for special needs
    individuals.--Specialized MA plans for special
    needs individuals (as defined in section
    1859(b)(6)) may be any type of coordinated care
    plan.''.

    (b) Specialized MA Plan for Special Needs Individuals Defined.--
    Section 1859(b) (42 U.S.C. 1395w-29(b)), as amended by section 221(b),
    is amended by adding at the end the following new paragraph:
    ``(6) <> Specialized ma plans for
    special needs individuals.--
    ``(A) In general.--The term `specialized MA plan for
    special needs individuals' means an MA plan that
    exclusively serves special needs individuals (as defined
    in subparagraph (B)).
    ``(B) Special needs individual.--The term `special
    needs individual' means an MA eligible individual who--
    ``(i) is institutionalized (as defined by the
    Secretary);
    ``(ii) is entitled to medical assistance under
    a State plan under title XIX; or
    ``(iii) meets such requirements as the
    Secretary may determine would benefit from
    enrollment in such

    [[Page 2208]]
    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) <>  is amended by adding at the end
    the following new subsection:

    ``(f) Restriction on Enrollment for Specialized MA Plans for Special
    Needs Individuals.--In the case of a specialized MA plan for special
    needs individuals (as defined in subsection (b)(6)), notwithstanding any
    other provision of this part and in accordance with regulations of the
    Secretary and for periods before January 1, 2009, the plan may restrict
    the enrollment of individuals under the plan to individuals who are
    within one or more classes of special needs individuals.''.
    (d) Authority <> To Designate Other
    Plans as Specialized MA Plans.--In promulgating regulations to carry out
    section 1851(a)(2)(A)(ii) of the Social Security Act (as added by
    subsection (a)) and section 1859(b)(6) of such Act (as added by
    subsection (b)), the Secretary may provide (notwithstanding section
    1859(b)(6)(A) of such Act) for the offering of specialized MA plans for
    special needs individuals by MA plans that disproportionately serve
    special needs individuals.

    (e) Report to <> Congress.--
    Not later than December 31, 2007, the Secretary shall submit to Congress
    a report that assesses the impact of specialized MA plans for special
    needs individuals on the cost and quality of services provided to
    enrollees. Such report shall include an assessment of the costs and
    savings to the medicare program as a result of amendments made by
    subsections (a), (b), and (c).

    (f) Effective Dates.--
    (1) In <> general.--The
    amendments made by subsections (a), (b), and (c) shall take
    effect upon the date of the enactment of this Act.
    (2) Deadline <> for issuance of requirements for special needs
    individuals; transition.--No later than 1 year after the date of
    the enactment of this Act, the Secretary shall issue final
    regulations to establish requirements for special needs
    individuals under section 1859(b)(6)(B)(iii) of the Social
    Security Act, as added by subsection (b).

    SEC. 232. AVOIDING DUPLICATIVE STATE REGULATION.

    (a) In General.--Section 1856(b)(3) (42 U.S.C. 1395w-26(b)(3)) is
    amended to read as follows:
    ``(3) Relation to state laws.--The standards established
    under this part shall supersede any State law or regulation
    (other than State licensing laws or State laws relating to plan
    solvency) with respect to MA plans which are offered by MA
    organizations under this part.''.

    (b) Conforming Amendment.--Section 1854(g) (42 U.S.C. 1395w-24(g))
    is amended by inserting ``or premiums paid to such organizations under
    this part'' after ``section 1853''.

    [[Page 2209]]
    117 STAT. 2209

    (c) Effective <> Date.--The amendments
    made by this subsection shall take effect on the date of the enactment
    of this Act.

    SEC. 233. MEDICARE MSAS.

    (a) Exemption From Reporting Requirement.--
    (1) In general.--Section 1852(e)(1) (42 U.S.C. 1395w-
    22(e)(1)) is amended by inserting ``(other than MSA plans)''
    after ``plans''.
    (2) Conforming amendments.--Section 1852 (42 U.S.C. 1395w-
    22) is amended--
    (A) in subsection (c)(1)(I), by inserting before the
    period at the end the following: ``, if required under
    such section'';
    (B) in subsection (e)(2)(A), by striking ``, a non-
    network MSA plan,''; and
    (C) in subsection (e)(2)(B), by striking ``, non-
    network msa plans,'' and ``, a non-network MSA plan,''.
    (3) Effective <> date.--The
    amendments made by this subsection shall apply on and after the
    date of the enactment of this Act but shall not apply to
    contract years beginning on or after January 1, 2006.

    (b) Making Program Permanent and Eliminating Cap.--Section
    1851(b)(4) (42 U.S.C. 1395w-21(b)(4)) is amended--
    (1) in the heading, by striking ``on a demonstration
    basis'';
    (2) by striking the first sentence of subparagraph (A); and
    (3) by striking the second sentence of subparagraph (C).

    (c) Applying Limitations on Balance Billing.--Section 1852(k)(1) (42
    U.S.C. 1395w-22(k)(1)) is amended by inserting ``or with an organization
    offering an MSA plan'' after ``section 1851(a)(2)(A)''.
    (d) Additional Amendment.--Section 1851(e)(5)(A) (42 U.S.C. 1395w-
    21(e)(5)(A)) is amended--
    (1) by adding ``or'' at the end of clause (i);
    (2) by striking ``, or'' at the end of clause (ii) and
    inserting a semicolon; and
    (3) by striking clause (iii).

    SEC. 234. EXTENSION OF REASONABLE COST CONTRACTS.

    Subparagraph (C) of section 1876(h)(5) (42 U.S.C. 1395mm(h)(5)) is
    amended to read as follows:
    ``(C)(i) Subject to clause (ii), a reasonable cost reimbursement
    contract under this subsection may be extended or renewed indefinitely.
    ``(ii) For any period beginning on or after January 1, 2008, a
    reasonable cost reimbursement contract under this subsection may not be
    extended or renewed for a service area insofar as such area during the
    entire previous year was within the service area of--
    ``(I) 2 or more MA regional plans described in clause (iii);
    or
    ``(II) 2 or more MA local plans described in clause (iii).

    ``(iii) A plan described in this clause for a year for a service
    area is a plan described in section 1851(a)(2)(A)(i) if the service area
    for the year meets the following minimum enrollment requirements:
    ``(I) With respect to any portion of the area involved that
    is within a Metropolitan Statistical Area with a population

    [[Page 2210]]
    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 2211]]
    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 2212]]
    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 <> 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 2213]]
    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) <>
    is amended by striking ``subsections (a)(3)(C)(iii) and
    (i)'' and inserting ``subsections (a)(3)(C)(iii),
    (a)(4), and (i)''.

    (c) Additional Contract Requirements.--Section 1857(e) (42 U.S.C.
    1395w-27(e)) is amended by adding at the end the following new
    paragraph:
    ``(3) Agreements with federally qualified health centers.--
    ``(A) Payment levels and amounts.--A contract under
    this section with an MA organization shall require the
    organization to provide, in any written agreement
    described in section 1853(a)(4) between the organization
    and a federally qualified health center, for a level and
    amount of payment to the federally qualified health
    center for services provided by such health center that
    is not less than the level and amount of payment that
    the plan would make for such services if the services
    had been furnished by a entity providing similar
    services that was not a federally qualified health
    center.
    ``(B) Cost-sharing.--Under the written agreement
    referred to in subparagraph (A), a federally qualified
    health center must accept the payment amount referred to
    in such subparagraph plus the Federal payment provided
    for in section 1833(a)(3)(B) as payment in full for
    services covered by the agreement, except that such a
    health center may collect any amount of cost-sharing
    permitted under the contract under this section, so long
    as the amounts of any deductible, coinsurance, or
    copayment comply with the requirements under section
    1854(e).''.

    (d) Safe Harbor.--Section 1128B(b)(3) (42 U.S.C. 1320a-7b(b)(3)), as
    amended by section 101(f)(2), is amended--
    (1) in subparagraph (F), by striking ``and'' after the
    semicolon at the end;
    (2) in subparagraph (G), by striking the period at the end
    and inserting ``; and''; and
    (3) by adding at the end the following new subparagraph:
    ``(H) any remuneration between a federally qualified
    health center (or an entity controlled by such a health
    center) and an MA organization pursuant to a written
    agreement described in section 1853(a)(4).''.

    (e) Effective <> Date.--The amendments
    made by this section shall apply to services provided on or after
    January 1, 2006, and contract years beginning on or after such date.

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

    (a) Evaluation.--
    (1) In <> general.--Not later
    than the date that is 2 months after the date of the enactment
    of this Act, the Secretary shall enter into an arrangement under
    which the Institute of Medicine of the National Academy of
    Sciences (in this section

    [[Page 2214]]
    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 <> 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 2215]]
    117 STAT. 2215

    ``comparative cost adjustment (cca) program

    ``Sec. 1860C-1. <> (a) Establishment of
    Program.--
    ``(1) In general.--The Secretary shall establish a program
    under this section (in this section referred to as the `CCA
    program') for the application of comparative cost adjustment in
    CCA areas selected under this section.
    ``(2) Duration.--The CCA program shall begin January 1,
    2010, and shall extend over a period of 6 years, and end on
    December 31, 2015.
    ``(3) Report.--Upon the completion of the CCA program, the
    Secretary shall submit a report to Congress. Such report shall
    include the following, with respect to both this part and the
    original medicare fee-for-service program:
    ``(A) An evaluation of the financial impact of the
    CCA program.
    ``(B) An evaluation of changes in access to
    physicians and other health care providers.
    ``(C) Beneficiary satisfaction.
    ``(D) Recommendations regarding any extension or
    expansion of the CCA program.

    ``(b) Requirements for Selection of CCA Areas.--
    ``(1) CCA area defined.--
    ``(A) In general.--For purposes of this section, the
    term `CCA area' means an MSA that meets the requirements
    of paragraph (2) and is selected by the Secretary under
    subsection (c).
    ``(B) MSA defined.--For purposes of this section,
    the term `MSA' means a Metropolitan Statistical Area (or
    such similar area as the Secretary recognizes).
    ``(2) Requirements for cca areas.--The requirements of this
    paragraph for an MSA to be a CCA area are as follows:
    ``(A) MA enrollment requirement.--For the reference
    month (as defined under section 1858(f)(4)(B)) with
    respect to 2010, at least 25 percent of the total number
    of MA eligible individuals who reside in the MSA were
    enrolled in an MA local plan described in section
    1851(a)(2)(A)(i).
    ``(B) 2 plan requirement.--There will be offered in
    the MSA during the annual, coordinated election period
    under section 1851(e)(3)(B) before the beginning of 2010
    at least 2 MA local plans described in section
    1851(a)(2)(A)(i) (in addition to the fee-for-service
    program under parts A and B), each offered by a
    different MA organization and each of which met the
    minimum enrollment requirements of paragraph (1) of
    section 1857(b) (as applied without regard to paragraph
    (3) thereof) as of the reference month.

    ``(c) Selection of CCA Areas.--
    ``(1) General selection criteria.--The Secretary shall
    select CCA areas from among those MSAs qualifying under
    subsection (b) in a manner that--
    ``(A) seeks to maximize the opportunity to test the
    application of comparative cost adjustment under this
    title;
    ``(B) does not seek to maximize the number of MA
    eligible individuals who reside in such areas; and

    [[Page 2216]]
    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 2217]]
    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 <> 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 2218]]
    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 2219]]
    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 2220]]
    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 2221]]
    117 STAT. 2221

    ``(2) No <> effect on late enrollment
    penalty or income-related adjustment in subsidies.--Nothing in
    this subsection or section 1860C-1(f) shall be construed as
    affecting the amount of any premium adjustment under subsection
    (b) or (i). Subsection (f) shall be applied without regard to
    any premium adjustment referred to in paragraph (1).
    ``(3) Implementation.--In order to carry out a premium
    adjustment under this subsection and section 1860C-1(f) (insofar
    as it is effected through the manner of collection of premiums
    under section 1840(a)), the Secretary shall transmit to the
    Commissioner of Social Security--
    ``(A) at the beginning of each year, the name,
    social security account number, and the amount of the
    premium adjustment (if any) for each individual enrolled
    under this part for each month during the year; and
    ``(B) periodically throughout the year, information
    to update the information previously transmitted under
    this paragraph for the year.''.
    (B) Section 1844(c) (42 U.S.C. 1395w(c)) is amended
    by inserting ``and without regard to any premium
    adjustment effected under sections 1839(h) and 1860C-
    1(f)'' before the period at the end.

    (c) No Change <> in Medicare's Defined
    Benefit Package.--Nothing in this part (or the amendments made by this
    part) shall be construed as changing the entitlement to defined benefits
    under parts A and B of title XVIII of the Social Security Act.

    TITLE III--COMBATTING WASTE, FRAUD, AND ABUSE

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

    (a) Technical Amendment Concerning Secretary's Authority To Make
    Conditional Payment When Certain Primary Plans Do Not Pay Promptly.--
    Section 1862(b)(2) (42 U.S.C. 1395y(b)(2)) is amended--
    (1) in subparagraph (A)(ii), by striking ``promptly (as
    determined in accordance with regulations)''; and
    (2) in subparagraph (B)--
    (A) by redesignating clauses (i) through (v) as
    clauses (ii) through (vi), respectively; and
    (B) by inserting before clause (ii), as so
    redesignated, the following new clause:
    ``(i) Authority to make conditional payment.--
    The Secretary may make payment under this title
    with respect to an item or service if a primary
    plan described in subparagraph (A)(ii) has not
    made or cannot reasonably be expected to make
    payment with respect to such item or service
    promptly (as determined in accordance with
    regulations). Any such payment by the Secretary
    shall be conditioned on reimbursement to the
    appropriate Trust Fund in accordance with the
    succeeding provisions of this subsection.''.

    (b) Clarifying Amendments to Conditional Payment Provisions.--
    Section 1862(b)(2) (42 U.S.C. 1395y(b)(2)), as amended by subsection
    (a), is amended--

    [[Page 2222]]
    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) <> 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 2223]]
    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) <> Designation of independent
    accreditation organizations.--Not later than the date
    that is 1 year after the date on which the Secretary
    implements the quality standards under subparagraph (A),
    notwithstanding section 1865(b), the Secretary shall
    designate and approve one or more independent
    accreditation organizations for purposes of such
    subparagraph.
    ``(C) Quality standards.--The quality standards
    described in subparagraph (A) may not be less stringent
    than the quality standards that would otherwise apply if
    this paragraph did not apply and shall include consumer
    services standards.
    ``(D) Items and services described.--The items and
    services described in this subparagraph are the
    following items and services, as the Secretary
    determines appropriate:
    ``(i) Covered items (as defined in paragraph
    (13)) for which payment may otherwise be made
    under this subsection.
    ``(ii) Prosthetic devices and orthotics and
    prosthetics described in section 1834(h)(4).
    ``(iii) Items and services described in
    section 1842(s)(2).
    ``(E) Implementation.--The Secretary may establish
    by program instruction or otherwise the quality
    standards under this paragraph, after consultation with
    representatives of relevant
    parties. <> Such standards shall be
    applied prospectively and shall be published on the
    Internet website of the Centers for Medicare & Medicaid
    Services.''.

    [[Page 2224]]
    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) <> Standards for
    power wheelchairs.--Effective on the date of the
    enactment of this subparagraph, in the case of a
    covered item consisting of a motorized or power
    wheelchair for an individual, payment may not be
    made for such covered item unless a physician (as
    defined in section 1861(r)(1)), a physician
    assistant, nurse practitioner, or a clinical nurse
    specialist (as those terms are defined in section
    1861(aa)(5)) has conducted a face-to-face
    examination of the individual and written a
    prescription for the item.
    ``(v) Limitation on payment for covered
    items.--Payment may not be made for a covered item
    under this subsection unless the item meets any
    standards established under this subparagraph for
    clinical condition of coverage.''.

    (b) Competitive Acquisition.--
    (1) In general.--Section 1847 (42 U.S.C. 1395w-3) is amended
    to read as follows:

    ``competitive acquisition of certain items and services

    ``Sec. 1847. (a) Establishment of Competitive Acquisition
    Programs.--
    ``(1) Implementation of programs.--
    ``(A) In <> general.--The
    Secretary shall establish and implement programs under
    which competitive acquisition areas are established
    throughout the United States for contract award purposes
    for the furnishing under this part of competitively
    priced items and services (described in paragraph (2))
    for which payment is made under this part. Such areas
    may differ for different items and services.
    ``(B) Phased-in implementation.--The programs--

    [[Page 2225]]
    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 2226]]
    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 2227]]
    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 2228]]
    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 2229]]
    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) <> Report.--Not later than July 1, 2009, the
    Secretary shall submit to Congress a report on the programs under this
    section. The report shall include information on savings, reductions in
    cost-sharing, access to and quality of items and services, and
    satisfaction of individuals.

    ``(e) Demonstration Project for Clinical Laboratory Services.--
    ``(1) In general.--The Secretary shall conduct a
    demonstration project on the application of competitive
    acquisition under this section to clinical diagnostic laboratory
    tests--
    ``(A) for which payment would otherwise be made
    under section 1833(h) (other than for pap smear
    laboratory tests under paragraph (7) of such section) or
    section 1834(d)(1) (relating to colorectal cancer
    screening tests); and
    ``(B) which are furnished by entities that did not
    have a face-to-face encounter with the individual.
    ``(2) Terms and conditions.--
    ``(A) In general.--Except as provided in
    subparagraph (B), such project shall be under the same
    conditions as are applicable to items and services
    described in subsection (a)(2), excluding subsection
    (b)(5)(B) and other conditions as the Secretary
    determines to be appropriate.
    ``(B) Application of clia quality standards.--The
    quality standards established by the Secretary under
    section 353 of the Public Health Service Act for
    clinical diagnostic laboratory tests shall apply to such
    tests under the demonstration project under this section
    in lieu of quality standards described in subsection
    (b)(2)(A)(i).
    ``(3) <> Report.--The Secretary shall
    submit to Congress--
    ``(A) an initial report on the project not later
    than December 31, 2005; and
    ``(B) such progress and final reports on the project
    after such date as the Secretary determines
    appropriate.''.
    (2) Conforming amendments.--Section 1833(a)(1) (42 U.S.C.
    1395l(a)(1)) is amended--
    (A) by striking ``and (U)'' and inserting ``(U)'';
    (B) by inserting before the semicolon at the end the
    following: ``, and (V) notwithstanding subparagraphs (I)
    (relating to durable medical equipment), (M) (relating
    to prosthetic devices and orthotics and prosthetics),
    and (Q) (relating to 1842(s) items), with respect to
    competitively priced items and services (described in
    section 1847(a)(2)) that are furnished in a competitive
    area, the amounts

    [[Page 2230]]
    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) <> GAO report on impact of
    competitive acquisition on suppliers.--
    (A) Study.--The Comptroller General of the United
    States shall conduct a study on the impact of
    competitive acquisition of durable medical equipment
    under section 1847 of the Social Security Act, as
    amended by paragraph (1), on suppliers and manufacturers
    of such equipment and on patients. Such study shall
    specifically examine the impact of such competitive
    acquisition on access to, and quality of, such equipment
    and service related to such equipment.
    (B) <> Report.--Not later than
    January 1, 2009, the Comptroller General shall submit to
    Congress a report on the study conducted under
    subparagraph (A) and shall include in the report such
    recommendations as the Comptroller General determines
    appropriate.

    (c) Transitional Freeze.--
    (1) DME.--
    (A) In general.--Section 1834(a)(14) (42 U.S.C.
    1395m(a)(14)) is amended--
    (i) in subparagraph (E), by striking ``and''
    at the end;
    (ii) in subparagraph (F)--
    (I) by striking ``a subsequent
    year'' and inserting ``2003''; and
    (II) by striking ``the previous
    year.'' and inserting ``2002;''; and
    (iii) by adding at the end the following new
    subparagraphs:
    ``(G) for 2004 through 2006--
    ``(i) subject to clause (ii), in the case of
    class III medical devices described in section
    513(a)(1)(C) of the Federal Food, Drug, and
    Cosmetic Act (21 U.S.C. 360(c)(1)(C)), the
    percentage increase described in subparagraph (B)
    for the year involved; and
    ``(ii) in the case of covered items not
    described in clause (i), 0 percentage points;
    ``(H) for 2007--
    ``(i) subject to clause (ii), in the case of
    class III medical devices described in section
    513(a)(1)(C) of the Federal Food, Drug, and
    Cosmetic Act (21 U.S.C. 360(c)(1)(C)), the
    percentage change determined by the Secretary to
    be appropriate taking into account recommendations
    contained in the report of the Comptroller General
    of the United States under section 302(c)(1)(B) of
    the Medicare Prescription Drug, Improvement, and
    Modernization Act of 2003; and
    ``(ii) in the case of covered items not
    described in clause (i), 0 percentage points; and

    [[Page 2231]]
    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) <> 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 2232]]
    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 2233]]
    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) <> Report on Activities of
    Suppliers.--The Inspector General of the Department of Health and Human
    Services shall conduct a study to determine the extent to which (if any)
    suppliers of covered items of durable medical equipment that are subject
    to the competitive acquisition program under section 1847 of the Social
    Security Act, as amended by subsection (a), are soliciting physicians to
    prescribe certain brands or modes of delivery of covered items based on
    profitability. <> Not later than July 1, 2009, the
    Inspector General shall submit to Congress a report on such study.

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

    (a) Adjustment to Physician Fee Schedule.--

    [[Page 2234]]
    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 2235]]
    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 2236]]
    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 <> of other
    services currently in the nonphysician work pool.--The Secretary
    shall make adjustments to the nonphysician work pool methodology
    (as such term is used in the final rule promulgated by the
    Secretary in the Federal Register on December 31, 2002 (67 Fed.
    Reg. 251)), for the determination of practice expense relative
    value units under the physician fee schedule under section
    1848(c)(2)(C)(ii) of the Social Security Act (42 U.S.C. 1395w-
    4(c)(2)(C)(ii)), so that the practice expense relative value
    units for services determined under such methodology are not
    affected relative to the practice expense relative value units
    of services not determined under such methodology, as a result
    of the amendments made by paragraph (1).
    (3) Payment <> for multiple
    chemotherapy agents furnished on a single day through the push
    technique.--
    (A) Review of policy.--The Secretary shall review
    the policy, as in effect on October 1, 2003, with
    respect to payment under section 1848 of the Social
    Security Act (42 U.S.C. 1395w-4) for the administration
    of more than 1 drug or biological to an individual on a
    single day through the push technique.
    (B) Modification of policy.--After conducting the
    review under subparagraph (A), the Secretary shall
    modify such payment policy as the Secretary determines
    to be appropriate.
    (C) Exemption from budget neutrality under physician
    fee schedule.--If the Secretary modifies such payment
    policy pursuant to subparagraph (B), any increased
    expenditures under title XVIII of the Social Security
    Act resulting from such modification shall be treated as
    additional expenditures attributable to subparagraph (H)
    of section 1848(c)(2) of the Social Security Act (42
    U.S.C. 1395w-4(c)(2)), as added by paragraph (1)(B), for
    purposes of applying the exemption to budget neutrality
    under subparagraph (B)(iv) of such section, as added by
    paragraph (1)(A).

    [[Page 2237]]
    117 STAT. 2237

    (4) Transitional <> adjustment.--
    (A) In general.--In order to provide for a
    transition during 2004 and 2005 to the payment system
    established under the amendments made by this section,
    in the case of physicians' services consisting of drug
    administration services described in subparagraph
    (H)(iv) of section 1848(c)(2) of the Social Security Act
    (42 U.S.C. 1395w-4(c)(2)), as added by paragraph (1)(B),
    furnished on or after January 1, 2004, and before
    January 1, 2006, in addition to the amount determined
    under the fee schedule under section 1848(b) of such Act
    (42 U.S.C. 1395w-4(b)) there also shall be paid to the
    physician from the Federal Supplementary Medical
    Insurance Trust Fund an amount equal to the applicable
    percentage specified in subparagraph (B) of such fee
    schedule amount for the services so determined.
    (B) Applicable percentage.--The applicable
    percentage specified in this subparagraph for services
    furnished--
    (i) during 2004, is 32 percent; and
    (ii) during 2005, is 3 percent.
    (5) Medpac <> review and
    reports; secretarial response.--
    (A) Review.--The Medicare Payment Advisory
    Commission shall review the payment changes made under
    this section insofar as they affect payment under part B
    of title XVIII of the Social Security Act--
    (i) for items and services furnished by
    oncologists; and
    (ii) for drug administration services
    furnished by other specialists.
    (B) Other matters studied.--In conducting the review
    under subparagraph (A), the Commission shall also review
    such changes as they affect--
    (i) the quality of care furnished to
    individuals enrolled under part B and the
    satisfaction of such individuals with that care;
    (ii) the adequacy of reimbursement as applied
    in, and the availability in, different geographic
    areas and to different physician practice sizes;
    and
    (iii) the impact on physician practices.
    (C) Reports.--The <> Commission
    shall submit to the Secretary and Congress--
    (i) not later than January 1, 2006, a report
    on the review conducted under subparagraph (A)(i);
    and
    (ii) not later than January 1, 2007, a report
    on the review conducted under subparagraph
    (A)(ii).
    Each such report may include such recommendations
    regarding further adjustments in such payments as the
    Commission deems appropriate.
    (D) Secretarial response.--As part of the rulemaking
    with respect to payment for physicians services under
    section 1848 of the Social Security Act (42 U.S.C.
    1395w-4) for 2007, the Secretary may make appropriate
    adjustments to payment for items and services described
    in subparagraph (A)(i), taking into account the report
    submitted under such subparagraph (C)(i).

