[DOCID: f:h1enr.txt]
        H.R.1

                       One Hundred Eighth Congress

                                 of the

                        United States of America


                          AT THE FIRST SESSION

          Begun and held at the City of Washington on Tuesday,
           the seventh day of January, two thousand and three


                                 An Act


 
    To amend title XVIII of the Social Security Act to provide for a 
  voluntary program for prescription drug coverage under the Medicare 
   Program, to modernize the Medicare Program, to amend the Internal 
  Revenue Code of 1986 to allow a deduction to individuals for amounts 
   contributed to health savings security accounts and health savings 
 accounts, to provide for the disposition of unused health benefits in 
   cafeteria plans and flexible spending arrangements, and for other 
                                purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

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

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

               TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

Sec. 101. Medicare prescription drug benefit.
Sec. 102. Medicare Advantage conforming amendments.
Sec. 103. Medicaid amendments.
Sec. 104. Medigap amendments.
Sec. 105. Additional provisions relating to medicare prescription drug 
          discount card and transitional assistance program.
Sec. 106. State Pharmaceutical Assistance Transition Commission.
Sec. 107. Studies and reports.
Sec. 108. Grants to physicians to implement electronic prescription drug 
          programs.
Sec. 109. Expanding the work of medicare Quality Improvement 
          Organizations to include parts C and D.
Sec. 110. Conflict of interest study.
Sec. 111. Study on employment-based retiree health coverage.

                      TITLE II--MEDICARE ADVANTAGE

        Subtitle A--Implementation of Medicare Advantage Program

Sec. 201. Implementation of Medicare Advantage program.

                   Subtitle B--Immediate Improvements

Sec. 211. Immediate improvements.

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

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

                     Subtitle D--Additional Reforms

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

          Subtitle E--Comparative Cost Adjustment (CCA) Program

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

              TITLE III--COMBATTING WASTE, FRAUD, AND ABUSE

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

                       TITLE IV--RURAL PROVISIONS

             Subtitle A--Provisions Relating to Part A Only

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

             Subtitle B--Provisions Relating to Part B Only

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

            Subtitle C--Provisions Relating to Parts A and B

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

                      Subtitle D--Other Provisions

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

                 TITLE V--PROVISIONS RELATING TO PART A

                 Subtitle A--Inpatient Hospital Services

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

                      Subtitle B--Other Provisions

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

                 TITLE VI--PROVISIONS RELATING TO PART B

         Subtitle A--Provisions Relating to Physicians' Services

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

                     Subtitle B--Preventive Services

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

                      Subtitle C--Other Provisions

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

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

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

             TITLE VII--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

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

                 Subtitle B--Graduate Medical Education

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

                  Subtitle C--Chronic Care Improvement

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

                      Subtitle D--Other Provisions

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

                      TITLE VIII--COST CONTAINMENT

                      Subtitle A--Cost Containment

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

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

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

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

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

                      Subtitle A--Regulatory Reform

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

                     Subtitle B--Contracting Reform

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

                   Subtitle C--Education and Outreach

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

                    Subtitle D--Appeals and Recovery

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

                  Subtitle E--Miscellaneous Provisions

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

             TITLE X--MEDICAID AND MISCELLANEOUS PROVISIONS

                     Subtitle A--Medicaid Provisions

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

                  Subtitle B--Miscellaneous Provisions

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

             TITLE XI--ACCESS TO AFFORDABLE PHARMACEUTICALS

            Subtitle A--Access to Affordable Pharmaceuticals

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

               Subtitle B--Federal Trade Commission Review

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

              Subtitle C--Importation of Prescription Drugs

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

      TITLE XII--TAX INCENTIVES FOR HEALTH AND RETIREMENT SECURITY

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

              TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

SEC. 101. MEDICARE PRESCRIPTION DRUG BENEFIT.

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

         ``Part D--Voluntary Prescription Drug Benefit Program

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


                ``eligibility, enrollment, and information

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


                       ``prescription drug benefits

    ``Sec. 1860D-2. (a) Requirements.--
        ``(1) In general.--For purposes of this part and part C, the 
    term `qualified prescription drug coverage' means either of the 
    following:
            ``(A) Standard prescription drug coverage with access to 
        negotiated prices.--Standard prescription drug coverage (as 
        defined in subsection (b)) and access to negotiated prices 
        under subsection (d).
            ``(B) Alternative prescription drug coverage with at least 
        actuarially equivalent benefits and access to negotiated 
        prices.--Coverage of covered part D drugs which meets the 
        alternative prescription drug coverage requirements of 
        subsection (c) and access to negotiated prices under subsection 
        (d), but only if the benefit design of such coverage is 
        approved by the Secretary, as provided under subsection (c).
        ``(2) Permitting supplemental prescription drug coverage.--
            ``(A) In general.--Subject to subparagraph (B), qualified 
        prescription drug coverage may include supplemental 
        prescription drug coverage consisting of either or both of the 
        following:
                ``(i) Certain reductions in cost-sharing.--

                    ``(I) In general.--A reduction in the annual 
                deductible, a reduction in the coinsurance percentage, 
                or an increase in the initial coverage limit with 
                respect to covered part D drugs, or any combination 
                thereof, insofar as such a reduction or increase 
                increases the actuarial value of benefits above the 
                actuarial value of basic prescription drug coverage.
                    ``(II) Construction.--Nothing in this paragraph 
                shall be construed as affecting the application of 
                subsection (c)(3).

