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[From the U.S. Government Publishing Office]



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

                                _______
                                

                 June 25, 2003.--Ordered to be printed

                                _______
                                

 Mr. Tauzin, from the Committee on Energy and Commerce, submitted the 
                               following

                              R E P O R T

                             together with

                    DISSENTING AND ADDITIONAL VIEWS

                        [To accompany H.R. 2473]

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

                                CONTENTS

                                                                   Page
Amendment........................................................     1
Purpose and Summary..............................................   151
Background and Need for Legislation..............................   152
Hearings.........................................................   152
Committee Consideration..........................................   152
Committee Votes..................................................   152
Committee Oversight Findings.....................................   183
Statement of General Performance Goals and Objectives............   183
New Budget Authority, Entitlement Authority, and Tax Expenditures   183
Committee Cost Estimate..........................................   183
Congressional Budget Office Estimate.............................   183
Federal Mandates Statement.......................................   183
Advisory Committee Statement.....................................   183
Constitutional Authority Statement...............................   183
Applicability to Legislative Branch..............................   183
Section-by-Section Analysis of the Legislation...................   183
Changes in Existing Law Made by the Bill, as Reported............   238
Dissenting and Additional Views..................................   239

                               AMENDMENT

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

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

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

              TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

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

         ``Part D--Voluntary Prescription Drug Benefit Program

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

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

Sec. 200. Medicare modernization and revitalization.

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

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

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

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

                 Subtitle B--Medicare Advantage Program

                  Chapter 1--Implementation Of Program

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

            Chapter 2--Implementation Of Competition Program

Sec. 221. Competition program beginning in 2006.

                     Chapter 3--Additional Reforms

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

       Subtitle C--Application of FEHBP-Style Competitive Reforms

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

             TITLE III--COMBATTING WASTE, FRAUD, AND ABUSE

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

                TITLE IV--RURAL HEALTH CARE IMPROVEMENTS

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

                 TITLE V--PROVISIONS RELATING TO PART A

                Subtitle A--Inpatient Hospital Services

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

                      Subtitle B--Other Provisions

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

                TITLE VI--PROVISIONS RELATING TO PART B

                    Subtitle A--Physicians' Services

Sec. 601. Revision of updates for physicians' services.
Sec. 602. Studies on access to physicians' services.
Sec. 603. MedPAC report on payment for physicians' services.
Sec. 604. Inclusion of podiatrists and dentists under private 
contracting authority.
Sec. 605. Establishment of floor on work geographic adjustment.

                    Subtitle B--Preventive Services

Sec. 611. Coverage of an initial preventive physical examination.
Sec. 612. Coverage of cholesterol and blood lipid screening.
Sec. 613. Waiver of deductible for colorectal cancer screening tests.
Sec. 614. Improved payment for certain mammography services.
Sec. 615. Medicare coverage of diabetes laboratory diagnostic tests.

                       Subtitle C--Other Services

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

            TITLE VII--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

Sec. 701. Update in home health services.
Sec. 702. MedPAC study on medicare margins of home health agencies.
Sec. 703. Demonstration project to clarify the definition of homebound.

             Subtitle B--Direct Graduate Medical Education

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

                  Subtitle C--Chronic Care Improvement

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

                      Subtitle D--Other Provisions

Sec. 731. Modifications to medicare payment advisory commission 
(MedPAC).
Sec. 732. Demonstration project for medical adult day care services.
Sec. 733. Improvements in national and local coverage determination 
process to respond to changes in technology.
Sec. 734. Treatment of certain physician pathology services.
Sec. 735. Medicare pancreatic islet cell transplant demonstration 
project.
Sec. 736. Demonstration project for consumer-directed chronic 
outpatient services.

              TITLE VIII--MEDICARE BENEFITS ADMINISTRATION

Sec. 801. Establishment of Medicare Benefits Administration.

         TITLE IX--REGULATORY REDUCTION AND CONTRACTING REFORM

                     Subtitle A--Regulatory Reform

Sec. 901. Construction; definition of supplier.

                               ``Supplier

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

                     Subtitle B--Contracting Reform

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

                   Subtitle C--Education and Outreach

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

                    Subtitle D--Appeals and Recovery

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

                  Subtitle V--Miscellaneous Provisions

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

                           TITLE X--MEDICAID

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.

              TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

SEC. 101. ESTABLISHMENT OF A MEDICARE PRESCRIPTION DRUG BENEFIT.

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

         ``Part D--Voluntary Prescription Drug Benefit Program

``SEC. 1860D-1. BENEFITS; ELIGIBILITY; ENROLLMENT; AND COVERAGE PERIOD.

  ``(a) Provision of Qualified Prescription Drug Coverage Through 
Enrollment in Plans.--Subject to the succeeding provisions of this 
part, each individual who is entitled to benefits under part A or is 
enrolled under part B is entitled to obtain qualified prescription drug 
coverage (described in section 1860D-2(a)) as follows:
          ``(1) Medicare-related plans.--
                  ``(A) Medicare advantage.--If the individual is 
                eligible to enroll in a Medicare Advantage plan that 
                provides qualified prescription drug coverage under 
                section 1851(j), the individual may enroll in such plan 
                and obtain coverage through such plan.
                  ``(B) EFFS plans.--If the individual is eligible to 
                enroll in an EFFS plan that provides qualified 
                prescription drug coverage under part E under section 
                1860E-2(d), the individual may enroll in such plan and 
                obtain coverage through such plan.
                  ``(C) MA-EFFS plan; MA-EFFS Rx plan.--For purposes of 
                this part, the term `MA-EFFS plan' means a Medicare 
                Advantage plan under part C and an EFFS plan under part 
                E and the term `MA-EFFS Rx plan' means a MA-EFFS plan 
                insofar as such plan provides qualified prescription 
                drug coverage.
          ``(2) Prescription drug plan.--If the individual is not 
        enrolled in a MA-EFFS plan , the individual may enroll under 
        this part in a prescription drug plan (as defined in section 
        1860D-10(a)(5)).
Such individuals shall have a choice of such plans under section 1860D-
5(d).
  ``(b) General Election Procedures.--
          ``(1) In general.--An individual eligible to make an election 
        under subsection (a) may elect to enroll in a prescription drug 
        plan under this part, or elect the option of qualified 
        prescription drug coverage under a MA-EFFS Rx plan under part C 
        or part E, and to change such election only in such manner and 
        form as may be prescribed by regulations of the Administrator 
        of the Medicare Benefits Administration (appointed under 
        section 1809(b)) (in this part referred to as the `Medicare 
        Benefits Administrator') and only during an election period 
        prescribed in or under this subsection.
          ``(2) Election periods.--
                  ``(A) In general.--Except as provided in this 
                paragraph, the election periods under this subsection 
                shall be the same as the coverage election periods 
                under the Medicare Advantage and EFFS programs under 
                section 1851(e), including--
                          ``(i) annual coordinated election periods; 
                        and
                          ``(ii) special election periods.
                In applying the last sentence of section 1851(e)(4) 
                (relating to discontinuance of an election during the 
                first year of eligibility) under this subparagraph, in 
                the case of an election described in such section in 
                which the individual had elected or is provided 
                qualified prescription drug coverage at the time of 
                such first enrollment, the individual shall be 
                permitted to enroll in a prescription drug plan under 
                this part at the time of the election of coverage under 
                the original fee-for-service plan.
                  ``(B) Initial election periods.--
                          ``(i) Individuals currently covered.--In the 
                        case of an individual who is entitled to 
                        benefits under part A or enrolled under part B 
                        as of October 1, 2005, there shall be an 
                        initial election period of 6 months beginning 
                        on that date.
                          ``(ii) Individual covered in future.--In the 
                        case of an individual who is first entitled to 
                        benefits under part A or enrolled under part B 
                        after such date, there shall be an initial 
                        election period which is the same as the 
                        initial enrollment period under section 
                        1837(d).
                  ``(C) Additional special election periods.--The 
                Administrator shall establish special election 
                periods--
                          ``(i) in cases of individuals who have and 
                        involuntarily lose prescription drug coverage 
                        described in subsection (c)(2)(C);
                          ``(ii) in cases described in section 1837(h) 
                        (relating to errors in enrollment), in the same 
                        manner as such section applies to part B;
                          ``(iii) in the case of an individual who 
                        meets such exceptional conditions (including 
                        conditions provided under section 
                        1851(e)(4)(D)) as the Administrator may 
                        provide; and
                          ``(iv) in cases of individuals (as determined 
                        by the Administrator) who become eligible for 
                        prescription drug assistance under title XIX 
                        under section 1935(d).
          ``(3) Information on plans.--Information described in section 
        1860D-3(b)(1) on prescription drug plans shall be made 
        available during election periods.
  ``(c) Guaranteed Issue; Community Rating; and Nondiscrimination.--
          ``(1) Guaranteed issue.--
                  ``(A) In general.--An eligible individual who is 
                eligible to elect qualified prescription drug coverage 
                under a prescription drug plan or MA-EFFS Rx plan at a 
                time during which elections are accepted under this 
                part with respect to the plan shall not be denied 
                enrollment based on any health status-related factor 
                (described in section 2702(a)(1) of the Public Health 
                Service Act) or any other factor.
                  ``(B) Medicare advantage limitations permitted.--The 
                provisions of paragraphs (2) and (3) (other than 
                subparagraph (C)(i), relating to default enrollment) of 
                section 1851(g) (relating to priority and limitation on 
                termination of election) shall apply to PDP sponsors 
                under this subsection.
          ``(2) Community-rated premium.--
                  ``(A) In general.--In the case of an individual who 
                enrolls under a prescription drug plan or in a MA-EFFS 
                Rx plan during the individual's initial enrollment 
                period under this part or maintains (as determined 
                under subparagraph (C)) continuous prescription drug 
                coverage since the date the individual first qualifies 
                to elect prescription drug coverage under this part, a 
                PDP sponsor or entity offering a prescription drug plan 
                or MA-EFFS Rx plan and in which the individual is 
                enrolled may not deny, limit, or condition the coverage 
                or provision of covered prescription drug benefits or 
                vary or increase the premium under the plan based on 
                any health status-related factor described in section 
                2702(a)(1) of the Public Health Service Act or any 
                other factor.
                  ``(B) Late enrollment penalty.--In the case of an 
                individual who does not maintain such continuous 
                prescription drug coverage (as described in 
                subparagraph (C)), a PDP sponsor or an entity offering 
                a MA-EFFS Rx plan may (notwithstanding any provision in 
                this title) adjust the premium otherwise applicable or 
                impose a pre-existing condition exclusion with respect 
                to qualified prescription drug coverage in a manner 
                that reflects additional actuarial risk involved. Such 
                a risk shall be established through an appropriate 
                actuarial opinion of the type described in 
                subparagraphs (A) through (C) of section 2103(c)(4).
                  ``(C) Continuous prescription drug coverage.--An 
                individual is considered for purposes of this part to 
                be maintaining continuous prescription drug coverage on 
                and after the date the individual first qualifies to 
                elect prescription drug coverage under this part if the 
                individual establishes that as of such date the 
                individual is covered under any of the following 
                prescription drug coverage and before the date that is 
                the last day of the 63-day period that begins on the 
                date of termination of the particular prescription drug 
                coverage involved (regardless of whether the individual 
                subsequently obtains any of the following prescription 
                drug coverage):
                          ``(i) Coverage under prescription drug plan 
                        or ma-effs rx plan.--Qualified prescription 
                        drug coverage under a prescription drug plan or 
                        under a MA-EFFS Rx plan.
                          ``(ii) Medicaid prescription drug coverage.--
                        Prescription drug coverage under a medicaid 
                        plan under title XIX, including through the 
                        Program of All-inclusive Care for the Elderly 
                        (PACE) under section 1934, through a social 
                        health maintenance organization (referred to in 
                        section 4104(c) of the Balanced Budget Act of 
                        1997), or through a demonstration project under 
                        part C that demonstrates the application of 
                        capitation payment rates for frail elderly 
                        medicare beneficiaries through the use of an 
                        interdisciplinary team and through the 
                        provision of primary care services to such 
                        beneficiaries by means of such a team at the 
                        nursing facility involved.
                          ``(iii) Prescription drug coverage under 
                        group health plan.--Any outpatient prescription 
                        drug coverage under a group health plan, 
                        including a health benefits plan under the 
                        Federal Employees Health Benefit Plan under 
                        chapter 89 of title 5, United States Code, and 
                        a qualified retiree prescription drug plan as 
                        defined in section 1860D-8(f)(1), but only if 
                        (subject to subparagraph (E)(ii)) the coverage 
                        provides benefits at least equivalent to the 
                        benefits under a qualified prescription drug 
                        plan.
                          ``(iv) Prescription drug coverage under 
                        certain medigap policies.--Coverage under a 
                        medicare supplemental policy under section 1882 
                        that provides benefits for prescription drugs 
                        (whether or not such coverage conforms to the 
                        standards for packages of benefits under 
                        section 1882(p)(1)), but only if the policy was 
                        in effect on January 1, 2006, and if (subject 
                        to subparagraph (E)(ii)) the coverage provides 
                        benefits at least equivalent to the benefits 
                        under a qualified prescription drug plan.
                          ``(v) State pharmaceutical assistance 
                        program.--Coverage of prescription drugs under 
                        a State pharmaceutical assistance program, but 
                        only if (subject to subparagraph (E)(ii)) the 
                        coverage provides benefits at least equivalent 
                        to the benefits under a qualified prescription 
                        drug plan.
                          ``(vi) Veterans' coverage of prescription 
                        drugs.--Coverage of prescription drugs for 
                        veterans under chapter 17 of title 38, United 
                        States Code, but only if (subject to 
                        subparagraph (E)(ii)) the coverage provides 
                        benefits at least equivalent to the benefits 
                        under a qualified prescription drug plan.
                  ``(D) Certification.--For purposes of carrying out 
                this paragraph, the certifications of the type 
                described in sections 2701(e) of the Public Health 
                Service Act and in section 9801(e) of the Internal 
                Revenue Code shall also include a statement for the 
                period of coverage of whether the individual involved 
                had prescription drug coverage described in 
                subparagraph (C).
                  ``(E) Disclosure.--
                          ``(i) In general.--Each entity that offers 
                        coverage of the type described in clause (iii), 
                        (iv), (v), or (vi) of subparagraph (C) shall 
                        provide for disclosure, consistent with 
                        standards established by the Administrator, of 
                        whether such coverage provides benefits at 
                        least equivalent to the benefits under a 
                        qualified prescription drug plan.
                          ``(ii) Waiver of limitations.--An individual 
                        may apply to the Administrator to waive the 
                        requirement that coverage of such type provide 
                        benefits at least equivalent to the benefits 
                        under a qualified prescription drug plan, if 
                        the individual establishes that the individual 
                        was not adequately informed that such coverage 
                        did not provide such level of benefits.
                  ``(F) Construction.--Nothing in this section shall be 
                construed as preventing the disenrollment of an 
                individual from a prescription drug plan or a MA-EFFS 
                Rx plan based on the termination of an election 
                described in section 1851(g)(3), including for non-
                payment of premiums or for other reasons specified in 
                subsection (d)(3), which takes into account a grace 
                period described in section 1851(g)(3)(B)(i).
          ``(3) Nondiscrimination.--A PDP sponsor that offers a 
        prescription drug plan in an area designated under section 
        1860D-4(b)(5) shall make such plan available to all eligible 
        individuals residing in the area without regard to their health 
        or economic status or their place of residence within the area.
  ``(d) Effective Date of Elections.--
          ``(1) In general.--Except as provided in this section, the 
        Administrator shall provide that elections under subsection (b) 
        take effect at the same time as the Administrator provides that 
        similar elections under section 1851(e) take effect under 
        section 1851(f).
          ``(2) No election effective before 2006.--In no case shall 
        any election take effect before January 1, 2006.
          ``(3) Termination.--The Administrator shall provide for the 
        termination of an election in the case of--
                  ``(A) termination of coverage under both part A and 
                part B; and
                  ``(B) termination of elections described in section 
                1851(g)(3) (including failure to pay required 
                premiums).

``SEC. 1860D-2. REQUIREMENTS FOR QUALIFIED PRESCRIPTION DRUG COVERAGE.

  ``(a) Requirements.--
          ``(1) In general.--For purposes of this part and part C and 
        part E, the term `qualified prescription drug coverage' means 
        either of the following:
                  ``(A) Standard coverage with access to negotiated 
                prices.--Standard coverage (as defined in subsection 
                (b)) and access to negotiated prices under subsection 
                (d).
                  ``(B) Actuarially equivalent coverage with access to 
                negotiated prices.--Coverage of covered outpatient 
                drugs which meets the alternative coverage requirements 
                of subsection (c) and access to negotiated prices under 
                subsection (d), but only if it is approved by the 
                Administrator, as provided under subsection (c).
          ``(2) Permitting additional outpatient prescription drug 
        coverage.--
                  ``(A) In general.--Subject to subparagraph (B), 
                nothing in this part shall be construed as preventing 
                qualified prescription drug coverage from including 
                coverage of covered outpatient drugs that exceeds the 
                coverage required under paragraph (1), but any such 
                additional coverage shall be limited to coverage of 
                covered outpatient drugs.
                  ``(B) Disapproval authority.--The Administrator shall 
                review the offering of qualified prescription drug 
                coverage under this part or part C or E. If the 
                Administrator finds, in the case of a qualified 
                prescription drug coverage under a prescription drug 
                plan or a MA-EFFS Rx plan, that the organization or 
                sponsor offering the coverage is engaged in activities 
                intended to discourage enrollment of classes of 
                eligible medicare beneficiaries obtaining coverage 
                through the plan on the basis of their higher 
                likelihood of utilizing prescription drug coverage, the 
                Administrator may terminate the contract with the 
                sponsor or organization under this part or part C or E.
          ``(3) Application of secondary payor provisions.--The 
        provisions of section 1852(a)(4) shall apply under this part in 
        the same manner as they apply under part C.
  ``(b) Standard Coverage.--For purposes of this part, the `standard 
coverage' is coverage of covered outpatient drugs (as defined in 
subsection (f)) that meets the following requirements:
          ``(1) Deductible.--The coverage has an annual deductible--
                  ``(A) for 2006, that is equal to $250; or
                  ``(B) for a subsequent year, that is equal to the 
                amount specified under this paragraph for the previous 
                year increased by the percentage specified in paragraph 
                (5) for the year involved.
        Any amount determined under subparagraph (B) that is not a 
        multiple of $10 shall be rounded to the nearest multiple of 
        $10.
          ``(2) 80:20 benefit structure.--
                  ``(A) 20 percent coinsurance.--The coverage has cost-
                sharing (for costs above the annual deductible 
                specified in paragraph (1) and up to the initial 
                coverage limit under paragraph (3)) that is--
                          ``(i) equal to 20 percent; or
                          ``(ii) is actuarially equivalent (using 
                        processes established under subsection (e)) to 
                        an average expected payment of 20 percent of 
                        such costs.
                  ``(B) Use of tiers.--Nothing in this part shall be 
                construed as preventing a PDP sponsor from applying 
                tiered copayments, so long as such tiered copayments 
                are consistent with subparagraph (A).
          ``(3) Initial coverage limit.--Subject to paragraph (4), the 
        coverage has an initial coverage limit on the maximum costs 
        that may be recognized for payment purposes--
                  ``(A) for 2006, that is equal to $2,000; or
                  ``(B) for a subsequent year, that is equal to the 
                amount specified in this paragraph for the previous 
                year, increased by the annual percentage increase 
                described in paragraph (5) for the year involved.
        Any amount determined under subparagraph (B) that is not a 
        multiple of $25 shall be rounded to the nearest multiple of 
        $25.
          ``(4) Catastrophic protection.--
                  ``(A) In general.--Notwithstanding paragraph (3), the 
                coverage provides benefits with no cost-sharing after 
                the individual has incurred costs (as described in 
                subparagraph (C)) for covered outpatient drugs in a 
                year equal to the annual out-of-pocket threshold 
                specified in subparagraph (B).
                  ``(B) Annual out-of-pocket threshold.--
                          ``(i) In general.--For purposes of this part, 
                        the `annual out-of-pocket threshold' specified 
                        in this subparagraph is equal to $3,500 
                        (subject to adjustment under clause (ii) and 
                        subparagraph (D)).
                          ``(ii) Inflation increase.--For a year after 
                        2006, the dollar amount specified in clause (i) 
                        shall be increased by the annual percentage 
                        increase described in paragraph (5) for the 
                        year involved. Any amount determined under the 
                        previous sentence that is not a multiple of 
                        $100 shall be rounded to the nearest multiple 
                        of $100.
                  ``(C) Application.--In applying subparagraph (A)--
                          ``(i) incurred costs shall only include costs 
                        incurred for the annual deductible (described 
                        in paragraph (1)), cost-sharing (described in 
                        paragraph (2)), and amounts for which benefits 
                        are not provided because of the application of 
                        the initial coverage limit described in 
                        paragraph (3); and
                          ``(ii) such costs shall be treated as 
                        incurred only if they are paid by the 
                        individual (or by another individual, such as a 
                        family member, on behalf of the individual), 
                        under section 1860D-7, under title XIX, or 
                        under a State pharmaceutical assistance program 
                        and the individual (or other individual) is not 
                        reimbursed through insurance or otherwise, a 
                        group health plan, or other third-party payment 
                        arrangement (other than under such title or 
                        such program) for such costs.
                  ``(D) Adjustment of annual out-of-pocket 
                thresholds.--
                          ``(i) In general.--For each enrollee in a 
                        prescription drug plan or in a MA-EFFS Rx plan 
                        whose adjusted gross income exceeds the income 
                        threshold as defined in clause (ii) for a year, 
                        the annual out-of-pocket threshold otherwise 
                        determined under subparagraph (B) for such year 
                        shall be increased by an amount equal to the 
                        percentage specified in clause (iii), 
                        multiplied by the lesser of--
                                  ``(I) the amount of such excess; or
                                  ``(II) the amount by which the income 
                                threshold limit exceeds the income 
                                threshold.
                        Any amount determined under the previous 
                        sentence that is not a multiple of $100 shall 
                        be rounded to the nearest multiple of $100.
                          ``(ii) Income threshold.--For purposes of 
                        clause (i)--
                                  ``(I) In general.--Subject to 
                                subclause (II), the term `income 
                                threshold' means $60,000 and the term 
                                `income threshold limit' means 
                                $200,000.
                                  ``(II) Income inflation adjustment.--
                                In the case of a year beginning after 
                                2006, each of the dollar amounts in 
                                subclause (I) shall be increased by an 
                                amount equal to such dollar amount 
                                multiplied by the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) of the Internal Revenue Code of 
                                1986 for such year, determined by 
                                substituting `calendar year 2005' for 
                                `calendar year 1992'. If any amount 
                                increased under the previous sentence 
                                is not a multiple of $100, such amount 
                                shall be rounded to the nearest 
                                multiple of $100.
                          ``(iii) Percentage.--The percentage specified 
                        in this clause for a year is a fraction 
                        (expressed as a percentage) equal to--
                                  ``(I) the annual out-of-pocket 
                                threshold for a year under subparagraph 
                                (B) (determined without regard to this 
                                subparagraph), divided by
                                  ``(II) the income threshold under 
                                clause (ii) for that year.
                        If any percentage determined under the previous 
                        sentence that is not a multiple of \1/10\th of 
                        1 percentage point, such percentage shall be 
                        rounded to the nearest multiple of \1/10\th of 
                        1 percentage point.
                          ``(iv) Use of most recent return 
                        information.--For purposes of clause (i) for an 
                        enrollee for a year, except as provided in 
                        clause (v), the adjusted gross income of an 
                        individual shall be based on the most recent 
                        information disclosed to the Secretary under 
                        section 6109(l)(19) of the Internal Revenue 
                        Code of 1986 before the beginning of that year.
                          ``(v) Individual election to present most 
                        recent information regarding income.--The 
                        Secretary shall provide, in coordination with 
                        the Secretary of the Treasury, a procedure 
                        under which, for purposes of applying this 
                        subparagraph for a calendar year, instead of 
                        using the information described in clause (iv), 
                        an enrollee may elect to use more recent 
                        information, including information with respect 
                        to a taxable year ending in such calendar year. 
                        Such process shall--
                                  ``(I) require the enrollee to provide 
                                the Secretary with a copy of the 
                                relevant portion of the more recent 
                                return to be used under this clause;
                                  ``(II) provide for the Medicare 
                                Beneficiary Ombudsman (under section 
                                1810) offering assistance to such 
                                enrollees in presenting such 
                                information and the toll-free number 
                                under such section being a point of 
                                contact for beneficiaries to inquire as 
                                to how to present such information;
                                  ``(III) provide for the verification 
                                of the information in such return by 
                                the Secretary of the Treasury under 
                                section 6103(l)(19) of the Internal 
                                Revenue Code of 1986; and
                                  ``(IV) provide for the payment by the 
                                Secretary (in a manner specified by the 
                                Secretary) to the enrollee of an amount 
                                equal to the excess of the benefit 
                                payments that would have been payable 
                                under the plan if the more recent 
                                return information were used, over the 
                                benefit payments that were made under 
                                the plan.
                        In the case of a payment under subclause (III) 
                        for an enrollee under a prescription drug plan, 
                        the PDP sponsor of the plan shall pay to the 
                        Secretary the amount so paid, less the 
                        applicable reinsurance amount that would have 
                        applied under section 1860D-8(c)(1)(B) if such 
                        payment had been treated as an allowable cost 
                        under such section. Such plan payment shall be 
                        deposited in the Treasury to the credit of the 
                        Medicare Prescription Drug Account in the 
                        Federal Supplementary Medical Insurance Trust 
                        Fund (under section 1841).
                          ``(vi) Dissemination of information on 
                        process.--The Secretary shall provide, through 
                        the annual medicare handbook under section 
                        1804(a), for a general description of the 
                        adjustment of annual out-of-pocket thresholds 
                        provided under this subparagraph, including the 
                        process for adjustment based upon more recent 
                        information and the confidentiality provisions 
                        of subparagraph (F), and shall provide for 
                        dissemination of a table for each year that 
                        sets forth the amount of the adjustment that is 
                        made under clause (i) based on the amount of an 
                        enrollee's adjusted gross income.
                  ``(E) Requesting information on enrollees.--
                          ``(i) In general.--The Secretary shall, 
                        periodically as required to carry out 
                        subparagraph (D), transmit to the Secretary of 
                        the Treasury a list of the names and TINs of 
                        enrollees in prescription drug plans (or in MA-
                        EFFS Rx plans) and request that such Secretary 
                        disclose to the Secretary information under 
                        subparagraph (A) of section 6103(l)(19) of the 
                        Internal Revenue Code of 1986 with respect to 
                        those enrollees for a specified taxable year 
                        for application in a particular calendar year.
                          ``(ii) Disclosure to plan sponsors.--In the 
                        case of a specified taxpayer (as defined in 
                        section 6103(l)(19)(B) of the Internal Revenue 
                        Code of 1986) who is enrolled in a prescription 
                        drug plan or in an MA-EFFS Rx plan, the 
                        Secretary shall disclose to the entity that 
                        offers the plan the annual out-of-pocket 
                        threshold applicable to such individual under 
                        subparagraph (D).
                  ``(F) Maintaining confidentiality of information.--
                          ``(i) In general.--The amount of any increase 
                        in an annual out-of-pocket threshold under 
                        subparagraph (D) may not be disclosed by the 
                        Secretary except to a PDP sponsor or entity 
                        that offers a MA-EFFS Rx plan to the extent 
                        necessary to carry out this part.
                          ``(ii) Criminal and civil penalties for 
                        unauthorized disclosure.--A person who makes an 
                        unauthorized disclosure of information 
                        disclosed under section 6103(l)(19) of the 
                        Internal Revenue Code of 1986 (including 
                        disclosure of any increase in an annual out-of-
                        pocket threshold under subparagraph (D)) shall 
                        be subject to penalty to the extent provided 
                        under--
                                  ``(I) section 7213 of such Code 
                                (relating to criminal penalty for 
                                unauthorized disclosure of 
                                information);
                                  ``(II) section 7213A of such Code 
                                (relating to criminal penalty for 
                                unauthorized inspection of returns or 
                                return information);
                                  ``(III) section 7431 of such Code 
                                (relating to civil damages for 
                                unauthorized inspection or disclosure 
                                of returns and return information);
                                  ``(IV) any other provision of the 
                                Internal Revenue Code of 1986; or
                                  ``(V) any other provision of law.
                          ``(iii) Application of additional civil 
                        monetary penalty for unauthorized 
                        disclosures.--In addition to any penalty 
                        otherwise provided under law, any person who 
                        makes an unauthorized disclosure of such 
                        information shall be subject to a civil 
                        monetary penalty of not to exceed $10,000 for 
                        each such unauthorized disclosure. The 
                        provisions of section 1128A (other than 
                        subsections (a) and (b)) shall apply to civil 
                        money penalties under this subparagraph in the 
                        same manner as they apply to a penalty or 
                        proceeding under section 1128A(a).
          ``(5) Annual percentage increase.--For purposes of this part, 
        the annual percentage increase specified in this paragraph for 
        a year is equal to the annual percentage increase in average 
        per capita aggregate expenditures for covered outpatient drugs 
        in the United States for medicare beneficiaries, as determined 
        by the Administrator for the 12-month period ending in July of 
        the previous year.
  ``(c) Alternative Coverage Requirements.--A prescription drug plan or 
MA-EFFS Rx plan may provide a different prescription drug benefit 
design from the standard coverage described in subsection (b) so long 
as the Administrator determines (based on an actuarial analysis by the 
Administrator) that the following requirements are met and the plan 
applies for, and receives, the approval of the Administrator for such 
benefit design:
          ``(1) Assuring at least actuarially equivalent coverage.--
                  ``(A) Assuring equivalent value of total coverage.--
                The actuarial value of the total coverage (as 
                determined under subsection (e)) is at least equal to 
                the actuarial value (as so determined) of standard 
                coverage.
                  ``(B) Assuring equivalent unsubsidized value of 
                coverage.--The unsubsidized value of the coverage is at 
                least equal to the unsubsidized value of standard 
                coverage. For purposes of this subparagraph, the 
                unsubsidized value of coverage is the amount by which 
                the actuarial value of the coverage (as determined 
                under subsection (e)) exceeds the actuarial value of 
                the subsidy payments under section 1860D-8 with respect 
                to such coverage.
                  ``(C) Assuring standard payment for costs at initial 
                coverage limit.--The coverage is designed, based upon 
                an actuarially representative pattern of utilization 
                (as determined under subsection (e)), to provide for 
                the payment, with respect to costs incurred that are 
                equal to the initial coverage limit under subsection 
                (b)(3), of an amount equal to at least the product of--
                          ``(i) the amount by which the initial 
                        coverage limit described in subsection (b)(3) 
                        exceeds the deductible described in subsection 
                        (b)(1); and
                          ``(ii) 100 percent minus the cost-sharing 
                        percentage specified in subsection 
                        (b)(2)(A)(i).
          ``(2) Catastrophic protection.--The coverage provides for 
        beneficiaries the catastrophic protection described in 
        subsection (b)(4).
  ``(d) Access to Negotiated Prices.--
          ``(1) In general.--Under qualified prescription drug coverage 
        offered by a PDP sponsor or an entity offering a MA-EFFS Rx 
        plan, the sponsor or entity shall provide beneficiaries with 
        access to negotiated prices (including applicable discounts) 
        used for payment for covered outpatient drugs, regardless of 
        the fact that no benefits may be payable under the coverage 
        with respect to such drugs because of the application of cost-
        sharing or an initial coverage limit (described in subsection 
        (b)(3)). Insofar as a State elects to provide medical 
        assistance under title XIX for a drug based on the prices 
        negotiated by a prescription drug plan or MA-EFFS Rx plan under 
        this part, the requirements of section 1927 shall not apply to 
        such drugs. The prices negotiated by a prescription drug plan 
        under this part, by a MA-EFFS Rx plan with respect to covered 
        outpatient drugs, or by a qualified retiree prescription drug 
        plan (as defined in section 1860D-8(f)(1)) with respect to such 
        drugs on behalf of individuals entitled to benefits under part 
        A or enrolled under part B, shall (notwithstanding any other 
        provision of law) not be taken into account for the purposes of 
        establishing the best price under section 1927(c)(1)(C).
          ``(2) Disclosure.--The PDP sponsor or entity offering a MA-
        EFFS Rx plan shall disclose to the Administrator (in a manner 
        specified by the Administrator) the extent to which discounts 
        or rebates or other remuneration or price concessions made 
        available to the sponsor or organization by a manufacturer are 
        passed through to enrollees through pharmacies and other 
        dispensers or otherwise. The provisions of section 
        1927(b)(3)(D) shall apply to information disclosed to the 
        Administrator under this paragraph in the same manner as such 
        provisions apply to information disclosed under such section.
          ``(3) Audits and reports.--To protect against fraud and abuse 
        and to ensure proper disclosures and accounting under this 
        part, in addition to any protections against fraud and abuse 
        provided under section 1860D-4(b)(3)(C), the Administrator may 
        periodically audit the financial statements and records of PDP 
        sponsor or entities offering a MA-EFFS Rx plan.
  ``(e) Actuarial Valuation; Determination of Annual Percentage 
Increases.--
          ``(1) Processes.--For purposes of this section, the 
        Administrator shall establish processes and methods--
                  ``(A) for determining the actuarial valuation of 
                prescription drug coverage, including--
                          ``(i) an actuarial valuation of standard 
                        coverage and of the reinsurance subsidy 
                        payments under section 1860D-8;
                          ``(ii) the use of generally accepted 
                        actuarial principles and methodologies; and
                          ``(iii) applying the same methodology for 
                        determinations of alternative coverage under 
                        subsection (c) as is used with respect to 
                        determinations of standard coverage under 
                        subsection (b); and
                  ``(B) for determining annual percentage increases 
                described in subsection (b)(5).
          ``(2) Use of outside actuaries.--Under the processes under 
        paragraph (1)(A), PDP sponsors and entities offering MA-EFFS Rx 
        plans may use actuarial opinions certified by independent, 
        qualified actuaries to establish actuarial values, but the 
        Administrator shall determine whether such actuarial values 
        meet the requirements under subsection (c)(1).
  ``(f) Covered Outpatient Drugs Defined.--
          ``(1) In general.--Except as provided in this subsection, for 
        purposes of this part, the term `covered outpatient drug' 
        means--
                  ``(A) a drug that may be dispensed only upon a 
                prescription and that is described in subparagraph 
                (A)(i) or (A)(ii) of section 1927(k)(2); or
                  ``(B) a biological product described in clauses (i) 
                through (iii) of subparagraph (B) of such section or 
                insulin described in subparagraph (C) of such section 
                and medical supplies associated with the injection of 
                insulin (as defined in regulations of the Secretary),
        and such term includes a vaccine licensed under section 351 of 
        the Public Health Service Act and any use of a covered 
        outpatient drug for a medically accepted indication (as defined 
        in section 1927(k)(6)).
          ``(2) Exclusions.--
                  ``(A) In general.--Such term does not include drugs 
                or classes of drugs, or their medical uses, which may 
                be excluded from coverage or otherwise restricted under 
                section 1927(d)(2), other than subparagraph (E) thereof 
                (relating to smoking cessation agents), or under 
                section 1927(d)(3).
                  ``(B) Avoidance of duplicate coverage.--A drug 
                prescribed for an individual that would otherwise be a 
                covered outpatient drug under this part shall not be so 
                considered if payment for such drug is available under 
                part A or B for an individual entitled to benefits 
                under part A and enrolled under part B.
          ``(3) Application of formulary restrictions.--A drug 
        prescribed for an individual that would otherwise be a covered 
        outpatient drug under this part shall not be so considered 
        under a plan if the plan excludes the drug under a formulary 
        and such exclusion is not successfully appealed under section 
        1860D-3(f)(2).
          ``(4) Application of general exclusion provisions.--A 
        prescription drug plan or MA-EFFS Rx plan may exclude from 
        qualified prescription drug coverage any covered outpatient 
        drug--
                  ``(A) for which payment would not be made if section 
                1862(a) applied to part D; or
                  ``(B) which are not prescribed in accordance with the 
                plan or this part.
        Such exclusions are determinations subject to reconsideration 
        and appeal pursuant to section 1860D-3(f).

``SEC. 1860D-3. BENEFICIARY PROTECTIONS FOR QUALIFIED PRESCRIPTION DRUG 
                    COVERAGE.

  ``(a) Guaranteed Issue, Community-Rated Premiums, Access to 
Negotiated Prices, and Nondiscrimination.--For provisions requiring 
guaranteed issue, community-rated premiums, access to negotiated 
prices, and nondiscrimination, see sections 1860D-1(c)(1), 1860D-
1(c)(2), 1860D-2(d), and 1860D-6(b), respectively.
  ``(b) Dissemination of Information.--
          ``(1) General information.--A PDP sponsor shall disclose, in 
        a clear, accurate, and standardized form to each enrollee with 
        a prescription drug plan offered by the sponsor under this part 
        at the time of enrollment and at least annually thereafter, the 
        information described in section 1852(c)(1) relating to such 
        plan. Such information includes the following:
                  ``(A) Access to specific covered outpatient drugs, 
                including access through pharmacy networks.
                  ``(B) How any formulary used by the sponsor 
                functions, including the drugs included in the 
                formulary.
                  ``(C) Co-payments and deductible requirements, 
                including the identification of the tiered or other co-
                payment level applicable to each drug (or class of 
                drugs).
                  ``(D) Grievance and appeals procedures.
        Such information shall also be made available upon request to 
        prospective enrollees.
          ``(2) Disclosure upon request of general coverage, 
        utilization, and grievance information.--Upon request of an 
        individual eligible to enroll under a prescription drug plan, 
        the PDP sponsor shall provide the information described in 
        section 1852(c)(2) (other than subparagraph (D)) to such 
        individual.
          ``(3) Response to beneficiary questions.--Each PDP sponsor 
        offering a prescription drug plan shall have a mechanism for 
        providing specific information to enrollees upon request. The 
        sponsor shall make available on a timely basis, through an 
        Internet website and in writing upon request, information on 
        specific changes in its formulary.
          ``(4) Claims information.--Each PDP sponsor offering a 
        prescription drug plan must furnish to each enrollee in a form 
        easily understandable to such enrollees an explanation of 
        benefits (in accordance with section 1806(a) or in a comparable 
        manner) and a notice of the benefits in relation to initial 
        coverage limit and the annual out-of-pocket threshold 
        applicable to such enrollee for the current year, whenever 
        prescription drug benefits are provided under this part (except 
        that such notice need not be provided more often than monthly).
  ``(c) Access to Covered Benefits.--
          ``(1) Assuring pharmacy access.--
                  ``(A) Securing sufficient participation.--
                          ``(i) Participation of any willing 
                        pharmacy.--A PDP sponsor and an entity offering 
                        a MA-EFFS Rx plan shall permit the 
                        participation of any pharmacy that meets terms 
                        and conditions that the plan has established.
                          ``(ii) Discounts allowed for network 
                        pharmacies.--A prescription drug plan and a MA-
                        EFFS Rx plan may, notwithstanding clause (i), 
                        reduce coinsurance or copayments for its 
                        enrolled beneficiaries below the level 
                        otherwise provided for covered outpatient drugs 
                        dispensed through in-network pharmacies, but in 
                        no case shall such a reduction result in an 
                        increase in payments made by the Administrator 
                        under section 1860D-8 to a plan.
                          ``(iii) Convenient access for network 
                        pharmacies.--The PDP sponsor of the 
                        prescription drug plan and the entity offering 
                        a MA-EFFS Rx plan shall secure the 
                        participation in its network of a sufficient 
                        number of pharmacies that dispense (other than 
                        by mail order) drugs directly to patients to 
                        ensure convenient access (consistent with rules 
                        of the Administrator established under 
                        subparagraph (B)). The Administrator shall 
                        establish convenient access rules under this 
                        clause that are no less favorable to enrollees 
                        than the rules for convenient access to 
                        pharmacies of the Secretary of Defense 
                        established as of June 1, 2003, for purposes of 
                        the TRICARE Retail Pharmacy (TRRx) program. 
                        Such rules shall include adequate emergency 
                        access for enrolled beneficiaries.
                          ``(iv) Level playing field.--Such a sponsor 
                        shall permit enrollees to receive benefits 
                        (which may include a 90-day supply of drugs or 
                        biologicals) through a community pharmacy, 
                        rather than through mail order, with any 
                        differential in cost paid by such enrollees.
                          ``(v)  Not required to accept insurance 
                        risk.--The terms and conditions under clause 
                        (i) may not require participating pharmacies to 
                        accept insurance risk as a condition of 
                        participation.
          ``(2) Use of standardized technology.--
                  ``(A) In general.--The PDP sponsor of a prescription 
                drug plan and an entity offering a MA-EFFS Rx plan 
                shall issue (and reissue, as appropriate) such a card 
                (or other technology) that may be used by an enrollee 
                to assure access to negotiated prices under section 
                1860D-2(d) for the purchase of prescription drugs for 
                which coverage is not otherwise provided under the 
                plan.
                  ``(B) Standards.--
                          ``(i) Development.--The Administrator shall 
                        provide for the development or utilization of 
                        uniform standards relating to a standardized 
                        format for the card or other technology 
                        referred to in subparagraph (A). Such standards 
                        shall be compatible with standards established 
                        under part C of title XI.
                          ``(ii) Application of advisory task force.--
                        The advisory task force established under 
                        subsection (d)(3)(B)(ii) shall provide 
                        recommendations to the Administrator under such 
                        subsection regarding the standards developed 
                        under clause (i).
          ``(3) Requirements on development and application of 
        formularies.--If a PDP sponsor of a prescription drug plan or 
        an entity offering a MA-EFFS Rx plan uses a formulary, the 
        following requirements must be met:
                  ``(A) Pharmacy and therapeutic (p&t) committee.--The 
                sponsor or entity must establish a pharmacy and 
                therapeutic committee that develops and reviews the 
                formulary. Such committee shall include at least one 
                practicing physician and at least one practicing 
                pharmacist both with expertise in the care of elderly 
                or disabled persons and a majority of its members shall 
                consist of individuals who are practicing physicians or 
                practicing pharmacists (or both).
                  ``(B) Formulary development.--In developing and 
                reviewing the formulary, the committee shall--
                          ``(i) base clinical decisions on the strength 
                        of scientific evidence and standards of 
                        practice, including assessing peer-reviewed 
                        medical literature, such as randomized clinical 
                        trials, pharmacoeconomic studies, outcomes 
                        research data, and such other information as 
                        the committee determines to be appropriate; and
                          ``(ii) shall take into account whether 
                        including in the formulary particular covered 
                        outpatient drugs has therapeutic advantages in 
                        terms of safety and efficacy.
                  ``(C) Inclusion of drugs in all therapeutic 
                categories.--The formulary must include drugs within 
                each therapeutic category and class of covered 
                outpatient drugs (although not necessarily for all 
                drugs within such categories and classes). In 
                establishing such classes, the committee shall take 
                into account the standards published in the United 
                States Pharmacopeia-Drug Information. The committee 
                shall make available to the enrollees under the plan 
                through the Internet or otherwise the clinical bases 
                for the coverage of any drug on the formulary.
                  ``(D) Provider and patient education.--The committee 
                shall establish policies and procedures to educate and 
                inform health care providers and enrollees concerning 
                the formulary.
                  ``(E) Notice before removing drug from formulary for 
                changing preferred or tier status of drug.--Any removal 
                of a covered outpatient drug from a formulary and any 
                change in the preferred or tier cost-sharing status of 
                such a drug shall take effect only after appropriate 
                notice is made available to beneficiaries and 
                physicians.
                  ``(F) Periodic evaluation of protocols.--In 
                connection with the formulary, a prescription drug plan 
                shall provide for the periodic evaluation and analysis 
                of treatment protocols and procedures.
                  ``(G) Grievances and appeals relating to application 
                of formularies.--For provisions relating to grievances 
                and appeals of coverage, see subsections (e) and (f).
  ``(d) Cost and Utilization Management; Quality Assurance; Medication 
Therapy Management Program.--
          ``(1) In general.--The PDP sponsor or entity offering a MA-
        EFFS Rx plan shall have in place, directly or through 
        appropriate arrangements, with respect to covered outpatient 
        drugs--
                  ``(A) an effective cost and drug utilization 
                management program, including medically appropriate 
                incentives to use generic drugs and therapeutic 
                interchange, when appropriate;
                  ``(B) quality assurance measures and systems to 
                reduce medical errors and adverse drug interactions, 
                including side-effects, and improve medication use, 
                including a medication therapy management program 
                described in paragraph (2) and for years beginning with 
                2007, an electronic prescription program described in 
                paragraph (3); and
                  ``(C) a program to control fraud, abuse, and waste.
        Nothing in this section shall be construed as impairing a PDP 
        sponsor or entity from utilizing cost management tools 
        (including differential payments) under all methods of 
        operation.
          ``(2) Medication therapy management program.--
                  ``(A) In general.--A medication therapy management 
                program described in this paragraph is a program of 
                drug therapy management and medication administration 
                that may be furnished by a pharmacy provider and that 
                is designed to assure, with respect to beneficiaries at 
                risk for potential medication problems, such as 
                beneficiaries with complex or chronic diseases (such as 
                diabetes, asthma, hypertension, and congestive heart 
                failure) or multiple prescriptions, that covered 
                outpatient drugs under the prescription drug plan are 
                appropriately used to optimize therapeutic outcomes 
                through improved medication use and reduce the risk of 
                adverse events, including adverse drug interactions. 
                Such programs may distinguish between services in 
                ambulatory and institutional settings.
                  ``(B) Elements.--Such program may include--
                          ``(i) enhanced beneficiary understanding to 
                        promote the appropriate use of medications by 
                        beneficiaries and to reduce the risk of 
                        potential adverse events associated with 
                        medications, through beneficiary education, 
                        counseling, case management, disease state 
                        management programs, and other appropriate 
                        means;
                          ``(ii) increased beneficiary adherence with 
                        prescription medication regimens through 
                        medication refill reminders, special packaging, 
                        and other compliance programs and other 
                        appropriate means; and
                          ``(iii) detection of patterns of overuse and 
                        underuse of prescription drugs.
                  ``(C) Development of program in cooperation with 
                licensed pharmacists.--The program shall be developed 
                in cooperation with licensed and practicing pharmacists 
                and physicians.
                  ``(D) Considerations in pharmacy fees.--The PDP 
                sponsor of a prescription drug program and an entity 
                offering a MA-EFFS Rx plan shall take into account, in 
                establishing fees for pharmacists and others providing 
                services under the medication therapy management 
                program, the resources and time used in implementing 
                the program. Each such sponsor or entity shall disclose 
                to the Administrator upon request the amount of any 
                such management or dispensing fees.
          ``(3) Electronic prescription program.--
                  ``(A) In general.--An electronic prescription drug 
                program described in this paragraph is a program that 
                includes at least the following components, consistent 
                with uniform standards established under subparagraph 
                (B):
                          ``(i) Electronic transmittal of 
                        prescriptions.--Prescriptions must be written 
                        and transmitted electronically (other than by 
                        facsimile), except in emergency cases and other 
                        exceptional circumstances recognized by the 
                        Administrator.
                          ``(ii) Provision of information to 
                        prescribing health care professional.--The 
                        program provides for the electronic transmittal 
                        to the prescribing health care professional of 
                        information that includes--
                                  ``(I) information (to the extent 
                                available and feasible) on the drug or 
                                drugs being prescribed for that patient 
                                and other information relating to the 
                                medical history or condition of the 
                                patient that may be relevant to the 
                                appropriate prescription for that 
                                patient;
                                  ``(II) cost-effective alternatives 
                                (if any) for the use of the drug 
                                prescribed; and
                                  ``(III) information on the drugs 
                                included in the applicable formulary.
                        To the extent feasible, such program shall 
                        permit the prescribing health care professional 
                        to provide (and be provided) related 
                        information on an interactive, real-time basis.
                  ``(B) Standards.--
                          ``(i) Development.--The Administrator shall 
                        provide for the development of uniform 
                        standards relating to the electronic 
                        prescription drug program described in 
                        subparagraph (A). Such standards shall be 
                        compatible with standards established under 
                        part C of title XI.
                          ``(ii) Advisory task force.--In developing 
                        such standards and the standards described in 
                        subsection (c)(2)(B)(i) the Administrator shall 
                        establish a task force that includes 
                        representatives of physicians, hospitals, 
                        pharmacies, beneficiaries, pharmacy benefit 
                        managers, individuals with expertise in 
                        information technology, and pharmacy benefit 
                        experts of the Departments of Veterans Affairs 
                        and Defense and other appropriate Federal 
                        agencies to provide recommendations to the 
                        Administrator on such standards, including 
                        recommendations relating to the following:
                                  ``(I) The range of available 
                                computerized prescribing software and 
                                hardware and their costs to develop and 
                                implement.
                                  ``(II) The extent to which such 
                                standards and systems reduce medication 
                                errors and can be readily implemented 
                                by physicians, pharmacies, and 
                                hospitals.
                                  ``(III) Efforts to develop uniform 
                                standards and a common software 
                                platform for the secure electronic 
                                communication of medication history, 
                                eligibility, benefit, and prescription 
                                information.
                                  ``(IV) Efforts to develop and promote 
                                universal connectivity and 
                                interoperability for the secure 
                                electronic exchange of such 
                                information.
                                  ``(V) The cost of implementing such 
                                systems in the range of hospital and 
                                physician office settings and 
                                pharmacies, including hardware, 
                                software, and training costs.
                                  ``(VI) Implementation issues as they 
                                relate to part C of title XI, and 
                                current Federal and State prescribing 
                                laws and regulations and their impact 
                                on implementation of computerized 
                                prescribing.
                          ``(iii) Deadlines.--
                                  ``(I) The Administrator shall 
                                constitute the task force under clause 
                                (ii) by not later than April 1, 2004.
                                  ``(II) Such task force shall submit 
                                recommendations to Administrator by not 
                                later than January 1, 2005.
                                  ``(III) The Administrator shall 
                                provide for the development and 
                                promulgation, by not later than January 
                                1, 2006, of national standards relating 
                                to the electronic prescription drug 
                                program described in clause (ii). Such 
                                standards shall be issued by a 
                                standards organization accredited by 
                                the American National Standards 
                                Institute (ANSI) and shall be 
                                compatible with standards established 
                                under part C of title XI.
          ``(4) Treatment of accreditation.--Section 1852(e)(4) 
        (relating to treatment of accreditation) shall apply to 
        prescription drug plans under this part with respect to the 
        following requirements, in the same manner as they apply to 
        plans under part C with respect to the requirements described 
        in a clause of section 1852(e)(4)(B):
                  ``(A) Paragraph (1) (including quality assurance), 
                including medication therapy management program under 
                paragraph (2).
                  ``(B) Subsection (c)(1) (relating to access to 
                covered benefits).
                  ``(C) Subsection (g) (relating to confidentiality and 
                accuracy of enrollee records).
          ``(5) Public disclosure of pharmaceutical prices for 
        equivalent drugs.--Each PDP sponsor and each entity offering a 
        MA-EFFS Rx plan shall provide that each pharmacy or other 
        dispenser that arranges for the dispensing of a covered 
        outpatient drug shall inform the beneficiary at the time of 
        purchase of the drug of any differential between the price of 
        the prescribed drug to the enrollee and the price of the lowest 
        cost available generic drug covered under the plan that is 
        therapeutically equivalent and bioequivalent.
  ``(e) Grievance Mechanism, Coverage Determinations, and 
Reconsiderations.--
          ``(1) In general.--Each PDP sponsor shall provide meaningful 
        procedures for hearing and resolving grievances between the 
        organization (including any entity or individual through which 
        the sponsor provides covered benefits) and enrollees with 
        prescription drug plans of the sponsor under this part in 
        accordance with section 1852(f).
          ``(2) Application of coverage determination and 
        reconsideration provisions.--A PDP sponsor shall meet the 
        requirements of paragraphs (1) through (3) of section 1852(g) 
        with respect to covered benefits under the prescription drug 
        plan it offers under this part in the same manner as such 
        requirements apply to an organization with respect to benefits 
        it offers under a plan under part C.
          ``(3) Request for review of tiered formulary 
        determinations.--In the case of a prescription drug plan 
        offered by a PDP sponsor or a MA-EFFS Rx plan that provides for 
        tiered cost-sharing for drugs included within a formulary and 
        provides lower cost-sharing for preferred drugs included within 
        the formulary, an individual who is enrolled in the plan may 
        request coverage of a nonpreferred drug under the terms 
        applicable for preferred drugs if the prescribing physician 
        determines that the preferred drug for treatment of the same 
        condition either would not be as effective for the individual 
        or would have adverse effects for the individual or both.
  ``(f) Appeals.--
          ``(1) In general.--Subject to paragraph (2), a PDP sponsor 
        shall meet the requirements of paragraphs (4) and (5) of 
        section 1852(g) with respect to drugs (including a 
        determination related to the application of tiered cost-sharing 
        described in subsection (e)(3)) in the same manner as such 
        requirements apply to an organization with respect to benefits 
        it offers under a plan under part C.
          ``(2) Formulary determinations.--An individual who is 
        enrolled in a prescription drug plan offered by a PDP sponsor 
        or in a MA-EFFS Rx plan may appeal to obtain coverage for a 
        covered outpatient drug that is not on a formulary of the 
        sponsor or entity offering the plan if the prescribing 
        physician determines that the formulary drug for treatment of 
        the same condition either would not be as effective for the 
        individual or would have adverse effects for the individual or 
        both.
  ``(g) Confidentiality and Accuracy of Enrollee Records.--A PDP 
sponsor that offers a prescription drug plan shall meet the 
requirements of section 1852(h) with respect to enrollees under the 
plan in the same manner as such requirements apply to an organization 
with respect to enrollees under part C. A PDP sponsor shall be treated 
as a covered entity for purposes of the provisions of subpart E of part 
164 of title 45, Code of Federal Regulations, adopted pursuant to the 
authority of the Secretary under section 264(c) of the Health Insurance 
Portability and Accountability Act of 1996 (42 U.S. C. 1320d-2 note).