    [[Page 2238]]
    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 2239]]
    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. <> (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 2240]]
    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 2241]]
    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 2242]]
    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 2243]]
    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 2244]]
    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 <> provisions of section 1128A
    (other than subsections (a) and (b)) shall apply to
    civil money penalties under subparagraph (B) in the same
    manner as they apply to a penalty or proceeding under
    section 1128A(a).
    ``(5) Widely <> available market price.--
    ``(A) In general.--In this subsection, the term
    `widely available market price' means the price that a
    prudent physician or supplier would pay for the drug or
    biological. In determining such price, the Inspector
    General shall take into account the discounts, rebates,
    and other price concessions routinely made available to
    such prudent physicians or suppliers for such drugs or
    biologicals.
    ``(B) Considerations.--In determining the price
    under subparagraph (A), the Inspector General shall
    consider information from one or more of the following
    sources:
    ``(i) Manufacturers.
    ``(ii) Wholesalers.
    ``(iii) Distributors.
    ``(iv) Physician supply houses.
    ``(v) Specialty pharmacies.
    ``(vi) Group purchasing arrangements.
    ``(vii) Surveys of physicians.
    ``(viii) Surveys of suppliers.
    ``(ix) Information on such market prices from
    insurers.
    ``(x) Information on such market prices from
    private health plans.

    ``(e) Authority To Use Alternative Payment in Response to Public
    Health Emergency.--In the case of a public health emergency under
    section 319 of the Public Health Service Act in which there is a
    documented inability to access drugs and biologicals, and a concomitant
    increase in the price, of a drug or biological which is not reflected in
    the manufacturer's average sales price for one or more quarters, the
    Secretary may use the wholesale acquisition cost (or other reasonable
    measure of drug or biological price) instead of the manufacturer's
    average sales price for such quarters and for subsequent quarters until
    the price and availability of the drug or biological has stabilized and
    is substantially reflected in the applicable manufacturer's average
    sales price.
    ``(f) Quarterly Report on Average Sales Price.--For requirements for
    reporting the manufacturer's average sales price (and, if required to
    make payment, the manufacturer's wholesale acquisition cost) for the
    drug or biological under this section, see section 1927(b)(3).
    ``(g) Judicial Review.--There shall be no administrative or judicial
    review under section 1869, section 1878, or otherwise, of--
    ``(1) determinations of payment amounts under this section,
    including the assignment of National Drug Codes to billing and
    payment codes;

    [[Page 2245]]
    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 <> on sales to
    pharmacy benefit managers.--
    (A) Study.--The Secretary shall conduct a study on
    sales of drugs and biologicals to large volume
    purchasers, such as pharmacy benefit managers and health
    maintenance organizations, for purposes of determining
    whether the price at which such drugs and biologicals
    are sold to such purchasers does not represent the price
    such drugs and biologicals are made available for
    purchase to prudent physicians.
    (B) Report.--Not <> later than
    January 1, 2006, the Secretary shall submit to Congress
    a report on the study conducted under paragraph (1), and
    shall include recommendations on whether such sales to
    large volume purchasers should be excluded from the
    computation of a manufacturer's average sales price
    under section 1847A of the Social Security Act, as added
    by paragraph (1).
    (3) Inspector <> general report
    on adequacy of reimbursement rate under average sales price
    methodology.--
    (A) Study.--The Inspector General of the Department
    of Health and Human Services shall conduct a study on
    the ability of physician practices in the specialties of
    hematology, hematology/oncology, and medical oncology of
    different sizes, especially particularly large
    practices, to obtain drugs and biologicals for the
    treatment of cancer patients at 106 percent of the
    average sales price for the drugs and biologicals. In
    conducting the study, the Inspector General shall
    conduct an audit of a representative sample of such
    practices to determine the adequacy of reimbursement
    under section 1847A of the Social Security Act, as added
    by paragraph (1).
    (B) Report.--Not <> later October
    1, 2005, the Inspector General shall submit to Congress
    a report on the study conducted under subparagraph (A),
    and shall include recommendations on the adequacy of
    reimbursement for such drugs and biologicals under such
    section 1847A.

    (d) Payment Based on Competition.--
    (1) In general.--Title XVIII is amended by inserting after
    section 1847A, as added by subsection (c), the following new
    section:

    ``competitive acquisition of outpatient drugs and biologicals

    ``Sec. <> 1847B. (a) Implementation of
    Competitive Acquisition.--
    ``(1) Implementation of program.--
    ``(A) In general.--The Secretary shall establish and
    implement a competitive acquisition program under
    which--

    [[Page 2246]]
    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 2247]]
    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 <> for purposes
    of cost-sharing.--The Secretary shall provide a process
    by which physicians submit information to contractors
    for purposes of the collection of any applicable
    deductible or coinsurance amounts under subparagraph
    (A)(ii).
    ``(4) Contract required.--Payment may not be made under this
    part for competitively biddable drugs and biologicals prescribed
    by a physician who has elected this section to apply within a
    category and a competitive acquisition area with respect to
    which the program applies unless--
    ``(A) the drugs or biologicals are supplied by a
    contractor with a contract under this section for such
    category of drugs and biologicals and area; and
    ``(B) the physician has elected such contractor
    under paragraph (5) for such category and area.
    ``(5) Contractor selection process.--
    ``(A) Annual selection.--
    ``(i) In general.--The Secretary shall provide
    a process for the selection of a contractor, on an
    annual basis and in such exigent circumstances as
    the Secretary may provide and with respect to each
    category of competitively biddable drugs and
    biologicals for an area by selecting physicians.
    ``(ii) Timing of selection.--The selection of
    a contractor under clause (i) shall be made at the
    time of the election described in section 1847A(a)
    for this section to apply and shall be coordinated
    with agreements entered into under section
    1842(h).
    ``(B) Information <> on
    contractors.--The Secretary shall make available to
    physicians on an ongoing basis, through a directory
    posted on the Internet website of the Centers for
    Medicare & Medicaid Services or otherwise and upon
    request, a list of the contractors under this section in
    the different competitive acquisition areas.

    [[Page 2248]]
    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 2249]]
    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 2250]]
    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 2251]]
    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 2252]]
    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 <> 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 2253]]
    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 <> Revised Drug Payments
    and Increases for Drug Administration.--The Secretary shall not
    implement the revisions in payment amounts for drugs and biologicals
    administered by physicians as a result of the amendments made by
    subsection (b) with respect to 2004 unless the Secretary concurrently
    makes adjustments to the practice expense payment adjustment under the
    amendments made by subsection (a).

    (g) Prohibition of Administrative and Judicial Review.--
    (1) Drugs.--Section 1842(o) (42 U.S.C. 1395u(o)), as
    previously amended, is amended by adding at the end the
    following new paragraph:

    ``(7) There shall be no administrative or judicial review under
    section 1869, section 1878, or otherwise, of determinations of payment
    amounts, methods, or adjustments under paragraphs (4) through (6).''.
    (2) Physician fee schedule.--Section 1848(i)(1)(B) (42
    U.S.C. 1395w-4(i)(1)(B)) is amended by striking ``subsection
    (c)(2)(F)'' and inserting ``subsections (c)(2)(F), (c)(2)(H),
    and (c)(2)(I)''.
    (3) Multiple <> chemotherapy
    agents, other services currently on the non-physician work pool,
    and transitional adjustment.--There shall be no administrative
    or judicial review under section 1869, section 1878, or
    otherwise, of determinations of payment amounts, methods, or
    adjustments under paragraphs (2) through (4) of subsection (a).

    (h) Continuation <> of Payment Methodology
    for Radiopharmaceuticals.--Nothing in the amendments made by this
    section shall be construed as changing the payment methodology under

    [[Page 2254]]
    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 2255]]
    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 <> provisions of chapter 8 of title 5, United States Code,
    shall not apply with respect to regulations implementing the
    amendments made by subsections (a), (b), and (e)(3), to
    regulations implementing section 304, and to regulations
    implementing the amendment made by section 305(a), insofar as
    such regulations apply in 2004.
    (6) Repeal of study.--Section 4556 of the Balanced Budget
    Act of 1997 (42 U.S.C. 1395u note) is amended by striking
    subsection (c).

    (j) Application <> to Certain Physician
    Specialties.--Insofar as the amendments made by this section apply to
    payments for drugs or biologicals and drug administration services
    furnished by physicians, such amendments shall only apply to physicians
    in the specialties of hematology, hematology/oncology, and medical
    oncology under title XVIII of the Social Security Act.

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

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

    SEC. 305. PAYMENT FOR INHALATION DRUGS.

    (a) In General.--Section 1842(o)(1)(G) (42 U.S.C. 1395u(o)(1)(G)),
    as added by section 303(b), is amended to read as follows:
    ``(G) In the case of inhalation drugs or biologicals
    furnished through durable medical equipment covered under
    section 1861(n) that are furnished--
    ``(i) in 2004, the amount provided under paragraph
    (4) for the drug or biological; and
    ``(ii) in 2005 and subsequent years, the amount
    provided under section 1847A for the drug or
    biological.''.

    (b) GAO <> Study of Medicare Payment for
    Inhalation Therapy.--
    (1) Study.--The Comptroller General of the United States
    shall conduct a study to examine the adequacy of current
    reimbursements for inhalation therapy under the medicare
    program.
    (2) Report.--Not <> later than 1 year after
    the date of the enactment of this Act, the Comptroller General
    shall submit

    [[Page 2256]]
    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 2257]]
    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 <> Secretary shall submit to
    Congress a report on the project not later than 6 months after the date
    of its completion. Such reports shall include information on the impact
    of the project on savings to the medicare program and recommendations on
    the cost-effectiveness of extending or expanding the
    project.information' means information about a conviction for a relevant
    crime or a finding of patient or resident abuse.

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

    (a) Authority To Conduct Program.--The Secretary, in consultation
    with the Attorney General, shall establish a pilot program to identify
    efficient, effective, and economical procedures for long term care
    facilities or providers to conduct background checks on prospective
    direct patient access employees.
    (b) Requirements.--
    (1) In general.--Under the pilot program, a long-term care
    facility or provider in a participating State, prior to
    employing a direct patient access employee that is first hired
    on or after the commencement date of the pilot program in the
    State, shall conduct a background check on the employee in
    accordance with such procedures as the participating State shall
    establish.
    (2) Procedures.--
    (A) In general.--The procedures established by a
    participating State under paragraph (1) should be
    designed to--
    (i) give a prospective direct access patient
    employee notice that the long-term care facility
    or provider is required to perform background
    checks with respect to new employees;
    (ii) require, as a condition of employment,
    that the employee--
    (I) provide a written statement
    disclosing any disqualifying
    information;
    (II) provide a statement signed by
    the employee authorizing the facility to
    request national and State criminal
    history background checks;
    (III) provide the facility with a
    rolled set of the employee's
    fingerprints; and
    (IV) provide any other
    identification information the
    participating State may require;
    (iii) require the facility or provider to
    check any available registries that would be
    likely to contain disqualifying information about
    a prospective employee of a long-term care
    facility or provider; and
    (iv) permit the facility or provider to obtain
    State and national criminal history background
    checks on the prospective employee through a 10-
    fingerprint

    [[Page 2258]]
    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 2259]]
    117 STAT. 2259

    (1) In general.--The <> Secretary shall
    enter into agreements with not more than 10 States to conduct
    the pilot program under this section in such States.
    (2) Requirements for states.--An agreement entered into
    under paragraph (1) shall require that a participating State--
    (A) be responsible for monitoring compliance with
    the requirements of the pilot program;
    (B) have procedures by which a provisional employee
    or an employee may appeal or dispute the accuracy of the
    information obtained in a background check performed
    under the pilot program; and
    (C) agree to--
    (i) review the results of any State or
    national criminal history background checks
    conducted regarding a prospective direct patient
    access employee to determine whether the employee
    has any conviction for a relevant crime;
    (ii) immediately report to the entity that
    requested the criminal history background checks
    the results of such review; and
    (iii) in the case of an employee with a
    conviction for a relevant crime that is subject to
    reporting under section 1128E of the Social
    Security Act (42 U.S.C. 1320a-7e), report the
    existence of such conviction to the database
    established under that section.
    (3) Application and selection criteria.--
    (A) Application.--A State seeking to participate in
    the pilot program established under this section, shall
    submit an application to the Secretary containing such
    information and at such time as the Secretary may
    specify.
    (B) Selection criteria.--
    (i) In general.--In selecting States to
    participate in the pilot program, the Secretary
    shall establish criteria to ensure--
    (I) geographic diversity;
    (II) the inclusion of a variety of
    long-term care facilities or providers;
    (III) the evaluation of a variety of
    payment mechanisms for covering the
    costs of conducting the background
    checks required under the pilot program;
    and
    (IV) the evaluation of a variety of
    penalties (monetary and otherwise) used
    by participating States to enforce the
    requirements of the pilot program in
    such States.
    (ii) Additional criteria.--The Secretary
    shall, to the greatest extent practicable, select
    States to participate in the pilot program in
    accordance with the following:
    (I) At least one participating State
    should permit long-term care facilities
    or providers to provide for a
    provisional period of employment pending
    completion of a background check and at
    least one such State should not permit
    such a period of employment.
    (II) At least one participating
    State should establish procedures under
    which employment

    [[Page 2260]]
    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)  <> 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 2261]]
    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 2262]]
    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 2263]]
    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 2264]]
    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 2265]]
    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 2266]]
    117 STAT. 2266

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

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

    SEC. 405. IMPROVEMENTS TO CRITICAL ACCESS HOSPITAL PROGRAM.

    (a) Increase in Payment Amounts.--
    (1) In general.--Sections 1814(l), 1834(g)(1), and
    1883(a)(3) (42 U.S.C. 1395f(l), 1395m(g)(1), and 1395tt(a)(3))
    are each amended by inserting ``equal to 101 percent of'' before
    ``the reasonable costs''.
    (2)  <> Effective date.--The
    amendments made by paragraph (1) shall apply to payments for
    services furnished during cost reporting periods beginning on or
    after January 1, 2004.

    (b) Coverage of Costs for Certain Emergency Room On-Call
    Providers.--
    (1) In general.--Section 1834(g)(5) (42 U.S.C. 1395m(g)(5))
    is amended--
    (A) in the heading--
    (i) by inserting ``certain'' before
    ``emergency''; and
    (ii) by striking ``physicians'' and inserting
    ``providers'';
    (B) by striking ``emergency room physicians who are
    on-call (as defined by the Secretary)'' and inserting
    ``physicians, physician assistants, nurse practitioners,
    and clinical nurse specialists who are on-call (as
    defined by the Secretary) to provide emergency
    services''; and
    (C) by striking ``physicians' services'' and
    inserting ``services covered under this title''.
    (2)  <> Effective date.--The
    amendments made by paragraph (1) shall apply with respect to
    costs incurred for services furnished on or after January 1,
    2005.

    (c) Authorization of Periodic Interim Payment (PIP).--
    (1) In general.--Section 1815(e)(2) (42 U.S.C. 1395g(e)(2))
    is amended--
    (A) in the matter before subparagraph (A), by
    inserting ``, in the cases described in subparagraphs
    (A) through (D)'' after ``1986'';
    (B) by striking ``and'' at the end of subparagraph
    (C);
    (C) by adding ``and'' at the end of subparagraph
    (D); and
    (D) by inserting after subparagraph (D) the
    following new subparagraph:
    ``(E) inpatient critical access hospital services;''.

    [[Page 2267]]
    117 STAT. 2267

    (2)  <> Development of alternative
    timing methods of periodic interim payments.--With respect to
    periodic interim payments to critical access hospitals for
    inpatient critical access hospital services under section
    1815(e)(2)(E) of the Social Security Act, as added by paragraph
    (1), the Secretary shall develop alternative methods for the
    timing of such payments.
    (3)  <> Authorization of pip.--The amendments made by paragraph
    (1) shall apply to payments made on or after July 1, 2004.

    (d) Condition for Application of Special Professional Service
    Payment Adjustment.--
    (1) In general.--Section 1834(g)(2) (42 U.S.C. 1395m(g)(2))
    is amended by adding after and below subparagraph (B) the
    following:
    ``The Secretary may not require, as a condition for applying
    subparagraph (B) with respect to a critical access hospital,
    that each physician or other practitioner providing professional
    services in the hospital must assign billing rights with respect
    to such services, except that such subparagraph shall not apply
    to those physicians and practitioners who have not assigned such
    billing rights.''.
    (2)  <> Effective date.--
    (A) In general.--Except as provided in subparagraph
    (B), the amendment made by paragraph (1) shall apply to
    cost reporting periods beginning on or after July 1,
    2004.
    (B) Rule of application.--In the case of a critical
    access hospital that made an election under section
    1834(g)(2) of the Social Security Act (42 U.S.C.
    1395m(g)(2)) before November 1, 2003, the amendment made
    by paragraph (1) shall apply to cost reporting periods
    beginning on or after July 1, 2001.

    (e) Revision of Bed Limitation for Hospitals.--
    (1) In general.--Section 1820(c)(2)(B)(iii) (42 U.S.C.
    1395i-4(c)(2)(B)(iii)) is amended by striking ``15 (or, in the
    case of a facility under an agreement described in subsection
    (f), 25)'' and inserting ``25''.
    (2) Conforming amendment.--Section 1820(f) (42 U.S.C. 1395i-
    4(f)) is amended by striking ``and the number of beds used at
    any time for acute care inpatient services does not exceed 15
    beds''.
    (3)  <> Effective
    date.--The amendments made by this subsection shall apply to
    designations made before, on, or after January 1, 2004, but any
    election made pursuant to regulations promulgated to carry out
    such amendments shall only apply prospectively.

    (f) Provisions Relating to FLEX Grants.--
    (1) Additional 4-year period of funding.--Section 1820(j)
    (42 U.S.C. 1395i-4(j)) is amended by inserting before the period
    at the end the following: ``, and for making grants to all
    States under paragraphs (1) and (2) of subsection (g),
    $35,000,000 in each of fiscal years 2005 through 2008''.
    (2) Additional requirements and administration.--Section
    1820(g) (42 U.S.C. 1395i-4(g)) is amended by adding at the end
    the following new paragraphs:
    ``(4) Additional requirements with respect to flex grants.--
    With respect to grants awarded under paragraph (1)

    [[Page 2268]]
    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 2269]]
    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)  <> Effective date.--The
    amendments made by this subsection shall apply to cost reporting
    periods beginning on or after October 1, 2004.

    (h) Waiver Authority.--
    (1) In general.--Section 1820(c)(2)(B)(i)(II) (42 U.S.C.
    1395i-4(c)(2)(B)(i)(II)) is amended by inserting ``before
    January 1, 2006,'' after ``is certified''.
    (2) Grandfathering waiver authority for certain
    facilities.--Section 1820(h) (42 U.S.C. 1395i-4(h)) is amended--
    (A) in the heading preceding paragraph (1), by
    striking ``of Certain Facilities'' and inserting
    ``Provisions''; and
    (B) by adding at the end the following new
    paragraph:
    ``(3)  <> State authority to waive 35-
    mile rule.--In the case of a facility that was designated as a
    critical access hospital before January 1, 2006, and was
    certified by the State as being a necessary provider of health
    care services to residents in the area under subsection
    (c)(2)(B)(i)(II), as in effect before such date, the authority
    under such subsection with respect to any redesignation of such
    facility shall continue to apply notwithstanding the amendment
    made by section 405(h)(1) of the Medicare Prescription Drug,
    Improvement, and Modernization Act of 2003.''.

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

    (a) In General.--Section 1886(d) (42 U.S.C. 1395ww(d)) is amended by
    adding at the end the following new paragraph:
    ``(12) Payment adjustment for low-volume hospitals.--
    ``(A) In general.--In addition to any payments
    calculated under this section for a subsection (d)
    hospital, for discharges occurring during a fiscal year
    (beginning with fiscal year 2005), the Secretary shall
    provide for an additional payment amount to each low-
    volume hospital (as defined in subparagraph (C)(i)) for
    discharges occurring during that fiscal year that is
    equal to the applicable percentage increase (determined
    under subparagraph (B) for the hospital involved) in the
    amount paid to such hospital under this section for such
    discharges (determined without regard to this
    paragraph).

    [[Page 2270]]
    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)  <> 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 2271]]
    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 <> PROJECT.

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

    The Secretary may require the program to comply with such additional
    quality assurance standards for its provision of services in its
    facility as the Secretary deems appropriate.
    (d) Report.--Upon completion of the project, the Secretary shall
    submit a report to Congress on the project and shall include in the
    report recommendations regarding extension of such project to hospice
    programs serving rural areas.

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

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

    (b)  <> Effective Date.--The amendments
    made by subsection (a) shall apply to services furnished on or after
    January 1, 2005.

    [[Page 2272]]
    117 STAT. 2272

    SEC. 410A. <> RURAL COMMUNITY HOSPITAL
    DEMONSTRATION PROGRAM.

    (a) Establishment of Rural Community Hospital (RCH) Demonstration
    Program.--
    (1) In general.--The Secretary shall establish a
    demonstration program to test the feasibility and advisability
    of the establishment of rural community hospitals (as defined in
    subsection (f)(1)) to furnish covered inpatient hospital
    services (as defined in subsection (f)(2)) to medicare
    beneficiaries.
    (2) Demonstration areas.--The program shall be conducted in
    rural areas selected by the Secretary in States with low
    population densities, as determined by the Secretary.
    (3) Application.--Each rural community hospital that is
    located in a demonstration area selected under paragraph (2)
    that desires to participate in the demonstration program under
    this section shall submit an application to the Secretary at
    such time, in such manner, and containing such information as
    the Secretary may require.
    (4) Selection of hospitals.--The Secretary shall select from
    among rural community hospitals submitting applications under
    paragraph (3) not more than 15 of such hospitals to participate
    in the demonstration program under this section.
    (5) Duration.--The Secretary shall conduct the demonstration
    program under this section for a 5-year period.
    (6)  <> Implementation.--The Secretary
    shall implement the demonstration program not later than January
    1, 2005, but may not implement the program before October 1,
    2004.

    (b) Payment.--
    (1) In general.--The amount of payment under the
    demonstration program for covered inpatient hospital services
    furnished in a rural community hospital, other than such
    services furnished in a psychiatric or rehabilitation unit of
    the hospital which is a distinct part, is--
    (A) for discharges occurring in the first cost
    reporting period beginning on or after the
    implementation of the demonstration program, the
    reasonable costs of providing such services; and
    (B) for discharges occurring in a subsequent cost
    reporting period under the demonstration program, the
    lesser of--
    (i) the reasonable costs of providing such
    services in the cost reporting period involved; or
    (ii) the target amount (as defined in
    paragraph (2), applicable to the cost reporting
    period involved.
    (2) Target amount.--For purposes of paragraph (1)(B)(ii),
    the term ``target amount'' means, with respect to a rural
    community hospital for a particular 12-month cost reporting
    period--
    (A) in the case of the second such reporting period
    for which this subsection is in effect, the reasonable
    costs of providing such covered inpatient hospital
    services as determined under paragraph (1)(A), and
    (B) in the case of a later reporting period, the
    target amount for the preceding 12-month cost reporting
    period,
    increased by the applicable percentage increase (under clause
    (i) of section 1886(b)(3)(B) of the Social Security Act (42
    U.S.C. 1395ww(b)(3)(B))) in the market basket percentage
    increase

    [[Page 2273]]
    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)  <> 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 2274]]
    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)  <> 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 2275]]
    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 2276]]
    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 2277]]
    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)  <> Effective date.--The
    amendments made by paragraph (1) shall apply to physicians'
    services furnished on or after January 1, 2005.

    (c)  <> GAO Study of Geographic
    Differences in Payments for Physicians' Services.--
    (1) Study.--The Comptroller General of the United States
    shall conduct a study of differences in payment amounts under
    the physician fee schedule under section 1848 of the Social
    Security Act (42 U.S.C. 1395w-4) for physicians' services in
    different geographic areas. Such study shall include--
    (A) an assessment of the validity of the geographic
    adjustment factors used for each component of the fee
    schedule;
    (B) an evaluation of the measures used for such
    adjustment, including the frequency of revisions;
    (C) an evaluation of the methods used to determine
    professional liability insurance costs used in computing
    the malpractice component, including a review of
    increases in professional liability insurance premiums
    and variation in such increases by State and physician
    specialty and methods used to update the geographic cost
    of practice

    [[Page 2278]]
    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)  <> 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 2279]]
    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 2280]]
    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)  <> Use of data.--In order to
    promptly implement section 1834(l)(12) of the Social Security
    Act, as added by paragraph (1), the Secretary may use data
    furnished by the Comptroller General of the United States.

    (d) Temporary Increase for Ground Ambulance Services.--Section
    1834(l) (42 U.S.C. 1395m(l)), as amended by subsections (a), (b), and
    (c), is amended by adding at the end the following new paragraph:
    ``(13) Temporary increase for ground ambulance services.--
    ``(A) In general.--After computing the rates with
    respect to ground ambulance services under the other
    applicable provisions of this subsection, in the case of
    such services furnished on or after July 1, 2004, and
    before January 1, 2007, for which the transportation
    originates in--
    ``(i) a rural area described in paragraph (9)
    or in a rural census tract described in such
    paragraph, the fee schedule established under this
    section shall provide that the rate for the
    service otherwise established, after the
    application of any increase under paragraphs (11)
    and (12), shall be increased by 2 percent; and
    ``(ii) an area not described in clause (i),
    the fee schedule established under this subsection
    shall provide that the rate for the service
    otherwise established, after the application of
    any increase under paragraph (11), shall be
    increased by 1 percent.
    ``(B) Application of increased payments after
    2006.--The increased payments under subparagraph (A)
    shall not be taken into account in calculating payments
    for services furnished after the period specified in
    such subparagraph.''.

    (e)  <> Implementation.--The Secretary may
    implement the amendments made by this section, and revise the conversion
    factor applicable under section 1834(l) of the Social Security Act (42
    U.S.C. 1395m(l)) for purposes of implementing such amendments, on an
    interim final basis, or by program instruction.

    (f)  <> GAO Report on Costs and
    Access.--Not later than December 31, 2005, the Comptroller General of
    the United States shall submit to Congress an initial report on how
    costs differ among the types of ambulance providers and on access,
    supply, and quality of ambulance services in those regions and States
    that have a reduction in payment under the medicare ambulance fee
    schedule (under section 1834(l) of the Social Security Act, as amended
    by this Act). Not later than December 31, 2007, the Comptroller General
    shall submit to Congress a final report on such access and supply.