                ``(ii) Optional drugs.--Coverage of any product that 
            would be a covered part D drug but for the application of 
            subsection (e)(2)(A).
            ``(B) Requirement.--A PDP sponsor may not offer a 
        prescription drug plan that provides supplemental prescription 
        drug coverage pursuant to subparagraph (A) in an area unless 
        the sponsor also offers a prescription drug plan in the area 
        that only provides basic prescription drug coverage.
        ``(3) Basic prescription drug coverage.--For purposes of this 
    part and part C, the term `basic prescription drug coverage' means 
    either of the following:
            ``(A) Coverage that meets the requirements of paragraph 
        (1)(A).
            ``(B) Coverage that meets the requirements of paragraph 
        (1)(B) but does not have any supplemental prescription drug 
        coverage described in paragraph (2)(A).
        ``(4) Application of secondary payor provisions.--The 
    provisions of section 1852(a)(4) shall apply under this part in the 
    same manner as they apply under part C.
        ``(5) Construction.--Nothing in this subsection shall be 
    construed as changing the computation of incurred costs under 
    subsection (b)(4).
    ``(b) Standard Prescription Drug Coverage.--For purposes of this 
part and part C, the term `standard prescription drug coverage' means 
coverage of covered part D drugs that meets the following requirements:
        ``(1) Deductible.--
            ``(A) In general.--The coverage has an annual deductible--
                ``(i) for 2006, that is equal to $250; or
                ``(ii) for a subsequent year, that is equal to the 
            amount specified under this paragraph for the previous year 
            increased by the percentage specified in paragraph (6) for 
            the year involved.
            ``(B) Rounding.--Any amount determined under subparagraph 
        (A)(ii) that is not a multiple of $5 shall be rounded to the 
        nearest multiple of $5.
        ``(2) Benefit structure.--
            ``(A) 25 percent coinsurance.--The coverage has coinsurance 
        (for costs above the annual deductible specified in paragraph 
        (1) and up to the initial coverage limit under paragraph (3)) 
        that is--
                ``(i) equal to 25 percent; or
                ``(ii) actuarially equivalent (using processes and 
            methods established under section 1860D-11(c)) to an 
            average expected payment of 25 percent of such costs.
            ``(B) Use of tiers.--Nothing in this part shall be 
        construed as preventing a PDP sponsor or an MA organization 
        from applying tiered copayments under a plan, so long as such 
        tiered copayments are consistent with subparagraph (A)(ii).
        ``(3) Initial coverage limit.--
            ``(A) In general.--Except as provided in paragraph (4), the 
        coverage has an initial coverage limit on the maximum costs 
        that may be recognized for payment purposes (including the 
        annual deductible)--
                ``(i) for 2006, that is equal to $2,250; or
                ``(ii) for a subsequent year, that is equal to the 
            amount specified in this paragraph for the previous year, 
            increased by the annual percentage increase described in 
            paragraph (6) for the year involved.
            ``(B) Rounding.--Any amount determined under subparagraph 
        (A)(ii) that is not a multiple of $10 shall be rounded to the 
        nearest multiple of $10.
        ``(4) Protection against high out-of-pocket expenditures.--
            ``(A) In general.--
                ``(i) In general.--The coverage provides benefits, 
            after the part D eligible individual has incurred costs (as 
            described in subparagraph (C)) for covered part D drugs in 
            a year equal to the annual out-of-pocket threshold 
            specified in subparagraph (B), with cost-sharing that is 
            equal to the greater of--

                    ``(I) a copayment of $2 for a generic drug or a 
                preferred drug that is a multiple source drug (as 
                defined in section 1927(k)(7)(A)(i)) and $5 for any 
                other drug; or
                    ``(II) coinsurance that is equal to 5 percent.

                ``(ii) Adjustment of amount.--For a year after 2006, 
            the dollar amounts specified in clause (i)(I) shall be 
            equal to the dollar amounts specified in this subparagraph 
            for the previous year, increased by the annual percentage 
            increase described in paragraph (6) for the year involved. 
            Any amount established under this clause that is not a 
            multiple of a 5 cents shall be rounded to the nearest 
            multiple of 5 cents.
            ``(B) Annual out-of-pocket threshold.--
                ``(i) In general.--For purposes of this part, the 
            `annual out-of-pocket threshold' specified in this 
            subparagraph--

                    ``(I) for 2006, is equal to $3,600; or
                    ``(II) for a subsequent year, is equal to the 
                amount specified in this subparagraph for the previous 
                year, increased by the annual percentage increase 
                described in paragraph (6) for the year involved.

                ``(ii) Rounding.--Any amount determined under clause 
            (i)(II) that is not a multiple of $50 shall be rounded to 
            the nearest multiple of $50.
            ``(C) Application.--In applying subparagraph (A)--
                ``(i) incurred costs shall only include costs incurred 
            with respect to covered part D drugs for the annual 
            deductible described in paragraph (1), for cost-sharing 
            described in paragraph (2), and for amounts for which 
            benefits are not provided because of the application of the 
            initial coverage limit described in paragraph (3), but does 
            not include any costs incurred for covered part D drugs 
            which are not included (or treated as being included) in 
            the plan's formulary; and
                ``(ii) such costs shall be treated as incurred only if 
            they are paid by the part D eligible individual (or by 
            another person, such as a family member, on behalf of the 
            individual), under section 1860D-14, or under a State 
            Pharmaceutical Assistance Program and the part D eligible 
            individual (or other person) is not reimbursed through 
            insurance or otherwise, a group health plan, or other 
            third-party payment arrangement (other than under such 
            section or such a Program) for such costs.
            ``(D) Information regarding third-party reimbursement.--
                ``(i) Procedures for exchanging information.--In order 
            to accurately apply the requirements of subparagraph 
            (C)(ii), the Secretary is authorized to establish 
            procedures, in coordination with the Secretary of the 
            Treasury and the Secretary of Labor--

                    ``(I) for determining whether costs for part D 
                eligible individuals are being reimbursed through 
                insurance or otherwise, a group health plan, or other 
                third-party payment arrangement; and
                    ``(II) for alerting the PDP sponsors and MA 
                organizations that offer the prescription drug plans 
                and MA-PD plans in which such individuals are enrolled 
                about such reimbursement arrangements.