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

  ``(a) General Requirements.--Each PDP sponsor of a prescription drug 
plan shall meet the following requirements:
          ``(1) Licensure.--Subject to subsection (c), the sponsor is 
        organized and licensed under State law as a risk-bearing entity 
        eligible to offer health insurance or health benefits coverage 
        in each State in which it offers a prescription drug plan.
          ``(2) Assumption of financial risk for unsubsidized 
        coverage.--
                  ``(A) In general.--Subject to subparagraph (B) and 
                section 1860D-5(d)(2), the entity assumes full 
                financial risk on a prospective basis for qualified 
                prescription drug coverage that it offers under a 
                prescription drug plan and that is not covered under 
                section 1860D-8.
                  ``(B) Reinsurance permitted.--The entity may obtain 
                insurance or make other arrangements for the cost of 
                coverage provided to any enrollee.
          ``(3) Solvency for unlicensed sponsors.--In the case of a 
        sponsor that is not described in paragraph (1), the sponsor 
        shall meet solvency standards established by the Administrator 
        under subsection (d).
  ``(b) Contract Requirements.--
          ``(1) In general.--The Administrator shall not permit the 
        election under section 1860D-1 of a prescription drug plan 
        offered by a PDP sponsor under this part, and the sponsor shall 
        not be eligible for payments under section 1860D-7 or 1860D-8, 
        unless the Administrator has entered into a contract under this 
        subsection with the sponsor with respect to the offering of 
        such plan. Such a contract with a sponsor may cover more than 
        one prescription drug plan. Such contract shall provide that 
        the sponsor agrees to comply with the applicable requirements 
        and standards of this part and the terms and conditions of 
        payment as provided for in this part.
          ``(2) Negotiation regarding terms and conditions.--The 
        Administrator shall have the same authority to negotiate the 
        terms and conditions of prescription drug plans under this part 
        as the Director of the Office of Personnel Management has with 
        respect to health benefits plans under chapter 89 of title 5, 
        United States Code. In negotiating the terms and conditions 
        regarding premiums for which information is submitted under 
        section 1860D-6(a)(2), the Administrator shall take into 
        account the subsidy payments under section 1860D-8.
          ``(3) Incorporation of certain medicare advantage contract 
        requirements.--The following provisions of section 1857 shall 
        apply, subject to subsection (c)(5), to contracts under this 
        section in the same manner as they apply to contracts under 
        section 1857(a):
                  ``(A) Minimum enrollment.--Paragraphs (1) and (3) of 
                section 1857(b).
                  ``(B) Contract period and effectiveness.--Paragraphs 
                (1) through (3) and (5) of section 1857(c).
                  ``(C) Protections against fraud and beneficiary 
                protections.--Section 1857(d).
                  ``(D) Additional contract terms.--Section 1857(e); 
                except that in applying section 1857(e)(2) under this 
                part--
                          ``(i) such section shall be applied 
                        separately to costs relating to this part (from 
                        costs under part C and part E);
                          ``(ii) in no case shall the amount of the fee 
                        established under this subparagraph for a plan 
                        exceed 20 percent of the maximum amount of the 
                        fee that may be established under subparagraph 
                        (B) of such section; and
                          ``(iii) no fees shall be applied under this 
                        subparagraph with respect to MA-EFFS Rx plans.
                  ``(E) Intermediate sanctions.--Section 1857(g).
                  ``(F) Procedures for termination.--Section 1857(h).
          ``(4) Rules of application for intermediate sanctions.--In 
        applying paragraph (3)(E)--
                  ``(A) the reference in section 1857(g)(1)(B) to 
                section 1854 is deemed a reference to this part; and
                  ``(B) the reference in section 1857(g)(1)(F) to 
                section 1852(k)(2)(A)(ii) shall not be applied.
          ``(5) Service area requirement.--For purposes of this part, 
        the Administrator shall designate at least 10 areas covering 
        the entire United States and to the extent practicable shall be 
        consistent with EFFS regions established under section 1860E-
        1(a)(2).
  ``(c) Waiver of Certain Requirements to Expand Choice.--
          ``(1) In general.--In the case of an entity that seeks to 
        offer a prescription drug plan in a State, the Administrator 
        shall waive the requirement of subsection (a)(1) that the 
        entity be licensed in that State if the Administrator 
        determines, based on the application and other evidence 
        presented to the Administrator, that any of the grounds for 
        approval of the application described in paragraph (2) have 
        been met.
          ``(2) Grounds for approval.--The grounds for approval under 
        this paragraph are the grounds for approval described in 
        subparagraph (B), (C), and (D) of section 1855(a)(2), and also 
        include the application by a State of any grounds other than 
        those required under Federal law.
          ``(3) Application of waiver procedures.--With respect to an 
        application for a waiver (or a waiver granted) under this 
        subsection, the provisions of subparagraphs (E), (F), and (G) 
        of section 1855(a)(2) shall apply.
          ``(4) Licensure does not substitute for or constitute 
        certification.--The fact that an entity is licensed in 
        accordance with subsection (a)(1) does not deem the entity to 
        meet other requirements imposed under this part for a PDP 
        sponsor.
          ``(5) References to certain provisions.--For purposes of this 
        subsection, in applying provisions of section 1855(a)(2) under 
        this subsection to prescription drug plans and PDP sponsors--
                  ``(A) any reference to a waiver application under 
                section 1855 shall be treated as a reference to a 
                waiver application under paragraph (1); and
                  ``(B) any reference to solvency standards shall be 
                treated as a reference to solvency standards 
                established under subsection (d).
  ``(d) Solvency Standards for Non-Licensed Sponsors.--
          ``(1) Establishment.--The Administrator shall establish, by 
        not later than October 1, 2004, financial solvency and capital 
        adequacy standards that an entity that does not meet the 
        requirements of subsection (a)(1) must meet to qualify as a PDP 
        sponsor under this part.
          ``(2) Compliance with standards.--Each PDP sponsor that is 
        not licensed by a State under subsection (a)(1) and for which a 
        waiver application has been approved under subsection (c) shall 
        meet solvency and capital adequacy standards established under 
        paragraph (1). The Administrator shall establish certification 
        procedures for such PDP sponsors with respect to such solvency 
        standards in the manner described in section 1855(c)(2).
  ``(e) Relation to State Laws.--
          ``(1) In general.--The standards established under this part 
        shall supersede any State law or regulation (other than State 
        licensing laws or State laws relating to plan solvency, except 
        as provided in subsection (d)) with respect to prescription 
        drug plans which are offered by PDP sponsors under this part.
          ``(2) Prohibition of state imposition of premium taxes.--No 
        State may impose a premium tax or similar tax with respect to 
        premiums paid to PDP sponsors for prescription drug plans under 
        this part, or with respect to any payments made to such a 
        sponsor by the Administrator under this part.

``SEC. 1860D-5. PROCESS FOR BENEFICIARIES TO SELECT QUALIFIED 
                    PRESCRIPTION DRUG COVERAGE.

  ``(a) In General.--The Administrator shall establish a process for 
the selection of the prescription drug plan or MA-EFFS Rx plan through 
which eligible individuals elect qualified prescription drug coverage 
under this part.
  ``(b) Elements.--Such process shall include the following:
          ``(1) Annual, coordinated election periods, in which such 
        individuals can change the qualifying plans through which they 
        obtain coverage, in accordance with section 1860D-1(b)(2).
          ``(2) Active dissemination of information to promote an 
        informed selection among qualifying plans based upon price, 
        quality, and other features, in the manner described in (and in 
        coordination with) section 1851(d), including the provision of 
        annual comparative information, maintenance of a toll-free 
        hotline, and the use of non-Federal entities.
          ``(3) Coordination of elections through filing with the 
        entity offering a MA-EFFS Rx plan or a PDP sponsor, in the 
        manner described in (and in coordination with) section 
        1851(c)(2).
          ``(4) Informing each enrollee before the beginning of each 
        year of the annual out-of-pocket threshold applicable to the 
        enrollee for that year under section 1860D-2(b)(4) at such 
        time.
  ``(c) MA-EFFS Rx Enrollee May Only Obtain Benefits Through the 
Plan.--An individual who is enrolled under a MA-EFFS Rx plan may only 
elect to receive qualified prescription drug coverage under this part 
through such plan.
  ``(d) Assuring Access to a Choice of Qualified Prescription Drug 
Coverage.--
          ``(1) Choice of at least two plans in each area.--
                  ``(A) In general.--The Administrator shall assure 
                that each individual who is entitled to benefits under 
                part A or enrolled under part B and who is residing in 
                an area in the United States has available, consistent 
                with subparagraph (B), a choice of enrollment in at 
                least two qualifying plans (as defined in paragraph 
                (5)) in the area in which the individual resides, at 
                least one of which is a prescription drug plan.
                  ``(B) Requirement for different plan sponsors.--The 
                requirement in subparagraph (A) is not satisfied with 
                respect to an area if only one PDP sponsor or one 
                entity that offers a MA-EFFS Rx plan offers all the 
                qualifying plans in the area.
          ``(2) Guaranteeing access to coverage.--In order to assure 
        access under paragraph (1) and consistent with paragraph (3), 
        the Administrator may provide partial underwriting of risk for 
        a PDP sponsor to expand the service area under an existing 
        prescription drug plan to adjoining or additional areas or to 
        establish such a plan (including offering such a plan on a 
        regional or nationwide basis), but only so long as (and to the 
        extent) necessary to assure the access guaranteed under 
        paragraph (1).
          ``(3) Limitation on authority.--In exercising authority under 
        this subsection, the Administrator--
                  ``(A) shall not provide for the full underwriting of 
                financial risk for any PDP sponsor; and
                  ``(B) shall seek to maximize the assumption of 
                financial risk by PDP sponsors or entities offering a 
                MA-EFFS Rx plan.
          ``(4) Reports.--The Administrator shall, in each annual 
        report to Congress under section 1809(f), include information 
        on the exercise of authority under this subsection. The 
        Administrator also shall include such recommendations as may be 
        appropriate to minimize the exercise of such authority, 
        including minimizing the assumption of financial risk.
          ``(5) Qualifying plan defined.--For purposes of this 
        subsection, the term `qualifying plan' means a prescription 
        drug plan or a MA-EFFS Rx plan.

``SEC. 1860D-6. SUBMISSION OF BIDS AND PREMIUMS.

  ``(a) Submission of Bids, Premiums, and Related Information.--
          ``(1) In general.--Each PDP sponsor shall submit to the 
        Administrator the information described in paragraph (2) in the 
        same manner as information is submitted by an organization 
        under section 1854(a)(1).
          ``(2) Information submitted.--The information described in 
        this paragraph is the following:
                  ``(A) Coverage provided.--Information on the 
                qualified prescription drug coverage to be provided.
                  ``(B) Actuarial value.--Information on the actuarial 
                value of the coverage.
                  ``(C) Bid and premium.--Information on the bid and 
                the premium for the coverage, including an actuarial 
                certification of--
                          ``(i) the actuarial basis for such bid and 
                        premium;
                          ``(ii) the portion of such bid and premium 
                        attributable to benefits in excess of standard 
                        coverage;
                          ``(iii) the reduction in such bid resulting 
                        from the reinsurance subsidy payments provided 
                        under section 1860D-8(a)(2); and
                          ``(iv) the reduction in such premium 
                        resulting from the direct and reinsurance 
                        subsidy payments provided under section 1860D-
                        8.
                  ``(D) Additional information.--Such other information 
                as the Administrator may require to carry out this 
                part.
          ``(3) Review of information; negotiation and approval of 
        premiums.--
                  ``(A) In general.--Subject to subparagraph (B), the 
                Administrator shall review the information filed under 
                paragraph (2) for the purpose of conducting 
                negotiations under section 1860D-4(b)(2) (relating to 
                using OPM-like authority under the FEHBP). The 
                Administrator, using the information provided 
                (including the actuarial certification under paragraph 
                (2)(C)) shall approve the premium submitted under this 
                subsection only if the premium accurately reflects both 
                (i) the actuarial value of the benefits provided, and 
                (ii) the 73 percent average subsidy provided under 
                section 1860D-8 for the standard benefit. The 
                Administrator shall apply actuarial principles to 
                approval of a premium under this part in a manner 
                similar to the manner in which those principles are 
                applied in establishing the monthly part B premium 
                under section 1839.
                  ``(B) Exception.--In the case of a plan described in 
                section 1851(a)(2)(C), the provisions of subparagraph 
                (A) shall not apply and the provisions of paragraph 
                (5)(B) of section 1854(a), prohibiting the review, 
                approval, or disapproval of amounts described in such 
                paragraph, shall apply to the negotiation and rejection 
                of the monthly bid amounts and proportion referred to 
                in subparagraph (A).
  ``(b) Uniform Bid and Premium.--
          ``(1) In general.--The bid and premium for a prescription 
        drug plan under this section may not vary among enrollees in 
        the plan in the same service area.
          ``(2) Construction.--Nothing in paragraph (1) shall be 
        construed as preventing the imposition of a late enrollment 
        penalty under section 1860D-1(c)(2)(B).
  ``(c) Collection.--
          ``(1) Beneficiary's option of payment through withholding 
        from social security payment or use of electronic funds 
        transfer mechanism.--In accordance with regulations, a PDP 
        sponsor shall permit each enrollee, at the enrollee's option, 
        to make payment of premiums under this part to the sponsor 
        through withholding from benefit payments in the manner 
        provided under section 1840 with respect to monthly premiums 
        under section 1839 or through an electronic funds transfer 
        mechanism (such as automatic charges of an account at a 
        financial institution or a credit or debit card account) or 
        otherwise. All premium payments that are withheld under this 
        paragraph shall be credited to the Medicare Prescription Drug 
        Trust Fund and shall be paid to the PDP sponsor involved.
          ``(2) Offsetting.--Reductions in premiums for coverage under 
        parts A and B as a result of a selection of a MA-EFFS Rx plan 
        may be used to reduce the premium otherwise imposed under 
        paragraph (1).
  ``(d) Acceptance of Reference Premium Amount as Full Premium for 
Subsidized Low-Income Individuals if No Standard (or Equivalent) 
Coverage in an Area.--
          ``(1) In general.--If there is no standard prescription drug 
        coverage (as defined in paragraph (2)) offered in an area, in 
        the case of an individual who is eligible for a premium subsidy 
        under section 1860D-7 and resides in the area, the PDP sponsor 
        of any prescription drug plan offered in the area (and any 
        entity offering a MA-EFFS Rx plan in the area) shall accept the 
        reference premium amount (under paragraph (3)) as payment in 
        full for the premium charge for qualified prescription drug 
        coverage.
          ``(2) Standard prescription drug coverage defined.--For 
        purposes of this subsection, the term `standard prescription 
        drug coverage' means qualified prescription drug coverage that 
        is standard coverage or that has an actuarial value equivalent 
        to the actuarial value for standard coverage.
          ``(3) Reference premium amount defined.--For purposes of this 
        subsection, the term `reference premium amount' means, with 
        respect to qualified prescription drug coverage offered under--
                  ``(A) a prescription drug plan that--
                          ``(i) provides standard coverage (or 
                        alternative prescription drug coverage the 
                        actuarial value of which is equivalent to that 
                        of standard coverage), the plan's PDP premium; 
                        or
                          ``(ii) provides alternative prescription drug 
                        coverage the actuarial value of which is 
                        greater than that of standard coverage, the 
                        plan's PDP premium multiplied by the ratio of 
                        (I) the actuarial value of standard coverage, 
                        to (II) the actuarial value of the alternative 
                        coverage;
                  ``(B) an EFFS plan, the EFFS monthly prescription 
                drug beneficiary premium (as defined in section 1860E-
                4(a)(3)(B)); or
                  ``(C) a Medicare Advantage, the Medicare Advantage 
                monthly prescription drug beneficiary premium (as 
                defined in section 1854(b)(2)(B)).
        For purposes of subparagraph (A), the term `PDP premium' means, 
        with respect to a prescription drug plan, the premium amount 
        for enrollment under the plan under this part (determined 
        without regard to any low-income subsidy under section 1860D-7 
        or any late enrollment penalty under section 1860D-1(c)(2)(B)).

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

  ``(a) Income-Related Subsidies for Individuals With Income Below 150 
Percent of Federal Poverty Level.--
          ``(1) Full premium subsidy and reduction of cost-sharing for 
        individuals with income below 135 percent of federal poverty 
        level.--In the case of a subsidy eligible individual (as 
        defined in paragraph (4)) who is determined to have income that 
        does not exceed 135 percent of the Federal poverty level, the 
        individual is entitled under this section--
                  ``(A) to an income-related premium subsidy equal to 
                100 percent of the amount described in subsection 
                (b)(1); and
                  ``(B) subject to subsection (c), to the substitution 
                for the beneficiary cost-sharing described in 
                paragraphs (1) and (2) of section 1860D-2(b) (up to the 
                initial coverage limit specified in paragraph (3) of 
                such section) of amounts that do not exceed $2 for a 
                multiple source or generic drug (as described in 
                section 1927(k)(7)(A)) and $5 for a non-preferred drug.
          ``(2) Sliding scale premium subsidy for individuals with 
        income above 135, but below 150 percent, of federal poverty 
        level.--In the case of a subsidy eligible individual who is 
        determined to have income that exceeds 135 percent, but does 
        not exceed 150 percent, of the Federal poverty level, the 
        individual is entitled under this section to an income-related 
        premium subsidy determined on a linear sliding scale ranging 
        from 100 percent of the amount described in subsection (b)(1) 
        for individuals with incomes at 135 percent of such level to 0 
        percent of such amount for individuals with incomes at 150 
        percent of such level.
          ``(3) Construction.--Nothing in this section shall be 
        construed as preventing a PDP sponsor or entity offering a MA-
        EFFS Rx plan from reducing to 0 the cost-sharing otherwise 
        applicable to generic drugs.
          ``(4) Determination of eligibility.--
                  ``(A) Subsidy eligible individual defined.--For 
                purposes of this section, subject to subparagraph (D), 
                the term `subsidy eligible individual' means an 
                individual who--
                          ``(i) is eligible to elect, and has elected, 
                        to obtain qualified prescription drug coverage 
                        under this part;
                          ``(ii) has income below 150 percent of the 
                        Federal poverty line; and
                          ``(iii) meets the resources requirement 
                        described in subparagraph (D) .
                  ``(B) Determinations.--The determination of whether 
                an individual residing in a State is a subsidy eligible 
                individual and the amount of such individual's income 
                shall be determined under the State medicaid plan for 
                the State under section 1935(a) or by the Social 
                Security Administration. In the case of a State that 
                does not operate such a medicaid plan (either under 
                title XIX or under a statewide waiver granted under 
                section 1115), such determination shall be made under 
                arrangements made by the Administrator. There are 
                authorized to be appropriated to the Social Security 
                Administration such sums as may be necessary for the 
                determination of eligibility under this subparagraph.
                  ``(C) Income determinations.--For purposes of 
                applying this section--
                          ``(i) income shall be determined in the 
                        manner described in section 1905(p)(1)(B); and
                          ``(ii) the term `Federal poverty line' means 
                        the official poverty line (as defined by the 
                        Office of Management and Budget, and revised 
                        annually in accordance with section 673(2) of 
                        the Omnibus Budget Reconciliation Act of 1981) 
                        applicable to a family of the size involved.
                  ``(D) Resource standard applied to be based on twice 
                ssi resource standard.--The resource requirement of 
                this subparagraph is that an individual's resources (as 
                determined under section 1613 for purposes of the 
                supplemental security income program) do not exceed--
                          ``(i) for 2006 twice the maximum amount of 
                        resources that an individual may have and 
                        obtain benefits under that program; and
                          ``(ii) for a subsequent year the resource 
                        limitation established under this clause for 
                        the previous year increased by the annual 
                        percentage increase in the consumer price index 
                        (all items; U.S. city average) as of September 
                        of such previous year.
                Any resource limitation established under clause (ii) 
                that is not a multiple of $10 shall be rounded to the 
                nearest multiple of $10.
                  ``(E) Treatment of territorial residents.--In the 
                case of an individual who is not a resident of the 50 
                States or the District of Columbia, the individual is 
                not eligible to be a subsidy eligible individual but 
                may be eligible for financial assistance with 
                prescription drug expenses under section 1935(e).
                  ``(F) Treatment of conforming medigap policies.--For 
                purposes of this section, the term `qualified 
                prescription drug coverage' includes a medicare 
                supplemental policy described in section 1860D-8(b)(4).
          ``(5) Indexing dollar amounts.--
                  ``(A) For 2007.--The dollar amounts applied under 
                paragraphs (1)(B) for 2007 shall be the dollar amounts 
                specified in such paragraph increased by the annual 
                percentage increase described in section 1860D-2(b)(5) 
                for 2007.
                  ``(B) For subsequent years.--The dollar amounts 
                applied under paragraph (1)(B) for a year after 2007 
                shall be the amounts (under this paragraph) applied 
                under paragraph (1)(B) for the preceding year increased 
                by the annual percentage increase described in section 
                1860D-2(b)(5) (relating to growth in medicare 
                prescription drug costs per beneficiary) for the year 
                involved.
  ``(b) Premium Subsidy Amount.--
          ``(1) In general.--The premium subsidy amount described in 
        this subsection for an individual residing in an area is the 
        benchmark premium amount (as defined in paragraph (2)) for 
        qualified prescription drug coverage offered by the 
        prescription drug plan or the MA-EFFS Rx plan in which the 
        individual is enrolled.
          ``(2) Benchmark premium amount defined.--For purposes of this 
        subsection, the term `benchmark premium amount' means, with 
        respect to qualified prescription drug coverage offered under--
                  ``(A) a prescription drug plan that--
                          ``(i) provides standard coverage (or 
                        alternative prescription drug coverage the 
                        actuarial value of which is equivalent to that 
                        of standard coverage), the premium amount for 
                        enrollment under the plan under this part 
                        (determined without regard to any subsidy under 
                        this section or any late enrollment penalty 
                        under section 1860D-1(c)(2)(B)); or
                          ``(ii) provides alternative prescription drug 
                        coverage the actuarial value of which is 
                        greater than that of standard coverage, the 
                        premium amount described in clause (i) 
                        multiplied by the ratio of (I) the actuarial 
                        value of standard coverage, to (II) the 
                        actuarial value of the alternative coverage; or
                  ``(B) a MA-EFFS Rx plan, the portion of the premium 
                amount that is attributable to statutory drug benefits 
                (described in section 1853(a)(1)(A)(ii)(II)).
  ``(c) Rules in Applying Cost-Sharing Subsidies.--
          ``(1) In general.--In applying subsection (a)(1)(B), nothing 
        in this part shall be construed as preventing a plan or 
        provider from waiving or reducing the amount of cost-sharing 
        otherwise applicable.
          ``(2) Limitation on charges.--In the case of an individual 
        receiving cost-sharing subsidies under subsection (a)(1)(B), 
        the PDP sponsor or entity offering a MA-EFFS Rx plan may not 
        charge more than $5 per prescription.
          ``(3) Application of indexing rules.--The provisions of 
        subsection (a)(5) shall apply to the dollar amount specified in 
        paragraph (2) in the same manner as they apply to the dollar 
        amounts specified in subsections (a)(1)(B).
  ``(d) Administration of Subsidy Program.--The Administrator shall 
provide a process whereby, in the case of an individual who is 
determined to be a subsidy eligible individual and who is enrolled in 
prescription drug plan or is enrolled in a MA-EFFS Rx plan--
          ``(1) the Administrator provides for a notification of the 
        PDP sponsor or the entity offering the MA-EFFS Rx plan involved 
        that the individual is eligible for a subsidy and the amount of 
        the subsidy under subsection (a);
          ``(2) the sponsor or entity involved reduces the premiums or 
        cost-sharing otherwise imposed by the amount of the applicable 
        subsidy and submits to the Administrator information on the 
        amount of such reduction; and
          ``(3) the Administrator periodically and on a timely basis 
        reimburses the sponsor or entity for the amount of such 
        reductions.
The reimbursement under paragraph (3) with respect to cost-sharing 
subsidies may be computed on a capitated basis, taking into account the 
actuarial value of the subsidies and with appropriate adjustments to 
reflect differences in the risks actually involved.
  ``(e) Relation to Medicaid Program.--
          ``(1) In general.--For provisions providing for eligibility 
        determinations, and additional financing, under the medicaid 
        program, see section 1935.
          ``(2) Medicaid providing wrap around benefits.--The coverage 
        provided under this part is primary payor to benefits for 
        prescribed drugs provided under the medicaid program under 
        title XIX consistent with section 1935(d)(1).
          ``(3) Coordination.--The Administrator shall develop and 
        implement a plan for the coordination of prescription drug 
        benefits under this part with the benefits provided under the 
        medicaid program under title XIX, with particular attention to 
        insuring coordination of payments and prevention of fraud and 
        abuse. In developing and implementing such plan, the 
        Administrator shall involve the Secretary, the States, the data 
        processing industry, pharmacists, and pharmaceutical 
        manufacturers, and other experts.

``SEC. 1860D-8. SUBSIDIES FOR ALL MEDICARE BENEFICIARIES FOR QUALIFIED 
                    PRESCRIPTION DRUG COVERAGE.

  ``(a) Subsidy Payment.--In order to reduce premium levels applicable 
to qualified prescription drug coverage for all medicare beneficiaries 
consistent with an overall subsidy level of 73 percent, to reduce 
adverse selection among prescription drug plans and MA-EFFS Rx plans, 
and to promote the participation of PDP sponsors under this part, the 
Administrator shall provide in accordance with this section for payment 
to a qualifying entity (as defined in subsection (b)) of the following 
subsidies:
          ``(1) Direct subsidy.--In the case of an enrollee enrolled 
        for a month in a prescription drug plan or a MA-EFFS Rx plan, a 
        direct subsidy equal to 43 percent of the national average 
        monthly bid amount (computed under subsection (g)) for that 
        month.
          ``(2) Subsidy through reinsurance.--In the case of an 
        enrollee enrolled for a month in a prescription drug plan or a 
        MA-EFFS Rx plan, the reinsurance payment amount (as defined in 
        subsection (c)), which in the aggregate is 30 percent of the 
        total payments made by qualifying entities for standard 
        coverage under the respective plan, for excess costs incurred 
        in providing qualified prescription drug coverage--
                  ``(A) for enrollees with a prescription drug plan 
                under this part; and
                  ``(B) for enrollees with a MA-EFFS Rx plan.
          ``(3) Employer and union flexibility.--In the case of an 
        individual who is a participant or beneficiary in a qualified 
        retiree prescription drug plan (as defined in subsection 
        (f)(1)) and who is not enrolled in a prescription drug plan or 
        in a MA-EFFS Rx plan, the special subsidy payments under 
        subsection (f)(3).
This section constitutes budget authority in advance of appropriations 
Acts and represents the obligation of the Administrator to provide for 
the payment of amounts provided under this section. In applying the 
percentages under paragraphs (1) and (2), there shall be taken into 
account under the respective paragraphs the portion of the employer and 
union special subsidy payments under subsection (f)(3) that reflect 
payments that would have been made under the respective paragraphs if 
such paragraphs had applied to qualified retiree prescription drug 
plans instead of paragraph (3).
  ``(b) Qualifying Entity Defined.--For purposes of this section, the 
term `qualifying entity' means any of the following that has entered 
into an agreement with the Administrator to provide the Administrator 
with such information as may be required to carry out this section:
          ``(1) A PDP sponsor offering a prescription drug plan under 
        this part.
          ``(2) An entity that offers a MA-EFFS Rx plan.
          ``(3) The sponsor of a qualified retiree prescription drug 
        plan (as defined in subsection (f)).
  ``(c) Reinsurance Payment Amount.--
          ``(1) In general.--Subject to subsection (d)(1)(B) and 
        paragraph (4), the reinsurance payment amount under this 
        subsection for a qualifying covered individual (as defined in 
        paragraph (5)) for a coverage year (as defined in subsection 
        (h)(2)) is equal to the sum of the following:
                  ``(A) Reinsurance between initial reinsurance 
                threshold and the initial coverage limit.--For the 
                portion of the individual's gross covered prescription 
                drug costs (as defined in paragraph (3)) for the year 
                that exceeds the initial reinsurance threshold 
                specified in paragraph (4), but does not exceed the 
                initial coverage limit specified in section 1860D-
                2(b)(3), an amount equal to 20 percent of the allowable 
                costs (as defined in paragraph (2)) attributable to 
                such gross covered prescription drug costs.
                  ``(B) Reinsurance above annual out-of-pocket 
                threshold.--For the portion of the individual's gross 
                covered prescription drug costs for the year that 
                exceeds the annual out-of-pocket threshold specified in 
                1860D-2(b)(4)(B), an amount equal to 80 percent of the 
                allowable costs attributable to such gross covered 
                prescription drug costs.
          ``(2) Allowable costs.--For purposes of this section, the 
        term `allowable costs' means, with respect to gross covered 
        prescription drug costs under a plan described in subsection 
        (b) offered by a qualifying entity, the part of such costs that 
        are actually paid (net of discounts, chargebacks, and average 
        percentage rebates) under the plan, but in no case more than 
        the part of such costs that would have been paid under the plan 
        if the prescription drug coverage under the plan were standard 
        coverage.
          ``(3) Gross covered prescription drug costs.--For purposes of 
        this section, the term `gross covered prescription drug costs' 
        means, with respect to an enrollee with a qualifying entity 
        under a plan described in subsection (b) during a coverage 
        year, the costs incurred under the plan (including costs 
        attributable to administrative costs) for covered prescription 
        drugs dispensed during the year, including costs relating to 
        the deductible, whether paid by the enrollee or under the plan, 
        regardless of whether the coverage under the plan exceeds 
        standard coverage and regardless of when the payment for such 
        drugs is made.
          ``(4) Initial reinsurance threshold.--The initial reinsurance 
        threshold specified in this paragraph--
                  ``(A) for 2006, is equal to $1,000; or
                  ``(B) for a subsequent year, is equal to the payment 
                threshold specified in this paragraph for the previous 
                year, increased by the annual percentage increase 
                described in section 1860D-2(b)(5) for the year 
                involved.
        Any amount determined under subparagraph (B) that is not a 
        multiple of $10 shall be rounded to the nearest multiple of 
        $10.
          ``(5) Qualifying covered individual defined.--For purposes of 
        this subsection, the term `qualifying covered individual' means 
        an individual who--
                  ``(A) is enrolled with a prescription drug plan under 
                this part; or
                  ``(B) is enrolled with a MA-EFFS Rx plan.
  ``(d) Adjustment of Payments.--
          ``(1) Adjustment of reinsurance payments to assure 30 percent 
        level of subsidy through reinsurance.--
                  ``(A) Estimation of payments.--The Administrator 
                shall estimate--
                          ``(i) the total payments to be made (without 
                        regard to this subsection) during a year under 
                        subsections (a)(2) and (c); and
                          ``(ii) the total payments to be made by 
                        qualifying entities for standard coverage under 
                        plans described in subsection (b) during the 
                        year.
                  ``(B) Adjustment.--The Administrator shall 
                proportionally adjust the payments made under 
                subsections (a)(2) and (c) for a coverage year in such 
                manner so that the total of the payments made under 
                such subsections (and under subsection (f)(3) insofar 
                as such payments reflect payments that would have been 
                made under such subsections if such subsections had 
                applied to qualified retiree prescription drug plans 
                instead of subsections (a)(3) and (f)(3)) for the year 
                is equal to 30 percent of the total payments described 
                in subparagraph (A)(ii).
          ``(2) Risk adjustment for direct subsidies.--To the extent 
        the Administrator determines it appropriate to avoid risk 
        selection, the payments made for direct subsidies under 
        subsection (a)(1) are subject to adjustment based upon risk 
        factors specified by the Administrator. Any such risk 
        adjustment shall be designed in a manner as to not result in a 
        change in the aggregate payments made under such subsection.
  ``(e) Payment Methods.--
          ``(1) In general.--Payments under this section shall be based 
        on such a method as the Administrator determines. The 
        Administrator may establish a payment method by which interim 
        payments of amounts under this section are made during a year 
        based on the Administrator's best estimate of amounts that will 
        be payable after obtaining all of the information.
          ``(2) Source of payments.--Payments under this section shall 
        be made from the Medicare Prescription Drug Trust Fund.
  ``(f) Rules Relating to Qualified Retiree Prescription Drug Plan.--
          ``(1) Definition.--For purposes of this section, the term 
        `qualified retiree prescription drug plan' means employment-
        based retiree health coverage (as defined in paragraph (4)(A)) 
        if, with respect to an individual who is a participant or 
        beneficiary under such coverage and is eligible to be enrolled 
        in a prescription drug plan or a MA-EFFS Rx plan under this 
        part, the following requirements are met:
                  ``(A) Actuarial equivalence to standard coverage.--
                The Administrator determines (based on an actuarial 
                analysis by the Administrator) that coverage provides 
                at least the same actuarial value as standard coverage. 
                Such determination may be made on an annual basis.
                  ``(B) Audits.--The sponsor (and the plan) shall 
                maintain, and afford the Administrator access to, such 
                records as the Administrator may require for purposes 
                of audits and other oversight activities necessary to 
                ensure the adequacy of prescription drug coverage and 
                the accuracy of payments made.
                  ``(C) Provision of certification of prescription drug 
                coverage.--The sponsor of the plan shall provide for 
                issuance of certifications of the type described in 
                section 1860D-1(c)(2)(D).
          ``(2) Limitation on benefit eligibility.--No payment shall be 
        provided under this section with respect to a participant or 
        beneficiary in a qualified retiree prescription drug plan 
        unless the individual is--
                  ``(A) is covered under the plan; and
                  ``(B) is eligible to obtain qualified prescription 
                drug coverage under section 1860D-1 but did not elect 
                such coverage under this part (either through a 
                prescription drug plan or through a MA-EFFS Rx plan).
          ``(3) Employer and union special subsidy amounts.--
                  ``(A) In general.--For purposes of subsection (a), 
                the special subsidy payment amount under this paragraph 
                for a qualifying covered retiree(as defined in 
                paragraph (6)) for a coverage year (as defined in 
                subsection (h)) enrolled in a qualifying entity 
                described in subsection (b)(3) under a qualified 
                retiree prescription drug plan is, for the portion of 
                the individual's gross covered prescription drug costs 
                for the year that exceeds the deductible amount 
                specified in subparagraph (B), an amount equal to, 
                subject to subparagraph (D), 28 percent of the 
                allowable costs attributable to such gross covered 
                prescription drug costs, but only to the extent such 
                costs exceed the deductible under subparagraph (B) and 
                do not exceed the cost limit under such subparagraph in 
                the case of any such individual for the plan year.
                  ``(B) Deductible and cost limit applicable.--Subject 
                to subparagraph (C)--
                          ``(i) the deductible under this subparagraph 
                        is equal to $250 for plan years that end in 
                        2006; and
                          ``(ii) the cost limit under this subparagraph 
                        is equal to $5,000 for plan years that end in 
                        2006.
                  ``(C) Indexing.--The deductible and cost limit 
                amounts specified in subparagraphs (B) for a plan year 
                that ends after 2006 shall be adjusted in the same 
                manner as the annual deductible under section 1860D-
                2(b)(1) is annually adjusted under such section.
                  ``(D) Adjustment contingency.--The Secretary may 
                adjust the percentage specified in subparagraph (A) 
                with respect to plan years that end in a year in a 
                manner so that the aggregate expenditures in the year 
                under this section are the same as the aggregate 
                expenditures that would have been made under this 
                section (taking into account the effect of any 
                adjustment under subsection (d)(1)(B)) if paragraphs 
                (1) and (2) of subsection (a) had applied to qualified 
                prescription drug coverage instead of this paragraph 
                and subsection (a)(3).
          ``(4) Related definitions.--As used in this section:
                  ``(A) Employment-based retiree health coverage.--The 
                term `employment-based retiree health coverage' means 
                health insurance or other coverage of health care costs 
                for individuals eligible to enroll in a prescription 
                drug plan or MA-EFFS Rx plan under this part (or for 
                such individuals and their spouses and dependents) 
                under a group health plan (including such a plan that 
                is established or maintained under or pursuant to one 
                or more collective bargaining agreements) based on 
                their status as retired participants in such plan.
                  ``(B) Qualifying covered retiree.--The term 
                `qualifying covered retiree' means an individual who is 
                eligible to obtain qualified prescription drug coverage 
                under section 1860D-1 but did not elect such coverage 
                under this part (either through a prescription drug 
                plan or through a MA-EFFS Rx plan) but is covered under 
                a qualified retiree prescription drug plan.
                  ``(C) Sponsor.--The term `sponsor' means a plan 
                sponsor, as defined in section 3(16)(B) of the Employee 
                Retirement Income Security Act of 1974.
          ``(5) Construction.--Nothing in this subsection shall be 
        construed as--
                  ``(A) precluding an individual who is covered under 
                employment-based retiree health coverage from enrolling 
                in a prescription drug plan or in a MA-EFFS plan;
                  ``(B) precluding such employment-based retiree health 
                coverage or an employer or other person from paying all 
                or any portion of any premium required for coverage 
                under such a prescription drug plan or MA-EFFS plan on 
                behalf of such an individual; or
                  ``(C) preventing such employment-based retiree health 
                coverage from providing coverage for retirees--
                          ``(i) who are covered under a qualified 
                        retiree prescription plan that is better than 
                        standard coverage; or
                          ``(ii) who are not covered under a qualified 
                        retiree prescription plan but who are enrolled 
                        in a prescription drug plan or a MA-EFFS Rx 
                        plan, that is supplemental to the benefits 
                        provided under such prescription drug plan or 
                        MA-EFFS Rx plan, except that any such 
                        supplemental coverage (not including payment of 
                        any premium referred to in subparagraph (B)) 
                        shall be treated as primary coverage to which 
                        section 1862(b)(2)(A)(i) is deemed to apply.
  ``(g) Computation of National Average Monthly Bid Amount.--
          ``(1) In general.--For each year (beginning with 2006) the 
        Administrator shall compute a national average monthly bid 
        amount equal to the average of the benchmark bid amounts for 
        each prescription drug plan and for each MA-EFFS Rx plan (as 
        computed under paragraph (2), but excluding plans described in 
        section 1851(a)(2)(C))) adjusted under paragraph (4) to take 
        into account reinsurance payments.
          ``(2) Benchmark bid amount defined.--For purposes of this 
        subsection, the term `benchmark bid amount' means, with respect 
        to qualified prescription drug coverage offered under--
                  ``(A) a prescription drug plan that--
                          ``(i) provides standard coverage (or 
                        alternative prescription drug coverage the 
                        actuarial value is equivalent to that of 
                        standard coverage), the PDP bid; or
                          ``(ii) provides alternative prescription drug 
                        coverage the actuarial value of which is 
                        greater than that of standard coverage, the PDP 
                        bid multiplied by the ratio of (I) the 
                        actuarial value of standard coverage, to (II) 
                        the actuarial value of the alternative 
                        coverage; or
                  ``(B) a MA-EFFS Rx plan, the portion of the bid 
                amount that is attributable to statutory drug benefits 
                (described in section 1853(a)(1)(A)(ii)(II)).
        For purposes of subparagraph (A), the term `PDP bid' means, 
        with respect to a prescription drug plan, the bid amount for 
        enrollment under the plan under this part (determined without 
        regard to any low-income subsidy under section 1860D-7 or any 
        late enrollment penalty under section 1860D-1(c)(2)(B)).
          ``(3) Weighted average.--
                  ``(A) In general.--The monthly national average 
                monthly bid amount computed under paragraph (1) shall 
                be a weighted average, with the weight for each plan 
                being equal to the average number of beneficiaries 
                enrolled under such plan in the previous year.
                  ``(B) Special rule for 2006.--For purposes of 
                applying this subsection for 2006, the Administrator 
                shall establish procedures for determining the weighted 
                average under subparagraph (A) for 2005.
          ``(4) Adjustment to add back in value of reinsurance 
        subsidies.--The adjustment under this paragraph, to take into 
        account reinsurance payments under subsection (c) making up 30 
        percent of total payments, is such an adjustment as will make 
        the national average monthly bid amount represent represent 100 
        percent, instead of representing 70 percent, of average 
        payments under this part.
  ``(h) Coverage Year Defined.--For purposes of this section, the term 
`coverage year' means a calendar year in which covered outpatient drugs 
are dispensed if a claim for payment is made under the plan for such 
drugs, regardless of when the claim is paid.

``SEC. 1860D-9. MEDICARE PRESCRIPTION DRUG TRUST FUND.

  ``(a) In General.--There is created on the books of the Treasury of 
the United States a trust fund to be known as the `Medicare 
Prescription Drug Trust Fund' (in this section referred to as the 
`Trust Fund'). The Trust Fund shall consist of such gifts and bequests 
as may be made as provided in section 201(i)(1), and such amounts as 
may be deposited in, or appropriated to, such fund as provided in this 
part. Except as otherwise provided in this section, the provisions of 
subsections (b) through (i) of section 1841 shall apply to the Trust 
Fund in the same manner as they apply to the Federal Supplementary 
Medical Insurance Trust Fund under such section.
  ``(b) Payments From Trust Fund.--
          ``(1) In general.--The Managing Trustee shall pay from time 
        to time from the Trust Fund such amounts as the Administrator 
        certifies are necessary to make--
                  ``(A) payments under section 1860D-7 (relating to 
                low-income subsidy payments);
                  ``(B) payments under section 1860D-8 (relating to 
                subsidy payments); and
                  ``(C) payments with respect to administrative 
                expenses under this part in accordance with section 
                201(g).
          ``(2) Transfers to medicaid account for increased 
        administrative costs.--The Managing Trustee shall transfer from 
        time to time from the Trust Fund to the Grants to States for 
        Medicaid account amounts the Administrator certifies are 
        attributable to increases in payment resulting from the 
        application of a higher Federal matching percentage under 
        section 1935(b).
  ``(c) Deposits Into Trust Fund.--
          ``(1) Low-income transfer.--There is hereby transferred to 
        the Trust Fund, from amounts appropriated for Grants to States 
        for Medicaid, amounts equivalent to the aggregate amount of the 
        reductions in payments under section 1903(a)(1) attributable to 
        the application of section 1935(c).
          ``(2) Appropriations to cover government contributions.--
        There are authorized to be appropriated from time to time, out 
        of any moneys in the Treasury not otherwise appropriated, to 
        the Trust Fund, an amount equivalent to the amount of payments 
        made from the Trust Fund under subsection (b), reduced by the 
        amount transferred to the Trust Fund under paragraph (1).
  ``(d) Relation to Solvency Requirements.--Any provision of law that 
relates to the solvency of the Trust Fund under this part shall take 
into account the Trust Fund and amounts receivable by, or payable from, 
the Trust Fund.

``SEC. 1860D-10. DEFINITIONS; APPLICATION TO MEDICARE ADVANTAGE AND 
                    EFFS PROGRAMS; TREATMENT OF REFERENCES TO 
                    PROVISIONS IN PART C.

  ``(a) Definitions.--For purposes of this part:
          ``(1) Covered outpatient drugs.--The term `covered outpatient 
        drugs' is defined in section 1860D-2(f).
          ``(2) Initial coverage limit.--The term `initial coverage 
        limit' means such limit as established under section 1860D-
        2(b)(3), or, in the case of coverage that is not standard 
        coverage, the comparable limit (if any) established under the 
        coverage.
          ``(3) Medicare prescription drug trust fund.--The term 
        `Medicare Prescription Drug Trust Fund' means the Trust Fund 
        created under section 1860D-9(a).
          ``(4) PDP sponsor.--The term `PDP sponsor' means an entity 
        that is certified under this part as meeting the requirements 
        and standards of this part for such a sponsor.
          ``(5) Prescription drug plan.--The term `prescription drug 
        plan' means health benefits coverage that--
                  ``(A) is offered under a policy, contract, or plan by 
                a PDP sponsor pursuant to, and in accordance with, a 
                contract between the Administrator and the sponsor 
                under section 1860D-4(b);
                  ``(B) provides qualified prescription drug coverage; 
                and
                  ``(C) meets the applicable requirements of the 
                section 1860D-3 for a prescription drug plan.
          ``(6) Qualified prescription drug coverage.--The term 
        `qualified prescription drug coverage' is defined in section 
        1860D-2(a).
          ``(7) Standard coverage.--The term `standard coverage' is 
        defined in section 1860D-2(b).
  ``(b) Offer of Qualified Prescription Drug Coverage Under Medicare 
Advantage and EFFS Programs.--
          ``(1) As part of medicare advantage plan.--Medicare Advantage 
        organizations are required to offer Medicare Advantage plans 
        that include qualified prescription drug coverage under part C 
        pursuant to section 1851(j).
          ``(2) As part of effs plan.--EFFS organizations are required 
        to offer EFFS plans that include qualified prescription drug 
        coverage under part E pursuant to section 1860E-2(d).
  ``(c) Application of Part C Provisions Under this Part.--For purposes 
of applying provisions of part C under this part with respect to a 
prescription drug plan and a PDP sponsor, unless otherwise provided in 
this part such provisions shall be applied as if--
          ``(1) any reference to a Medicare Advantage or other plan 
        included a reference to a prescription drug plan;
          ``(2) any reference to a provider-sponsored organization 
        included a reference to a PDP sponsor;
          ``(3) any reference to a contract under section 1857 included 
        a reference to a contract under section 1860D-4(b); and
          ``(4) any reference to part C included a reference to this 
        part.
  ``(d) Report on Pharmacy Services Provided to Nursing Facility 
Patients.--
          ``(1) Review.--Within 6 months after the date of the 
        enactment of this section, the Secretary shall review the 
        current standards of practice for pharmacy services provided to 
        patients in nursing facilities.
          ``(2) Evaluations and recommendations.--Specifically in the 
        review under paragraph (1), the Secretary shall--
                  ``(A) assess the current standards of practice, 
                clinical services, and other service requirements 
                generally utilized for pharmacy services in the long-
                term care setting;
                  ``(B) evaluate the impact of those standards with 
                respect to patient safety, reduction of medication 
                errors and quality of care; and
                  ``(C) recommend (in the Secretary's report under 
                paragraph (3)) necessary actions and appropriate 
                reimbursement to ensure the provision of prescription 
                drugs to medicare beneficiaries residing in nursing 
                facilities in a manner consistent with existing patient 
                safety and quality of care standards under applicable 
                State and Federal laws.
          ``(3) Report.--The Secretary shall submit a report to the 
        Congress on the Secretary's findings and recommendations under 
        this subsection, including a detailed description of the 
        Secretary's plans to implement this part in a manner consistent 
        with applicable State and Federal laws designed to protect the 
        safety and quality of care of nursing facility patients.''.
  (b) Additional Conforming Changes.--
          (1) Conforming references to previous part d.--Any reference 
        in law (in effect before the date of the enactment of this Act) 
        to part D of title XVIII of the Social Security Act is deemed a 
        reference to part F of such title (as in effect after such 
        date).
          (2) Conforming amendment permitting waiver of cost-sharing.--
        Section 1128B(b)(3) (42 U.S.C. 1320a-7b(b)(3)) is amended--
                  (A) by striking ``and'' at the end of subparagraph 
                (E);
                  (B) by striking the period at the end of subparagraph 
                (F) and inserting ``; and''; and
                  (C) by adding at the end the following new 
                subparagraph:
          ``(G) the waiver or reduction of any cost-sharing imposed 
        under part D of title XVIII.''.
          (3) Submission of legislative proposal.--Not later than 6 
        months after the date of the enactment of this Act, the 
        Secretary of Health and Human Services shall submit to the 
        appropriate committees of Congress a legislative proposal 
        providing for such technical and conforming amendments in the 
        law as are required by the provisions of this subtitle.
  (c) Study on Transitioning Part B Prescription Drug Coverage.--Not 
later than January 1, 2005, the Medicare Benefits Administrator shall 
submit a report to Congress that makes recommendations regarding 
methods for providing benefits under part D of title XVIII of the 
Social Security Act for outpatient prescription drugs for which 
benefits are provided under part B of such title.

SEC. 102. OFFERING OF QUALIFIED PRESCRIPTION DRUG COVERAGE UNDER 
                    MEDICARE ADVANTAGE AND ENHANCED FEE-FOR-SERVICE 
                    (EFFS) PROGRAM.

  (a) Medicare Advantage.--Section 1851 (42 U.S.C. 1395w-21) is amended 
by adding at the end the following new subsection:
  ``(j) Availability of Prescription Drug Benefits and Subsidies.--
          ``(1) Offering of qualified prescription drug coverage.--A 
        Medicare Advantage organization on and after January 1, 2006--
                  ``(A) may not offer a Medicare Advantage plan 
                described in section 1851(a)(2)(A) in an area unless 
                either that plan (or another Medicare Advantage plan 
                offered by the organization in that area) includes 
                qualified prescription drug coverage; and
                  ``(B) may not offer the prescription drug coverage 
                (other than that required under parts A and B) to an 
                enrollee under a Medicare Advantage plan, unless such 
                drug coverage is at least qualified prescription drug 
                coverage and unless the requirements of this subsection 
                with respect to such coverage are met.
          ``(2) Requirement for election of part d coverage to obtain 
        qualified prescription drug coverage.--For purposes of this 
        part, an individual who has not elected qualified prescription 
        drug coverage under section 1860D-1(b) shall be treated as 
        being ineligible to enroll in a Medicare Advantage plan under 
        this part that offers such coverage.
          ``(3) Compliance with certain additional beneficiary 
        protections for prescription drug coverage.--With respect to 
        the offering of qualified prescription drug coverage by a 
        Medicare Advantage organization under this part on and after 
        January 1, 2006, the organization and plan shall meet the 
        requirements of subsections (a) through (d) of section 1860D-3 
        in the same manner as they apply to a PDP sponsor and a 
        prescription drug plan under part D and shall submit to the 
        Administrator the information described in section 1860D-
        6(a)(2). The Administrator shall waive such requirements to the 
        extent the Administrator determines that such requirements 
        duplicate requirements otherwise applicable to the organization 
        or plan under this part.
          ``(4) Availability of premium and cost-sharing subsidies.--In 
        the case of low-income individuals who are enrolled in a 
        Medicare Advantage plan that provides qualified prescription 
        drug coverage, premium and cost-sharing subsidies are provided 
        for such coverage under section 1860D-7.
          ``(5) Availability of direct and reinsurance subsidies to 
        reduce bids and premiums.--Medicare Advantage organizations are 
        provided direct and reinsurance subsidy payments for providing 
        qualified prescription drug coverage under this part under 
        section 1860D-8.
          ``(6) Consolidation of drug and non-drug premiums.--In the 
        case of a Medicare Advantage plan that includes qualified 
        prescription drug coverage, with respect to an enrollee in such 
        plan there shall be a single premium for both drug and non-drug 
        coverage provided under the plan.
          ``(7) Transition in initial enrollment period.--
        Notwithstanding any other provision of this part, the annual, 
        coordinated election period under subsection (e)(3)(B) for 2006 
        shall be the 6-month period beginning with November 2005.
          ``(8) Qualified prescription drug coverage; standard 
        coverage.--For purposes of this part, the terms `qualified 
        prescription drug coverage' and `standard coverage' have the 
        meanings given such terms in section 1860D-2.''.
  (b) Application to EFFS Plans.--Subsection (d) of section 1860E-2, as 
added by section 201(a), is amended to read as follows:
  ``(d) Availability of Prescription Drug Benefits and Subsidies.--
          ``(1) Offering of qualified prescription drug coverage.--An 
        EFFS organization--
                  ``(A) may not offer an EFFS plan in an area unless 
                either that plan (or another EFFS plan offered by the 
                organization in that area) includes qualified 
                prescription drug coverage; and
                  ``(B) may not offer the prescription drug coverage 
                (other than that required under parts A and B) to an 
                enrollee under an EFFS plan, unless such drug coverage 
                is at least qualified prescription drug coverage and 
                unless the requirements of this subsection with respect 
                to such coverage are met.
          ``(2) Requirement for election of part d coverage to obtain 
        qualified prescription drug coverage.--For purposes of this 
        part, an individual who has not elected qualified prescription 
        drug coverage under section 1860D-1(b) shall be treated as 
        being ineligible to enroll in an EFFS plan under this part that 
        offers such coverage.
          ``(3) Compliance with certain additional beneficiary 
        protections for prescription drug coverage.--With respect to 
        the offering of qualified prescription drug coverage by an EFFS 
        organization under this part, the organization and plan shall 
        meet the requirements of subsections (a) through (d) of section 
        1860D-3 in the same manner as they apply to a PDP sponsor and a 
        prescription drug plan under part D and shall submit to the 
        Administrator the information described in section 1860D-
        6(a)(2). The Administrator shall waive such requirements to the 
        extent the Administrator determines that such requirements 
        duplicate requirements otherwise applicable to the organization 
        or plan under this part.
          ``(4) Availability of premium and cost-sharing subsidies.--In 
        the case of low-income individuals who are enrolled in an EFFS 
        plan that provides qualified prescription drug coverage, 
        premium and cost-sharing subsidies are provided for such 
        coverage under section 1860D-7.
          ``(5) Availability of direct and reinsurance subsidies to 
        reduce bids and premiums.--EFFS organizations are provided 
        direct and reinsurance subsidy payments for providing qualified 
        prescription drug coverage under this part under section 1860D-
        8.
          ``(6) Consolidation of drug and non-drug premiums.--In the 
        case of an EFFS plan that includes qualified prescription drug 
        coverage, with respect to an enrollee in such plan there shall 
        be a single premium for both drug and non-drug coverage 
        provided under the plan.
          ``(7) Qualified prescription drug coverage; standard 
        coverage.--For purposes of this part, the terms `qualified 
        prescription drug coverage' and `standard coverage' have the 
        meanings given such terms in section 1860D-2.''.
  (c) Conforming Amendments.--Section 1851 (42 U.S.C. 1395w-21) is 
amended--
          (1) in subsection (a)(1)--
                  (A) by inserting ``(other than qualified prescription 
                drug benefits)'' after ``benefits'';
                  (B) by striking the period at the end of subparagraph 
                (B) and inserting a comma; and
                  (C) by adding after and below subparagraph (B) the 
                following:
        ``and may elect qualified prescription drug coverage in 
        accordance with section 1860D-1.''; and
          (2) in subsection (g)(1), by inserting ``and section 1860D-
        1(c)(2)(B)'' after ``in this subsection''.
  (d) Effective Date.--The amendments made by this section apply to 
coverage provided on or after January 1, 2006.

SEC. 103. MEDICAID AMENDMENTS.

  (a) Determinations of Eligibility for Low-Income Subsidies.--
          (1) Requirement.--Section 1902(a) (42 U.S.C. 1396a(a)) is 
        amended--
                  (A) by striking ``and'' at the end of paragraph (64);
                  (B) by striking the period at the end of paragraph 
                (65) and inserting ``; and''; and
                  (C) by inserting after paragraph (65) the following 
                new paragraph:
          ``(66) provide for making eligibility determinations under 
        section 1935(a).''.
          (2) New section.--Title XIX is further amended--
                  (A) by redesignating section 1935 as section 1936; 
                and
                  (B) by inserting after section 1934 the following new 
                section:
  ``special provisions relating to medicare prescription drug benefit
  ``Sec. 1935. (a) Requirement for Making Eligibility Determinations 
for Low-Income Subsidies.--As a condition of its State plan under this 
title under section 1902(a)(66) and receipt of any Federal financial 
assistance under section 1903(a), a State shall--
          ``(1) make determinations of eligibility for premium and 
        cost-sharing subsidies under (and in accordance with) section 
        1860D-7;
          ``(2) inform the Administrator of the Medicare Benefits 
        Administration of such determinations in cases in which such 
        eligibility is established; and
          ``(3) otherwise provide such Administrator with such 
        information as may be required to carry out part D of title 
        XVIII (including section 1860D-7).
  ``(b) Payments for Additional Administrative Costs.--
          ``(1) In general.--The amounts expended by a State in 
        carrying out subsection (a) are, subject to paragraph (2), 
        expenditures reimbursable under the appropriate paragraph of 
        section 1903(a); except that, notwithstanding any other 
        provision of such section, the applicable Federal matching 
        rates with respect to such expenditures under such section 
        shall be increased as follows (but in no case shall the rate as 
        so increased exceed 100 percent):
                  ``(A) For expenditures attributable to costs incurred 
                during 2005, the otherwise applicable Federal matching 
                rate shall be increased by 6-\2/3\ percent of the 
                percentage otherwise payable (but for this subsection) 
                by the State.
                  ``(B)(i) For expenditures attributable to costs 
                incurred during 2006 and each subsequent year through 
                2018, the otherwise applicable Federal matching rate 
                shall be increased by the applicable percent (as 
                defined in clause (ii)) of the percentage otherwise 
                payable (but for this subsection) by the State.
                  ``(ii) For purposes of clause (i), the `applicable 
                percent' for--
                          ``(I) 2006 is 13-\1/3\ percent; or
                          ``(II) a subsequent year is the applicable 
                        percent under this clause for the previous year 
                        increased by 6-\2/3\ percentage points.
                  ``(C) For expenditures attributable to costs incurred 
                after 2018, the otherwise applicable Federal matching 
                rate shall be increased to 100 percent.
          ``(2) Coordination.--The State shall provide the 
        Administrator with such information as may be necessary to 
        properly allocate administrative expenditures described in 
        paragraph (1) that may otherwise be made for similar 
        eligibility determinations.''.
  (b) Phased-In Federal Assumption of Medicaid Responsibility for 
Premium and Cost-Sharing Subsidies for Dually Eligible Individuals.--
          (1) In general.--Section 1903(a)(1) (42 U.S.C. 1396b(a)(1)) 
        is amended by inserting before the semicolon the following: ``, 
        reduced by the amount computed under section 1935(c)(1) for the 
        State and the quarter''.
          (2) Amount described.--Section 1935, as inserted by 
        subsection (a)(2), is amended by adding at the end the 
        following new subsection:
  ``(c) Federal Assumption of Medicaid Prescription Drug Costs for 
Dually-Eligible Beneficiaries.--
          ``(1) In general.--For purposes of section 1903(a)(1), for a 
        State that is one of the 50 States or the District of Columbia 
        for a calendar quarter in a year (beginning with 2005) the 
        amount computed under this subsection is equal to the product 
        of the following:
                  ``(A) Medicare subsidies.--The total amount of 
                payments made in the quarter under section 1860D-7 
                (relating to premium and cost-sharing prescription drug 
                subsidies for low-income medicare beneficiaries) that 
                are attributable to individuals who are residents of 
                the State and are entitled to benefits with respect to 
                prescribed drugs under the State plan under this title 
                (including such a plan operating under a waiver under 
                section 1115).
                  ``(B) State matching rate.--A proportion computed by 
                subtracting from 100 percent the Federal medical 
                assistance percentage (as defined in section 1905(b)) 
                applicable to the State and the quarter.
                  ``(C) Phase-out proportion.--The phase-out proportion 
                (as defined in paragraph (2)) for the quarter.
          ``(2) Phase-out proportion.--For purposes of paragraph 
        (1)(C), the `phase-out proportion' for a calendar quarter in--
                  ``(A) 2006 is 93-\1/3\ percent;
                  ``(B) a subsequent year before 2021, is the phase-out 
                proportion for calendar quarters in the previous year 
                decreased by 6-\2/3\ percentage points; or
                  ``(C) a year after 2020 is 0 percent.''.
  (c) Medicaid Providing Wrap-Around Benefits.--Section 1935, as so 
inserted and amended, is further amended by adding at the end the 
following new subsection:
  ``(d) Additional Provisions.--
          ``(1) Medicaid as secondary payor.--In the case of an 
        individual who is entitled to qualified prescription drug 
        coverage under a prescription drug plan under part D of title 
        XVIII (or under a MA-EFFS Rx plan under part C or E of such 
        title) and medical assistance for prescribed drugs under this 
        title, medical assistance shall continue to be provided under 
        this title for prescribed drugs to the extent payment is not 
        made under the prescription drug plan or MA-EFFS Rx plan 
        selected by the individual.
          ``(2) Condition.--A State may require, as a condition for the 
        receipt of medical assistance under this title with respect to 
        prescription drug benefits for an individual eligible to obtain 
        qualified prescription drug coverage described in paragraph 
        (1), that the individual elect qualified prescription drug 
        coverage under section 1860D-1.''.
  (d) Treatment of Territories.--
          (1) In general.--Section 1935, as so inserted and amended, is 
        further amended--
                  (A) in subsection (a) in the matter preceding 
                paragraph (1), by inserting ``subject to subsection 
                (e)'' after ``section 1903(a)'';
                  (B) in subsection (c)(1), by inserting ``subject to 
                subsection (e)'' after ``1903(a)(1)''; and
                  (C) by adding at the end the following new 
                subsection:
  ``(e) Treatment of Territories.--
          ``(1) In general.--In the case of a State, other than the 50 
        States and the District of Columbia--
                  ``(A) the previous provisions of this section shall 
                not apply to residents of such State; and
                  ``(B) if the State establishes a plan described in 
                paragraph (2) (for providing medical assistance with 
                respect to the provision of prescription drugs to 
                medicare beneficiaries), the amount otherwise 
                determined under section 1108(f) (as increased under 
                section 1108(g)) for the State shall be increased by 
                the amount specified in paragraph (3).
          ``(2) Plan.--The plan described in this paragraph is a plan 
        that--
                  ``(A) provides medical assistance with respect to the 
                provision of covered outpatient drugs (as defined in 
                section 1860D-2(f)) to low-income medicare 
                beneficiaries; and
                  ``(B) assures that additional amounts received by the 
                State that are attributable to the operation of this 
                subsection are used only for such assistance.
          ``(3) Increased amount.--
                  ``(A) In general.--The amount specified in this 
                paragraph for a State for a year is equal to the 
                product of--
                          ``(i) the aggregate amount specified in 
                        subparagraph (B); and
                          ``(ii) the amount specified in section 
                        1108(g)(1) for that State, divided by the sum 
                        of the amounts specified in such section for 
                        all such States.
                  ``(B) Aggregate amount.--The aggregate amount 
                specified in this subparagraph for--
                          ``(i) 2006, is equal to $25,000,000; or
                          ``(ii) a subsequent year, is equal to the 
                        aggregate amount specified in this subparagraph 
                        for the previous year increased by annual 
                        percentage increase specified in section 1860D-
                        2(b)(5) for the year involved.
          ``(4) Report.--The Administrator shall submit to Congress a 
        report on the application of this subsection and may include in 
        the report such recommendations as the Administrator deems 
        appropriate.''.
          (2) Conforming amendment.--Section 1108(f) (42 U.S.C. 
        1308(f)) is amended by inserting ``and section 1935(e)(1)(B)'' 
        after ``Subject to subsection (g)''.
  (e) Amendment to Best Price.--Section 1927(c)(1)(C)(i) (42 U.S.C. 
1396r-8(c)(1)(C)(i)) is amended--
          (1) by striking ``and'' at the end of subclause (III);
          (2) by striking the period at the end of subclause (IV) and 
        inserting ``; and''; and
          (3) by adding at the end the following new subclause:
                                  ``(V) any prices charged which are 
                                negotiated by a prescription drug plan 
                                under part D of title XVIII, by a MA-
                                EFFS Rx plan under part C or E of such 
                                title with respect to covered 
                                outpatient drugs, or by a qualified 
                                retiree prescription drug plan (as 
                                defined in section 1860D-8(f)(1)) with 
                                respect to such drugs on behalf of 
                                individuals entitled to benefits under 
                                part A or enrolled under part B of such 
                                title.''.