    [[Page 2281]]
    117 STAT. 2281

    (g) Technical Amendments.--(1) Section 221(c) of BIPA (114 Stat.
    2763A-487) <> is amended by striking
    ``subsection (b)(2)'' and inserting ``subsection (b)(3)''.

    (2) Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)) is amended by moving
    subparagraph (U) 4 ems to the left.

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

    (a) Coverage.--Section 1834(l) (42 U.S.C. 1395m(l)), as amended by
    subsections (a), (b), (c), and (d) of section 414, is amended by adding
    at the end the following new paragraph:
    ``(14) Providing appropriate coverage of rural air ambulance
    services.--
    ``(A) In general.--The regulations described in
    section 1861(s)(7) shall provide, to the extent that any
    ambulance services (whether ground or air) may be
    covered under such section, that a rural air ambulance
    service (as defined in subparagraph (C)) is 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 2282]]
    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)  <> Effective Date.--The amendments made
    by this subsection shall apply to services furnished on or after January
    1, 2005.

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

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

    SEC. 417. EXTENSION OF TELEMEDICINE DEMONSTRATION PROJECT.

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

    [[Page 2283]]
    117 STAT. 2283

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

    (a) Evaluation.--The Secretary, acting through the Administrator of
    the Health Resources and Services Administration in consultation with
    the Administrator of the Centers for Medicare & Medicaid Services, shall
    evaluate demonstration projects conducted by the Secretary under which
    skilled nursing facilities (as defined in section 1819(a) of the Social
    Security Act (42 U.S.C. 1395i-3(a)) are treated as originating sites for
    telehealth services.
    (b)  <> Report.--Not later than January 1, 2005,
    the Secretary shall submit to Congress a report on the evaluation
    conducted under subsection (a). Such report shall include
    recommendations on mechanisms to ensure that permitting a skilled
    nursing facility to serve as an originating site for the use of
    telehealth services or any other service delivered via a
    telecommunications system does not serve as a substitute for in-person
    visits furnished by a physician, or for in-person visits furnished by a
    physician assistant, nurse practitioner or clinical nurse specialist, as
    is otherwise required by the Secretary.

    (c) Authority To Expand Originating Telehealth Sites to Include
    Skilled Nursing Facilities.--Insofar as the Secretary concludes in the
    report required under subsection (b) that it is advisable to permit a
    skilled nursing facility to be an originating site for telehealth
    services under section 1834(m) of the Social Security Act (42 U.S.C.
    1395m(m)), and that the Secretary can establish the mechanisms to ensure
    such permission does not serve as a substitute for in-person visits
    furnished by a physician, or for in-person visits furnished by a
    physician assistant, nurse practitioner or clinical nurse specialist,
    the Secretary may deem a skilled nursing facility to be an originating
    site under paragraph (4)(C)(ii) of such section beginning on January 1,
    2006.

    Subtitle C--Provisions Relating to Parts A and B

    SEC. 421. <> 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 2284]]
    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 2285]]
    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 2286]]
    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: <> ``The provisions of
    subsection (h)(7) shall apply with respect to the first sentence
    of this clause in the same manner as it applies with respect to
    subsection (h)(4)(F)(i).''; and
    (C) by adding at the end the following new clause:
    ``(ix) For discharges occurring on or after July 1, 2005,
    insofar as an additional payment amount under this subparagraph
    is attributable to resident positions redistributed to a
    hospital under subsection (h)(7)(B), in computing the indirect
    teaching adjustment factor under clause (ii) the adjustment
    shall be computed in a manner as if `c' were equal to 0.66 with
    respect to such resident positions.''.

    (2) <> Chapter 35 of title 44, United
    States Code, shall not apply with respect to applications under section
    1886(h)(7) of the Social Security Act, as added by subsection (a)(3).

    (c)  <> Report on Extension of
    Applications Under Redistribution Program.--Not later than July 1, 2005,
    the Secretary shall submit to Congress a report containing
    recommendations regarding whether to extend the deadline for
    applications for an increase

    [[Page 2287]]
    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) <> (42
    U.S.C. 1320a-7(b)(3)), as amended by section 101(e)(2), is amended--
    (1) in subparagraph (F), by striking ``and'' after the
    semicolon at the end;
    (2) in subparagraph (G), by striking the period at the end
    and inserting ``; and''; and
    (3) by adding at the end the following new subparagraph:
    ``(H) any remuneration between a health center
    entity described under clause (i) or (ii) of section
    1905(l)(2)(B) and any individual or entity providing
    goods, items, services, donations, loans, or a
    combination thereof, to such health center entity
    pursuant to a contract, lease, grant, loan, or other
    agreement, if such agreement contributes to the ability
    of the health center entity to maintain or increase the
    availability, or enhance the quality, of services
    provided to a medically underserved population served by
    the health center entity.''.

    (b)  <> Rulemaking for Exception for
    Health Center Entity Arrangements.--
    (1) Establishment.--
    (A) In general.--The Secretary shall establish, on
    an expedited basis, standards relating to the exception
    described in section 1128B(b)(3)(H) of the Social
    Security Act, as added by subsection (a), for health
    center entity arrangements to the antikickback
    penalties.
    (B) Factors to consider.--The Secretary shall
    consider the following factors, among others, in
    establishing standards relating to the exception for
    health center entity arrangements under subparagraph
    (A):
    (i) Whether the arrangement between the health
    center entity and the other party results in
    savings of Federal grant funds or increased
    revenues to the health center entity.
    (ii) Whether the arrangement between the
    health center entity and the other party restricts
    or limits an individual's freedom of choice.
    (iii) Whether the arrangement between the
    health center entity and the other party protects
    a health care professional's independent medical
    judgment regarding medically appropriate
    treatment.
    The Secretary may also include other standards and
    criteria that are consistent with the intent of Congress
    in enacting the exception established under this
    section.
    (2)  <> Deadline.--Not later than 1 year
    after the date of the enactment of this Act the Secretary shall
    publish final regulations establishing the standards described
    in paragraph (1).

    [[Page 2288]]
    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. <> MEDPAC STUDY ON RURAL HOSPITAL
    PAYMENT ADJUSTMENTS.

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

    SEC. 434. <> FRONTIER EXTENDED STAY CLINIC
    DEMONSTRATION PROJECT.

    (a) Authority To Conduct Demonstration Project.--The Secretary shall
    waive such provisions of the medicare program established under title
    XVIII of the Social Security Act (42 U.S.C. 1395 et seq.) as are
    necessary to conduct a demonstration project under which frontier
    extended stay clinics described in subsection (b) in isolated rural
    areas are treated as providers of items and services under the medicare
    program.
    (b) Clinics Described.--A frontier extended stay clinic is described
    in this subsection if the clinic--
    (1) is located in a community where the closest short-term
    acute care hospital or critical access hospital is at least 75
    miles away from the community or is inaccessible by public road;
    and
    (2) is designed to address the needs of--
    (A) seriously or critically ill or injured patients
    who, due to adverse weather conditions or other reasons,
    cannot be transferred quickly to acute care referral
    centers; or
    (B) patients who need monitoring and observation for
    a limited period of time.

    (c) Specification of Codes.--The Secretary shall determine the
    appropriate life-safety codes for such clinics that treat patients for
    needs referred to in subsection (b)(2).
    (d) Funding.--

    [[Page 2289]]
    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)  <> Report.--Not later than the date that is 1
    year after the date on which the demonstration project concludes, the
    Secretary shall submit to Congress a report on the demonstration
    project, together with such recommendations for legislation or
    administrative action as the Secretary determines appropriate.

    (g) Definitions.--In this section, the terms ``hospital'' and
    ``critical access hospital'' have the meanings given such terms in
    subsections (e) and (mm), respectively, of section 1861 of the Social
    Security Act (42 U.S.C. 1395x).

    TITLE V--PROVISIONS RELATING TO PART A

    Subtitle A--Inpatient Hospital Services

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

    (a) In General.--Section 1886(b)(3)(B)(i) (42 U.S.C.
    1395ww(b)(3)(B)(i)) is amended--
    (1) by striking ``and'' at the end of subclause (XVIII);
    (2) by striking subclause (XIX); and
    (3) by inserting after subclause (XVIII) the following new
    subclauses:
    ``(XIX) for each of fiscal years 2004 through 2007, subject
    to clause (vii), the market basket percentage increase for
    hospitals in all areas; and
    ``(XX) for fiscal year 2008 and each subsequent fiscal year,
    the market basket percentage increase for hospitals in all
    areas.''.

    (b) Submission of Hospital Quality Data.--Section 1886(b)(3)(B) (42
    U.S.C. 1395ww(b)(3)(B)) is amended by adding at the end the following
    new clause:
    ``(vii)(I) For purposes of clause (i)(XIX) for each of fiscal years
    2005 through 2007, in a case of a subsection (d) hospital that does not
    submit data to the Secretary in accordance with subclause (II) with
    respect to such a fiscal year, the applicable percentage increase under
    such clause for such fiscal year shall be reduced by 0.4 percentage
    points. <> Such reduction shall apply only with
    respect to the fiscal year involved, and the Secretary shall not take
    into account such reduction in computing the applicable

    [[Page 2290]]
    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)  <> GAO Study and Report on
    Appropriateness of Payments Under the Prospective Payment System for
    Inpatient Hospital Services.--
    (1) Study.--The Comptroller General of the United States,
    using the most current data available, shall conduct a study to
    determine--
    (A) the appropriate level and distribution of
    payments in relation to costs under the prospective
    payment system under section 1886 of the Social Security
    Act (42 U.S.C. 1395ww) for inpatient hospital services
    furnished by subsection (d) hospitals (as defined in
    subsection (d)(1)(B) of such section); and
    (B) whether there is a need to adjust such payments
    under such system to reflect legitimate differences in
    costs across different geographic areas, kinds of
    hospitals, and types of cases.
    (2)  <> Report.--Not later than 24 months
    after the date of the enactment of this Act, the Comptroller
    General of the United States shall submit to Congress a report
    on the study conducted under paragraph (1) together with such
    recommendations for legislative and administrative action as the
    Comptroller General determines appropriate.

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

    (a) In General.--Section 1886(d)(5)(B)(ii) (42 U.S.C.
    1395ww(d)(5)(B)(ii)) is amended--
    (1) in subclause (VI), by striking ``and'' after the
    semicolon at the end;
    (2) in subclause (VII)--
    (A) by inserting ``and before April 1, 2004,'' after
    ``on or after October 1, 2002,''; and
    (B) by striking the period at the end and inserting
    a semicolon; and
    (3) by adding at the end the following new subclauses:
    ``(VIII) on or after April 1, 2004, and before
    October 1, 2004, `c' is equal to 1.47;
    ``(IX) during fiscal year 2005, `c' is equal to
    1.42;
    ``(X) during fiscal year 2006, `c' is equal to 1.37;
    ``(XI) during fiscal year 2007, `c' is equal to
    1.32; and
    ``(XII) on or after October 1, 2007, `c' is equal to
    1.35.''.

    (b) Conforming Amendment Relating to Determination of Standardized
    Amount.--Section 1886(d)(2)(C)(i) (42 U.S.C. 1395ww(d)(2)(C)(i)) is
    amended--
    (1) by striking ``1999 or'' and inserting ``1999,''; and
    (2) by inserting ``, or the Medicare Prescription Drug,
    Improvement, and Modernization Act of 2003'' after ``2000''.

    [[Page 2291]]
    117 STAT. 2291

    (c)  <> Effective Date.--The amendments
    made by this section shall apply to discharges occurring on or after
    April 1, 2004.

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

    (a) Improving Timeliness of Data Collection.--Section 1886(d)(5)(K)
    (42 U.S.C. 1395ww(d)(5)(K)) is amended by adding at the end the
    following new clause:
    ``(vii) Under the mechanism under this subparagraph, the Secretary
    shall provide for the addition of new diagnosis and procedure codes in
    April 1 of each year, but the addition of such codes shall not require
    the Secretary to adjust the payment (or diagnosis-related group
    classification) under this subsection until the fiscal year that begins
    after such date.''.
    (b) Eligibility Standard for Technology Outliers.--
    (1) Adjustment of threshold.--Section 1886(d)(5)(K)(ii)(I)
    (42 U.S.C. 1395ww(d)(5)(K)(ii)(I)) is amended by inserting
    ``(applying a threshold specified by the Secretary that is the
    lesser of 75 percent of the standardized amount (increased to
    reflect the difference between cost and charges) or 75 percent
    of one standard deviation for the diagnosis-related group
    involved)'' after ``is inadequate''.
    (2) Process for public input.--Section 1886(d)(5)(K) (42
    U.S.C. 1395ww(d)(5)(K)), as amended by subsection (a), is
    amended--
    (A) in clause (i), by adding at the end the
    following: ``Such mechanism shall be modified to meet
    the requirements of clause (viii).''; and
    (B) by adding at the end the following new clause:

    ``(viii) The mechanism established pursuant to clause (i) shall be
    adjusted to provide, before publication of a proposed rule, for public
    input regarding whether a new service or technology represents an
    advance in medical technology that substantially improves the diagnosis
    or treatment of individuals entitled to benefits under part A as
    follows:
    ``(I) <> The Secretary
    shall make public and periodically update a list of all the
    services and technologies for which an application for
    additional payment under this subparagraph is pending.
    ``(II) The Secretary shall accept comments, recommendations,
    and data from the public regarding whether the service or
    technology represents a substantial improvement.
    ``(III) The Secretary shall provide for a meeting at which
    organizations representing hospitals, physicians, such
    individuals, manufacturers, and any other interested party may
    present comments, recommendations, and data to the clinical
    staff of the Centers for Medicare & Medicaid Services before
    publication of a notice of proposed rulemaking regarding whether
    service or technology represents a substantial improvement.''.

    (c) Preference for Use of DRG Adjustment.--Section 1886(d)(5)(K) (42
    U.S.C. 1395ww(d)(5)(K)), as amended by subsections (a) and (b), is
    amended by adding at the end the following new clause:
    ``(ix) Before establishing any add-on payment under this
    subparagraph with respect to a new technology, the Secretary shall seek
    to identify one or more diagnosis-related groups associated

    [[Page 2292]]
    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)  <> Not budget neutral.--
    There shall be no reduction or other adjustment in payments
    under section 1886 of the Social Security Act because an
    additional payment is provided under subsection
    (d)(5)(K)(ii)(III) of such section.

    (e)  <> Effective Date.--
    (1) In general.--The Secretary shall implement the
    amendments made by this section so that they apply to
    classification for fiscal years beginning with fiscal year 2005.
    (2) Reconsiderations of applications for fiscal year 2004
    that are denied.--In the case of an application for a
    classification of a medical service or technology as a new
    medical service or technology under section 1886(d)(5)(K) of the
    Social Security Act (42 U.S.C. 1395ww(d)(5)(K)) that was filed
    for fiscal year 2004 and that is denied--
    (A) the Secretary shall automatically reconsider the
    application as an application for fiscal year 2005 under
    the amendments made by this section; and
    (B) <> the maximum time
    period otherwise permitted for such classification of
    the service or technology shall be extended by 12
    months.

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

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

    ``(E) For purposes of subparagraph (A), for discharges occurring--
    ``(i) on or after October 1, 1987, and before October 1,
    1997, the applicable Puerto Rico percentage is 75 percent and
    the applicable Federal percentage is 25 percent;

    [[Page 2293]]
    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) <> In order to recognize commuting
    patterns among geographic areas, the Secretary shall establish a process
    through application or otherwise for an increase of the wage index
    applied under paragraph (3)(E) for subsection (d) hospitals located in a
    qualifying county described in subparagraph (B) in the amount computed
    under subparagraph (D) based on out-migration of hospital employees who
    reside in that county to any higher wage index area.

    ``(B) <> The Secretary shall establish criteria
    for a qualifying county under this subparagraph based on the out-
    migration referred to in subparagraph (A) and differences in the area
    wage indices. Under such criteria the Secretary shall, utilizing such
    data as the Secretary determines to be appropriate, establish--
    ``(i) a threshold percentage, established by the Secretary,
    of the weighted average of the area wage index or indices for
    the higher wage index areas involved;
    ``(ii) a threshold (of not less than 10 percent) for minimum
    out-migration to a higher wage index area or areas; and
    ``(iii) a requirement that the average hourly wage of the
    hospitals in the qualifying county equals or exceeds the average
    hourly wage of all the hospitals in the area in which the
    qualifying county is located.

    ``(C) For purposes of this paragraph, the term `higher wage index
    area' means, with respect to a county, an area with a wage index that
    exceeds that of the county.
    ``(D) The increase in the wage index under subparagraph (A) for a
    qualifying county shall be equal to the percentage of the hospital
    employees residing in the qualifying county who are employed in any
    higher wage index area multiplied by the sum of the products, for each
    higher wage index area of--
    ``(i) the difference between--
    ``(I) the wage index for such higher wage index
    area, and
    ``(II) the wage index of the qualifying county; and
    ``(ii) the number of hospital employees residing in the
    qualifying county who are employed in such higher wage index
    area divided by the total number of hospital employees residing
    in the qualifying county who are employed in any higher wage
    index area.

    ``(E) The process under this paragraph may be based upon the process
    used by the Medicare Geographic Classification Review Board under
    paragraph (10). As the Secretary determines to be appropriate to carry
    out such process, the Secretary may require

    [[Page 2294]]
    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)  <> 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 2295]]
    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)  <> Effective Date.--The amendments
    made by this section shall apply as of a date specified by the Secretary
    of Health and Human Services (but in no case later than 1 year after the
    date of enactment of this Act) to medicare participation agreements in
    effect (or entered into) on or after such date.

    (c)  <> Promulgation of Regulations.--The
    Secretary shall promulgate regulations to carry out the amendments made
    by subsection (a).

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

    (a) Limits on Physician Referrals.--
    (1) Ownership and investment interests in whole hospitals.--
    (A) In general.--Section 1877(d)(3) (42 U.S.C.
    1395nn(d)(3)) is amended--
    (i) by striking ``, and'' at the end of
    subparagraph (A) and inserting a semicolon; and
    (ii) by redesignating subparagraph (B) as
    subparagraph (C) and inserting after subparagraph
    (A) the following new subparagraph:
    ``(B) <> effective for the
    18-month period beginning on the date of the enactment
    of the Medicare Prescription Drug, Improvement, and
    Modernization Act of 2003, the hospital is not a
    specialty hospital (as defined in subsection (h)(7));
    and''.
    (B) Definition.--Section 1877(h) (42 U.S.C.
    1395nn(h)) is amended by adding at the end the
    following:
    ``(7) Specialty hospital.--
    ``(A) In general.--For purposes of this section,
    except as provided in subparagraph (B), the term
    `specialty hospital' means a subsection (d) hospital (as
    defined in section 1886(d)(1)(B)) that is primarily or
    exclusively engaged in the care and treatment of one of
    the following categories:
    ``(i) Patients with a cardiac condition.
    ``(ii) Patients with an orthopedic condition.
    ``(iii) Patients receiving a surgical
    procedure.

    [[Page 2296]]
    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) <> effective for the
    18-month period beginning on the date of the enactment
    of the Medicare Prescription Drug, Improvement, and
    Modernization Act of 2003, the entity is not a specialty
    hospital (as defined in subsection (h)(7)).''.

    (b)  <> Application of Exception for
    Hospitals Under Development.--For purposes of section
    1877(h)(7)(B)(i)(II) of the Social Security Act, as added by subsection
    (a)(1)(B), in determining whether a hospital is under development as of
    November 18, 2003, the Secretary shall consider--
    (1) whether architectural plans have been completed, funding
    has been received, zoning requirements have been met, and
    necessary approvals from appropriate State agencies have been
    received; and
    (2) any other evidence the Secretary determines would
    indicate whether a hospital is under development as of such
    date.

    (c) Studies.--
    (1) MedPAC study.--The Medicare Payment Advisory Commission,
    in consultation with the Comptroller General of the United
    States, shall conduct a study to determine--
    (A) any differences in the costs of health care
    services furnished to patients by physician-owned
    specialty hospitals and the costs of such services
    furnished by local

    [[Page 2297]]
    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)  <> 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. <> ONE-TIME APPEALS PROCESS FOR
    HOSPITAL WAGE INDEX CLASSIFICATION.

    (a) Establishment of Process.--
    (1)  <> In general.--The Secretary shall
    establish not later than January 1, 2004, by instruction or
    otherwise a process under which a hospital may appeal the wage
    index classification otherwise applicable to the hospital and
    select another area within the State (or, at the discretion of
    the Secretary, within a contiguous State) to which to be
    reclassified.
    (2) Process requirements.--The process established under
    paragraph (1) shall be consistent with the following:
    (A) <> Such an appeal may be filed
    as soon as possible after the date of the enactment of
    this Act but shall be filed by not later than February
    15, 2004.
    (B) Such an appeal shall be heard by the Medicare
    Geographic Reclassification Review Board.
    (C) There shall be no further administrative or
    judicial review of a decision of such Board.

    [[Page 2298]]
    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). <> Such
    reclassification shall apply with respect to discharges
    occurring during the 3-year period beginning with April 1, 2004.
    (4) Inapplicability of certain provisions.--Except as the
    Secretary may provide, the provisions of paragraphs (8) and (10)
    of section 1886(d) of the Social Security Act (42 U.S.C.
    1395ww(d)) shall not apply to an appeal under this section.

    (b) Application of Reclassification.--In the case of an appeal
    decided in favor of a qualifying hospital under subsection (a), the wage
    index reclassification shall not affect the wage index computation for
    any area or for any other hospital and shall not be effected in a budget
    neutral manner. The provisions of this section shall not affect payment
    for discharges occurring after the end of the 3-year-period referred to
    in subsection (a).
    (c) Qualifying Hospital Defined.--For purposes of this section, the
    term ``qualifying hospital'' means a subsection (d) hospital (as defined
    in section 1886(d)(1)(B) of the Social Security Act, 42 U.S.C.
    1395ww(d)(1)(B)) that--
    (1) does not qualify for a change in wage index
    classification under paragraph (8) or (10) of section 1886(d) of
    the Social Security Act (42 U.S.C. 1395ww(d)) on the basis of
    requirements relating to distance or commuting; and
    (2) meets such other criteria, such as quality, as the
    Secretary may specify by instruction or otherwise.

    The Secretary may modify the wage comparison guidelines promulgated
    under section 1886(d)(10)(D) of such Act (42 U.S.C. 1395ww(d)(10)(D)) in
    carrying out this section.
    (d) Wage Index Classification.--For purposes of this section, the
    term ``wage index classification'' means the geographic area in which it
    is classified for purposes of determining for a fiscal year the factor
    used to adjust the DRG prospective payment rate under section 1886(d) of
    the Social Security Act (42 U.S.C. 1395ww(d)) for area differences in
    hospital wage levels that applies to such hospital under paragraph
    (3)(E) of such section.
    (e) Limitation on Expenditures.--The aggregate amount of additional
    expenditures resulting from the application of this section shall not
    exceed $900,000,000.

    (f)  <> Transitional
    Extension.--Any reclassification of a county or other area made by Act
    of Congress for purposes of making payments under section 1886(d) of the
    Social Security Act (42 U.S.C. 1395ww(d)) that expired on September 30,
    2003, shall be deemed to be in effect during the period beginning on
    January 1, 2004, and ending on September 30, 2004.

    Subtitle B--Other Provisions

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

    (a) Adjustment to RUGs for AIDS Residents.--Paragraph (12) of
    section 1888(e) (42 U.S.C. 1395yy(e)) is amended to read as follows:
    ``(12) Adjustment for residents with aids.--

    [[Page 2299]]
    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)  <> 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 2300]]
    117 STAT. 2300

    (d)  <> Effective Date.--The amendments
    made by this section shall apply to services provided by a hospice
    program on or after January 1, 2005.

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

    (a) Study.--The Comptroller General of the United States shall
    conduct a study of portable diagnostic ultrasound services furnished to
    medicare beneficiaries in skilled nursing facilities. Such study shall
    consider the following:
    (1) Types of equipment; training.--The types of portable
    diagnostic ultrasound services furnished to such beneficiaries,
    the types of portable ultrasound equipment used to furnish such
    services, and the technical skills, or training, or both,
    required for technicians to furnish such services.
    (2) Clinical appropriateness.--The clinical appropriateness
    of transporting portable diagnostic ultrasound diagnostic and
    technicians to patients in skilled nursing facilities as opposed
    to transporting such patients to a hospital or other facility
    that furnishes diagnostic ultrasound services.
    (3) Financial impact.--The financial impact if Medicare were
    make a separate payment for portable ultrasound diagnostic
    services, including the impact of separate payments--
    (A) for transportation and technician services for
    residents during a resident in a part A stay, that would
    otherwise be paid for under the prospective payment
    system for covered skilled nursing facility services
    (under section 1888(e) of the Social Security Act (42
    U.S.C. 1395yy(e)); and
    (B) for such services for residents in a skilled
    nursing facility after a part A stay.
    (4) Credentialing requirements.--Whether the Secretary
    should establish credentialing or other requirements for
    technicians that furnish diagnostic ultrasound services to
    medicare beneficiaries.

    (b)  <> Report.--Not later than 2 years after the
    date of the enactment of this Act, the Comptroller General shall submit
    to Congress a report on the study conducted under subsection (a), and
    shall include any recommendations for legislation or administrative
    change as the Comptroller General determines appropriate.

    TITLE VI--PROVISIONS RELATING TO PART B

    Subtitle A--Provisions Relating to Physicians' Services

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

    (a) Update for 2004 and 2005.--
    (1) In general.--Section 1848(d) (42 U.S.C. 1395w-4(d)) is
    amended by adding at the end the following new paragraph:
    ``(5) Update for 2004 and 2005.--The update to the single
    conversion factor established in paragraph (1)(C) for each of
    2004 and 2005 shall be not less than 1.5 percent.''.