                ``(ii) Authority to request information from 
            enrollees.--A PDP sponsor or an MA organization may 
            periodically ask part D eligible individuals enrolled in a 
            prescription drug plan or an MA-PD plan offered by the 
            sponsor or organization whether such individuals have or 
            expect to receive such third-party reimbursement. A 
            material misrepresentation of the information described in 
            the preceding sentence by an individual (as defined in 
            standards set by the Secretary and determined through a 
            process established by the Secretary) shall constitute 
            grounds for termination of enrollment in any plan under 
            section 1851(g)(3)(B) (and as applied under this part under 
            section 1860D-1(b)(1)(B)(v)) for a period specified by the 
            Secretary.
        ``(5) Construction.--Nothing in this part shall be construed as 
    preventing a PDP sponsor or an MA organization offering an MA-PD 
    plan from reducing to zero the cost-sharing otherwise applicable to 
    preferred or generic drugs.
        ``(6) Annual percentage increase.--The annual percentage 
    increase specified in this paragraph for a year is equal to the 
    annual percentage increase in average per capita aggregate 
    expenditures for covered part D drugs in the United States for part 
    D eligible individuals, as determined by the Secretary for the 12-
    month period ending in July of the previous year using such methods 
    as the Secretary shall specify.
    ``(c) Alternative Prescription Drug Coverage Requirements.--A 
prescription drug plan or an MA-PD plan may provide a different 
prescription drug benefit design from standard prescription drug 
coverage so long as the Secretary determines (consistent with section 
1860D-11(c)) that the following requirements are met and the plan 
applies for, and receives, the approval of the Secretary for such 
benefit design:
        ``(1) Assuring at least actuarially equivalent coverage.--
            ``(A) Assuring equivalent value of total coverage.--The 
        actuarial value of the total coverage is at least equal to the 
        actuarial value of standard prescription drug coverage.
            ``(B) Assuring equivalent unsubsidized value of coverage.--
        The unsubsidized value of the coverage is at least equal to the 
        unsubsidized value of standard prescription drug coverage. For 
        purposes of this subparagraph, the unsubsidized value of 
        coverage is the amount by which the actuarial value of the 
        coverage exceeds the actuarial value of the subsidy payments 
        under section 1860D-15 with respect to such coverage.
            ``(C) Assuring standard payment for costs at initial 
        coverage limit.--The coverage is designed, based upon an 
        actuarially representative pattern of utilization, to provide 
        for the payment, with respect to costs incurred that are equal 
        to the initial coverage limit under subsection (b)(3) for the 
        year, of an amount equal to at least the product of--
                ``(i) the amount by which the initial coverage limit 
            described in subsection (b)(3) for the year exceeds the 
            deductible described in subsection (b)(1) for the year; and
                ``(ii) 100 percent minus the coinsurance percentage 
            specified in subsection (b)(2)(A)(i).
        ``(2) Maximum required deductible.--The deductible under the 
    coverage shall not exceed the deductible amount specified under 
    subsection (b)(1) for the year.
        ``(3) Same protection against high out-of-pocket 
    expenditures.--The coverage provides the coverage required under 
    subsection (b)(4).
    ``(d) Access to Negotiated Prices.--
        ``(1) Access.--
            ``(A) In general.--Under qualified prescription drug 
        coverage offered by a PDP sponsor offering a prescription drug 
        plan or an MA organization offering an MA-PD plan, the sponsor 
        or organization shall provide enrollees with access to 
        negotiated prices used for payment for covered part D drugs, 
        regardless of the fact that no benefits may be payable under 
        the coverage with respect to such drugs because of the 
        application of a deductible or other cost-sharing or an initial 
        coverage limit (described in subsection (b)(3)).
            ``(B) Negotiated prices.--For purposes of this part, 
        negotiated prices shall take into account negotiated price 
        concessions, such as discounts, direct or indirect subsidies, 
        rebates, and direct or indirect remunerations, for covered part 
        D drugs, and include any dispensing fees for such drugs.
            ``(C) Medicaid-related provisions.--The prices negotiated 
        by a prescription drug plan, by an MA-PD plan with respect to 
        covered part D drugs, or by a qualified retiree prescription 
        drug plan (as defined in section 1860D-22(a)(2)) with respect 
        to such drugs on behalf of part D eligible individuals, shall 
        (notwithstanding any other provision of law) not be taken into 
        account for the purposes of establishing the best price under 
        section 1927(c)(1)(C).
        ``(2) Disclosure.--A PDP sponsor offering a prescription drug 
    plan or an MA organization offering an MA-PD plan shall disclose to 
    the Secretary (in a manner specified by the Secretary) the 
    aggregate negotiated price concessions described in paragraph 
    (1)(B) made available to the sponsor or organization by a 
    manufacturer which are passed through in the form of lower 
    subsidies, lower monthly beneficiary prescription drug premiums, 
    and lower prices through pharmacies and other dispensers. The 
    provisions of section 1927(b)(3)(D) apply to information disclosed 
    to the Secretary under this paragraph.
        ``(3) Audits.--To protect against fraud and abuse and to ensure 
    proper disclosures and accounting under this part and in accordance 
    with section 1857(d)(2)(B) (as applied under section 1860D-
    12(b)(3)(C)), the Secretary may conduct periodic audits, directly 
    or through contracts, of the financial statements and records of 
    PDP sponsors with respect to prescription drug plans and MA 
    organizations with respect to MA-PD plans.
    ``(e) Covered Part D Drug Defined.--
        ``(1) In general.--Except as provided in this subsection, for 
    purposes of this part, the term `covered part D drug' means--
            ``(A) a drug that may be dispensed only upon a prescription 
        and that is described in subparagraph (A)(i), (A)(ii), or 
        (A)(iii) of section 1927(k)(2); or
            ``(B) a biological product described in clauses (i) through 
        (iii) of subparagraph (B) of such section or insulin described 
        in subparagraph (C) of such section and medical supplies 
        associated with the injection of insulin (as defined in 
        regulations of the Secretary),
    and such term includes a vaccine licensed under section 351 of the 
    Public Health Service Act and any use of a covered part D drug for 
    a medically accepted indication (as defined in section 1927(k)(6)).
        ``(2) Exclusions.--
            ``(A) In general.--Such term does not include drugs or 
        classes of drugs, or their medical uses, which may be excluded 
        from coverage or otherwise restricted under section 1927(d)(2), 
        other than subparagraph (E) of such section (relating to 
        smoking cessation agents), or under section 1927(d)(3).
            ``(B) Medicare covered drugs.--A drug prescribed for a part 
        D eligible individual that would otherwise be a covered part D 
        drug under this part shall not be so considered if payment for 
        such drug as so prescribed and dispensed or administered with 
        respect to that individual is available (or would be available 
        but for the application of a deductible) under part A or B for 
        that individual.
        ``(3) Application of general exclusion provisions.--A 
    prescription drug plan or an MA-PD plan may exclude from qualified 
    prescription drug coverage any covered part D drug--
            ``(A) for which payment would not be made if section 
        1862(a) applied to this part; or
            ``(B) which is not prescribed in accordance with the plan 
        or this part.
    Such exclusions are determinations subject to reconsideration and 
    appeal pursuant to subsections (g) and (h), respectively, of 
    section 1860D-4.