SEC. 104. MEDIGAP TRANSITION.

  (a) In General.--Section 1882 (42 U.S.C. 1395ss) is amended by adding 
at the end the following new subsection:
  ``(v) Coverage of Prescription Drugs.--
          ``(1) In general.--Notwithstanding any other provision of 
        law, except as provided in paragraph (3) no new medicare 
        supplemental policy that provides coverage of expenses for 
        prescription drugs may be issued under this section on or after 
        January 1, 2006, to an individual unless it replaces a medicare 
        supplemental policy that was issued to that individual and that 
        provided some coverage of expenses for prescription drugs. 
        Nothing in this subsection shall be construed as preventing the 
        policy holder of a medicare supplemental policy issued before 
        January 1, 2006, from continuing to receive benefits under such 
        policy on and after such date.
          ``(2) Issuance of substitute policies for beneficiaries 
        enrolled with a plan under part d.--
                  ``(A) In general.--The issuer of a medicare 
                supplemental policy--
                          ``(i) may not deny or condition the issuance 
                        or effectiveness of a medicare supplemental 
                        policy that has a benefit package classified as 
                        `A', `B', `C', `D', `E', `F', or `G' (under the 
                        standards established under subsection (p)(2)) 
                        and that is offered and is available for 
                        issuance to new enrollees by such issuer;
                          ``(ii) may not discriminate in the pricing of 
                        such policy, because of health status, claims 
                        experience, receipt of health care, or medical 
                        condition; and
                          ``(iii) may not impose an exclusion of 
                        benefits based on a pre-existing condition 
                        under such policy,
                in the case of an individual described in subparagraph 
                (B) who seeks to enroll under the policy not later than 
                63 days after the date of the termination of enrollment 
                described in such paragraph and who submits evidence of 
                the date of termination or disenrollment along with the 
                application for such medicare supplemental policy.
                  ``(B) Individual covered.--An individual described in 
                this subparagraph is an individual who--
                          ``(i) enrolls in a prescription drug plan 
                        under part D; and
                          ``(ii) at the time of such enrollment was 
                        enrolled and terminates enrollment in a 
                        medicare supplemental policy which has a 
                        benefit package classified as `H', `I', or `J' 
                        under the standards referred to in subparagraph 
                        (A)(i) or terminates enrollment in a policy to 
                        which such standards do not apply but which 
                        provides benefits for prescription drugs.
                  ``(C) Enforcement.--The provisions of paragraph (4) 
                of subsection (s) shall apply with respect to the 
                requirements of this paragraph in the same manner as 
                they apply to the requirements of such subsection.
          ``(3) New standards.--In applying subsection (p)(1)(E) 
        (including permitting the NAIC to revise its model regulations 
        in response to changes in law) with respect to the change in 
        benefits resulting from title I of the Medicare Prescription 
        Drug and Modernization Act of 2003, with respect to policies 
        issued to individuals who are enrolled in a plan under part D, 
        the changes in standards shall only provide for substituting 
        (for the benefit packages described in paragraph (2)(B)(ii) 
        that included coverage for prescription drugs) two benefit 
        packages that may provide for coverage of cost-sharing (other 
        than the prescription drug deductible) with respect to 
        qualified prescription drug coverage under such part. The two 
        benefit packages shall be consistent with the following:
                  ``(A) First new policy.--The policy described in this 
                subparagraph has the following benefits, 
                notwithstanding any other provision of this section 
                relating to a core benefit package:
                          ``(i) Coverage of 50 percent of the cost-
                        sharing otherwise applicable under parts A and 
                        B, except coverage of 100 percent of any cost-
                        sharing otherwise applicable for preventive 
                        benefits.
                          ``(ii) No coverage of the part B deductible.
                          ``(iii) Coverage for all hospital coinsurance 
                        for long stays (as in the current core benefit 
                        package).
                          ``(iv) A limitation on annual out-of-pocket 
                        expenditures under parts A and B to $4,000 in 
                        2005 (or, in a subsequent year, to such 
                        limitation for the previous year increased by 
                        an appropriate inflation adjustment specified 
                        by the Secretary).
                  ``(B) Second new policy.--The policy described in 
                this subparagraph has the same benefits as the policy 
                described in subparagraph (A), except as follows:
                          ``(i) Substitute `75 percent' for `50 
                        percent' in clause (i) of such subparagraph.
                          ``(ii) Substitute `$2,000' for `$4,000' in 
                        clause (iv) of such subparagraph.
          ``(4) Construction.--Any provision in this section or in a 
        medicare supplemental policy relating to guaranteed 
        renewability of coverage shall be deemed to have been met 
        through the offering of other coverage under this 
        subsection.''.
  (b) NAIC Report to Congress on Medigap Modernization.--The Secretary 
shall request the National Association of Insurance Commissioners to 
submit to Congress, not later than 18 months after the date of the 
enactment of this Act, a report that includes recommendations on the 
modernization of coverage under the medigap program under section 1882 
of the Social Security Act (42 U.S.C. 1395ss).

SEC. 105. MEDICARE PRESCRIPTION DRUG DISCOUNT CARD AND ASSISTANCE 
                    PROGRAM.

  (a) In General.--Title XVIII is amended by inserting after section 
1806 the following new sections:
 ``medicare prescription drug discount card endorsement and assistance 
                                program
  ``Sec. 1807. (a) Establishment of Program.--
          ``(1) In general.--The Secretary (or the Medicare Benefits 
        Administrator pursuant to section 1809(c)(3)(C)) shall 
        establish a program--
                  ``(A) to endorse prescription drug discount card 
                programs (each such program referred to as an `endorsed 
                program') that meet the requirements of this section in 
                order to provide access to prescription drug discounts 
                through an eligible entity for medicare beneficiaries 
                throughout the United States; and
                  ``(B) to provide for prescription drug accounts and 
                public contributions into such accounts.
        The Secretary shall make available to medicare beneficiaries 
        information regarding endorsed programs and accounts under this 
        section.
          ``(2) Limited period of operation.--The Secretary shall 
        begin--
                  ``(A) the card endorsement part of the program under 
                paragraph (1)(A) as soon as possible, but in no case 
                later than 90 days after the date of the enactment of 
                this section; and
                  ``(B) the prescription drug account part of the 
                program under paragraph (1)(B) as soon as possible, but 
                in no case later than September 2004.
          ``(3) Transition.--The program under this section shall 
        continue through 2005 throughout the United States. The 
        Secretary shall provide for an appropriate transition and 
        discontinuation of such program at the time medicare 
        prescription drug benefits become available under part D.
          ``(4) Voluntary nature of program.--Nothing in this section 
        shall be construed as requiring an eligible beneficiary to 
        enroll in the program under this section.
  ``(b) Eligible Beneficiary; Eligible Entity; Prescription Drug 
Account.--For purposes of this section:
          ``(1) Eligible beneficiary.--The term `eligible beneficiary' 
        means an individual who is eligible for benefits under part A 
        or enrolled under part B and who is not enrolled in a 
        prescription drug plan or MA-EFFS Rx plan, but who may be 
        enrolled in a Medicare Advantage plan that does not offer 
        qualified prescription drug coverage.
          ``(2) Eligible entity.--The term `eligible entity' means any 
        entity that the Secretary determines to be appropriate to 
        provide the benefits under this section, including--
                  ``(A) pharmaceutical benefit management companies;
                  ``(B) wholesale and retail pharmacy delivery systems;
                  ``(C) insurers;
                  ``(D) Medicare Advantage or EFFS organizations;
                  ``(E) other entities; or
                  ``(F) any combination of the entities described in 
                subparagraphs (A) through (E).
          ``(3) Prescription drug account.--The term `prescription drug 
        account' means, with respect to an eligible beneficiary, an 
        account established for the benefit of that beneficiary under 
        section 1807A.
  ``(c) Enrollment in Endorsed Plan.--
          ``(1) Establishment of process.--
                  ``(A) In general.--The Secretary shall establish a 
                process through which an eligible beneficiary may make 
                an election to enroll under this section with an 
                endorsed program.
                  ``(B) Requirement of enrollment.--An eligible 
                beneficiary must enroll under this section for a year 
                in order to be eligible to receive the benefits under 
                this section for that year.
                  ``(C) Limitation on enrollment.--
                          ``(i) In general.--Except as provided under 
                        this subparagraph and under such exceptional 
                        circumstances as the Secretary may provide, an 
                        eligible individual shall have the opportunity 
                        to enroll under this section during an initial, 
                        general enrollment period as soon as possible 
                        after the date of the enactment of this section 
                        and annually thereafter. The Secretary shall 
                        specify the form, manner, and timing of such 
                        election but shall permit the exercise of such 
                        election at the time the individual is eligible 
                        to enroll. The annual open enrollment periods 
                        shall be coordinated with those provided under 
                        the Medicare Advantage and EFFS programs under 
                        parts C and E as well as under the prescription 
                        drug program under part D.
                          ``(ii) Reelection after termination of 
                        enrollment in a medicare advantage plan.--In 
                        the case of an individual who is enrolled under 
                        this section and who subsequently enrolls in a 
                        Medicare Advantage plan that provides qualified 
                        prescription drug coverage under part C, the 
                        individual shall be given the opportunity to 
                        reenroll under this section at the time the 
                        individual discontinues the enrollment under 
                        such part.
                          ``(iii) Late enrollment.--The Secretary shall 
                        permit individuals to elect to enroll under 
                        this section at times other than as permitted 
                        under the previous provisions of this 
                        paragraph.
                  ``(D) Termination of enrollment.--An enrollee under 
                this section shall be disenrolled--
                          ``(i) upon enrollment in a prescription drug 
                        plan under part D or a Medicare Advantage or 
                        EFFS plan under part C or E that provides 
                        qualified prescription drug coverage;
                          ``(ii) upon failure to pay the applicable 
                        enrollment fee under subsection (f);
                          ``(iii) upon termination of coverage under 
                        part A or part B; or
                          ``(iv) upon notice submitted to the Secretary 
                        in such form, manner, and time as the Secretary 
                        shall provide.
                Terminations of enrollment under this subparagraph 
                shall be effective as specified by the Secretary in 
                regulations.
          ``(2) Enrollment periods.--
                  ``(A) In general.--Except as provided under this 
                paragraph, an eligible beneficiary may not enroll in 
                the program under this part during any period after the 
                beneficiary's initial enrollment period under part B 
                (as determined under section 1837).
                  ``(B) Open enrollment period for current 
                beneficiaries.--The Secretary shall establish a period, 
                which shall begin on the date on which the Secretary 
                first begins to accept elections for enrollment under 
                this section and shall end not earlier than 3 months 
                later, during which any eligible beneficiary may enroll 
                under this section.
                  ``(C) Special enrollment period in case of 
                termination of coverage under a group health plan.--The 
                Secretary shall provide for a special enrollment period 
                under this section in the same manner as is provided 
                under section 1837(i) with respect to part B, except 
                that for purposes of this subparagraph any reference to 
                `by reason of the individual's (or the individual's 
                spouse's) current employment status' shall be treated 
                as being deleted.
          ``(3) Period of coverage.--
                  ``(A) In general.--Except as provided in subparagraph 
                (B) and subject to subparagraph (C), an eligible 
                beneficiary's coverage under the program under this 
                section shall be effective for the period provided 
                under section 1838, as if that section applied to the 
                program under this section.
                  ``(B) Enrollment during open and special 
                enrollment.--Subject to subparagraph (C), an eligible 
                beneficiary who enrolls under the program under this 
                section under subparagraph (B) or (C) of paragraph (2) 
                shall be entitled to the benefits under this section 
                beginning on the first day of the month following the 
                month in which such enrollment occurs.
  ``(d) Selection of an Eligible Entity for Access to Negotiated 
Prices.--
          ``(1) Process.--
                  ``(A) In general.--The Secretary shall establish a 
                process through which an eligible beneficiary who is 
                enrolled under this section shall select any eligible 
                entity, that has been awarded a contract under this 
                section and serves the State in which the beneficiary 
                resides, to provide access to negotiated prices under 
                subsection (i).
                  ``(B) Rules.--In establishing the process under 
                subparagraph (A), the Secretary shall use rules similar 
                to the rules for enrollment and disenrollment with a 
                Medicare Advantage plan under section 1851 (including 
                the special election periods under subsection (e)(4) of 
                such section), including that--
                          ``(i) an individual may not select more than 
                        one eligible entity at any time; and
                          ``(ii) an individual shall only be permitted 
                        (except for unusual circumstances) to change 
                        the selection of the entity once a year.
                In carrying out clause (ii), the Secretary may consider 
                a change in residential setting (such as placement in a 
                nursing facility) to be an unusual circumstance.
                  ``(C) Default selection.--In establishing such 
                process, the Secretary shall provide an equitable 
                method for selecting an eligible entity for individuals 
                who enroll under this section and fail to make such a 
                selection.
          ``(2) Competition.--Eligible entities with a contract under 
        this section shall compete for beneficiaries on the basis of 
        discounts, formularies, pharmacy networks, and other services 
        provided for under the contract.
  ``(e) Providing Enrollment, Selection, and Coverage Information to 
Beneficiaries.--
          ``(1) Activities.--The Secretary shall provide for activities 
        under this section to broadly disseminate information to 
        eligible beneficiaries (and prospective eligible beneficiaries) 
        regarding enrollment under this section, the selection of 
        eligible entities, and the prescription drug coverage made 
        available by eligible entities with a contract under this 
        section.
          ``(2) Special rule for first enrollment under the program.--
        To the extent practicable, the activities described in 
        paragraph (1) shall ensure that eligible beneficiaries are 
        provided with such information at least 60 days prior to the 
        first enrollment period described in subsection (c).
  ``(f) Enrollment Fee.--
          ``(1) Amount.--
                  ``(A) In general.--Except as provided in paragraph 
                (3), enrollment under the program under this section is 
                conditioned upon payment of an annual enrollment fee of 
                $30 for 2004 (including any portion of 2003 in which 
                the program is implemented under this section).
                  ``(B) Annual percentage increase in enrollment fee.--
                In the case of any calendar year beginning after 2004, 
                the dollar amount of the enrollment fee in subparagraph 
                (A) shall be the dollar amount of such fee for the 
                previous year increased by the annual percentage 
                increase in the consumer price index for all urban 
                consumers (U.S. city average; all items) as of 
                September before the beginning of the year involved. If 
                any increase determined under the previous sentence is 
                not a multiple of $1, such increase shall be rounded to 
                the nearest multiple of $1.
          ``(2) Collection of enrollment fee.--The annual enrollment 
        fee shall be collected and credited to the Federal 
        Supplementary Medical Insurance Trust Fund in the same manner 
        as the monthly premium determined under section 1839 is 
        collected and credited to such Trust Fund under section 1840, 
        except that it shall be collected only 1 time per year.
          ``(3) Payment of enrollment fee by state for certain 
        beneficiaries.--
                  ``(A) 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 
                low income 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 enrollment fee shall be paid directly by 
                the State and shall not be collected under paragraph 
                (2). In carrying out this paragraph, the Secretary may 
                apply procedures similar to that applied under state 
                agreements under section 1843.
                  ``(B) No federal matching available under medicaid or 
                schip.--Expenditures made by a State described in 
                subparagraph (A) shall not be treated as State 
                expenditures for purposes of Federal matching payments 
                under titles XIX and XXI insofar as such expenditures 
                are for an enrollment fee under this subsection.
          ``(4) Distribution of portion of enrollment fee.--Of the 
        enrollment fee collected by the Secretary under this subsection 
        with respect to a beneficiary, \2/3\ of that fee shall be made 
        available to the eligible entity selected by the eligible 
        beneficiary.
  ``(g) Issuance of Card and Coordination.--Each eligible entity 
shall--
                  ``(1) issue, in a uniform standard format specified 
                by the Secretary, to each enrolled beneficiary a card 
                and an enrollment number that establishes proof of 
                enrollment and that can be used in a coordinated 
                manner--
                  ``(A) to identify the eligible entity selected to 
                provide access to negotiated prices under subsection 
                (i); and
                  ``(B) to make deposits to and withdrawals from a 
                prescription drug account under section 1807A; and
          ``(2) provide for electronic methods to coordinate with the 
        accounts established under section 1807A.
  ``(h) Enrollee Protections.--
          ``(1) Guaranteed issue and nondiscrimination.--
                  ``(A) Guaranteed issue.--
                          ``(i) In general.--An eligible beneficiary 
                        who is eligible to select an eligible entity 
                        under subsection (b) for prescription drug 
                        coverage under this section at a time during 
                        which selections are accepted under this 
                        section with respect to the coverage shall not 
                        be denied selection based on any health status-
                        related factor (described in section 2702(a)(1) 
                        of the Public Health Service Act) or any other 
                        factor and may not be charged any selection or 
                        other fee as a condition of such acceptance.
                          ``(ii) Medicare+choice limitations 
                        permitted.--The provisions of paragraphs (2) 
                        and (3) (other than subparagraph (C)(i), 
                        relating to default enrollment) of section 
                        1851(g) (relating to priority and limitation on 
                        termination of election) shall apply to 
                        selection of eligible entities under this 
                        paragraph.
                  ``(B) Nondiscrimination.--An eligible entity offering 
                prescription drug coverage under this section shall not 
                establish a service area in a manner that would 
                discriminate based on health or economic status of 
                potential enrollees.
                  ``(C) Coverage of all portions of a state.--If an 
                eligible entity with a contract under this section 
                serves any part of a State it shall serve the entire 
                State.
          ``(2) Dissemination of information.--
                  ``(A) General information.--An eligible entity with a 
                contract under this section shall disclose, in a clear, 
                accurate, and standardized form to each eligible 
                beneficiary who has selected the entity to provide 
                access to negotiated prices under this section at the 
                time of selection and at least annually thereafter, the 
                information described in section 1852(c)(1) relating to 
                such prescription drug coverage. Such information 
                includes the following (in a manner designed to permit 
                and promote competition among eligible entities):
                          ``(i) Summary information regarding 
                        negotiated prices (including discounts) for 
                        covered outpatient drugs.
                          ``(ii) Access to such prices through pharmacy 
                        networks.
                          ``(iii) How any formulary used by the 
                        eligible entity functions.
                  ``(B) Disclosure upon request of general coverage, 
                utilization, and grievance information.--Upon request 
                of an eligible beneficiary, the eligible entity shall 
                provide the information described in section 1852(c)(2) 
                (other than subparagraph (D)) to such beneficiary.
                  ``(C) Response to beneficiary questions.--Each 
                eligible entity offering prescription drug coverage 
                under this section shall have a mechanism (including a 
                toll-free telephone number) for providing upon request 
                specific information (such as negotiated prices, 
                including discounts) to individuals who have selected 
                the entity. The entity shall make available, through an 
                Internet website and in writing upon request, 
                information on specific changes in its formulary.
                  ``(D) Coordination with prescription drug account 
                benefits.--Each such eligible entity shall provide for 
                coordination of such information as the Secretary may 
                specify to carry out section 1807A.
          ``(3) Access to covered benefits.--
                  ``(A) Ensuring pharmacy access.--The provisions of 
                subsection (c)(1) of section 1860D-3 (other than 
                payment provisions under section 1860D-8 with respect 
                to sponsors under such subsection) shall apply to an 
                eligible entity under this section in the same manner 
                as they apply to a PDP sponsor under such section.
                  ``(B) Access to negotiated prices for prescription 
                drugs.--For requirements relating to the access of an 
                eligible beneficiary to negotiated prices (including 
                applicable discounts), see subsection (i).
                  ``(C) Requirements on development and application of 
                formularies.--Insofar as an eligible entity with a 
                contract under this part uses a formulary, the entity 
                shall comply with the requirements of section 1860D-
                3(c)(3), insofar as the Secretary determines that such 
                requirements can be implemented on a timely basis.
          ``(4) Cost and utilization management; quality assurance; 
        medication therapy management program.--
                  ``(A) In general.--For purposes of providing access 
                to negotiated benefits under subsection (i), the 
                eligible entity shall have in place the programs and 
                measure described in section 1860D-3(d), including an 
                effective cost and drug utilization management program, 
                quality assurance measures and systems, and a program 
                to control fraud, abuse, and waste, insofar as the 
                Secretary determines that such provisions can be 
                implemented on a timely basis.
                  ``(B) Treatment of accreditation.--Section 1852(e)(4) 
                (relating to treatment of accreditation) shall apply to 
                the requirements for an endorsed program under this 
                section with respect to the following requirements, in 
                the same manner as they apply to Medicare Advantage 
                plans under part C with respect to the requirements 
                described in a clause of section 1852(e)(4)(B):
                          ``(i) Paragraph (3)(A) (relating to access to 
                        covered benefits).
                          ``(ii) Paragraph (7) (relating to 
                        confidentiality and accuracy of enrollee 
                        records).
          ``(5) Grievance mechanism.--Each eligible entity shall 
        provide meaningful procedures for hearing and resolving 
        grievances between the organization consistent with the 
        requirements of section 1860D-3(e) insofar as they relate to 
        PDP sponsors of prescription drug plans.
          ``(6) Beneficiary services.--An eligible entity shall provide 
        for its enrollees pharmaceutical support services, such as 
        education and counseling, and services to prevent adverse drug 
        interactions.
          ``(7) Coverage determinations and reconsiderations.--An 
        eligible entity shall meet the requirements of section 1852(g) 
        with respect to covered benefits under the prescription drug 
        coverage it offers under this section in the same manner as 
        such requirements apply to a Medicare Advantage organization 
        with respect to benefits it offers under a Medicare Advantage 
        plan under part C.
          ``(8) Confidentiality and accuracy of enrollee records.--An 
        eligible entity shall meet the requirements of section 1852(h) 
        with respect to enrollees under this section in the same manner 
        as such requirements apply to a Medicare Advantage organization 
        with respect to enrollees under part C. The eligible entity 
        shall implement policies and procedures to safeguard the use 
        and disclosure of enrollees' individually identifiable health 
        information in a manner consistent with the Federal regulations 
        (concerning the privacy of individually identifiable health 
        information) promulgated under section 264(c) of the Health 
        Insurance Portability and Accountability Act of 1996. The 
        eligible entity shall be treated as a covered entity for 
        purposes of the provisions of subpart E of part 164 of title 
        45, Code of Federal Regulations, adopted pursuant to the 
        authority of the Secretary under section 264(c) of the Health 
        Insurance Portability and Accountability Act of 1996 (42 U.S. 
        C. 1320d-2 note).
          ``(9) Periodic reports and oversight.--The eligible entity 
        shall submit to the Secretary periodic reports on performance, 
        utilization, finances, and such other matters as the Secretary 
        may specify. The Secretary shall provide appropriate oversight 
        to ensure compliance of eligible entities with the requirements 
        of this subsection, including verification of the discounts and 
        services provided.
          ``(10) Additional beneficiary protections.--The eligible 
        entity meets such additional requirements as the Secretary 
        identifies to protect and promote the interest of enrollees, 
        including requirements that ensure that enrollees are not 
        charged more than the lower of the negotiated retail price or 
        the usual and customary price.
  ``(i) Benefits Under the Program Through Savings to Enrollees Through 
Negotiated Prices.--
          ``(1) In general.--Subject to paragraph (2), each eligible 
        entity with a contract under this section shall provide each 
        eligible beneficiary enrolled with the entity with access to 
        negotiated prices (including applicable discounts). For 
        purposes of this paragraph, the term `prescription drugs' is 
        not limited to covered outpatient drugs, but does not include 
        any over-the-counter drug that is not a covered outpatient 
        drug. The prices negotiated by an eligible entity under this 
        paragraph 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) Formulary restrictions.--Insofar as an eligible entity 
        with a contract under this part uses a formulary, the 
        negotiated prices (including applicable discounts) for 
        prescription drugs shall only be available for drugs included 
        in such formulary.
          ``(3) Prohibition on application only to mail order.--The 
        negotiated prices under this subsection shall apply to 
        prescription drugs that are available other than solely through 
        mail order.
          ``(4) Prohibition on charges for required services.--An 
        eligible entity (and any pharmacy contracting with such entity 
        for the provision of a discount under this section) may not 
        charge a beneficiary any amount for any services required to be 
        provided by the entity under this section.
          ``(5) Disclosure.--The eligible entity offering the endorsed 
        program shall disclose to the Secretary (in a manner specified 
        by the Secretary) the extent to which discounts or rebates or 
        other remuneration or price concessions made available to the 
        entity by a manufacturer are passed through to enrollees 
        through pharmacies and other dispensers or otherwise. The 
        provisions of section 1927(b)(3)(D) shall apply to information 
        disclosed to the Administrator under this paragraph in the same 
        manner as such provisions apply to information disclosed under 
        such section.
          ``(6) Public disclosure of pharmaceutical prices for 
        equivalent drugs.--Each eligible entity shall provide that each 
        pharmacy or other dispenser that arranges for the dispensing of 
        a covered outpatient drug in connection with its endorsed 
        program shall inform the enrollee in that program at the time 
        of purchase of the drug of any differential between the price 
        of the prescribed drug to the enrollee and the price of the 
        lowest cost available generic drug covered under the program 
        that is therapeutically equivalent and bioequivalent.
  ``(j) Contribution Into Prescription Drug Account.--
          ``(1) In general.--In the case of an individual enrolled 
        under this section--
                  ``(A) the Secretary shall establish a prescription 
                drug account for the individual under section 1807A; 
                and
                  ``(B) shall deposit into such account on a monthly or 
                other periodic basis an amount that, on an annual 
                basis, is equivalent to the annual Federal contribution 
                amount specified in paragraph (2) for the enrollee 
                involved.
          ``(2) Annual federal contribution amount.--
                  ``(A) In 2004.--Subject to paragraphs (3) and (4), in 
                the case of an accountholder whose modified adjusted 
                gross income is--
                          ``(i) not more than 135 percent of the 
                        poverty line, the annual Federal contribution 
                        amount for 2004 is $800;
                          ``(ii) more than 135 percent, but less than 
                        150 percent, of the poverty line, the annual 
                        Federal contribution amount for 2004 is $500; 
                        and
                          ``(iii) more than 150 percent of the poverty 
                        line, the annual Federal contribution amount 
                        for 2004 is $100.
                  ``(B) Thereafter.--For periods after 2004, the 
                amounts applicable under subparagraph (A) shall be 
                increased by the annual percentage increase described 
                in section 1860D-2(b)(5) for the period involved.
                  ``(C) Rounding.--If an annual Federal contribution 
                amount determined under subparagraph (B) is not a 
                multiple of $10, it shall be rounded to the nearest 
                multiple of $10.
          ``(3) Requirement for income verification to obtain increased 
        contribution amount.--
                  ``(A) In general.--The provisions of subsections 
                clauses (i) and (ii) of subparagraphs (A) and (B) of 
                paragraph (2) shall apply to an individual only if the 
                individual--
                          ``(i) provides such information as the 
                        Secretary may require in order to determine the 
                        appropriate category of benefits under the 
                        respective provisions; and
                          ``(ii) authorizes in a form and manner 
                        specified by the Secretary the verification of 
                        the individual's modified adjusted gross income 
                        by the Secretary through arrangements with 
                        States.
                An arrangement with a State under clause (ii) shall 
                provide for the payment by the Secretary under this 
                section of the State's reasonable costs of conducting 
                income verifications under such arrangement.
                  ``(B) Penalties for understatement of income.--The 
                provision of false information under subparagraph 
                (A)(i) is subject to criminal penalties under section 
                1128B.
                  ``(C) Procedures for determining modified adjusted 
                gross income.--
                          ``(i) In general.--The Secretary shall 
                        establish procedures for determining the 
                        modified adjusted gross income of enrollees. 
                        The Secretary shall consult with the Secretary 
                        of the Treasury in making such determinations. 
                        Income determinations under this subsection 
                        shall be valid for a period (of not less than 1 
                        year) specified by the Secretary.
                          ``(ii) Disclosure of information.--The 
                        Secretary of the Treasury may, upon written 
                        request from the Secretary, disclose to 
                        Secretary such return information as is 
                        necessary to make the determinations described 
                        in clause (i). Return information disclosed 
                        under the preceding sentence may be used by the 
                        Secretary only for the purposes of, and to the 
                        extent necessary in, making such 
                        determinations.
                          ``(iii) Penalty for unauthorized 
                        disclosure.--The provisions of section 1860D-
                        2(b)(4)(F)(ii) shall apply to an unauthorized 
                        disclosure of information under clause (ii) in 
                        the same manner as those provisions apply to an 
                        unauthorized disclosure of information under 
                        such section.
          ``(4) Partial year.--Insofar as the provisions of this 
        subsection and section 1807A are not implemented for all months 
        in 2004, the annual contribution amount under this subsection 
        for 2004 shall be prorated to reflect the portion of that year 
        in which such provisions are in effect.
          ``(5) Appropriation to cover net program expenditures.--There 
        are authorized to be appropriated from time to time, out of any 
        moneys in the Treasury not otherwise appropriated, to the 
        Federal Supplementary Medical Insurance Trust Fund established 
        under section 1841, an amount equal to the amount by which the 
        benefits and administrative costs of providing the benefits 
        under this section exceed the sum of the portion of the 
        enrollment fees retained by the Secretary.
  ``(k) Definitions.--In this part and section 1807A:
          ``(1) Covered outpatient drug.--
                  ``(A) In general.--Except as provided in this 
                paragraph, for purposes of this section, the term 
                `covered outpatient drug' means--
                          ``(i) a drug that may be dispensed only upon 
                        a prescription and that is described in 
                        subparagraph (A)(i) or (A)(ii) of section 
                        1927(k)(2); or
                          ``(ii) a biological product described in 
                        clauses (i) through (iii) of subparagraph (B) 
                        of such section or insulin described in 
                        subparagraph (C) of such section and medical 
                        supplies associated with the injection of 
                        insulin (as defined in regulations of the 
                        Secretary),
                and such term includes a vaccine licensed under section 
                351 of the Public Health Service Act and any use of a 
                covered outpatient drug for a medically accepted 
                indication (as defined in section 1927(k)(6)).
                  ``(B) Exclusions.--
                          ``(i) In general.--Such term does not include 
                        drugs or classes of drugs, or their medical 
                        uses, which may be excluded from coverage or 
                        otherwise restricted under section 1927(d)(2), 
                        other than subparagraph (E) thereof (relating 
                        to smoking cessation agents), or under section 
                        1927(d)(3).
                          ``(ii) Avoidance of duplicate coverage.--A 
                        drug prescribed for an individual that would 
                        otherwise be a covered outpatient drug under 
                        this section shall not be so considered if 
                        payment for such drug is available under part A 
                        or B for an individual entitled to benefits 
                        under part A and enrolled under part B.
                  ``(C) Application of formulary restrictions.--A drug 
                prescribed for an individual that would otherwise be a 
                covered outpatient drug under this section shall not be 
                so considered under an endorsed program if the eligible 
                entity offering the program excludes the drug under a 
                formulary and a review of such exclusion is not 
                successfully resolved under subsection (h)(5).
                  ``(D) Application of general exclusion provisions.--
                An eligible entity offering an endorsed program may 
                exclude from qualified prescription drug coverage any 
                covered outpatient drug--
                          ``(i) for which payment would not be made if 
                        section 1862(a) applied to part D; or
                          ``(ii) which are not prescribed in accordance 
                        with the program or this section.
                Such exclusions are determinations subject to review 
                pursuant to subsection (h)(5).
          ``(2) Income.--
                  ``(A) In general.--The term `income' means, with 
                respect to benefits under this section in a year, the 
                modified adjusted gross income of the individual for 
                the taxable year ending in the previous year.
                  ``(B) Treatment of joint returns.--In the case of a 
                individual who files a joint return (as defined for 
                purposes of the Internal Revenue Code of 1986), the 
                income of the modified adjusted gross income of both 
                individuals shall be treated as the income of each 
                individual.
                  ``(C) Treatment of separate returns.--In the case of 
                an individual who is married and who does not file a 
                joint return and who is not living separate and apart 
                from the individual's spouse during at least 6 months 
                of the taxable year shall be treated for purposes of 
                this section as having income that exceeds 150 percent 
                of the poverty line.
          ``(3) Definition of modified adjusted gross income.--The term 
        `modified adjusted gross income' means adjusted gross income 
        (as defined in section 62 of the Internal Revenue Code of 
        1986)--
                  ``(A) determined without regard to sections 911, 931, 
                and 933 of such Code; and
                  ``(B) increased by--
                          ``(i) the amount of interest received or 
                        accrued by the taxpayer during the taxable year 
                        which is exempt from tax under such Code, and
                          ``(ii) the amount of social security benefits 
                        not includible in gross income under section 86 
                        of such Code.
          ``(4) Poverty line.--The term `poverty line' means the income 
        official poverty line (as defined by the Office of Management 
        and Budget, and revised annually in accordance with section 
        673(2) of the Omnibus Budget Reconciliation Act of 1981) 
        applicable to a family of the size involved.
  ``(l) Authorization of Appropriations.--There are authorized to be 
appropriated such sums as may be necessary to carry out this section 
and section 1807A.
  ``(e) Interim, Final Regulatory Authority.--In order to carry out 
this section and section 1807A in a timely manner, the Secretary may 
promulgate regulations that take effect on an interim basis, after 
notice and pending opportunity for public comment.
                      ``prescription drug accounts
  ``Sec. 1807A. ``(a) Establishment of Accounts.--
          ``(1) In general.--The Secretary shall establish and maintain 
        for each eligible beneficiary who is enrolled under section 
        1807 at the time of enrollment a prescription drug account (in 
        this section and section 1807 referred to as an `account').
          ``(2) Reserve accounts.--In cases described in subsections 
        (b)(3)(A), (b)(3)(B)(i), and (b)(3)(B)(ii)(I), the Secretary 
        shall establish and maintain for each surviving spouse who is 
        not enrolled under section 1807 a reserve prescription drug 
        account (in this section referred to as an `reserve account').
          ``(3) Accountholder defined.--In this section and section 
        1807A, the term `accountholder' means an individual for whom an 
        account or reserve account has been established under this 
        section.
          ``(4) Expenditures from account.--Nothing in this section 
        shall be construed as requiring the Federal Government to 
        obligate funds for amounts in any account until such time as a 
        withdrawal from such account is authorized under this section.
  ``(b) Use of Accounts.--
          ``(1) Application of account.--Except as provided in this 
        subsection, amounts credited to an account shall only be used 
        for the purchase of covered outpatient drugs for the 
        accountholder. Any amounts remaining at the end of a year 
        remain available for expenditures in succeeding years.
          ``(2) Account rules for public and private contributions.--
        The Secretary shall establish a ongoing process for the 
        determination of the amount in each account that is 
        attributable to public and private contributions (including 
        spousal rollover contributions) based on the following rules:
                  ``(A) Treatment of expenditures.--Expenditures from 
                the account shall--
                          ``(i) first be counted against any public 
                        contribution; and
                          ``(ii) next be counted against private 
                        contributions.
                  ``(B) Treatment of spousal rollover contributions.--
                With respect to any spousal rollover contribution, the 
                portions of such contribution that were attributable to 
                public and private contributions at the time of its 
                distribution under subsection (b)(3) shall be treated 
                under this paragraph as if it were a direct public or 
                private contribution, respectively, into the account of 
                the spouse.
          ``(3) Death of accountholder.--In the case of the death of an 
        accountholder, the balance in any account (taking into account 
        liabilities accrued before the time of death) shall be 
        distributed as follows:
                  ``(A) Treatment of public contributions.--If the 
                accountholder is married at the time of death, the 
                amount in the account that is attributable to public 
                contributions shall be credited to the account (if any) 
                of the surviving spouse of the accountholder (or, if 
                the surviving spouse is not an eligible beneficiary, 
                into a reserve account to be held for when that spouse 
                becomes an eligible beneficiary).
                  ``(B) Treatment of private contributions.--The amount 
                in the account that is attributable to private 
                contributions shall be distributed as follows:
                          ``(i) Designation of distributee.--If the 
                        accountholder has made a designation, in a form 
                        and manner specified by the Secretary, for the 
                        distribution of some or all of such amount, 
                        such amount shall be distributed in accordance 
                        with the designation. Such designation may 
                        provide for the distribution into an account 
                        (including a reserve account) of a surviving 
                        spouse.
                          ``(ii) Absence of designation.--Insofar as 
                        the accountholder has not made such a 
                        designation--
                                  ``(I) Surviving spouse.--If the 
                                accountholder was married at the time 
                                of death, the remainder shall be 
                                credited to an account (including a 
                                reserve account) of the accountholder's 
                                surviving spouse.
                                  ``(II) No surviving spouse.--If the 
                                accountholder was not so married, the 
                                remainder shall be distributed to the 
                                estate of the accountholder and 
                                distributed as provided by law.
          ``(4) Use of account for premiums for enrollment in a 
        medicare advantage or effs plan.--During any period in which an 
        accountholder is enrolled in a Medicare Advantage plan under 
        part C or an EFFS plan under part E, the balance in the account 
        may be used and applied only to reimburse the amount of the 
        premium (if any) established for enrollment under the plan.
          ``(5) Application to medicaid expenses in certain cases.--
                  ``(A) In general.--Except as provided in this 
                paragraph, an account shall be treated as an asset for 
                purposes of establishing eligibility for medical 
                assistance under title XIX.
                  ``(B) Application towards spenddown.--In the case of 
                an accountholder who is applying for such medical 
                assistance and who would, but for the application of 
                subparagraph (A), be eligible for such assistance--
                          ``(i) subparagraph (A) shall not apply; and
                          ``(ii) the account shall be available (in 
                        accordance with a procedure established by the 
                        Secretary) to the State to reimburse the State 
                        for any expenditures made under the plan for 
                        such medical assistance.
  ``(c) Amounts Credited in Account.--The Secretary shall credit to a 
prescription drug account of an eligible beneficiary the following 
amounts:
          ``(1) Public contributions.--The following contributions 
        (each referred to in this section as a `public contribution'):
                  ``(A) Federal contributions.--Federal contributions 
                provided under subsection (d).
                  ``(B) State contributions.--Contributions made by a 
                State under subsection (f).
          ``(2) Spousal rollover contribution.--A distribution from a 
        deceased spouse under subsection (b)(3) (referred to in this 
        section as a `spousal rollover contribution').
          ``(3) Private contributions.--The following contributions 
        (each referred to in this section as a `private contribution'):
                  ``(A) Employer and individual contributions.--
                Contributions made under subsection (e).
                  ``(B) Other individual contributions.--Contributions 
                made by accountholder other than under subsection (e).
                  ``(C) Contributions by nonprofit organizations.--
                Contributions made by a charitable, not-for-profit 
                organization (that may be a religious organization).
Except as provided in this subsection, no amounts may be contributed 
to, or credited to, a prescription drug account.
  ``(d) Federal Contribution.--For Federal contributions in the case of 
accountholders, see section 1807(j).
  ``(e) Employer and Individual Contributions.--
          ``(1) Employment-related contribution.--
                  ``(A) In general.--In the case of any accountholder 
                who is a beneficiary or participant in a group health 
                plan (including a multi-employer plan), whether as an 
                employee, former employee or otherwise, including as a 
                dependent of an employee or former employee, the plan 
                may make a contribution into the accountholder's 
                account (but not into a reserve account of the 
                accountholder).
                  ``(B) Limitation.--The total amount that may be 
                contributed under subparagraph (A) under a plan to an 
                account during any year may not exceed $5,000.
                  ``(C) Condition.--A group health plan may condition a 
                contribution with respect to an accountholder under 
                this paragraph on the accountholder's enrollment under 
                section 1807 with an eligible entity that is recognized 
                or approved by that plan.
          ``(2) Other individuals.--
                  ``(A) In general.--Any individual may also contribute 
                to the account of that individual or the account of any 
                other individual under this subsection.
                  ``(B) Limitation.--The total amount that may be 
                contributed to an account under subparagraph (A) during 
                any year may not exceed $5,000, regardless of who makes 
                such contribution.
          ``(3) No contribution permitted to reserve account.--No 
        contribution may be made under this subsection to a reserve 
        account.
          ``(4) Form and manner of contribution.--The Secretary shall 
        specify the form and manner of contributions under this 
        subsection.
          ``(5) Indexing of dollar amounts.--The dollar amounts of the 
        limitation amounts specified in paragraphs (1)(B) and (2)(B) 
        shall be subject to annual increases for each year after 2004 
        in the same manner as the annual deductible is subject to an 
        annual increase under subparagraph (B) and the last sentence of 
        section 1860D-2(b)(1).
  ``(f) State Contributions.--
          ``(1) In general.--A State may enter into arrangements with 
        the Secretary for the crediting of amounts for accountholders.
          ``(2) Form and manner of contribution.--The Secretary shall 
        specify the form and manner of contributions under this 
        subsection.
          ``(3) Medicaid treatment.--Amounts credited under this 
        subsection shall not be treated as medical assistance for 
        purposes of title XIX or child health assistance for purposes 
        of title XXI for individuals who are not qualifying low income 
        enrollees.''.
  (b) 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 Voluntary Medicare Outpatient Prescription Drug 
        Discount and Security Program under sections 1807 and 1807A.''.
  (c) Medicaid Amendments.--
          (1) Verification of eligibility for improved account 
        contributions.--
                  (A) Requirement.--Section 1902(a) (42 U.S.C. 
                1396a(a)) is amended--
                          (i) by striking ``and'' at the end of 
                        paragraph (64);
                          (ii) by striking the period at the end of 
                        paragraph (65) and inserting ``; and''; and
                          (iii) by inserting after paragraph (65) the 
                        following new paragraph:
          ``(66) provide for verification of income under section 
        1807(j)(3).''.
                  (B) New section.--Title XIX is further amended--
                          (i) by redesignating section 1935 as section 
                        1936; and
                          (ii) by inserting after section 1934 the 
                        following new section:
       ``special provisions relating to medicare part d benefits
  ``Sec. 1935. (a) Requirement for Verification of Eligibility 
Determinations for Improved Account Contributions.--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 provide for verification of income statements in accordance with 
arrangements under section 1807(j)(1).
  ``(b) Payments for Additional Administrative Costs.--
          ``(1) In general.--The amounts expended by a State in 
        carrying out subsection (a) are, subject to paragraph (2), 
        expenditures reimbursable under the appropriate paragraph of 
        section 1903(a); except that, notwithstanding any other 
        provision of such section, the applicable Federal matching 
        rates with respect to such expenditures under such section 
        shall be 90 percent.
          ``(2) Coordination.--The State shall provide the Secretary 
        with such information as may be necessary to properly allocate 
        administrative expenditures described in paragraph (1) that may 
        otherwise be made for eligibility determinations.''.

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

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

SEC. 107. STATE PHARMACEUTICAL ASSISTANCE TRANSITION COMMISSION.

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

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

SEC. 200. MEDICARE MODERNIZATION AND REVITALIZATION.

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

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

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

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

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

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

                 Subtitle B--Medicare Advantage Program

                  CHAPTER 1--IMPLEMENTATION OF PROGRAM

SEC. 211. IMPLEMENTATION OF MEDICARE ADVANTAGE PROGRAM.

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

SEC. 212. MEDICARE ADVANTAGE IMPROVEMENTS.

  (a) Equalizing Payments With Fee-For-Service.--
          (1) In general.--Section 1853(c)(1) (42 U.S.C. 1395w-
        23(c)(1)) is amended by adding at the end the following:
                  ``(D) Based on 100 percent of fee-for-service 
                costs.--
                          ``(i) In general.--For 2004, the adjusted 
                        average per capita cost for the year involved, 
                        determined under section 1876(a)(4) for the 
                        Medicare Advantage payment area for services 
                        covered under parts A and B for individuals 
                        entitled to benefits under part A and enrolled 
                        under part B who are not enrolled in a Medicare 
                        Advantage under this part for the year, but 
                        adjusted to exclude costs attributable to 
                        payments under section 1886(h).
                          ``(ii) Inclusion of costs of va and dod 
                        military facility services to medicare-eligible 
                        beneficiaries.--In determining the adjusted 
                        average per capita cost under clause (i) for a 
                        year, such cost shall be adjusted to include 
                        the Secretary's estimate, on a per capita 
                        basis, of the amount of additional payments 
                        that would have been made in the area involved 
                        under this title if individuals entitled to 
                        benefits under this title had not received 
                        services from facilities of the Department of 
                        Veterans Affairs or the Department of 
                        Defense.''.
          (2) Conforming amendment.--Such section is further amended, 
        in the matter before subparagraph (A), by striking ``or (C)'' 
        and inserting ``(C), or (D)''.
  (b) Change in Budget Neutrality for Blend.--Section 1853(c) (42 
U.S.C. 1395w-23(c)) is amended--
          (1) in paragraph (1)(A), by inserting ``(for a year other 
        than 2004)'' after ``multiplied''; and
          (2) in paragraph (5), by inserting ``(other than 2004)'' 
        after ``for each year''.
  (c) Increasing Minimum Percentage Increase to National Growth Rate.--
          (1) In general.--Section 1853(c)(1) (42 U.S.C. 1395w-
        23(c)(1)) is amended--
                  (A) in subparagraph (B)(iv), by striking ``and each 
                succeeding year'' and inserting ``, 2003, and 2004'';
                  (B) in subparagraph (C)(iv), by striking ``and each 
                succeeding year'' and inserting ``and 2003''; and
                  (C) by adding at the end of subparagraph (C) the 
                following new clause:
                          ``(v) For 2004 and each succeeding year, the 
                        greater of--
                                  ``(I) 102 percent of the annual 
                                Medicare Advantage capitation rate 
                                under this paragraph for the area for 
                                the previous year; or
                                  ``(II) the annual Medicare Advantage 
                                capitation rate under this paragraph 
                                for the area for the previous year 
                                increased by the national per capita 
                                Medicare Advantage growth percentage, 
                                described in paragraph (6) for that 
                                succeeding year, but not taking into 
                                account any adjustment under paragraph 
                                (6)(C) for a year before 2004.''.
          (2) Conforming amendment.--Section 1853(c)(6)(C) (42 U.S.C. 
        1395w-23(c)(6)(C)) is amended by inserting before the period at 
        the end the following: ``, except that for purposes of 
        paragraph (1)(C)(v)(II), no such adjustment shall be made for a 
        year before 2004''.
  (d) Inclusion of Costs of DOD and VA Military Facility Services to 
Medicare-Eligible Beneficiaries in Calculation of Medicare+Choice 
Payment Rates.--Section 1853(c)(3) (42 U.S.C. 1395w-23(c)(3)) is 
amended--
          (1) in subparagraph (A), by striking ``subparagraph (B)'' and 
        inserting ``subparagraphs (B) and (E)'', and
          (2) by adding at the end the following new subparagraph:
                  ``(E) Inclusion of costs of dod and va military 
                facility services to medicare-eligible beneficiaries.--
                In determining the area-specific Medicare+Choice 
                capitation rate under subparagraph (A) for a year 
                (beginning with 2004), the annual per capita rate of 
                payment for 1997 determined under section 1876(a)(1)(C) 
                shall be adjusted to include in the rate the 
                Secretary's estimate, on a per capita basis, of the 
                amount of additional payments that would have been made 
                in the area involved under this title if individuals 
                entitled to benefits under this title had not received 
                services from facilities of the Department of Defense 
                or the Department of Veterans Affairs.''.
  (e) Extending Special Rule for Certain Inpatient Hospital Stays to 
Rehabilitation Hospitals.--
          (1) In general.--Section 1853(g) (42 U.S.C. 1395w-23(g)) is 
        amended--
                  (A) by inserting ``or from a rehabilitation facility 
                (as defined in section 1886(j)(1)(A))'' after 
                ``1886(d)(1)(B))''; and
                  (B) in paragraph (2)(B), by inserting ``or section 
                1886(j), as the case may be,'' after ``1886(d)''.
          (2) Effective date.--The amendments made by paragraph (1) 
        shall apply to contract years beginning on or after January 1, 
        2004.
  (f) Application of Privacy Regulations.--Section 1852(h) (42 U.S.C. 
1395w-22(h)) is amended by adding after and below paragraph (3) the 
following:
``A Medicare Advantage organization shall be treated as a covered 
entity for purposes of the provisions of subpart E of part 164 of title 
45, Code of Federal Regulations, adopted pursuant to the authority of 
the Secretary under section 264(c) of the Health Insurance Portability 
and Accountability Act of 1996 (42 U.S. C. 1320d-2 note).''.
  (g) MedPAC Study of AAPCC.--
          (1) Study.--The Medicare Payment Advisory Commission shall 
        conduct a study that assesses the method used for determining 
        the adjusted average per capita cost (AAPCC) under section 
        1876(a)(4) of the Social Security Act (42 U.S.C. 1395mm(a)(4)) 
        as applied under section 1853(c)(1)(A) of such Act (as amended 
        by subsection (a)). Such study shall include an examination 
        of--
                  (A) the bases for variation in such costs between 
                different areas, including differences in input prices, 
                utilization, and practice patterns;
                  (B) the appropriate geographic area for payment under 
                the Medicare Advantage program under part C of title 
                XVIII of such Act; and
                  (C) the accuracy of risk adjustment methods in 
                reflecting differences in costs of providing care to 
                different groups of beneficiaries served under such 
                program.
          (2) Report.--Not later than 18 months after the date of the 
        enactment of this Act, the Commission shall submit to Congress 
        a report on the study conducted under paragraph (1).
  (h) Report on Impact of Increased Financial Assistance to Medicare 
Advantage Plans.--Not later than July 1, 2006, the Medicare Benefits 
Administrator shall submit to Congress a report that describes the 
impact of additional financing provided under this Act and other Acts 
(including the Medicare, Medicaid, and SCHIP Balanced Budget Refinement 
Act of 1999 and BIPA) on the availability of Medicare Advantage plans 
in different areas and its impact on lowering premiums and increasing 
benefits under such plans.

            CHAPTER 2--IMPLEMENTATION OF COMPETITION PROGRAM

SEC. 221. COMPETITION PROGRAM BEGINNING IN 2006.