    [[Page 2301]]
    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)  <> Not treated as change in
    law and regulation in sustainable growth rate determination.--
    The amendments made by this subsection shall not be treated as a
    change in law for purposes of applying section 1848(f)(2)(D) of
    the Social Security Act (42 U.S.C. 1395w-4(f)(2)(D)).

    (b) Use of 10-Year Rolling Average in Computing Gross Domestic
    Product.--
    (1) In general.--Section 1848(f)(2)(C) (42 U.S.C. 1395w-
    4(f)(2)(C)) is amended--
    (A) by striking ``projected'' and inserting ``annual
    average''; and
    (B) by striking ``from the previous applicable
    period to the applicable period involved'' and inserting
    ``during the 10-year period ending with the applicable
    period involved''.
    (2)  <> Effective date.--The
    amendments made by paragraph (1) shall apply to computations of
    the sustainable growth rate for years beginning with 2003.

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

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

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

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

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

    (a) Study.--The Comptroller General of the United States shall
    conduct a study on access of medicare beneficiaries to physicians'
    services under the medicare program. The study shall include--
    (1) an assessment of the use by beneficiaries of such
    services through an analysis of claims submitted by physicians
    for such services under part B of the medicare program;
    (2) an examination of changes in the use by beneficiaries of
    physicians' services over time; and
    (3) an examination of the extent to which physicians are not
    accepting new medicare beneficiaries as patients.

    [[Page 2302]]
    117 STAT. 2302

    (b)  <> Report.--Not later than 18 months after the
    date of the enactment of this Act, the Comptroller General shall submit
    to Congress a report on the study conducted under subsection (a). The
    report shall include a determination whether--
    (1) data from claims submitted by physicians under part B of
    the medicare program indicate potential access problems for
    medicare beneficiaries in certain geographic areas; and
    (2) access by medicare beneficiaries to physicians' services
    may have improved, remained constant, or deteriorated over time.

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

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

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

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

    [[Page 2303]]
    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)  <> 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 2304]]
    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)  <> 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 2305]]
    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) <> The Secretary shall establish standards,
    in consultation with appropriate organizations, regarding the frequency
    for each type of cardiovascular screening blood tests, except that such
    frequency may not be more often than once every 2 years.''.

    (c) Frequency.--Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)), as
    amended by section 611(d), is amended--
    (1) by striking ``and'' at the end of subparagraph (J);
    (2) by striking the semicolon at the end of subparagraph (K)
    and inserting ``, and''; and
    (3) by adding at the end the following new subparagraph:
    ``(L) in the case of cardiovascular screening blood tests
    (as defined in section 1861(xx)(1)), which are performed more
    frequently than is covered under section 1861(xx)(2);''.

    (d)  <> Effective Date.--The amendments
    made by this section shall apply to tests furnished on or after January
    1, 2005.

    SEC. 613. COVERAGE OF DIABETES SCREENING TESTS.

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

    (b) Services Described.--Section 1861 (42 U.S.C. 1395x), as amended
    by section 612(b), is amended by adding at the end the following new
    subsection:

    ``Diabetes Screening Tests

    ``(yy)(1) The term `diabetes screening tests' means testing
    furnished to an individual at risk for diabetes (as defined in paragraph
    (2)) for the purpose of early detection of diabetes, including--
    ``(A) a fasting plasma glucose test; and
    ``(B) such other tests, and modifications to tests, as the
    Secretary determines appropriate, in consultation with
    appropriate organizations.

    [[Page 2306]]
    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/m2.
    ``(D) Previous identification of an elevated impaired
    fasting glucose.
    ``(E) Previous identification of impaired glucose tolerance.
    ``(F) A risk factor consisting of at least 2 of the
    following characteristics:
    ``(i) Overweight, defined as a body mass index
    greater than 25, but less than 30, kg/m2.
    ``(ii) A family history of diabetes.
    ``(iii) A history of gestational diabetes mellitus
    or delivery of a baby weighing greater than 9 pounds.
    ``(iv) 65 years of age or older.

    ``(3) <> The Secretary shall establish standards,
    in consultation with appropriate organizations, regarding the frequency
    of diabetes screening tests, except that such frequency may not be more
    often than twice within the 12-month period following the date of the
    most recent diabetes screening test of that individual.''.

    (c) Frequency.--Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)), as
    amended by section 612(c), is amended--
    (1) by striking ``and'' at the end of subparagraph (K);
    (2) by striking the semicolon at the end of subparagraph (L)
    and inserting ``, and''; and
    (3) by adding at the end the following new subparagraph:
    ``(M) in the case of a diabetes screening test (as defined
    in section 1861(yy)(1)), which is performed more frequently than
    is covered under section 1861(yy)(3);''.

    (d)  <> Effective Date.--The amendments
    made by this section shall apply to tests furnished on or after January
    1, 2005.

    SEC. 614. IMPROVED PAYMENT FOR CERTAIN MAMMOGRAPHY SERVICES.

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

    [[Page 2307]]
    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 2308]]
    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 <> later than April
    1, 2005, the Comptroller General shall
    furnish data from such surveys to the
    Secretary for use in setting the payment
    rates under subparagraph (A) for 2006.
    ``(II) Recommendations.--Upon the
    completion of such surveys, the
    Comptroller General shall recommend to
    the Secretary the frequency and
    methodology of subsequent surveys to be
    conducted by the Secretary under clause
    (ii).
    ``(ii) Subsequent secretarial surveys.--The
    Secretary, taking into account such
    recommendations, shall conduct periodic subsequent
    surveys to determine the hospital acquisition cost
    for each specified covered outpatient drug for use
    in setting the payment rates under subparagraph
    (A).
    ``(iii) Survey requirements.--The surveys
    conducted under clauses (i) and (ii) shall have a
    large sample of hospitals that is sufficient to
    generate a statistically significant estimate of
    the average hospital acquisition cost for each
    specified covered outpatient
    drug. <> With respect to the
    surveys conducted under clause (i), the
    Comptroller General shall report to Congress on
    the justification for the size of the sample used
    in order to assure the validity of such estimates.
    ``(iv)  <> Differentiation in
    cost.--In conducting surveys under clause (i), the
    Comptroller General shall determine and report to
    Congress if there is (and the extent of any)
    variation in hospital acquisition costs

    [[Page 2309]]
    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)  <> Comment on
    proposed rates.--Not later than 30 days after the
    date the Secretary promulgated proposed rules
    setting forth the payment rates under subparagraph
    (A) for 2006, the Comptroller General shall
    evaluate such proposed rates and submit to
    Congress a report regarding the appropriateness of
    such rates based on the surveys the Comptroller
    General has conducted under clause (i).
    ``(E) Adjustment in payment rates for overhead
    costs.--
    ``(i)  <> Medpac report on
    drug apc design.--The Medicare Payment Advisory
    Commission shall submit to the Secretary, not
    later than July 1, 2005, a report on adjustment of
    payment for ambulatory payment classifications for
    specified covered outpatient drugs to take into
    account overhead and related expenses, such as
    pharmacy services and handling costs. Such report
    shall include--
    ``(I) a description and analysis of
    the data available with regard to such
    expenses;
    ``(II) a recommendation as to
    whether such a payment adjustment should
    be made; and
    ``(III) if such adjustment should be
    made, a recommendation regarding the
    methodology for making such an
    adjustment.
    ``(ii) Adjustment authorized.--The Secretary
    may adjust the weights for ambulatory payment
    classifications for specified covered outpatient
    drugs to take into account the recommendations
    contained in the report submitted under clause
    (i).
    ``(F) Classes of drugs.--For purposes of this
    paragraph:
    ``(i) Sole source drugs.--The term `sole
    source drug' means--
    ``(I) a biological product (as
    defined under section 1861(t)(1)); or
    ``(II) a single source drug (as
    defined in section 1927(k)(7)(A)(iv)).
    ``(ii) Innovator multiple source drugs.--The
    term `innovator multiple source drug' has the
    meaning given such term in section
    1927(k)(7)(A)(ii).
    ``(iii) Noninnovator multiple source drugs.--
    The term `noninnovator multiple source drug' has
    the meaning given such term in section
    1927(k)(7)(A)(iii).
    ``(G) Reference average wholesale price.--The term
    `reference average wholesale price' means, with respect
    to a specified covered outpatient drug, the average
    wholesale price for the drug as determined under section
    1842(o) as of May 1, 2003.
    ``(H) Inapplicability of expenditures in determining
    conversion, weighting, and other adjustment factors.--
    Additional expenditures resulting from this paragraph
    shall not be taken into account in establishing

    [[Page 2310]]
    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), <> is amended by adding at the end the following new
    subparagraph:
    ``(B) Threshold for establishment of separate apcs
    for drugs.--The Secretary shall reduce the threshold for
    the establishment of separate ambulatory payment
    classification groups (APCs) with respect to drugs or
    biologicals to $50 per administration for drugs and
    biologicals furnished in 2005 and 2006.''.
    (3) Exclusion of separate drug apcs from outlier payments.--
    Section 1833(t)(5) is amended by adding at the end the following
    new subparagraph:
    ``(E) Exclusion of separate drug and biological apcs
    from outlier payments.--No additional payment shall be
    made under subparagraph (A) in the case of ambulatory
    payment classification groups established separately for
    drugs or biologicals.''.
    (4) Payment for pass through drugs.--Section
    1833(t)(6)(D)(i) (42 U.S.C. 1395l(t)(6)(D)(i)) is amended by
    inserting after ``under section 1842(o)'' the following: ``(or
    if the drug or biological is covered under a competitive
    acquisition contract under section 1847B, an amount determined
    by the Secretary equal to the average price for the drug or
    biological for all competitive acquisition areas and year
    established under such section as calculated and adjusted by the
    Secretary for purposes of this paragraph)''.
    (5) Conforming amendment to budget neutrality requirement.--
    Section 1833(t)(9)(B) (42 U.S.C. 1395l(t)(9)(B)) is amended by
    adding at the end the following: ``In determining adjustments
    under the preceding sentence for 2004 and 2005, the Secretary
    shall not take into account under this subparagraph or paragraph
    (2)(E) any expenditures that would not have been made but for
    the application of paragraph (14).''.
    (6)  <> Effective date.--The
    amendments made by this subsection shall apply to items and
    services furnished on or after January 1, 2004.

    (b) Special Payment for Brachytherapy.--
    (1) In general.--Section 1833(t)(16), as redesignated by
    section 411(b) and as amended by subsection (a)(2), is amended
    by adding at the end the following new subparagraph:
    ``(C) Payment for devices of brachytherapy at
    charges adjusted to cost.--Notwithstanding the preceding
    provisions of this subsection, for a device of
    brachytherapy consisting of a seed or seeds (or
    radioactive source) furnished on or after January 1,
    2004, and before January 1, 2007, the payment basis for
    the device under

    [[Page 2311]]
    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)  <> GAO report.--The
    Comptroller General of the United States shall conduct a study
    to determine appropriate payment amounts under section
    1833(t)(16)(C) of the Social Security Act, as added by paragraph
    (1), for devices of brachytherapy. Not <> later
    than January 1, 2005, the Comptroller General shall submit to
    Congress and the Secretary a report on the study conducted under
    this paragraph, and shall include specific recommendations for
    appropriate payments for such devices.

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

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

    [[Page 2312]]
    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 <> is amended--
    (A) in subparagraph (A), by striking ``and (C)'' and
    inserting ``, (C), and (D)'';
    (B) in subparagraph (B), by striking ``In the case''
    and inserting ``Subject to subparagraph (D), in the
    case''; and
    (C) by adding at the end the following new
    subparagraph:
    ``(D) Inapplicability to pediatric facilities.--
    Subparagraphs (A) and (B) shall not apply, as of October
    1, 2002, to pediatric facilities that do not have an
    exception rate described in subparagraph (C) in effect
    on such date. For purposes of this subparagraph, the
    term `pediatric facility' means a renal facility at
    least 50 percent of whose patients are individuals under
    18 years of age.''.
    (2) Conforming amendment.--The fourth sentence of section
    1881(b)(7) (42 U.S.C. 1395rr(b)(7)) is amended by striking ``The
    Secretary'' and inserting ``Subject to section 422(a)(2) of the
    Medicare, Medicaid, and SCHIP Benefits Improvement and
    Protection Act of 2000, the Secretary''.

    (c) Inspector General Studies <> on ESRD
    Drugs.--
    (1) In general.--The Inspector General of the Department of
    Health and Human Services shall conduct two studies with respect
    to drugs and biologicals (including erythropoietin) furnished to
    end-stage renal disease patients under the medicare program
    which are separately billed by end stage renal disease
    facilities.
    (2) Studies on esrd drugs.--
    (A) Existing drugs.--The first study under paragraph
    (1) shall be conducted with respect to such drugs and
    biologicals for which a billing code exists prior to
    January 1, 2004.
    (B) New drugs.--The second study under paragraph (1)
    shall be conducted with respect to such drugs and
    biologicals for which a billing code does not exist
    prior to January 1, 2004.
    (3) Matters studied.--Under each study conducted under
    paragraph (1), the Inspector General shall--
    (A) determine the difference between the amount of
    payment made to end stage renal disease facilities under

    [[Page 2313]]
    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)  <> Reports.--
    (A) Existing esrd drugs.--Not later than April 1,
    2004, the Inspector General shall report to the
    Secretary on the study described in paragraph (2)(A).
    (B) New esrd drugs.--Not later than April 1, 2006,
    the Inspector General shall report to the Secretary on
    the study described in paragraph (2)(B).

    (d) Basic Case-Mix Adjusted Composite Rate for Renal Dialysis
    Facility Services.--(1) Section 1881(b) (42 U.S.C. 1395rr(b)) is amended
    by adding at the end the following new paragraphs:
    ``(12)(A) <> In lieu of payment under
    paragraph (7) beginning with services furnished on January 1, 2005, the
    Secretary shall establish a basic case-mix adjusted prospective payment
    system for dialysis services furnished by providers of services and
    renal dialysis facilities in a year to individuals in a facility and to
    such individuals at home. The case-mix under such system shall be for a
    limited number of patient characteristics.

    ``(B) The system described in subparagraph (A) shall include--
    ``(i) the services comprising the composite rate established
    under paragraph (7); and
    ``(ii) the difference between payment amounts under this
    title for separately billed drugs and biologicals (including
    erythropoietin) and acquisition costs of such drugs and
    biologicals, as determined by the Inspector General reports to
    the Secretary as required by section 623(c) of the Medicare
    Prescription Drug, Improvement, and Modernization Act of 2003--
    ``(I) beginning with 2005, for such drugs and
    biologicals for which a billing code exists prior to
    January 1, 2004; and
    ``(II) beginning with 2007, for such drugs and
    biologicals for which a billing code does not exist
    prior to January 1, 2004,
    adjusted to 2005, or 2007, respectively, as determined to be
    appropriate by the Secretary.

    ``(C)(i) <> In applying subparagraph (B)(ii)
    for 2005, such payment amounts under this title shall be determined
    using the methodology specified in paragraph (13)(A)(i).

    ``(ii) For 2006, the Secretary shall provide for an adjustment to
    the payments under clause (i) to reflect the difference between the
    payment amounts using the methodology under paragraph (13)(A)(i) and the
    payment amount determined using the methodology applied by the Secretary
    under paragraph (13)(A)(iii) of such paragraph, as estimated by the
    Secretary.
    ``(D) The Secretary shall adjust the payment rates under such system
    by a geographic index as the Secretary determines to be appropriate. If
    the Secretary applies a geographic index under this paragraph that
    differs from the index applied under paragraph (7) the Secretary shall
    phase-in the application of the index under this paragraph over a
    multiyear period.

    [[Page 2314]]
    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 2315]]
    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)  <> Demonstration of Bundled Case-Mix
    Adjusted Payment System for ESRD Services.--
    (1) In general.--The Secretary shall establish a
    demonstration project of the use of a fully case-mix adjusted
    payment system for end stage renal disease services under
    section 1881 of the Social Security Act (42 U.S.C. 1395rr) for
    patient characteristics identified in the report under
    subsection (f) that bundles into such payment rates amounts
    for--
    (A) drugs and biologicals (including erythropoietin)
    furnished to end stage renal disease patients under the
    medicare program which are separately billed by end
    stage renal disease facilities (as of the date of the
    enactment of this Act); and
    (B) clinical laboratory tests related to such drugs
    and biologicals.
    (2) Facilities included in the demonstration.--In conducting
    the demonstration under this subsection, the Secretary shall
    ensure the participation of a sufficient number of providers of
    dialysis services and renal dialysis facilities, but in no case
    to exceed 500. In selecting such providers and facilities, the
    Secretary shall ensure that the following types of providers are
    included in the demonstration:
    (A) Urban providers and facilities.
    (B) Rural providers and facilities.
    (C) Not-for-profit providers and facilities.
    (D) For-profit providers and facilities.
    (E) Independent providers and facilities.
    (F) Specialty providers and facilities, including
    pediatric providers and facilities and small providers
    and facilities.
    (3) Temporary add-on payment for dialysis services furnished
    under the demonstration.--
    (A) In general.--During the period of the
    demonstration project, the Secretary shall increase
    payment rates that would otherwise apply under section
    1881(b) of such Act (42 U.S.C. 1395rr(b)) by 1.6 percent
    for dialysis services furnished in facilities in the
    demonstration site.
    (B) Rules of construction.--Nothing in this
    subsection shall be construed as--
    (i) as an annual update under section 1881(b)
    of the Social Security Act (42 U.S.C. 1395rr(b));
    (ii) as increasing the baseline for payments
    under such section; or
    (iii) requiring the budget neutral
    implementation of the demonstration project under
    this subsection.
    (4) <> 3-year period.--The Secretary
    shall conduct the demonstration under this subsection for the 3-
    year period beginning on January 1, 2006.
    (5) Use of advisory board.--

    [[Page 2316]]
    117 STAT. 2316

    (A)  <> In general.--In
    carrying out the demonstration under this subsection,
    the Secretary shall establish an advisory board
    comprised of representatives described in subparagraph
    (B) to provide advice and recommendations with respect
    to the establishment and operation of such
    demonstration.
    (B) Representatives.--Representatives referred to in
    subparagraph (A) include representatives of the
    following:
    (i) Patient organizations.
    (ii) Individuals with expertise in end stage
    renal dialysis services, such as clinicians,
    economists, and researchers.
    (iii) The Medicare Payment Advisory
    Commission, established under section 1805 of the
    Social Security Act (42 U.S.C. 1395b-6).
    (iv) The National Institutes of Health.
    (v) Network organizations under section
    1881(c) of the Social Security Act (42 U.S.C.
    1395rr(c)).
    (vi) Medicare contractors to monitor quality
    of care.
    (vii) Providers of services and renal dialysis
    facilities furnishing end stage renal disease
    services.
    (C) Termination of advisory panel.--The advisory
    panel shall terminate on December 31, 2008.
    (6) Authorization of appropriations.--There are authorized
    to be appropriated, in appropriate part from the Federal
    Hospital Insurance Trust Fund and the Federal Supplementary
    Medical Insurance Trust Fund, $5,000,000 in fiscal year 2006 to
    conduct the demonstration under this subsection.

    (f)  <> Report on a Bundled Prospective
    Payment System for End Stage Renal Disease Services.--
    (1) Report.--
    (A)  <> In general.--Not later than
    October 1, 2005, the Secretary shall submit to Congress
    a report detailing the elements and features for the
    design and implementation of a bundled prospective
    payment system for services furnished by end stage renal
    disease facilities including, to the maximum extent
    feasible, bundling of drugs, clinical laboratory tests,
    and other items that are separately billed by such
    facilities. The report shall include a description of
    the methodology to be used for the establishment of
    payment rates, including components of the new system
    described in paragraph (2).
    (B) Recommendations.--The Secretary shall include in
    such report recommendations on elements, features, and
    methodology for a bundled prospective payment system or
    other issues related to such system as the Secretary
    determines to be appropriate.
    (2) Elements and features of a bundled prospective payment
    system.--The report required under paragraph (1) shall include
    the following elements and features of a bundled prospective
    payment system:
    (A) Bundle of items and services.--A description of
    the bundle of items and services to be included under
    the prospective payment system.
    (B) Case mix.--A description of the case-mix
    adjustment to account for the relative resource use of
    different types of patients.

    [[Page 2317]]
    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)  <> Remainder of 2003.--For
    the period beginning on the date of the enactment of this Act
    and ending of December 31, 2003, the Secretary shall not apply
    the provisions of paragraphs (1), (2), and (3) of section
    1833(g) to expenses incurred with respect to services described
    in such paragraphs during such period. Nothing in the preceding
    sentence shall be construed as affecting the application of such
    paragraphs by the Secretary before the date of the enactment of
    this Act.

    (b) Prompt Submission of Overdue Reports on Payment and Utilization
    of Outpatient Therapy Services.--Not <> later than March 31, 2004, the Secretary shall submit to
    Congress the reports required under section 4541(d)(2) of the Balanced
    Budget Act of 1997 (Public Law 105-33; 111 Stat. 457) (relating to
    alternatives to a single annual dollar cap on outpatient therapy) and
    under section 221(d) of the Medicare, Medicaid, and SCHIP Balanced
    Budget Refinement Act of 1999 (Appendix F, 113 Stat. 1501A-352), as
    enacted into law by section 1000(a)(6) of Public Law 106-113 (relating
    to utilization patterns for outpatient therapy).

    (c) GAO Report Identifying Conditions and Diseases Justifying Waiver
    of Therapy Cap.--
    (1) Study.--The Comptroller General of the United States
    shall identify conditions or diseases that may justify waiving
    the application of the therapy caps under section 1833(g) of the
    Social Security Act (42 U.S.C. 1395l(g)) with respect to such
    conditions or diseases.
    (2)  <> Report to congress.--Not later than
    October 1, 2004, the Comptroller General shall submit to
    Congress a report on the conditions and diseases identified
    under paragraph (1), and shall include a recommendation of
    criteria, with respect to such conditions and disease, under
    which a waiver of the therapy caps would apply.

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

    (a) Waiver of Penalty.--

    [[Page 2318]]
    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)  <> Effective date.--The
    amendment made by paragraph (1) shall apply to premiums for
    months beginning with January 2004. <> The
    Secretary shall establish a method for providing rebates of
    premium penalties paid for months on or after January 2004 for
    which a penalty does not apply under such amendment but for
    which a penalty was previously collected.

    (b)  <> Medicare Part B Special Enrollment
    Period.--
    (1) In general.--In the case of any individual who, as of
    the date of the enactment of this Act, is eligible to enroll but
    is not enrolled under part B of title XVIII of the Social
    Security Act and is a covered beneficiary (as defined in section
    1072(5) of title 10, United States Code), the Secretary of
    Health and Human Services shall provide for a special enrollment
    period during which the individual may enroll under such part.
    Such <> period shall
    begin as soon as possible after the date of the enactment of
    this Act and shall end on December 31, 2004.
    (2) Coverage period.--In the case of an individual who
    enrolls during the special enrollment period provided under
    paragraph (1), the coverage period under part B of title XVIII
    of the Social Security Act shall begin on the first day of the
    month following the month in which the individual enrolls.

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

    (a) Reductions in Payment Updates.--Section 1833(i)(2)(C) (42 U.S.C.
    1395l(i)(2)(C)) is amended to read as follows:
    ``(C)(i) Notwithstanding the second sentence of each of
    subparagraphs (A) and (B), except as otherwise specified in clauses
    (ii), (iii), and (iv), if the Secretary has not updated amounts
    established under such subparagraphs or under subparagraph (D), with
    respect to facility services furnished during a fiscal year (beginning
    with fiscal year 1986 or a calendar year (beginning with 2006)), such
    amounts shall be increased by the percentage increase in the Consumer
    Price Index for all urban consumers (U.S. city average) as estimated by
    the Secretary for the 12-month period ending with the midpoint of the
    year involved.
    ``(ii) In each of the fiscal years 1998 through 2002, the increase
    under this subparagraph shall be reduced (but not below zero) by 2.0
    percentage points.
    ``(iii) <> In fiscal year 2004, beginning
    with April 1, 2004, the increase under this subparagraph shall be the
    Consumer Price Index for all urban consumers (U.S. city average) as
    estimated by the Secretary for the 12-month period ending with March 31,
    2003, minus 3.0 percentage points.

    [[Page 2319]]
    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) <> The Secretary shall implement the
    system described in clause (i) for periods in a manner so that it is
    first effective beginning on or after January 1, 2006, and not later
    than January 1, 2008.

    ``(iv) There shall be no administrative or judicial review under
    section 1869, 1878, or otherwise, of the classification system, the
    relative weights, payment amounts, and the geographic adjustment factor,
    if any, under this subparagraph.''.
    (c) Conforming Amendment.--Section 1833(a)(1) (42 U.S.C.
    1395l(a)(1)) is amended by adding the following new subparagraph:
    ``(G) with respect to facility services furnished in
    connection with a surgical procedure specified pursuant
    to subsection (i)(1)(A) and furnished to an individual
    in an ambulatory surgical center described in such
    subsection, for services furnished beginning with the
    implementation date of a revised payment system for such
    services in such facilities specified in subsection
    (i)(2)(D), the amounts paid shall be 80 percent of the
    lesser of the actual charge for the services or the
    amount determined by the Secretary under such revised
    payment system,''.

    (d)  <> GAO Study of Ambulatory Surgical
    Center Payments.--
    (1) Study.--
    (A) In general.--The Comptroller General of the
    United States shall conduct a study that compares the
    relative costs of procedures furnished in ambulatory
    surgical centers to the relative costs of procedures
    furnished in hospital outpatient departments under
    section 1833(t) of the Social Security Act (42 U.S.C.
    1395l(t)). The study shall also examine how accurately
    ambulatory payment categories reflect procedures
    furnished in ambulatory surgical centers.
    (B) Consideration of asc data.--In conducting the
    study under paragraph (1), the Comptroller General shall

    [[Page 2320]]
    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)  <> 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 2321]]
    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)  <> 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. <> DEMONSTRATION PROJECT FOR
    COVERAGE OF CERTAIN PRESCRIPTION DRUGS AND BIOLOGICALS.