       ``access to a choice of qualified prescription drug coverage

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


    ``beneficiary protections for qualified prescription drug coverage

    ``Sec. 1860D-4. (a) Dissemination of Information.--
        ``(1) General information.--
            ``(A) Application of ma information.--A PDP sponsor shall 
        disclose, in a clear, accurate, and standardized form to each 
        enrollee with a prescription drug plan offered by the sponsor 
        under this part at the time of enrollment and at least annually 
        thereafter, the information described in section 1852(c)(1) 
        relating to such plan, insofar as the Secretary determines 
        appropriate with respect to benefits provided under this part, 
        and including the information described in subparagraph (B).
            ``(B) Drug specific information.--The information described 
        in this subparagraph is information concerning the following:
                ``(i) Access to specific covered part D drugs, 
            including access through pharmacy networks.
                ``(ii) How any formulary (including any tiered 
            formulary structure) used by the sponsor functions, 
            including a description of how a part D eligible individual 
            may obtain information on the formulary consistent with 
            paragraph (3).
                ``(iii) Beneficiary cost-sharing requirements and how a 
            part D eligible individual may obtain information on such 
            requirements, including tiered or other copayment level 
            applicable to each drug (or class of drugs), consistent 
            with paragraph (3).
                ``(iv) The medication therapy management program 
            required under subsection (c).
        ``(2) Disclosure upon request of general coverage, utilization, 
    and grievance information.--Upon request of a part D eligible 
    individual who is eligible to enroll in a prescription drug plan, 
    the PDP sponsor offering such plan shall provide information 
    similar (as determined by the Secretary) to the information 
    described in subparagraphs (A), (B), and (C) of section 1852(c)(2) 
    to such individual.
        ``(3) Provision of specific information.--
            ``(A) Response to beneficiary questions.--Each PDP sponsor 
        offering a prescription drug plan shall have a mechanism for 
        providing specific information on a timely basis to enrollees 
        upon request. Such mechanism shall include access to 
        information through the use of a toll-free telephone number 
        and, upon request, the provision of such information in 
        writing.
            ``(B) Availability of information on changes in formulary 
        through the internet.--A PDP sponsor offering a prescription 
        drug plan shall make available on a timely basis through an 
        Internet website information on specific changes in the 
        formulary under the plan (including changes to tiered or 
        preferred status of covered part D drugs).
        ``(4) Claims information.--A PDP sponsor offering a 
    prescription drug plan must furnish to each enrollee in a form 
    easily understandable to such enrollees--
            ``(A) an explanation of benefits (in accordance with 
        section 1806(a) or in a comparable manner); and
            ``(B) when prescription drug benefits are provided under 
        this part, a notice of the benefits in relation to--
                ``(i) the initial coverage limit for the current year; 
            and
                ``(ii) the annual out-of-pocket threshold for the 
            current year.
        Notices under subparagraph (B) need not be provided more often 
        than as specified by the Secretary and notices under 
        subparagraph (B)(ii) shall take into account the application of 
        section 1860D-2(b)(4)(C) to the extent practicable, as 
        specified by the Secretary.
    ``(b) Access to Covered Part D Drugs.--
        ``(1) Assuring pharmacy access.--
            ``(A) Participation of any willing pharmacy.--A 
        prescription drug plan shall permit the participation of any 
        pharmacy that meets the terms and conditions under the plan.
            ``(B) Discounts allowed for network pharmacies.--For 
        covered part D drugs dispensed through in-network pharmacies, a 
        prescription drug plan may, notwithstanding subparagraph (A), 
        reduce coinsurance or copayments for part D eligible 
        individuals enrolled in the plan below the level otherwise 
        required. In no case shall such a reduction result in an 
        increase in payments made by the Secretary under section 1860D-
        15 to a plan.
            ``(C) Convenient access for network pharmacies.--
                ``(i) In general.--The PDP sponsor of the prescription 
            drug plan shall secure the participation in its network of 
            a sufficient number of pharmacies that dispense (other than 
            by mail order) drugs directly to patients to ensure 
            convenient access (consistent with rules established by the 
            Secretary).
                ``(ii) Application of tricare standards.--The Secretary 
            shall establish rules for convenient access to in-network 
            pharmacies under this subparagraph that are no less 
            favorable to enrollees than the rules for convenient access 
            to pharmacies included in the statement of work of 
            solicitation (#MDA906-03-R-0002) of the Department of 
            Defense under the TRICARE Retail Pharmacy (TRRx) as of 
            March 13, 2003.
                ``(iii) Adequate emergency access.--Such rules shall 
            include adequate emergency access for enrollees.
                ``(iv) Convenient access in long-term care 
            facilities.--Such rules may include standards with respect 
            to access for enrollees who are residing in long-term care 
            facilities and for pharmacies operated by the Indian Health 
            Service, Indian tribes and tribal organizations, and urban 
            Indian organizations (as defined in section 4 of the Indian 
            Health Care Improvement Act).
            ``(D) Level playing field.--Such a sponsor shall permit 
        enrollees to receive benefits (which may include a 90-day 
        supply of drugs or biologicals) through a pharmacy (other than 
        a mail order pharmacy), with any differential in charge paid by 
        such enrollees.
            ``(E)  Not required to accept insurance risk.--The terms 
        and conditions under subparagraph (A) may not require 
        participating pharmacies to accept insurance risk as a 
        condition of participation.
        ``(2) Use of standardized technology.--
            ``(A) In general.--The PDP sponsor of a prescription drug 
        plan shall issue (and reissue, as appropriate) such a card (or 
        other technology) that may be used by an enrollee to assure 
        access to negotiated prices under section 1860D-2(d).
            ``(B) Standards.--
                ``(i) In general.--The Secretary shall provide for the 
            development, adoption, or recognition of standards relating 
            to a standardized format for the card or other technology 
            required under subparagraph (A). Such standards shall be 
            compatible with part C of title XI and may be based on 
            standards developed by an appropriate standard setting 
            organization.
                ``(ii) Consultation.--In developing the standards under 
            clause (i), the Secretary shall consult with the National 
            Council for Prescription Drug Programs and other standard 
            setting organizations determined appropriate by the 
            Secretary.
                ``(iii) Implementation.--The Secretary shall develop, 
            adopt, or recognize the standards under clause (i) by such 
            date as the Secretary determines shall be sufficient to 
            ensure that PDP sponsors utilize such standards beginning 
            January 1, 2006.
        ``(3) Requirements on development and application of 
    formularies.--If a PDP sponsor of a prescription drug plan uses a 
    formulary (including the use of tiered cost-sharing), the following 
    requirements must be met:
            ``(A) Development and revision by a pharmacy and 
        therapeutic (p&t) committee.--
                ``(i) In general.--The formulary must be developed and 
            reviewed by a pharmacy and therapeutic committee. A 
            majority of the members of such committee shall consist of 
            individuals who are practicing physicians or practicing 
            pharmacists (or both).
                ``(ii) Inclusion of independent experts.--Such 
            committee shall include at least one practicing physician 
            and at least one practicing pharmacist, each of whom--

                    ``(I) is independent and free of conflict with 
                respect to the sponsor and plan; and
                    ``(II) has expertise in the care of elderly or 
                disabled persons.