  (a) Submission of EFFS-Like Bidding Information Beginning in 2006.--
Section 1854 (42 U.S.C. 1395w-24) is amended--
          (1) by amending the section heading to read as follows:
                      ``premiums and bid amount'';
          (2) in subsection (a)(1)(A)--
                  (A) by striking ``(A)'' and inserting ``(A)(i) if the 
                following year is before 2006,''; and
                  (B) by inserting before the semicolon at the end the 
                following: ``or (ii) if the following year is 2006 or 
                later, the information described in paragraph (3) or 
                (6)(A) for the type of plan involved''; and
          (3) by adding at the end of subsection (a) the following:
          ``(6) Submission of bid amounts by medicare advantage 
        organizations.--
                  ``(A) Information to be submitted.--The information 
                described in this subparagraph is as follows:
                          ``(i) The monthly aggregate bid amount for 
                        provision of all items and services under this 
                        part, which amount shall be based on average 
                        costs for a typical beneficiary residing in the 
                        area, and the actuarial basis for determining 
                        such amount.
                          ``(ii) The proportions of such bid amount 
                        that are attributable to--
                                  ``(I) the provision of statutory non-
                                drug benefits (such portion referred to 
                                in this part as the `unadjusted 
                                Medicare Advantage statutory non-drug 
                                monthly bid amount');
                                  ``(II) the provision of statutory 
                                prescription drug benefits; and
                                  ``(III) the provision of non-
                                statutory benefits;
                        and the actuarial basis for determining such 
                        proportions.
                          ``(iii) Such additional information as the 
                        Administrator may require to verify the 
                        actuarial bases described in clauses (i) and 
                        (ii).
                  ``(B) Statutory benefits defined.--For purposes of 
                this part:
                          ``(i) The term `statutory non-drug benefits' 
                        means benefits under section 1852(a)(1).
                          ``(ii) The term `statutory prescription drug 
                        benefits' means benefits under part D.
                          ``(iii) The term `statutory benefits' means 
                        statutory prescription drug benefits and 
                        statutory non-drug benefits.
                  ``(C) Acceptance and negotiation of bid amounts.--
                          ``(i) In general.--Subject to clause (ii)--
                                  ``(I) the Administrator has the 
                                authority to negotiate regarding 
                                monthly bid amounts submitted under 
                                subparagraph (A) (and the proportion 
                                described in subparagraph (A)(ii)), and 
                                for such purpose and subject to such 
                                clause, the Administrator has 
                                negotiation authority that the Director 
                                of the Office of Personnel Management 
                                has with respect to health benefits 
                                plans under chapter 89 of title 5, 
                                United States Code; and
                                  ``(II) the Administrator may reject 
                                such a bid amount or proportion if the 
                                Administrator determines that such 
                                amount or proportion is not supported 
                                by the actuarial bases provided under 
                                subparagraph (A).
                          ``(ii) Exception.--In the case of a plan 
                        described in section 1851(a)(2)(C), the 
                        provisions of clause (i) shall not apply and 
                        the provisions of paragraph (5)(B), prohibiting 
                        the review, approval, or disapproval of amounts 
                        described in such paragraph, shall apply to the 
                        negotiation and rejection of the monthly bid 
                        amounts and proportion referred to in 
                        subparagraph (A).''.
  (b) Providing for Beneficiary Savings for Certain Plans.--
          (1) In general.--Section 1854(b) (42 U.S.C. 1395w-24(b)) is 
        amended--
                  (A) by adding at the end of paragraph (1) the 
                following new subparagraph:
                  ``(C) Beneficiary rebate rule.--
                          ``(i) Requirement.--The Medicare Advantage 
                        plan shall provide to the enrollee a monthly 
                        rebate equal to 75 percent of the average per 
                        capita savings (if any) described in paragraph 
                        (3) applicable to the plan and year involved.
                          ``(iii) Form of rebate.--A rebate required 
                        under this subparagraph shall be provided--
                                  ``(I) through the crediting of the 
                                amount of the rebate towards the 
                                Medicare Advantage monthly 
                                supplementary beneficiary premium or 
                                the premium imposed for prescription 
                                drug coverage under part D;
                                  ``(II) through a direct monthly 
                                payment (through electronic funds 
                                transfer or otherwise); or
                                  ``(III) through other means approved 
                                by the Medicare Benefits Administrator,
                        or any combination thereof.''; and
                  (B) by adding at the end the following new 
                paragraphs:
          ``(3) Computation of average per capita monthly savings.--For 
        purposes of paragraph (1)(C)(i), the average per capita monthly 
        savings referred to in such paragraph for a Medicare Advantage 
        plan and year is computed as follows:
                  ``(A) Determination of state-wide average risk 
                adjustment.--
                          ``(i) In general.--The Medicare Benefits 
                        Administrator shall determine, at the same time 
                        rates are promulgated under section 1853(b)(1) 
                        (beginning with 2006), for each State the 
                        average of the risk adjustment factors to be 
                        applied under section 1853(a)(1)(A) to payment 
                        for enrollees in that State. In the case of a 
                        State in which a Medicare Advantage plan was 
                        offered in the previous year, the Administrator 
                        may compute such average based upon risk 
                        adjustment factors applied in that State in a 
                        previous year.
                          ``(ii) Treatment of new states.--In the case 
                        of a State in which no Medicare Advantage plan 
                        was offered in the previous year, the 
                        Administrator shall estimate such average. In 
                        making such estimate, the Administrator may use 
                        average risk adjustment factors applied to 
                        comparable States or applied on a national 
                        basis.
                  ``(B) Determination of risk adjusted benchmark and 
                risk-adjusted bid.--For each Medicare Advantage plan 
                offered in a State, the Administrator shall--
                          ``(i) adjust the Medicare Advantage area-
                        specific non-drug monthly benchmark amount (as 
                        defined in subsection (j)) by the applicable 
                        average risk adjustment factor computed under 
                        subparagraph (A); and
                          ``(ii) adjust the unadjusted Medicare 
                        Advantage statutory non-drug monthly bid amount 
                        by such applicable average risk adjustment 
                        factor.
                  ``(C) Determination of average per capita monthly 
                savings.--The average per capita monthly savings 
                described in this subparagraph is equal to the amount 
                (if any) by which--
                          ``(i) the risk-adjusted benchmark amount 
                        computed under subparagraph (B)(i), exceeds
                          ``(ii) the risk-adjusted bid computed under 
                        subparagraph (B)(ii).
                  ``(D) Authority to determine risk adjustment for 
                areas other than states.--The Administrator may provide 
                for the determination and application of risk 
                adjustment factors under this paragraph on the basis of 
                areas other than States.
          ``(4) Beneficiary's option of payment through withholding 
        from social security payment or use of electronic funds 
        transfer mechanism.--In accordance with regulations, a Medicare 
        Advantage organization shall permit each enrollee, at the 
        enrollee's option, to make payment of premiums under this part 
        to the organization indirectly through withholding from benefit 
        payments in the manner provided under section 1840 with respect 
        to monthly premiums under section 1839 or through an electronic 
        funds transfer mechanism (such as automatic charges of an 
        account at a financial institution or a credit or debit card 
        account) or otherwise. All premium payments that are withheld 
        under this paragraph that are credited to the Federal 
        Supplementary Medical Insurance Drug Trust Fund shall be paid 
        to the Medicare Advantage organization involved.''.
          (2) Provision of single consolidated premium.--Section 
        1854(b) (42 U.S.C. 1395w-24(b)), as amended by paragraph (1), 
        is further amended by adding at the end the following new 
        paragraph:
          ``(5) Single consolidated premium.--In the case of an 
        enrollee in a Medicare Advantage plan who elects under part D 
        to be provided qualified prescription drug coverage through the 
        plan, the Administrator shall provide a mechanism for the 
        consolidation of the beneficiary premium amount for non-drug 
        benefits under this part with the premium amount for 
        prescription drug coverage under part D provided through the 
        plan.''.
          (3) Computation of medicare advantage area-specific non-drug 
        benchmark.--Section 1853 (42 U.S.C. 1395w-23) is amended by 
        adding at the end the following new subsection:
  ``(j) Computation of Medicare Advantage Area-Specific Non-Drug 
Monthly Benchmark Amount.--For purposes of this part, the term 
`Medicare Advantage area-specific non-drug monthly benchmark amount' 
means, with respect to a Medicare Advantage payment area for a month in 
a year, an amount equal to \1/12\ of the annual Medicare Advantage 
capitation rate under section 1853(c)(1) for the area for the year.''.
  (c) Payment of Plans Based on Bid Amounts.--
          (1) In general.--Section 1853(a)(1)(A) (42 U.S.C. 1395w-23) 
        is amended by striking ``in an amount'' and all that follows 
        and inserting the following: ``in an amount determined as 
        follows:
                          ``(i) Payment before 2006.--For years before 
                        2006, the payment amount shall be equal to \1/                       12\ of the annual Medicare Advantage capitation 
                        rate (as calculated under subsection (c)(1)) 
                        with respect to that individual for that area, 
                        reduced by the amount of any reduction elected 
                        under section 1854(f )(1)(E) and adjusted under 
                        clause (iv).
                          ``(ii) Payment for statutory non-drug 
                        benefits beginning with 2006.--For years 
                        beginning with 2006--
                                  ``(I) Plans with bids below 
                                benchmark.--In the case of a plan for 
                                which there are average per capita 
                                monthly savings described in section 
                                1854(b)(3)(C), the payment under this 
                                subsection is equal to the unadjusted 
                                Medicare Advantage statutory non-drug 
                                monthly bid amount, adjusted under 
                                clause (iv), plus the amount of the 
                                monthly rebate computed under section 
                                1854(b)(1)(C)(i) for that plan and 
                                year.
                                  ``(II) Plans with bids at or above 
                                benchmark.--In the case of a plan for 
                                which there are no average per capita 
                                monthly savings described in section 
                                1854(b)(3)(C), the payment amount under 
                                this subsection is equal to the 
                                Medicare Advantage area-specific non-
                                drug monthly benchmark amount, adjusted 
                                under clause (iv).
                          ``(iii) For federal drug subsidies.--In the 
                        case in which an enrollee who elects under part 
                        D to be provided qualified prescription drug 
                        coverage through the plan, the Medicare 
                        Advantage organization offering such plan also 
                        is entitled--
                                  ``(I) to direct subsidy payment under 
                                section 1860D-8(a)(1);
                                  ``(II) to reinsurance subsidy 
                                payments under section 1860D-8(a)(2); 
                                and
                                  ``(III) to reimbursement for premium 
                                and cost-sharing reductions for low-
                                income individuals under section 1860D-
                                7(c)(3).
                          ``(iv) Demographic adjustment, including 
                        adjustment for health status.--The 
                        Administrator shall adjust the payment amount 
                        under clause (i), the unadjusted Medicare 
                        Advantage statutory non-drug monthly bid amount 
                        under clause (ii)(I), and the Medicare 
                        Advantage area-specific non-drug monthly 
                        benchmark amount under clause (ii)(II) for such 
                        risk factors as age, disability status, gender, 
                        institutional status, and such other factors as 
                        the Administrator determines to be appropriate, 
                        including adjustment for health status under 
                        paragraph (3), so as to ensure actuarial 
                        equivalence. The Administrator may add to, 
                        modify, or substitute for such adjustment 
                        factors if such changes will improve the 
                        determination of actuarial equivalence.''.
  (d) Conforming Amendments.--
          (1) Protection against beneficiary selection.--Section 
        1852(b)(1)(A) (42 U.S.C. 1395w-22(b)(1)(A)) is amended by 
        adding at the end the following: ``The Administrator shall not 
        approve a plan of an organization if the Administrator 
        determines that the benefits are designed to substantially 
        discourage enrollment by certain Medicare Advantage eligible 
        individuals with the organization.''.
          (2) Conforming amendment to premium terminology.--Section 
        1854(b)(2) (42 U.S.C. 1395w-24(b)(2)) is amended by 
        redesignating subparagraph (C) as subparagraph (D) and by 
        striking subparagraphs (A) and (B) and inserting the following:
                  ``(A) Medicare advantage monthly basic beneficiary 
                premium.--The term `Medicare Advantage monthly basic 
                beneficiary premium' means, with respect to a Medicare 
                Advantage plan--
                          ``(i) described in section 
                        1853(a)(1)(A)(ii)(I) (relating to plans 
                        providing rebates), zero; or
                          ``(ii) described in section 
                        1853(a)(1)(A)(ii)(II), the amount (if any) by 
                        which the unadjusted Medicare Advantage 
                        statutory non-drug monthly bid amount exceeds 
                        the Medicare Advantage area-specific non-drug 
                        monthly benchmark amount;
                except that, in the case of a Medicare Advantage 
                private fee-for-service plan, such term means such 
                premium as the plan files with the Administrator under 
                this section.
                  ``(B) Medicare advantage monthly prescription drug 
                beneficiary premium.--The term `Medicare Advantage 
                monthly prescription drug beneficiary premium' means, 
                with respect to a Medicare Advantage plan, that portion 
                of the bid amount submitted under clause (i) of 
                subsection (a)(6)(A) for the year that is attributable 
                under such section to the provision of statutory 
                prescription drug benefits.
                  ``(C) Medicare advantage monthly supplemental 
                beneficiary premium.--The term `Medicare Advantage 
                monthly supplemental beneficiary premium' means, with 
                respect to a Medicare Advantage plan, the portion of 
                the aggregate monthly bid amount submitted under clause 
                (i) of subsection (a)(6)(A) for the year that is 
                attributable under such section to the provision of 
                nonstatutory benefits.''.
          (3) Requirement for uniform premium and bid amounts.--Section 
        1854(c) (42 U.S.C. 1395w-24(c)) is amended to read as follows:
  ``(c) Uniform Premium and Bid Amounts.--The Medicare Advantage 
monthly bid amount submitted under subsection (a)(6), the Medicare 
Advantage monthly basic, prescription drug, and supplemental 
beneficiary premiums, and the Medicare Advantage monthly MSA premium 
charged under subsection (b) of a Medicare Advantage organization under 
this part may not vary among individuals enrolled in the plan.''.
          (4) Permitting beneficiary rebates.--
                  (A) Section 1851(h)(4)(A) (42 U.S.C. 1395w-
                21(h)(4)(A)) is amended by inserting ``except as 
                provided under section 1854(b)(1)(C)'' after ``or 
                otherwise''.
                  (B) Section 1854(d) (42 U.S.C. 1395w-24(d)) is 
                amended by inserting ``, except as provided under 
                subsection (b)(1)(C),'' after ``and may not provide''.
          (5) Other conforming amendments relating to bids.--Section 
        1854 (42 U.S.C. 1395w-24) is amended--
                  (A) in the heading of subsection (a), by inserting 
                ``and Bid Amounts'' after ``Premiums''; and
                  (B) in subsection (a)(5)(A), by inserting 
                ``paragraphs (2), (3), and (4) of'' after ``filed 
                under''.
  (e) Additional Conforming Amendments.--
          (1) Annual determination and announcement of certain 
        factors.--Section 1853(b)(1) (42 U.S.C. 1395w-23(b)(1)) is 
        amended by striking ``the respective calendar year'' and all 
        that follows and inserting the following: ``the calendar year 
        concerned with respect to each Medicare Advantage payment area, 
        the following:
                  ``(A) Pre-competition information.--For years before 
                2006, the following:
                          ``(i) Medicare advantage capitation rates.--
                        The annual Medicare Advantage capitation rate 
                        for each Medicare Advantage payment area for 
                        the year.
                          ``(ii) Adjustment factors.--The risk and 
                        other factors to be used in adjusting such 
                        rates under subsection (a)(1)(A) for payments 
                        for months in that year.
                  ``(B) Competition information.--For years beginning 
                with 2006, the following:
                          ``(i) Benchmark.--The Medicare Advantage 
                        area-specific non-drug benchmark under section 
                        1853(j).
                          ``(ii) Adjustment factors.--The adjustment 
                        factors applied under section 1853(a)(1)(A)(iv) 
                        (relating to demographic adjustment), section 
                        1853(a)(1)(B) (relating to adjustment for end-
                        stage renal disease), and section 1853(a)(3) 
                        (relating to health status adjustment).''.
          (2) Repeal of provisions relating to adjusted community rate 
        (acr).--
                  (A) In general.--Subsections (e) and (f) of section 
                1854 (42 U.S.C. 1395w-24) are repealed.
                  (B) Conforming amendments.--(i) Section 1839(a)(2) 
                (42 U.S.C. 1395r(a)(2)) is amended by striking ``, and 
                to reflect'' and all that follows and inserting a 
                period.
                  (ii) Section 1852(a)(1) (42 U.S.C. 1395w-22(a)(1)) is 
                amended by striking ``title XI'' and all that follows 
                and inserting the following: ``title XI those items and 
                services (other than hospice care) for which benefits 
                are available under parts A and B to individuals 
                residing in the area served by the plan.''.
                  (iii) Section 1857(d)(1) (42 U.S.C. 1395w-27(d)(1)) 
                is amended by striking ``, costs, and computation of 
                the adjusted community rate'' and inserting ``and 
                costs''.
  (f) References under Part E.--Section 1859 (42 U.S.C. 1395w-29) is 
amended by adding at the end the following new subsection:
  ``(f) Application under Part E.--In the case of any reference under 
part E to a requirement or provision of this part in the relation to an 
EFFS plan or organization under such part, except as otherwise 
specified any such requirement or provision shall be applied to such 
organization or plan in the same manner as such requirement or 
provision applies to a Medicare Advantage private fee-for-service plan 
(and the Medicare Advantage organization that offers such plan) under 
this part.''.
  (g) Effective Date.--The amendments made by this section shall apply 
to payments and premiums for months beginning with January 2006.

                     CHAPTER 3--ADDITIONAL REFORMS

SEC. 231. MAKING PERMANENT CHANGE IN MEDICARE ADVANTAGE REPORTING 
                    DEADLINES AND ANNUAL, COORDINATED ELECTION PERIOD.

  (a) Change in Reporting Deadline.--Section 1854(a)(1) (42 U.S.C. 
1395w-24(a)(1)), as amended by section 532(b)(1) of the Public Health 
Security and Bioterrorism Preparedness and Response Act of 2002, is 
amended by striking ``2002, 2003, and 2004 (or July 1 of each other 
year)'' and inserting ``2002 and each subsequent year''.
  (b) Delay in Annual, Coordinated Election Period.--Section 
1851(e)(3)(B) (42 U.S.C. 1395w-21(e)(3)(B)), as amended by section 
532(c)(1)(A) of the Public Health Security and Bioterrorism 
Preparedness and Response Act of 2002, is amended--
          (1) by striking ``and after 2005''; and
          (2) by striking ``, 2004, and 2005'' and inserting ``and any 
        subsequent year''.
  (c) Annual Announcement of Payment Rates.--Section 1853(b)(1) (42 
U.S.C. 1395w-23(b)(1)), as amended by section 532(d)(1) of the Public 
Health Security and Bioterrorism Preparedness and Response Act of 2002, 
is amended--
          (1) by striking ``and after 2005''; and
          (2) by striking ``and 2005'' and inserting ``and each 
        subsequent year''.
  (d) Requiring Provision of Available Information Comparing Plan 
Options.--The first sentence of section 1851(d)(2)(A)(ii) (42 U.S.C. 
1395w-21(d)(2)(A)(ii)) is amended by inserting before the period the 
following: ``to the extent such information is available at the time of 
preparation of materials for the mailing''.

SEC. 232. AVOIDING DUPLICATIVE STATE REGULATION.

  (a) In General.--Section 1856(b)(3) (42 U.S.C. 1395w-26(b)(3)) is 
amended to read as follows:
          ``(3) Relation to state laws.--The standards established 
        under this subsection shall supersede any State law or 
        regulation (other than State licensing laws or State laws 
        relating to plan solvency) with respect to Medicare Advantage 
        plans which are offered by Medicare Advantage organizations 
        under this part.''.
  (b) Effective Date.--The amendment made by subsection (a) shall take 
effect on the date of the enactment of this Act.

SEC. 233. SPECIALIZED MEDICARE ADVANTAGE PLANS FOR SPECIAL NEEDS 
                    BENEFICIARIES.

  (a) Treatment as Coordinated Care Plan.--Section 1851(a)(2)(A) (42 
U.S.C. 1395w-21(a)(2)(A)) is amended by adding at the end the following 
new sentence: ``Specialized Medicare Advantage plans for special needs 
beneficiaries (as defined in section 1859(b)(4)) may be any type of 
coordinated care plan.''.
  (b) Specialized Medicare Advantage Plan for Special Needs 
Beneficiaries Defined.--Section 1859(b) (42 U.S.C. 1395w-29(b)) is 
amended by adding at the end the following new paragraph:
          ``(4) Specialized medicare advantage plans for special needs 
        beneficiaries.--
                  ``(A) In general.--The term `specialized Medicare 
                Advantage plan for special needs beneficiaries' means a 
                Medicare Advantage plan that exclusively serves special 
                needs beneficiaries (as defined in subparagraph (B)).
                  ``(B) Special needs beneficiary.--The term `special 
                needs beneficiary' means a Medicare Advantage eligible 
                individual who--
                          ``(i) is institutionalized (as defined by the 
                        Secretary);
                          ``(ii) is entitled to medical assistance 
                        under a State plan under title XIX; or
                          ``(iii) meets such requirements as the 
                        Secretary may determine would benefit from 
                        enrollment in such a specialized Medicare 
                        Advantage plan described in subparagraph (A) 
                        for individuals with severe or disabling 
                        chronic conditions.''.
  (c) Restriction on Enrollment Permitted.--Section 1859 (42 U.S.C. 
1395w-29) is amended by adding at the end the following new subsection:
  ``(f) Restriction on Enrollment for Specialized Medicare Advantage 
Plans for Special Needs Beneficiaries.--In the case of a specialized 
Medicare Advantage plan (as defined in subsection (b)(4)), 
notwithstanding any other provision of this part and in accordance with 
regulations of the Secretary and for periods before January 1, 2007, 
the plan may restrict the enrollment of individuals under the plan to 
individuals who are within one or more classes of special needs 
beneficiaries.''.
  (d) Authority To Designate Other Plans as Specialized Medicare 
Advantage Plans.--In promulgating regulations to carry out the last 
sentence of section 1851(a)(2)(A) of the Social Security Act (as added 
by subsection (a)) and section 1859(b)(4) of such Act (as added by 
subsection (b)), the Secretary may provide (notwithstanding section 
1859(b)(4)(A) of such Act) for the offering of specialized Medicare 
Advantage plans by Medicare Advantage plans that disproportionately 
serve special needs beneficiaries who are frail, elderly medicare 
beneficiaries.
  (e) Report to Congress.--Not later than December 31, 2005, the 
Medicare Benefits Administrator shall submit to Congress a report that 
assesses the impact of specialized Medicare Advantage plans for special 
needs beneficiaries on the cost and quality of services provided to 
enrollees. Such report shall include an assessment of the costs and 
savings to the medicare program as a result of amendments made by 
subsections (a), (b), and (c).
  (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 
        beneficiaries; transition.--No later than 6 months after the 
        date of the enactment of this Act, the Secretary shall issue 
        interim final regulations to establish requirements for special 
        needs beneficiaries under section 1859(b)(4)(B)(iii) of the 
        Social Security Act, as added by subsection (b).

SEC. 234. MEDICARE MSAS.

  (a) Exemption from Reporting Enrollee Encounter Data.--
          (1) In general.--Section 1852(e)(1) (42 U.S.C. 1395w-
        22(e)(1)) is amended by inserting ``(other than MSA plans)'' 
        after ``plans''.
          (2) Conforming amendments.--Section 1852 (42 U.S.C. 1395w-22) 
        is amended--
                  (A) in subsection (c)(1)(I), by inserting before the 
                period at the end the following: ``if required under 
                such section''; and
                  (B) in subparagraphs (A) and (B) of subsection 
                (e)(2), by striking ``, a non-network MSA plan,'' and 
                ``, non-network msa plans,'' each place it appears.
  (b) Making Program Permanent and Eliminating Cap.--Section 1851(b)(4) 
(42 U.S.C. 1395w-21(b)(4)) is amended--
          (1) in the heading, by striking ``on a demonstration basis'';
          (2) by striking the first sentence of subparagraph (A); and
          (3) by striking the second sentence of subparagraph (C).
  (c) Applying Limitations on Balance Billing.--Section 1852(k)(1) (42 
U.S.C. 1395w-22(k)(1)) is amended by inserting ``or with an 
organization offering a MSA plan'' after ``section 1851(a)(2)(A)''.
  (d) Additional Amendment.--Section 1851(e)(5)(A) (42 U.S.C. 1395w-
21(e)(5)(A)) is amended--
          (1) by adding ``or'' at the end of clause (i);
          (2) by striking ``, or'' at the end of clause (ii) and 
        inserting a semicolon; and
          (3) by striking clause (iii).

SEC. 235. EXTENSION OF REASONABLE COST CONTRACTS.

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

       Subtitle C--Application of FEHBP-Style Competitive Reforms

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

  (a) Identification of Competitive EFFS Regions; Computation of 
Competitive EFFS Non-Drug Benchmarks Under EFFS Program.--
          (1) In general.--Section 1860E-3, as added by section 201(a), 
        is amended by adding at the end the following new subsection:
  ``(e) Application of Competition.--
          ``(1) Determination of competitive effs regions.--
                  ``(A) In general.--For purposes of this part, the 
                term `competitive EFFS region' means, for a year 
                beginning with 2010, an EFFS region that the 
                Administrator finds--
                          ``(i) there will be offered in the region 
                        during the annual, coordinated election period 
                        under section 1851(e)(3)(B) (as applied under 
                        section 1860E-1(c)) before the beginning of the 
                        year at least 2 EFFS plans (in addition to the 
                        fee-for-service program under parts A and B), 
                        each offered by a different EFFS organization 
                        and each of which met the minimum enrollment 
                        requirements of paragraph (1) of section 
                        1857(b) (as applied without regard to paragraph 
                        (3) thereof) as of March of the previous year; 
                        and
                          ``(ii) during March of the previous year at 
                        least the percentage specified in subparagraph 
                        (C) of the number of EFFS eligible individuals 
                        who reside in the region were enrolled in an 
                        EFFS plan.
                  ``(B) Percentage specified.--
                          ``(i) In general.--For purposes of 
                        subparagraph (A), subject to clause (ii), the 
                        percentage specified in this subparagraph for a 
                        year is equal the lesser of 20 percent or to 
                        the sum of--
                                  ``(I) the percentage, as estimated by 
                                the Administrator, of EFFS eligible 
                                individuals in the United States who 
                                are enrolled in EFFS plans during March 
                                of the previous year; and
                                  ``(II) the percentage, as estimated 
                                by the Administrator, of Medicare 
                                Advantage eligible individuals in the 
                                United States who are enrolled in 
                                Medicare Advantage plans during March 
                                of the previous year.
                          ``(ii) Exception.--In the case of an EFFS 
                        region that was a competitive EFFS region for 
                        the previous year, the Medicare Benefits 
                        Administrator may continue to treat the region 
                        as meeting the requirement of subparagraph 
                        (A)(ii) if the region would meet such 
                        requirement but for a de minimis reduction 
                        below the percentage specified in clause (i).
          ``(2) Competitive effs non-drug monthly benchmark amount.--
        For purposes of this part, the term `competitive EFFS non-drug 
        monthly benchmark amount' means, with respect to an EFFS region 
        for a month in a year and subject to paragraph (8), the sum of 
        the 2 components described in paragraph (3) for the region and 
        year. The Administrator shall compute such benchmark amount for 
        each competitive EFFS region before the beginning of each 
        annual, coordinated election period under section 1851(e)(3)(B) 
        for each year (beginning with 2010) in which it is designated 
        as such a region.
          ``(3) 2 components.--For purposes of paragraph (2), the 2 
        components described in this paragraph for an EFFS region and a 
        year are the following:
                  ``(A) EFFS component.--The product of the following:
                          ``(i) Weighted average of plan bids in 
                        region.--The weighted average of the EFFS plan 
                        bids for the region and year (as determined 
                        under paragraph (4)(A)).
                          ``(ii) Non-ffs market share.--1 minus the 
                        fee-for-service market share percentage 
                        determined under paragraph (5) for the region 
                        and the year.
                  ``(B) Fee-for-service component.--The product of the 
                following:
                          ``(i) Fee-for-service region-specific non-
                        drug amount.--The fee-for-service region-
                        specific non-drug amount (as defined in 
                        paragraph (6)) for the region and year.
                          ``(ii) Fee-for-service market share.--The 
                        fee-for-service market share percentage 
                        (determined under paragraph (5)) for the region 
                        and the year.
          ``(4) Determination of weighted average effs plan bids for a 
        region.--
                  ``(A) In general.--For purposes of paragraph 
                (3)(A)(i), the weighted average of EFFS plan bids for 
                an EFFS region and a year is the sum of the following 
                products for EFFS plans described in subparagraph (C) 
                in the region and year:
                          ``(i) Unadjusted effs statutory non-drug 
                        monthly bid amount.--The unadjusted EFFS 
                        statutory non-drug monthly bid amount (as 
                        defined in subsection (a)(3)(A)(ii)(I)) for the 
                        region and year.
                          ``(ii) Plan's share of effs enrollment in 
                        region.--The number of individuals described in 
                        subparagraph (B), divided by the total number 
                        of such individuals for all EFFS plans 
                        described in subparagraph (C) for that region 
                        and year.
                  ``(B) Counting of individuals.--The Administrator 
                shall count, for each EFFS plan described in 
                subparagraph (C) for an EFFS region and year, the 
                number of individuals who reside in the region and who 
                were enrolled under such plan under this part during 
                March of the previous year.
                  ``(C) Exclusion of plans not offered in previous 
                year.--For an EFFS region and year, the EFFS plans 
                described in this subparagraph are plans that are 
                offered in the region and year and were offered in the 
                region in March of the previous year.
          ``(5) Computation of fee-for-service market share 
        percentage.--The Administrator shall determine, for a year and 
        an EFFS region, the proportion (in this subsection referred to 
        as the `fee-for-service market share percentage') of the EFFS 
        eligible individuals who are residents of the region during 
        March of the previous year, of such individuals who were not 
        enrolled in an EFFS plan or in a Medicare Advantage plan (or, 
        if greater, such proportion determined for individuals 
        nationally).
          ``(6) Fee-for-service region-specific non-drug amount.--
                  ``(A) In general.--For purposes of paragraph 
                (3)(B)(i) and section 1839(h)(2)(A), subject to 
                subparagraph (B), the term `fee-for-service region-
                specific non-drug amount' means, for a competitive EFFS 
                region and a year, the adjusted average per capita cost 
                for the year involved, determined under section 
                1876(a)(4) for such region for services covered under 
                parts A and B for individuals entitled to benefits 
                under part A and enrolled under this part who are not 
                enrolled in an EFFS plan under part E or a Medicare 
                Advantage plan under part C for the year, but adjusted 
                to exclude costs attributable to payments under section 
                1886(h).
                  ``(B) Inclusion of costs of va and dod military 
                facility services to medicare-eligible beneficiaries.--
                In determining the adjusted average per capita cost 
                under subparagraph (A) for a year, such cost shall be 
                adjusted to include the Administrator's estimate, on a 
                per capita basis, of the amount of additional payments 
                that would have been made in the region involved under 
                this title if individuals entitled to benefits under 
                this title had not received services from facilities of 
                the Department of Veterans Affairs or the Department of 
                Defense.
          ``(7) Application of competition.--In the case of an EFFS 
        region that is a competitive EFFS region for a year, for 
        purposes of applying subsections (b) and (c)(1) and section 
        1860E-4(a), any reference to an EFFS region-specific non-drug 
        monthly benchmark amount shall be treated as a reference to the 
        competitive EFFS non-drug monthly benchmark amount under 
        paragraph (2) for the region and year.
          ``(8) Phase-in of benchmark for each region.--
                  ``(A) Use of blended benchmark.--In the case of a 
                region that has not been a competitive EFFS region for 
                each of the previous 4 years, the competitive EFFS non-
                drug monthly benchmark amount shall be equal to the sum 
                of the following:
                          ``(i) New competitive component.--The product 
                        of--
                                  ``(I) the weighted average phase-in 
                                proportion for that area and year, as 
                                specified in subparagraph (B); and
                                  ``(II) the competitive EFFS non-drug 
                                monthly benchmark amount for the region 
                                and year, determined under paragraph 
                                (2) without regard to this paragraph.
                          ``(ii) Old competitive component.--The 
                        product of--
                                  ``(I) 1 minus the weighted average 
                                phase-in proportion for that region and 
                                year; and
                                  ``(II) the EFFS region-specific non-
                                drug benchmark amount for the region 
                                and the year.
                  ``(B) Computation of weighted average phase-in 
                proportion.--For purposes of this paragraph, the 
                `weighted average phase-in proportion' for an EFFS 
                region for a year shall be determined as follows:
                          ``(i) First year (and region not competitive 
                        region in previous year).--If the area was not 
                        a competitive EFFS region in the previous year, 
                        the weighted average phase-in proportion for 
                        the region for the year is equal to \1/5\.
                          ``(ii) Competitive region in previous year.--
                        If the region was a competitive EFFS region in 
                        the previous year, the weighted average phase-
                        in proportion for the region for the year is 
                        equal to the weighted average phase-in 
                        proportion determined under this subparagraph 
                        for the region for the previous year plus \1/                        5\, but in no case more than 1.''.
          (2) Conforming amendments.--
                  (A) Such section 1860E-3 is further amended--
                          (i) in subsection (b), by adding at the end 
                        the following new paragraph:
                  ``(4) Application in competitive regions.--For 
                special rules applying this subsection in competitive 
                EFFS regions, see subsection (e)(7).'';
                          (ii) in subsection (c)(1), by inserting ``and 
                        subsection (e)(7)'' after ``(as made applicable 
                        under subsection (d))''; and
                          (iii) in subsection (d) , by striking ``and 
                        (e)'' and inserting ``(e), and (k) ''.
                  (B) Section 1860E-4(a)(1), as inserted by section 
                201(a)(2), is amended by inserting ``, except as 
                provided in section 1860E-3(e)(7)'' after ``paragraph 
                (2)''.
  (b) Identification of Competitive Medicare Advantage Areas; 
Application of Competitive Medicare Advantage Non-Drug Benchmarks Under 
Medicare Advantage Program.--
          (1) In general.--Section 1853, as amended by section 
        221(b)(3), is amended by adding at the end the following new 
        subsection:
  ``(k) Application of Competition.--
          ``(1) Determination of competitive medicare advantage 
        areas.--
                  ``(A) In general.--For purposes of this part, the 
                terms `competitive Medicare Advantage area' and `CMA 
                area' mean, for a year beginning with 2010, an area 
                (which is a metropolitan statistical area or other area 
                with a substantial number of Medicare Advantage 
                enrollees) that the Administrator finds--
                          ``(i) there will be offered during the 
                        annual, coordinated election period under 
                        section 1851(e)(3)(B) under this part before 
                        the beginning of the year at least 2 Medicare 
                        Advantage plans (in addition to the fee-for-
                        service program under parts A and B), each 
                        offered by a different Medicare Advantage 
                        organization and each of which met the minimum 
                        enrollment requirements of paragraph (1) of 
                        section 1857(b) (as applied without regard to 
                        paragraph (3) thereof) as of March of the 
                        previous year with respect to the area; and
                          ``(ii) during March of the previous year at 
                        least the percentage specified in subparagraph 
                        (B) of the number of Medicare Advantage 
                        eligible individuals who reside in the area 
                        were enrolled in a Medicare Advantage plan.
                  ``(B) Percentage specified.--
                          ``(i) In general.--For purposes of 
                        subparagraph (A), subject to clause (ii), the 
                        percentage specified in this subparagraph for a 
                        year is equal the lesser of 20 percent or to 
                        the sum of--
                                  ``(I) the percentage, as estimated by 
                                the Administrator, of EFFS eligible 
                                individuals in the United States who 
                                are enrolled in EFFS plans during March 
                                of the previous year; and
                                  ``(II) the percentage, as estimated 
                                by the Administrator, of Medicare 
                                Advantage eligible individuals in the 
                                United States who are enrolled in 
                                Medicare Advantage plans during March 
                                of the previous year.
                          ``(ii) Exception.--In the case of an area 
                        that was a competitive area for the previous 
                        year, the Medicare Benefits Administrator may 
                        continue to treat the area as meeting the 
                        requirement of subparagraph (A)(ii) if the area 
                        would meet such requirement but for a de 
                        minimis reduction below the percentage 
                        specified in clause (i).
          ``(2) Competitive medicare advantage non-drug monthly 
        benchmark amount.--For purposes of this part, the term 
        `competitive Medicare Advantage non-drug monthly benchmark 
        amount' means, with respect to a competitive Medicare Advantage 
        area for a month in a year subject to paragraph (8), the sum of 
        the 2 components described in paragraph (3) for the area and 
        year. The Administrator shall compute such benchmark amount for 
        each competitive Medicare Advantage area before the beginning 
        of each annual, coordinated election period under section 
        1851(e)(3)(B) for each year (beginning with 2010) in which it 
        is designated as such an area.
          ``(3) 2 components.--For purposes of paragraph (2), the 2 
        components described in this paragraph for a competitive 
        Medicare Advantage area and a year are the following:
                  ``(A) Medicare advantage component.--The product of 
                the following:
                          ``(i) Weighted average of medicare advantage 
                        plan bids in area.--The weighted average of the 
                        plan bids for the area and year (as determined 
                        under paragraph (4)(A)).
                          ``(ii) Non-ffs market share.--1 minus the 
                        fee-for-service market share percentage, 
                        determined under paragraph (5) for the area and 
                        year.
                  ``(B) Fee-for-service component.--The product of the 
                following:
                          ``(i) Fee-for-service area-specific non-drug 
                        amount.--The fee-for-service area-specific non-
                        drug amount (as defined in paragraph (6)) for 
                        the area and year.
                          ``(ii) Fee-for-service market share.--The 
                        fee-for-service market share percentage, 
                        determined under paragraph (5) for the area and 
                        year.
          ``(4) Determination of weighted average medicare advantage 
        bids for an area.--
                  ``(A) In general.--For purposes of paragraph 
                (3)(A)(i), the weighted average of plan bids for an 
                area and a year is the sum of the following products 
                for Medicare Advantage plans described in subparagraph 
                (C) in the area and year:
                          ``(i) Monthly medicare advantage statutory 
                        non-drug bid amount.--The unadjusted Medicare 
                        Advantage statutory non-drug monthly bid 
                        amount.
                          ``(ii) Plan's share of medicare advantage 
                        enrollment in area.--The number of individuals 
                        described in subparagraph (B), divided by the 
                        total number of such individuals for all 
                        Medicare Advantage plans described in 
                        subparagraph (C) for that area and year.
                  ``(B) Counting of individuals.--The Administrator 
                shall count, for each Medicare Advantage plan described 
                in subparagraph (C) for an area and year, the number of 
                individuals who reside in the area and who were 
                enrolled under such plan under this part during March 
                of the previous year.
                  ``(C) Exclusion of plans not offered in previous 
                year.--For an area and year, the Medicare Advantage 
                plans described in this subparagraph are plans 
                described in the first sentence of section 
                1851(a)(2)(A) that are offered in the area and year and 
                were offered in the area in March of the previous year.
          ``(5) Computation of fee-for-service market share 
        percentage.--The Administrator shall determine, for a year and 
        a competitive Medicare Advantage area, the proportion (in this 
        subsection referred to as the `fee-for-service market share 
        percentage') of Medicare Advantage eligible individuals 
        residing in the area who during March of the previous year were 
        not enrolled in a Medicare Advantage plan or in an EFFS plan 
        (or, if greater, such proportion determined for individuals 
        nationally).
          ``(6) Fee-for-service area-specific non-drug amount.--
                  ``(A) In general.--For purposes of paragraph 
                (3)(B)(i) and section 1839(h)(1)(A), subject to 
                subparagraph (B), the term `fee-for-service area-
                specific non-drug amount' means, for a competitive 
                Medicare Advantage area and a year, the adjusted 
                average per capita cost for the year involved, 
                determined under section 1876(a)(4) for such area for 
                services covered under parts A and B for individuals 
                entitled to benefits under part A and enrolled under 
                this part who are not enrolled in a Medicare Advantage 
                plan under part C or an EFFS plan under part E for the 
                year, but adjusted to exclude costs attributable to 
                payments under section 1886(h).
                  ``(B) Inclusion of costs of va and dod military 
                facility services to medicare-eligible beneficiaries.--
                In determining the adjusted average per capita cost 
                under subparagraph (A) for a year, such cost shall be 
                adjusted to include the Administrator's estimate, on a 
                per capita basis, of the amount of additional payments 
                that would have been made in the area involved under 
                this title if individuals entitled to benefits under 
                this title had not received services from facilities of 
                the Department of Veterans Affairs or the Department of 
                Defense.
          ``(7) Application of competition.--In the case of an area 
        that is a competitive Medicare Advantage area for a year, for 
        purposes of applying subsection (a)(1)(A)(ii) and sections 
        1854(b)(2)(A)(ii) and 1854(b)(3)(B)(i), any reference to a 
        Medicare Advantage area-specific non-drug monthly benchmark 
        amount shall be treated as a reference to the competitive 
        Medicare Advantage non-drug monthly benchmark amount under 
        paragraph (2) for the area and year.
          ``(8) Phase-in of benchmark for each area.--
                  ``(A) Use of blended benchmark.--In the case of an 
                area that has not been a competitive Medicare Advantage 
                area for each of the previous 4 years, the competitive 
                Medicare Advantage non-drug monthly benchmark amount 
                shall be equal to the sum of the following:
                          ``(i) New competitive component.--The product 
                        of--
                                  ``(I) the weighted average phase-in 
                                proportion for that area and year, as 
                                specified in subparagraph (B); and
                                  ``(II) the competitive Medicare 
                                Advantage non-drug monthly benchmark 
                                amount for the area and year, 
                                determined under paragraph (2) without 
                                regard to this paragraph.
                          ``(ii) Old competitive component.--The 
                        product of--
                                  ``(I) 1 minus the weighted average 
                                phase-in proportion for that area and 
                                year; and
                                  ``(II) the Medicare Advantage area-
                                wide non-drug benchmark amount for the 
                                area and the year.
                  ``(B) Computation of weighted average phase-in 
                proportion.--For purposes of this paragraph, the 
                `weighted average phase-in proportion' for a Medicare 
                Advantage payment area for a year shall be determined 
                as follows:
                          ``(i) First year (and area not competitive 
                        area in previous year).--If the area was not a 
                        Medicare Advantage competitive area in the 
                        previous year, the weighted average phase-in 
                        proportion for the area for the year is equal 
                        to \1/5\.
                          ``(ii) Competitive area in previous year.--If 
                        the area was a competitive Medicare Advantage 
                        area in the previous year, the weighted average 
                        phase-in proportion for the area for the year 
                        is equal to the weighted average phase-in 
                        proportion determined under this subparagraph 
                        for the area for the previous year plus \1/5\, 
                        but in no case more than 1.
                  ``(C) Medicare advantage area-wide non-drug benchmark 
                amount.--For purposes of subparagraph (A)(ii)(II), the 
                term `Medicare Advantage area-wide non-drug benchmark 
                amount' means, for an area and year, the weighted 
                average of the amounts described in section 1853(j) for 
                Medicare Advantage payment area or areas included in 
                the area (based on the number of traditional fee-for-
                service enrollees in such payment area or areas) and 
                year.''.
          (2) Application.--Section 1854 (42 U.S.C. 1395w-24) is 
        amended--
                  (A) in subsection (b)(1)(C)(i), as added by section 
                221(b)(1)(A), by striking ``(i) Requirement.--The'' and 
                inserting ``(i) Requirement for non-competitive 
                areas.--In the case of a Medicare Advantage payment 
                area that is not a competitive Medicare Advantage area 
                designated under section 1853(k)(1), the'';
                  (B) in subsection (b)(1)(C), as so added, by 
                inserting after clause (i) the following new clause:
                          ``(ii) Requirement for competitive medicare 
                        advantage areas.--In the case of a Medicare 
                        Advantage payment area that is designated as a 
                        competitive Medicare Advantage area under 
                        section 1853(k)(1), if there are average per 
                        capita monthly savings described in paragraph 
                        (6) for a Medicare Advantage plan and year, the 
                        Medicare Advantage plan shall provide to the 
                        enrollee a monthly rebate equal to 75 percent 
                        of such savings.''; and
                  (C) by adding at the end of subsection (b), as 
                amended by sections 221(b)(1)(B) and 221(b)(2), the 
                following new paragraph:
          ``(6) Computation of average per capita monthly savings for 
        competitive medicare advantage areas.--For purposes of 
        paragraph (1)(C)(ii), the average per capita monthly savings 
        referred to in such paragraph for a Medicare Advantage plan and 
        year shall be computed in the same manner as the average per 
        capita monthly savings is computed under paragraph (3) except 
        that the reference to the Medicare Advantage area-specific non-
        drug monthly benchmark amount in paragraph (3)(B)(i) (or to the 
        benchmark amount as adjusted under paragraph (3)(C)(i)) is 
        deemed to be a reference to the competitive Medicare Advantage 
        non-drug monthly benchmark amount (or such amount as adjusted 
        in the manner described in paragraph (3)(B)(i)).''.
          (3) Additional conforming amendments.--
                  (A) Payment of plans.--Section 1853(a)(1)(A)(ii), as 
                amended by section 221(c)(1), is amended--
                          (i) in subclauses (I) and (II), by inserting 
                        ``(or, insofar as such payment area is a 
                        competitive Medicare Advantage area, described 
                        in section 1854(b)(6))'' after ``section 
                        1854(b)(3)(C)''; and
                          (ii) in subclause (II), by inserting ``(or, 
                        insofar as such payment area is a competitive 
                        Medicare Advantage area, the competitive 
                        Medicare Advantage non-drug monthly benchmark 
                        amount)'' after ``Medicare Advantage area-
                        specific non-drug monthly benchmark amount''; 
                        and
                  (B) Disclosure of information.--Section 
                1853(b)(1)(B), as amended by section 221(e)(1), is 
                amended to read as follows:
                  ``(B) Competition information.--For years beginning 
                with 2006, the following:
                          ``(i) Benchmarks.--The Medicare Advantage 
                        area-specific non-drug benchmark under section 
                        1853(j) and, if applicable, the competitive 
                        Medicare Advantage non-drug benchmark under 
                        section 1853(k)(2), for the year and 
                        competitive Medicare Advantage area involved 
                        and the national fee-for-service market share 
                        percentage for the area and year.
                          ``(ii) Adjustment factors.--The adjustment 
                        factors applied under section 1853(a)(1)(A)(iv) 
                        (relating to demographic adjustment), section 
                        1853(a)(1)(B) (relating to adjustment for end-
                        stage renal disease), and section 1853(a)(3) 
                        (relating to health status adjustment).
                          ``(iii) Certain benchmarks and amounts.--In 
                        the case of a competitive Medicare Advantage 
                        area, the Medicare Advantage area-wide non-drug 
                        benchmark amount (as defined in subsection 
                        (k)(8)(C)) and the fee-for-service area-
                        specific non-drug amount (as defined in section 
                        1853(k)(6)) for the area.
                          ``(iv) Individuals.--The number of 
                        individuals counted under subsection (k)(4)(B) 
                        and enrolled in each Medicare Advantage plan in 
                        the area.''.
                  (C) Definition of monthly basic premium.--Section 
                1854(b)(2)(A)(ii), as amended by section 221(d)(2), is 
                amended by inserting ``(or, in the case of a 
                competitive Medicare Advantage area, the competitive 
                Medicare Advantage non-drug monthly benchmark amount 
                or, in applying this paragraph under part E in the case 
                of a competitive EFFS region, the competitive EFFS non-
                drug monthly benchmark amount)'' after ``benchmark 
                amount''.
  (c) Premium Adjustment.--
          (1) In general.--Section 1839 (42 U.S.C. 1395r) is amended by 
        adding at the end the following new subsection:
  ``(h)(1)(A) In the case of an individual who resides in a competitive 
Medicare Advantage area under section 1853(k)(1) (regardless of whether 
such area is in a competitive EFFS region under section 1860E-3(e)) and 
who is not enrolled in a Medicare Advantage plan under part C or in an 
EFFS plan under part E, the monthly premium otherwise applied under 
this part (determined without regard to subsections (b) and (f) or any 
adjustment under this subsection) shall be adjusted as follows: If the 
fee-for-service area-specific non-drug amount (as defined in section 
1853(k)(6)) for the competitive Medicare Advantage area in which the 
individual resides for a month--
          ``(i) does not exceed the competitive Medicare Advantage non-
        drug benchmark (as determined under paragraph (2) of section 
        1853(k), without regard to paragraph (8) thereof) for such 
        area, the amount of the premium for the individual for the 
        month shall be reduced by an amount equal to the product of the 
        adjustment factor under subparagraph (C) and 75 percent of the 
        amount by which such competitive benchmark exceeds such fee-
        for-service area-specific non-drug amount; or
          ``(ii) exceeds such competitive Medicare Advantage non-drug 
        benchmark, the amount of the premium for the individual for the 
        month shall be adjusted to ensure, subject to subparagraph (B), 
        that--
                  ``(I) the sum of the amount of the adjusted premium 
                and the competitive Medicare Advantage non-drug 
                benchmark for the area, is equal to
                  ``(II) the sum of the unadjusted premium plus amount 
                of the fee-for-service area-specific non-drug amount 
                for the area.
  ``(B) In no case shall the actual amount of an adjustment under 
subparagraph (A)(ii) exceed the product of the adjustment factor under 
subparagraph (C) and the amount of the adjustment otherwise computed 
under subparagraph (A)(ii) without regard to this subparagraph.
  ``(C) The adjustment factor under this subparagraph for an area for a 
year is equal to--
          ``(i) the number of consecutive years (in the 5-year period 
        ending with the year involved) in which such area was a 
        competitive Medicare Advantage area; divided by
          ``(ii) 5.
  ``(2)(A) In the case of an individual who resides in an area that is 
within a competitive EFFS region under section 1860E-3(e) but is not 
within a competitive Medicare Advantage area under section 1853(k)(1) 
and who is not enrolled in a Medicare Advantage plan under part C or in 
an EFFS plan under part E, the monthly premium otherwise applied under 
this part (determined without regard to subsections (b) and (f) or any 
adjustment under this subsection) shall be adjusted as follows: If the 
fee-for-service region-specific non-drug amount (as defined in section 
1860E-3(e)(6)) for a region for a month--
          ``(i) does not exceed the competitive EFFS non-drug monthly 
        benchmark amount (as determined under paragraph (2) of section 
        1860E-3(e), without regard to paragraph (8) thereof) for such 
        region, the amount of the premium for the individual for the 
        month shall be reduced by an amount equal to the product of the 
        adjustment factor under subparagraph (C) and 75 percent of the 
        amount by which such competitive benchmark amount exceeds such 
        fee-for-service region-specific non-drug benchmark amount; or
          ``(ii) exceeds such competitive EFFS non-drug monthly 
        benchmark amount, the amount of the premium for the individual 
        for the month shall be adjusted to ensure, subject to 
        subparagraph (B), that--
                  ``(I) the sum of the amount of the adjusted premium 
                and the competitive EFFS non-drug monthly benchmark 
                amount for the region, is equal to
                  ``(II) the sum of the unadjusted premium plus the 
                amount of the EFFS region-specific non-drug monthly 
                bidfor the region.
  ``(B) In no case shall the actual amount of an adjustment under 
subparagraph (A)(ii) exceed the product of the adjustment factor under 
subparagraph (C) and the amount of the adjustment otherwise computed 
under subparagraph (A)(ii) without regard to this subparagraph.
  ``(C) The adjustment factor under this subparagraph for an EFFS 
region for a year is equal to--
          ``(i) the number of consecutive years (in the 5-year period 
        ending with the year involved) in which such region was a 
        competitive EFFS region; divided by
          ``(ii) 5.
  ``(3) Nothing in this subsection shall be construed as preventing a 
reduction under paragraph (1)(A) or paragraph (2)(A) in the premium 
otherwise applicable under this part to zero or from requiring the 
provision of a rebate to the extent such premium would otherwise be 
required to be less than zero.
  ``(4) The adjustment in the premium under this subsection shall be 
effected in such manner as the Medicare Benefits Administrator 
determines appropriate.
  ``(5) In order to carry out this subsection (insofar as it is 
effected through the manner of collection of premiums under 1840(a)), 
the Medicare Benefits Administrator shall transmit to the Commissioner 
of Social Security--
          ``(A) at the beginning of each year, the name, social 
        security account number, and the amount of the adjustment (if 
        any) under this subsection for each individual enrolled under 
        this part for each month during the year; and
          ``(B) periodically throughout the year, information to update 
        the information previously transmitted under this paragraph for 
        the year.''.
          (2) Conforming amendment.--Section 1844(c) (42 U.S.C. 
        1395w(c)) is amended by inserting ``and without regard to any 
        premium adjustment effected under section 1839(h)'' before the 
        period at the end.
  (d) Effective Date.--The amendments made by this section shall take 
effect on January 1, 2010.

             TITLE III--COMBATTING WASTE, FRAUD, AND ABUSE

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

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

SEC. 302. COMPETITIVE ACQUISITION OF CERTAIN ITEMS AND SERVICES.

  (a) In General.--Section 1847 (42 U.S.C. 1395w-3) is amended to read 
as follows:
        ``competitive acquisition of certain items and services
  ``Sec. 1847. (a) Establishment of Competitive Acquisition Programs.--
          ``(1) Implementation of programs.--
                  ``(A) In general.--The Secretary shall establish and 
                implement programs under which competitive acquisition 
                areas are established throughout the United States for 
                contract award purposes for the furnishing under this 
                part of competitively priced items and services 
                (described in paragraph (2)) for which payment is made 
                under this part. Such areas may differ for different 
                items and services.
                  ``(B) Phased-in implementation.--The programs shall 
                be phased-in--
                          ``(i) among competitive acquisition areas 
                        over a period of not longer than 3 years in a 
                        manner so that the competition under the 
                        programs occurs in--
                                  ``(I) at least \1/3\ of such areas in 
                                2005; and
                                  ``(II) at least \2/3\ of such areas 
                                in 2006; and
                          ``(ii) among items and services in a manner 
                        such that the programs apply to the highest 
                        cost and highest volume items and services 
                        first.
                  ``(C) Waiver of certain provisions.--In carrying out 
                the programs, the Secretary may waive such provisions 
                of the Federal Acquisition Regulation as are necessary 
                for the efficient implementation of this section, other 
                than provisions relating to confidentiality of 
                information and such other provisions as the Secretary 
                determines appropriate.
          ``(2) Items and services described.--The items and services 
        referred to in paragraph (1) are the following:
                  ``(A) Durable medical equipment and medical 
                supplies.--Covered items (as defined in section 
                1834(a)(13)) for which payment is otherwise made under 
                section 1834(a), including items used in infusion and 
                drugs and supplies used in conjunction with durable 
                medical equipment, but excluding class III devices 
                under the Federal Food, Drug, and Cosmetic Act.
                  ``(B) Off-the-shelf orthotics.--Orthotics (described 
                in section 1861(s)(9)) for which payment is otherwise 
                made under section 1834(h) which require minimal self-
                adjustment for appropriate use and does not require 
                expertise in trimming, bending, molding, assembling, or 
                customizing to fit to the patient.
          ``(3) Exception authority.--In carrying out the programs 
        under this section, the Secretary may exempt--
                  ``(A) rural areas and areas with low population 
                density within urban areas that are not competitive, 
                unless there is a significant national market through 
                mail order for a particular item or service; and
                  ``(B) items and services for which the application of 
                competitive acquisition is not likely to result in 
                significant savings.
          ``(4) Special rule for certain rented items of durable 
        medical equipment.--In the case of a covered item for which 
        payment is made on a rental basis under section 1834(a), the 
        Secretary shall establish a process by which rental agreements 
        for the covered items entered into before the application of 
        the competitive acquisition program under this section for the 
        item may be continued notwithstanding this section. In the case 
        of any such continuation, the supplier involved shall provide 
        for appropriate servicing and replacement, as required under 
        section 1834(a).
          ``(5) Physician authorization.--The Secretary may establish a 
        process under which a physician may prescribe a particular 
        brand or mode of delivery of an item or service if the item or 
        service involved is clinically more appropriate than other 
        similar items or services.
          ``(6) Application.--For each competitive acquisition area in 
        which the program is implemented under this subsection with 
        respect to items and services, the payment basis determined 
        under the competition conducted under subsection (b) shall be 
        substituted for the payment basis otherwise applied under 
        section 1834(a).
  ``(b) Program Requirements.--
          ``(1) In general.--The Secretary shall conduct a competition 
        among entities supplying items and services described in 
        subsection (a)(2) for each competitive acquisition area in 
        which the program is implemented under subsection (a) with 
        respect to such items and services.
          ``(2) Conditions for awarding contract.--
                  ``(A) In general.--The Secretary may not award a 
                contract to any entity under the competition conducted 
                in an competitive acquisition area pursuant to 
                paragraph (1) to furnish such items or services unless 
                the Secretary finds all of the following:
                          ``(i) The entity meets quality and financial 
                        standards specified by the Secretary or 
                        developed by the Program Advisory and Oversight 
                        Committee established under subsection (c).
                          ``(ii) The total amounts to be paid under the 
                        contract (including costs associated with the 
                        administration of the contract) are expected to 
                        be less than the total amounts that would 
                        otherwise be paid.
                          ``(iii) Beneficiary access to a choice of 
                        multiple suppliers in the area is maintained.
                          ``(iv) Beneficiary liability is limited to 20 
                        percent of the applicable contract award price, 
                        except in such cases where a supplier has 
                        furnished an upgraded item and has executed an 
                        advanced beneficiary notice.
                  ``(B) Development of quality standards for dme 
                products.--
                          ``(i) In general.--The quality standards 
                        specified under subparagraph (A)(i) shall not 
                        be less than the quality standards that would 
                        otherwise apply if this section did not apply 
                        and shall include consumer services standards. 
                        Not later than July 1, 2004, the Secretary 
                        shall establish new quality standards for 
                        products subject to competitive acquisition 
                        under this section. Such standards shall be 
                        applied prospectively and shall be published on 
                        the website of the Department of Health and 
                        Human Services.
                          ``(ii) Consultation with program advisory and 
                        oversight committee.--The Secretary shall 
                        consult with the Program Advisory and Oversight 
                        Committee (established under subsection (c)) to 
                        review (and advise the Secretary concerning) 
                        the quality standards referred to in clause 
                        (i).
          ``(3) Contents of contract.--
                  ``(A) In general.--A contract entered into with an 
                entity under the competition conducted pursuant to 
                paragraph (1) is subject to terms and conditions that 
                the Secretary may specify.
                  ``(B) Term of contracts.--The Secretary shall 
                recompete contracts under this section not less often 
                than once every 3 years.
          ``(4) Limit on number of contractors.--
                  ``(A) In general.--The Secretary may limit the number 
                of contractors in a competitive acquisition area to the 
                number needed to meet projected demand for items and 
                services covered under the contracts. In awarding 
                contracts, the Secretary shall take into account the 
                ability of bidding entities to furnish items or 
                services in sufficient quantities to meet the 
                anticipated needs of beneficiaries for such items or 
                services in the geographic area covered under the 
                contract on a timely basis.
                  ``(B) Multiple winners.--The Secretary shall award 
                contracts to multiple entities submitting bids in each 
                area for an item or service.
          ``(5) Payment.--Payment under this part for competitively 
        priced items and services described in subsection (a)(2) shall 
        be based on the bids submitted and accepted under this section 
        for such items and services.
          ``(6) Participating contractors.--Payment shall not be made 
        for items and services described in subsection (a)(2) furnished 
        by a contractor and for which competition is conducted under 
        this section unless--
                  ``(A) the contractor has submitted a bid for such 
                items and services under this section; and
                  ``(B) the Secretary has awarded a contract to the 
                contractor for such items and services under this 
                section.
        In this section, the term `bid' means a request for a proposal 
        for an item or service that includes the cost of the item or 
        service, and where appropriate, any services that are attendant 
        to the provision of the item or service.
          ``(7) Consideration in determining categories for bids.--The 
        Secretary shall consider the similarity of the clinical 
        efficiency and value of specific codes and products, including 
        products that may provide a therapeutic advantage to 
        beneficiaries, before delineating the categories and products 
        that will be subject to bidding.
          ``(8) Authority to contract for education, monitoring, 
        outreach and complaint services.--The Secretary may enter into 
        a contract with an appropriate entity to address complaints 
        from beneficiaries who receive items and services from an 
        entity with a contract under this section and to conduct 
        appropriate education of and outreach to such beneficiaries and 
        monitoring quality of services with respect to the program.
  ``(c) Program Advisory and Oversight Committee.--
          ``(1) Establishment.--There is established a Program Advisory 
        and Oversight Committee (hereinafter in this section referred 
        to as the `Committee').
          ``(2) Membership; terms.--The Committee shall consist of such 
        members as the Secretary may appoint who shall serve for such 
        term as the Secretary may specify.
          ``(3) Duties.--
                  ``(A) Technical assistance.--The Committee shall 
                provide advice and technical assistance to the 
                Secretary with respect to the following functions:
                          ``(i) The implementation of the program under 
                        this section.
                          ``(ii) The establishment of requirements for 
                        collection of data.
                          ``(iii) The development of proposals for 
                        efficient interaction among manufacturers and 
                        distributors of the items and services and 
                        providers and beneficiaries.
                  ``(B) Additional duties.--The Committee shall perform 
                such additional functions to assist the Secretary in 
                carrying out this section as the Secretary may specify.
          ``(4) Inapplicability of faca.--The provisions of the Federal 
        Advisory Committee Act (5 U.S.C. App.) shall not apply.
  ``(d) Annual Reports.--The Secretary shall submit to Congress an 
annual management report on the programs under this section. Each such 
report shall include information on savings, reductions in beneficiary 
cost-sharing, access to and quality of items and services, and 
beneficiary satisfaction.
  ``(e) Demonstration Project for Clinical Laboratory Services.--
          ``(1) In general.--The Secretary shall conduct a 
        demonstration project on the application of competitive 
        acquisition under this section to clinical diagnostic 
        laboratory tests--
                  ``(A) for which payment is otherwise made under 
                section 1833(h) or 1834(d)(1) (relating to colorectal 
                cancer screening tests); and
                  ``(B) which are furnished by entities that did not 
                have a face-to-face encounter with the individual.
          ``(2) Terms and conditions.--Such project shall be under the 
        same conditions as are applicable to items and services 
        described in subsection (a)(2).
          ``(3) Report.--The Secretary shall submit to Congress--
                  ``(A) an initial report on the project not later than 
                December 31, 2005; and
                  ``(B) such progress and final reports on the project 
                after such date as the Secretary determines 
                appropriate.''.
  (b) Conforming Amendments.--
          (1) Durable medical equipment; elimination of inherent 
        reasonableness authority.--Section 1834(a) (42 U.S.C. 1395m(a)) 
        is amended--
                  (A) in paragraph (1)(B), by striking ``The payment 
                basis'' and inserting ``Subject to subparagraph (E)(i), 
                the payment basis'';
                  (B) in paragraph (1)(C), by striking ``This 
                subsection'' and inserting ``Subject to subparagraph 
                (E)(ii), this subsection'';
                  (C) by adding at the end of paragraph (1) the 
                following new subparagraph:
                  ``(E) Application of competitive acquisition; 
                elimination of inherent reasonableness authority.--In 
                the case of covered items and services that are 
                included in a competitive acquisition program in a 
                competitive acquisition area under section 1847(a)--
                          ``(i) the payment basis under this subsection 
                        for such items and services furnished in such 
                        area shall be the payment basis determined 
                        under such competitive acquisition program; and
                          ``(ii) the Secretary may use information on 
                        the payment determined under such competitive 
                        acquisition programs to adjust the payment 
                        amount otherwise recognized under subparagraph 
                        (B)(ii) for an area that is not a competitive 
                        acquisition area under section 1847 and in the 
                        case of such adjustment, paragraph (10)(B) 
                        shall not be applied.''; and
                  (D) in paragraph (10)(B), by inserting ``in an area 
                and with respect to covered items and services for 
                which the Secretary does not make a payment amount 
                adjustment under paragraph (1)(E)'' after ``under this 
                subsection''.
          (2) Off-the-shelf orthotics; elimination of inherent 
        reasonableness authority.--Section 1834(h) (42 U.S.C. 1395m(h)) 
        is amended--
                  (A) in paragraph (1)(B), by striking ``and (E)'' and 
                inserting ``, (E) , and (H)(i)'';
                  (B) in paragraph (1)(D), by striking ``This 
                subsection'' and inserting ``Subject to subparagraph 
                (H)(ii), this subsection'';
                  (C) by adding at the end of paragraph (1) the 
                following new subparagraph:
                  ``(H) Application of competitive acquisition to 
                orthotics; elimination of inherent reasonableness 
                authority.--In the case of orthotics described in 
                paragraph (2)(B) of section 1847(a) that are included 
                in a competitive acquisition program in a competitive 
                acquisition area under such section--
                          ``(i) the payment basis under this subsection 
                        for such orthotics furnished in such area shall 
                        be the payment basis determined under such 
                        competitive acquisition program; and
                          ``(ii) the Secretary may use information on 
                        the payment determined under such competitive 
                        acquisition programs to adjust the payment 
                        amount otherwise recognized under subparagraph 
                        (B)(ii) for an area that is not a competitive 
                        acquisition area under section 1847, and in the 
                        case of such adjustment, paragraphs (8) and (9) 
                        of section 1842(b) shall not be applied.''.
  (c) Report on Activities of Suppliers.--The Secretary shall conduct a 
study to determine the extent to which (if any) suppliers of covered 
items of durable medical equipment that are subject to the competitive 
acquisition program under section 1847 of the Social Security Act, as 
amended by subsection (a), are soliciting physicians to prescribe 
certain brands or modes of delivery of covered items based on 
profitability.
  (d) GAO Study on Safe and Effective Home Infusion and Inhalation 
Therapy; Standards.--
          (1) Study.--The Comptroller General of the United States 
        shall conduct a study of the standards, professional services, 
        and related functions necessary for the provision of safe and 
        effective home infusion therapy and home inhalation therapy.
          (2) Report.--Not later than May 1, 2004, the Comptroller 
        General shall submit to Congress a report on the study 
        conducted under paragraph (1).
          (3) Use of findings in developing standards.--In promulgating 
        regulations to carry out section 1847 of the Social Security 
        Act, as amended by subsection (a), the Secretary shall ensure 
        that quality standards developed under subsection (b)(2)(B) of 
        such section reflect the findings of the Comptroller General 
        set forth in the report under paragraph (2).