    (a) Demonstration Project.--The Secretary shall conduct a
    demonstration project under part B of title XVIII of the Social Security
    Act under which payment is made for drugs or biologicals that are
    prescribed as replacements for drugs and biologicals described in
    section 1861(s)(2)(A) or 1861(s)(2)(Q) of such Act (42 U.S.C.
    1395x(s)(2)(A), 1395x(s)(2)(Q)), or both, for which payment is made
    under such part. Such project shall provide for cost-sharing applicable
    with respect to such drugs or biologicals in the same manner as cost-
    sharing applies with respect to part D drugs under standard prescription
    drug coverage (as defined in section 1860D-2(b) of the Social Security
    Act, as added by section 101(a)).
    (b) Demonstration Project Sites.--The project established under this
    section shall be conducted in sites selected by the Secretary.
    (c)  <> Duration.--The Secretary shall
    conduct the demonstration project for the 2-year period beginning on the
    date that is 90

    [[Page 2322]]
    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)  <> Report.--Not later than July 1, 2006, the
    Secretary shall submit to Congress a report on the project. The report
    shall include an evaluation of patient access to care and patient
    outcomes under the project, as well as an analysis of the cost
    effectiveness of the project, including an evaluation of the costs
    savings (if any) to the medicare program attributable to reduced
    physicians' services and hospital outpatient departments services for
    administration of the biological.

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

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

    ``Intravenous Immune Globulin

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

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

    (a) Study.--The Medicare Payment Advisory Commission (in this
    section referred to as the ``Commission'') shall conduct a study on the
    feasibility and advisability of providing for payment under part B of
    title XVIII of the Social Security Act for surgical first assisting
    services furnished by a certified registered nurse first assistant to
    medicare beneficiaries.
    (b)  <> Report.--Not later than
    January 1, 2005, the Commission shall submit to Congress a report on the
    study conducted under

    [[Page 2323]]
    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. <> MEDPAC STUDY OF PAYMENT FOR
    CARDIO-THORACIC SURGEONS.

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

    SEC. 645. <> STUDIES RELATING TO VISION
    IMPAIRMENTS.

    (a) Coverage of Outpatient Vision Services Furnished by Vision
    Rehabilitation Professionals Under Part B.--
    (1) Study.--The Secretary shall conduct a study to determine
    the feasibility and advisability of providing for payment for
    vision rehabilitation services furnished by vision
    rehabilitation professionals.
    (2)  <> Report.--Not later than January 1,
    2005, the Secretary shall submit to Congress a report on the
    study conducted under paragraph (1) together with
    recommendations for such legislation or administrative action as
    the Secretary determines to be appropriate.
    (3) Vision rehabilitation professional defined.--In this
    subsection, the term ``vision rehabilitation professional''
    means an orientation and mobility specialist, a rehabilitation
    teacher, or a low vision therapist.

    [[Page 2324]]
    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 <> Surgery.--Not later than 1 year after the
    date of the enactment of this Act, the Secretary shall submit to
    Congress a report on the feasibility of establishing a two-year
    demonstration project under which the Secretary enters into arrangements
    with vision care preferred provider organization networks to furnish and
    pay for conventional eyeglasses subsequent to each cataract surgery with
    insertion of an intraocular lens on behalf of Medicare beneficiaries. In
    such report, the Secretary shall include an estimate of potential cost
    savings to the Medicare program through the use of such networks, taking
    into consideration quality of service and beneficiary access to services
    offered by vision care preferred provider organization networks.

    SEC. 646. MEDICARE HEALTH CARE QUALITY DEMONSTRATION PROGRAMS.

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

    ``health care quality demonstration program

    ``Sec. <> 1866C. (a) Definitions.--In this
    section:
    ``(1) Beneficiary.--The term `beneficiary' means an
    individual who is entitled to benefits under part A and enrolled
    under part B, including any individual who is enrolled in a
    Medicare Advantage plan under part C.
    ``(2) Health care group.--
    ``(A) In general.--The term `health care group'
    means--
    ``(i) a group of physicians that is organized
    at least in part for the purpose of providing
    physician's services under this title;
    ``(ii) an integrated health care delivery
    system that delivers care through coordinated
    hospitals, clinics, home health agencies,
    ambulatory surgery centers, skilled nursing
    facilities, rehabilitation facilities and clinics,
    and employed, independent, or contracted
    physicians; or
    ``(iii) an organization representing regional
    coalitions of groups or systems described in
    clause (i) or (ii).
    ``(B) Inclusion.--As the Secretary determines
    appropriate, a health care group may include a hospital
    or any other individual or entity furnishing items or
    services for which payment may be made under this title
    that is affiliated with the health care group under an
    arrangement structured so that such hospital,
    individual, or entity participates in a demonstration
    project under this section.
    ``(3) Physician.--Except as otherwise provided for by the
    Secretary, the term `physician' means any individual who
    furnishes services that may be paid for as physicians' services
    under this title.

    ``(b) Demonstration Projects.--The Secretary shall establish a 5-
    year demonstration program under which the Secretary shall approve
    demonstration projects that examine health delivery factors

    [[Page 2325]]
    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 2326]]
    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. <> 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 2327]]
    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)  <> Report.--Not later than January 1, 2005,
    the Commission shall submit to Congress a report on the study conducted
    under subsection (a) together with recommendations for such legislation
    or administrative action as the Commission determines to be appropriate.

    (c) Direct Access Defined.--The term ``direct access'' means, with
    respect to outpatient physical therapy services and physical therapy
    services furnished as comprehensive outpatient rehabilitation facility
    services, coverage of and payment for such services in accordance with
    the provisions of title XVIII of the Social Security Act, except that
    sections 1835(a)(2), 1861(p), and 1861(cc) of such Act (42 U.S.C.
    1395n(a)(2), 1395x(p), and 1395x(cc), respectively) shall be applied--
    (1) without regard to any requirement that--
    (A) an individual be under the care of (or referred
    by) a physician; or
    (B) services be provided under the supervision of a
    physician; and
    (2) by allowing a physician or a qualified physical
    therapist to satisfy any requirement for--
    (A) certification and recertification; and
    (B) establishment and periodic review of a plan of
    care.

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

    (a) Establishment.--
    (1) In general.--Subject to the succeeding provisions of
    this section, the Secretary shall establish demonstration
    projects (in this section referred to as ``demonstration
    projects'') under which the Secretary shall evaluate methods
    that improve the quality of care provided to individuals with
    chronic conditions and that reduce expenditures that would
    otherwise be made under the medicare program on behalf of such
    individuals for such chronic conditions, such methods to include
    permitting those beneficiaries to direct their own health care
    needs and services.
    (2) Individuals with chronic conditions defined.--In this
    section, the term ``individuals with chronic conditions'' means
    an individual entitled to benefits under part A of title XVIII
    of the Social Security Act, and enrolled under part B of such
    title, but who is not enrolled under part C of such title who is
    diagnosed as having one or more chronic conditions (as defined
    by the Secretary), such as diabetes.

    (b) Design of Projects.--
    (1) Evaluation before implementation of project.--
    (A) In general.--In establishing the demonstration
    projects under this section, the Secretary shall
    evaluate best practices employed by group health plans
    and practices under State plans for medical assistance
    under the medicaid program under title XIX of the Social
    Security Act, as well as best practices in the private
    sector or other areas, of methods that permit patients
    to self-direct the

    [[Page 2328]]
    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 <> Projects Sites.--Not later
    than 2 years after the date of the enactment of this Act, the Secretary
    shall conduct a demonstration project in at least one area that the
    Secretary determines has a population of individuals entitled to
    benefits under part A of title XVIII of the Social Security Act, and
    enrolled under part B of such title, with a rate of incidence of
    diabetes that significantly exceeds the national average rate of all
    areas.

    (e) Evaluation and Report.--
    (1) Evaluations.--The Secretary shall conduct evaluations of
    the clinical and cost effectiveness of the demonstration
    projects.
    (2) Reports.--Not <> later than 2 years
    after the commencement of the demonstration projects, and
    biannually thereafter, the Secretary shall submit to Congress a
    report on the evaluation, and shall include in the report the
    following:
    (A) An analysis of the patient outcomes and costs of
    furnishing care to the individuals with chronic
    conditions participating in the projects as compared to
    such outcomes and costs to other individuals for the
    same health conditions.
    (B) Evaluation of patient satisfaction under the
    demonstration projects.
    (C) Such recommendations regarding the extension,
    expansion, or termination of the projects as the
    Secretary determines appropriate.

    (f) Waiver Authority.--The Secretary shall waive compliance with the
    requirements of title XVIII of the Social Security Act (42 U.S.C. 1395
    et seq.) to such extent and for such period as the Secretary determines
    is necessary to conduct demonstration projects.
    (g) Authorization of Appropriations.--(1) Payments for the costs of
    carrying out the demonstration project under this section shall be made
    from the Federal Supplementary Medical Insurance Trust Fund under
    section 1841 of such Act (42 U.S.C. 1395t).
    (2) There are authorized to be appropriated from such Trust Fund
    such sums as may be necessary for the Secretary to enter

    [[Page 2329]]
    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. <> 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 2330]]
    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 2331]]
    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 <> 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. <> GAO STUDY AND REPORT ON THE
    PROPAGATION OF CONCIERGE CARE.

    (a) Study.--
    (1) In general.--The Comptroller General of the United
    States shall conduct a study on concierge care (as defined in
    paragraph (2)) to determine the extent to which such care--
    (A) is used by medicare beneficiaries (as defined in
    section 1802(b)(5)(A) of the Social Security Act (42
    U.S.C. 1395a(b)(5)(A))); and
    (B) has impacted upon the access of medicare
    beneficiaries (as so defined) to items and services for
    which reimbursement is provided under the medicare
    program under title XVIII of the Social Security Act (42
    U.S.C. 1395 et seq.).
    (2) Concierge care.--In this section, the term ``concierge
    care'' means an arrangement under which, as a prerequisite for
    the provision of a health care item or service to an individual,
    a physician, practitioner (as described in section
    1842(b)(18)(C) of the Social Security Act (42 U.S.C.
    1395u(b)(18)(C))), or other individual--
    (A) charges a membership fee or another incidental
    fee to an individual desiring to receive the health care
    item or service from such physician, practitioner, or
    other individual; or
    (B) requires the individual desiring to receive the
    health care item or service from such physician,
    practitioner, or other individual to purchase an item or
    service.

    (b) Report.--Not <> later than the date that is 12
    months after the date of enactment of this Act, the Comptroller General
    of

    [[Page 2332]]
    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. <> 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 2333]]
    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 <> 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 2334]]
    117 STAT. 2334

    (2) Evaluation <> and
    report.--There are authorized to be appropriated such sums as
    are necessary for the purpose of developing and submitting the
    report to Congress under subsection (d).

    TITLE VII--PROVISIONS RELATING TO PARTS A AND B

    Subtitle A--Home Health Services

    SEC. 701. UPDATE IN HOME HEALTH SERVICES.

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

    (b) Adjustment to Updates for 2004, 2005, and 2006.--Section
    1895(b)(3)(B)(ii) (42 U.S.C. 1395fff(b)(3)(B)(ii)), as amended by
    subsection (a)(2), is amended--
    (1) by striking ``or'' at the end of subclause (II);
    (2) by redesignating subclause (III) as subclause (IV);
    (3) in subclause (IV), as so redesignated, by striking
    ``2004'' and inserting ``2007''; and
    (4) by inserting after subclause (II) the following new
    subclause:
    ``(III) the last 3 calendar quarters
    of 2004, and each of 2005 and 2006 the
    home health market basket percentage
    increase minus 0.8 percentage points;
    or''.

    [[Page 2335]]
    117 STAT. 2335

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

    (a) Demonstration <> Project.--Not later than 180
    days after the date of the enactment of this Act, the Secretary shall
    conduct a 2-year demonstration project under part B of title XVIII of
    the Social Security Act under which medicare beneficiaries with chronic
    conditions described in subsection (b) are deemed to be homebound for
    purposes of receiving home health services under the medicare program.

    (b) Medicare Beneficiary Described.--For purposes of subsection (a),
    a medicare beneficiary is eligible to be deemed to be homebound, without
    regard to the purpose, frequency, or duration of absences from the home,
    if--
    (1) the beneficiary has been certified by one physician as
    an individual who has a permanent and severe, disabling
    condition that is not expected to improve;
    (2) the beneficiary is dependent upon assistance from
    another individual with at least 3 out of the 5 activities of
    daily living for the rest of the beneficiary's life;
    (3) the beneficiary requires skilled nursing services for
    the rest of the beneficiary's life and the skilled nursing is
    more than medication management;
    (4) an attendant is required to visit the beneficiary on a
    daily basis to monitor and treat the beneficiary's medical
    condition or to assist the beneficiary with activities of daily
    living;
    (5) the beneficiary requires technological assistance or the
    assistance of another person to leave the home; and
    (6) the beneficiary does not regularly work in a paid
    position full-time or part-time outside the home.

    (c) Demonstration Project Sites.--The demonstration project
    established under this section shall be conducted in 3 States selected
    by the Secretary to represent the Northeast, Midwest, and Western
    regions of the United States.
    (d) Limitation on Number of Participants.--The aggregate number of
    such beneficiaries that may participate in the project may not exceed
    15,000.
    (e) Data.--The Secretary shall collect such data on the
    demonstration project with respect to the provision of home health
    services to medicare beneficiaries that relates to quality of care,
    patient outcomes, and additional costs, if any, to the medicare program.
    (f) Report <> to Congress.--Not later than 1 year
    after the date of the completion of the demonstration project under this
    section, the Secretary shall submit to Congress a report on the project
    using the data collected under subsection (e). The report shall include
    the following:
    (1) An examination of whether the provision of home health
    services to medicare beneficiaries under the project has had any
    of the following effects:
    (A) Has adversely affected the provision of home
    health services under the medicare program.
    (B) Has directly caused an increase of expenditures
    under the medicare program for the provision of such
    services that is directly attributable to such
    clarification.

    [[Page 2336]]
    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. <> 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 2337]]
    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. <>  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 2338]]
    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. <> 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 2339]]
    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 <> Secretary shall submit
    to Congress a report on the study conducted under paragraph (1)
    by not later than 18 months after the date of the enactment of
    this Act.

    (d) Construction.--Nothing in this section shall be construed as
    preventing home health agencies from collecting non-medicare/medicaid
    OASIS information for their own use.

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

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

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

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

    (b) Definition.--Section 1861 (42 U.S.C. 1395x), as amended by
    section 642, is amended by adding at the end the following new section:

    ``Extended Care in Religious Nonmedical Health Care Institutions

    ``(aaa)(1) The term `home health agency' also includes a religious
    nonmedical health care institution (as defined in subsection (ss)(1)),
    but only with respect to items and services ordinarily furnished by such
    an institution to individuals in their homes, and that are comparable to
    items and services furnished to individuals by a home health agency that
    is not religious nonmedical health care institution.

    [[Page 2340]]
    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. <> EXCEPTION TO INITIAL RESIDENCY
    PERIOD FOR GERIATRIC RESIDENCY OR FELLOWSHIP PROGRAMS.

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

    SEC. 713. <> TREATMENT OF VOLUNTEER
    SUPERVISION.

    (a) Moratorium <> on Changes
    in Treatment.--During the 1-year period beginning on January 1, 2004,
    for purposes of applying subsections (d)(5)(B) and (h) of section 1886
    of the Social Security Act (42 U.S.C. 1395ww), the Secretary shall allow
    all hospitals to count residents in osteopathic and allopathic family
    practice programs in existence as of January 1, 2002, who are training

    [[Page 2341]]
    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 <> later than 1 year after
    the date of the enactment of this Act, the Inspector General
    shall submit to Congress a report on the study conducted under
    paragraph (1), together with such recommendations as the
    Inspector General determines appropriate.

    Subtitle C--Chronic Care Improvement

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

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

    ``chronic care improvement

    ``Sec. 1807. <> (a) Implementation of Chronic
    Care Improvement Programs.--
    ``(1) In general.--The Secretary shall provide for the
    phased-in development, testing, evaluation, and implementation
    of chronic care improvement programs in accordance with this
    section. Each such program shall be designed to improve clinical
    quality and beneficiary satisfaction and achieve spending
    targets with respect to expenditures under this title for
    targeted beneficiaries with one or more threshold conditions.
    ``(2) Definitions.--For purposes of this section:
    ``(A) Chronic care improvement program.--The term
    `chronic care improvement program' means a program
    described in paragraph (1) that is offered under an
    agreement under subsection (b) or (c).
    ``(B) Chronic care improvement organization.--The
    term `chronic care improvement organization' means an
    entity that has entered into an agreement under
    subsection (b) or (c) to provide, directly or through
    contracts with subcontractors, a chronic care
    improvement program under this section. Such an entity
    may be a disease management organization, health
    insurer, integrated delivery system, physician group
    practice, a consortium of such entities, or any other
    legal entity that the Secretary determines appropriate
    to carry out a chronic care improvement program under
    this section.
    ``(C) Care management plan.--The term `care
    management plan' means a plan established under
    subsection (d) for a participant in a chronic care
    improvement program.
    ``(D) Threshold condition.--The term `threshold
    condition' means a chronic condition, such as congestive
    heart failure, diabetes, chronic obstructive pulmonary
    disease (COPD), or other diseases or conditions, as
    selected

    [[Page 2342]]
    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 <> Phase (Phase I).--
    ``(1) In general.--In carrying out this section, the
    Secretary shall enter into agreements consistent with subsection
    (f) with chronic care improvement organizations for the
    development, testing, and evaluation of chronic care improvement
    programs using randomized controlled
    trials. <>  The first such agreement shall be
    entered into not later than 12 months after the date of the
    enactment of this section.
    ``(2) Agreement period.--The period of an agreement under
    this subsection shall be for 3 years.
    ``(3) Minimum participation.--
    ``(A) In general.--The Secretary shall enter into
    agreements under this subsection in a manner so that
    chronic care improvement programs offered under this
    section are offered in geographic areas that, in the
    aggregate, consist of areas in which at least 10 percent
    of the aggregate number of medicare beneficiaries
    reside.
    ``(B) Medicare beneficiary defined.--In this
    paragraph, the term `medicare beneficiary' means an
    individual who is entitled to benefits under part A,
    enrolled under part B, or both, and who resides in the
    United States.
    ``(4) Site selection.--In selecting geographic areas in
    which agreements are entered into under this subsection, the
    Secretary shall ensure that each chronic care improvement
    program is conducted in a geographic area in which at least
    10,000 targeted beneficiaries reside among other individuals
    entitled to benefits under part A, enrolled under part B, or
    both to serve as a control population.
    ``(5) Independent evaluations of phase i programs.--The
    Secretary shall contract for an independent evaluation of the
    programs conducted under this subsection. Such evaluation shall
    be done by a contractor with knowledge of chronic

    [[Page 2343]]
    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 <> general.--With respect to
    chronic care improvement programs conducted under subsection
    (b), if the Secretary finds that the results of the independent
    evaluation conducted under subsection (b)(6) indicate that the
    conditions specified in paragraph (2) have been met by a program
    (or components of such program), the Secretary shall enter into
    agreements consistent with subsection (f) to expand the
    implementation of the program (or components) to additional
    geographic areas not covered under the program as conducted
    under subsection (b), which may include the implementation of
    the program on a national basis. <>  Such
    expansion shall begin not earlier than 2 years after the program
    is implemented under subsection (b) and not later than 6 months
    after the date of completion of such program.
    ``(2) Conditions for expansion of programs.--The conditions
    specified in this paragraph are, with respect to a chronic care
    improvement program conducted under subsection (b) for a
    threshold condition, that the program is expected to--
    ``(A) improve the clinical quality of care;
    ``(B) improve beneficiary satisfaction; and
    ``(C) achieve targets for savings to the program
    under this title specified by the Secretary in the
    agreement within a range determined to be appropriate by
    the Secretary, subject to the application of budget
    neutrality with respect to the program and not taking
    into account any payments by the organization under the
    agreement under the program for risk under subsection
    (f)(3)(B).
    ``(3) Independent evaluations of phase ii programs.--The
    Secretary shall carry out evaluations of programs expanded under
    this subsection as the Secretary determines appropriate. Such
    evaluations shall be carried out in the similar manner as is
    provided under subsection (b)(5).

    ``(d) Identification and Enrollment of Prospective Program
    Participants.--
    ``(1) Identification of prospective program participants.--
    The <> Secretary shall establish a method for
    identifying targeted beneficiaries who may benefit from
    participation in a chronic care improvement program.
    ``(2) Initial contact by secretary.--The Secretary shall
    communicate with each targeted beneficiary concerning
    participation in a chronic care improvement program. Such
    communication may be made by the Secretary and shall include
    information on the following:
    ``(A) A description of the advantages to the
    beneficiary in participating in a program.

    [[Page 2344]]
    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 2345]]
    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 2346]]
    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 <> 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 2347]]
    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 <> 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 2348]]
    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 <> Date.--The amendments
    made by this section shall apply with respect to contract years
    beginning on and after January 1, 2006.

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

    (a) Development <> of Plan.--Not later than 6
    months after the date of the enactment of this Act, the Secretary shall
    develop a plan to improve quality of care and reduce the cost of care
    for chronically ill medicare beneficiaries.

    [[Page 2349]]
    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 <> later than 2 years
    after the date of the enactment of this Act, the Secretary shall
    implement the plan developed under this section. The Secretary may
    contract with appropriate entities to implement such plan.

    (e) Authorization of Appropriations.--There are authorized to be
    appropriated to the Secretary such sums as may be necessary in fiscal
    years 2004 and 2005 to carry out this section.

    Subtitle D--Other Provisions

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

    (a) National and Local Coverage Determination Process.--
    (1) In general.--Section 1862 (42 U.S.C. 1395y), as amended
    by sections 948 and 950, is amended--
    (A) in the third sentence of subsection (a), by
    inserting ``consistent with subsection (l)'' after ``the
    Secretary shall ensure''; and
    (B) by adding at the end the following new
    subsection:

    ``(l) National and Local Coverage Determination Process.--
    ``(1) Factors and evidence used in making national
    coverage <> determinations.--The
    Secretary shall make available to the public the factors
    considered in making national coverage determinations of whether
    an item or service is reasonable and
    necessary. <>  The Secretary shall develop
    guidance documents to carry out this paragraph in a manner
    similar to the development of guidance documents under section
    701(h) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C.
    371(h)).
    ``(2) Timeframe <> for decisions on
    requests for national coverage determinations.--In the case of a
    request for a national coverage determination that--
    ``(A) does not require a technology assessment from
    an outside entity or deliberation from the Medicare
    Coverage Advisory Committee, the decision on the request
    shall be made not later than 6 months after the date of
    the request; or

    [[Page 2350]]
    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 <> 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 2351]]
    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 <> date.--The
    amendments made by paragraph (1) shall apply to national
    coverage determinations as of January 1, 2004, and section
    1862(l)(5) of the Social Security Act, as added by such
    paragraph, shall apply to local coverage determinations made on
    or after July 1, 2004.

    (b) Medicare Coverage of Routine Costs Associated With Certain
    Clinical Trials of Category A Devices.--
    (1) In general.--Section 1862 (42 U.S.C. 1395y), as amended
    by subsection (a), is amended by adding at the end the following
    new subsection:

    ``(m) Coverage of Routine Costs Associated With Certain Clinical
    Trials of Category A Devices.--
    ``(1) In general.--In the case of an individual entitled to
    benefits under part A, or enrolled under part B, or both who
    participates in a category A clinical trial, the Secretary shall
    not exclude under subsection (a)(1) payment for coverage of
    routine costs of care (as defined by the Secretary) furnished to
    such individual in the trial.
    ``(2) Category a clinical trial.--For purposes of paragraph
    (1), a `category A clinical trial' means a trial of a medical
    device if--
    ``(A) the trial is of an experimental/
    investigational (category A) medical device (as defined
    in regulations under section 405.201(b) of title 42,
    Code of Federal Regulations (as in effect as of
    September 1, 2003));
    ``(B) the trial meets criteria established by the
    Secretary to ensure that the trial conforms to
    appropriate scientific and ethical standards; and
    ``(C) in the case of a trial initiated before
    January 1, 2010, the device involved in the trial has
    been determined by the Secretary to be intended for use
    in the diagnosis, monitoring, or treatment of an
    immediately life-threatening disease or condition.''.
    (2) Effective <> date.--The
    amendment made by paragraph (1) shall apply to routine costs
    incurred on and after January 1, 2005, and, as of such date,
    section 411.15(o) of title 42, Code of Federal Regulations, is
    superseded to the extent inconsistent with section 1862(m) of
    the Social Security Act, as added by such paragraph.
    (3) Rule of <> construction.--
    Nothing in the amendment made by paragraph (1) shall be
    construed as applying to, or affecting, coverage or payment for
    a nonexperimental/investigational (category B) device.

    (c) Issuance <> of
    Temporary National Codes.--Not later than July 1, 2004, the Secretary
    shall implement revised procedures for the issuance of temporary
    national HCPCS codes under part B of title XVIII of the Social Security
    Act.

    [[Page 2352]]
    117 STAT. 2352

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

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

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

    (a) Clinical Trial.--
    (1) In general.--The Secretary, acting through the National
    Institute of Diabetes and Digestive and Kidney Disorders, shall
    conduct a clinical investigation of pancreatic islet cell
    transplantation which includes medicare beneficiaries.
    (2) Authorization of appropriations.--There are authorized
    to be appropriated to the Secretary such sums as may be
    necessary to conduct the clinical investigation under paragraph
    (1).

    (b) Medicare <> Payment.--Not earlier than
    October 1, 2004, the Secretary shall pay for the routine costs as well
    as transplantation and appropriate related items and services (as
    described in subsection (c)) in the case of medicare beneficiaries who
    are participating in a clinical trial described in subsection (a) as if
    such transplantation were covered under title XVIII of such Act and as
    would be paid under part A or part B of such title for such beneficiary.