            ``(B) Formulary development.--In developing and reviewing 
        the formulary, the committee shall--
                ``(i) base clinical decisions on the strength of 
            scientific evidence and standards of practice, including 
            assessing peer-reviewed medical literature, such as 
            randomized clinical trials, pharmacoeconomic studies, 
            outcomes research data, and on such other information as 
            the committee determines to be appropriate; and
                ``(ii) take into account whether including in the 
            formulary (or in a tier in such formulary) particular 
            covered part D drugs has therapeutic advantages in terms of 
            safety and efficacy.
            ``(C) Inclusion of drugs in all therapeutic categories and 
        classes.--
                ``(i) In general.--The formulary must include drugs 
            within each therapeutic category and class of covered part 
            D drugs, although not necessarily all drugs within such 
            categories and classes.
                ``(ii) Model guidelines.--The Secretary shall request 
            the United States Pharmacopeia to develop, in consultation 
            with pharmaceutical benefit managers and other interested 
            parties, a list of categories and classes that may be used 
            by prescription drug plans under this paragraph and to 
            revise such classification from time to time to reflect 
            changes in therapeutic uses of covered part D drugs and the 
            additions of new covered part D drugs.
                ``(iii) Limitation on changes in therapeutic 
            classification.--The PDP sponsor of a prescription drug 
            plan may not change the therapeutic categories and classes 
            in a formulary other than at the beginning of each plan 
            year except as the Secretary may permit to take into 
            account new therapeutic uses and newly approved covered 
            part D drugs.
            ``(D) Provider and patient education.--The PDP sponsor 
        shall establish policies and procedures to educate and inform 
        health care providers and enrollees concerning the formulary.
            ``(E) Notice before removing drug from formulary or 
        changing preferred or tier status of drug.--Any removal of a 
        covered part D drug from a formulary and any change in the 
        preferred or tiered cost-sharing status of such a drug shall 
        take effect only after appropriate notice is made available 
        (such as under subsection (a)(3)) to the Secretary, affected 
        enrollees, physicians, pharmacies, and pharmacists.
            ``(F) Periodic evaluation of protocols.--In connection with 
        the formulary, the sponsor of a prescription drug plan shall 
        provide for the periodic evaluation and analysis of treatment 
        protocols and procedures.
    The requirements of this paragraph may be met by a PDP sponsor 
    directly or through arrangements with another entity.
    ``(c) Cost and Utilization Management; Quality Assurance; 
Medication Therapy Management Program.--
        ``(1) In general.--The PDP sponsor shall have in place, 
    directly or through appropriate arrangements, with respect to 
    covered part D drugs, the following:
            ``(A) A cost-effective drug utilization management program, 
        including incentives to reduce costs when medically 
        appropriate, such as through the use of multiple source drugs 
        (as defined in section 1927(k)(7)(A)(i)).
            ``(B) Quality assurance measures and systems to reduce 
        medication errors and adverse drug interactions and improve 
        medication use.
            ``(C) A medication therapy management program described in 
        paragraph (2).
            ``(D) A program to control fraud, abuse, and waste.
    Nothing in this section shall be construed as impairing a PDP 
    sponsor from utilizing cost management tools (including 
    differential payments) under all methods of operation.
        ``(2) Medication therapy management program.--
            ``(A) Description.--
                ``(i) In general.--A medication therapy management 
            program described in this paragraph is a program of drug 
            therapy management that may be furnished by a pharmacist 
            and that is designed to assure, with respect to targeted 
            beneficiaries described in clause (ii), that covered part D 
            drugs under the prescription drug plan are appropriately 
            used to optimize therapeutic outcomes through improved 
            medication use, and to reduce the risk of adverse events, 
            including adverse drug interactions. Such a program may 
            distinguish between services in ambulatory and 
            institutional settings.
                ``(ii) Targeted beneficiaries described.--Targeted 
            beneficiaries described in this clause are part D eligible 
            individuals who--

                    ``(I) have multiple chronic diseases (such as 
                diabetes, asthma, hypertension, hyperlipidemia, and 
                congestive heart failure);
                    ``(II) are taking multiple covered part D drugs; 
                and
                    ``(III) are identified as likely to incur annual 
                costs for covered part D drugs that exceed a level 
                specified by the Secretary.

            ``(B) Elements.--Such program may include elements that 
        promote--
                ``(i) enhanced enrollee understanding to promote the 
            appropriate use of medications by enrollees and to reduce 
            the risk of potential adverse events associated with 
            medications, through beneficiary education, counseling, and 
            other appropriate means;
                ``(ii) increased enrollee adherence with prescription 
            medication regimens through medication refill reminders, 
            special packaging, and other compliance programs and other 
            appropriate means; and
                ``(iii) detection of adverse drug events and patterns 
            of overuse and underuse of prescription drugs.
            ``(C) Development of program in cooperation with licensed 
        pharmacists.--Such program shall be developed in cooperation 
        with licensed and practicing pharmacists and physicians.
            ``(D) Coordination with care management plans.--The 
        Secretary shall establish guidelines for the coordination of 
        any medication therapy management program under this paragraph 
        with respect to a targeted beneficiary with any care management 
        plan established with respect to such beneficiary under a 
        chronic care improvement program under section 1807.
            ``(E) Considerations in pharmacy fees.--The PDP sponsor of 
        a prescription drug plan shall take into account, in 
        establishing fees for pharmacists and others providing services 
        under such plan, the resources used, and time required to, 
        implement the medication therapy management program under this 
        paragraph. Each such sponsor shall disclose to the Secretary 
        upon request the amount of any such management or dispensing 
        fees. The provisions of section 1927(b)(3)(D) apply to 
        information disclosed under this subparagraph.
    ``(d) Consumer Satisfaction Surveys.--In order to provide for 
comparative information under section 1860D-1(c)(3)(A)(v), the 
Secretary shall conduct consumer satisfaction surveys with respect to 
PDP sponsors and prescription drug plans in a manner similar to the 
manner such surveys are conducted for MA organizations and MA plans 
under part C.
    ``(e) Electronic Prescription Program.--
        ``(1) Application of standards.--As of such date as the 
    Secretary may specify, but not later than 1 year after the date of 
    promulgation of final standards under paragraph (4)(D), 
    prescriptions and other information described in paragraph (2)(A) 
    for covered part D drugs prescribed for part D eligible individuals 
    that are transmitted electronically shall be transmitted only in 
    accordance with such standards under an electronic prescription 
    drug program that meets the requirements of paragraph (2).
        ``(2) Program requirements.--Consistent with uniform standards 
    established under paragraph (3)--
            ``(A) Provision of information to prescribing health care 
        professional and dispensing pharmacies and pharmacists.--An 
        electronic prescription drug program shall provide for the 
        electronic transmittal to the prescribing health care 
        professional and to the dispensing pharmacy and pharmacist of 
        the prescription and information on eligibility and benefits 
        (including the drugs included in the applicable formulary, any 
        tiered formulary structure, and any requirements for prior 
        authorization) and of the following information with respect to 
        the prescribing and dispensing of a covered part D drug:
                ``(i) Information on the drug being prescribed or 
            dispensed and other drugs listed on the medication history, 
            including information on drug-drug interactions, warnings 
            or cautions, and, when indicated, dosage adjustments.
                ``(ii) Information on the availability of lower cost, 
            therapeutically appropriate alternatives (if any) for the 
            drug prescribed.
            ``(B) Application to medical history information.--
        Effective on and after such date as the Secretary specifies and 
        after the establishment of appropriate standards to carry out 
        this subparagraph, the program shall provide for the electronic 
        transmittal in a manner similar to the manner under 
        subparagraph (A) of information that relates to the medical 
        history concerning the individual and related to a covered part 
        D drug being prescribed or dispensed, upon request of the 
        professional or pharmacist involved.
            ``(C) Limitations.--Information shall only be disclosed 
        under subparagraph (A) or (B) if the disclosure of such 
        information is permitted under the Federal regulations 
        (concerning the privacy of individually identifiable health 
        information) promulgated under section 264(c) of the Health 
        Insurance Portability and Accountability Act of 1996.
            ``(D) Timing.--To the extent feasible, the information 
        exchanged under this paragraph shall be on an interactive, 
        real-time basis.
        ``(3) Standards.--
            ``(A) In general.--The Secretary shall provide consistent 
        with this subsection for the promulgation of uniform standards 
        relating to the requirements for electronic prescription drug 
        programs under paragraph (2).
            ``(B) Objectives.--Such standards shall be consistent with 
        the objectives of improving--
                ``(i) patient safety;
                ``(ii) the quality of care provided to patients; and
                ``(iii) efficiencies, including cost savings, in the 
            delivery of care.
            ``(C) Design criteria.--Such standards shall--
                ``(i) be designed so that, to the extent practicable, 
            the standards do not impose an undue administrative burden 
            on prescribing health care professionals and dispensing 
            pharmacies and pharmacists;
                ``(ii) be compatible with standards established under 
            part C of title XI, standards established under subsection 
            (b)(2)(B)(i), and with general health information 
            technology standards; and
                ``(iii) be designed so that they permit electronic 
            exchange of drug labeling and drug listing information 
            maintained by the Food and Drug Administration and the 
            National Library of Medicine.
            ``(D) Permitting use of appropriate messaging.--Such 
        standards shall allow for the messaging of information only if 
        it relates to the appropriate prescribing of drugs, including 
        quality assurance measures and systems referred to in 
        subsection (c)(1)(B).
            ``(E) Permitting patient designation of dispensing 
        pharmacy.--
                ``(i) In general.--Consistent with clause (ii), such 
            standards shall permit a part D eligible individual to 
            designate a particular pharmacy to dispense a prescribed 
            drug.
                ``(ii) No change in benefits.--Clause (i) shall not be 
            construed as affecting--