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

  (a) Adjustment to Physician Fee Schedule.--
          (1) Adjustment in practice expense relative value units.--
        Section 1848(c)(2) (42 U.S.C. 1395w-4(c)(2)) is amended--
                  (A) in subparagraph (B)--
                          (i) in clause (ii)(II), by striking ``The 
                        adjustments'' and inserting ``Subject to clause 
                        (iv), the adjustments''; and
                          (ii) by adding at the end of subparagraph 
                        (B), the following new clause:
                          ``(iv) Exception to budget neutrality.--The 
                        additional expenditures attributable to clause 
                        (ii) of subparagraph (H) shall not be taken 
                        into account in applying clause (ii)(II) for 
                        2005.''; and
                  (B) by adding at the end the following new 
                subparagraph:
                  ``(H) Adjustments in practice expense relative value 
                units for 2005.--
                          ``(i) In general.--As part of the annual 
                        process of establishing the physician fee 
                        schedule under subsection (b) for 2005, the 
                        Secretary shall increase the practice expense 
                        relative value units for 2005 consistent with 
                        clause (ii).
                          ``(ii) Use of supplemental survey data.--For 
                        2005 for any specialty that submitted survey 
                        data that included expenses for the 
                        administration of drugs and biologicals for 
                        which payment is made under section 1842(o) (or 
                        section 1847A), the Secretary shall use such 
                        supplemental survey data in carrying out this 
                        subparagraph insofar as they are collected and 
                        provided by entities and organizations 
                        consistent with the criteria established by the 
                        Secretary pursuant to section 212(a) of the 
                        Medicare, Medicaid, and SCHIP Balanced Budget 
                        Refinement Act of 1999 and insofar as such data 
                        are submitted to the Secretary by December 31, 
                        2004.
                          ``(iii) Subsequent, budget neutral 
                        adjustments permitted.--Nothing in this 
                        subparagraph shall be construed as preventing 
                        the Secretary from providing for adjustments in 
                        practice expense relative value units under 
                        (and consistent with) subparagraph (B) for 
                        years after 2005.
                          ``(iv) Consultation.--Before publishing the 
                        notice of proposed rulemaking to carry out this 
                        subparagraph, the Secretary shall consult with 
                        the Comptroller General of the United States 
                        and with groups representing the physician 
                        specialties involved.
                          ``(v) Treatment as change in law and 
                        regulation in sustainable growth rate 
                        determination.--The enactment of subparagraph 
                        (B)(iv) and this subparagraph shall be treated 
                        as a change in law for purposes of applying 
                        subsection (f)(2)(D).''.
          (2) Prohibition of administrative and judicial review.--
        Section 1848(i)(1) (42 U.S.C. 1395w-4(i)(1)) is amended--
          (A) by striking ``and'' at the end of subparagraph (D);
          (B) by striking the period at the end of subparagraph (E) and 
        inserting ``, and''; and
          (C) by adding at the end the following new subparagraph:
                  ``(F) adjustments in practice expense relative value 
                units for 2005 under subsection (c)(2)(H).''.
          (3) Treatment of other services currently in the non-
        physician work pool.--The Secretary shall make adjustments to 
        the non-physician work pool methodology (as such term is used 
        in the regulations promulgated by the Secretary in the Federal 
        Register as of December 31, 2002) for determination of practice 
        expense relative value units under the physician fee schedule 
        described in section 1848(c)(2)(C)(ii) of the Social Security 
        Act so that the practice expense relative value units for 
        services determined under such methodology are not 
        disproportionately reduced relative to the practice expense 
        relative value units of other services not determined under 
        such non-physician work pool methodology, as the result of 
        amendments made by paragraph (1).
  (b) Payment Based on Competition.--Title XVIII is amended by 
inserting after section 1847 (42 U.S.C. 1395w-3), as amended by section 
302, the following new sections:
 ``competitive acquisition of covered outpatient drugs and biologicals
  ``Sec. 1847A. (a) Implementation of Competitive Acquisition.--
          ``(1) Implementation of program.--
                  ``(A) In general.--The Secretary shall establish and 
                implement a competitive acquisition program under 
                which--
                          ``(i) competitive acquisition areas are 
                        established throughout the United States for 
                        contract award purposes for acquisition of and 
                        payment for categories of covered outpatient 
                        drugs and biologicals (as defined in paragraph 
                        (2)) under this part;
                          ``(ii) each physician is given the 
                        opportunity annually to elect to obtain drugs 
                        and biologicals under the program or under 
                        section 1847B; 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.
                  ``(B) Implementation.--The Secretary shall implement 
                the program so that the program applies to--
                          ``(i) the oncology category beginning in 
                        2005; and
                          ``(ii) the non-oncology category beginning in 
                        2006.
                This section shall not apply in the case of a physician 
                who elects section 1847B to apply.
                  ``(C) Exclusion authority.--The Secretary may exclude 
                covered outpatient drugs and biologicals (including a 
                class of such drugs and biologicals) from the 
                competitive bidding system under this section if the 
                drugs or biologicals (or class) are not appropriate for 
                competitive bidding due to low volume of utilization by 
                beneficiaries under this part or a unique mode or 
                method of delivery.
          ``(2) Covered outpatient drugs and biologicals, categories, 
        program defined.--For purposes of this section--
                  ``(A) Covered outpatient drugs and biologicals 
                defined.--The term `covered outpatient drugs and 
                biologicals' means drugs and biologicals to which 
                section 1842(o) applies and which are not covered under 
                section 1847 (relating to competitive acquisition for 
                items of durable medical equipment). Such term does not 
                include the following:
                          ``(i) Blood clotting factors.
                          ``(ii) Drugs and biologicals furnished to 
                        individuals in connection with the treatment of 
                        end stage renal disease.
                          ``(iii) Radiopharmaceuticals.
                  ``(B) 2 categories.--Each of the following shall be a 
                separate category of covered outpatient drugs and 
                biologicals, as identified by the Secretary:
                          ``(i) Oncology category.--A category (in this 
                        section referred to as the `oncology category') 
                        consisting of those covered outpatient drugs 
                        and biologicals that, as determined by the 
                        Secretary, are typically primarily billed by 
                        oncologists or are otherwise used to treat 
                        cancer.
                          ``(ii) Non-oncology categories.--Such numbers 
                        of categories (in this section referred to as 
                        the `non-oncology categories') consisting of 
                        covered outpatient drugs and biologicals not 
                        described in clause (i), and appropriate 
                        subcategories of such drugs and biologicals as 
                        the Secretary may specify.
                  ``(C) Program.--The term `program' means the 
                competitive acquisition program under this section.
                  ``(D) Competitive acquisition area; area.--The terms 
                `competitive acquisition area' and `area' mean an 
                appropriate geographic region established by the 
                Secretary under the program.
                  ``(E) Contractor.--The term `contractor' means an 
                entity that has entered into a contract with the 
                Secretary under this section.
          ``(3) Application of program payment methodology.--With 
        respect to covered outpatient drugs and biologicals which are 
        supplied under the program in an area and which are prescribed 
        by a physician who has not elected section 1847B to apply--
                  ``(A) the claim for such drugs and biologicals shall 
                be submitted by the contractor that supplied the drugs 
                and biologicals;
                  ``(B) collection of amounts of any deductible and 
                coinsurance applicable with respect to such drugs and 
                biologicals shall be the responsibility of such 
                contractor and shall not be collected unless the drug 
                or biological is administered to the beneficiary 
                involved; and
                  ``(C) the payment under this section (and related 
                coinsurance amounts) for such drugs and biologicals--
                          ``(i) shall be made only to such contractor;
                          ``(ii) shall be conditioned upon the 
                        administration of such drugs and biologicals; 
                        and
                          ``(iii) shall be based on the average of the 
                        bid prices for such drugs and biologicals in 
                        the area, as computed under subsection (d).
                The Secretary shall provide a process for recoupment in 
                the case in which payment is made for drugs and 
                biologicals which were billed at the time of dispensing 
                but which were not actually administered.
          ``(4) Contract required.--
                  ``(A) In general.--Payment may not be made under this 
                part for covered outpatient drugs and biologicals 
                prescribed by a physician who has not elected section 
                1847B to apply within a category and a competitive 
                acquisition area with respect to which the program 
                applies unless--
                          ``(i) the drugs or biologicals are supplied 
                        by a contractor with a contract under this 
                        section for such category of drugs and 
                        biologicals and area; and
                          ``(ii) the physician has elected such 
                        contractor under paragraph (5) for such 
                        category and area.
                  ``(B) Physician choice.--Subparagraph (A) shall not 
                apply for a category of drugs for an area if the 
                physician prescribing the covered outpatient drug in 
                such category and area has elected to apply section 
                1847B instead of this section.
          ``(5) Contractor selection process.--
                  ``(A) In general.--The Secretary shall provide a 
                process for the selection of a contractor, on an annual 
                basis and in such exigent circumstances as the 
                Secretary may provide and with respect to each category 
                of covered outpatient drugs and biologicals for an 
                area, by physicians prescribing such drugs and 
                biologicals in the area of the contractor under this 
                section that will supply the drugs and biologicals 
                within that category and area. Such selection shall 
                also include the election described in section 
                1847B(a).
                  ``(B) Information on contractors.--The Secretary 
                shall make available to physicians on an ongoing basis, 
                through a directory posted on the Department's Internet 
                website or otherwise and upon request, a list of the 
                contractors under this section in the different 
                competitive acquisition areas.
                  ``(C) Selecting physician defined.--For purposes of 
                this section, the term `selecting physician' means, 
                with respect to a contractor and category and 
                competitive acquisition area, a physician who has not 
                elected section 1847B to apply and has selected to 
                apply under this section such contractor for such 
                category and area.
  ``(b) Program Requirements.--
          ``(1) Contract for covered outpatient drugs and 
        biologicals.--The Secretary shall conduct a competition among 
        entities for the acquisition of a covered outpatient drug or 
        biological within each HCPCS code within each category for each 
        competitive acquisition area.
          ``(2) Conditions for awarding contract.--
                  ``(A) In general.--The Secretary may not award a 
                contract to any entity under the competition conducted 
                in a competitive acquisition area pursuant to paragraph 
                (1) with respect to the acquisition of covered 
                outpatient drugs and biologicals within a category 
                unless the Secretary finds that the entity meets all of 
                the following with respect to the contract period 
                involved:
                          ``(i) Capacity to supply covered outpatient 
                        drug or biological within category.--
                                  ``(I) In general.--The entity has 
                                sufficient arrangements to acquire and 
                                to deliver covered outpatient drugs and 
                                biologicals within such category in the 
                                area specified in the contract at the 
                                bid price specified in the contract for 
                                all physicians that may elect such 
                                entity.
                                  ``(II) Shipment methodology.--The 
                                entity has arrangements in effect for 
                                the shipment at least 5 days each week 
                                of covered outpatient drugs and 
                                biologicals under the contract and for 
                                the timely delivery (including for 
                                emergency situations) of such drugs and 
                                biologicals in the area under the 
                                contract.
                          ``(ii) Quality, service, financial 
                        performance and solvency standards.--The entity 
                        meets quality, service, financial performance, 
                        and solvency standards specified by the 
                        Secretary, including--
                                  ``(I) the establishment of procedures 
                                for the prompt response and resolution 
                                of physician and beneficiary complaints 
                                and inquiries regarding the shipment of 
                                covered outpatient drugs and 
                                biologicals; and
                                  ``(II) a grievance process for the 
                                resolution of disputes.
                  ``(B) Additional considerations.--The Secretary may 
                refuse to award a contract under this section, and may 
                terminate such a contract, with an entity based upon--
                          ``(i) the suspension or revocation, by the 
                        Federal Government or a State government, of 
                        the entity's license for the distribution of 
                        drugs or biologicals (including controlled 
                        substances); or
                          ``(ii) the exclusion of the entity under 
                        section 1128 from participation under this 
                        title.
                  ``(C) Application of medicare provider ombudsman.--
                For provision providing for a program-wide Medicare 
                Provider Ombudsman to review complaints, see section 
                1868(b), as added by section 923 of the Medicare 
                Prescription Drug and Modernization Act of 2003.
          ``(3) Awarding multiple contracts for a category and area.--
        In order to provide a choice of at least 2 contractors in each 
        competitive acquisition area for a category of drugs and 
        biologicals, the Secretary may limit (but not below 2) the 
        number of qualified entities that are awarded such contracts 
        for any category and area. The Secretary shall select among 
        qualified entities based on the following:
                  ``(A) The bid prices for covered outpatient drugs and 
                biologicals within the category and area.
                  ``(B) Bid price for distribution of such drugs and 
                biologicals.
                  ``(C) Ability to ensure product integrity.
                  ``(D) Customer service.
                  ``(E) Past experience in the distribution of drugs 
                and biologicals, including controlled substances.
                  ``(F) Such other factors as the Secretary may 
                specify.
          ``(4) Terms of contracts.--
                  ``(A) In general.--A contract entered into with an 
                entity under the competition conducted pursuant to 
                paragraph (1) is subject to terms and conditions that 
                the Secretary may specify consistent with this section.
                  ``(B) Period of contracts.--A contract under this 
                section shall be for a term of 2 years, but may be 
                terminated by the Secretary or the entity with 
                appropriate, advance notice.
                  ``(C) Integrity of drug and biological distribution 
                system.--The Secretary--
                          ``(i) shall require that for all drug and 
                        biological products distributed by a contractor 
                        under this section be acquired directly from 
                        the manufacturer or from a distributor that has 
                        acquired the products directly from the 
                        manufacturer; and
                          ``(ii) may require, in the case of such 
                        products that are particularly susceptible to 
                        counterfeit or diversion, that the contractor 
                        comply with such additional product integrity 
                        safeguards as may be determined to be 
                        necessary.
                  ``(D) Implementation of anti-counterfeiting, quality, 
                safety, and record keeping requirements.--The Secretary 
                shall require each contractor to implement (through its 
                officers, agents, representatives, and employees) 
                requirements relating to the storage and handling of 
                covered outpatient drugs and biologicals and for the 
                establishment and maintenance of distribution records 
                for such drugs and biologicals. A contract under this 
                section may include requirements relating to the 
                following:
                          ``(i) Secure facilities.
                          ``(ii) Safe and appropriate storage of drugs 
                        and biologicals.
                          ``(iii) Examination of drugs and biologicals 
                        received and dispensed.
                          ``(iv) Disposition of damaged and outdated 
                        drugs and biologicals.
                          ``(v) Record keeping and written policies and 
                        procedures.
                          ``(vi) Compliance personnel.
                  ``(E) Compliance with code of conduct and fraud and 
                abuse rules.--Under the contract--
                          ``(i) the contractor shall comply with a code 
                        of conduct, specified or recognized by the 
                        Secretary, that includes standards relating to 
                        conflicts of interest; and
                          ``(ii) the contractor shall comply with all 
                        applicable provisions relating to prevention of 
                        fraud and abuse, including compliance with 
                        applicable guidelines of the Department of 
                        Justice and the Inspector General of the 
                        Department of Health and Human Services.
                  ``(F) Direct delivery of drugs and biologicals to 
                physicians.--Under the contract the contractor shall 
                only supply covered outpatient drugs and biologicals 
                directly to the selecting physicians and not directly 
                to beneficiaries, except under circumstances and 
                settings where a beneficiary currently receives a drug 
                or biological in the beneficiary's home or other non-
                physician office setting as the Secretary may provide. 
                The contractor shall not deliver drugs and biologicals 
                to a selecting physician except upon receipt of a 
                prescription for such drugs and biologicals, and such 
                necessary data as may be required by the Secretary to 
                carry out this section. This section permits a 
                physician to submit a prescription for each individual 
                treatment but does not change the physician's 
                flexibility in terms of writing a prescription for 
                drugs for a single treatment or a course of treatment.
          ``(5) Permitting access to drugs and biologicals.--The 
        Secretary shall provide for the reimbursement at the average 
        sales price under section 1847B for drugs and biologicals if 
        the physician demonstrates all of the following:
                  ``(A) The drugs or biologicals are immediately 
                required.
                  ``(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.
          ``(6) Construction.--Nothing in this section shall be 
        construed as waiving applicable State requirements relating to 
        licensing of pharmacies.
  ``(c) Bidding Process.--
          ``(1) In general.--In awarding a contract for a category of 
        drugs and biologicals in an area under the program, the 
        Secretary shall consider with respect to each entity seeking to 
        be awarded a contract the prices bid to acquire and supply the 
        covered outpatient drugs and biologicals for that category and 
        area and the other factors referred to in subsection (b)(3).
          ``(2) Prices bid.--The prices bid by an entity under 
        paragraph (1) shall be the prices in effect and available for 
        the supply of contracted drugs and biologicals in the area 
        through the entity for the contract period.
          ``(3) Rejection of contract offer.--The Secretary shall 
        reject the contract offer of an entity with respect to a 
        category of drugs and biologicals for an area if the Secretary 
        estimates that the prices bid, in the aggregate on average, 
        would exceed 120 percent of the average sales price (as 
        determined under section 1847B).
          ``(4) Bidding on a national or regional basis.--Nothing in 
        this section shall be construed as precluding a bidder from 
        bidding for contracts in all areas of the United States or as 
        requiring a bidder to submit a bid for all areas of the United 
        States.
          ``(5) Uniformity of bids within area.--The amount of the bid 
        submitted under a contract offer for any covered outpatient 
        drug or biological for an area shall be the same for that drug 
        or biological for all portions of that area.
          ``(6) Confidentiality of bids.--The provisions of 
        subparagraph (D) of section 1927(b)(3) shall apply to a bid 
        submitted in a contract offer for a covered outpatient drug or 
        biological under this section in the same manner as it applies 
        to information disclosed under such section, except that any 
        reference--
                  ``(A) in that subparagraph to a `manufacturer or 
                wholesaler' is deemed a reference to a `bidder' under 
                this section;
                  ``(B) in that section to `prices charged for drugs' 
                is deemed a reference to a `bid' submitted under this 
                section; and
                  ``(C) in clause (i) of that section to `this 
                section', is deemed a reference to `part B of title 
                XVIII'.
          ``(7) Inclusion of costs.--The bid price submitted in a 
        contract offer for a covered outpatient drug or biological 
        shall--
                  ``(A) include all costs related to the delivery of 
                the drug or biological to the selecting physician (or 
                other point of delivery); and
                  ``(B) include the costs of dispensing (including 
                shipping) of such drug or biological and management 
                fees, but shall not include any costs related to the 
                administration of the drug or biological, or wastage, 
                spillage, or spoilage.
          ``(8) Price adjustments during contract period; disclosure of 
        costs.--Each contract awarded shall provide for--
                  ``(A) disclosure to the Secretary the contractor's 
                reasonable, net acquisition costs for periods specified 
                by the Secretary, not more often than quarterly, of the 
                contract; and
                  ``(B) appropriate price adjustments over the period 
                of the contract to reflect significant increases or 
                decreases in a contractor's reasonable, net acquisition 
                costs, as so disclosed.
  ``(d) Computation of Average Bid Prices for a Category and Area.--
          ``(1) In general.--For each year or other contract period for 
        each covered outpatient drug or biological and area with 
        respect to which a competition is conducted under the program, 
        the Secretary shall compute an area average of the bid prices 
        submitted, in contract offers accepted for the category and 
        area, for that year or other contract period.
          ``(2) Special rules.--The Secretary shall establish rules 
        regarding the use under this section of the alternative payment 
        amount provided under section 1847B to the use of a price for 
        specific covered outpatient drugs and biologicals in the 
        following cases:
                  ``(A) New drugs and biologicals.--A covered 
                outpatient drug or biological for which an average bid 
                price has not been previously determined.
                  ``(B) Other cases.--Such other exceptional cases as 
                the Secretary may specify in regulations.
                  ``(C) Exclusion cases.--A covered outpatient drug or 
                biological that has been excluded under subsection 
                (a)(1)(C).
        Such alternative payment amount shall be based upon actual 
        market price information and in no case shall it exceed the 
        average sales price (as determined under section 1847B).
  ``(e) Coinsurance.--
          ``(1) In general.--Coinsurance under this part with respect 
        to a covered outpatient drug or biological for which payment is 
        payable under this section shall be based on 20 percent of the 
        payment basis under this section.
          ``(2) Collection.--Such coinsurance shall be collected by the 
        contractor that supplies the drug or biological involved and, 
        subject to subsection (a)(3)(B), in the same manner as 
        coinsurance is collected for durable medical equipment under 
        this part.
  ``(f) Special Payment Rules.--
          ``(1) In general.--The Secretary may not provide for an 
        adjustment to reimbursement for covered outpatient drugs and 
        biologicals unless adjustments to the practice expense payment 
        adjustment are made on the basis of supplemental surveys under 
        section 1848(c)(2)(H)(ii) of the Social Security Act, as added 
        by subsection (a)(1)(B).
                  ``(B) Use in exclusion cases.--If the Secretary 
                excludes a drug or biological (or class of drugs or 
                biologicals) under subsection (a)(1)(D), the Secretary 
                may provide for reimbursement to be made under this 
                part for such drugs and biologicals (or class) using 
                the payment methodology under section 1847B or other 
                market based pricing system.
          ``(2) Coordination rules.--The provisions of section 
        1842(h)(3) shall apply to a contractor with respect to covered 
        outpatients drugs and biologicals supplied by that contractor 
        in the same manner as they apply to a participating supplier. 
        In order to administer this section, the Secretary may 
        condition payment under this part to a person for the 
        administration of a drug or biological supplied under this 
        section upon person's provision of information on such 
        administration.
          ``(3) Application of requirement for assignment.--For 
        provision requiring assignment of claims for covered outpatient 
        drugs and biologicals, see section 1842(o)(3).
          ``(4) Protection for beneficiary in case of medical necessity 
        denial.--For protection of beneficiaries against liability in 
        the case of medical necessity determinations, see section 
        1842(b)(3)(B)(ii)(III).
          ``(5) Physician role in appeals process.--The Secretary shall 
        establish a procedure under which a physician who prescribes a 
        drug or biological for which payment is made under this section 
        has appeal rights that are similar to those provided to a 
        physician who prescribes durable medical equipment or a 
        laboratory test.
  ``(g) Advisory Committee.--The Secretary shall establish an advisory 
committee that includes representatives of parties affected by the 
program under this section, including physicians, specialty pharmacies, 
distributors, manufacturers, and beneficiaries. The committee shall 
advise the Secretary on issues relating to the effective implementation 
of this section.
       ``optional use of average sales price payment methodology
  ``Sec. 1847B. (a) Election and Implementation.--
          ``(1) Election.--In connection with the annual election made 
        by a physician under section 1847A(a)(5), the physician may 
        elect to apply this section to the payment for covered 
        outpatient drugs and biologicals instead of the payment 
        methodology under section 1847A.
          ``(2) Implementation.--This section shall be implemented with 
        respect to categories of covered outpatient
          ``(3) Covered outpatient drugs and biologicals defined.--For 
        purposes of this section, the term `covered outpatient drugs 
        and biologicals' has the meaning given such term in section 
        1847A(a)(2)(A).
  ``(b) Computation of Payment Amount.--
          ``(1) In general.--If this section applies with respect to a 
        covered outpatient drug or biological, the amount payable for 
        the 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)), 112 percent of the 
                amount determined under paragraph (3); or
                  ``(B) in the case of a single source drug (as defined 
                in subsection (c)(6)(D)), 112 percent of the amount 
                determined under paragraph (4).
          ``(2) Specification of unit.--
                  ``(A) Specification by manufacturer.--The 
                manufacturer of a covered outpatient drug or biological 
                shall specify the unit associated with each National 
                Drug Code as part of the submission of data under 
                section 1927(b)(3)(A)(iii).
                  ``(B) Unit defined.--In this section, the term `unit' 
                means, with respect to a covered outpatient drug or 
                biological, the lowest identifiable quantity (such as a 
                capsule or tablet, milligram of molecules, or grams) of 
                the drug or biological that is dispensed, exclusive of 
                any diluent without reference to volume measures 
                pertaining to liquids.
          ``(3) Multiple source drug.--For all drug products included 
        within the same multiple source drug, the amount specified in 
        this paragraph is the volume-weighted average of the average 
        sales prices reported under section 1927(b)(3)(A)(iii) computed 
        as follows:
                  ``(A) Compute the sum of the products (for each 
                national drug code assigned to such drug products) of--
                          ``(i) the manufacturer's average sales price 
                        (as defined in subsection (c)); and
                          ``(ii) the total number of units specified 
                        under paragraph (2) sold, as reported under 
                        section 1927(b)(3)(A)(iii).
                  ``(B) Divide the sum computed under subparagraph (A) 
                by the sum of the total number of units under 
                subparagraph (A)(ii) for all national drug codes 
                assigned to such drug products.
          ``(4) Single source drug.--The amount specified in this 
        paragraph for a single source drug is the lesser of the 
        following:
                  ``(A) Manufacturer's average sales price.--The 
                manufacturer's average sales price for a national drug 
                code, as computed using the methodology applied under 
                paragraph (3).
                  ``(B) Wholesale acquisition cost (wac).--The 
                wholesale acquisition cost (as defined in subsection 
                (c)(6)(B)) reported for the single source drug.
          ``(5) Basis for determination.--The payment amount shall be 
        determined under this subsection based on information reported 
        under subsection (e) and without regard to any special 
        packaging, labeling, or identifiers on the dosage form or 
        product or package.
          ``(6) Study and authorization.--Not later than 2 years after 
        the date of the enactment of this section, the Secretary shall 
        conduct and complete a study on the adequacy of the payment 
        rates provided under this subsection, taking into account the 
        acquisition costs for the covered outpatient drugs and 
        biologicals as well as provider-related costs, in rural and 
        urban areas. The Secretary shall submit the results of such 
        study to Congress. For calendar years after the date such 
        results are submitted, the Secretary may adjust the percentage 
        specified in paragraphs (1)(A) and (1)(B) based upon such 
        results.
  ``(c) Manufacturer's Average Sales Price.--
          ``(1) In general.--For purposes of this subsection, subject 
        to paragraphs (2) and (3), the manufacturer's `average sales 
        price' means, of a covered outpatient drug or biological for a 
        NDC code for a calendar quarter for a manufacturer for a unit--
                  ``(A) the manufacturer's total sales (as defined by 
                the Secretary in regulations for purposes of section 
                1927(c)(1)) in the United States for such drug or 
                biological in the calendar quarter; divided by
                  ``(B) the total number of such units of such drug or 
                biological sold by the manufacturer in such quarter.
          ``(2) Certain sales exempted from computation.--In 
        calculating the manufacturer's average sales price under this 
        subsection, the following sales shall be excluded:
                  ``(A) Sales exempt from best price.--Sales exempt 
                from the inclusion in the determination of `best price' 
                under section 1927(c)(1)(C)(i).
                  ``(B) Sales at nominal charge.--Such other sales as 
                the Secretary identifies by regulation as sales to an 
                entity that are nominal in price or do not reflect a 
                market price paid by an entity to which payment is made 
                under this section.
          ``(3) Sale price net of discounts.--In calculating the 
        manufacturer's average sales price under this subsection, such 
        price shall be determined taking into account volume discounts, 
        prompt pay discounts, cash discounts, the free goods that are 
        contingent on any purchase requirement, chargebacks, and 
        rebates (other than rebates under section 1927), that result in 
        a reduction of the cost to the purchaser. A rebate to a payor 
        or other entity that does not take title to a covered 
        outpatient drug or biological shall not be taken into account 
        in determining such price unless the manufacturer has an 
        agreement with the payor or other entity under which the 
        purchaser's price for the drug or biological is reduced as a 
        consequence of such rebate.
          ``(4) Authority to disregard average sales price during first 
        quarter of sales.--In the case of a covered outpatient drug 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 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 without considering the 
        manufacturer's average sales price of that manufacturer for 
        that drug or biological.
          ``(5) Frequency of determinations.--
                  ``(A) In general on a quarterly basis.--The 
                manufacturer's average sales price, for a covered 
                outpatient drug or biological of a manufacturer, shall 
                be determined by such manufacturer under this 
                subsection on a quarterly basis. In making such 
                determination insofar as there is a lag in the 
                reporting of the information on rebates and chargebacks 
                under paragraph (3) so that adequate data are not 
                available on a timely basis, the manufacturer shall 
                apply a methodology established by the Secretary based 
                on a 12-month rolling average for the manufacturer to 
                estimate costs attributable to rebates and chargebacks.
                  ``(B) Updates in rates.--The payment rates under 
                subsection (b)(1) and (b)(2)(A) shall be updated by the 
                Secretary on a quarterly basis and shall be applied 
                based upon the manufacturer's average sales price 
                determined for the most recent calendar quarter.
                  ``(C) Use of contractors; implementation.--The 
                Secretary may use a carrier, fiscal intermediary, or 
                other contractor to determine the payment amount under 
                subsection (b). Notwithstanding any other provision of 
                law, the Secretary may implement, by program memorandum 
                or otherwise, any of the provisions of this section.
          ``(6) Definitions and other rules.--In this section:
                  ``(A) Manufacturer.--The term `manufacturer' means, 
                with respect to a covered outpatient drug or 
                biological, the manufacturer (as defined in section 
                1927(k)(5)) whose national drug code appears on such 
                drug or biological.
                  ``(ii) Wholesale acquisition cost.--The term 
                `wholesale acquisition cost' means, with respect to a 
                covered outpatient 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 
                pricing data.
                  ``(C) Multiple source drug.--The term `multiple 
                source drug' means, for a calendar quarter, a covered 
                outpatient drug or biological for which there are 2 or 
                more drug products which--
                          ``(i) are rated as therapeutically equivalent 
                        (under the Food and Drug Administration's most 
                        recent publication of `Approved Drug Products 
                        with Therapeutic Equivalence Evaluations'),
                          ``(ii) except as provided in subparagraph 
                        (E), are pharmaceutically equivalent and 
                        bioequivalent, as determined under subparagraph 
                        (F) and as determined by the Food and Drug 
                        Administration, and
                          ``(iii) are sold or marketed in the United 
                        States during the quarter.
                  ``(D) Single source drug.--The term `single source 
                drug' means a covered outpatient drug or biological 
                which is not a multiple source drug and which is 
                produced or distributed under an original new drug 
                application approved by the Food and Drug 
                Administration, including a drug product marketed by 
                any cross-licensed producers or distributors operating 
                under the new drug application, or which is a 
                biological.
                  ``(E) Exception from pharmaceutical equivalence and 
                bioequivalence requirement.--Subparagraph (C)(ii) shall 
                not apply if the Food and Drug Administration changes 
                by regulation the requirement that, for purposes of the 
                publication described in subparagraph (C)(i), in order 
                for drug products to be rated as therapeutically 
                equivalent, they must be pharmaceutically equivalent 
                and bioequivalent, as defined in subparagraph (F).
                  ``(F) Determination of pharmaceutical equivalence and 
                bioequivalence.--For purposes of this paragraph--
                          ``(i) drug products are pharmaceutically 
                        equivalent if the products contain identical 
                        amounts of the same active drug ingredient in 
                        the same dosage form and meet compendial or 
                        other applicable standards of strength, 
                        quality, purity, and identity; and
                          ``(ii) drugs are bioequivalent if they do not 
                        present a known or potential bioequivalence 
                        problem, or, if they do present such a problem, 
                        they are shown to meet an appropriate standard 
                        of bioequivalence.
                  ``(G) Inclusion of vaccines.--In applying provisions 
                of section 1927 under this section, `other than a 
                vaccine' is deemed deleted from section 1927(k)(2)(B).
  ``(d) 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 covered outpatient 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 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.
  ``(e) Reports.--
          ``(1) 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 covered outpatient drug or 
        biological, see section 1927(b)(3).
          ``(2) Annual report to congress.--The Secretary shall submit 
        to the Committees on Energy and Commerce and Ways and Means of 
        the House of Representatives and the Committee on Finance of 
        the Senate an annual report on the operation of this section 
        and section 1847A. Such report shall include information on the 
        following:
                  ``(A) Information on savings, reductions in cost-
                sharing, access to covered outpatient drugs and 
                biologicals.
                  ``(B) In the case of section 1847A, the range of 
                choices of contractors available to providers, and 
                beneficiary and provider satisfaction.
                  ``(C) Trends in average sales price under subsection 
                (b).
                  ``(D) Administrative costs associated with compliance 
                with this section.
                  ``(E) Total value of payments made under this 
                section.
                  ``(F) Comparison of the average manufacturer price as 
                applied under section 1927 for a covered outpatient 
                drug or biological with the manufacturer's average 
                sales price for the drug or biological under this 
                section.
  ``(f) Restriction on administrative and judicial review.--There shall 
be no administrative or judicial review under section 1869, section 
1878, or otherwise, of determinations of manufacturer's average sales 
price under subsection (c).''.
  (c) Continuation of Payment Methodology for Radiopharmaceuticals.--
Nothing in the amendments made by this section shall be construed as 
changing the payment methodology under part B of title XVIII of the 
Social Security Act for radiopharmaceuticals, including the use by 
carriers of invoice pricing methodology.
  (d) Conforming Amendments.--
          (1) In general.--Section 1842(o) (42 U.S.C. 1395u(o)) is 
        amended--
                  (A) in paragraph (1), by inserting ``, subject to 
                section 1847A and 1847B,'' before ``the amount payable 
                for the drug or biological''; and
                  (B) by adding at the end of paragraph (2) the 
                following: ``This paragraph shall not apply in the case 
                of payment under section 1847A or 1847B.''.
          (2) No change in coverage basis.--Section 1861(s)(2)(A) (42 
        U.S.C. 1395x(s)(2)(A)) is amended by inserting ``(or would have 
        been so included but for the application of section 1847A or 
        1847B)'' after ``included in the physicians' bills''.
          (3) Payment.--Section 1833(a)(1)(S) (42 U.S.C. 
        1395l(a)(1)(S)) is amended by inserting ``(or, if applicable, 
        under section 1847A or 1847B)'' after ``1842(o)''.
          (4) Consolidated reporting of pricing information.--Section 
        1927 (42 U.S.C. 1396r-8) is amended--
                  (A) in subsection (a)(1), by inserting ``or under 
                part B of title XVIII'' after ``section 1903(a)'';
                  (B) in subsection (b)(3)(A)--
                          (i) in clause (i), by striking ``and'' at the 
                        end;
                          (ii) in clause (ii), by striking the period 
                        and inserting ``; and''; and
                          (iii) by adding at the end the following new 
                        clause:
                          ``(iii) for calendar quarters beginning on or 
                        after April 1, 2004, in conjunction with 
                        reporting required under clause (i) and by 
                        national drug code (NDC)--
                                  ``(I) the manufacturer's average 
                                sales price (as defined in section 
                                1847B(c)) and the total number of units 
                                specified under section 1847B(b)(2)(A);
                                  ``(II) if required to make payment 
                                under section 1847B, the manufacturer's 
                                wholesale acquisition cost, as defined 
                                in subsection (c)(6) of such section; 
                                and
                                  ``(III) information on those sales 
                                that were made at a nominal price or 
                                otherwise described in section 
                                1847B(c)(2)(B), which information is 
                                subject to audit by the Inspector 
                                General of the Department of Health and 
                                Human Services;
                        for a covered outpatient drug or biological for 
                        which payment is made under section 1847B.'';
                  (C) in subsection (b)(3)(B)--
                          (i) in the heading, by inserting ``and 
                        manufacturer's average sales price'' after 
                        ``price''; and
                          (ii) by inserting ``and manufacturer's 
                        average sales prices (including wholesale 
                        acquisition cost) if required to make payment'' 
                        after ``manufacturer prices''; and
                  (D) in subsection (b)(3)(D)(i), by inserting ``and 
                section 1847B'' after ``this section''.
  (e) GAO Study.--
          (1) Study.--The Comptroller General of the United States 
        shall conduct a study to assess the impact of the amendments 
        made by this section on the delivery of services, including 
        their impact on--
                  (A) beneficiary access to drugs and biologicals for 
                which payment is made under part B of title XVIII of 
                the Social Security Act; and
                  (B) the site of delivery of such services.
          (2) Report.--Not later than 2 years after the year in which 
        the amendment made by subsection (a)(1) first takes effect, the 
        Comptroller General shall submit to Congress a report on the 
        study conducted under paragraph (1).
  (f) MedPAC Recommendations on Blood Clotting Factors.--The Medicare 
Payment Advisory Commission shall submit to Congress, in its annual 
report in 2004, specific recommendations regarding a payment amount (or 
amounts) for blood clotting factors and its administration under the 
medicare program.
  (g) Establishment of Pharmaceutical Management Fee Where Drugs 
Provided Through a Contractor.--Section 1848(a) (42 U.S.C. 1395w-4(a)) 
is amended by adding at the end the following new paragraph:
          ``(5) Recognition of pharmaceutical management fee in certain 
        cases.--In establishing the fee schedule under this section, 
        the Secretary shall provide for a separate payment with respect 
        to physicians' services consisting of the unique administrative 
        and management costs associated with covered drugs and 
        biologicals which are furnished to physicians through a 
        contractor under section 1847A (compared with such costs if 
        such drugs and biologicals were acquired directly by such 
        physicians).''.
  (h) Study on Codes for Non-oncology Codes.--
          (1) Study.--The Secretary shall conduct a study to determine 
        the appropriateness of establishing and implementing separate 
        CPT codes for non-oncology infusions that are based on the 
        level of complexity of the administration and resource 
        consumption.
          (2) Report.--Not later than 1 year after the date of the 
        enactment of this Act, the Secretary shall submit a report to 
        Congress on the study. To the extent the Secretary determines 
        it to be appropriate, the Secretary may implement appropriate 
        changes in the payment methodology for such codes.

SEC. 304. DEMONSTRATION PROJECT FOR USE OF RECOVERY AUDIT CONTRACTORS.

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

                TITLE IV--RURAL HEALTH CARE IMPROVEMENTS

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

  (a) Doubling the Cap.--
          (1) In general.--Section 1886(d)(5)(F) (42 U.S.C. 
        1395ww(d)(5)(F)) is amended by adding at the end the following 
        new clause:
  ``(xiv)(I) In the case of discharges in a fiscal year beginning on or 
after October 1, 2003, subject to subclause (II), there shall be 
substituted for the disproportionate share adjustment percentage 
otherwise determined under clause (iv) (other than subclause (I)) or 
under clause (viii), (x), (xi), (xii), or (xiii), the disproportionate 
share adjustment percentage determined under clause (vii) (relating to 
large, urban hospitals).
  ``(II) Under subclause (I), the disproportionate share adjustment 
percentage shall not exceed 10 percent for a hospital that is not 
classified as a rural referral center under subparagraph (C).''.
          (2) Conforming amendments.--Section 1886(d)(5)(F) (42 U.S.C. 
        1395ww(d)(5)(F)) is amended--
                  (A) in each of subclauses (II), (III), (IV), (V), and 
                (VI) of clause (iv), by inserting ``subject to clause 
                (xiv) and'' before ``for discharges occurring'';
                  (B) in clause (viii), by striking ``The formula'' and 
                inserting ``Subject to clause (xiv), the formula''; and
                  (C) in each of clauses (x), (xi), (xii), and (xiii), 
                by striking ``For purposes'' and inserting ``Subject to 
                clause (xiv), for purposes''.
  (b) Effective Date.--The amendments made by this section shall apply 
with respect to discharges occurring on or after October 1, 2003.

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

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

SEC. 403. ESTABLISHMENT OF ESSENTIAL RURAL HOSPITAL CLASSIFICATION.

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

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

  (a) More Frequent Updates in Weights.--After revising the weights 
used in the hospital market basket under section 1886(b)(3)(B)(iii) of 
the Social Security Act (42 U.S.C. 1395ww(b)(3)(B)(iii)) to reflect the 
most current data available, the Secretary shall establish a frequency 
for revising such weights, including the labor share, in such market 
basket to reflect the most current data available more frequently than 
once every 5 years.
  (b) Report.--Not later than October 1, 2004, the Secretary shall 
submit a report to Congress on the frequency established under 
subsection (a), including an explanation of the reasons for, and 
options considered, in determining such frequency.

SEC. 405. IMPROVEMENTS TO CRITICAL ACCESS HOSPITAL PROGRAM.

  (a) Increase in Payment Amounts.--
          (1) In general.--Sections 1814(l), 1834(g)(1), and 1883(a)(3) 
        (42 U.S.C. 1395f(l); 1395m(g)(1); 42 U.S.C. 1395tt(a)(3)) are 
        each amended by inserting ``equal to 102 percent of'' before 
        ``the reasonable costs''.
          (2) Effective date.--The amendments made by paragraph (1) 
        shall apply to payments for services furnished during cost 
        reporting periods beginning on or after October 1, 2003.
  (b) Coverage of Costs for Certain Emergency Room On-Call Providers.--
          (1) In general.--Section 1834(g)(5) (42 U.S.C. 1395m(g)(5)) 
        is amended--
                  (A) in the heading--
                          (i) by inserting ``certain'' before 
                        ``emergency''; and
                          (ii) by striking ``physicians'' and inserting 
                        ``providers'';
                  (B) by striking ``emergency room physicians who are 
                on-call (as defined by the Secretary)'' and inserting 
                ``physicians, physician assistants, nurse 
                practitioners, and clinical nurse specialists who are 
                on-call (as defined by the Secretary) to provide 
                emergency services''; and
                  (C) by striking ``physicians' services'' and 
                inserting ``services covered under this title''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall apply with respect to costs incurred for services 
        provided on or after January 1, 2004.
  (c) Modification of the Isolation Test for Cost-Based CAH Ambulance 
Services.--
          (1) In general.--Section 1834(l)(8) (42 U.S.C. 1395m(l)), as 
        added by section 205(a) of BIPA (114 Stat. 2763A-482), is 
        amended by adding at the end the following: ``The limitation 
        described in the matter following subparagraph (B) in the 
        previous sentence shall not apply if the ambulance services are 
        furnished by such a provider or supplier of ambulance services 
        who is a first responder to emergencies (as determined by the 
        Secretary).''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to ambulances services furnished on or after the 
        first cost reporting period that begins after the date of the 
        enactment of this Act.
  (d) Reinstatement of Periodic Interim Payment (PIP).--
          (1) In general.--Section 1815(e)(2) (42 U.S.C. 1395g(e)(2)) 
        is amended--
                  (A) in the matter before subparagraph (A), by 
                inserting ``, in the cases described in subparagraphs 
                (A) through (D)'' after ``1986''; and
                  (B) by striking ``and'' at the end of subparagraph 
                (C);
                  (C) by adding ``and'' at the end of subparagraph (D); 
                and
                  (D) by inserting after subparagraph (D) the following 
                new subparagraph:
          ``(E) inpatient critical access hospital services;''.
          (2) Development of alternative methods of periodic interim 
        payments.--With respect to periodic interim payments to 
        critical access hospitals for inpatient critical access 
        hospital services under section 1815(e)(2)(E) of the Social 
        Security Act, as added by paragraph (1), the Secretary shall 
        develop alternative methods for such payments that are based on 
        expenditures of the hospital.
          (3) Reinstatement of pip.--The amendments made by paragraph 
        (1) shall apply to payments made on or after January 1, 2004.
  (e) Condition for Application of Special Physician Payment 
Adjustment.--
          (1) In general.--Section 1834(g)(2) (42 U.S.C. 1395m(g)(2)) 
        is amended by adding after and below subparagraph (B) the 
        following:
        ``The Secretary may not require, as a condition for applying 
        subparagraph (B) with respect to a critical access hospital, 
        that each physician providing professional services in the 
        hospital must assign billing rights with respect to such 
        services, except that such subparagraph shall not apply to 
        those physicians who have not assigned such billing rights.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall be effective as if included in the enactment of section 
        403(d) of the Medicare, Medicaid, and SCHIP Balanced Budget 
        Refinement Act of 1999 (113 Stat. 1501A-371).
  (f) Flexibility in Bed Limitation for Hospitals.--Section 1820 (42 
U.S.C. 1395i-4) is amended--
          (1) in subsection (c)(2)(B)(iii), by inserting ``subject to 
        paragraph (3)'' after ``(iii) provides'';
          (2) by adding at the end of subsection (c) the following new 
        paragraph:
          ``(3) Increase in maximum number of beds for hospitals with 
        strong seasonal census fluctuations.--
                  ``(A) In general.--Subject to subparagraph (C), in 
                the case of a hospital that demonstrates that it meets 
                the standards established under subparagraph (B) and 
                has not made the election described in subsection 
                (f)(2)(A), the bed limitations otherwise applicable 
                under paragraph (2)(B)(iii) and subsection (f) shall be 
                increased by 5 beds.
                  ``(B) Standards.--The Secretary shall specify 
                standards for determining whether a critical access 
                hospital has sufficiently strong seasonal variations in 
                patient admissions to justify the increase in bed 
                limitation provided under subparagraph (A).''; and
          (3) in subsection (f)--
                  (A) by inserting ``(1)'' after ``(f)''; and
                  (B) by adding at the end the following new paragraph:
  ``(2)(A) A hospital may elect to treat the reference in paragraph (1) 
to `15 beds' as a reference to `25 beds', but only if no more than 10 
beds in the hospital are at any time used for non-acute care services. 
A hospital that makes such an election is not eligible for the increase 
provided under subsection (c)(3)(A).
  ``(B) The limitations in numbers of beds under the first sentence of 
paragraph (1) are subject to adjustment under subsection (c)(3).''.
          (4) Effective date.--The amendments made by this subsection 
        shall apply to designations made before, on, or after January 
        1, 2004.
  (g) Additional 5-Year Period of Funding for Grant Program.--
          (1) In general.--Section 1820(g) (42 U.S.C. 1395i-4(g)) is 
        amended by adding at the end the following new paragraph:
          ``(4) Funding.--
                  ``(A) In general.--Subject to subparagraph (B), 
                payment for grants made under this subsection during 
                fiscal years 2004 through 2008 shall be made from the 
                Federal Hospital Insurance Trust Fund.
                  ``(B) Annual aggregate limitation.--In no case may 
                the amount of payment provided for under subparagraph 
                (A) for a fiscal year exceed $25,000,000.''.
          (2) Conforming amendment.--Section 1820 (42 U.S.C. 1395i-4) 
        is amended by striking subsection (j).

SEC. 406. REDISTRIBUTION OF UNUSED RESIDENT POSITIONS.

  (a) In General.--Section 1886(h)(4) (42 U.S.C. 1395ww(h)(4)) is 
amended--
          (1) in subparagraph (F)(i), by inserting ``subject to 
        subparagraph (I),'' after ``October 1, 1997,'';
          (2) in subparagraph (H)(i), by inserting ``subject to 
        subparagraph (I),'' after ``subparagraphs (F) and (G),''; and
          (3) by adding at the end the following new subparagraph:
                  ``(I) Redistribution of unused resident positions.--
                          ``(i) Reduction in limit based on unused 
                        positions.--
                                  ``(I) In general.--If a hospital's 
                                resident level (as defined in clause 
                                (iii)(I)) is less than the otherwise 
                                applicable resident limit (as defined 
                                in clause (iii)(II)) for each of the 
                                reference periods (as defined in 
                                subclause (II)), effective for cost 
                                reporting periods beginning on or after 
                                January 1, 2004, the otherwise 
                                applicable resident limit shall be 
                                reduced by 75 percent of the difference 
                                between such limit and the reference 
                                resident level specified in subclause 
                                (III) (or subclause (IV) if 
                                applicable).
                                  ``(II) Reference periods defined.--In 
                                this clause, the term `reference 
                                periods' means, for a hospital, the 3 
                                most recent consecutive cost reporting 
                                periods of the hospital for which cost 
                                reports have been settled (or, if not, 
                                submitted) on or before September 30, 
                                2002.
                                  ``(III) Reference resident level.--
                                Subject to subclause (IV), the 
                                reference resident level specified in 
                                this subclause for a hospital is the 
                                highest resident level for the hospital 
                                during any of the reference periods.
                                  ``(IV) Adjustment process.--Upon the 
                                timely request of a hospital, the 
                                Secretary may adjust the reference 
                                resident level for a hospital to be the 
                                resident level for the hospital for the 
                                cost reporting period that includes 
                                July 1, 2003.
                                  ``(V) Affiliation.--With respect to 
                                hospitals which are members of the same 
                                affiliated group (as defined by the 
                                Secretary under subparagraph (H)(ii)), 
                                the provisions of this section shall be 
                                applied with respect to such an 
                                affiliated group by deeming the 
                                affiliated group to be a single 
                                hospital.
                          ``(ii) Redistribution.--
                                  ``(I) In general.--The Secretary is 
                                authorized to increase the otherwise 
                                applicable resident limits for 
                                hospitals by an aggregate number 
                                estimated by the Secretary that does 
                                not exceed the aggregate reduction in 
                                such limits attributable to clause (i) 
                                (without taking into account any 
                                adjustment under subclause (IV) of such 
                                clause).
                                  ``(II) Effective date.--No increase 
                                under subclause (I) shall be permitted 
                                or taken into account for a hospital 
                                for any portion of a cost reporting 
                                period that occurs before July 1, 2004, 
                                or before the date of the hospital's 
                                application for an increase under this 
                                clause. No such increase shall be 
                                permitted for a hospital unless the 
                                hospital has applied to the Secretary 
                                for such increase by December 31, 2005.
                                  ``(III) Considerations in 
                                redistribution.--In determining for 
                                which hospitals the increase in the 
                                otherwise applicable resident limit is 
                                provided under subclause (I), the 
                                Secretary shall take into account the 
                                need for such an increase by specialty 
                                and location involved, consistent with 
                                subclause (IV).
                                  ``(IV) Priority for rural and small 
                                urban areas.--In determining for which 
                                hospitals and residency training 
                                programs an increase in the otherwise 
                                applicable resident limit is provided 
                                under subclause (I), the Secretary 
                                shall first distribute the increase to 
                                programs of hospitals located in rural 
                                areas or in urban areas that are not 
                                large urban areas (as defined for 
                                purposes of subsection (d)) and to 
                                programs that have no other program of 
                                the same specialty in the same state, 
                                on a first-come-first-served basis (as 
                                determined by the Secretary) based on a 
                                demonstration that the hospital will 
                                fill the positions made available under 
                                this clause and not to exceed an 
                                increase of 25 full-time equivalent 
                                positions with respect to any hospital.
                                  ``(V) Application of locality 
                                adjusted national average per resident 
                                amount.--With respect to additional 
                                residency positions in a hospital 
                                attributable to the increase provided 
                                under this clause, notwithstanding any 
                                other provision of this subsection, the 
                                approved FTE resident amount is deemed 
                                to be equal to the locality adjusted 
                                national average per resident amount 
                                computed under subparagraph (E) for 
                                that hospital.
                                  ``(VI) Construction.--Nothing in this 
                                clause shall be construed as permitting 
                                the redistribution of reductions in 
                                residency positions attributable to 
                                voluntary reduction programs under 
                                paragraph (6) or as affecting the 
                                ability of a hospital to establish new 
                                medical residency training programs 
                                under subparagraph (H).
                          ``(iii) Resident level and limit defined.--In 
                        this subparagraph:
                                  ``(I) Resident level.--The term 
                                `resident level' means, with respect to 
                                a hospital, the total number of full-
                                time equivalent residents, before the 
                                application of weighting factors (as 
                                determined under this paragraph), in 
                                the fields of allopathic and 
                                osteopathic medicine for the hospital.
                                  ``(II) Otherwise applicable resident 
                                limit.--The term `otherwise applicable 
                                resident limit' means, with respect to 
                                a hospital, the limit otherwise 
                                applicable under subparagraphs (F)(i) 
                                and (H) on the resident level for the 
                                hospital determined without regard to 
                                this subparagraph.''.
  (b) Conforming Amendment to IME.--Section 1886(d)(5)(B)(v) (42 U.S.C. 
1395ww(d)(5)(B)(v)) is amended by adding at the end the following: 
``The provisions of subparagraph (I) of subsection (h)(4) shall apply 
with respect to the first sentece of this clause in the same manner as 
it applies with respect to subparagraph (F) of such subsection.''.
  (c) Report on Extension of Applications Under Redistribution 
Program.--Not later than July 1, 2005, the Secretary shall submit to 
Congress a report containing recommendations regarding whether to 
extend the deadline for applications for an increase in resident limits 
under section 1886(h)(4)(I)(ii)(II) of the Social Security Act (as 
added by subsection (a)).

