[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.

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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.

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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).

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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.