                    ``(I) the access required to be provided to 
                pharmacies by a prescription drug plan; or
                    ``(II) the application of any differences in 
                benefits or payments under such a plan based on the 
                pharmacy dispensing a covered part D drug.

        ``(4) Development, promulgation, and modification of 
    standards.--
            ``(A) Initial standards.--Not later than September 1, 2005, 
        the Secretary shall develop, adopt, recognize, or modify 
        initial uniform standards relating to the requirements for 
        electronic prescription drug programs described in paragraph 
        (2) taking into consideration the recommendations (if any) from 
        the National Committee on Vital and Health Statistics (as 
        established under section 306(k) of the Public Health Service 
        Act (42 U.S.C. 242k(k))) under subparagraph (B).
            ``(B) Role of ncvhs.--The National Committee on Vital and 
        Health Statistics shall develop recommendations for uniform 
        standards relating to such requirements in consultation with 
        the following:
                ``(i) Standard setting organizations (as defined in 
            section 1171(8))
                ``(ii) Practicing physicians.
                ``(iii) Hospitals.
                ``(iv) Pharmacies.
                ``(v) Practicing pharmacists.
                ``(vi) Pharmacy benefit managers.
                ``(vii) State boards of pharmacy.
                ``(viii) State boards of medicine.
                ``(ix) Experts on electronic prescribing.
                ``(x) Other appropriate Federal agencies.
            ``(C) Pilot project to test initial standards.--
                ``(i) In general.--During the 1-year period that begins 
            on January 1, 2006, the Secretary shall conduct a pilot 
            project to test the initial standards developed under 
            subparagraph (A) prior to the promulgation of the final 
            uniform standards under subparagraph (D) in order to 
            provide for the efficient implementation of the 
            requirements described in paragraph (2).
                ``(ii) Exception.--Pilot testing of standards is not 
            required under clause (i) where there already is adequate 
            industry experience with such standards, as determined by 
            the Secretary after consultation with effected standard 
            setting organizations and industry users.
                ``(iii) Voluntary participation of physicians and 
            pharmacies.--In order to conduct the pilot project under 
            clause (i), the Secretary shall enter into agreements with 
            physicians, physician groups, pharmacies, hospitals, PDP 
            sponsors, MA organizations, and other appropriate entities 
            under which health care professionals electronically 
            transmit prescriptions to dispensing pharmacies and 
            pharmacists in accordance with such standards.
                ``(iv) Evaluation and report.--

                    ``(I) Evaluation.--The Secretary shall conduct an 
                evaluation of the pilot project conducted under clause 
                (i).
                    ``(II) Report to congress.--Not later than April 1, 
                2007, the Secretary shall submit to Congress a report 
                on the evaluation conducted under subclause (I).