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

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

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

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

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

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

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

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

SEC. 411. PROVIDING SAFE HARBOR FOR CERTAIN COLLABORATIVE EFFORTS THAT 
                    BENEFIT MEDICALLY UNDERSERVED POPULATIONS.

  (a) In General.--Section 1128B(b)(3) (42 U.S.C. 1320a-7(b)(3)), as 
amended by section 101(b)(2), is amended--
          (1) in subparagraph (F), by striking ``and'' after the 
        semicolon at the end;
          (2) in subparagraph (G), by striking the period at the end 
        and inserting ``; and''; and
          (3) by adding at the end the following new subparagraph:
                  ``(H) any remuneration between a public or nonprofit 
                private health center entity described under clause (i) 
                or (ii) of section 1905(l)(2)(B) and any individual or 
                entity providing goods, items, services, donations or 
                loans, or a combination thereof, to such health center 
                entity pursuant to a contract, lease, grant, loan, or 
                other agreement, if such agreement contributes to the 
                ability of the health center entity to maintain or 
                increase the availability, or enhance the quality, of 
                services provided to a medically underserved population 
                served by the health center entity.''.
  (b) Rulemaking for Exception for Health Center Entity Arrangements.--
          (1) Establishment.--
                  (A) In general.--The Secretary of Health and Human 
                Services (in this subsection referred to as the 
                ``Secretary'') shall establish, on an expedited basis, 
                standards relating to the exception described in 
                section 1128B(b)(3)(H) of the Social Security Act, as 
                added by subsection (a), for health center entity 
                arrangements to the antikickback penalties.
                  (B) Factors to consider.--The Secretary shall 
                consider the following factors, among others, in 
                establishing standards relating to the exception for 
                health center entity arrangements under subparagraph 
                (A):
                          (i) Whether the arrangement between the 
                        health center entity and the other party 
                        results in savings of Federal grant funds or 
                        increased revenues to the health center entity.
                          (ii) Whether the arrangement between the 
                        health center entity and the other party 
                        restricts or limits a patient's freedom of 
                        choice.
                          (iii) Whether the arrangement between the 
                        health center entity and the other party 
                        protects a health care professional's 
                        independent medical judgment regarding 
                        medically appropriate treatment.
                The Secretary may also include other standards and 
                criteria that are consistent with the intent of 
                Congress in enacting the exception established under 
                this section.
          (2) Interim final effect.--No later than 180 days after the 
        date of enactment of this Act, the Secretary shall publish a 
        rule in the Federal Register consistent with the factors under 
        paragraph (1)(B). Such rule shall be effective and final 
        immediately on an interim basis, subject to such change and 
        revision, after public notice and opportunity (for a period of 
        not more than 60 days) for public comment, as is consistent 
        with this subsection.

SEC. 412. GAO STUDY OF GEOGRAPHIC DIFFERENCES IN PAYMENTS FOR 
                    PHYSICIANS' SERVICES.

  (a) Study.--The Comptroller General of the United States shall 
conduct a study of differences in payment amounts under the physician 
fee schedule under section 1848 of the Social Security Act (42 U.S.C. 
1395w-4) for physicians' services in different geographic areas. Such 
study shall include--
          (1) an assessment of the validity of the geographic 
        adjustment factors used for each component of the fee schedule;
          (2) an evaluation of the measures used for such adjustment, 
        including the frequency of revisions; and
          (3) an evaluation of the methods used to determine 
        professional liability insurance costs used in computing the 
        malpractice component, including a review of increases in 
        professional liability insurance premiums and variation in such 
        increases by State and physician specialty and methods used to 
        update the geographic cost of practice index and relative 
        weights for the malpractice component.
  (b) Report.--Not later than 1 year after the date of the enactment of 
this Act, the Comptroller General shall submit to Congress a report on 
the study conducted under subsection (a). The report shall include 
recommendations regarding the use of more current data in computing 
geographic cost of practice indices as well as the use of data directly 
representative of physicians' costs (rather than proxy measures of such 
costs).

SEC. 413. 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. 414. EXTENSION OF TELEMEDICINE DEMONSTRATION PROJECT.

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

SEC. 415. TWO-YEAR INCREASE FOR HOME HEALTH SERVICES FURNISHED IN A 
                    RURAL AREA.

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

                 TITLE V--PROVISIONS RELATING TO PART A

                Subtitle A--Inpatient Hospital Services

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

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

SEC. 502. RECOGNITION OF NEW MEDICAL TECHNOLOGIES UNDER INPATIENT 
                    HOSPITAL PPS.

  (a) Improving Timeliness of Data Collection.--Section 1886(d)(5)(K) 
(42 U.S.C. 1395ww(d)(5)(K)) is amended by adding at the end the 
following new clause:
  ``(vii) Under the mechanism under this subparagraph, the Secretary 
shall provide for the addition of new diagnosis and procedure codes in 
April 1 of each year, but the addition of such codes shall not require 
the Secretary to adjust the payment (or diagnosis-related group 
classification) under this subsection until the fiscal year that begins 
after such date.''.
  (b) Eligibility Standard for Technology Outliers.--
          (1) Minimum period for recognition of new technologies.--
        Section 1886(d)(5)(K)(vi) (42 U.S.C. 1395ww(d)(5)(K)(vi)) is 
        amended--
                  (A) by inserting ``(I)'' after ``(vi)''; and
                  (B) by adding at the end the following new subclause:
  ``(II) Under such criteria, a service or technology shall not be 
denied treatment as a new service or technology on the basis of the 
period of time in which the service or technology has been in use if 
such period ends before the end of the 2-to-3-year period that begins 
on the effective date of implementation of a code under ICD-9-CM (or a 
successor coding methodology) that enables the identification of 
specific discharges in which the service or technology has been 
used.''.
          (2) Adjustment of threshold.--Section 1886(d)(5)(K)(ii)(I) 
        (42 U.S.C. 1395ww(d)(5)(K)(ii)(I)) is amended by inserting 
        ``(applying a threshold specified by the Secretary that is 75 
        percent of one standard deviation for the diagnosis-related 
        group involved)'' after ``is inadequate''.
          (3) Criterion for substantial improvement.--Section 
        1886(d)(5)(K)(vi) (42 U.S.C. 1395ww(d)(5)(K)(vi)), as amended 
        by paragraph (1), is further amended by adding at the end the 
        following subclause:
  ``(III) The Secretary shall by regulation provide for further 
clarification of the criteria applied to determine whether a new 
service or technology represents an advance in medical technology that 
substantially improves the diagnosis or treatment of beneficiaries. 
Under such criteria, in determining whether a new service or technology 
represents an advance in medical technology that substantially improves 
the diagnosis or treatment of beneficiaries, the Secretary shall deem a 
service or technology as meeting such requirement if the service or 
technology is a drug or biological that is designated under section 506 
of the Federal Food, Drug, and Cosmetic Act, approved under section 
314.510 or 601.41 of title 21, Code of Federal Regulations, or 
designated for priority review when the marketing application for such 
drug or biological was filed or is a medical device for which an 
exemption has been granted under section 520(m) of such Act, or for 
which priority review has been provided under section 515(d)(5) of such 
Act. Nothing in this subclause shall be construed as effecting the 
authority of the Secretary to determine whether items and services are 
medically necessary and appropriate under section 1862(a)(1).''.
          (4) Process for public input.--Section 1886(d)(5)(K) (42 
        U.S.C. 1395ww(d)(5)(K)), as amended by paragraph (1), is 
        amended--
                  (A) in clause (i), by adding at the end the 
                following: ``Such mechanism shall be modified to meet 
                the requirements of clause (viii).''; and
                  (B) by adding at the end the following new clause:
  ``(viii) The mechanism established pursuant to clause (i) shall be 
adjusted to provide, before publication of a proposed rule, for public 
input regarding whether a new service or technology not described in 
the second sentence of clause (vi)(III) represents an advance in 
medical technology that substantially improves the diagnosis or 
treatment of beneficiaries as follows:
          ``(I) The Secretary shall make public and periodically update 
        a list of all the services and technologies for which an 
        application for additional payment under this subparagraph is 
        pending.
          ``(II) The Secretary shall accept comments, recommendations, 
        and data from the public regarding whether the service or 
        technology represents a substantial improvement.
          ``(III) The Secretary shall provide for a meeting at which 
        organizations representing hospitals, physicians, medicare 
        beneficiaries, manufacturers, and any other interested party 
        may present comments, recommendations, and data to the clinical 
        staff of the Centers for Medicare & Medicaid Services before 
        publication of a notice of proposed rulemaking regarding 
        whether service or technology represents a substantial 
        improvement.''.
  (c) Preference for Use of DRG Adjustment.--Section 1886(d)(5)(K) (42 
U.S.C. 1395ww(d)(5)(K)) is further amended by adding at the end the 
following new clause:
  ``(ix) Before establishing any add-on payment under this subparagraph 
with respect to a new technology, the Secretary shall seek to identify 
one or more diagnosis-related groups associated with such technology, 
based on similar clinical or anatomical characteristics and the cost of 
the technology. Within such groups the Secretary shall assign an 
eligible new technology into a diagnosis-related group where the 
average costs of care most closely approximate the costs of care of 
using the new technology. In such case, the new technology would no 
longer meet the threshold of exceeding 75 percent of the standard 
deviation for the diagnosis-related group involved under clause 
(ii)(I). No add-on payment under this subparagraph shall be made with 
respect to such new technology and this clause shall not affect the 
application of paragraph (4)(C)(iii).''.
  (d) Improvement in Payment for New Technology.--Section 
1886(d)(5)(K)(ii)(III) (42 U.S.C. 1395ww(d)(5)(K)(ii)(III)) is amended 
by inserting after ``the estimated average cost of such service or 
technology'' the following: ``(based on the marginal rate applied to 
costs under subparagraph (A))''.
  (e) Establishment of New Funding for Hospital Inpatient Technology.--
Section 1886(d)(5)(K)(ii)(III) (42 U.S.C. 1395ww(d)(5)(K)(ii)(III)) is 
amended by striking ``subject to paragraph (4)(C)(iii),''.
  (f) Effective Date.--
          (1) In general.--The Secretary shall implement the amendments 
        made by this section so that they apply to classification for 
        fiscal years beginning with fiscal year 2005.
          (2) Reconsiderations of applications for fiscal year 2003 
        that are denied.--In the case of an application for a 
        classification of a medical service or technology as a new 
        medical service or technology under section 1886(d)(5)(K) of 
        the Social Security Act (42 U.S.C. 1395ww(d)(5)(K)) that was 
        filed for fiscal year 2004 and that is denied--
                  (A) the Secretary shall automatically reconsider the 
                application as an application for fiscal year 2005 
                under the amendments made by this section; and
                  (B) the maximum time period otherwise permitted for 
                such classification of the service or technology shall 
                be extended by 12 months.

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

  Section 1886(d)(9) (42 U.S.C. 1395ww(d)(9)) is amended--
          (1) in subparagraph (A)--
                  (A) in clause (i), by striking ``for discharges 
                beginning on or after October 1, 1997, 50 percent (and 
                for discharges between October 1, 1987, and September 
                30, 1997, 75 percent)'' and inserting ``the applicable 
                Puerto Rico percentage (specified in subparagraph 
                (E))''; and
                  (B) in clause (ii), by striking ``for discharges 
                beginning in a fiscal year beginning on or after 
                October 1, 1997, 50 percent (and for discharges between 
                October 1, 1987, and September 30, 1997, 25 percent)'' 
                and inserting ``the applicable Federal percentage 
                (specified in subparagraph (E))''; and
          (2) by adding at the end the following new subparagraph:
  ``(E) For purposes of subparagraph (A), for discharges occurring--
          ``(i) on or after October 1, 1987, and before October 1, 
        1997, the applicable Puerto Rico percentage is 75 percent and 
        the applicable Federal percentage is 25 percent;
          ``(ii) on or after October 1, 1997, and before October 1, 
        2003, the applicable Puerto Rico percentage is 50 percent and 
        the applicable Federal percentage is 50 percent;
          ``(iii) during fiscal year 2004, the applicable Puerto Rico 
        percentage is 41 percent and the applicable Federal percentage 
        is 59 percent;
          ``(iv) during fiscal year 2005, the applicable Puerto Rico 
        percentage is 33 percent and the applicable Federal percentage 
        is 67 percent; and
          ``(v) on or after October 1, 2005, the applicable Puerto Rico 
        percentage is 25 percent and the applicable Federal percentage 
        is 75 percent.''.

SEC. 504. WAGE INDEX ADJUSTMENT RECLASSIFICATION REFORM .

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

SEC. 505. MEDPAC REPORT ON SPECIALTY HOSPITALS.

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

                      Subtitle B--Other Provisions

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

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

SEC. 512. COVERAGE OF HOSPICE CONSULTATION SERVICES.

  (a) Coverage of Hospice Consultation Services.--Section 1812(a) (42 
U.S.C. 1395d(a)) is amended--
          (1) by striking ``and'' at the end of paragraph (3);
          (2) by striking the period at the end of paragraph (4) and 
        inserting ``; and''; and
          (3) by inserting after paragraph (4) the following new 
        paragraph:
          ``(5) for individuals who are terminally ill, have not made 
        an election under subsection (d)(1), and have not previously 
        received services under this paragraph, services that are 
        furnished by a physician who is either the medical director or 
        an employee of a hospice program and that consist of--
                  ``(A) an evaluation of the individual's need for pain 
                and symptom management;
                  ``(B) counseling the individual with respect to end-
                of-life issues and care options; and
                  ``(C) advising the individual regarding advanced care 
                planning.''.
  (b) Payment.--Section 1814(i) (42 U.S.C. l395f(i)) is amended by 
adding at the end the following new paragraph:
  ``(4) The amount paid to a hospice program with respect to the 
services under section 1812(a)(5) for which payment may be made under 
this part shall be equal to an amount equivalent to the amount 
established for an office or other outpatient visit for evaluation and 
management associated with presenting problems of moderate severity 
under the fee schedule established under section 1848(b), other than 
the portion of such amount attributable to the practice expense 
component.''.
  (c) Conforming Amendment.--Section 1861(dd)(2)(A)(i) (42 U.S.C. 
1395x(dd)(2)(A)(i)) is amended by inserting before the comma at the end 
the following: ``and services described in section 1812(a)(5)''.
  (d) Effective Date.--The amendments made by this section shall apply 
to services provided by a hospice program on or after January 1, 2004.

                TITLE VI--PROVISIONS RELATING TO PART B

                    Subtitle A--Physicians' Services

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

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

SEC. 602. STUDIES ON ACCESS TO PHYSICIANS' SERVICES.

  (a) GAO Study on Beneficiary Access to Physicians' Services.--
          (1) Study.--The Comptroller General of the United States 
        shall conduct a study on access of medicare beneficiaries to 
        physicians' services under the medicare program. The study 
        shall include--
                  (A) an assessment of the use by beneficiaries of such 
                services through an analysis of claims submitted by 
                physicians for such services under part B of the 
                medicare program;
                  (B) an examination of changes in the use by 
                beneficiaries of physicians' services over time;
                  (C) an examination of the extent to which physicians 
                are not accepting new medicare beneficiaries as 
                patients.
          (2) Report.--Not later than 18 months after the date of the 
        enactment of this Act, the Comptroller General shall submit to 
        Congress a report on the study conducted under paragraph (1). 
        The report shall include a determination whether--
                  (A) data from claims submitted by physicians under 
                part B of the medicare program indicate potential 
                access problems for medicare beneficiaries in certain 
                geographic areas; and
                  (B) access by medicare beneficiaries to physicians' 
                services may have improved, remained constant, or 
                deteriorated over time.
  (b) Study and Report on Supply of Physicians.--
          (1) Study.--The Secretary shall request the Institute of 
        Medicine of the National Academy of Sciences to conduct a study 
        on the adequacy of the supply of physicians (including 
        specialists) in the United States and the factors that affect 
        such supply.
          (2) Report to congress.--Not later than 2 years after the 
        date of enactment of this section, the Secretary shall submit 
        to Congress a report on the results of the study described in 
        paragraph (1), including any recommendations for legislation.
  (c) GAO Study of Medicare Payment for Inhalation Therapy.--
          (1) Study.--The Comptroller General of the United States 
        shall conduct a study to examine the adequacy of current 
        reimbursements for inhalation therapy under the medicare 
        program.
          (2) Report.--Not later than May 1, 2004, the Comptroller 
        General shall submit to Congress a report on the study 
        conducted under paragraph (1).

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

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

SEC. 604. INCLUSION OF PODIATRISTS AND DENTISTS 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), 
and (3) of section 1861(r)''.

SEC. 605. ESTABLISHMENT OF FLOOR ON WORK GEOGRAPHIC ADJUSTMENT.

  (a) Minimum Index.--
          (1) In general.--Section 1848(e)(1) (42 U.S.C. 1395w-4(e)(1)) 
        is amended by adding at the end the following new subparagraph:
                  ``(E) Floor at 1.0 on work geographic indices.--
                Subject to section 605(a)(2) of the Medicare 
                Prescription Drug and Modernization Act of 2003, after 
                calculating the work geographic indices in subparagraph 
                (A)(iii), for purposes of payment for services 
                furnished on or after January 1, 2004, and before 
                January 1, 2006, the Secretary shall increase the work 
                geographic index to 1.00 for any locality for which 
                such geographic index is less than 1.00.''.
          (2) Secretarial discretion.--Section 1848(e)(1)(E), as added 
        by paragraph (1) shall have no force or effect in law if the 
        Secretary determines, taking into account the report of the 
        Comptroller General under subsection (b)(2), that there is no 
        sound economic rationale for the implementation of that 
        section.
  (b) GAO Report.--
          (1) Evaluation.--As part of the study on geographic 
        differences in payments for physicians' services conducted 
        under section 412, the Comptroller General of the United States 
        shall evaluate the following:
                  (A) Whether there is a sound economic basis for the 
                implementation of the amendment to section 1848(e)(1) 
                under subsection (a)(1) in those areas in which the 
                adjustment applies.
                  (B) The effect of such adjustment 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.
                  (C) The appropriateness of establishing a floor of 
                1.0 for the work geographic index.
          (2) Report.--By not later than September 1, 2004, the 
        Comptroller General shall submit to Congress and to the 
        Secretary a report on the evaluation conducted under paragraph 
        (1).

                    Subtitle B--Preventive Services

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

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

               ``Initial Preventive Physical Examination

  ``(ww) The term `initial preventive physical examination' means 
physicians' services consisting of a physical examination with the goal 
of health promotion and disease detection and includes items and 
services (excluding clinical laboratory tests), as determined by the 
Secretary, consistent with the recommendations of the United States 
Preventive Services Task Force.''.
  (c) Waiver of Deductible and Coinsurance.--
          (1) Deductible.--The first sentence of section 1833(b) (42 
        U.S.C. 1395l(b)) is amended--
                  (A) by striking ``and'' before ``(6)'', and
                  (B) by inserting before the period at the end the 
                following: ``, and (7) such deductible shall not apply 
                with respect to an initial preventive physical 
                examination (as defined in section 1861(ww))''.
          (2) Coinsurance.--Section 1833(a)(1) (42 U.S.C. 1395l(a)(1)) 
        is amended--
                  (A) in clause (N), by inserting ``(or 100 percent in 
                the case of an initial preventive physical examination, 
                as defined in section 1861(ww))'' after ``80 percent''; 
                and
                  (B) in clause (O), by inserting ``(or 100 percent in 
                the case of an initial preventive physical examination, 
                as defined in section 1861(ww))'' after ``80 percent''.
  (d) Payment as Physicians' Services.--Section 1848(j)(3) (42 U.S.C. 
1395w-4(j)(3)) is amended by inserting ``(2)(W),'' after ``(2)(S),''.
  (e) Other Conforming Amendments.--Section 1862(a) (42 U.S.C. 
1395y(a)) is amended--
          (1) in paragraph (1)--
                  (A) by striking ``and'' at the end of subparagraph 
                (H);
                  (B) by striking the semicolon at the end of 
                subparagraph (I) and inserting ``, and''; and
                  (C) by adding at the end the following new 
                subparagraph:
          ``(J) in the case of an initial preventive physical 
        examination, which is performed not later than 6 months after 
        the date the individual's first coverage period begins under 
        part B;''; and
          (2) in paragraph (7), by striking ``or (H)'' and inserting 
        ``(H), or (J)''.
  (f) Effective Date.--The amendments made by this section shall apply 
to services furnished on or after January 1, 2004, but only for 
individuals whose coverage period begins on or after such date.

SEC. 612. COVERAGE OF CHOLESTEROL AND BLOOD LIPID SCREENING.

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

           ``Cholesterol and Other Blood Lipid Screening Test

  ``(xx)(1) The term `cholesterol and other blood lipid screening test' 
means diagnostic testing of cholesterol and other lipid levels of the 
blood for the purpose of early detection of abnormal cholesterol and 
other lipid levels.
  ``(2) The Secretary shall establish standards, in consultation with 
appropriate organizations, regarding the frequency and type of 
cholesterol and other blood lipid screening tests, except that such 
frequency may not be more often than once every 2 years.''.
  (c) Frequency.--Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)), as 
amended by section 611(e), is amended--
          (1) by striking ``and'' at the end of subparagraph (I);
          (2) by striking the semicolon at the end of subparagraph (J) 
        and inserting ``; and''; and
          (3) by adding at the end the following new subparagraph:
          ``(K) in the case of a cholesterol and other blood lipid 
        screening test (as defined in section 1861(xx)(1)), which is 
        performed more frequently than is covered under section 
        1861(xx)(2).''.
  (d) Effective Date.--The amendments made by this section shall apply 
to tests furnished on or after January 1, 2005.

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

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

SEC. 614. IMPROVED PAYMENT FOR CERTAIN MAMMOGRAPHY SERVICES.

  (a) Exclusion from OPD Fee Schedule.--Section 1833(t)(1)(B)(iv) (42 
U.S.C. 1395l(t)(1)(B)(iv)) is amended by inserting before the period at 
the end the following: ``and does not include screening mammography (as 
defined in section 1861(jj)) and unilateral and bilateral diagnostic 
mammography''.
  (b) Adjustment to Technical Component.--For diagnostic mammography 
performed on or after January 1, 2004, for which payment is made under 
the physician fee schedule under section 1848 of the Social Security 
Act (42 U.S.C. 1395w-4), the Secretary, based on the most recent cost 
data available, shall provide for an appropriate adjustment in the 
payment amount for the technical component of the diagnostic 
mammography.
  (c) Effective Date.--The amendment made by subsection (a) shall apply 
to mammography performed on or after January 1, 2004.

SEC. 615. MEDICARE COVERAGE OF DIABETES LABORATORY DIAGNOSTIC TESTS.

  (a) Coverage.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), as amended 
by sections 611 and 612, 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 and services (as defined in 
        subsection (yy));''.
  (b) Services Described.--Section 1861 (42 U.S.C. 1395x), as amended 
by sections 611 and 612, is further amended by adding at the end the 
following new subsection:

                ``Diabetes Screening Tests and Services

  ``(yy)(1) The term `diabetes screening tests' means diagnostic 
testing furnished to an individual at risk for diabetes (as defined in 
paragraph (2)) for the purpose of early detection of diabetes, 
including--
          ``(A) a fasting plasma glucose test; and
          ``(B) such other tests, and modifications to tests, as the 
        Secretary determines appropriate, in consultation with 
        appropriate organizations.
  ``(2) For purposes of paragraph (1), the term `individual at risk for 
diabetes' means an individual who has any, a combination of, or all of 
the following risk factors for diabetes:
          ``(A) A family history of diabetes.
          ``(B) Overweight defined as a body mass index greater than or 
        equal to 25 kg/m2.
          ``(C) Habitual physical inactivity.
          ``(D) Belonging to a high-risk ethnic or racial group.
          ``(E) Previous identification of an elevated impaired fasting 
        glucose.
          ``(F) Identification of impaired glucose tolerance.
          ``(G) Hypertension.
          ``(H) Dyslipidemia.
          ``(I) History of gestational diabetes mellitus or delivery of 
        a baby weighing greater than 9 pounds.
          ``(J) Polycystic ovary syndrome.
  ``(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 sections 611 and 612, 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 a diabetes screening tests or service 
        (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 the date that is 90 days after the date 
of enactment of this Act.

                       Subtitle C--Other Services

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

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

                                                                        The transition percentage for--
                        For the year--                                             Innovator
                                                                Single source   multiple source   Generic drugs
                                                                 drugs are--      drugs are--         are--
2004.........................................................              83%            81.5%              46%
2005.........................................................              77%              75%              46%
2006.........................................................              71%              68%              46%

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

SEC. 622. PAYMENT FOR AMBULANCE SERVICES.

  (a) Phase-In Providing Floor Using Blend of Fee Schedule and Regional 
Fee Schedules.--Section 1834(l) (42 U.S.C. 1395m(l)), as amended by 
section 410(a), is amended--
          (1) in paragraph (2)(E), by inserting ``consistent with 
        paragraph (11)'' after ``in an efficient and fair manner''; and
          (2) by adding at the end the following new paragraph:
          ``(11) Phase-in providing floor using blend of fee schedule 
        and regional fee schedules.--In carrying out the phase-in under 
        paragraph (2)(E) for each level of service furnished in a year, 
        the portion of the payment amount that is based on the fee 
        schedule shall 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, the blended rate shall be based 20 
                percent on the fee schedule under paragraph (1) and 80 
                percent on the regional fee schedule.
                  ``(B) For 2005, the blended rate shall be based 40 
                percent on the fee schedule under paragraph (1) and 60 
                percent on the regional fee schedule.
                  ``(C) For 2006, the blended rate shall be based 60 
                percent on the fee schedule under paragraph (1) and 40 
                percent on the regional fee schedule.
                  ``(D) For 2007, 2008, and 2009, the blended rate 
                shall be based 80 percent on the fee schedule under 
                paragraph (1) and 20 percent on the regional fee 
                schedule.
                  ``(E) For 2010 and each succeeding year, the blended 
                rate shall be based 100 percent on the fee schedule 
                under paragraph (1).
        For purposes of this paragraph, the Secretary shall establish a 
        regional fee schedule for each of the 9 Census divisions using 
        the methodology (used in establishing the fee schedule under 
        paragraph (1)) to calculate a regional conversion factor and a 
        regional mileage payment rate and using the same payment 
        adjustments and the same relative value units as used in the 
        fee schedule under such paragraph.''.
  (b) Adjustment in Payment for Certain Long Trips.--Section 1834(l), 
as amended by subsection (a), is further amended by adding at the end 
the following new paragraph:
          ``(12) Adjustment in payment for certain long trips.--In the 
        case of ground ambulance services furnished on or after January 
        1, 2004, and before January 1, 2009, regardless of where the 
        transportation originates, the fee schedule established under 
        this subsection shall provide that, with respect to the payment 
        rate for mileage for a trip above 50 miles the per mile rate 
        otherwise established shall be increased by \1/4\ of the 
        payment per mile otherwise applicable to such miles.''.
  (c) GAO Report on Costs and Access.--Not later than December 31, 
2005, the Comptroller General of the United States shall submit to 
Congress an initial report on how costs differ among the types of 
ambulance providers and on access, supply, and quality of ambulance 
services in those regions and States that have a reduction in payment 
under the medicare ambulance fee schedule (under section 1834(l) of the 
Social Security Act, as amended by this section). Not later than 
December 31, 2007, the Comptroller General shall submit to Congress a 
final report on such access and supply.
  (d) Effective Date.--The amendments made by this section shall apply 
to ambulance services furnished on or after January 1, 2004.

SEC. 623. RENAL DIALYSIS SERVICES.

  (a) Demonstration of Alternative Delivery Models.--
          (1) Use of advisory board.--In carrying out the demonstration 
        project relating to improving care for people with end-stage 
        renal disease through alternative delivery models (as published 
        in the Federal Register of June 4, 2003), the Secretary shall 
        establish an advisory board comprised of representatives 
        described in paragraph (2) to provide advice and 
        recommendations with respect to the establishment and operation 
        of such demonstration project.
          (2) Representatives.--Representatives referred to in 
        paragraph (1) include representatives of the following:
                  (A) Patient organizations.
                  (B) Clinicians.
                  (C) The medicare payment advisory commission, 
                established under section 1805 of the Social Security 
                Act (42 U.S.C. 1395b-6).
                  (D) The National Kidney Foundation.
                  (E) The National Institute of Diabetes and Digestive 
                and Kidney Diseases of National Institutes of Health.
                  (F) End-stage renal disease networks.
                  (G) Medicare contractors to monitor quality of care.
                  (I) providers of services and renal dialysis 
                facilities furnishing end-stage renal disease services.
                  (J) Economists.
                  (K) Researchers.
  (b) Restoring Composite Rate Exceptions for Pediatric Facilities.--
          (1) In general.--Section 422(a)(2) of BIPA is amended--
                  (A) in subparagraph (A), by striking ``and (C)'' and 
                inserting ``, (C), and (D)'';
                  (B) in subparagraph (B), by striking ``In the case'' 
                and inserting ``Subject to subparagraph (D), in the 
                case''; and
                  (C) by adding at the end the following new 
                subparagraph:
                  ``(D) Inapplicability to pediatric facilities.--
                Subparagraphs (A) and (B) shall not apply, as of 
                October 1, 2002, to pediatric facilities that do not 
                have an exception rate described in subparagraph (C) in 
                effect on such date. For purposes of this subparagraph, 
                the term `pediatric facility' means a renal facility at 
                least 50 percent of whose patients are individuals 
                under 18 years of age.''.
          (2) Conforming amendment.--The fourth sentence of section 
        1881(b)(7) (42 U.S.C. 1395rr(b)(7)), as amended by subsection 
        (b), is further amended by striking ``Until'' and inserting 
        ``Subject to section 422(a)(2) of the Medicare, Medicaid, and 
        SCHIP Benefits Improvement and Protection Act of 2000, and 
        until''.
  (c) Increase in Renal Dialysis Composite Rate for Services Furnished 
in 2004.--Notwithstanding any other provision of law, with respect to 
payment under part B of title XVIII of the Social Security Act for 
renal dialysis services furnished in 2004, the composite payment rate 
otherwise established under section 1881(b)(7) of such Act (42 U.S.C. 
1395rr(b)(7)) shall be increased by 1.6 percent.

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

  (a) 1-Year Moratorium on Therapy Caps.--Section 1833(g)(4) (42 U.S.C. 
1395l(g)(4)) is amended by striking ``and 2002'' and inserting ``2002, 
and 2004''.
  (b) Prompt Submission of Overdue Reports on Payment and Utilization 
of Outpatient Therapy Services.--Not later than December 31, 2003, the 
Secretary shall submit to Congress the reports required under section 
4541(d)(2) of the Balanced Budget Act of 1997 (relating to alternatives 
to a single annual dollar cap on outpatient therapy) and under section 
221(d) of the Medicare, Medicaid, and SCHIP Balanced Budget Refinement 
Act of 1999 (relating to utilization patterns for outpatient therapy).
  (c) Identification of Conditions and Diseases Justifying Waiver of 
Therapy Cap.--
          (1) Study.--The Secretary shall request the Institute of 
        Medicine of the National Academy of Sciences to identify 
        conditions or diseases that should justify conducting an 
        assessment of the need to waive the therapy caps under section 
        1833(g)(4) of the Social Security Act (42 U.S.C. 1395l(g)(4)).
          (2) Reports to congress.--
                  (A) Preliminary report.--Not later than July 1, 2004, 
                the Secretary shall submit to Congress a preliminary 
                report on the conditions and diseases identified under 
                paragraph (1).
                  (B) Final report.--Not later than September 1, 2004, 
                the Secretary shall submit to Congress a final report 
                on such conditions and diseases.
                  (C) Recommendations.--Not later than October 1, 2004, 
                the Secretary shall submit to Congress a recommendation 
                of criteria, with respect to such conditions and 
                disease, under which a waiver of the therapy caps would 
                apply.
  (d) GAO Study of Patient Access to Physical Therapist Services.--
          (1) Study.--The Comptroller General of the United States 
        shall conduct a study on access to physical therapist services 
        in States authorizing such services without a physician 
        referral and in States that require such a physician referral. 
        The study shall--
                  (A) examine the use of and referral patterns for 
                physical therapist services for patients age 50 and 
                older in States that authorize such services without a 
                physician referral and in States that require such a 
                physician referral;
                  (B) examine the use of and referral patterns for 
                physical therapist services for patients who are 
                medicare beneficiaries;
                  (C) examine the potential effect of prohibiting a 
                physician from referring patients to physical therapy 
                services owned by the physician and provided in the 
                physician's office;
                  (D) examine the delivery of physical therapists' 
                services within the facilities of Department of 
                Defense; and
                  (E) analyze the potential impact on medicare 
                beneficiaries and on expenditures under the medicare 
                program of eliminating the need for a physician 
                referral and physician certification for physical 
                therapist services under the medicare program.
          (2) Report.--The Comptroller General shall submit to Congress 
        a report on the study conducted under paragraph (1) by not 
        later than 1 year after the date of the enactment of this Act.

SEC. 625. ADJUSTMENT TO PAYMENTS FOR SERVICES FURNISHED IN AMBULATORY 
                    SURGICAL CENTERS.

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

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

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

SEC. 627. WAIVER OF PART B LATE ENROLLMENT PENALTY FOR CERTAIN MILITARY 
                    RETIREES; SPECIAL ENROLLMENT PERIOD.

  (a) Waiver of Penalty.--
          (1) In general.--Section 1839(b) (42 U.S.C. 1395r(b)) is 
        amended by adding at the end the following new sentence: ``No 
        increase in the premium shall be effected for a month in the 
        case of an individual who is 65 years of age or older, who 
        enrolls under this part during 2001, 2002, 2003, or 2004 and 
        who demonstrates to the Secretary before December 31, 2004, 
        that the individual is a covered beneficiary (as defined in 
        section 1072(5) of title 10, United States Code). The Secretary 
        of Health and Human Services shall consult with the Secretary 
        of Defense in identifying individuals described in the previous 
        sentence.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to premiums for months beginning with January 2003. 
        The Secretary of Health and Human Services shall establish a 
        method for providing rebates of premium penalties paid for 
        months on or after January 2004 for which a penalty does not 
        apply under such amendment but for which a penalty was 
        previously collected.
  (b) Medicare Part B Special Enrollment Period.--
          (1) In general.--In the case of any individual who, as of the 
        date of the enactment of this Act, is 65 years of age or older, 
        is eligible to enroll but is not enrolled under part B of title 
        XVIII of the Social Security Act, and is a covered beneficiary 
        (as defined in section 1072(5) of title 10, United States 
        Code), the Secretary of Health and Human Services shall provide 
        for a special enrollment period during which the individual may 
        enroll under such part. Such period shall begin as soon as 
        possible after the date of the enactment of this Act and shall 
        end on December 31, 2004.
          (2) Coverage period.--In the case of an individual who 
        enrolls during the special enrollment period provided under 
        paragraph (1), the coverage period under part B of title XVIII 
        of the Social Security Act shall begin on the first day of the 
        month following the month in which the individual enrolls.

SEC. 628. PART B DEDUCTIBLE.

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

SEC. 629. DEMONSTRATION PROJECT FOR COVERAGE OF SELF-INJECTED BIOLOGICS 
                    FOR RHEUMATOID ARTHRITIS.

  (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 self-injected biologics 
(approved by the Food and Drug Administration) prescribed for the 
treatment of rheumatoid arthritis that are prescribed as replacements 
for drugs and biologicals described in section 1861(s)(2)(A) of such 
Act (42 U.S.C. 1395x(s)(2)(A)) for which payment is made under such 
part.
  (b) Demonstration Project Sites.--The project established under this 
section shall be conducted in 3 States selected by the Secretary.
  (c) Duration.--The Secretary shall conduct the demonstration project 
for the 2-year period beginning on the date that is 90 days after the 
date of the enactment of this Act.
  (d) Report.--(1) Not later than January 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.
  (2) The Secretary may use findings from the report under paragraph 
(1) in determining appropriate settings for the administration of 
biologics (approved by the Food and Drug Administration) prescribed for 
medicare beneficiaries for the treatment of rheumatoid arthritis.

            TITLE VII--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

SEC. 701. UPDATE IN HOME HEALTH SERVICES.

  (a) Change to Calender Year Update.--
          (1) In general.--Section 1895(b) (42 U.S.C. 1395fff(b)(3)) is 
        amended--
                  (A) in paragraph (3)(B)(i)--
                          (i) by striking ``each fiscal year (beginning 
                        with fiscal year 2002)'' and inserting ``fiscal 
                        year 2002 and for fiscal year 2003 and for each 
                        subsequent year (beginning with 2004)''; and
                          (ii) by inserting ``or year'' after ``the 
                        fiscal year'';
                  (B) in paragraph (3)(B)(ii)(II), by striking ``any 
                subsequent fiscal year'' and inserting ``2004 and any 
                subsequent year'';
                  (C) in paragraph (3)(B)(iii), by inserting ``or 
                year'' after ``fiscal year'' each place it appears;
                  (D) in paragraph (3)(B)(iv)--
                          (i) by inserting ``or year'' after ``fiscal 
                        year'' each place it appears; and
                          (ii) by inserting ``or years'' after ``fiscal 
                        years''; and
                  (E) in paragraph (5), by inserting ``or year'' after 
                ``fiscal year''.
          (2) Transition rule.--The standard prospective payment amount 
        (or amounts) under section 1895(b)(3) of the Social Security 
        Act for the calendar quarter beginning on October 1, 2003, 
        shall be such amount (or amounts) for the previous calendar 
        quarter.
  (b) Changes in Updates for 2004, 2005, and 2006.--Section 
1895(b)(3)(B)(ii) (42 U.S.C. 1395fff(b)(3)(B)(ii)), as amended by 
subsection (a)(1)(B), is amended--
          (1) by striking ``or'' at the end of subclause (I);
          (2) by redesignating subclause (II) as subclause (III);
          (3) in subclause (III), as so redesignated, by striking 
        ``2004'' and inserting ``2007''; and
          (4) by inserting after subclause (I) the following new 
        subclause:
                                  ``(II) each of 2004, 2005, and 2006 
                                the home health market basket 
                                percentage increase minus 0.4 
                                percentage points; or''.

SEC. 702. 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. 703. 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 two-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 the beneficiary--
          (1) has been certified by one physician as an individual who 
        has a permanent and severe condition that will not improve;
          (2) requires the individual to receive assistance from 
        another individual with at least 3 out of the 5 activities of 
        daily living for the rest of the individual's life;
          (3) requires 1 or more home health services to achieve a 
        functional condition that gives the individual the ability to 
        leave home; and
          (4) requires technological assistance or the assistance of 
        another person to leave 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) and shall include--
          (1) an examination of whether the provision of home health 
        services to medicare beneficiaries under the project--
                  (A) adversely effects the provision of home health 
                services under the medicare program; or
                  (B) directly causes an unreasonable increase of 
                expenditures under the medicare program for the 
                provision of such services that is directly 
                attributable to such clarification;
          (2) the specific data evidencing the amount of any increase 
        in expenditures that is a 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; and
          (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 unreasonable 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 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.
          (4) Secretary.--The term ``Secretary'' means the Secretary of 
        Health and Human Services.

             Subtitle B--Direct Graduate Medical Education

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

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

                  Subtitle C--Chronic Care Improvement

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

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

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

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

SEC. 723. INSTITUTE OF MEDICINE REPORT.

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

SEC. 724. MEDPAC REPORT.

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

                      Subtitle D--Other Provisions

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

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

SEC. 732. DEMONSTRATION PROJECT FOR MEDICAL ADULT DAY CARE SERVICES.

  (a) Establishment.--Subject to the succeeding provisions of this 
section, the Secretary of Health and Human Services shall establish a 
demonstration project (in this section referred to as the 
``demonstration project'') under which the Secretary shall, as part of 
a plan of an episode of care for home health services established for a 
medicare beneficiary, permit a home health agency, directly or under 
arrangements with a medical adult day care facility, to provide medical 
adult day care services as a substitute for a portion of home health 
services that would otherwise be provided in the beneficiary's home.
  (b) Payment.--
          (1) In general.--The amount of payment for an episode of care 
        for home health services, a portion of which consists of 
        substitute medical adult day care services, under the 
        demonstration project shall be made at a rate equal to 95 
        percent of the amount that would otherwise apply for such home 
        health services under section 1895 of the Social Security Act 
        (42 u.s.c. 1395fff). In no case may a home health agency, or a 
        medical adult day care facility under arrangements with a home 
        health agency, separately charge a beneficiary for medical 
        adult day care services furnished under the plan of care.
          (2) Budget neutrality for demonstration project.--
        Notwithstanding any other provision of law, the Secretary shall 
        provide for an appropriate reduction in the aggregate amount of 
        additional payments made under section 1895 of the Social 
        Security Act (42 U.S.C. 1395fff) to reflect any increase in 
        amounts expended from the Trust Funds as a result of the 
        demonstration project conducted under this section.
  (c) Demonstration Project Sites.--The project established under this 
section shall be conducted in not more than 5 States selected by the 
Secretary that license or certify providers of services that furnish 
medical adult day care services.
  (d) Duration.--The Secretary shall conduct the demonstration project 
for a period of 3 years.
  (e) Voluntary Participation.--Participation of medicare beneficiaries 
in the demonstration project shall be voluntary. The total number of 
such beneficiaries that may participate in the project at any given 
time may not exceed 15,000.
  (f) Preference in Selecting Agencies.--In selecting home health 
agencies to participate under the demonstration project, the Secretary 
shall give preference to those agencies that are currently licensed or 
certified through common ownership and control to furnish medical adult 
day care services.
  (g) Waiver Authority.--The Secretary may waive such requirements of 
title XVIII of the Social Security Act as may be necessary for the 
purposes of carrying out the demonstration project, other than waiving 
the requirement that an individual be homebound in order to be eligible 
for benefits for home health services.
  (h) Evaluation and Report.--The Secretary shall conduct an evaluation 
of the clinical and cost effectiveness of the demonstration project. 
Not later 30 months after the commencement of the project, the 
Secretary shall submit to Congress a report on the evaluation, and 
shall include in the report the following:
          (1) An analysis of the patient outcomes and costs of 
        furnishing care to the medicare beneficiaries participating in 
        the project as compared to such outcomes and costs to 
        beneficiaries receiving only home health services for the same 
        health conditions.
          (2) Such recommendations regarding the extension, expansion, 
        or termination of the project as the Secretary determines 
        appropriate.
  (i) Definitions.--In this section:
          (1) Home health agency.--The term ``home health agency'' has 
        the meaning given such term in section 1861(o) of the Social 
        Security Act (42 U.S.C. 1395x(o)).
          (2) Medical adult day care facility.--The term ``medical 
        adult day care facility'' means a facility that--
                  (A) has been licensed or certified by a State to 
                furnish medical adult day care services in the State 
                for a continuous 2-year period;
                  (B) is engaged in providing skilled nursing services 
                and other therapeutic services directly or under 
                arrangement with a home health agency;
                  (C) meets such standards established by the Secretary 
                to assure quality of care and such other requirements 
                as the Secretary finds necessary in the interest of the 
                health and safety of individuals who are furnished 
                services in the facility; and
                  (D) provides medical adult day care services.
          (3) Medical adult day care services.--The term ``medical 
        adult day care services'' means--
                  (A) home health service items and services described 
                in paragraphs (1) through (7) of section 1861(m) 
                furnished in a medical adult day care facility;
                  (B) a program of supervised activities furnished in a 
                group setting in the facility that--
                          (i) meet such criteria as the Secretary 
                        determines appropriate; and
                          (ii) is designed to promote physical and 
                        mental health of the individuals; and
                  (C) such other services as the Secretary may specify.
          (4) Medicare beneficiary.--The term ``medicare beneficiary'' 
        means an individual entitled to benefits under part A of this 
        title, enrolled under part B of this title, or both.

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

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

SEC. 734. TREATMENT OF CERTAIN PHYSICIAN PATHOLOGY SERVICES.

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

SEC. 735. MEDICARE PANCREATIC ISLET CELL TRANSPLANT DEMONSTRATION 
                    PROJECT.

  (a) Establishment.--In order to test the appropriateness of 
pancreatic islet cell transplantation, not later than 120 days after 
the date of the enactment of this Act, the Secretary shall establish a 
demonstration project which the Secretary, provides for payment under 
the medicare program under title XVIII of the Social Security Act for 
pancreatic islet cell transplantation and related items and services in 
the case of medicare beneficiaries who have type I (juvenile) diabetes 
and have end stage renal disease.
  (b) Duration of Project.--The authority of the Secretary to conduct 
the demonstration project under this section shall terminate on the 
date that is 5 years after the date of the establishment of the 
project.
  (c) Evaluation and Report.--The Secretary shall conduct an evaluation 
of the outcomes of the demonstration project. Not later than 120 days 
after the date of the termination of the demonstration project under 
subsection (b), the Secretary shall submit to Congress a report on the 
project, including recommendations for such legislative and 
administrative action as the Secretary deems appropriate.
  (d) Payment Methodology.--The Secretary shall establish an 
appropriate payment methodology for the provision of items and services 
under the demonstration project, which may include a payment 
methodology that bundles, to the maximum extent feasible, payment for 
all such items and services.
  (e) Waiver Authority.--The Secretary may waive compliance with the 
requirements of title XVIII of the Social Security Act to such extent 
and for such period as the Secretary determines is necessary to conduct 
the demonstration project.

SEC. 736. 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 medicare beneficiaries 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) Medicare beneficiaries with chronic conditions defined.--
        In this section, the term ``medicare beneficiaries 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) In general.--In establishing the demonstration projects 
        under this section, the Secretary shall evaluate 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 that permit patients to self-
        direct the provision of personal care services.
          (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 medicare beneficiaries 
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 no fewer 
than 3 demonstration projects established under this section. Of those 
demonstration projects, the Secretary shall conduct at least one in 
each of the following areas:
          (1) An urban area.
          (2) A rural area.
          (3) An area that the Secretary determines has a medicare 
        population with 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 medicare beneficiaries 
                participating in the projects as compared to such 
                outcomes and costs to other beneficiaries 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.

              TITLE VIII--MEDICARE BENEFITS ADMINISTRATION

SEC. 801. ESTABLISHMENT OF MEDICARE BENEFITS ADMINISTRATION.