    (c) Scope of Payment.--For purposes of subsection (b):
    (1) The term ``routine costs'' means reasonable and
    necessary routine patient care costs (as defined in the Centers
    for Medicare & Medicaid Services Coverage Issues Manual, section
    30-1), including immunosuppressive drugs and other followup
    care.
    (2) The term ``transplantation and appropriate related items
    and services'' means items and services related to the
    acquisition and delivery of the pancreatic islet cell
    transplantation, notwithstanding any national noncoverage
    determination contained in the Centers for Medicare & Medicaid
    Services Coverage Issues Manual.
    (3) The term ``medicare beneficiary'' means an individual
    who is entitled to benefits under part A of title XVIII of the
    Social Security Act, or enrolled under part B of such title, or
    both.

    (d) Construction.--The provisions of this section shall not be
    construed--
    (1) to permit payment for partial pancreatic tissue or islet
    cell transplantation under title XVIII of the Social Security
    Act other than payment as described in subsection (b); or
    (2) as authorizing or requiring coverage or payment
    conveying--
    (A) benefits under part A of such title to a
    beneficiary not entitled to such part A; or
    (B) benefits under part B of such title to a
    beneficiary not enrolled in such part B.

    SEC. 734. <> RESTORATION OF MEDICARE TRUST
    FUNDS.

    (a) Definitions.--In this section:

    [[Page 2353]]
    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 2354]]
    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 <> date.--The
    amendment made by paragraph (1) shall take effect on January 1,
    2004.

    (d) Additional <> Reports.--
    (1) Data needs and sources.--The Medicare Payment Advisory
    Commission shall conduct a study, and submit a report to
    Congress by not later than June 1, 2004, on the need for current
    data, and sources of current data available, to determine the
    solvency and financial circumstances of hospitals and other
    medicare providers of services.
    (2) Use of tax-related returns.--Using return information
    provided under Form 990 of the Internal Revenue Service, the
    Commission shall submit to Congress, by not later than June 1,
    2004, a report on the following:
    (A) Investments, endowments, and fundraising of
    hospitals participating under the medicare program and
    related foundations.
    (B) Access to capital financing for private and for
    not-for-profit hospitals.

    (e) Representation of Experts in Prescription Drugs.--
    (1) In general.--Section 1805(c)(2)(B) (42 U.S.C. 1395b-
    6(c)(2)(B)) is amended by inserting ``experts in the area of
    pharmaco-economics or prescription drug benefit programs,''
    after ``other health professionals,''.
    (2) Appointment.--The <> Comptroller General of the United States shall ensure
    that the membership of the Commission complies with the
    amendment made by paragraph (1) with respect to appointments
    made on or after the date of the enactment of this Act.

    SEC. 736. TECHNICAL AMENDMENTS.

    (a) Part A.--(1) Section 1814(a) (42 U.S.C. 1395f(a)) is amended--
    (A) by striking the seventh sentence, as added by section
    322(a)(1) of BIPA (114 Stat. 2763A-501); and
    (B) in paragraph (7)(A)--
    (i) in clause (i), by inserting before the comma at
    the end the following: ``based on the physician's or
    medical director's clinical judgment regarding the
    normal course of the individual's illness''; and
    (ii) in clause (ii), by inserting before the
    semicolon at the end the following: ``based on such
    clinical judgment''.

    (2) Section 1814(b) (42 U.S.C. 1395f(b)), in the matter preceding
    paragraph (1), is amended by inserting a comma after ``1813''.
    (3) Section 1815(e)(1)(B) (42 U.S.C. 1395g(e)(1)(B)), in the matter
    preceding clause (i), is amended by striking ``of hospital'' and
    inserting ``of a hospital''.

    [[Page 2355]]
    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 2356]]
    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) <>  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 2357]]
    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. <> 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 2358]]
    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 2359]]
    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 <> 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 2360]]
    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 <> of Medicare Funding Warning.--
    Whenever any report described in subsection (a) contains a determination
    that for any fiscal year within the 7-fiscal-year reporting period there
    will be excess general revenue medicare funding, Congress and the
    President should address the matter under existing rules and procedures.

    SEC. 802. PRESIDENTIAL SUBMISSION OF LEGISLATION.

    (a) In General.--Section 1105 of title 31, United States Code, is
    amended by adding at the end the following new subsection:
    ``(h)(1) <> If there is a medicare funding warning
    under section 801(a)(2) of the Medicare Prescription Drug, Improvement,
    and Modernization Act of 2003 made in a year, the President shall submit
    to Congress, within the 15-day period beginning on the date of the
    budget submission to Congress under subsection (a) for the succeeding
    year, proposed legislation to respond to such warning.

    ``(2) Paragraph (1) does not apply if, during the year in which the
    warning is made, legislation is enacted which eliminates excess general
    revenue medicare funding (as defined in section 801(c) of the Medicare
    Prescription Drug, Improvement, and Modernization Act of 2003) for the
    7-fiscal-year reporting period, as certified by the Board of Trustees of
    each medicare trust fund (as defined in section 801(c)(5) of such Act)
    not later than 30 days after the date of the enactment of such
    legislation.''.
    (b) Sense of Congress.--It is the sense of Congress that legislation
    submitted pursuant to section 1105(h) of title 31, United States Code,
    in a year should be designed to eliminate excess general revenue
    medicare funding (as defined in section 801(c)) for the 7-fiscal-year
    period that begins in such year.

    SEC. 803. <> PROCEDURES IN THE HOUSE OF
    REPRESENTATIVES.

    (a) Introduction and Referral of President's Legislative Proposal.--
    (1) Introduction.--In the case of a legislative proposal
    submitted by the President pursuant to section 1105(h) of title
    31, United States Code, within the 15-day period specified in
    paragraph (1) of such section, the Majority Leader of the House
    of Representatives (or his designee) and the Minority Leader of
    the House of Representatives (or his designee) shall introduce
    such proposal (by request), the title of which is as follows:
    ``A bill to respond to a medicare funding warning.''
    Such <> bill shall be introduced within 3
    legislative days after Congress receives such proposal.
    (2) Referral.--Any legislation introduced pursuant to
    paragraph (1) shall be referred to the appropriate committees of
    the House of Representatives.

    (b) Direction to the Appropriate House Committees.--
    (1) In <> general.--In the House,
    in any year during which the President is required to submit
    proposed legislation to Congress under section 1105(h) of title
    31, United States Code, the appropriate committees shall report
    medicare funding legislation by not later than June 30 of such
    year.

    [[Page 2361]]
    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) <> In the House, not later than 3
    legislative days after any committee has been discharged from
    further consideration

    [[Page 2362]]
    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 2363]]
    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. <> PROCEDURES IN THE SENATE.

    (a) Introduction and Referral of President's Legislative Proposal.--
    (1) Introduction.--In the case of a legislative proposal
    submitted by the President pursuant to section 1105(h) of title
    31, United States Code, within the 15-day period specified in
    paragraph (1) of such section, the Majority Leader and Minority
    Leader of the Senate (or their designees) shall introduce such
    proposal (by request), the title of which is as follows: ``A
    bill to respond to a medicare funding warning.'' Such bill shall
    be introduced within 3 days of session after Congress receives
    such proposal.
    (2) Referral.--Any legislation introduced pursuant to
    paragraph (1) shall be referred to the Committee on Finance.

    (b) Medicare Funding Legislation.--For purposes of this section, the
    term ``medicare funding legislation'' means--
    (1) legislation introduced pursuant to subsection (a)(1),
    but only if the legislative proposal upon which the legislation
    is based was submitted within the 15-day period referred to in
    such subsection; or
    (2) any bill the title of which is as follows: ``A bill to
    respond to a medicare funding warning.''.

    (c) Qualification for Special Procedures.--
    (1) In <> general.--The special
    procedures set forth in subsections (d) and (e) shall apply to
    medicare funding legislation, as described in subsection (b),
    only if the legislation--
    (A) is medicare funding legislation that is passed
    by the House of Representatives; or
    (B) contains matter within the jurisdiction of the
    Committee on Finance in the Senate.
    (2) Failure to qualify for special procedures.--If the
    medicare funding legislation does not satisfy paragraph (1),
    then the legislation shall be considered under the ordinary
    procedures of the Standing Rules of the Senate.

    (d) Discharge.--
    (1) In general.--If the Committee on Finance has not
    reported medicare funding legislation described in subsection
    (c)(1) by June 30 of a year in which the President is required
    to submit medicare funding legislation to Congress under section
    1105(h) of title 31, United States Code, then any Senator may
    move to discharge the Committee of any single medicare funding
    legislation measure. Only one such motion shall be in order in
    any session of Congress.
    (2) Debate limits.--Debate in the Senate on any such motion
    to discharge, and all appeals in connection therewith, shall be
    limited to not more than 2 hours. The time shall be equally
    divided between, and controlled by, the maker of

    [[Page 2364]]
    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 2365]]
    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) <> 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 2366]]
    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 <>  in
    regulations prescribed by the Commissioner of
    Social Security in consultation with the
    Secretary, the preceding sentence shall cease to
    apply when adequate data in appropriate electronic
    form are available for the individual for the
    taxable year referred to in clause (i), and proper
    adjustments shall be made to the extent that the
    premium adjustments determined under the preceding
    sentence were inconsistent with those determined
    using such taxable year.
    ``(iii) Non-filers.--In
    the <> case of individuals
    with respect to whom the Secretary of the Treasury
    does not have adequate data in appropriate
    electronic form for either taxable year referred
    to in clause (i) or clause (ii), the Commissioner
    of Social Security, in consultation with the
    Secretary, shall prescribe regulations which
    provide for the treatment of the premium
    adjustment with respect to such individual under
    this subsection, including regulations which
    provide for--
    ``(I) the application of the highest
    applicable percentage under paragraph
    (3)(C) to such individual if the
    Commissioner has information which
    indicates that such individual's
    modified adjusted gross income might
    exceed the threshold amount for the
    taxable year referred to in clause (i),
    and
    ``(II) proper adjustments in the
    case of the application of an applicable
    percentage under subclause (I) to such
    individual which is inconsistent with
    such individual's modified adjusted
    gross income for such taxable year.
    ``(C) Use of more recent taxable year.--
    ``(i) In general.--The Commissioner of Social
    Security in consultation with the Secretary of the
    Treasury shall establish a procedures under which
    an

    [[Page 2367]]
    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 2368]]
    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 <> 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 2369]]
    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) <>  of such Code, as amended by section 105(e)(1),
    is amended by striking ``or (19)'' and inserting ``(19),
    or (20)''.
    (B) Paragraph (4) of section 6103(p) of such Code,
    as amended by section 105(e)(3), is amended by striking
    ``(l)(16), (17), or (19)'' each place it appears and
    inserting ``(l)(16), (17), (19), or (20)''.
    (C) Paragraph (2) of section 7213(a) <>  of such Code, as amended by section 105(e)(4),
    is amended by striking ``or (19)'' and inserting ``(19),
    or (20)''.

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

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

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

    ``provisions relating to administration

    ``Sec. 1808. <> (a) Coordinated
    Administration of Medicare Prescription Drug and Medicare Advantage
    Programs.--
    ``(1) In general.--There is within the Centers for Medicare
    & Medicaid Services a center to carry out the duties described
    in paragraph (3).
    ``(2) Director.--Such center shall be headed by a director
    who shall report directly to the Administrator of the Centers
    for Medicare & Medicaid Services.
    ``(3) Duties.--The duties described in this paragraph are
    the following:
    ``(A) The administration of parts C and D.
    ``(B) The provision of notice and information under
    section 1804.
    ``(C) Such other duties as the Secretary may
    specify.
    ``(4) Deadline.--The Secretary shall ensure that the center
    is carrying out the duties described in paragraph (3) by not
    later than January 1, 2008.''.

    (b) Management Staff for the Centers for Medicare & Medicaid
    Services.--Such section is further amended by adding at the end the
    following new subsection:

    ``(b) Employment of Management Staff.--
    ``(1) In general.--The Secretary may employ, within the
    Centers for Medicare & Medicaid Services, such individuals as
    management staff as the Secretary determines to be appropriate.
    With respect to the administration of parts C and D,

    [[Page 2370]]
    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 <> 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 2371]]
    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 2372]]
    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) <>  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 2373]]
    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 2374]]
    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 <> 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 2375]]
    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 <> intends to vary such
    timeline with respect to the publication of a final regulation, the
    Secretary shall cause to have published in the Federal Register notice
    of the different timeline by not later than the timeline previously
    established with respect to such regulation. Such notice shall include a
    brief explanation of the justification for such variation.

    ``(C) In the case of interim final regulations, upon the expiration
    of the regular timeline established under this paragraph for the
    publication of a final regulation after opportunity for public comment,
    the interim final regulation shall not continue in effect unless the
    Secretary publishes (at the end of the regular timeline and, if
    applicable, at the end of each succeeding 1-year period) a notice of
    continuation of the regulation that includes an explanation of why the
    regular timeline (and any subsequent 1-year extension) was not complied
    with. If such a notice is published, the regular timeline (or such
    timeline as previously extended under this paragraph) for publication of
    the final regulation shall be treated as having been extended for 1
    additional year.
    ``(D) The Secretary <> shall annually submit to
    Congress a report that describes the instances in which the Secretary
    failed to publish a final regulation within the applicable regular
    timeline under this paragraph and that provides an explanation for such
    failures.''.
    (2) Effective <> date.--The
    amendment made by paragraph (1) shall take effect on the date of
    the enactment of this Act. The Secretary shall provide for an
    appropriate transition to take into account the backlog of
    previously published interim final regulations.

    (b) Limitations on New Matter in Final Regulations.--
    (1) In general.--Section 1871(a) (42 U.S.C. 1395hh(a)), as
    amended by subsection (a), is amended by adding at the end the
    following new paragraph:

    ``(4) If the Secretary publishes a final regulation that includes a
    provision that is not a logical outgrowth of a previously published
    notice of proposed rulemaking or interim final rule, such provision
    shall be treated as a proposed regulation and shall not take effect
    until there is the further opportunity for public comment and a
    publication of the provision again as a final regulation.''.

    [[Page 2376]]
    117 STAT. 2376

    (2) Effective <> date.--The
    amendment made by paragraph (1) shall apply to final regulations
    published on or after the date of the enactment of this Act.

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

    (a) No Retroactive Application of Substantive Changes.--
    (1) In general.--Section 1871 (42 U.S.C. 1395hh), as amended
    by section 902(a), is amended by adding at the end the following
    new subsection:

    ``(e)(1)(A) A substantive change in regulations, manual
    instructions, interpretative rules, statements of policy, or guidelines
    of general applicability under this title shall not be applied (by
    extrapolation or otherwise) retroactively to items and services
    furnished before the effective date of the change, unless the Secretary
    determines that--
    ``(i) such retroactive application is necessary to comply
    with statutory requirements; or
    ``(ii) failure to apply the change retroactively would be
    contrary to the public interest.''.
    (2) Effective <> date.--The
    amendment made by paragraph (1) shall apply to substantive
    changes issued on or after the date of the enactment of this
    Act.

    (b) Timeline for Compliance With Substantive Changes After Notice.--
    (1) In general.--Section 1871(e)(1), as added by subsection
    (a), is amended by adding at the end the following:

    ``(B)(i) Except as provided in clause (ii), a substantive change
    referred to in subparagraph (A) shall not become effective before the
    end of the 30-day period that begins on the date that the Secretary has
    issued or published, as the case may be, the substantive change.
    ``(ii) The Secretary may provide for such a substantive change to
    take effect on a date that precedes the end of the 30-day period under
    clause (i) if the Secretary finds that waiver of such 30-day period is
    necessary to comply with statutory requirements or that the application
    of such 30-day period is contrary to the public interest. If the
    Secretary provides for an earlier effective date pursuant to this
    clause, the Secretary shall include in the issuance or publication of
    the substantive change a finding described in the first sentence, and a
    brief statement of the reasons for such finding.
    ``(C) No action shall be taken against a provider of services or
    supplier with respect to noncompliance with such a substantive change
    for items and services furnished before the effective date of such a
    change.''.
    (2) Effective <> date.--The
    amendment made by paragraph (1) shall apply to compliance
    actions undertaken on or after the date of the enactment of this
    Act.

    (c) Reliance on Guidance.--
    (1) In general.--Section 1871(e), as added by subsection
    (a), is further amended by adding at the end the following new
    paragraph:

    ``(2)(A) If--
    ``(i) a provider of services or supplier follows the written
    guidance (which may be transmitted electronically) provided by
    the Secretary or by a medicare contractor (as defined in

    [[Page 2377]]
    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 <> date.--The
    amendment made by paragraph (1) shall take effect on the date of
    the enactment of this Act and shall only apply to a penalty or
    interest imposed with respect to guidance provided on or after
    July 24, 2003.

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

    (a) GAO <> Study on Advisory Opinion
    Authority.--
    (1) Study.--The Comptroller General of the United States
    shall conduct a study to determine the feasibility and
    appropriateness of establishing in the Secretary authority to
    provide legally binding advisory opinions on appropriate
    interpretation and application of regulations to carry out the
    medicare program under title XVIII of the Social Security Act.
    Such study shall examine the appropriate timeframe for issuing
    such advisory opinions, as well as the need for additional staff
    and funding to provide such opinions.
    (2) Report.--The Comptroller General shall submit to
    Congress a report on the study conducted under paragraph (1) by
    not later than 1 year after the date of the enactment of this
    Act.

    (b) Report on Legal and Regulatory Inconsistencies.--Section 1871
    (42 U.S.C. 1395hh), as amended by section 903(a)(1), is amended by
    adding at the end the following new subsection:
    ``(f)(1) Not later than 2 years after the date of the enactment of
    this subsection, and every 3 years thereafter, the Secretary shall
    submit to Congress a report with respect to the administration of this
    title and areas of inconsistency or conflict among the various
    provisions under law and regulation.
    ``(2) In preparing a report under paragraph (1), the Secretary shall
    collect--
    ``(A) information from individuals entitled to benefits
    under part A or enrolled under part B, or both, providers of
    services, and suppliers and from the Medicare Beneficiary
    Ombudsman with respect to such areas of inconsistency and
    conflict; and
    ``(B) information from medicare contractors that tracks the
    nature of written and telephone inquiries.

    [[Page 2378]]
    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. <> (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 2379]]
    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 2380]]
    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. <>  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 2381]]
    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 <> Secretary
    such timely information and reports as the Secretary may
    find necessary in performing his functions under this
    title; and
    ``(B) to maintain such records <>
    and afford such access thereto as the Secretary finds
    necessary to assure the correctness and verification of
    the information and reports under subparagraph (A) and
    otherwise to carry out the purposes of this title.
    ``(5) Surety bond.--A contract with a medicare
    administrative contractor under this section may require the
    medicare administrative contractor, and any of its officers or
    employees certifying payments or disbursing funds pursuant to
    the contract, or otherwise participating in carrying out the
    contract, to give surety bond to the United States in such
    amount as the Secretary may deem appropriate.

    ``(c) Terms and Conditions.--
    ``(1) In general.--A contract with any medicare
    administrative contractor under this section may contain such
    terms and conditions as the Secretary finds necessary or
    appropriate and may provide for advances of funds to the
    medicare administrative contractor for the making of payments by
    it under subsection (a)(4)(B).
    ``(2) Prohibition on mandates for certain data collection.--
    The Secretary may not require, as a condition of entering into,
    or renewing, a contract under this section, that the medicare
    administrative contractor match data obtained other than in its
    activities under this title with data used in the administration
    of this title for purposes of identifying situations in which
    the provisions of section 1862(b) may apply.

    ``(d) Limitation on Liability of Medicare Administrative Contractors
    and Certain Officers.--
    ``(1) Certifying officer.--No individual designated pursuant
    to a contract under this section as a certifying officer shall,
    in the absence of the reckless disregard of the individual's
    obligations or the intent by that individual to defraud the
    United States, be liable with respect to any payments certified
    by the individual under this section.
    ``(2) Disbursing officer.--No disbursing officer shall, in
    the absence of the reckless disregard of the officer's
    obligations or the intent by that officer to defraud the United
    States,

    [[Page 2382]]
    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 2383]]
    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 <> 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 2384]]
    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 2385]]
    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 <> 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 2386]]
    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 <> and after the
    effective date provided under subsection (d)(1), any reference to a
    fiscal intermediary or carrier under title XI or XVIII of the Social
    Security Act (or any regulation, manual instruction, interpretative
    rule, statement of policy, or guideline issued to carry out such titles)
    shall be deemed a reference to a medicare administrative contractor (as
    provided under section 1874A of the Social Security Act).

    (f) Secretarial <> Submission of
    Legislative Proposal.--Not later than 6 months after the date of the
    enactment of this Act, the Secretary shall submit to the appropriate
    committees of Congress a legislative proposal providing for such
    technical and conforming amendments in the law as are required by the
    provisions of this section.

    (g) Reports <> on Implementation.--
    (1) Plan for implementation.--By not later than October 1,
    2004, the Secretary shall submit a report to Congress and the
    Comptroller General of the United States that describes the plan
    for implementation of the amendments made by this section. The
    Comptroller General shall conduct an evaluation of such plan and
    shall submit to Congress, not later than 6 months after the date
    the report is received, a report on such evaluation and shall
    include in such report such recommendations as the Comptroller
    General deems appropriate.
    (2) Status <> of implementation.--The
    Secretary shall submit a report to Congress not later than
    October 1, 2008, that describes the status of implementation of
    such amendments and that includes a description of the
    following:
    (A) The number of contracts that have been
    competitively bid as of such date.
    (B) The distribution of functions among contracts
    and contractors.
    (C) A timeline for complete transition to full
    competition.
    (D) A detailed description of how the Secretary has
    modified oversight and management of medicare
    contractors to adapt to full competition.

    [[Page 2387]]
    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 2388]]
    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 <> Inspector General of the
    Department of Health and Human Services shall
    submit to Congress annual reports on the results
    of such evaluations, including assessments of the
    scope and sufficiency of such evaluations.
    ``(iii) Agency reporting.--The Secretary shall
    address the results of such evaluations in reports
    required under section 3544(c) of title 44, United
    States Code.''.

    (b) Application <> of Requirements to
    Fiscal Intermediaries and Carriers.--
    (1) In general.--The provisions of section 1874A(e)(2) of
    the Social Security Act (other than subparagraph (B)), as added
    by subsection (a), shall apply to each fiscal intermediary under
    section 1816 of the Social Security Act (42 U.S.C. 1395h) and
    each carrier under section 1842 of such Act (42 U.S.C. 1395u) in
    the same manner as they apply to medicare administrative
    contractors under such provisions.
    (2) Deadline for initial evaluation.--In the case of such a
    fiscal intermediary or carrier with an agreement or contract
    under such respective section in effect as of the date of the
    enactment of this Act, the first evaluation under section
    1874A(e)(2)(A) of the Social Security Act (as added by
    subsection (a)), pursuant to paragraph (1), shall be completed
    (and a report on the evaluation submitted to the Secretary) by
    not later than 1 year after such date.

    Subtitle C--Education and Outreach

    SEC. 921. PROVIDER EDUCATION AND TECHNICAL ASSISTANCE.

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

    ``provider education and technical assistance

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

    (b) Incentives To Improve Contractor Performance.--

    [[Page 2389]]
    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 <> 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 2390]]
    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 <> date.--The
    amendment made by paragraph (1) shall take effect October 1,
    2004.
    (3) Application <> to fiscal
    intermediaries and carriers.--The provisions of section 1874A(g)
    of the Social Security Act, as added by paragraph (1), shall
    apply to each fiscal intermediary under section 1816 of the
    Social Security Act (42 U.S.C. 1395h) and each carrier under
    section 1842 of such

    [[Page 2391]]
    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 <> are authorized to be appropriated to the
    Secretary (in appropriate part from the Federal Hospital
    Insurance Trust Fund and the Federal Supplementary Medical
    Insurance Trust Fund) such sums as may be necessary for fiscal
    years beginning with fiscal year 2005.
    ``(2) Use.--The funds made available under paragraph (1)
    shall be used to increase the conduct by medicare contractors of
    education and training of providers of services and suppliers
    regarding billing, coding, and other appropriate items and may
    also be used to improve the accuracy, consistency, and
    timeliness of contractor responses.

    ``(c) Tailoring Education and Training Activities for Small
    Providers or Suppliers.--
    ``(1) In general.--Insofar as a medicare contractor conducts
    education and training activities, it shall tailor such
    activities to meet the special needs of small providers of
    services or suppliers (as defined in paragraph (2)). Such
    education and training activities for small providers of
    services and suppliers may include the provision of technical
    assistance (such as review of billing systems and internal
    controls to determine program compliance and to suggest more
    efficient and effective means of achieving such compliance).
    ``(2) Small provider of services or supplier.--In this
    subsection, the term `small provider of services or supplier'
    means--
    ``(A) a provider of services with fewer than 25
    full-time-equivalent employees; or
    ``(B) a supplier with fewer than 10 full-time-
    equivalent employees.''.
    (2) Effective <> date.--The
    amendment made by paragraph (1) shall take effect on October 1,
    2004.

    (e) Requirement To Maintain Internet Websites.--
    (1) In general.--Section 1889, as added by subsection (a)
    and as amended by subsection (d), is further amended by adding
    at the end the following new subsection:

    ``(d) Internet Websites; FAQs.--The Secretary, and each medicare
    contractor insofar as it provides services (including claims processing)
    for providers of services or suppliers, shall maintain an Internet
    website which--
    ``(1) provides answers in an easily accessible format to
    frequently asked questions, and
    ``(2) includes other published materials of the contractor,

    that relate to providers of services and suppliers under the programs
    under this title (and title XI insofar as it relates to such
    programs).''.
    (2) Effective <> date.--The
    amendment made by paragraph (1) shall take effect on October 1,
    2004.

    (f) Additional Provider Education Provisions.--
    (1) In general.--Section 1889, as added by subsection (a)
    and as amended by subsections (d) and (e), is further amended by
    adding at the end the following new subsections:

    [[Page 2392]]
    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 <> date.--The
    amendment made by paragraph (1) shall take effect on the date of
    the enactment of this Act.