  (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.), as amended by 
sections 105 and 721, is amended by inserting after 1808 the following 
new section:
                   ``medicare benefits administration
  ``Sec. 1809. (a) Establishment.--There is established within the 
Department of Health and Human Services an agency to be known as the 
Medicare Benefits Administration.
  ``(b) Administrator; Deputy Administrator; Chief Actuary.--
          ``(1) Administrator.--
                  ``(A) In general.--The Medicare Benefits 
                Administration shall be headed by an administrator to 
                be known as the `Medicare Benefits Administrator' (in 
                this section referred to as the `Administrator') who 
                shall be appointed by the President, by and with the 
                advice and consent of the Senate. The Administrator 
                shall be in direct line of authority to the Secretary.
                  ``(B) Compensation.--The Administrator shall be paid 
                at the rate of basic pay payable for level III of the 
                Executive Schedule under section 5314 of title 5, 
                United States Code.
                  ``(C) Term of office.--The Administrator shall be 
                appointed for a term of 4 years. In any case in which a 
                successor does not take office at the end of an 
                Administrator's term of office, that Administrator may 
                continue in office until the entry upon office of such 
                a successor. An Administrator appointed to a term of 
                office after the commencement of such term may serve 
                under such appointment only for the remainder of such 
                term.
                  ``(D) General authority.--The Administrator shall be 
                responsible for the exercise of all powers and the 
                discharge of all duties of the Administration, and 
                shall have authority and control over all personnel and 
                activities thereof.
                  ``(E) Rulemaking authority.--The Administrator may 
                prescribe such rules and regulations as the 
                Administrator determines necessary or appropriate to 
                carry out the functions of the Administration. The 
                regulations prescribed by the Administrator shall be 
                subject to the rulemaking procedures established under 
                section 553 of title 5, United States Code. The 
                Administrator shall provide for the issuance of new 
                regulations to carry out parts C, D, and E.
                  ``(F) Authority to establish organizational units.--
                The Administrator may establish, alter, consolidate, or 
                discontinue such organizational units or components 
                within the Administration as the Administrator 
                considers necessary or appropriate, except as specified 
                in this section.
                  ``(G) Authority to delegate.--The Administrator may 
                assign duties, and delegate, or authorize successive 
                redelegations of, authority to act and to render 
                decisions, to such officers and employees of the 
                Administration as the Administrator may find necessary. 
                Within the limitations of such delegations, 
                redelegations, or assignments, all official acts and 
                decisions of such officers and employees shall have the 
                same force and effect as though performed or rendered 
                by the Administrator.
          ``(2) Deputy administrator.--
                  ``(A) In general.--There shall be a Deputy 
                Administrator of the Medicare Benefits Administration 
                who shall be appointed by the President, by and with 
                the advice and consent of the Senate.
                  ``(B) Compensation.--The Deputy Administrator shall 
                be paid at the rate of basic pay payable for level IV 
                of the Executive Schedule under section 5315 of title 
                5, United States Code.
                  ``(C) Term of office.--The Deputy Administrator shall 
                be appointed for a term of 4 years. In any case in 
                which a successor does not take office at the end of a 
                Deputy Administrator's term of office, such Deputy 
                Administrator may continue in office until the entry 
                upon office of such a successor. A Deputy Administrator 
                appointed to a term of office after the commencement of 
                such term may serve under such appointment only for the 
                remainder of such term.
                  ``(D) Duties.--The Deputy Administrator shall perform 
                such duties and exercise such powers as the 
                Administrator shall from time to time assign or 
                delegate. The Deputy Administrator shall be Acting 
                Administrator of the Administration during the absence 
                or disability of the Administrator and, unless the 
                President designates another officer of the Government 
                as Acting Administrator, in the event of a vacancy in 
                the office of the Administrator.
          ``(3) Chief actuary.--
                  ``(A) In general.--There is established in the 
                Administration the position of Chief Actuary. The Chief 
                Actuary shall be appointed by, and in direct line of 
                authority to, the Administrator of such Administration. 
                The Chief Actuary shall be appointed from among 
                individuals who have demonstrated, by their education 
                and experience, superior expertise in the actuarial 
                sciences. The Chief Actuary may be removed only for 
                cause.
                  ``(B) Compensation.--The Chief Actuary shall be 
                compensated at the highest rate of basic pay for the 
                Senior Executive Service under section 5382(b) of title 
                5, United States Code.
                  ``(C) Duties.--The Chief Actuary shall exercise such 
                duties as are appropriate for the office of the Chief 
                Actuary and in accordance with professional standards 
                of actuarial independence.
          ``(4) Secretarial coordination of program administration.--
        The Secretary shall ensure appropriate coordination between the 
        Administrator and the Administrator of the Centers for Medicare 
        & Medicaid Services in carrying out the programs under this 
        title.
  ``(c) Duties; Administrative Provisions.--
          ``(1) Duties.--
                  ``(A) General duties.--The Administrator shall carry 
                out parts C, D, and E, including--
                          ``(i) negotiating, entering into, and 
                        enforcing, contracts with plans for the 
                        offering of Medicare Advantage plans under part 
                        C and EFFS plans under part E, including the 
                        offering of qualified prescription drug 
                        coverage under such plans; and
                          ``(ii) negotiating, entering into, and 
                        enforcing, contracts with PDP sponsors for the 
                        offering of prescription drug plans under part 
                        D.
                  ``(B) Other duties.--The Administrator shall carry 
                out any duty provided for under part C, part D, or part 
                E, including demonstration projects carried out in part 
                or in whole under such parts, the programs of all-
                inclusive care for the elderly (PACE program) under 
                section 1894, the social health maintenance 
                organization (SHMO) demonstration projects (referred to 
                in section 4104(c) of the Balanced Budget Act of 1997), 
                medicare cost contractors under section 1876(h), and 
                through a Medicare Advantage project that demonstrates 
                the application of capitation payment rates for frail 
                elderly medicare beneficiaries through the use of a 
                interdisciplinary team and through the provision of 
                primary care services to such beneficiaries by means of 
                such a team at the nursing facility involved).
                  ``(C) Prescription drug card.--The Administrator 
                shall carry out section 1807 (relating to the medicare 
                prescription drug discount card endorsement program).
                  ``(D) Noninterference.--In carrying out its duties 
                with respect to the provision of qualified prescription 
                drug coverage to beneficiaries under this title, the 
                Administrator may not--
                          ``(i) require a particular formulary or 
                        institute a price structure for the 
                        reimbursement of covered outpatient drugs;
                          ``(ii) interfere in any way with negotiations 
                        between PDP sponsors and Medicare Advantage 
                        organizations and EFFS organizations and drug 
                        manufacturers, wholesalers, or other suppliers 
                        of covered outpatient drugs; and
                          ``(iii) otherwise interfere with the 
                        competitive nature of providing such coverage 
                        through such sponsors and organizations.
                  ``(E) Annual reports.--Not later March 31 of each 
                year, the Administrator shall submit to Congress and 
                the President a report on the administration of parts 
                C, D, and E during the previous fiscal year.
          ``(2) Staff.--
                  ``(A) In general.--The Administrator, with the 
                approval of the Secretary, may employ, without regard 
                to chapter 31 of title 5, United States Code, other 
                than sections 3102 through 3113, 3131, 3133, 3136, 
                3151, and 3161, such officers and employees as are 
                necessary to administer the activities to be carried 
                out through the Medicare Benefits Administration. The 
                Administrator shall employ staff with appropriate and 
                necessary expertise in negotiating contracts in the 
                private sector.
                  ``(B) Flexibility with respect to compensation.--
                          ``(i) In general.--The staff of the Medicare 
                        Benefits Administration shall, subject to 
                        clause (ii), be paid without regard to the 
                        provisions of chapter 51 (other than section 
                        5101) and chapter 53 (other than section 5301, 
                        sections 5303 through 5305, 5311, and 5372 of 
                        such title (relating to classification and 
                        schedule pay rates).
                          ``(ii) Maximum rate.--In no case may the rate 
                        of compensation determined under clause (i) 
                        exceed the rate of basic pay payable for level 
                        IV of the Executive Schedule under section 5315 
                        of title 5, United States Code.
                  ``(C) Limitation on full-time equivalent staffing for 
                current cms functions being transferred.--The 
                Administrator may not employ under this paragraph a 
                number of full-time equivalent employees, to carry out 
                functions that were previously conducted by the Centers 
                for Medicare & Medicaid Services and that are conducted 
                by the Administrator by reason of this section, that 
                exceeds the number of such full-time equivalent 
                employees authorized to be employed by the Centers for 
                Medicare & Medicaid Services to conduct such functions 
                as of the date of the enactment of this Act.
          ``(3) Redelegation of certain functions of the centers for 
        medicare & medicaid services.--
                  ``(A) In general.--The Secretary, the Administrator, 
                and the Administrator of the Centers for Medicare & 
                Medicaid Services shall establish an appropriate 
                transition of responsibility in order to redelegate the 
                administration of part C from the Secretary and the 
                Administrator of the Centers for Medicare & Medicaid 
                Services to the Administrator as is appropriate to 
                carry out the purposes of this section.
                  ``(B) Transfer of data and information.--The 
                Secretary shall ensure that the Administrator of the 
                Centers for Medicare & Medicaid Services transfers to 
                the Administrator of the Medicare Benefits 
                Administration such information and data in the 
                possession of the Administrator of the Centers for 
                Medicare & Medicaid Services as the Administrator of 
                the Medicare Benefits Administration requires to carry 
                out the duties described in paragraph (1).
                  ``(C) Construction.--Insofar as a responsibility of 
                the Secretary or the Administrator of the Centers for 
                Medicare & Medicaid Services is redelegated to the 
                Administrator under this section, any reference to the 
                Secretary or the Administrator of the Centers for 
                Medicare & Medicaid Services in this title or title XI 
                with respect to such responsibility is deemed to be a 
                reference to the Administrator.
  ``(d) Office of Beneficiary Assistance.--
          ``(1) Establishment.--The Secretary shall establish within 
        the Medicare Benefits Administration an Office of Beneficiary 
        Assistance to coordinate functions relating to outreach and 
        education of medicare beneficiaries under this title, including 
        the functions described in paragraph (2). The Office shall be 
        separate operating division within the Administration.
          ``(2) Dissemination of information on benefits and appeals 
        rights.--
                  ``(A) Dissemination of benefits information.--The 
                Office of Beneficiary Assistance shall disseminate, 
                directly or through contract, to medicare 
                beneficiaries, by mail, by posting on the Internet site 
                of the Medicare Benefits Administration and through a 
                toll-free telephone number, information with respect to 
                the following:
                          ``(i) Benefits, and limitations on payment 
                        (including cost-sharing, stop-loss provisions, 
                        and formulary restrictions) under parts C, D, 
                        and E.
                          ``(ii) Benefits, and limitations on payment 
                        under parts A and B, including information on 
                        medicare supplemental policies under section 
                        1882.
                Such information shall be presented in a manner so that 
                medicare beneficiaries may compare benefits under parts 
                A, B, D, and medicare supplemental policies with 
                benefits under Medicare Advantage plans under part C 
                and EFFS plans under part E.
                  ``(B) Dissemination of appeals rights information.--
                The Office of Beneficiary Assistance shall disseminate 
                to medicare beneficiaries in the manner provided under 
                subparagraph (A) a description of procedural rights 
                (including grievance and appeals procedures) of 
                beneficiaries under the original medicare fee-for-
                service program under parts A and B, the Medicare 
                Advantage program under part C, the Voluntary 
                Prescription Drug Benefit Program under part D, and the 
                Enhanced Fee-for-Service program under part E.
  ``(e) Medicare Policy Advisory Board.--
          ``(1) Establishment.--There is established within the 
        Medicare Benefits Administration the Medicare Policy Advisory 
        Board (in this section referred to the `Board'). The Board 
        shall advise, consult with, and make recommendations to the 
        Administrator of the Medicare Benefits Administration with 
        respect to the administration of parts C, D, and E, including 
        the review of payment policies under such parts.
          ``(2) Reports.--
                  ``(A) In general.--With respect to matters of the 
                administration of parts C, D, and E the Board shall 
                submit to Congress and to the Administrator of the 
                Medicare Benefits Administration such reports as the 
                Board determines appropriate. Each such report may 
                contain such recommendations as the Board determines 
                appropriate for legislative or administrative changes 
                to improve the administration of such parts, including 
                the topics described in subparagraph (B). Each such 
                report shall be published in the Federal Register.
                  ``(B) Topics described.--Reports required under 
                subparagraph (A) may include the following topics:
                          ``(i) Fostering competition.--Recommendations 
                        or proposals to increase competition under 
                        parts C, D, and E for services furnished to 
                        medicare beneficiaries.
                          ``(ii) Education and enrollment.--
                        Recommendations for the improvement to efforts 
                        to provide medicare beneficiaries information 
                        and education on the program under this title, 
                        and specifically parts C, D, and E, and the 
                        program for enrollment under the title.
                          ``(iii) Implementation of risk-adjustment.--
                        Evaluation of the implementation under section 
                        1853(a)(3)(C) of the risk adjustment 
                        methodology to payment rates under that section 
                        to Medicare Advantage organizations offering 
                        Medicare Advantage plans (and the corresponding 
                        payment provisions under part E) that accounts 
                        for variations in per capita costs based on 
                        health status, geography, and other demographic 
                        factors.
                          ``(iv) Rural access.--Recommendations to 
                        improve competition and access to plans under 
                        parts C, D, and E in rural areas.
                  ``(C) Maintaining independence of board.--The Board 
                shall directly submit to Congress reports required 
                under subparagraph (A). No officer or agency of the 
                United States may require the Board to submit to any 
                officer or agency of the United States for approval, 
                comments, or review, prior to the submission to 
                Congress of such reports.
          ``(3) Duty of administrator of medicare benefits 
        administration.--With respect to any report submitted by the 
        Board under paragraph (2)(A), not later than 90 days after the 
        report is submitted, the Administrator of the Medicare Benefits 
        Administration shall submit to Congress and the President an 
        analysis of recommendations made by the Board in such report. 
        Each such analysis shall be published in the Federal Register.
          ``(4) Membership.--
                  ``(A) Appointment.--Subject to the succeeding 
                provisions of this paragraph, the Board shall consist 
                of seven members to be appointed as follows:
                          ``(i) Three members shall be appointed by the 
                        President.
                          ``(ii) Two members shall be appointed by the 
                        Speaker of the House of Representatives, with 
                        the advice of the chairmen and the ranking 
                        minority members of the Committees on Ways and 
                        Means and on Energy and Commerce of the House 
                        of Representatives.
                          ``(iii) Two members shall be appointed by the 
                        President pro tempore of the Senate with the 
                        advice of the chairman and the ranking minority 
                        member of the Senate Committee on Finance.
                  ``(B) Qualifications.--The members shall be chosen on 
                the basis of their integrity, impartiality, and good 
                judgment, and shall be individuals who are, by reason 
                of their education and experience in health care 
                benefits management, exceptionally qualified to perform 
                the duties of members of the Board.
                  ``(C) Prohibition on inclusion of federal 
                employees.--No officer or employee of the United States 
                may serve as a member of the Board.
          ``(5) Compensation.--Members of the Board shall receive, for 
        each day (including travel time) they are engaged in the 
        performance of the functions of the board, compensation at 
        rates not to exceed the daily equivalent to the annual rate in 
        effect for level IV of the Executive Schedule under section 
        5315 of title 5, United States Code.
          ``(6) Terms of office.--
                  ``(A) In general.--The term of office of members of 
                the Board shall be 3 years.
                  ``(B) Terms of initial appointees.--As designated by 
                the President at the time of appointment, of the 
                members first appointed--
                          ``(i) one shall be appointed for a term of 1 
                        year;
                          ``(ii) three shall be appointed for terms of 
                        2 years; and
                          ``(iii) three shall be appointed for terms of 
                        3 years.
                  ``(C) Reappointments.--Any person appointed as a 
                member of the Board may not serve for more than 8 
                years.
                  ``(D) Vacancy.--Any member appointed to fill a 
                vacancy occurring before the expiration of the term for 
                which the member's predecessor was appointed shall be 
                appointed only for the remainder of that term. A member 
                may serve after the expiration of that member's term 
                until a successor has taken office. A vacancy in the 
                Board shall be filled in the manner in which the 
                original appointment was made.
          ``(7) Chair.--The Chair of the Board shall be elected by the 
        members. The term of office of the Chair shall be 3 years.
          ``(8) Meetings.--The Board shall meet at the call of the 
        Chair, but in no event less than three times during each fiscal 
        year.
          ``(9) Director and staff.--
                  ``(A) Appointment of director.--The Board shall have 
                a Director who shall be appointed by the Chair.
                  ``(B) In general.--With the approval of the Board, 
                the Director may appoint, without regard to chapter 31 
                of title 5, United States Code, such additional 
                personnel as the Director considers appropriate.
                  ``(C) Flexibility with respect to compensation.--
                          ``(i) In general.--The Director and staff of 
                        the Board shall, subject to clause (ii), be 
                        paid without regard to the provisions of 
                        chapter 51 and chapter 53 of such title 
                        (relating to classification and schedule pay 
                        rates).
                          ``(ii) Maximum rate.--In no case may the rate 
                        of compensation determined under clause (i) 
                        exceed the rate of basic pay payable for level 
                        IV of the Executive Schedule under section 5315 
                        of title 5, United States Code.
                  ``(D) Assistance from the administrator of the 
                medicare benefits administration.--The Administrator of 
                the Medicare Benefits Administration shall make 
                available to the Board such information and other 
                assistance as it may require to carry out its 
                functions.
          ``(10) Contract authority.--The Board may contract with and 
        compensate government and private agencies or persons to carry 
        out its duties under this subsection, without regard to section 
        3709 of the Revised Statutes (41 U.S.C. 5).
  ``(f) Funding.--There is authorized to be appropriated, in 
appropriate part from the Federal Hospital Insurance Trust Fund and 
from the Federal Supplementary Medical Insurance Trust Fund (including 
the Medicare Prescription Drug Account), such sums as are necessary to 
carry out this section.''.
  (b) Effective Date.--
          (1) In general.--The amendment made by subsection (a) shall 
        take effect on the date of the enactment of this Act.
          (2) Duties with respect to eligibility determinations and 
        enrollment.--The Administrator of the Medicare Benefits 
        Administration shall carry out enrollment under title XVIII of 
        the Social Security Act, make eligibility determinations under 
        such title, and carry out parts C and E of such title for years 
        beginning or after January 1, 2006.
          (3) Transition.--Before the date the Administrator of the 
        Medicare Benefits Administration is appointed and assumes 
        responsibilities under this section and section 1807 of the 
        Social Security Act, the Secretary of Health and Human Services 
        shall provide for the conduct of any responsibilities of such 
        Administrator that are otherwise provided under law.
  (c) Miscellaneous Administrative Provisions.--
          (1) Administrator as member of the board of trustees of the 
        medicare trust funds.--Section 1817(b) and section 1841(b) (42 
        U.S.C. 1395i(b), 1395t(b)) are each amended by striking ``and 
        the Secretary of Health and Human Services, all ex officio,'' 
        and inserting ``the Secretary of Health and Human Services, and 
        the Administrator of the Medicare Benefits Administration, all 
        ex officio,''.
          (2) Increase in grade to executive level iii for the 
        administrator of the centers for medicare & medicaid services; 
        level for medicare benefits administrator.--
                  (A) In general.--Section 5314 of title 5, United 
                States Code, by adding at the end the following:
          ``Administrator of the Centers for Medicare & Medicaid 
        Services.
          ``Administrator of the Medicare Benefits Administration.''.
                  (B) Conforming amendment.--Section 5315 of such title 
                is amended by striking ``Administrator of the Health 
                Care Financing Administration.''.
                  (C) Effective date.--The amendments made by this 
                paragraph take effect on January 1, 2004.

         TITLE IX--REGULATORY REDUCTION AND CONTRACTING REFORM

                     Subtitle A--Regulatory Reform

SEC. 901. CONSTRUCTION; DEFINITION OF SUPPLIER.

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

                               ``Supplier

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

SEC. 902. ISSUANCE OF REGULATIONS.

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

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

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

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

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

                     Subtitle B--Contracting Reform

SEC. 911. INCREASED FLEXIBILITY IN MEDICARE ADMINISTRATION.

  (a) Consolidation and Flexibility in Medicare Administration.--
          (1) In general.--Title XVIII is amended by inserting after 
        section 1874 the following new section:
          ``contracts with medicare administrative contractors
  ``Sec. 1874A. (a) Authority.--
          ``(1) Authority to enter into contracts.--The Secretary may 
        enter into contracts with any eligible entity to serve as a 
        medicare administrative contractor with respect to the 
        performance of any or all of the functions described in 
        paragraph (4) or parts of those functions (or, to the extent 
        provided in a contract, to secure performance thereof by other 
        entities).
          ``(2) Eligibility of entities.--An entity is eligible to 
        enter into a contract with respect to the performance of a 
        particular function described in paragraph (4) only if--
                  ``(A) the entity has demonstrated capability to carry 
                out such function;
                  ``(B) the entity complies with such conflict of 
                interest standards as are generally applicable to 
                Federal acquisition and procurement;
                  ``(C) the entity has sufficient assets to financially 
                support the performance of such function; and
                  ``(D) the entity meets such other requirements as the 
                Secretary may impose.
          ``(3) Medicare administrative contractor defined.--For 
        purposes of this title and title XI--
                  ``(A) In general.--The term `medicare administrative 
                contractor' means an agency, organization, or other 
                person with a contract under this section.
                  ``(B) Appropriate medicare administrative 
                contractor.--With respect to the performance of a 
                particular function in relation to an individual 
                entitled to benefits under part A or enrolled under 
                part B, or both, a specific provider of services or 
                supplier (or class of such providers of services or 
                suppliers), the `appropriate' medicare administrative 
                contractor is the medicare administrative contractor 
                that has a contract under this section with respect to 
                the performance of that function in relation to that 
                individual, provider of services or supplier or class 
                of provider of services or supplier.
          ``(4) Functions described.--The functions referred to in 
        paragraphs (1) and (2) are payment functions, provider services 
        functions, and functions relating to services furnished to 
        individuals entitled to benefits under part A or enrolled under 
        part B, or both, as follows:
                  ``(A) Determination of payment amounts.--Determining 
                (subject to the provisions of section 1878 and to such 
                review by the Secretary as may be provided for by the 
                contracts) the amount of the payments required pursuant 
                to this title to be made to providers of services, 
                suppliers and individuals.
                  ``(B) Making payments.--Making payments described in 
                subparagraph (A) (including receipt, disbursement, and 
                accounting for funds in making such payments).
                  ``(C) Beneficiary education and assistance.--
                Providing education and outreach to individuals 
                entitled to benefits under part A or enrolled under 
                part B, or both, and providing assistance to those 
                individuals with specific issues, concerns or problems.
                  ``(D) Provider consultative services.--Providing 
                consultative services to institutions, agencies, and 
                other persons to enable them to establish and maintain 
                fiscal records necessary for purposes of this title and 
                otherwise to qualify as providers of services or 
                suppliers.
                  ``(E) Communication with providers.--Communicating to 
                providers of services and suppliers any information or 
                instructions furnished to the medicare administrative 
                contractor by the Secretary, and facilitating 
                communication between such providers and suppliers and 
                the Secretary.
                  ``(F) Provider education and technical assistance.--
                Performing the functions relating to provider 
                education, training, and technical assistance.
                  ``(G) Additional functions.--Performing such other 
                functions as are necessary to carry out the purposes of 
                this title.
          ``(5) Relationship to mip contracts.--
                  ``(A) Nonduplication of duties.--In entering into 
                contracts under this section, the Secretary shall 
                assure that functions of medicare administrative 
                contractors in carrying out activities under parts A 
                and B do not duplicate activities carried out under the 
                Medicare Integrity Program under section 1893. The 
                previous sentence shall not apply with respect to the 
                activity described in section 1893(b)(5) (relating to 
                prior authorization of certain items of durable medical 
                equipment under section 1834(a)(15)).
                  ``(B) Construction.--An entity shall not be treated 
                as a medicare administrative contractor merely by 
                reason of having entered into a contract with the 
                Secretary under section 1893.
          ``(6) Application of federal acquisition regulation.--Except 
        to the extent inconsistent with a specific requirement of this 
        title, the Federal Acquisition Regulation applies to contracts 
        under this title.
  ``(b) Contracting Requirements.--
          ``(1) Use of competitive procedures.--
                  ``(A) In general.--Except as provided in laws with 
                general applicability to Federal acquisition and 
                procurement or in subparagraph (B), the Secretary shall 
                use competitive procedures when entering into contracts 
                with medicare administrative contractors under this 
                section, taking into account performance quality as 
                well as price and other factors.
                  ``(B) Renewal of contracts.--The Secretary may renew 
                a contract with a medicare administrative contractor 
                under this section from term to term without regard to 
                section 5 of title 41, United States Code, or any other 
                provision of law requiring competition, if the medicare 
                administrative contractor has met or exceeded the 
                performance requirements applicable with respect to the 
                contract and contractor, except that the Secretary 
                shall provide for the application of competitive 
                procedures under such a contract not less frequently 
                than once every five years.
                  ``(C) Transfer of functions.--The Secretary may 
                transfer functions among medicare administrative 
                contractors consistent with the provisions of this 
                paragraph. The Secretary shall ensure that performance 
                quality is considered in such transfers. The Secretary 
                shall provide public notice (whether in the Federal 
                Register or otherwise) of any such transfer (including 
                a description of the functions so transferred, a 
                description of the providers of services and suppliers 
                affected by such transfer, and contact information for 
                the contractors involved).
                  ``(D) Incentives for quality.--The Secretary shall 
                provide incentives for medicare administrative 
                contractors to provide quality service and to promote 
                efficiency.
          ``(2) Compliance with requirements.--No contract under this 
        section shall be entered into with any medicare administrative 
        contractor unless the Secretary finds that such medicare 
        administrative contractor will perform its obligations under 
        the contract efficiently and effectively and will meet such 
        requirements as to financial responsibility, legal authority, 
        quality of services provided, and other matters as the 
        Secretary finds pertinent.
          ``(3) Performance requirements.--
                  ``(A) Development of specific performance 
                requirements.--In developing contract performance 
                requirements, the Secretary shall develop performance 
                requirements applicable to functions described in 
                subsection (a)(4).
                  ``(B) Consultation.-- In developing such 
                requirements, the Secretary may consult with providers 
                of services and suppliers, organizations representing 
                individuals entitled to benefits under part A or 
                enrolled under part B, or both, and organizations and 
                agencies performing functions necessary to carry out 
                the purposes of this section with respect to such 
                performance requirements.
                  ``(C) Inclusion in contracts.--All contractor 
                performance requirements shall be set forth in the 
                contract between the Secretary and the appropriate 
                medicare administrative contractor. Such performance 
                requirements--
                          ``(i) shall reflect the performance 
                        requirements developed under subparagraph (A), 
                        but may include additional performance 
                        requirements;
                          ``(ii) shall be used for evaluating 
                        contractor performance under the contract; and
                          ``(iii) shall be consistent with the written 
                        statement of work provided under the contract.
          ``(4) Information requirements.--The Secretary shall not 
        enter into a contract with a medicare administrative contractor 
        under this section unless the contractor agrees--
                  ``(A) to furnish to the Secretary such timely 
                information and reports as the Secretary may find 
                necessary in performing his functions under this title; 
                and
                  ``(B) to maintain such records and afford such access 
                thereto as the Secretary finds necessary to assure the 
                correctness and verification of the information and 
                reports under subparagraph (A) and otherwise to carry 
                out the purposes of this title.
          ``(5) Surety bond.--A contract with a medicare administrative 
        contractor under this section may require the medicare 
        administrative contractor, and any of its officers or employees 
        certifying payments or disbursing funds pursuant to the 
        contract, or otherwise participating in carrying out the 
        contract, to give surety bond to the United States in such 
        amount as the Secretary may deem appropriate.
  ``(c) Terms and Conditions.--
          ``(1) In general.--A contract with any medicare 
        administrative contractor under this section may contain such 
        terms and conditions as the Secretary finds necessary or 
        appropriate and may provide for advances of funds to the 
        medicare administrative contractor for the making of payments 
        by it under subsection (a)(4)(B).
          ``(2) Prohibition on mandates for certain data collection.--
        The Secretary may not require, as a condition of entering into, 
        or renewing, a contract under this section, that the medicare 
        administrative contractor match data obtained other than in its 
        activities under this title with data used in the 
        administration of this title for purposes of identifying 
        situations in which the provisions of section 1862(b) may 
        apply.
  ``(d) Limitation on Liability of Medicare Administrative Contractors 
and Certain Officers.--
          ``(1) Certifying officer.--No individual designated pursuant 
        to a contract under this section as a certifying officer shall, 
        in the absence of the reckless disregard of the individual's 
        obligations or the intent by that individual to defraud the 
        United States, be liable with respect to any payments certified 
        by the individual under this section.
          ``(2) Disbursing officer.--No disbursing officer shall, in 
        the absence of the reckless disregard of the officer's 
        obligations or the intent by that officer to defraud the United 
        States, be liable with respect to any payment by such officer 
        under this section if it was based upon an authorization (which 
        meets the applicable requirements for such internal controls 
        established by the Comptroller General) of a certifying officer 
        designated as provided in paragraph (1) of this subsection.
          ``(3) Liability of medicare administrative contractor.--
          ``(A) In general.--No medicare administrative contractor 
        shall be liable to the United States for a payment by a 
        certifying or disbursing officer unless, in connection with 
        such payment, the medicare administrative contractor acted with 
        reckless disregard of its obligations under its medicare 
        administrative contract or with intent to defraud the United 
        States.
          ``(B) Relationship to false claims act.--Nothing in this 
        subsection shall be construed to limit liability for conduct 
        that would constitute a violation of sections 3729 through 3731 
        of title 31, United States Code (commonly known as the `False 
        Claims Act').
          ``(4) Indemnification by secretary.--
                  ``(A) In general.--Subject to subparagraphs (B) and 
                (D), in the case of a medicare administrative 
                contractor (or a person who is a director, officer, or 
                employee of such a contractor or who is engaged by the 
                contractor to participate directly in the claims 
                administration process) who is made a party to any 
                judicial or administrative proceeding arising from or 
                relating directly to the claims administration process 
                under this title, the Secretary may, to the extent the 
                Secretary determines to be appropriate and as specified 
                in the contract with the contractor, indemnify the 
                contractor and such persons.
                  ``(B) Conditions.--The Secretary may not provide 
                indemnification under subparagraph (A) insofar as the 
                liability for such costs arises directly from conduct 
                that is determined by the judicial proceeding or by the 
                Secretary to be criminal in nature, fraudulent, or 
                grossly negligent. If indemnification is provided by 
                the Secretary with respect to a contractor before a 
                determination that such costs arose directly from such 
                conduct, the contractor shall reimburse the Secretary 
                for costs of indemnification.
                  ``(C) Scope of indemnification.--Indemnification by 
                the Secretary under subparagraph (A) may include 
                payment of judgments, settlements (subject to 
                subparagraph (D)), awards, and costs (including 
                reasonable legal expenses).
                  ``(D) Written approval for settlements.--A contractor 
                or other person described in subparagraph (A) may not 
                propose to negotiate a settlement or compromise of a 
                proceeding described in such subparagraph without the 
                prior written approval of the Secretary to negotiate 
                such settlement or compromise. Any indemnification 
                under subparagraph (A) with respect to amounts paid 
                under a settlement or compromise of a proceeding 
                described in such subparagraph are conditioned upon 
                prior written approval by the Secretary of the final 
                settlement or compromise.
                  ``(E) Construction.--Nothing in this paragraph shall 
                be construed--
                          ``(i) to change any common law immunity that 
                        may be available to a medicare administrative 
                        contractor or person described in subparagraph 
                        (A); or
                          ``(ii) to permit the payment of costs not 
                        otherwise allowable, reasonable, or allocable 
                        under the Federal Acquisition Regulations.''.
          (2) Consideration of incorporation of current law 
        standards.--In developing contract performance requirements 
        under section 1874A(b) of the Social Security Act, as inserted 
        by paragraph (1), the Secretary shall consider inclusion of the 
        performance standards described in sections 1816(f)(2) of such 
        Act (relating to timely processing of reconsiderations and 
        applications for exemptions) and section 1842(b)(2)(B) of such 
        Act (relating to timely review of determinations and fair 
        hearing requests), as such sections were in effect before the 
        date of the enactment of this Act.
  (b) Conforming Amendments to Section 1816 (Relating to Fiscal 
Intermediaries).--Section 1816 (42 U.S.C. 1395h) is amended as follows:
          (1) The heading is amended to read as follows:
        ``provisions relating to the administration of part a''.
          (2) Subsection (a) is amended to read as follows:
  ``(a) The administration of this part shall be conducted through 
contracts with medicare administrative contractors under section 
1874A.''.
          (3) Subsection (b) is repealed.
          (4) Subsection (c) is amended--
                  (A) by striking paragraph (1); and
                  (B) in each of paragraphs (2)(A) and (3)(A), by 
                striking ``agreement under this section'' and inserting 
                ``contract under section 1874A that provides for making 
                payments under this part''.
          (5) Subsections (d) through (i) are repealed.
          (6) Subsections (j) and (k) are each amended--
                  (A) by striking ``An agreement with an agency or 
                organization under this section'' and inserting ``A 
                contract with a medicare administrative contractor 
                under section 1874A with respect to the administration 
                of this part''; and
                  (B) by striking ``such agency or organization'' and 
                inserting ``such medicare administrative contractor'' 
                each place it appears.
          (7) Subsection (l) is repealed.
  (c) Conforming Amendments to Section 1842 (Relating to Carriers).--
Section 1842 (42 U.S.C. 1395u) is amended as follows:
          (1) The heading is amended to read as follows:
        ``provisions relating to the administration of part b''.
          (2) Subsection (a) is amended to read as follows:
  ``(a) The administration of this part shall be conducted through 
contracts with medicare administrative contractors under section 
1874A.''.
          (3) Subsection (b) is amended--
                  (A) by striking paragraph (1);
                  (B) in paragraph (2)--
                          (i) by striking subparagraphs (A) and (B);
                          (ii) in subparagraph (C), by striking 
                        ``carriers'' and inserting ``medicare 
                        administrative contractors''; and
                          (iii) by striking subparagraphs (D) and (E);
                  (C) in paragraph (3)--
                          (i) in the matter before subparagraph (A), by 
                        striking ``Each such contract shall provide 
                        that the carrier'' and inserting ``The 
                        Secretary'';
                          (ii) by striking ``will'' the first place it 
                        appears in each of subparagraphs (A), (B), (F), 
                        (G), (H), and (L) and inserting ``shall'';
                          (iii) in subparagraph (B), in the matter 
                        before clause (i), by striking ``to the 
                        policyholders and subscribers of the carrier'' 
                        and inserting ``to the policyholders and 
                        subscribers of the medicare administrative 
                        contractor'';
                          (iv) by striking subparagraphs (C), (D), and 
                        (E);
                          (v) in subparagraph (H)--
                                  (I) by striking ``if it makes 
                                determinations or payments with respect 
                                to physicians' services,'' in the 
                                matter preceding clause (i); and
                                  (II) by striking ``carrier'' and 
                                inserting ``medicare administrative 
                                contractor'' in clause (i);
                          (vi) by striking subparagraph (I);
                          (vii) in subparagraph (L), by striking the 
                        semicolon and inserting a period;
                          (viii) in the first sentence, after 
                        subparagraph (L), by striking ``and shall 
                        contain'' and all that follows through the 
                        period; and
                          (ix) in the seventh sentence, by inserting 
                        ``medicare administrative contractor,'' after 
                        ``carrier,''; and
                  (D) by striking paragraph (5);
                  (E) in paragraph (6)(D)(iv), by striking ``carrier'' 
                and inserting ``medicare administrative contractor''; 
                and
                  (F) in paragraph (7), by striking ``the carrier'' and 
                inserting ``the Secretary'' each place it appears.
          (4) Subsection (c) is amended--
                  (A) by striking paragraph (1);
                  (B) in paragraph (2)(A), by striking ``contract under 
                this section which provides for the disbursement of 
                funds, as described in subsection (a)(1)(B),'' and 
                inserting ``contract under section 1874A that provides 
                for making payments under this part'';
                  (C) in paragraph (3)(A), by striking ``subsection 
                (a)(1)(B)'' and inserting ``section 1874A(a)(3)(B)'';
                  (D) in paragraph (4), in the matter preceding 
                subparagraph (A), by striking ``carrier'' and inserting 
                ``medicare administrative contractor''; and
                  (E) by striking paragraphs (5) and (6).
          (5) Subsections (d), (e), and (f) are repealed.
          (6) Subsection (g) is amended by striking ``carrier or 
        carriers'' and inserting ``medicare administrative contractor 
        or contractors''.
          (7) Subsection (h) is amended--
                  (A) in paragraph (2)--
                          (i) by striking ``Each carrier having an 
                        agreement with the Secretary under subsection 
                        (a)'' and inserting ``The Secretary''; and
                          (ii) by striking ``Each such carrier'' and 
                        inserting ``The Secretary'';
                  (B) in paragraph (3)(A)--
                          (i) by striking ``a carrier having an 
                        agreement with the Secretary under subsection 
                        (a)'' and inserting ``medicare administrative 
                        contractor having a contract under section 
                        1874A that provides for making payments under 
                        this part''; and
                          (ii) by striking ``such carrier'' and 
                        inserting ``such contractor'';
                  (C) in paragraph (3)(B)--
                          (i) by striking ``a carrier'' and inserting 
                        ``a medicare administrative contractor'' each 
                        place it appears; and
                          (ii) by striking ``the carrier'' and 
                        inserting ``the contractor'' each place it 
                        appears; and
                  (D) in paragraphs (5)(A) and (5)(B)(iii), by striking 
                ``carriers'' and inserting ``medicare administrative 
                contractors'' each place it appears.
          (8) Subsection (l) is amended--
                  (A) in paragraph (1)(A)(iii), by striking ``carrier'' 
                and inserting ``medicare administrative contractor''; 
                and
                  (B) in paragraph (2), by striking ``carrier'' and 
                inserting ``medicare administrative contractor''.
          (9) Subsection (p)(3)(A) is amended by striking ``carrier'' 
        and inserting ``medicare administrative contractor''.
          (10) Subsection (q)(1)(A) is amended by striking ``carrier''.
  (d) Effective Date; Transition Rule.--
          (1) Effective date.--
                  (A) In general.--Except as otherwise provided in this 
                subsection, the amendments made by this section shall 
                take effect on October 1, 2005, and the Secretary is 
                authorized to take such steps before such date as may 
                be necessary to implement such amendments on a timely 
                basis.
                  (B) Construction for current contracts.--Such 
                amendments shall not apply to contracts in effect 
                before the date specified under subparagraph (A) that 
                continue to retain the terms and conditions in effect 
                on such date (except as otherwise provided under this 
                Act, other than under this section) until such date as 
                the contract is let out for competitive bidding under 
                such amendments.
                  (C) Deadline for competitive bidding.--The Secretary 
                shall provide for the letting by competitive bidding of 
                all contracts for functions of medicare administrative 
                contractors for annual contract periods that begin on 
                or after October 1, 2010.
                  (D) Waiver of provider nomination provisions during 
                transition.--During the period beginning on the date of 
                the enactment of this Act and before the date specified 
                under subparagraph (A), the Secretary may enter into 
                new agreements under section 1816 of the Social 
                Security Act (42 U.S.C. 1395h) without regard to any of 
                the provider nomination provisions of such section.
          (2) General transition rules.--The Secretary shall take such 
        steps, consistent with paragraph (1)(B) and (1)(C), as are 
        necessary to provide for an appropriate transition from 
        contracts under section 1816 and section 1842 of the Social 
        Security Act (42 U.S.C. 1395h, 1395u) to contracts under 
        section 1874A, as added by subsection (a)(1).
          (3) Authorizing continuation of mip functions under current 
        contracts and agreements and under rollover contracts.--The 
        provisions contained in the exception in section 1893(d)(2) of 
        the Social Security Act (42 U.S.C. 1395ddd(d)(2)) shall 
        continue to apply notwithstanding the amendments made by this 
        section, and any reference in such provisions to an agreement 
        or contract shall be deemed to include a contract under section 
        1874A of such Act, as inserted by subsection (a)(1), that 
        continues the activities referred to in such provisions.
  (e) References.--On and after the effective date provided under 
subsection (d)(1), any reference to a fiscal intermediary or carrier 
under title XI or XVIII of the Social Security Act (or any regulation, 
manual instruction, interpretative rule, statement of policy, or 
guideline issued to carry out such titles) shall be deemed a reference 
to a medicare administrative contractor (as provided under section 
1874A of the Social Security Act).
  (f) Reports on Implementation.--
          (1) Plan for implementation.--By not later than October 1, 
        2004, the Secretary shall submit a report to Congress and the 
        Comptroller General of the United States that describes the 
        plan for implementation of the amendments made by this section. 
        The Comptroller General shall conduct an evaluation of such 
        plan and shall submit to Congress, not later than 6 months 
        after the date the report is received, a report on such 
        evaluation and shall include in such report such 
        recommendations as the Comptroller General deems appropriate.
          (2) Status of implementation.--The Secretary shall submit a 
        report to Congress not later than October 1, 2008, that 
        describes the status of implementation of such amendments and 
        that includes a description of the following:
                  (A) The number of contracts that have been 
                competitively bid as of such date.
                  (B) The distribution of functions among contracts and 
                contractors.
                  (C) A timeline for complete transition to full 
                competition.
                  (D) A detailed description of how the Secretary has 
                modified oversight and management of medicare 
                contractors to adapt to full competition.

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

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

                   Subtitle C--Education and Outreach

SEC. 921. PROVIDER EDUCATION AND TECHNICAL ASSISTANCE.

  (a) Coordination of Education Funding.--
          (1) In general.--Title XVIII is amended by inserting after 
        section 1888 the following new section:
             ``provider education and technical assistance
  ``Sec. 1889. (a) Coordination of Education Funding.--The Secretary 
shall coordinate the educational activities provided through medicare 
contractors (as defined in subsection (g), including under section 
1893) in order to maximize the effectiveness of Federal education 
efforts for providers of services and suppliers.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on the date of the enactment of this Act.
          (3) Report.--Not later than October 1, 2004, the Secretary 
        shall submit to Congress a report that includes a description 
        and evaluation of the steps taken to coordinate the funding of 
        provider education under section 1889(a) of the Social Security 
        Act, as added by paragraph (1).
  (b) Incentives To Improve Contractor Performance.--
          (1) In general.--Section 1874A, as added by section 911(a)(1) 
        and as amended by section 912(a), is amended by adding at the 
        end the following new subsection:
  ``(f) Incentives To Improve Contractor Performance in Provider 
Education and Outreach.--The Secretary shall use specific claims 
payment error rates or similar methodology of medicare administrative 
contractors in the processing or reviewing of medicare claims in order 
to give such contractors an incentive to implement effective education 
and outreach programs for providers of services and suppliers.''.
          (2) Application to fiscal intermediaries and carriers.--The 
        provisions of section 1874A(f) of the Social Security Act, as 
        added by paragraph (1), shall apply to each fiscal intermediary 
        under section 1816 of the Social Security Act (42 U.S.C. 1395h) 
        and each carrier under section 1842 of such Act (42 U.S.C. 
        1395u) in the same manner as they apply to medicare 
        administrative contractors under such provisions.
          (3) GAO report on adequacy of methodology.--Not later than 
        October 1, 2004, the Comptroller General of the United States 
        shall submit to Congress and to the Secretary a report on the 
        adequacy of the methodology under section 1874A(f) of the 
        Social Security Act, as added by paragraph (1), and shall 
        include in the report such recommendations as the Comptroller 
        General determines appropriate with respect to the methodology.
          (4) Report on use of methodology in assessing contractor 
        performance.--Not later than October 1, 2004, the Secretary 
        shall submit to Congress a report that describes how the 
        Secretary intends to use such methodology in assessing medicare 
        contractor performance in implementing effective education and 
        outreach programs, including whether to use such methodology as 
        a basis for performance bonuses. The report shall include an 
        analysis of the sources of identified errors and potential 
        changes in systems of contractors and rules of the Secretary 
        that could reduce claims error rates.
  (c) Provision of Access to and Prompt Responses From Medicare 
Administrative Contractors.--
          (1) In general.--Section 1874A, as added by section 911(a)(1) 
        and as amended by section 912(a) and subsection (b), is further 
        amended by adding at the end the following new subsection:
  ``(g) Communications with Beneficiaries, Providers of Services and 
Suppliers.--
          ``(1) Communication strategy.--The Secretary shall develop a 
        strategy for communications with individuals entitled to 
        benefits under part A or enrolled under part B, or both, and 
        with providers of services and suppliers under this title.
          ``(2) Response to written inquiries.--Each medicare 
        administrative contractor shall, for those providers of 
        services and suppliers which submit claims to the contractor 
        for claims processing and for those individuals entitled to 
        benefits under part A or enrolled under part B, or both, with 
        respect to whom claims are submitted for claims processing, 
        provide general written responses (which may be through 
        electronic transmission) in a clear, concise, and accurate 
        manner to inquiries of providers of services, suppliers and 
        individuals entitled to benefits under part A or enrolled under 
        part B, or both, concerning the programs under this title 
        within 45 business days of the date of receipt of such 
        inquiries.
          ``(3) Response to toll-free lines.--The Secretary shall 
        ensure that each medicare administrative contractor shall 
        provide, for those providers of services and suppliers which 
        submit claims to the contractor for claims processing and for 
        those individuals entitled to benefits under part A or enrolled 
        under part B, or both, with respect to whom claims are 
        submitted for claims processing, a toll-free telephone number 
        at which such individuals, providers of services and suppliers 
        may obtain information regarding billing, coding, claims, 
        coverage, and other appropriate information under this title.
          ``(4) Monitoring of contractor responses.--
                  ``(A) In general.--Each medicare administrative 
                contractor shall, consistent with standards developed 
                by the Secretary under subparagraph (B)--
                          ``(i) maintain a system for identifying who 
                        provides the information referred to in 
                        paragraphs (2) and (3); and
                          ``(ii) monitor the accuracy, consistency, and 
                        timeliness of the information so provided.
                  ``(B) Development of standards.--
                          ``(i) In general.--The Secretary shall 
                        establish and make public standards to monitor 
                        the accuracy, consistency, and timeliness of 
                        the information provided in response to written 
                        and telephone inquiries under this subsection. 
                        Such standards shall be consistent with the 
                        performance requirements established under 
                        subsection (b)(3).
                          ``(ii) Evaluation.--In conducting evaluations 
                        of individual medicare administrative 
                        contractors, the Secretary shall take into 
                        account the results of the monitoring conducted 
                        under subparagraph (A) taking into account as 
                        performance requirements the standards 
                        established under clause (i). The Secretary 
                        shall, in consultation with organizations 
                        representing providers of services, suppliers, 
                        and individuals entitled to benefits under part 
                        A or enrolled under part B, or both, establish 
                        standards relating to the accuracy, 
                        consistency, and timeliness of the information 
                        so provided.
                  ``(C) Direct monitoring.--Nothing in this paragraph 
                shall be construed as preventing the Secretary from 
                directly monitoring the accuracy, consistency, and 
                timeliness of the information so provided.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect October 1, 2004.
          (3) Application to fiscal intermediaries and carriers.--The 
        provisions of section 1874A(g) of the Social Security Act, as 
        added by paragraph (1), shall apply to each fiscal intermediary 
        under section 1816 of the Social Security Act (42 U.S.C. 1395h) 
        and each carrier under section 1842 of such Act (42 U.S.C. 
        1395u) in the same manner as they apply to medicare 
        administrative contractors under such provisions.
  (d) Improved Provider Education and Training.--
          (1) In general.--Section 1889, as added by subsection (a), is 
        amended by adding at the end the following new subsections:
  ``(b) Enhanced Education and Training.--
          ``(1) Additional resources.--There are authorized to be 
        appropriated to the Secretary (in appropriate part from the 
        Federal Hospital Insurance Trust Fund and the Federal 
        Supplementary Medical Insurance Trust Fund) $25,000,000 for 
        each of fiscal years 2005 and 2006 and such sums as may be 
        necessary for succeeding fiscal years.
          ``(2) Use.--The funds made available under paragraph (1) 
        shall be used to increase the conduct by medicare contractors 
        of education and training of providers of services and 
        suppliers regarding billing, coding, and other appropriate 
        items and may also be used to improve the accuracy, 
        consistency, and timeliness of contractor responses.
  ``(c) Tailoring Education and Training Activities for Small Providers 
or Suppliers.--
          ``(1) In general.--Insofar as a medicare contractor conducts 
        education and training activities, it shall tailor such 
        activities to meet the special needs of small providers of 
        services or suppliers (as defined in paragraph (2)).
          ``(2) Small provider of services or supplier.--In this 
        subsection, the term `small provider of services or supplier' 
        means--
                  ``(A) a provider of services with fewer than 25 full-
                time-equivalent employees; or
                  ``(B) a supplier with fewer than 10 full-time-
                equivalent employees.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on October 1, 2004.
  (e) Requirement To Maintain Internet Sites.--
          (1) In general.--Section 1889, as added by subsection (a) and 
        as amended by subsection (d), is further amended by adding at 
        the end the following new subsection:
  ``(d) Internet Sites; FAQs.--The Secretary, and each medicare 
contractor insofar as it provides services (including claims 
processing) for providers of services or suppliers, shall maintain an 
Internet site which--
          ``(1) provides answers in an easily accessible format to 
        frequently asked questions, and
          ``(2) includes other published materials of the contractor,
that relate to providers of services and suppliers under the programs 
under this title (and title XI insofar as it relates to such 
programs).''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on October 1, 2004.
  (f) Additional Provider Education Provisions.--
          (1) In general.--Section 1889, as added by subsection (a) and 
        as amended by subsections (d) and (e), is further amended by 
        adding at the end the following new subsections:
  ``(e) Encouragement of Participation in Education Program 
Activities.--A medicare contractor may not use a record of attendance 
at (or failure to attend) educational activities or other information 
gathered during an educational program conducted under this section or 
otherwise by the Secretary to select or track providers of services or 
suppliers for the purpose of conducting any type of audit or prepayment 
review.
  ``(f) Construction.--Nothing in this section or section 1893(g) shall 
be construed as providing for disclosure by a medicare contractor of 
information that would compromise pending law enforcement activities or 
reveal findings of law enforcement-related audits.
  ``(g) Definitions.--For purposes of this section, the term `medicare 
contractor' includes the following:
          ``(1) A medicare administrative contractor with a contract 
        under section 1874A, including a fiscal intermediary with a 
        contract under section 1816 and a carrier with a contract under 
        section 1842.
          ``(2) An eligible entity with a contract under section 1893.
Such term does not include, with respect to activities of a specific 
provider of services or supplier an entity that has no authority under 
this title or title IX with respect to such activities and such 
provider of services or supplier.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on the date of the enactment of this Act.

SEC. 922. SMALL PROVIDER TECHNICAL ASSISTANCE DEMONSTRATION PROGRAM.

  (a) Establishment.--
          (1) In general.--The Secretary shall establish a 
        demonstration program (in this section referred to as the 
        ``demonstration program'') under which technical assistance 
        described in paragraph (2) is made available, upon request and 
        on a voluntary basis, to small providers of services or 
        suppliers in order to improve compliance with the applicable 
        requirements of the programs under medicare program under title 
        XVIII of the Social Security Act (including provisions of title 
        XI of such Act insofar as they relate to such title and are not 
        administered by the Office of the Inspector General of the 
        Department of Health and Human Services).
          (2) Forms of technical assistance.--The technical assistance 
        described in this paragraph is--
                  (A) evaluation and recommendations regarding billing 
                and related systems; and
                  (B) information and assistance regarding policies and 
                procedures under the medicare program, including coding 
                and reimbursement.
          (3) Small providers of services or suppliers.--In this 
        section, the term ``small providers of services or suppliers'' 
        means--
                  (A) a provider of services with fewer than 25 full-
                time-equivalent employees; or
                  (B) a supplier with fewer than 10 full-time-
                equivalent employees.
  (b) Qualification of Contractors.--In conducting the demonstration 
program, the Secretary shall enter into contracts with qualified 
organizations (such as peer review organizations or entities described 
in section 1889(g)(2) of the Social Security Act, as inserted by 
section 5(f)(1)) with appropriate expertise with billing systems of the 
full range of providers of services and suppliers to provide the 
technical assistance. In awarding such contracts, the Secretary shall 
consider any prior investigations of the entity's work by the Inspector 
General of Department of Health and Human Services or the Comptroller 
General of the United States.
  (c) Description of Technical Assistance.--The technical assistance 
provided under the demonstration program shall include a direct and in-
person examination of billing systems and internal controls of small 
providers of services or suppliers to determine program compliance and 
to suggest more efficient or effective means of achieving such 
compliance.
  (d) Avoidance of Recovery Actions for Problems Identified as 
Corrected.--The Secretary shall provide that, absent evidence of fraud 
and notwithstanding any other provision of law, any errors found in a 
compliance review for a small provider of services or supplier that 
participates in the demonstration program shall not be subject to 
recovery action if the technical assistance personnel under the program 
determine that--
          (1) the problem that is the subject of the compliance review 
        has been corrected to their satisfaction within 30 days of the 
        date of the visit by such personnel to the small provider of 
        services or supplier; and
          (2) such problem remains corrected for such period as is 
        appropriate.
The previous sentence applies only to claims filed as part of the 
demonstration program and lasts only for the duration of such program 
and only as long as the small provider of services or supplier is a 
participant in such program.
  (e) GAO Evaluation.--Not later than 2 years after the date of the 
date the demonstration program is first implemented, the Comptroller 
General, in consultation with the Inspector General of the Department 
of Health and Human Services, shall conduct an evaluation of the 
demonstration program. The evaluation shall include a determination of 
whether claims error rates are reduced for small providers of services 
or suppliers who participated in the program and the extent of improper 
payments made as a result of the demonstration program. The Comptroller 
General shall submit a report to the Secretary and the Congress on such 
evaluation and shall include in such report recommendations regarding 
the continuation or extension of the demonstration program.
  (f) Financial Participation by Providers.--The provision of technical 
assistance to a small provider of services or supplier under the 
demonstration program is conditioned upon the small provider of 
services or supplier paying an amount estimated (and disclosed in 
advance of a provider's or supplier's participation in the program) to 
be equal to 25 percent of the cost of the technical assistance.
  (g) Authorization of Appropriations.--There are authorized to be 
appropriated to the Secretary (in appropriate part from the Federal 
Hospital Insurance Trust Fund and the Federal Supplementary Medical 
Insurance Trust Fund) to carry out the demonstration program--
          (1) for fiscal year 2005, $1,000,000, and
          (2) for fiscal year 2006, $6,000,000.

SEC. 923. MEDICARE PROVIDER OMBUDSMAN; MEDICARE BENEFICIARY OMBUDSMAN.

  (a) Medicare Provider Ombudsman.--Section 1868 (42 U.S.C. 1395ee) is 
amended--
          (1) by adding at the end of the heading the following: ``; 
        medicare provider ombudsman'';
          (2) by inserting ``Practicing Physicians Advisory Council.--
        (1)'' after ``(a)'';
          (3) in paragraph (1), as so redesignated under paragraph (2), 
        by striking ``in this section'' and inserting ``in this 
        subsection'';
          (4) by redesignating subsections (b) and (c) as paragraphs 
        (2) and (3), respectively; and
          (5) by adding at the end the following new subsection:
  ``(b) Medicare Provider Ombudsman.--The Secretary shall appoint 
within the Department of Health and Human Services a Medicare Provider 
Ombudsman. The Ombudsman shall--
          ``(1) provide assistance, on a confidential basis, to 
        providers of services and suppliers with respect to complaints, 
        grievances, and requests for information concerning the 
        programs under this title (including provisions of title XI 
        insofar as they relate to this title and are not administered 
        by the Office of the Inspector General of the Department of 
        Health and Human Services) and in the resolution of unclear or 
        conflicting guidance given by the Secretary and medicare 
        contractors to such providers of services and suppliers 
        regarding such programs and provisions and requirements under 
        this title and such provisions; and
          ``(2) submit recommendations to the Secretary for improvement 
        in the administration of this title and such provisions, 
        including--
                  ``(A) recommendations to respond to recurring 
                patterns of confusion in this title and such provisions 
                (including recommendations regarding suspending 
                imposition of sanctions where there is widespread 
                confusion in program administration), and
                  ``(B) recommendations to provide for an appropriate 
                and consistent response (including not providing for 
                audits) in cases of self-identified overpayments by 
                providers of services and suppliers.
The Ombudsman shall not serve as an advocate for any increases in 
payments or new coverage of services, but may identify issues and 
problems in payment or coverage policies.''.
  (b) Medicare Beneficiary Ombudsman.--Title XVIII, as previously 
amended, is amended by inserting after section 1809 the following new 
section:
                    ``medicare beneficiary ombudsman
  ``Sec. 1810. (a) In General.--The Secretary shall appoint within the 
Department of Health and Human Services a Medicare Beneficiary 
Ombudsman who shall have expertise and experience in the fields of 
health care and education of (and assistance to) individuals entitled 
to benefits under this title.
  ``(b) Duties.--The Medicare Beneficiary Ombudsman shall--
          ``(1) receive complaints, grievances, and requests for 
        information submitted by individuals entitled to benefits under 
        part A or enrolled under part B, or both, with respect to any 
        aspect of the medicare program;
          ``(2) provide assistance with respect to complaints, 
        grievances, and requests referred to in paragraph (1), 
        including--
                  ``(A) assistance in collecting relevant information 
                for such individuals, to seek an appeal of a decision 
                or determination made by a fiscal intermediary, 
                carrier, Medicare+Choice organization, or the 
                Secretary;
                  ``(B) assistance to such individuals with any 
                problems arising from disenrollment from a 
                Medicare+Choice plan under part C; and
                  ``(C) assistance to such individuals in presenting 
                information under section 1860D-2(b)(4)(D)(v); and
          ``(3) submit annual reports to Congress and the Secretary 
        that describe the activities of the Office and that include 
        such recommendations for improvement in the administration of 
        this title as the Ombudsman determines appropriate.
The Ombudsman shall not serve as an advocate for any increases in 
payments or new coverage of services, but may identify issues and 
problems in payment or coverage policies.
  ``(c) Working With Health Insurance Counseling Programs.--To the 
extent possible, the Ombudsman shall work with health insurance 
counseling programs (receiving funding under section 4360 of Omnibus 
Budget Reconciliation Act of 1990) to facilitate the provision of 
information to individuals entitled to benefits under part A or 
enrolled under part B, or both regarding Medicare+Choice plans and 
changes to those plans. Nothing in this subsection shall preclude 
further collaboration between the Ombudsman and such programs.''.
  (c) Deadline for Appointment.--The Secretary shall appoint the 
Medicare Provider Ombudsman and the Medicare Beneficiary Ombudsman, 
under the amendments made by subsections (a) and (b), respectively, by 
not later than 1 year after the date of the enactment of this Act.
  (d) Funding.--There are authorized to be appropriated to the 
Secretary (in appropriate part from the Federal Hospital Insurance 
Trust Fund and the Federal Supplementary Medical Insurance Trust Fund) 
to carry out the provisions of subsection (b) of section 1868 of the 
Social Security Act (relating to the Medicare Provider Ombudsman), as 
added by subsection (a)(5) and section 1807 of such Act (relating to 
the Medicare Beneficiary Ombudsman), as added by subsection (b), such 
sums as are necessary for fiscal year 2004 and each succeeding fiscal 
year.
  (e) Use of Central, Toll-Free Number (1-800-MEDICARE).--
          (1) Phone triage system; listing in medicare handbook instead 
        of other toll-free numbers.--Section 1804(b) (42 U.S.C. 1395b-
        2(b)) is amended by adding at the end the following: ``The 
        Secretary shall provide, through the toll-free number 1-800-
        MEDICARE, for a means by which individuals seeking information 
        about, or assistance with, such programs who phone such toll-
        free number are transferred (without charge) to appropriate 
        entities for the provision of such information or assistance. 
        Such toll-free number shall be the toll-free number listed for 
        general information and assistance in the annual notice under 
        subsection (a) instead of the listing of numbers of individual 
        contractors.''.
          (2) Monitoring accuracy.--
                  (A) Study.--The Comptroller General of the United 
                States shall conduct a study to monitor the accuracy 
                and consistency of information provided to individuals 
                entitled to benefits under part A or enrolled under 
                part B, or both, through the toll-free number 1-800-
                MEDICARE, including an assessment of whether the 
                information provided is sufficient to answer questions 
                of such individuals. In conducting the study, the 
                Comptroller General shall examine the education and 
                training of the individuals providing information 
                through such number.
                  (B) Report.--Not later than 1 year after the date of 
                the enactment of this Act, the Comptroller General 
                shall submit to Congress a report on the study 
                conducted under subparagraph (A).

SEC. 924. BENEFICIARY OUTREACH DEMONSTRATION PROGRAM.

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

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

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

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

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

                    Subtitle D--Appeals and Recovery

SEC. 931. TRANSFER OF RESPONSIBILITY FOR MEDICARE APPEALS.

  (a) Transition Plan.--
          (1) In general.--Not later than October 1, 2004, the 
        Commissioner of Social Security and the Secretary shall develop 
        and transmit to Congress and the Comptroller General of the 
        United States a plan under which the functions of 
        administrative law judges responsible for hearing cases under 
        title XVIII of the Social Security Act (and related provisions 
        in title XI of such Act) are transferred from the 
        responsibility of the Commissioner and the Social Security 
        Administration to the Secretary and the Department of Health 
        and Human Services.
          (2) GAO evaluation.--The Comptroller General of the United 
        States shall evaluate the plan and, not later than the date 
        that is 6 months after the date on which the plan is received 
        by the Comptroller General, shall submit to Congress a report 
        on such evaluation.
  (b) Transfer of Adjudication Authority.--
          (1) In general.--Not earlier than July 1, 2005, and not later 
        than October 1, 2005, the Commissioner of Social Security and 
        the Secretary shall implement the transition plan under 
        subsection (a) and transfer the administrative law judge 
        functions described in such subsection from the Social Security 
        Administration to the Secretary.
          (2) Assuring independence of judges.--The Secretary shall 
        assure the independence of administrative law judges performing 
        the administrative law judge functions transferred under 
        paragraph (1) from the Centers for Medicare & Medicaid Services 
        and its contractors. In order to assure such independence, the 
        Secretary shall place such judges in an administrative office 
        that is organizationally and functionally separate from such 
        Centers. Such judges shall report to, and be under the general 
        supervision of, the Secretary, but shall not report to, or be 
        subject to supervision by, another other officer of the 
        Department.
          (3) Geographic distribution.--The Secretary shall provide for 
        an appropriate geographic distribution of administrative law 
        judges performing the administrative law judge functions 
        transferred under paragraph (1) throughout the United States to 
        ensure timely access to such judges.
          (4) Hiring authority.--Subject to the amounts provided in 
        advance in appropriations Act, the Secretary shall have 
        authority to hire administrative law judges to hear such cases, 
        giving priority to those judges with prior experience in 
        handling medicare appeals and in a manner consistent with 
        paragraph (3), and to hire support staff for such judges.
          (5) Financing.--Amounts payable under law to the Commissioner 
        for administrative law judges performing the administrative law 
        judge functions transferred under paragraph (1) from the 
        Federal Hospital Insurance Trust Fund and the Federal 
        Supplementary Medical Insurance Trust Fund shall become payable 
        to the Secretary for the functions so transferred.
          (6) Shared resources.--The Secretary shall enter into such 
        arrangements with the Commissioner as may be appropriate with 
        respect to transferred functions of administrative law judges 
        to share office space, support staff, and other resources, with 
        appropriate reimbursement from the Trust Funds described in 
        paragraph (5).
  (c) Increased Financial Support.--In addition to any amounts 
otherwise appropriated, to ensure timely action on appeals before 
administrative law judges and the Departmental Appeals Board consistent 
with section 1869 of the Social Security Act (as amended by section 521 
of BIPA, 114 Stat. 2763A-534), there are authorized to be appropriated 
(in appropriate part from the Federal Hospital Insurance Trust Fund and 
the Federal Supplementary Medical Insurance Trust Fund) to the 
Secretary such sums as are necessary for fiscal year 2005 and each 
subsequent fiscal year to--
          (1) increase the number of administrative law judges (and 
        their staffs) under subsection (b)(4);
          (2) improve education and training opportunities for 
        administrative law judges (and their staffs); and
          (3) increase the staff of the Departmental Appeals Board.
  (d) Conforming Amendment.--Section 1869(f)(2)(A)(i) (42 U.S.C. 
1395ff(f)(2)(A)(i)), as added by section 522(a) of BIPA (114 Stat. 
2763A-543), is amended by striking ``of the Social Security 
Administration''.

SEC. 932. PROCESS FOR EXPEDITED ACCESS TO REVIEW.