    SEC. 922. <> SMALL PROVIDER TECHNICAL
    ASSISTANCE DEMONSTRATION PROGRAM.

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

    [[Page 2393]]
    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 <> 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 2394]]
    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 <> annual reports to
    Congress and the Secretary that describe the activities
    of the Office and that include such recommendations for
    improvement in the administration of this title as the
    Ombudsman determines appropriate.
    The Ombudsman shall not serve as an advocate for any increases
    in payments or new coverage of services, but may identify issues
    and problems in payment or coverage policies.
    ``(3) Working with health insurance counseling programs.--To
    the extent possible, the Ombudsman shall work with health
    insurance counseling programs (receiving funding under section
    4360 of Omnibus Budget Reconciliation Act of 1990) to facilitate
    the provision of information to individuals entitled to benefits
    under part A or enrolled under part B, or both regarding MA
    plans and changes to those plans. Nothing in this paragraph
    shall preclude further collaboration between the Ombudsman and
    such programs.''.

    (b) Deadline <> for Appointment.--By not
    later than 1 year after the date of the enactment of this Act, the
    Secretary shall appoint the Medicare Beneficiary Ombudsman under section
    1808(c) of the Social Security Act, as added by subsection (a).

    (c) Funding.--There are authorized to be appropriated to the
    Secretary (in appropriate part from the Federal Hospital Insurance Trust
    Fund, established under section 1817 of the Social Security Act (42
    U.S.C. 1395i), and the Federal Supplementary Medical Insurance Trust
    Fund, established under section 1841 of such Act (42 U.S.C. 1395t)) to
    carry out section 1808(c) of such Act (relating to the Medicare
    Beneficiary Ombudsman), as added by subsection (a), such sums as are
    necessary for fiscal year 2004 and each succeeding fiscal year.
    (d) Use of Central, Toll-Free Number (1-800-MEDICARE).--
    (1) Phone triage system; listing in medicare handbook
    instead of other toll-free numbers.--Section 1804(b) (42 U.S.C.
    1395b-2(b)) is amended by adding at the end the following: ``The
    Secretary shall provide, through the toll-free telephone number
    1-800-MEDICARE, for a means by which individuals seeking
    information about, or assistance with, such programs who phone
    such toll-free number are transferred (without charge) to
    appropriate entities for the provision of such information or
    assistance. Such toll-free number shall be the toll-free number
    listed for general information and assistance in the annual
    notice under subsection (a) instead of the listing of numbers of
    individual contractors.''.

    [[Page 2395]]
    117 STAT. 2395

    (2) Monitoring <> accuracy.--
    (A) Study.--The Comptroller General of the United
    States shall conduct a study to monitor the accuracy and
    consistency of information provided to individuals
    entitled to benefits under part A or enrolled under part
    B, or both, through the toll-free telephone number 1-
    800-MEDICARE, including an assessment of whether the
    information provided is sufficient to answer questions
    of such individuals. In conducting the study, the
    Comptroller General shall examine the education and
    training of the individuals providing information
    through such number.
    (B) Report.--Not later than 1 year after the date of
    the enactment of this Act, the Comptroller General shall
    submit to Congress a report on the study conducted under
    subparagraph (A).

    SEC. 924. <> BENEFICIARY OUTREACH
    DEMONSTRATION PROGRAM.

    (a) In General.--The Secretary shall establish a demonstration
    program (in this section referred to as the ``demonstration program'')
    under which medicare specialists employed by the Department of Health
    and Human Services provide advice and assistance to individuals entitled
    to benefits under part A of title XVIII of the Social Security Act, or
    enrolled under part B of such title, or both, regarding the medicare
    program at the location of existing local offices of the Social Security
    Administration.
    (b) Locations.--
    (1) In general.--The demonstration program shall be
    conducted in at least 6 offices or areas. Subject to paragraph
    (2), in selecting such offices and areas, the Secretary shall
    provide preference for offices with a high volume of visits by
    individuals referred to in subsection (a).
    (2) Assistance for rural beneficiaries.--The Secretary shall
    provide for the selection of at least 2 rural areas to
    participate in the demonstration program. In conducting the
    demonstration program in such rural areas, the Secretary shall
    provide for medicare specialists to travel among local offices
    in a rural area on a scheduled basis.

    (c) Duration.--The demonstration program shall be conducted over a
    3-year period.
    (d) Evaluation and Report.--
    (1) Evaluation.--The Secretary shall provide for an
    evaluation of the demonstration program. Such evaluation shall
    include an analysis of--
    (A) utilization of, and satisfaction of those
    individuals referred to in subsection (a) with, the
    assistance provided under the program; and
    (B) the cost-effectiveness of providing beneficiary
    assistance through out-stationing medicare specialists
    at local offices of the Social Security Administration.
    (2) Report.--The Secretary shall submit to Congress a report
    on such evaluation and shall include in such report
    recommendations regarding the feasibility of permanently out-
    stationing medicare specialists at local offices of the Social
    Security Administration.

    [[Page 2396]]
    117 STAT. 2396

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

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

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

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

    Subtitle D--Appeals and Recovery

    SEC. 931. <> TRANSFER OF RESPONSIBILITY FOR
    MEDICARE APPEALS.

    (a) Transition Plan.--
    (1) In general.--Not later than April 1, 2004, the
    Commissioner of Social Security and the Secretary shall develop
    and transmit to Congress and the Comptroller General of the
    United States a plan under which the functions of administrative
    law judges responsible for hearing cases under title XVIII of
    the Social Security Act (and related provisions in title XI of
    such Act) are transferred from the responsibility of the
    Commissioner and the Social Security Administration to the
    Secretary and the Department of Health and Human Services.
    (2) Contents.--The plan shall include information on the
    following:
    (A) Workload.--The number of such administrative law
    judges and support staff required now and in the

    [[Page 2397]]
    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 2398]]
    117 STAT. 2398

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

    (b) Transfer of Adjudication Authority.--
    (1) In general.--Not earlier than July 1, 2005, and not
    later than October 1, 2005, the Commissioner of Social Security
    and the Secretary shall implement the transition plan under
    subsection (a) and transfer the 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 <> 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 2399]]
    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 2400]]
    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 2401]]
    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 <> 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 2402]]
    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 <> Date.--The amendments
    made by this section shall apply to appeals filed on or after October 1,
    2004.

    SEC. 933. REVISIONS TO MEDICARE APPEALS PROCESS.

    (a) Requiring Full and Early Presentation of Evidence.--
    (1) In general.--Section 1869(b) (42 U.S.C. 1395ff(b)), as
    amended by section 932(a), is further amended by adding at the
    end the following new paragraph:
    ``(3) Requiring full and early presentation of evidence by
    providers.--A provider of services or supplier may not introduce
    evidence in any appeal under this section that was not presented
    at the reconsideration conducted by the qualified independent
    contractor under subsection (c), unless there is good cause
    which precluded the introduction of such evidence at or before
    that reconsideration.''.
    (2) Effective <> date.--The
    amendment made by paragraph (1) shall take effect on October 1,
    2004.

    (b) Use of Patients' Medical Records.--Section 1869(c)(3)(B)(i) (42
    U.S.C. 1395ff(c)(3)(B)(i)) is amended by inserting ``(including the
    medical records of the individual involved)'' after ``clinical
    experience''.
    (c) Notice Requirements for Medicare Appeals.--
    (1) Initial determinations and redeterminations.--Section
    1869(a) (42 U.S.C. 1395ff(a)) is amended by adding at the end
    the following new paragraphs:
    ``(4) Requirements of notice of determinations.--With
    respect to an initial determination insofar as it results in a
    denial of a claim for benefits--
    ``(A) the written notice on the determination shall
    include--
    ``(i) the reasons for the determination,
    including whether a local medical review policy or
    a local coverage determination was used;
    ``(ii) the procedures for obtaining additional
    information concerning the determination,
    including the information described in
    subparagraph (B); and
    ``(iii) notification of the right to seek a
    redetermination or otherwise appeal the
    determination and instructions on how to initiate
    such a redetermination under this section;
    ``(B) such written notice shall be provided in
    printed form and written in a manner calculated to be
    understood by the individual entitled to benefits under
    part A or enrolled under part B, or both; and
    ``(C) the individual provided such written notice
    may obtain, upon request, information on the specific
    provision of the policy, manual, or regulation used in
    making the redetermination.
    ``(5) Requirements of notice of redeterminations.--With
    respect to a redetermination insofar as it results in a denial
    of a claim for benefits--
    ``(A) the written notice on the redetermination
    shall include--

    [[Page 2403]]
    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 2404]]
    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 2405]]
    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 2406]]
    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 <> date.--The
    amendments made by paragraphs (1) and (2) shall be effective as
    if included in the enactment of the respective provisions of
    subtitle C of title V of BIPA (114 Stat. 2763A-534).
    (5) Transition.--In <> applying
    section 1869(g) of the Social Security Act (as added by
    paragraph (2)), any reference to a medicare administrative
    contractor shall be deemed to include a reference to a fiscal
    intermediary under section 1816 of the Social Security Act (42
    U.S.C. 1395h) and a carrier under section 1842 of such Act (42
    U.S.C. 1395u).

    SEC. 934. PREPAYMENT REVIEW.

    (a) In General.--Section 1874A, as added by section 911(a)(1) and as
    amended by sections 912(b), 921(b)(1), and 921(c)(1), is further amended
    by adding at the end the following new subsection:
    ``(h) Conduct of Prepayment Review.--
    ``(1) Conduct of random prepayment review.--
    ``(A) In general.--A medicare administrative
    contractor may conduct random prepayment review only to
    develop a contractor-wide or program-wide claims payment
    error rates or under such additional circumstances as
    may be provided under regulations, developed in
    consultation with providers of services and suppliers.
    ``(B) Use of standard protocols when conducting
    prepayment reviews.--When a medicare administrative
    contractor conducts a random prepayment review, the
    contractor may conduct such review only in accordance
    with a standard protocol for random prepayment audits
    developed by the Secretary.
    ``(C) Construction.--Nothing in this paragraph shall
    be construed as preventing the denial of payments for
    claims actually reviewed under a random prepayment
    review.
    ``(D) Random prepayment review.--For purposes of
    this subsection, the term `random prepayment review'

    [[Page 2407]]
    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 <> of non-
    random prepayment review.--The Secretary shall issue
    regulations relating to the termination, including
    termination dates, of non-random prepayment review. Such
    regulations may vary such a termination date based upon
    the differences in the circumstances triggering
    prepayment review.''.

    (b) Effective <> Date.--
    (1) In general.--Except as provided in this subsection, the
    amendment made by subsection (a) shall take effect 1 year after
    the date of the enactment of this Act.
    (2) Deadline for promulgation of certain regulations.--The
    Secretary shall first issue regulations under section 1874A(h)
    of the Social Security Act, as added by subsection (a), by not
    later than 1 year after the date of the enactment of this Act.
    (3) Application of standard protocols for random prepayment
    review.--Section 1874A(h)(1)(B) of the Social Security Act, as
    added by subsection (a), shall apply to random prepayment
    reviews conducted on or after such date (not later than 1 year
    after the date of the enactment of this Act) as the Secretary
    shall specify.

    (c) Application <> to Fiscal
    Intermediaries and Carriers.--The provisions of section 1874A(h) of the
    Social Security Act, as added by subsection (a), shall apply to each
    fiscal intermediary under section 1816 of the Social Security Act (42
    U.S.C. 1395h) and each carrier under section 1842 of such Act (42 U.S.C.
    1395u) in the same manner as they apply to medicare administrative
    contractors under such provisions.

    SEC. 935. RECOVERY OF OVERPAYMENTS.

    (a) In General.--Section 1893 (42 U.S.C. 1395ddd) is amended by
    adding at the end the following new subsection:
    ``(f) Recovery of Overpayments.--
    ``(1) Use of repayment plans.--
    ``(A) In general.--If the repayment, within 30 days
    by a provider of services or supplier, of an overpayment
    under this title would constitute a hardship (as
    described in subparagraph (B)), subject to subparagraph
    (C), upon request of the provider of services or
    supplier the Secretary shall enter into a plan with the
    provider of services or supplier for the repayment
    (through offset or otherwise) of such overpayment over a
    period of at least 6 months but not longer than 3 years
    (or not longer than 5 years in the case of extreme
    hardship, as determined by the Secretary). Interest
    shall accrue on the balance through

    [[Page 2408]]
    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 2409]]
    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 2410]]
    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 2411]]
    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 <> 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 2412]]
    117 STAT. 2412

    ``(j) Enrollment Process for Providers of Services and Suppliers.--
    ``(1) Enrollment process.--
    ``(A) In <> general.--The
    Secretary shall establish by regulation a process for
    the enrollment of providers of services and suppliers
    under this title.
    ``(B) Deadlines.--
    The <> Secretary shall establish by
    regulation procedures under which there are deadlines
    for actions on applications for enrollment (and, if
    applicable, renewal of enrollment). The Secretary shall
    monitor the performance of medicare administrative
    contractors in meeting the deadlines established under
    this subparagraph.
    ``(C) Consultation before changing provider
    enrollment forms.--The Secretary shall consult with
    providers of services and suppliers before making
    changes in the provider enrollment forms required of
    such providers and suppliers to be eligible to submit
    claims for which payment may be made under this title.
    ``(2) Hearing rights in cases of denial or non-renewal.--A
    provider of services or supplier whose application to enroll
    (or, if applicable, to renew enrollment) under this title is
    denied may have a hearing and judicial review of such denial
    under the procedures that apply under subsection (h)(1)(A) to a
    provider of services that is dissatisfied with a determination
    by the Secretary.''.

    (b) Effective <> Dates.--
    (1) Enrollment process.--The Secretary shall provide for the
    establishment of the enrollment process under section 1866(j)(1)
    of the Social Security Act, as added by subsection (a)(2),
    within 6 months after the date of the enactment of this Act.
    (2) Consultation.--Section 1866(j)(1)(C) of the Social
    Security Act, as added by subsection (a)(2), shall apply with
    respect to changes in provider enrollment forms made on or after
    January 1, 2004.
    (3) Hearing rights.--Section 1866(j)(2) of the Social
    Security Act, as added by subsection (a)(2), shall apply to
    denials occurring on or after such date (not later than 1 year
    after the date of the enactment of this Act) as the Secretary
    specifies.

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

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

    [[Page 2413]]
    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 <> flexibility.--The
    Secretary shall establish by regulation reasonable limits on the
    physicians' services for which a prior determination of coverage
    may be requested under this subsection. In establishing such
    limits, the Secretary may consider the dollar amount involved
    with respect to the physicians' service, administrative costs
    and burdens, and other relevant factors.
    ``(3) Request for prior determination.--
    ``(A) In general.--Subject to paragraph (2), under
    the process established under this subsection an
    eligible requester may submit to the contractor a
    request for a determination, before the furnishing of a
    physicians' service, as to whether the physicians'
    service is covered under this title consistent with the
    applicable requirements of section 1862(a)(1)(A)
    (relating to medical necessity).
    ``(B) Accompanying documentation.--The Secretary may
    require that the request be accompanied by a description
    of the physicians' service, supporting documentation
    relating to the medical necessity for the physicians'
    service, and any other appropriate documentation. In the
    case of a request submitted by an eligible requester who
    is described in paragraph (1)(B)(ii), the Secretary may
    require that the request also be accompanied by a copy
    of the advance beneficiary notice involved.
    ``(4) Response to request.--
    ``(A) In general.--
    Under <> such process, the
    contractor shall provide the eligible requester with
    written notice of a determination as to whether--
    ``(i) the physicians' service is so covered;
    ``(ii) the physicians' service is not so
    covered; or

    [[Page 2414]]
    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 2415]]
    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 <> Date; Sunset;
    Transition.--
    (1) Effective date.--The Secretary shall establish the prior
    determination process under the amendment made by subsection (a)
    in such a manner as to provide for the acceptance of requests
    for determinations under such process filed not later than 18
    months after the date of the enactment of this Act.
    (2) Sunset.--Such prior determination process shall not
    apply to requests filed after the end of the 5-year period
    beginning on the first date on which requests for determinations
    under such process are accepted.
    (3) Transition.--During the period in which the amendment
    made by subsection (a) has become effective but contracts are
    not provided under section 1874A of the Social Security Act with
    medicare administrative contractors, any reference in section
    1869(g) of such Act (as added by such amendment) to such a
    contractor is deemed a reference to a fiscal intermediary or
    carrier with an agreement under section 1816, or contract under
    section 1842, respectively, of such Act.
    (4) Limitation on application to sgr.--For purposes of
    applying section 1848(f)(2)(D) of the Social Security Act (42
    U.S.C. 1395w-4(f)(2)(D)), the amendment made by subsection (a)
    shall not be considered to be a change in law or regulation.

    (c) Provisions <> Relating to Advance
    Beneficiary Notices; Report on Prior Determination Process.--
    (1) Data collection.--The Secretary shall establish a
    process for the collection of information on the instances in
    which an advance beneficiary notice (as defined in paragraph
    (5)) has been provided and on instances in which a beneficiary
    indicates on such a notice that the beneficiary does not intend
    to seek to have the item or service that is the subject of the
    notice furnished.
    (2) Outreach and education.--The Secretary shall establish a
    program of outreach and education for beneficiaries and
    providers of services and other persons on the appropriate use
    of advance beneficiary notices and coverage policies under the
    medicare program.
    (3) GAO report on use of advance beneficiary notices.--Not
    later than 18 months after the date on which section 1869(h) of
    the Social Security Act (as added by subsection (a)) takes
    effect, the Comptroller General of the United States shall
    submit to Congress a report on the use of advance beneficiary
    notices under title XVIII of such Act. Such report shall include
    information concerning the providers of services and other
    persons that have provided such notices and the response of
    beneficiaries to such notices.
    (4) GAO report on use of prior determination process.--Not
    later than 36 months after the date on which section 1869(h) of
    the Social Security Act (as added by subsection (a)) takes
    effect, the Comptroller General of the United States shall
    submit to Congress a report on the use of the

    [[Page 2416]]
    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 <> 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 2417]]
    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 2418]]
    117 STAT. 2418

    Subtitle E--Miscellaneous Provisions

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

    (a) In General.--The Secretary may not implement any new or modified
    documentation guidelines (which for purposes of this section includes
    clinical examples) for evaluation and management physician services
    under the title XVIII of the Social Security Act on or after the date of
    the enactment of this Act unless the Secretary--
    (1) has developed the guidelines in collaboration with
    practicing physicians (including both generalists and
    specialists) and provided for an assessment of the proposed
    guidelines by the physician community;
    (2) has established a plan that contains specific goals,
    including a schedule, for improving the use of such guidelines;
    (3) has conducted appropriate and representative pilot
    projects under subsection (b) to test such guidelines;
    (4) finds, based on reports submitted under subsection
    (b)(5) with respect to pilot projects conducted for such or
    related guidelines, that the objectives described in subsection
    (c) will be met in the implementation of such guidelines; and
    (5) has established, and is implementing, a program to
    educate physicians on the use of such guidelines and that
    includes appropriate outreach.

    The Secretary <> shall make changes to the
    manner in which existing evaluation and management documentation
    guidelines are implemented to reduce paperwork burdens on physicians.

    (b) Pilot Projects to Test Modified or New Evaluation and Management
    Documentation Guidelines.--
    (1) In general.--With respect to proposed new or modified
    documentation guidelines referred to in subsection (a), the
    Secretary shall conduct under this subsection appropriate and
    representative pilot projects to test the proposed guidelines.
    (2) Length and consultation.--Each pilot project under this
    subsection shall--
    (A) be voluntary;
    (B) be of sufficient length as determined by the
    Secretary (but in no case to exceed 1 year) to allow for
    preparatory physician and medicare contractor education,
    analysis, and use and assessment of potential evaluation
    and management guidelines; and
    (C) be conducted, in development and throughout the
    planning and operational stages of the project, in
    consultation with practicing physicians (including both
    generalists and specialists).
    (3) Range of pilot projects.--Of the pilot projects
    conducted under this subsection with respect to proposed new or
    modified documentation guidelines--
    (A) at least one shall focus on a peer review method
    by physicians (not employed by a medicare contractor)
    which evaluates medical record information for claims
    submitted by physicians identified as statistical
    outliers relative to codes used for billing purposes for
    such services;

    [[Page 2419]]
    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 2420]]
    117 STAT. 2420

    simplification under part C of title XI of the Social Security
    Act.
    (5) Report <> to congress.--(A) Not later
    than October 1, 2005, the Secretary shall submit to Congress a
    report on the results of the study conducted under paragraph
    (1).
    (B) The Medicare Payment Advisory Commission shall conduct
    an analysis of the results of the study included in the report
    under subparagraph (A) and shall submit a report on such
    analysis to Congress.

    (e) Study on Appropriate Coding of Certain Extended Office Visits.--
    The Secretary shall conduct a study of the appropriateness of coding in
    cases of extended office visits in which there is no diagnosis
    made. <> Not later than October 1, 2005, the Secretary
    shall submit a report to Congress on such study and shall include
    recommendations on how to code appropriately for such visits in a manner
    that takes into account the amount of time the physician spent with the
    patient.

    (f) Definitions.--In this section--
    (1) the term ``rural area'' has the meaning given that term
    in section 1886(d)(2)(D) of the Social Security Act (42 U.S.C.
    1395ww(d)(2)(D)); and
    (2) the term ``teaching settings'' are those settings
    described in section 415.150 of title 42, Code of Federal
    Regulations.

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

    (a) Council for Technology and Innovation.--Section 1868 (42 U.S.C.
    1395ee) is amended--
    (1) by adding at the end of the heading the following: ``;
    council for technology and innovation'';
    (2) by inserting ``Practicing Physicians Advisory Council.--
    (1)'' after ``(a)'';
    (3) in paragraph (1), as so redesignated under paragraph
    (2), by striking ``in this section'' and inserting ``in this
    subsection'';
    (4) by redesignating subsections (b) and (c) as paragraphs
    (2) and (3), respectively; and
    (5) by adding at the end the following new subsection:

    ``(b) Council for Technology and Innovation.--
    ``(1) Establishment.--The Secretary shall establish a
    Council for Technology and Innovation within the Centers for
    Medicare & Medicaid Services (in this section referred to as
    `CMS').
    ``(2) Composition.--The Council shall be composed of senior
    CMS staff and clinicians and shall be chaired by the Executive
    Coordinator for Technology and Innovation (appointed or
    designated under paragraph (4)).
    ``(3) Duties.--The Council shall coordinate the activities
    of coverage, coding, and payment processes under this title with
    respect to new technologies and procedures, including new drug
    therapies, and shall coordinate the exchange of information on
    new technologies between CMS and other entities that make
    similar decisions.
    ``(4) Executive coordinator for technology and innovation.--
    The Secretary shall appoint (or designate) a noncareer appointee
    (as defined in section 3132(a)(7) of title 5,

    [[Page 2421]]
    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) <> The Secretary shall establish by
    regulation procedures for determining the basis for, and amount of,
    payment under this subsection for any clinical diagnostic laboratory
    test with respect to which a new or substantially revised HCPCS code is
    assigned on or after January 1, 2005 (in this paragraph referred to as
    `new tests').

    ``(B) Determinations <> under
    subparagraph (A) shall be made only after the Secretary--
    ``(i) makes available to the public (through an Internet
    website and other appropriate mechanisms) a list that includes
    any such test for which establishment of a payment amount under
    this subsection is being considered for a year;
    ``(ii) <> on the same
    day such list is made available, causes to have published in the
    Federal Register notice of a meeting to receive comments and
    recommendations (and data on which recommendations are based)
    from the public on the appropriate basis under this subsection
    for establishing payment amounts for the tests on such list;
    ``(iii) not less than 30 days after publication of such
    notice convenes a meeting, that includes representatives of
    officials of the Centers for Medicare & Medicaid Services
    involved in determining payment amounts, to receive such
    comments and recommendations (and data on which the
    recommendations are based);
    ``(iv) taking into account the comments and recommendations
    (and accompanying data) received at such meeting, develops and
    makes available to the public (through an Internet website and
    other appropriate mechanisms) a list of proposed determinations
    with respect to the appropriate basis for establishing a payment
    amount under this subsection for each such code, together with
    an explanation of the reasons for each such determination, the
    data on which the determinations are based, and a request for
    public written comments on the proposed determination; and
    ``(v) taking into account the comments received during the
    public comment period, develops and makes available to the
    public (through an Internet website and other appropriate
    mechanisms) a list of final determinations of the payment
    amounts for such tests under this subsection, together with the
    rationale for each such determination, the data on which the
    determinations are based, and responses to comments and
    suggestions received from the public.

    ``(C) Under the procedures established pursuant to subparagraph (A),
    the Secretary shall--
    ``(i) set forth the criteria for making determinations under
    subparagraph (A); and

    [[Page 2422]]
    117 STAT. 2422

    ``(ii) <> make available to the
    public the data (other than proprietary data) considered in
    making such determinations.

    ``(D) The Secretary may convene such further public meetings to
    receive public comments on payment amounts for new tests under this
    subsection as the Secretary deems appropriate.
    ``(E) For purposes of this paragraph:
    ``(i) The term `HCPCS' refers to the Health Care Procedure
    Coding System.
    ``(ii) A code shall be considered to be `substantially
    revised' if there is a substantive change to the definition of
    the test or procedure to which the code applies (such as a new
    analyte or a new methodology for measuring an existing analyte-
    specific test).''.

    (c) GAO Study on Improvements in External Data Collection for Use in
    the Medicare Inpatient Payment System.--
    (1) Study.--The Comptroller General of the United States
    shall conduct a study that analyzes which external data can be
    collected in a shorter timeframe by the Centers for Medicare &
    Medicaid Services for use in computing payments for inpatient
    hospital services. The study may include an evaluation of the
    feasibility and appropriateness of using quarterly samples or
    special surveys or any other methods. The study shall include an
    analysis of whether other executive agencies, such as the Bureau
    of Labor Statistics in the Department of Commerce, are best
    suited to collect this information.
    (2) Report.--By <> not later than October
    1, 2004, the Comptroller General shall submit a report to
    Congress on the study under paragraph (1).