  (a) Expedited Access to Judicial Review.--Section 1869(b) (42 U.S.C. 
1395ff(b)) as amended by BIPA, is amended--
          (1) in paragraph (1)(A), by inserting ``, subject to 
        paragraph (2),'' before ``to judicial review of the Secretary's 
        final decision'';
          (2) in paragraph (1)(F)--
                  (A) by striking clause (ii);
                  (B) by striking ``proceeding'' and all that follows 
                through ``determination'' and inserting 
                ``determinations and reconsiderations''; and
                  (C) by redesignating subclauses (I) and (II) as 
                clauses (i) and (ii) and by moving the indentation of 
                such subclauses (and the matter that follows) 2 ems to 
                the left; and
          (3) by adding at the end the following new paragraph:
          ``(2) Expedited access to judicial review.--
                  ``(A) In general.--The Secretary shall establish a 
                process under which a provider of services or supplier 
                that furnishes an item or service or an individual 
                entitled to benefits under part A or enrolled under 
                part B, or both, who has filed an appeal under 
                paragraph (1) may obtain access to judicial review when 
                a review panel (described in subparagraph (D)), on its 
                own motion or at the request of the appellant, 
                determines that no entity in the administrative appeals 
                process has the authority to decide the question of law 
                or regulation relevant to the matters in controversy 
                and that there is no material issue of fact in dispute. 
                The appellant may make such request only once with 
                respect to a question of law or regulation in a case of 
                an appeal.
                  ``(B) Prompt determinations.--If, after or coincident 
                with appropriately filing a request for an 
                administrative hearing, the appellant requests a 
                determination by the appropriate review panel that no 
                review panel has the authority to decide the question 
                of law or regulations relevant to the matters in 
                controversy and that there is no material issue of fact 
                in dispute and if such request is accompanied by the 
                documents and materials as the appropriate review panel 
                shall require for purposes of making such 
                determination, such review panel shall make a 
                determination on the request in writing within 60 days 
                after the date such review panel receives the request 
                and such accompanying documents and materials. Such a 
                determination by such review panel shall be considered 
                a final decision and not subject to review by the 
                Secretary.
                  ``(C) Access to judicial review.--
                          ``(i) In general.--If the appropriate review 
                        panel--
                                  ``(I) determines that there are no 
                                material issues of fact in dispute and 
                                that the only issue is one of law or 
                                regulation that no review panel has the 
                                authority to decide; or
                                  ``(II) fails to make such 
                                determination within the period 
                                provided under subparagraph (B);
                        then the appellant may bring a civil action as 
                        described in this subparagraph.
                          ``(ii) Deadline for filing.--Such action 
                        shall be filed, in the case described in--
                                  ``(I) clause (i)(I), within 60 days 
                                of date of the determination described 
                                in such subparagraph; or
                                  ``(II) clause (i)(II), within 60 days 
                                of the end of the period provided under 
                                subparagraph (B) for the determination.
                          ``(iii) Venue.--Such action shall be brought 
                        in the district court of the United States for 
                        the judicial district in which the appellant is 
                        located (or, in the case of an action brought 
                        jointly by more than one applicant, the 
                        judicial district in which the greatest number 
                        of applicants are located) or in the district 
                        court for the District of Columbia.
                          ``(iv) Interest on amounts in controversy.--
                        Where a provider of services or supplier seeks 
                        judicial review pursuant to this paragraph, the 
                        amount in controversy shall be subject to 
                        annual interest beginning on the first day of 
                        the first month beginning after the 60-day 
                        period as determined pursuant to clause (ii) 
                        and equal to the rate of interest on 
                        obligations issued for purchase by the Federal 
                        Hospital Insurance Trust Fund and by the 
                        Federal Supplementary Medical Insurance Trust 
                        Fund for the month in which the civil action 
                        authorized under this paragraph is commenced, 
                        to be awarded by the reviewing court in favor 
                        of the prevailing party. No interest awarded 
                        pursuant to the preceding sentence shall be 
                        deemed income or cost for the purposes of 
                        determining reimbursement due providers of 
                        services or suppliers under this Act.
                  ``(D) Review panels.--For purposes of this 
                subsection, a `review panel' is a panel consisting of 3 
                members (who shall be administrative law judges, 
                members of the Departmental Appeals Board, or qualified 
                individuals associated with a qualified independent 
                contractor (as defined in subsection (c)(2)) or with 
                another independent entity) designated by the Secretary 
                for purposes of making determinations under this 
                paragraph.''.
  (b) Application to Provider Agreement Determinations.--Section 
1866(h)(1) (42 U.S.C. 1395cc(h)(1)) is amended--
          (1) by inserting ``(A)'' after ``(h)(1)''; and
          (2) by adding at the end the following new subparagraph:
  ``(B) An institution or agency described in subparagraph (A) that has 
filed for a hearing under subparagraph (A) shall have expedited access 
to judicial review under this subparagraph in the same manner as 
providers of services, suppliers, and individuals entitled to benefits 
under part A or enrolled under part B, or both, may obtain expedited 
access to judicial review under the process established under section 
1869(b)(2). Nothing in this subparagraph shall be construed to affect 
the application of any remedy imposed under section 1819 during the 
pendency of an appeal under this subparagraph.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to appeals filed on or after October 1, 2004.
  (d) Expedited Review of Certain Provider Agreement Determinations.--
          (1) Termination and certain other immediate remedies.--The 
        Secretary shall develop and implement a process to expedite 
        proceedings under sections 1866(h) of the Social Security Act 
        (42 U.S.C. 1395cc(h)) in which the remedy of termination of 
        participation, or a remedy described in clause (i) or (iii) of 
        section 1819(h)(2)(B) of such Act (42 U.S.C. 1395i-3(h)(2)(B)) 
        which is applied on an immediate basis, has been imposed. Under 
        such process priority shall be provided in cases of 
        termination.
          (2) Increased financial support.--In addition to any amounts 
        otherwise appropriated, to reduce by 50 percent the average 
        time for administrative determinations on appeals under section 
        1866(h) of the Social Security Act (42 U.S.C. 1395cc(h)), there 
        are authorized to be appropriated (in appropriate part from the 
        Federal Hospital Insurance Trust Fund and the Federal 
        Supplementary Medical Insurance Trust Fund) to the Secretary 
        such additional sums for fiscal year 2005 and each subsequent 
        fiscal year as may be necessary. The purposes for which such 
        amounts are available include increasing the number of 
        administrative law judges (and their staffs) and the appellate 
        level staff at the Departmental Appeals Board of the Department 
        of Health and Human Services and educating such judges and 
        staffs on long-term care issues.

SEC. 933. REVISIONS TO MEDICARE APPEALS PROCESS.

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

SEC. 934. PREPAYMENT REVIEW.

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

SEC. 935. RECOVERY OF OVERPAYMENTS.

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

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

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

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

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

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

  (a) In General.--Section 1869 (42 U.S.C. 1395ff(b)), as amended by 
sections 521 and 522 of BIPA and section 933(d)(2)(B), is further 
amended by adding at the end the following new subsection:
  ``(h) Prior Determination Process for Certain Items and Services.--
          ``(1) Establishment of process.--
                  ``(A) In general.--With respect to a medicare 
                administrative contractor that has a contract under 
                section 1874A that provides for making payments under 
                this title with respect to eligible items and services 
                described in subparagraph (C), the Secretary shall 
                establish a prior determination process that meets the 
                requirements of this subsection and that shall be 
                applied by such contractor in the case of eligible 
                requesters.
                  ``(B) Eligible requester.--For purposes of this 
                subsection, each of the following shall be an eligible 
                requester:
                          ``(i) A physician, but only with respect to 
                        eligible items and services for which the 
                        physician may be paid directly.
                          ``(ii) An individual entitled to benefits 
                        under this title, but only with respect to an 
                        item or service for which the individual 
                        receives, from the physician who may be paid 
                        directly for the item or service, an advance 
                        beneficiary notice under section 1879(a) that 
                        payment may not be made (or may no longer be 
                        made) for the item or service under this title.
                  ``(C) Eligible items and services.--For purposes of 
                this subsection and subject to paragraph (2), eligible 
                items and services are items and services which are 
                physicians' services (as defined in paragraph (4)(A) of 
                section 1848(f) for purposes of calculating the 
                sustainable growth rate under such section).
          ``(2) Secretarial flexibility.--The Secretary shall establish 
        by regulation reasonable limits on the categories of eligible 
        items and services for which a prior determination of coverage 
        may be requested under this subsection. In establishing such 
        limits, the Secretary may consider the dollar amount involved 
        with respect to the item or service, administrative costs and 
        burdens, and other relevant factors.
          ``(3) Request for prior determination.--
                  ``(A) In general.--Subject to paragraph (2), under 
                the process established under this subsection an 
                eligible requester may submit to the contractor a 
                request for a determination, before the furnishing of 
                an eligible item or service involved as to whether the 
                item or service is covered under this title consistent 
                with the applicable requirements of section 
                1862(a)(1)(A) (relating to medical necessity).
                  ``(B) Accompanying documentation.--The Secretary may 
                require that the request be accompanied by a 
                description of the item or service, supporting 
                documentation relating to the medical necessity for the 
                item or service, and any other appropriate 
                documentation. In the case of a request submitted by an 
                eligible requester who is described in paragraph 
                (1)(B)(ii), the Secretary may require that the request 
                also be accompanied by a copy of the advance 
                beneficiary notice involved.
          ``(4) Response to request.--
                  ``(A) In general.--Under such process, the contractor 
                shall provide the eligible requester with written 
                notice of a determination as to whether--
                          ``(i) the item or service is so covered;
                          ``(ii) the item or service is not so covered; 
                        or
                          ``(iii) the contractor lacks sufficient 
                        information to make a coverage determination.
                If the contractor makes the determination described in 
                clause (iii), the contractor shall include in the 
                notice a description of the additional information 
                required to make the coverage determination.
                  ``(B) Deadline to respond.--Such notice shall be 
                provided within the same time period as the time period 
                applicable to the contractor providing notice of 
                initial determinations on a claim for benefits under 
                subsection (a)(2)(A).
                  ``(C) Informing beneficiary in case of physician 
                request.--In the case of a request in which an eligible 
                requester is not the individual described in paragraph 
                (1)(B)(ii), the process shall provide that the 
                individual to whom the item or service is proposed to 
                be furnished shall be informed of any determination 
                described in clause (ii) (relating to a determination 
                of non-coverage) and the right (referred to in 
                paragraph (6)(B)) to obtain the item or service and 
                have a claim submitted for the item or service.
          ``(5) Effect of determinations.--
                  ``(A) Binding nature of positive determination.--If 
                the contractor makes the determination described in 
                paragraph (4)(A)(i), such determination shall be 
                binding on the contractor in the absence of fraud or 
                evidence of misrepresentation of facts presented to the 
                contractor.
                  ``(B) Notice and right to redetermination in case of 
                a denial.--
                          ``(i) In general.--If the contractor makes 
                        the determination described in paragraph 
                        (4)(A)(ii)--
                                  ``(I) the eligible requester has the 
                                right to a redetermination by the 
                                contractor on the determination that 
                                the item or service is not so covered; 
                                and
                                  ``(II) the contractor shall include 
                                in notice under paragraph (4)(A) a 
                                brief explanation of the basis for the 
                                determination, including on what 
                                national or local coverage or 
                                noncoverage determination (if any) the 
                                determination is based, and the right 
                                to such a redetermination.
                          ``(ii) Deadline for redeterminations.--The 
                        contractor shall complete and provide notice of 
                        such redetermination within the same time 
                        period as the time period applicable to the 
                        contractor providing notice of redeterminations 
                        relating to a claim for benefits under 
                        subsection (a)(3)(C)(ii).
          ``(6) Limitation on further review.--
                  ``(A) In general.--Contractor determinations 
                described in paragraph (4)(A)(ii) or (4)(A)(iii) (and 
                redeterminations made under paragraph (5)(B)), relating 
                to pre-service claims are not subject to further 
                administrative appeal or judicial review under this 
                section or otherwise.
                  ``(B) Decision not to seek prior determination or 
                negative determination does not impact right to obtain 
                services, seek reimbursement, or appeal rights.--
                Nothing in this subsection shall be construed as 
                affecting the right of an individual who--
                          ``(i) decides not to seek a prior 
                        determination under this subsection with 
                        respect to items or services; or
                          ``(ii) seeks such a determination and has 
                        received a determination described in paragraph 
                        (4)(A)(ii),
                from receiving (and submitting a claim for) such items 
                services and from obtaining administrative or judicial 
                review respecting such claim under the other applicable 
                provisions of this section. Failure to seek a prior 
                determination under this subsection with respect to 
                items and services shall not be taken into account in 
                such administrative or judicial review.
                  ``(C) No prior determination after receipt of 
                services.--Once an individual is provided items and 
                services, there shall be no prior determination under 
                this subsection with respect to such items or 
                services.''.
  (b) Effective Date; Transition.--
          (1) Effective date.--The Secretary shall establish the prior 
        determination process under the amendment made by subsection 
        (a) in such a manner as to provide for the acceptance of 
        requests for determinations under such process filed not later 
        than 18 months after the date of the enactment of this Act.
          (2) Transition.--During the period in which the amendment 
        made by subsection (a) has become effective but contracts are 
        not provided under section 1874A of the Social Security Act 
        with medicare administrative contractors, any reference in 
        section 1869(g) of such Act (as added by such amendment) to 
        such a contractor is deemed a reference to a fiscal 
        intermediary or carrier with an agreement under section 1816, 
        or contract under section 1842, respectively, of such Act.
          (3) Limitation on application to sgr.--For purposes of 
        applying section 1848(f)(2)(D) of the Social Security Act (42 
        U.S.C. 1395w-4(f)(2)(D)), the amendment made by subsection (a) 
        shall not be considered to be a change in law or regulation.
  (c) Provisions Relating to Advance Beneficiary Notices; Report on 
Prior Determination Process.--
          (1) Data collection.--The Secretary shall establish a process 
        for the collection of information on the instances in which an 
        advance beneficiary notice (as defined in paragraph (5)) has 
        been provided and on instances in which a beneficiary indicates 
        on such a notice that the beneficiary does not intend to seek 
        to have the item or service that is the subject of the notice 
        furnished.
          (2) Outreach and education.--The Secretary shall establish a 
        program of outreach and education for beneficiaries and 
        providers of services and other persons on the appropriate use 
        of advance beneficiary notices and coverage policies under the 
        medicare program.
          (3) GAO report report on use of advance beneficiary 
        notices.--Not later than 18 months after the date on which 
        section 1869(g) of the Social Security Act (as added by 
        subsection (a)) takes effect, the Comptroller General of the 
        United States shall submit to Congress a report on the use of 
        advance beneficiary notices under title XVIII of such Act. Such 
        report shall include information concerning the providers of 
        services and other persons that have provided such notices and 
        the response of beneficiaries to such notices.
          (4) GAO report on use of prior determination process.--Not 
        later than 18 months after the date on which section 1869(g) of 
        the Social Security Act (as added by subsection (a)) takes 
        effect, the Comptroller General of the United States shall 
        submit to Congress a report on the use of the prior 
        determination process under such section. Such report shall 
        include--
                  (A) information concerning the types of procedures 
                for which a prior determination has been sought, 
                determinations made under the process, and changes in 
                receipt of services resulting from the application of 
                such process; and
                  (B) an evaluation of whether the process was useful 
                for physicians (and other suppliers) and beneficiaries, 
                whether it was timely, and whether the amount of 
                information required was burdensome to physicians and 
                beneficiaries.
          (5) Advance beneficiary notice defined.--In this subsection, 
        the term ``advance beneficiary notice'' means a written notice 
        provided under section 1879(a) of the Social Security Act (42 
        U.S.C. 1395pp(a)) to an individual entitled to benefits under 
        part A or B of title XVIII of such Act before items or services 
        are furnished under such part in cases where a provider of 
        services or other person that would furnish the item or service 
        believes that payment will not be made for some or all of such 
        items or services under such title.

                  Subtitle V--Miscellaneous Provisions

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

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

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

  (a) Council for Technology and Innovation.--Section 1868 (42 U.S.C. 
1395ee), as amended by section 921(a), is amended by adding at the end 
the following new subsection:
  ``(c) Council for Technology and Innovation.--
          ``(1) Establishment.--The Secretary shall establish a Council 
        for Technology and Innovation within the Centers for Medicare & 
        Medicaid Services (in this section referred to as `CMS').
          ``(2) Composition.--The Council shall be composed of senior 
        CMS staff and clinicians and shall be chaired by the Executive 
        Coordinator for Technology and Innovation (appointed or 
        designated under paragraph (4)).
          ``(3) Duties.--The Council shall coordinate the activities of 
        coverage, coding, and payment processes under this title with 
        respect to new technologies and procedures, including new drug 
        therapies, and shall coordinate the exchange of information on 
        new technologies between CMS and other entities that make 
        similar decisions.
          ``(4) Executive coordinator for technology and innovation.--
        The Secretary shall appoint (or designate) a noncareer 
        appointee (as defined in section 3132(a)(7) of title 5, United 
        States Code) who shall serve as the Executive Coordinator for 
        Technology and Innovation. Such executive coordinator shall 
        report to the Administrator of CMS, shall chair the Council, 
        shall oversee the execution of its duties, and shall serve as a 
        single point of contact for outside groups and entities 
        regarding the coverage, coding, and payment processes under 
        this title.''.
  (b) Methods for Determining Payment Basis For New Lab Tests.--Section 
1833(h) (42 U.S.C. 1395l(h)) is amended by adding at the end the 
following:
  ``(8)(A) The Secretary shall establish by regulation procedures for 
determining the basis for, and amount of, payment under this subsection 
for any clinical diagnostic laboratory test with respect to which a new 
or substantially revised HCPCS code is assigned on or after January 1, 
2005 (in this paragraph referred to as `new tests').
  ``(B) Determinations under subparagraph (A) shall be made only after 
the Secretary--
          ``(i) makes available to the public (through an Internet site 
        and other appropriate mechanisms) a list that includes any such 
        test for which establishment of a payment amount under this 
        subsection is being considered for a year;
          ``(ii) on the same day such list is made available, causes to 
        have published in the Federal Register notice of a meeting to 
        receive comments and recommendations (and data on which 
        recommendations are based) from the public on the appropriate 
        basis under this subsection for establishing payment amounts 
        for the tests on such list;
          ``(iii) not less than 30 days after publication of such 
        notice convenes a meeting, that includes representatives of 
        officials of the Centers for Medicare & Medicaid Services 
        involved in determining payment amounts, to receive such 
        comments and recommendations (and data on which the 
        recommendations are based);
          ``(iv) taking into account the comments and recommendations 
        (and accompanying data) received at such meeting, develops and 
        makes available to the public (through an Internet site and 
        other appropriate mechanisms) a list of proposed determinations 
        with respect to the appropriate basis for establishing a 
        payment amount under this subsection for each such code, 
        together with an explanation of the reasons for each such 
        determination, the data on which the determinations are based, 
        and a request for public written comments on the proposed 
        determination; and
          ``(v) taking into account the comments received during the 
        public comment period, develops and makes available to the 
        public (through an Internet site and other appropriate 
        mechanisms) a list of final determinations of the payment 
        amounts for such tests under this subsection, together with the 
        rationale for each such determination, the data on which the 
        determinations are based, and responses to comments and 
        suggestions received from the public.
  ``(C) Under the procedures established pursuant to subparagraph (A), 
the Secretary shall--
          ``(i) set forth the criteria for making determinations under 
        subparagraph (A); and
          ``(ii) make available to the public the data (other than 
        proprietary data) considered in making such determinations.
  ``(D) The Secretary may convene such further public meetings to 
receive public comments on payment amounts for new tests under this 
subsection as the Secretary deems appropriate.
  ``(E) For purposes of this paragraph:
          ``(i) The term `HCPCS' refers to the Health Care Procedure 
        Coding System.
          ``(ii) A code shall be considered to be `substantially 
        revised' if there is a substantive change to the definition of 
        the test or procedure to which the code applies (such as a new 
        analyte or a new methodology for measuring an existing analyte-
        specific test).''.
  (c) GAO Study on Improvements in External Data Collection for Use in 
the Medicare Inpatient Payment System.--
          (1) Study.--The Comptroller General of the United States 
        shall conduct a study that analyzes which external data can be 
        collected in a shorter time frame by the Centers for Medicare & 
        Medicaid Services for use in computing payments for inpatient 
        hospital services. The study may include an evaluation of the 
        feasibility and appropriateness of using of quarterly samples 
        or special surveys or any other methods. The study shall 
        include an analysis of whether other executive agencies, such 
        as the Bureau of Labor Statistics in the Department of 
        Commerce, are best suited to collect this information.
          (2) Report.--By not later than October 1, 2004, the 
        Comptroller General shall submit a report to Congress on the 
        study under paragraph (1).
  (d) Process for Adoption of ICD Codes as Data Standard.--Section 
1172(f) (42 U.S.C. 1320d-1(f)) is amended by inserting after the first 
sentence the following: ``Notwithstanding the preceding sentence, if 
the National Committee on Vital and Health Statistics has not made a 
recommendation to the Secretary before the date of the enactment of 
this sentence, with respect to the adoption of the International 
Classification of Diseases, 10th Revision, Procedure Coding System 
(`ICD-10-PCS') and the International Classification of Diseases, 10th 
Revision, Clinical Modification (`ICD-10-CM') as a standard under this 
part for the reporting of diagnoses, the Secretary may implement ICD-
10-PCS only with respect to inpatient services as such a standard.''.

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

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

SEC. 944. EMTALA IMPROVEMENTS.

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

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

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

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

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

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

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

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

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

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

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

SEC. 950. TREATMENT OF CERTAIN DENTAL CLAIMS.

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

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

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

SEC. 952. REVISIONS TO REASSIGNMENT PROVISIONS.

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

SEC. 953. OTHER PROVISIONS.

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

                           TITLE X--MEDICAID

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

  Section 1923(f)(3) (42 U.S.C. 1396r-4(f)(3)) is amended--
          (1) in subparagraph (A), by striking ``subparagraph (B)'' and 
        inserting ``subparagraphs (B) and (C)''; and
          (2) by adding at the end the following new subparagraphs:
                  ``(C) Special, Temporary Increase in aLloTments on a 
                One-time, Non-cumulative basis.--The DSH allotment for 
                any State--
                          ``(i) for fiscal year 2004 is equal to 106 
                        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 
                        the previous fiscal year under this 
                        subparagraph increased, subject to subparagraph 
                        (B), by 1.9 percent or, in the case of fiscal 
                        years beginning with the fiscal year specified 
                        in subparagraph (D) for that State, 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.''.

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

  (a) In General.--Section 1927(c)(1)(C)(i)(I) (42 U.S.C. 1396r-
8(c)(1)(C)(i)(I)) is amended by inserting before the semicolon the 
following: ``(including inpatient prices charged to hospitals described 
in section 340B(a)(4)(L) of the Public Health Service Act)''.
  (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

                          PURPOSE AND SUMMARY

    H.R. 2473 is a comprehensive Medicare modernization bill 
that makes significant changes to the Medicare Program and 
establishes new outpatient prescription drug coverage for 
Medicare beneficiaries. The bill creates new Prescription Drug 
Plans and permits all individuals currently enrolled within 
Parts A and B to obtain a new benefit.

                  BACKGROUND AND NEED FOR LEGISLATION

    The Medicare program has not provided a comprehensive 
outpatient prescription drug benefit to beneficiaries since the 
inception of the program in 1966. At the time, outpatient drug 
therapy regimens were not considered an integral component of 
patients' base health insurance benefits. Over the past few 
decades, outpatient prescription drug coverage has become 
commonplace in the private sector, yet as many as 25 percent of 
Medicare beneficiaries in the United States do not have access 
to third party prescription drug coverage. This lack of a 
prescription drug benefit has placed a significant burden on 
those who cannot afford the sometimes substantial out-of-pocket 
costs associated with the purchase of these medicines.
    In addition to providing seniors with access to a Medicare 
prescription drug benefit, this legislation also creates an 
option for seniors to obtain their covered Part A and Part B 
services through enhanced fee-for-service plans. These plans--
designed to offer health insurance coverage to Medicare 
beneficiaries on a regional basis--seek to replicate many of 
the successes of the Federal Employees Health Benefits Program.

                                HEARINGS

    The Subcommittee on Health held a hearing on Tuesday, April 
8, 2003 entitled ``Designing a Twenty-First Century Medicare 
Prescription Drug Benefit.'' The Subcommittee received 
testimony from: Dr. Dan Crippen; Roger Feldman, Ph.D., 
University of Minnesota, Health Services Research/Policy; Mr. 
David Herman, Executive Director, The Seniors Coalition; Mr. 
Bruce Vladeck, Professor of Health Policy and Geriatrics, Mt. 
Sinai University; and Mr. Eric Olsen, On behalf of AARP.
    The Subcommittee on Health held a hearing on Wednesday, 
April 9, 2003 entitled ``Strengthening and Improving 
Medicare.'' The Subcommittee received testimony from: Mr. Rick 
Foster, Chief Actuary, Center for Medicare and Medicaid 
Services; Dr. Robert Berenson, M.D., F.A.C.P., Senior 
Consultant, Academy Health; Ms. Susan Rawlins, Head of Retiree 
Markets, Aetna Inc.; Dr. Marilyn Moon, Ph.D., Senior Fellow, 
The Urban Institute; Ms. Mary Grealy, President, Healthcare 
Leadership Council; Ms. Barbara Kennelly, President, National 
Committee to Preserve Social Security and Medicare; and Mr. 
Robert Buddy.

                        COMMITTEE CONSIDERATION

    On Tuesday, June 17, 2003, Wednesday, June 18, 2003, and 
Thursday, June 19, 2003, the Full Committee met in open markup 
session and ordered H.R. 2473 reported to the House, as 
amended, by a record vote of 29 yeas and 20 nays.

                            COMMITTEE VOTES

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. The 
following are the record votes taken on amendments offered to 
H.R. 2473, including the names of those Members voting for and 
against. A motion by Mr. Tauzin to order H.R. 2473 reported to 
the House, as amended, was agreed to by a record vote of 29 
yeas and 20 nays.


                      COMMITTEE OVERSIGHT FINDINGS

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee has held oversight 
hearings on this legislation, and made findings that are 
reflected in this report.

         STATEMENT OF GENERAL PERFORMANCE GOALS AND OBJECTIVES

    The goal of H.R. 2473 is to create a new Prescription Drug 
Plan that permits all individuals currently enrolled within 
Parts A and B to obtain a new benefit.

   NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX EXPENDITURES

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee finds that H.R. 
2473, the Medicare Prescription Drug and Modernization Act of 
2003, would result in changes to budget authority, entitlement 
authority, and tax expenditures and revenues.

  COMMITTEE COST ESTIMATE, CONGRESSIONAL BUDGET OFFICE ESTIMATE, AND 
                       FEDERAL MANDATES STATEMENT

    The Congressional Budget Office estimate required pursuant 
to clause 3(c)(3) of rule XIII of the Rules of the House of 
Representatives, as provided by the Congressional Budget Office 
pursuant to section 402 of the Congressional Budget Act of 
1974, and the estimate of Federal mandates required pursuant to 
section 423 of the Unfunded Mandates Reform Act were requested 
from the Congressional Budget Office, but were not prepared as 
of the date of filing of this report.

                      ADVISORY COMMITTEE STATEMENT

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   CONSTITUTIONAL AUTHORITY STATEMENT

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional authority for this legislation is provided in 
Article I, section 8, clause 3, which grants Congress the power 
to regulate commerce with foreign nations, among the several 
States, and with the Indian tribes.

                  APPLICABILITY TO LEGISLATIVE BRANCH

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

             SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

              TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT


Section 101. Establishment of a Medicare prescription drug benefit

    Section 101 establishes a new Voluntary Prescription Drug 
Benefit Program under a new Part D of title XVIII of the Social 
Security Act, as follows:
            Section 1860D-1. Benefits; eligibility; enrollment; and 
                    coverage period
    Under new section 1860D-1, all beneficiaries entitled to 
benefits under Part A or enrolled in Part B of the Medicare 
program will be eligible to enroll in a qualified prescription 
drug plan (PDP) or receive prescription drug benefits a 
Medicare Advantage (MA) plan, or an Enhanced Fee-for-Service 
(EFFS) plan. Each beneficiary enrolled in Part A and/or Part B 
will have a choice between two qualified prescription drug 
plans, at least one of which will be a PDP.
    All eligible beneficiaries who elect to enroll in a PDP 
will not be excluded on the basis of a pre-existing condition 
or their economic status and will be guaranteed continuous 
coverage while enrolled in the program. When a beneficiary is 
not continuously enrolled in a PDP, a qualified retiree plan, 
or a MA/EFFS plan, the plan may change the premium or impose a 
pre-existing condition exclusion that is consistent with the 
risk of enrolling that beneficiary. The initial period of 
coverage under the program will begin January 1, 2006.
            Section 1860D-2. Requirements for qualified prescription 
                    drug coverage
    Under new section 1860D-2, all PDP plans will be required 
to make available to their enrollees the benefit of all price 
discounts. They also will provide coverage for outpatient 
prescription drugs on the plan's formulary.
    Standard coverage under the bill includes an annual 
deductible of $250, beneficiary cost sharing 20% of the first 
$2,000 of expenditures, and a limitation of total out-of-pocket 
expenditures of $3,500. The Committee notes, however, that a 
PDP or a MA/EFFS plan can provide a benefit different from the 
standard coverage requirement so long as it is actuarially 
equivalent in value.
    Beneficiaries enrolled in either a PDP, qualified retiree 
plan or a MA/EFFS plan will have access to negotiated prices 
that include discounts. The PDP sponsors, qualified retiree 
plans or the MA/EFFS plans will fully disclose to the Secretary 
the degree to which discounts and rebates are passed along to 
the beneficiaries.
    A covered outpatient drug includes prescription drugs and/or biologics, defined under section 1927 of Medicaid. If a plan 
meets the beneficiary protection requirements in section 1860C, 
it can use a formulary to provide further discounts for certain 
covered outpatient drugs.
            Section 1860D-3. Beneficiary protections for qualified 
                    prescription drug coverage
    New section 1860D-3 sets forth beneficiary protections for 
qualified prescription drug coverage. First, plans will be 
required to provide each enrolled beneficiary information about 
the plan's benefit structure, its affiliated networks of 
pharmacy providers, any applicable formulary requirements 
including any applicable cost-sharing and their right to file 
grievances and/or seek benefit appeal. Plans will be required 
to respond to beneficiary inquiries and make available 
information regarding any changes in the plan's formulary.
    The PDP sponsor will also ensure adequate access to a 
sufficient number of pharmacies that dispense drugs to 
patients. These requirements shall provide beneficiaries with 
the same convenient access rules that apply to TRICARE plans. 
Plans also will be required to accept any pharmacy that is 
willing to accept the plans' terms and conditions. Every 
sponsor of a PDP will have a pharmacy and therapeutic committee 
that will develop and maintain a formulary. In establishing 
therapeutic categories for the formulary, the plan must take 
into account standards published in the U.S. Pharmacopeia-Drug 
Information.
            Section 1860D-4. Requirements for and contracts with 
                    prescription drug plan (PDP) sponsors
    New section 1860D-4 of the legislation outlines the 
requirements for Prescription Drug Plan (PDP) sponsors. 
Specifically, sponsors of PDPs will be licensed under state law 
as risk bearing entities eligible to offer health insurance or 
coverage in each state in which the plan operates. The plan 
will assume full risk for the unsubsidized portion of the 
benefit. The plan also may use reinsurance to ensure coverage 
for a portion of the benefit.
            Section 1860D-5. Process for beneficiaries to select 
                    qualified prescription drug coverage
    New section 1860D-5 establishes a process for beneficiaries 
to select qualified prescription drug coverage. The selection 
process will include annual, coordinated election periods, 
dissemination of comparative information regarding price, 
quality and other features, and coordination with MA/EFFS 
elections. Enrollees in MA/EFFS plans offering prescription 
drug coverage can only elect to receive drug coverage through 
that plan.
    While ensuring access to coverage the Administrator will 
provide a choice of at least two qualifying plans in each area. 
Qualifying plans are defined as Prescription Drug Plans or MA/EFFS plans that include prescription drug coverage. In order to 
guarantee access to coverage, the Administrator may provide 
financial incentives to plans. These incentives will ensure 
that all beneficiaries have access to multiple choices of drug 
plans.
            Section 1860D-6. Submission of bids and premiums
    New section 1860D-6 provides that each PDP sponsor will be 
required to submit specified bid information, in the same 
manner as MA/EFFS plans. This information will describe the 
qualified drug coverage to be provided, the actuarial value of 
the coverage, the monthly premium to be charged for the 
coverage, the portion of the premium attributable to benefits 
in excess of the standard coverage and the reduction in the 
premium resulting from federal subsidies. The Administrator 
will review this information and use it to negotiate the terms 
and conditions of PDPs.
            Section 1860D-7. Premium and cost-sharing subsidies for 
                    low-income individuals
    New section 1860D-7 reflects the desire of the Committee to 
target government resources to those who need it most. 
Individuals with incomes below 135 percent of the Federal 
Poverty Level (FPL) will receive a subsidy for the full value 
of their premium and the deductible. Cost-sharing obligations 
for these individuals may not exceed $2 for multiple-source or 
generic drugs and $5 for non-preferred drugs. Individuals with 
incomes between 135 and 150 percent of FPL will receive a 
premium subsidy based on an income-related sliding scale.
    The Administrator will notify PDP sponsors or MA/EFFS 
organizations that an individual is eligible for a subsidy and 
the amount of the subsidy. The sponsor or organization will 
then reduce the premiums or cost sharing, which would otherwise 
be imposed, by the amount of the subsidy. The Administrator 
will periodically and on a timely basis reimburse the sponsor 
or organization for the amount of the reductions.
    Part D coverage will be the primary payor for drug benefits 
under Medicaid. The Administrator will coordinate prescription 
drug benefits under Part D with the benefits provided under 
Medicaid, with particular focus upon coordination of payments 
and prevention of fraud and abuse.
            Section 1860D-8. Subsidies for all Medicare beneficiaries 
                    for qualified prescription drug coverage
    In new section 1860D-8, the Administrator will provide 
subsidies to qualifying entities in order to reduce beneficiary 
premiums, mitigate adverse selection among PDPs and MA/EFFS 
plans and promote the participation of PDP sponsors. The 
section will constitute budget authority in advance of 
appropriations and represents the obligation of the 
Administrator to provide payment of amounts provided under this 
section. The subsidies will include direct subsidies to PDP and 
MA/EFFS plans equal to a percentage of an amount equal to the 
actuarialvalue of the standard drug coverage subsidies through 
reinsurance for excess costs incurred in providing qualified 
prescription drug coverage. The section also incorporates special 
subsidy mechanisms for employers and labor unions.
            Section 1860D-9. Medicare Prescription Drug Trust Fund
    New section 1860D-9 creates a new trust fund in the United 
States Treasury. The trust fund will be managed in the same 
manner as the ``Federal Supplementary Medical Insurance Trust 
Fund.'' Payments from the trust fund will be made from time to 
time for the low-income subsidies, the federal subsidies, 
reinsurance amounts, and administrative expenses.
            Section 1860D-10. Definitions; application to Medicare 
                    advantage and EFFS programs; treatment of 
                    references to provisions in part
    New section 1860D-10 directs the Administrator to complete 
a study and make recommendations to Congress by January 1, 2005 
on how to move Medicare part B covered drugs into the new 
Medicare part D outpatient prescription drug program. It is the 
Committee's intent to ensure that Part B and Part D benefits 
will be appropriately coordinated in the future.
    In addition, this section directs the Secretary to review 
the current standards of practice for pharmacy services 
provided to patients in nursing facilities. It is the intent of 
the Committee to have the Secretary expand this study to 
examine long term care facilities, not just nursing homes, as 
that will more accurately reflect that current issues 
confronting this sector.

Section 102. Offering of qualified prescription drug coverage under 
        Medicare Advantage (MA) and enhanced fee-for-service (EFFS) 
        program

    Section 102 requires MA and EFFS plans to offer at least 
qualified prescription drug coverage in an area or region, and 
provide that such coverage is actuarially equivalent to 
standard coverage. This does not require all MA/EFFS plans 
offered by an organization in a given area to offer drug 
coverage, but at least one of their plan offerings in a given 
area must offer drug coverage. MA/EFFS plans must comply with 
all the same requirements as those that apply to PDP sponsors, 
and submit the appropriate information to the Administrator 
except for information that the Administrator determines is 
duplicative.

Section 103. Medicaid amendments

    Section 103 adds a new section 1935 to the Social Security 
Act entitled ''Special Provisions Relating to Medicare 
Prescription Drug Benefit.'' The provision requires states, as 
a condition of receiving Federal assistance, to make 
eligibility determinations for premium and cost-sharing 
assistance for Part D, inform the Medicare Benefits 
Administrator (MBA) Administrator of cases where eligibility 
has been established, and otherwise provide information to the 
MBA Administrator as may be required to carry out Part D. It 
also allows for enhanced administrative payments for the 
purpose of determining eligibility for the low-income benefit.
    The provision also provides for a phased-in Federal 
assumption of the costs associated with providing dual-eligible 
Medicaid beneficiaries qualified drug coverage under Medicare 
Part D. These costs would be assumed by the Federal government 
over a period of fifteen years, in increments of 6 2/3% each 
year, and be assumed through appropriate revisions in the 
Medicaid matching payments for each state.
    The provision includes clarification that in the case of 
individuals dually entitled to prescription drug coverage under 
Part D and drug coverage under Medicaid, that those 
individuals' coverage under Medicare would be primary. The 
provision allows states to require, as a condition for receipt 
of Medicaid drug benefits, that a dually-entitled individual 
elect qualified prescription drug coverage under Medicare.
    Residents of Territories are not eligible for regular low-
income subsidies. However, Territories would be able to get 
additional Medicaid funds, beginning at $25 million a year and 
escalating by the annual percentage increase in prescription 
drug costs for Medicare beneficiaries. In order to obtain these 
funds, Territories would be required to formulate a plan on how 
they would dedicate the funds to assist low-income Medicare 
beneficiaries in obtaining covered outpatient prescription 
drugs.

Section 104. Medigap transition

    Section 104 contains specific rules pertaining to Medigap 
plans. Under the bill, no new Medigap prescription drug 
policies can be sold after January 1, 2006. Beneficiaries who 
have current Medigap prescription drug insurance can maintain 
such coverage. Individuals who currently have Medigap policies 
with prescription drug coverage, who elect to terminate such 
coverage and enroll in Part D, would be able to enroll in a 
Medigap policy without prescription drug penalty within 63 days 
of the termination of prior coverage. In providing such plans, 
the Medigap issuer may not deny or condition the issuance of 
such plans, may not discriminate in the pricing of such policy 
based upon health status, claims experience, receipt of health 
care or medical condition and may not impose an exclusion of 
benefits based upon a pre-existing condition. Two new Medigap 
policies will also be created, the first of which will cover 50 
percent of the all cost sharing except for preventative 
benefits, where the percentage of coverage will be 100 percent. 
This plan will also limit annual out-of-pocket expenditures to 
$4,000 in 2005, with that number subsequently adjusted for 
inflation. The second new plan would be similar to the first 
plan, but would replace 50 percent cost sharing with 75 percent 
and set the limit on annual out-of-pocket expenditures at 
$2,000.

Section 105. Medicare prescription drug discount card and assistance 
        program

    Section 105 directs the Secretary to establish a program to 
endorse prescription drug discount card programs and provide 
information regarding such programs to Medicare beneficiaries. 
Starting in 2004, fee-for-service (FFS) beneficiaries will be 
able to choose from a wide selection of discount drug cards 
(drug value cards). The drug value cards will give seniors 
access to the benefits of bulk prescription drug purchasing and 
cost management techniques.
    The following rules will apply to the program. Any 
organization is eligible to offer a drug value card: AARP, 
employers, pharmacist/pharmacy organizations, pharmacy benefit 
managers, drug wholesalers, and insurers. The cards will be 
CMS-approved. Drug card issuers will negotiate discounts from 
drug manufacturers. Under the legislation, low-income 
beneficiaries who are not eligible to receive drug benefits 
under Medicaid will receive Federal assistance to buy 
prescription drugs. The Federal contributions will be credited 
to beneficiaries' individual accounts held by the Federal 
government in the Supplementary Medical Insurance (SMI) (Part 
B) Trust Fund. The accounts will then be debited every time 
seniors purchase their drugs. The Federal government will add 
the following income-related contributions into every account: 
$800--for those below 135% of the Federal Poverty Level (FPL); 
$500--136-150% of FPL; and $100 for individuals above 150% of 
FPL. The contribution amounts will then be indexed to Medicare 
Drug Spending. Medicare beneficiaries' children and other 
individuals can also contribute to the accounts. The allowable 
contribution is capped at $5,000 per year.
    Depending on beneficiaries' income levels, states can 
contribute funds into seniors' accounts. States can save 
administrative expenses by contributing money to seniors' 
accounts instead of operating their own state drug assistance 
programs. Employers can add money to the drug expenditure 
accounts up to $5,000. Employers can also offer their own drug 
value card/drug benefit for their retirees and the retirees 
will also receive the federal government account contribution. 
The funds in the accounts will rollover from year to year.
    This section also provides for an appropriate transition 
and eventual discontinuance of this program at the time that 
prescription drug benefits become available under Part D.

Section 106. Disclosure of return information for purposes of carrying 
        out Medicare catastrophic prescription drug program

    Section 106 permits the Secretary of the Treasury, upon 
written request from the Secretary of the Department of Health 
and Human Services (HHS) to disclose to officers and employees 
of HHS specific information with respect to a specified 
taxpayer for a specific tax year. The information that could be 
disclosed is taxpayer identity information and the adjusted 
gross income for the taxpayer or, if less, the income threshold 
limit specified under the new Part D ($200,000 in 2006). A 
specified taxpayer would be either: (1) an individual who had 
adjusted gross income for the year in question in excess of the 
income threshold specified in the new Part D ($60,000); or, (2) 
an individual who elected to use more recent income information 
as permitted under Part D. Individuals filing joint returns 
would each be treated separately with each person considered to 
have an adjusted gross income equal to one-half of the total.
    Return information disclosed could be used by officers and 
employees of HHS only for administering the prescription drug 
benefit. They could disclose the annual out-of-pocket threshold 
applicable to an individual to the entity offering the 
individual prescription drug coverage. The sponsor could use 
such information only for the purposes of administering the 
benefit.

Section 107. State pharmaceutical assistance transition commission

    Section 107 establishes a State Pharmaceutical Assistance 
Transition Commission to develop a proposal for dealing with 
the transitional issues facing state programs and participants 
due to implementation of the new Part D prescription drug 
program. The Commission, to be established on the first day of 
the third month following enactment, would include: (1) a 
representative of each governor from each state with a program 
that the Secretary identifies as having a benefit package 
comparable to or more generous than the new Part D; (2) 
representatives from other states that have pharmaceutical 
assistance programs, as appointed by the Secretary; (3) 
representatives (not exceeding the total under #1 and #2) of 
organizations that represent interests of participants, 
appointed by the Secretary; (4) representatives of Medicare 
Advantage organizations; and, (5) the Secretary or the 
Secretary's designee and other members specified by the 
Secretary. The Commission would develop the proposal in 
accordance with specified principles, namely: (1) protection of 
the interests of program participants in the least disruptive 
manner; (2) protection of the financial and flexibility 
interests of states so they are not financially worse off; and, 
(3) principles of Medicare modernization outlined in Title II 
of the Act.
    The Commission would report to the President and Congress 
by January 1, 2005. The report would contain specific proposals 
including specific legislative or administrative 
recommendations, if any. The Commission would terminate 30 days 
later.
    Finally, the Committee notes that Medicare Quality 
Improvement Organizations (QIOs) may offer assistance to 
Medicare Advantage plans under part C, providers, practitioners 
and Prescription Drug Plan Sponsors under part D, Enhanced Fee 
For Service Plans under Part E and the Prescription Drug Card 
Program. QIOs are currently required to offer assistance with 
clinical improvement under Parts A and B in hospitals, 
physicians' offices, nursing homes and home health agencies and 
to all M+C organizations. The Committee believes that expanding 
the QIOs' work to include the new entities and benefits created 
in this legislation will help improve the quality of care for 
all Medicare beneficiaries across the entire continuum of the 
care.

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


Section 200. Medicare modernization and revitalization

    Section 200 provides for the establishment of the Medicare 
enhanced fee-for-service (EFFS) program, the Medicare Advantage 
program, and competitive bidding among enhanced fee-for-service 
plans and Medicare Advantage plans.

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


Section 201. Establishment of enhanced fee-for-service (EFFS) program 
        under Medicare

    Section 201 establishes an enhanced fee-for-service program 
under a new Part E of title XVIII of the Social Security Act, 
as follows:
            Section 1860E-1. Offering of enhanced fee-for-service plans 
                    throughout the United States
    New section 1860E-1 establishes a new ``Part E'' of the 
Medicare program called the Enhanced Fee-for-Service (``EFFS'') 
program beginning January 1, 2006. The program will allow 
enhanced fee-for-service plans (preferred provider 
organizations (PPOs) or private fee-for-service plans) to offer 
benefits to Medicare beneficiaries on a regional basis. The 
Medicare Benefits Administrator (MBA) will establish a minimum 
of 10 regions throughout the country.
            Section 1860E-2. Offering of enhanced fee-for-service 
                    (EFFS) plans
    New section 1860E-2 establishes plan requirements for EFFS 
plans. No EFFS plan may be offered in a region unless it meets 
all the requirements of EFFS plans established under Part E. A 
plan offered within an EFFS region must be offered to all EFFS-
eligible individuals in the region. Benefits must be uniform 
for all enrollees in a plan, must include all statutory Part A 
and Part B benefits under Medicare, and must have a single 
deductible and a catastrophic limit on out-of-pocket 
expenditures for benefits under Parts A and B. Plans must also 
provide drug coverage for beneficiaries enrolled in Part D of 
Medicare. Drug coverage offered under an EFFS plan must comply 
with the rules outlined in Title I.
            Section 1860E-3. Submission of bids; beneficiary savings; 
                    payment of plans
    New section 1860E-3 states that beginning in 2006, 
enhanced-fee-for-service (EFFS) organizations will submit to 
the MBA a monthly bid amount for each EFFS plan offered in a 
region. The bid amount cannot vary among eligible individuals 
for an EFFS plan in an EFFS region. In addition to submitting 
the full bid amount, the organization will also submit the 
proportions of such bid amount attributable to (1) the 
provision of statutory non-drug (Part A and Part B) benefits, 
(2) the provision of statutory drug (Part D) benefits, and, (3) 
the provision of non-statutory (supplemental) benefits, along 
with the actuarial basis for the bid and the proportions. The 
MBA will have the authority to negotiate regarding the monthly 
bid amounts, in a similar fashion as the Director of the Office 
of Personnel Management (OPM) has with respect to the Federal 
Employees Health Benefits Program (FEHBP). The Administrator 
may enter into contracts with up to three EFFS plans in each 
region.
    Plan bids for statutory non-drug benefits within a region 
will be compared to a benchmark for such benefits. The 
benchmark amount will be the weighted average of the Medicare 
Advantage payment rates in the region. Beneficiaries who enroll 
in plans with bids below the benchmark will receive a rebate of 
75 percent of the difference between the benchmark and the bid. 
The remaining 25 percent will be savings for the Medicare 
program. In calculating the rebate, both the benchmark and the 
bid will be risk adjusted to reflect the health and demographic 
characteristics of each plan's enrollees. The rebate can be 
credited to the premium for prescription drugs or supplemental 
benefits, returned to the beneficiary in the form of cash 
rebates, or provided to the beneficiary through other means 
approved by the MBA.
    Payment to plans for non-drug benefits will be as follows: 
(A) Plans with bids below the benchmark will receive payment of 
their risk-adjusted bid amount, plus the rebate amount 
described above (75 percent of the difference between the 
benchmark and the bid). (B) Plans with bids at or above the 
benchmark will receive the risk-adjusted benchmark amount as 
payment. Plans will be paid for statutory drug benefits in the 
manner outlined in Title I.
            Section 1860E-4. Premiums; organizational and financial 
                    requirements; establishment of standards; contracts 
                    with EFFS organizations
    New section 1860E-4 defines the EFFS monthly basic 
beneficiary premium, the EFFS monthly prescription drug 
premium, and the EFFS monthly supplemental premium. All 
premiums are required to be uniform among plan enrollees, and 
beneficiary premiums for non-drug, drug, and supplemental 
benefits can be consolidated into a single premium.

                 Subtitle B--Medicare Advantage Program


                  CHAPTER 1--IMPLEMENTATION OF PROGRAM


Section 211. Implementation of Medicare advantage program

    Section 211 renames the current Medicare+Choice program to 
``Medicare Advantage''.

Section 212. Medicare advantage improvements

    Section 212 adds a fourth payment option for Medicare 
Advantage plans: 100 percent of local fee-for-service costs for 
2004, excluding direct graduate medical education and including 
adjustments for costs that would have occurred had 
beneficiaries not received care from a Veterans Administration 
(VA) or Department of Defense (DOD) facility. It also funds the 
blend payment amount for 2004 by eliminating the budget 
neutrality requirement. The section changes the minimum 
percentage increase for 2004 and subsequent years to the 
greater of 2 percent or the Medicare Advantage national growth 
percentage.

            CHAPTER 2--IMPLEMENTATION OF COMPETITION PROGRAM


Section 221. Competition program beginning in 2006

    Section 221 states that beginning in 2006, Medicare 
Advantage plans will be required to submit bids to provide 
services to Medicare beneficiaries. In addition to submitting 
the full bid amount, the organization will also submit the 
proportions of such bid amount attributable to (1) the 
provision of statutory non-drug (Part A and Part B) benefits, 
(2) the provision of statutory drug (Part D) benefits, and (3) 
the provision of non-statutory (supplemental) benefits, along 
with the actuarial basis for the bid and the proportions. The 
MBA will have the authority to negotiate regarding the monthly 
bid amounts, in a similar fashion as the Director of the Office 
of Personnel Management (OPM) has with respect to the Federal 
Employees Health Benefits Program (FEHBP). The Administrator 
may reject a plan if it is designed to discourage enrollment by 
certain Medicare beneficiaries.
    Plan bids for statutory non-drug benefits within a region 
will be compared to a benchmark for such benefits. The 
benchmark amount will be the Medicare Advantage payment rate. 
Beneficiaries who enroll in plans with bids below the benchmark 
will receive a rebate of 75 percent of the difference between 
the benchmark and the bid. The remaining 25 percent will be 
savings for the Medicare program. In calculating the rebate, 
both the benchmark and the bid will be risk adjusted to reflect 
the health and demographic characteristics of each plan's 
enrollees. The rebate can be credited to the premium for 
prescription drugs or supplemental benefits, returned to the 
beneficiary in the form of cash rebates, or provided to the 
beneficiary through other means approved by the MBA.
    Payment to plans for non-drug benefits will be as follows: 
(A) Plans with bids below the benchmark will receive payment of 
their risk-adjusted bid amount, plus the rebate amount 
described above (75 percent of the difference between the 
benchmark and the bid). (B) Plans with bids at or above the 
benchmark will receive the risk-adjusted benchmark amount as 
payment. Plans will be paid for statutory drug benefits in the 
manner outlined in Title I.

                     CHAPTER 3--ADDITIONAL REFORMS


Section 231. Making permanent change in Medicare advantage reporting 
        deadlines and annual, coordinated election period

    Section 231 creates a permanent change in the reporting 
deadline for Medicare Advantage plans on their payment rates. 
The new deadline will now be the second Tuesday in September 
instead of July 1. This section also creates a permanent change 
in the election period to occur in November, which is 
consistent with the 3-year change that was made in the 
Bioterrorism bill. Finally, the section creates a permanent 
change to the annual announcement of Medicare Advantage payment 
rates by requiring the Secretary to make the payment rates for 
Medicare Advantage plans available by the second Monday in May. 
This is also consistent with the 2-year change that was 
included in the Bioterrorism bill.

Section 232. Avoiding duplicative State regulation

    Section 232 ensures that Medicare Advantage plans are not 
subject to state laws that do not pertain to solvency and 
licensing. This provision will take effect on the date of 
enactment of this Act.

Section 233. Specialized Medicare advantage plans for special needs 
        beneficiaries

    Section 233 ensures that Medicare Advantage plans that 
target special needs beneficiaries are treated in the same 
manner as regular Medicare Advantage plans. This section will 
make the current special needs demonstration program permanent 
(i.e., Evercare).

Section 234. Medicare MSAs

    Section 234 exempts Medical Savings Accounts (MSA) plans 
from reporting quality and encounter data to the Trustees. It 
also makes the MSA program permanent in law and eliminates the 
cap of people eligible to enroll.

Section 235. Extension of reasonable cost contracts

    Section 235 allows the continuation of reasonable cost 
contracts indefinitely, with the following exception: After 
January 1, 2008, a reasonable cost contract may not be extended 
or renewed in an area that is served by 2 or more Medicare 
Advantage plans or 2 or more enhanced fee-for-service plans, 
each of which meets certain minimum enrollment requirements in 
that area.

       Subtitle C--Application of FEHBP-Style Competitive Reforms


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

    Section 241 states that beginning in 2010, any EFFS region 
that has EFFS enrollment equal to at least the national 
Medicare private plan enrollment rate or 20 percent and is 
served by 2 or more EFFS plans, meeting certain minimum 
enrollment requirements, will be deemed a competitive EFFS 
region. For such competitive regions, the benchmark amount 
against which plan bids will be compared will be based on a 
weighted average of plan bids and the regional costs of the 
traditional fee-for-service program. The competitive benchmark 
will be phased in over a 5-year period.
    Beginning in 2010, an area will be considered a competitive 
Medicare Advantage area if the Administrator finds that the 
area has Medicare Advantage enrollment equal to at least the 
national Medicare private plan enrollment rate or 20 percent 
and that at least 2 Medicare Advantage plans, meeting certain 
minimum enrollment requirements, will be offered in the area by 
different Medicare Advantage organizations. The competitive 
area must be a metropolitan statistical area or other similar-
sized area in which the Administrator finds there are a 
substantial number of Medicare Advantage enrollees. For such 
competitive areas, the benchmark amount against which plan bids 
will be compared will be based on a weighted average of plan 
bids and the costs of the traditional fee-for-service program 
in the area. The competitive benchmark will be phased in over a 
5-year period.
    Enrollees in the traditional Medicare program who reside in 
a competitive EFFS region or a competitive Medicare Advantage 
area may have their Part B premiums adjusted either up or down, 
subject to a 5-year phase in. If an enrollee resides in a 
competitive area and the fee-for-service cost in the region or 
area is lower than the competitive benchmark amount, then 
beneficiaries are entitled to 75 percent of the difference 
between the fee-for-service amount and the benchmark, phased in 
over 5 years. If the fee-for-service cost is greater than the 
competitive benchmark, the beneficiary premium is adjusted to 
make up the difference between the bid and the benchmark, and 
any such adjustment is phased in over 5 years.

             TITLE III--COMBATTING WASTE, FRAUD, AND ABUSE


Section 301. Medicare secondary payor (MSP) provisions

    Section 301 modifies the conditions under which Medicare 
becomes the secondary payer for medical services. Effective 
immediately (as if enacted with Balanced Budget Refinement Act 
(BBRA) of 1984), the Secretary can make payments for an item or 
service another payer has not made or cannot reasonably be 
expected to make payment. The Secretary makes payment on 
condition that the appropriate Trust Fund is reimbursed if and 
when the plans make payment. Reimbursement to the Trust Fund 
must be made if it is shown that the primary plan has or had a 
responsibility to make payment.
    This section also authorizes the US to bring an action 
against any or all entities that are or were required or 
responsible to make payment. The US may collect double damages, 
and may recover from any entity that has received payment or 
profit from a primary plan's payment.

Section 302. Competitive acquisition of certain items and services

    Section 302 directs the Secretary to establish competitive 
acquisition areas throughout the United States for certain Part 
B items and services beginning in 2004. This policy, phased in 
over a 3-year period, specifies that certain durable medical 
equipment and off-the-shelf orthotics will be subject to 
competitive bidding practices. The Secretary will have the 
discretion to choose the appropriate codes for competitive 
bidding. Exemptions may be made for areas that are not 
competitive due to low-population density (rural areas) or for 
items and services for which competitive bidding will not 
likely result in significant savings. This policy limits 
beneficiaries' co-payments to 20% of the contract price and 
ensures that multiple suppliers in each geographic area will be 
maintained. Additionally, quality and customer service 
standards will be created for the items and services subject to 
competition. The provision also directs the Secretary to 
conduct a demonstration project of competitive bidding for 
clinical diagnostic laboratories and submit to Congress an 
initial report on the project.

Section 303. Competitive acquisition of covered outpatient drugs and 
        biologicals

    Section 303(a) requires the Secretary to establish the 
practice expense relative value for the physician fee schedule 
in CY2005 using the survey data provided by entities and 
organizations if consistent with the Secretary's criteria for 
acceptable survey data. If submitted prior to December 31, 
2004, increases in expenditures resulting from this provision 
would be exempt from the budget-neutrality requirement. The 
Secretary would not be prevented from adjusting the practice 
expense relative values in subsequent years. Also, the 
Secretary would be required to adjust the non-physician work 
pool methodology so that practice expense relative values for 
these services are not disproportionately reduced as a result 
of the above changes.
    This section is in response to certain physician specialty 
groups, including medical oncologists, who have asserted that 
they are inadequately compensated under the physician fee 
schedule, as a result of inaccurate survey data and 
methodological flaws in the formula. They have further asserted 
that they depended on the current overpayment for drugs to make 
up for these inadequate and flawed Medicare reimbursements.
    Section 303(b) will provide physicians with two options for 
acquiring the drugs they will administer to Medicare patients. 
They can either elect to continue to purchase drugs and bill 
Medicare directly, or obtain their drugs through new Medicare 
contractors, who will in turn bill Medicare for the drugs 
provided. In the first instance, Medicare's reimbursement will 
be based on new Average Sales Prices (``ASP''), as defined in 
the section, and which manufacturers will be required to report 
directly to the government. ASP will be the average of all 
prices at which a manufacturer sells the drug or biologic, 
including any rebates, chargebacks or other discounts that 
would lower the final price to thepurchaser, excluding only 
those sales already excluded from the calculation of the Medicaid Best 
Price and sales at nominal prices.
    In the second instance, Medicare's reimbursements to 
contractors will be based on an average of the winning bids of 
contractors selected through a competitive bidding process. The 
Secretary would be required to establish a competiti