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

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

    SEC. 944. EMTALA IMPROVEMENTS.

    (a) Payment for EMTALA-Mandated Screening and Stabilization
    Services.--
    (1) In general.--Section 1862 (42 U.S.C. 1395y) is amended
    by inserting after subsection (c) the following new subsection:

    ``(d) For purposes of subsection (a)(1)(A), in the case of any item
    or service that is required to be provided pursuant to section 1867 to
    an individual who is entitled to benefits under this title,
    determinations as to whether the item or service is reasonable and
    necessary shall be made on the basis of the information available to the
    treating physician or practitioner (including the patient's

    [[Page 2423]]
    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 <> date.--The
    amendment made by paragraph (1) shall apply to items and
    services furnished on or after January 1, 2004.

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

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

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

    (a) Establishment.--The Secretary shall establish a Technical
    Advisory Group (in this section referred to as the ``Advisory Group'')
    to review issues related to the Emergency Medical Treatment and Labor
    Act (EMTALA) and its implementation. In this section, the term
    ``EMTALA'' refers to the provisions of section 1867 of the Social
    Security Act (42 U.S.C. 1395dd).
    (b) Membership.--The Advisory Group shall be composed of 19 members,
    including the Administrator of the Centers for Medicare & Medicaid
    Services and the Inspector General of the Department of Health and Human
    Services and of which--
    (1) 4 shall be representatives of hospitals, including at
    least one public hospital, that have experience with the
    application of EMTALA and at least 2 of which have not been
    cited for EMTALA violations;

    [[Page 2424]]
    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 2425]]
    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 <> amendments
    made by this section shall apply to hospice care provided on or after
    the date of the enactment of this Act.

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

    (a) In General.--Section 1866 (42 U.S.C. 1395cc), as amended by
    section 506, is amended--
    (1) in subsection (a)(1)--
    (A) in subparagraph (T), by striking ``and'' at the
    end;
    (B) in subparagraph (U), by striking the period at
    the end and inserting ``, and''; and
    (C) by inserting after subparagraph (U) the
    following new subparagraph:
    ``(V) in the case of hospitals that are not otherwise
    subject to the Occupational Safety and Health Act of 1970 (or a
    State occupational safety and health plan that is approved under
    18(b) of such Act), to comply with the Bloodborne Pathogens
    standard under section 1910.1030 of title 29 of the Code of
    Federal Regulations (or as subsequently redesignated).''; and
    (2) by adding at the end of subsection (b) the following new
    paragraph:

    ``(4)(A) A hospital that fails to comply with the requirement of
    subsection (a)(1)(V) (relating to the Bloodborne Pathogens standard) is
    subject to a civil money penalty in an amount described in subparagraph
    (B), but is not subject to termination of an agreement under this
    section.
    ``(B) The amount referred to in subparagraph (A) is an amount that
    is similar to the amount of civil penalties that may be imposed under
    section 17 of the Occupational Safety and Health Act of 1970 for a
    violation of the Bloodborne Pathogens standard referred to in subsection
    (a)(1)(U) by a hospital that is subject to the provisions of such Act.
    ``(C) A civil money penalty under this paragraph shall be imposed
    and collected in the same manner as civil money penalties under
    subsection (a) of section 1128A are imposed and collected under that
    section.''.
    (b) Effective <> Date.--The amendments
    made by this subsection (a) shall apply to hospitals as of July 1, 2004.

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

    (a) Technical Amendments Relating to Advisory Committee Under BIPA
    Section 522.--(1) Subsection (i) of section 1114 (42 U.S.C. 1314)--
    (A) is transferred to section 1862 <>
    and added at the end of such section; and

    [[Page 2426]]
    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 <> 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 2427]]
    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 <> Date.--The amendment made
    by subsection (a) shall take effect on the date that is 60 days after
    the date of the enactment of this Act.

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

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

    SEC. 952. REVISIONS TO REASSIGNMENT PROVISIONS.

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

    (c) Effective <> Date.--The amendments
    made by this section shall apply to payments made on or after the date
    of the enactment of this Act.

    SEC. 953. OTHER PROVISIONS.

    (a) GAO Reports on the Physician Compensation.--
    (1) Sustainable growth rate and updates.--Not later than 6
    months after the date of the enactment of this Act, the
    Comptroller General of the United States shall submit to
    Congress a report on the appropriateness of the updates in the
    conversion factor under subsection (d)(3) of section 1848 of the
    Social Security Act (42 U.S.C. 1395w-4), including the

    [[Page 2428]]
    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 <> compensation
    generally.--Not later than 12 months after the date of the
    enactment of this Act, the Comptroller General shall submit to
    Congress a report on all aspects of physician compensation for
    services furnished under title XVIII of the Social Security Act,
    and how those aspects interact and the effect on appropriate
    compensation for physician services. Such report shall review
    alternatives for the physician fee schedule under section 1848
    of such title (42 U.S.C. 1395w-4).

    (b) Annual <> Publication of List of
    National Coverage Determinations.--The Secretary shall provide, in an
    appropriate annual publication available to the public, a list of
    national coverage determinations made under title XVIII of the Social
    Security Act in the previous year and information on how to get more
    information with respect to such determinations.

    (c) GAO Report on Flexibility in Applying Home Health Conditions of
    Participation to Patients Who Are Not Medicare Beneficiaries.--Not later
    than 6 months after the date of the enactment of this Act, the
    Comptroller General of the United States shall submit to Congress a
    report on the implications if there were flexibility in the application
    of the medicare conditions of participation for home health agencies
    with respect to groups or types of patients who are not medicare
    beneficiaries. The report shall include an analysis of the potential
    impact of such flexible application on clinical operations and the
    recipients of such services and an analysis of methods for monitoring
    the quality of care provided to such recipients.
    (d) OIG <> Report on Notices Relating to
    Use of Hospital Lifetime Reserve Days.--Not later than 1 year after the
    date of the enactment of this Act, the Inspector General of the
    Department of Health and Human Services shall submit a report to
    Congress on--
    (1) the extent to which hospitals provide notice to medicare
    beneficiaries in accordance with applicable requirements before
    they use the 60 lifetime reserve days described in section
    1812(a)(1) of the Social Security Act (42 U.S.C. 1395d(a)(1));
    and
    (2) the appropriateness and feasibility of hospitals
    providing a notice to such beneficiaries before they completely
    exhaust such lifetime reserve days.

    TITLE X--MEDICAID AND MISCELLANEOUS PROVISIONS

    Subtitle A--Medicaid Provisions

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

    (a) Temporary Increase.--Section 1923(f)(3) (42 U.S.C. 1396r-
    4(f)(3)) is amended--

    [[Page 2429]]
    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 2430]]
    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 2431]]
    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 <> 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 2432]]
    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. <> 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 2433]]
    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 2434]]
    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 2435]]
    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. <> 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 2436]]
    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 2437]]
    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 2438]]
    117 STAT. 2438

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

    (a) Research, Demonstrations, and Evaluations.--
    (1) Improvement of effectiveness and efficiency.--
    (A) In general.--To improve the quality,
    effectiveness, and efficiency of health care delivered
    pursuant to the programs established under titles XVIII,
    XIX, and XXI of the Social Security Act, the Secretary
    acting through the Director of the Agency for Healthcare
    Research and Quality (in this section referred to as the
    ``Director''), shall conduct and support research to
    meet the priorities and requests for scientific evidence
    and information identified by such programs with respect
    to--
    (i) the outcomes, comparative clinical
    effectiveness, and appropriateness of health care
    items and services (including prescription drugs);
    and
    (ii) strategies for improving the efficiency
    and effectiveness of such programs, including the
    ways in which such items and services are
    organized, managed, and delivered under such
    programs.
    (B) Specification.--To respond to priorities and
    information requests in subparagraph (A), the Secretary
    may conduct or support, by grant, contract, or
    interagency agreement, research, demonstrations,
    evaluations, technology assessments, or other
    activities, including the provision of technical
    assistance, scientific expertise, or methodological
    assistance.
    (2) Priorities.--
    (A) In general.--The Secretary shall establish a
    process to develop priorities that will guide the
    research, demonstrations, and evaluation activities
    undertaken pursuant to this section.
    (B) Initial list.--Not later than 6 months after the
    date of the enactment of this Act, the Secretary shall
    establish an initial list of priorities for research
    related to health care items and services (including
    prescription drugs).
    (C) Process.--In carrying out subparagraph (A), the
    Secretary--
    (i) shall ensure that there is broad and
    ongoing consultation with relevant stakeholders in
    identifying the highest priorities for research,
    demonstrations, and evaluations to support and
    improve the programs established under titles
    XVIII, XIX, and XXI of the Social Security Act;
    (ii) may include health care items and
    services which impose a high cost on such
    programs, as well as those which may be
    underutilized or overutilized and which may
    significantly improve the prevention, treatment,
    or cure of diseases and conditions (including
    chronic conditions) which impose high direct or
    indirect costs on patients or society; and
    (iii) shall ensure that the research and
    activities undertaken pursuant to this section are
    responsive to the specified priorities and are
    conducted in a timely manner.
    (3) Evaluation and synthesis of scientific evidence.--

    [[Page 2439]]
    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 2440]]
    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 2441]]
    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. <> 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 2442]]
    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) <> Designation of the Chairperson.--Not later
    than 15 days after the date on which all members of the Working Group
    have

    [[Page 2443]]
    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 2444]]
    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 2445]]
    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 2446]]
    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 <> 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 2447]]
    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. <> (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 2448]]
    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 <> 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 2449]]
    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) <> 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 2450]]
    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 2451]]
    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 2452]]
    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 2453]]
    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 2454]]
    117 STAT. 2454

    (II) <> by
    striking clause (i) and inserting the
    following:
    ``(i) if before the expiration of such period the
    district court decides that the patent is invalid or not
    infringed (including any substantive determination that
    there is no cause of action for patent infringement or
    invalidity), the approval shall be made effective on--
    ``(I) the date on which the court enters
    judgment reflecting the decision; or
    ``(II) the date of a settlement order or
    consent decree signed and entered by the court
    stating that the patent that is the subject of the
    certification is invalid or not infringed;'';
    (III) <> by
    striking clause (ii) and inserting the
    following:
    ``(ii) if before the expiration of such period the
    district court decides that the patent has been
    infringed--
    ``(I) if the judgment of the district court is
    appealed, the approval shall be made effective
    on--
    ``(aa) the date on which the court
    of appeals decides that the patent is
    invalid or not infringed (including any
    substantive determination that there is
    no cause of action for patent
    infringement or invalidity); or
    ``(bb) the date of a settlement
    order or consent decree signed and
    entered by the court of appeals stating
    that the patent that is the subject of
    the certification is invalid or not
    infringed; or
    ``(II) if the judgment of the district court
    is not appealed or is affirmed, the approval shall
    be made effective on the date specified by the
    district court in a court order under section
    271(e)(4)(A) of title 35, United States Code;'';
    (IV) in clause (iii), by striking
    ``on the date of such court decision.''
    and inserting ``as provided in clause
    (i); or'';
    (V) <> by
    inserting after clause (iii), the
    following:
    ``(iv) if before the expiration of such period the
    court grants a preliminary injunction prohibiting the
    applicant from engaging in the commercial manufacture or
    sale of the drug until the court decides the issues of
    patent validity and infringement and if the court
    decides that such patent has been infringed, the
    approval shall be made effective as provided in clause
    (ii).''; and
    (VI) in the matter after and below
    clause (iv) (as added by subclause (V)),
    by striking ``Until the expiration'' and
    all that follows; and
    (iii) in the third sentence, by striking
    ``paragraph (3)(B)'' and inserting ``subsection
    (b)(3)'';
    (C) by redesignating subparagraph (D) as
    subparagraph (E); and
    (D) by inserting after subparagraph (C) the
    following:
    ``(D) Civil action to obtain patent certainty.--
    ``(i) Declaratory judgment absent infringement
    action.--
    ``(I) In general.--No action may be
    brought under section 2201 of title 28,
    United States Code,

    [[Page 2455]]
    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 2456]]
    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)  <> 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 2457]]
    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 2458]]
    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 2459]]
    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 2460]]
    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 <> 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 2461]]
    117 STAT. 2461

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

    (b) Effect <> of Amendment.--The amendment
    made by subsection (a) does not alter the standards for approval of
    drugs under section 505(j) of the Federal Food, Drug, and Cosmetic Act
    (21 U.S.C. 355(j)).

    SEC. 1104. CONFORMING AMENDMENTS.

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

    Subtitle B--Federal Trade Commission Review

    SEC. 1111. <> DEFINITIONS.

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

    SEC. 1112. <> NOTIFICATION OF AGREEMENTS.

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

    [[Page 2462]]
    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 2463]]
    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. <> FILING DEADLINES.

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

    SEC. 1114. <> DISCLOSURE EXEMPTION.

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

    SEC. 1115. <> ENFORCEMENT.

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

    SEC. 1116. <> RULEMAKING.

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

    SEC. 1117. <> SAVINGS CLAUSE.

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

    [[Page 2464]]
    117 STAT. 2464

    SEC. 1118. <> EFFECTIVE DATE.

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

    Subtitle C--Importation of Prescription Drugs

    SEC. 1121. IMPORTATION OF PRESCRIPTION DRUGS.

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

    ``SEC. 804. IMPORTATION OF PRESCRIPTION DRUGS.

    ``(a) Definitions.--In this section:
    ``(1) Importer.--The term `importer' means a pharmacist or
    wholesaler.
    ``(2) Pharmacist.--The term `pharmacist' means a person
    licensed by a State to practice pharmacy, including the
    dispensing and selling of prescription drugs.
    ``(3) Prescription drug.--The term `prescription drug' means
    a drug subject to section 503(b), other than--
    ``(A) a controlled substance (as defined in section
    102 of the Controlled Substances Act (21 U.S.C. 802));
    ``(B) a biological product (as defined in section
    351 of the Public Health Service Act (42 U.S.C. 262));
    ``(C) an infused drug (including a peritoneal
    dialysis solution);
    ``(D) an intravenously injected drug;
    ``(E) a drug that is inhaled during surgery; or
    ``(F) a drug which is a parenteral drug, the
    importation of which pursuant to subsection (b) is
    determined by the Secretary to pose a threat to the
    public health, in which case section 801(d)(1) shall
    continue to apply.
    ``(4) Qualifying laboratory.--The term `qualifying
    laboratory' means a laboratory in the United States that has
    been approved by the Secretary for the purposes of this section.
    ``(5) Wholesaler.--
    ``(A) In general.--The term `wholesaler' means a
    person licensed as a wholesaler or distributor of
    prescription drugs in the United States under section
    503(e)(2)(A).
    ``(B) Exclusion.--The term `wholesaler' does not
    include a person authorized to import drugs under
    section 801(d)(1).

    ``(b) Regulations.--The Secretary, after consultation with the
    United States Trade Representative and the Commissioner of Customs,
    shall promulgate regulations permitting pharmacists and wholesalers to
    import prescription drugs from Canada into the United States.
    ``(c) Limitation.--The regulations under subsection (b) shall--
    ``(1) require that safeguards be in place to ensure that
    each prescription drug imported under the regulations complies
    with section 505 (including with respect to being safe and

    [[Page 2465]]
    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 2466]]
    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 <> by the secretary.--The
    Secretary shall maintain information and documentation submitted
    under paragraph (1) for such period of time as the Secretary
    determines to be necessary.

    ``(e) Testing.--The regulations under subsection (b) shall require--
    ``(1) that testing described in subparagraphs (J) and (L) of
    subsection (d)(1) be conducted by the importer or by the
    manufacturer of the prescription drug at a qualified laboratory;
    ``(2) if the tests are conducted by the importer--
    ``(A) that information needed to--
    ``(i) authenticate the prescription drug being
    tested; and
    ``(ii) confirm that the labeling of the
    prescription drug complies with labeling
    requirements under this Act;
    be supplied by the manufacturer of the prescription drug
    to the pharmacist or wholesaler; and
    ``(B) that the information supplied under
    subparagraph (A) be kept
    in <> strict confidence and used
    only for purposes of testing or otherwise complying with
    this Act; and
    ``(3) may include such additional provisions as the
    Secretary determines to be appropriate to provide for the
    protection of trade secrets and commercial or financial
    information that is privileged or confidential.

    ``(f) Registration of Foreign Sellers.--Any establishment within
    Canada engaged in the distribution of a prescription drug that is
    imported or offered for importation into the United States shall
    register with the Secretary the name and place of business of the
    establishment and the name of the United States agent for the
    establishment.
    ``(g) Suspension of Importation.--The Secretary shall require that
    importations of a specific prescription drug or importations by a
    specific importer under subsection (b) be immediately suspended on
    discovery of a pattern of importation of that specific

    [[Page 2467]]
    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 <> 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 2468]]
    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 2469]]
    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. <> STUDY AND REPORT ON IMPORTATION OF
    DRUGS.

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

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

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

    TITLE XII--TAX INCENTIVES FOR HEALTH AND RETIREMENT SECURITY

    SEC. 1201. HEALTH SAVINGS ACCOUNTS.

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

    ``SEC. 223. HEALTH <> SAVINGS ACCOUNTS.

    ``(a) Deduction Allowed.--In the case of an individual who is an
    eligible individual for any month during the taxable year, there shall
    be allowed as a deduction for the taxable year an amount equal to the
    aggregate amount paid in cash during such taxable year by or on behalf
    of such individual to a health savings account of such individual.

    ``(b) Limitations.--
    ``(1) In general.--The amount allowable as a deduction under
    subsection (a) to an individual for the taxable year shall not
    exceed the sum of the monthly limitations for months during such
    taxable year that the individual is an eligible individual.
    ``(2) Monthly limitation.--The monthly limitation for any
    month is \1/12\ of--

    [[Page 2470]]
    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 2471]]
    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 2472]]
    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 2473]]
    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 2474]]
    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 2475]]
    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 2476]]
    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 <> is amended by inserting after paragraph (18) the following new
    paragraph:
    ``(19) Health savings accounts.--The deduction allowed by
    section 223.''.

    (c) Rollovers from Archer MSAs Permitted.--Subparagraph (A) of
    section 220(f)(5) of such Code <> (relating to
    rollover contribution) is amended by inserting ``or a health savings
    account (as defined in section 223(d))'' after ``paid into an Archer
    MSA''.

    (d) Exclusions for Employer Contributions to Health Savings
    Accounts.--

    [[Page 2477]]
    117 STAT. 2477

    (1) Exclusion from income tax.--Section 106 of such Code
    (relating <> to contributions by employer to
    accident and health plans) is amended by adding at the end the
    following new subsection:

    ``(d) Contributions to Health Savings Accounts.--
    ``(1) In general.--In the case of an employee who is an
    eligible individual (as defined in section 223(c)(1)), amounts
    contributed by such employee's employer to any health savings
    account (as defined in section 223(d)) of such employee shall be
    treated as employer-provided coverage for medical expenses under
    an accident or health plan to the extent such amounts do not
    exceed the limitation under section 223(b) (determined without
    regard to this subsection) which is applicable to such employee
    for such taxable year.
    ``(2) Special rules.--Rules similar to the rules of
    paragraphs (2), (3), (4), and (5) of subsection (b) shall apply
    for purposes of this subsection.
    ``(3) Cross reference.--

    ``For penalty on failure by employer to make
    comparable contributions to the health savings accounts
    of comparable employees, see section 4980G.''.

    (2) Exclusion from employment taxes.--
    (A) Railroad retirement tax.--Subsection (e) of
    section 3231 of such Code <>  is
    amended by adding at the end the following new
    paragraph:
    ``(11) Health savings account contributions.--The term
    `compensation' shall not include any payment made to or for the
    benefit of an employee if at the time of such payment it is
    reasonable to believe that the employee will be able to exclude
    such payment from income under section 106(d).''.
    (B) Unemployment tax.--Subsection (b) of section
    3306 of such Code <>  is amended by
    striking ``or'' at the end of paragraph (16), by
    striking the period at the end of paragraph (17) and
    inserting ``; or'', and by inserting after paragraph
    (17) the following new paragraph:
    ``(18) any payment made to or for the benefit of an employee
    if at the time of such payment it is reasonable to believe that
    the employee will be able to exclude such payment from income
    under section 106(d).''.
    (C) Withholding tax.--Subsection (a) of section 3401
    of such Code <>  is amended by
    striking ``or'' at the end of paragraph (20), by
    striking the period at the end of paragraph (21) and
    inserting ``; or'', and by inserting after paragraph
    (21) the following new paragraph:
    ``(22) any payment made to or for the benefit of an employee
    if at the time of such payment it is reasonable to believe that
    the employee will be able to exclude such payment from income
    under section 106(d).''.
    (3) Employer contributions required to be shown on w-2.--
    Subsection (a) of section 6051 of such Code <>  is amended by striking ``and'' at the end of paragraph
    (10), by striking the period at the end of paragraph (11) and
    inserting ``, and'', and by inserting after paragraph (11) the
    following new paragraph:

    [[Page 2478]]
    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. <> FAILURE OF EMPLOYER TO MAKE
    COMPARABLE HEALTH SAVINGS ACCOUNT CONTRIBUTIONS.

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

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

    (e) Tax on Excess Contributions.--Section 4973 <>  of such Code (relating to tax on excess contributions to
    certain tax-favored accounts and annuities) is amended--
    (1) by striking ``or'' at the end of subsection (a)(3), by
    inserting ``or'' at the end of subsection (a)(4), and by
    inserting after subsection (a)(4) the following new paragraph:
    ``(5) a health savings account (within the meaning of
    section 223(d)),'', and
    (2) by adding at the end the following new subsection:

    ``(g) Excess Contributions to Health Savings Accounts.--For purposes
    of this section, in the case of health savings accounts (within the
    meaning of section 223(d)), the term `excess contributions' means the
    sum of--
    ``(1) the aggregate amount contributed for the taxable year
    to the accounts (other than a rollover contribution described in
    section 220(f)(5) or 223(f)(5)) which is neither excludable from
    gross income under section 106(d) nor allowable as a deduction
    under section 223 for such year, and
    ``(2) the amount determined under this subsection for the
    preceding taxable year, reduced by the sum of--
    ``(A) the distributions out of the accounts which
    were included in gross income under section 223(f)(2),
    and
    ``(B) the excess (if any) of--
    ``(i) the maximum amount allowable as a
    deduction under section 223(b) (determined without
    regard to section 106(d)) for the taxable year,
    over
    ``(ii) the amount contributed to the accounts
    for the taxable year.

    [[Page 2479]]
    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 <>
    (relating to tax on prohibited transactions) is amended by
    adding at the end of subsection (c) the following new paragraph:
    ``(6) Special rule for health savings accounts.--An
    individual for whose benefit a health savings account (within
    the meaning of section 223(d)) is established shall be exempt
    from the tax imposed by this section with respect to any
    transaction concerning such account (which would otherwise be
    taxable under this section) if, with respect to such
    transaction, the account ceases to be a health savings account
    by reason of the application of section 223(e)(2) to such
    account.''.
    (2) Paragraph (1) of section 4975(e) of such Code is amended
    by redesignating subparagraphs (E) and (F) as subparagraphs (F)
    and (G), respectively, and by inserting after subparagraph (D)
    the following new subparagraph:
    ``(E) a health savings account described in section
    223(d),''.

    (g) Failure To Provide Reports on Health Savings Accounts.--
    Paragraph (2) of section 6693(a) of such Code <>
    (relating to reports) is amended by redesignating subparagraphs (C) and
    (D) as subparagraphs (D) and (E), respectively, and by inserting after
    subparagraph (B) the following new subparagraph:
    ``(C) section 223(h) (relating to health savings
    accounts),''.

    (h) Exception From Capitalization of Policy Acquisition Expenses.--
    Subparagraph (B) of section 848(e)(1) <>  of such
    Code (defining specified insurance contract) is amended by striking
    ``and'' at the end of clause (iii), by striking the period at the end of
    clause (iv) and inserting ``, and'', and by adding at the end the
    following new clause:
    ``(v) any contract which is a health savings
    account (as defined in section 223(d)).''.

    (i) Health Savings Accounts May Be Offered Under Cafeteria Plans.--
    Paragraph (2) of section 125(d) <>  (relating to
    cafeteria plan defined) is amended by adding at the end the following
    new subparagraph:
    ``(D) Exception for health savings accounts.--
    Subparagraph (A) shall not apply to a plan to the extent
    of amounts which a covered employee may elect to have
    the employer pay as contributions to a health savings
    account established on behalf of the employee.''.

    (j) Clerical Amendment.--The table of sections for part VII of
    subchapter B of chapter 1 of such Code is amended by striking the last
    item and inserting the following:

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

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

    [[Page 2480]]
    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. <> FEDERAL SUBSIDIES FOR PRESCRIPTION
    DRUG PLANS.

    ``Gross income shall not include any special subsidy payment
    received under section 1860D-22 of the Social Security Act. This section
    shall not be taken into account for purposes of determining whether any
    deduction is allowable with respect to any cost taken into account in
    determining such payment.''.
    (b) Alternative Minimum Tax Relief.--Section 56(g)(4)(B) of such
    Code <>  is amended by inserting ``or 139A'' after
    ``section 114''.

    (c) Conforming Amendment.--The table of sections for part III of
    subchapter B of chapter 1 of such Code is amended by inserting after the
    item relating to section 139 the following new item:

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

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

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

    (a) In General.--Section 6041 of the Internal Revenue Code of
    1986 <>  (relating to information at source) is
    amended by adding at the end the following new subsection:

    ``(f) Section Does Not Apply to Certain Health Arrangements.--This
    section shall not apply to any payment for medical care (as defined in
    section 213(d)) made under--
    ``(1) a flexible spending arrangement (as defined in section
    106(c)(2)), or
    ``(2) a health reimbursement arrangement which is treated as
    employer-provided coverage under an accident or health plan for
    purposes of section 106.''.

    (b) Effective <> Date.--The amendment made
    by this section shall apply to payments made after December 31, 2002.

    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.