            ``(D) Final standards.--Based upon the evaluation of the 
        pilot project under subparagraph (C)(iv)(I) and not later than 
        April 1, 2008, the Secretary shall promulgate uniform standards 
        relating to the requirements described in paragraph (2).
        ``(5) Relation to state laws.--The standards promulgated under 
    this subsection shall supersede any State law or regulation that--
            ``(A) is contrary to the standards or restricts the ability 
        to carry out this part; and
            ``(B) pertains to the electronic transmission of medication 
        history and of information on eligibility, benefits, and 
        prescriptions with respect to covered part D drugs under this 
        part.
        ``(6) Establishment of safe harbor.--The Secretary, in 
    consultation with the Attorney General, shall promulgate 
    regulations that provide for a safe harbor from sanctions under 
    paragraphs (1) and (2) of section 1128B(b) and an exception to the 
    prohibition under subsection (a)(1) of section 1877 with respect to 
    the provision of nonmonetary remuneration (in the form of hardware, 
    software, or information technology and training services) 
    necessary and used solely to receive and transmit electronic 
    prescription information in accordance with the standards 
    promulgated under this subsection--
            ``(A) in the case of a hospital, by the hospital to members 
        of its medical staff;
            ``(B) in the case of a group practice (as defined in 
        section 1877(h)(4)), by the practice to prescribing health care 
        professionals who are members of such practice; and
            ``(C) in the case of a PDP sponsor or MA organization, by 
        the sponsor or organization to pharmacists and pharmacies 
        participating in the network of such sponsor or organization, 
        and to prescribing health care professionals.
    ``(f) Grievance Mechanism.--Each PDP sponsor shall provide 
meaningful procedures for hearing and resolving grievances between the 
sponsor (including any entity or individual through which the sponsor 
provides covered benefits) and enrollees with prescription drug plans 
of the sponsor under this part in accordance with section 1852(f).
    ``(g) Coverage Determinations and Reconsiderations.--
        ``(1) Application of coverage determination and reconsideration 
    provisions.--A PDP sponsor shall meet the requirements of 
    paragraphs (1) through (3) of section 1852(g) with respect to 
    covered benefits under the prescription drug plan it offers under 
    this part in the same manner as such requirements apply to an MA 
    organization with respect to benefits it offers under an MA plan 
    under part C.
        ``(2) Request for a determination for the treatment of tiered 
    formulary drug.--In the case of a prescription drug plan offered by 
    a PDP sponsor that provides for tiered cost-sharing for drugs 
    included within a formulary and provides lower cost-sharing for 
    preferred drugs included within the formulary, a part D eligible 
    individual who is enrolled in the plan may request an exception to 
    the tiered cost-sharing structure. Under such an exception, a 
    nonpreferred drug could be covered under the terms applicable for 
    preferred drugs if the prescribing physician determines that the 
    preferred drug for treatment of the same condition either would not 
    be as effective for the individual or would have adverse effects 
    for the individual or both. A PDP sponsor shall have an exceptions 
    process under this paragraph consistent with guidelines established 
    by the Secretary for making a determination with respect to such a 
    request. Denial of such an exception shall be treated as a coverage 
    denial for purposes of applying subsection (h).
    ``(h) Appeals.--
        ``(1) In general.--Subject to paragraph (2), a PDP sponsor 
    shall meet the requirements of paragraphs (4) and (5) of section 
    1852(g) with respect to benefits (including a determination related 
    to the application of tiered cost-sharing described in subsection 
    (g)(2)) in a manner similar (as determined by the Secretary) to the 
    manner such requirements apply to an MA organization with respect 
    to benefits under the original medicare fee-for-service program 
    option it offers under an MA plan under part C. In applying this 
    paragraph only the part D eligible individual shall be entitled to 
    bring such an appeal.
        ``(2) Limitation in cases on nonformulary determinations.--A 
    part D eligible individual who is enrolled in a prescription drug 
    plan offered by a PDP sponsor may appeal under paragraph (1) a 
    determination not to provide for coverage of a covered part D drug 
    that is not on the formulary under the plan only if the prescribing 
    physician determines that all covered part D drugs on any tier of 
    the formulary for treatment of the same condition would not be as 
    effective for the individual as the nonformulary drug, would have 
    adverse effects for the individual, or both.
        ``(3) Treatment of nonformulary determinations.--If a PDP 
    sponsor determines that a plan provides coverage for a covered part 
    D drug that is not on the formulary of the plan, the drug shall be 
    treated as being included on the formulary for purposes of section 
    1860D-2(b)(4)(C)(i).
    ``(i) Privacy, Confidentiality, and Accuracy of Enrollee Records.--
The provisions of section 1852(h) shall apply to a PDP sponsor and 
prescription drug plan in the same manner as it applies to an MA 
organization and an MA plan.
    ``(j) Treatment of Accreditation.--Subparagraph (A) of section 
1852(e)(4) (relating to treatment of accreditation) shall apply to a 
PDP sponsor under this part with respect to the following requirements, 
in the same manner as it applies to an MA organization with respect to 
the requirements in subparagraph (B) (other than clause (vii) thereof) 
of such section:
        ``(1) Subsection (b) of this section (relating to access to 
    covered part D drugs).
        ``(2) Subsection (c) of this section (including quality 
    assurance and medication therapy management).
        ``(3) Subsection (i) of this section (relating to 
    confidentiality and accuracy of enrollee records).
    ``(k) Public Disclosure of Pharmaceutical Prices for Equivalent 
Drugs.--
        ``(1) In general.--A PDP sponsor offering a prescription drug 
    plan shall provide that each pharmacy that dispenses a covered part 
    D drug shall inform an enrollee of any differential between the 
    price of the drug to the enrollee and the price of the lowest 
    priced generic covered part D drug under the plan that is 
    therapeutically equivalent and bioequivalent and available at such 
    pharmacy.
        ``(2) Timing of notice.--
            ``(A) In general.--Subject to subparagraph (B), the 
        information under paragraph (1) shall be provided at the time 
        of purchase of the drug involved, or, in the case of dispensing 
        by mail order, at the time of delivery of such drug.
            ``(B) Waiver.--The Secretary may waive subparagraph (A) in 
        such circumstances as the Secretary may specify.

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


             ``pdp regions; submission of bids; plan approval

    ``Sec. 1860D-11. (a) Establishment of PDP Regions; Service Areas.--
        ``(1) Coverage of entire pdp region.--The service area for a 
    prescription drug plan shall consist of an entire PDP region 
    established under paragraph (2).
        ``(2) Establishment of pdp regions.--
            ``(A) In general.--The Secretary shall establish, and may 
        revise, PDP regions in a manner that is consistent with the 
        requirements for the establishment and revision of MA regions 
        under subparagraphs (B) and (C) of section 1858(a)(2).
            ``(B) Relation to ma regions.--To the extent practicable, 
        PDP regions shall be the same as MA regions under section 
        1858(a)(2). The Secretary may establish PDP regions which are 
        not the same as MA regions if the Secretary determines that the 
        establishment of different regions under this part would 
        improve access to benefits under this part.
            ``(C) Authority for territories.--The Secretary shall 
        establish, and may revise, PDP regions for areas in States that 
        are not within the 50 States or the District of Columbia.
        ``(3) National plan.--Nothing in this subsection shall be 
    construed as preventing a prescription drug plan from being offered 
    in more than one PDP region (including all PDP regions).
    ``(b) Submission of Bids, Premiums, and Related Information.--
        ``(1) In general.--A PDP sponsor shall submit to the Secretary 
    information described in paragraph (2) with respect to each 
    prescription drug plan it offers. Such information shall be 
    submitted at the same time and in a similar manner to the manner in 
    which information described in paragraph (6) of section 1854(a) is 
    submitted by an MA organization under paragraph (1) of such 
    section.
        ``(2) Information described.--The information described in this 
    paragraph is information on the following:
            ``(A) Coverage provided.--The prescription drug coverage 
        provided under the plan, including the deductible and other 
        cost-sharing.
            ``(B) Actuarial value.--The actuarial value of the 
        qualified prescription drug coverage in the region for a part D 
        eligible individual with a national average risk profile for 
        the factors described in section 1860D-15(c)(1)(A) (as 
        specified by the Secretary).
            ``(C) Bid.--Information on the bid, including an actuarial 
        certification of--
                ``(i) the basis for the actuarial value described in 
            subparagraph (B) assumed in such bid;
                ``(ii) the portion of such bid attributable to basic 
            prescription drug coverage and, if applicable, the portion 
            of such bid attributable to supplemental benefits;
                ``(iii) assumptions regarding the reinsurance subsidy 
            payments provided under section 1860D-15(b) subtracted from 
            the actuarial value to produce such bid; and
                ``(iv) administrative expenses assumed in the bid.
            ``(D) Service area.--The service area for the plan.
            ``(E) Level of risk assumed.--
                ``(i) In general.--Whether the PDP sponsor requires a 
            modification of risk level under clause (ii) and, if so, 
            the extent of such modification. Any such modification 
            shall apply with respect to all prescription drug plans 
            offered by a PDP sponsor in a PDP region. This subparagraph 
            shall not apply to an MA-PD plan.
                ``(ii) Risk levels described.--A modification of risk 
            level under this clause may consist of one or more of the 
            following:

                    ``(I) Increase in federal percentage assumed in 
                initial risk corridor.--An equal percentage point 
                increase in the percents applied under subparagraphs 
                (B)(i), (B)(ii)(I), (C)(i), and (C)(ii)(I) of section 
                1860D-15(e)(2). In no case shall the application of 
                previous sentence prevent the application of a higher 
                percentage under section 1869D-15(e)(2)(B)(iii).
                    ``(II) Increase in federal percentage assumed in 
                second risk corridor.--An equal percentage point 
                increase in the percents applied under subparagraphs 
                (B)(ii)(II) and (C)(ii)(II) of section 1860D-15(e)(2).
                    ``(III) Decrease in size of risk corridors.--A 
                decrease in the threshold risk percentages specified in 
                section 1860D-15(e)(3)(C).

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


   ``requirements for and contracts with prescription drug plan (pdp) 
                                sponsors

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


                   ``premiums; late enrollment penalty

    ``Sec. 1860D-13. (a) Monthly Beneficiary Premium.--
        ``(1) Computation.--
            ``(A) In general.--The monthly beneficiary premium for a 
        prescription drug plan is the base beneficiary premium computed 
        under paragraph (2) as adjusted under this paragraph.
            ``(B) Adjustment to reflect difference between bid and 
        national average bid.--
                ``(i) Above average bid.--If for a month the amount of 
            the standardized bid amount (as defined in paragraph (5)) 
            exceeds the amount of the adjusted national average monthly 
            bid amount (as defined in clause (iii)), the base 
            beneficiary premium for the month shall be increased by the 
            amount of such excess.
                ``(ii) Below average bid.--If for a month the amount of 
            the adjusted national average monthly bid amount for the 
            month exceeds the standardized bid amount, the base 
            beneficiary premium for the month shall be decreased by the 
            amount of such excess.
                ``(iii) Adjusted national average monthly bid amount 
            defined.--For purposes of this subparagraph, the term 
            `adjusted national average monthly bid amount' means the 
            national average monthly bid amount computed under 
            paragraph (4), as adjusted under section 1860D-15(c)(2).
            ``(C) Increase for supplemental prescription drug 
        benefits.--The base beneficiary premium shall be increased by 
        the portion of the PDP approved bid that is attributable to 
        supplemental prescription drug benefits.
            ``(D) Increase for late enrollment penalty.--The base 
        beneficiary premium shall be increased by the amount of any 
        late enrollment penalty under subsection (b).
            ``(E) Decrease for low-income assistance.--The monthly 
        beneficiary premium is subject to decrease in the case of a 
        subsidy eligible individual under section 1860D-14.
            ``(F) Uniform premium.--Except as provided in subparagraphs 
        (D) and (E), the monthly beneficiary premium for a prescription 
        drug plan in a PDP region is the same for all part D eligible 
        individuals enrolled in the plan.
        ``(2) Base beneficiary premium.--The base beneficiary premium 
    under this paragraph for a prescription drug plan for a month is 
    equal to the product--
            ``(A) the beneficiary premium percentage (as specified in 
        paragraph (3)); and
            ``(B) the national average monthly bid amount (computed 
        under paragraph (4)) for the month.
        ``(3) Beneficiary premium percentage.--For purposes of this 
    subsection, the beneficiary premium percentage for any year is the 
    percentage equal to a fraction--
            ``(A) the numerator of which is 25.5 percent; and
            ``(B) the denominator of which is 100 percent minus a 
        percentage equal to--
                ``(i) the total reinsurance payments which the 
            Secretary estimates are payable under section 1860D-15(b) 
            with respect to the coverage year; divided by
                ``(ii) the sum of--

                    ``(I) the amount estimated under clause (i) for the 
                year; and
                    ``(II) the total payments which the Secretary 
                estimates will be paid to prescription drug plans and 
                MA-PD plans that are attributable to the standardized 
                bid amount during the year, taking into account amounts 
                paid by the Secretary and enrollees.

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


     ``premium and cost-sharing subsidies for low-income individuals

    ``Sec. 1860D-14. (a) Income-Related Subsidies for Individuals With 
Income Up to 150 Percent of Poverty Line.--
        ``(1) Individuals with income below 135 percent of poverty 
    line.--In the case of a subsidy eligible individual (as defined in 
    paragraph (3)) who is determined to have income that is below 135 
    percent of the poverty line applicable to a family of the size 
    involved and who meets the resources requirement described in 
    paragraph (3)(D) or who is covered under this paragraph under 
    paragraph (3)(B)(i), the individual is entitled under this section 
    to the following:
            ``(A) Full premium subsidy.--An income-related premium 
        subsidy equal to--
                ``(i) 100 percent of the amount described in subsection 
            (b)(1), but not to exceed the premium amount specified in 
            subsection (b)(2)(B); plus
                ``(ii) 80 percent of any late enrollment penalties 
            imposed under section 1860D-13(b) for the first 60 months 
            in which such penalties are imposed for that individual, 
            and 100 percent of any such penalties for any subsequent 
            month.
            ``(B) Elimination of deductible.--A reduction in the annual 
        deductible applicable under section 1860D-2(b)(1) to $0.
            ``(C) Continuation of coverage above the initial coverage 
        limit.--The continuation of coverage from the initial coverage 
        limit (under paragraph (3) of section 1860D-2(b)) for 
        expenditures incurred through the total amount of expenditures 
        at which benefits are available under paragraph (4) of such 
        section, subject to the reduced cost-sharing described in 
        subparagraph (D).
            ``(D) Reduction in cost-sharing below out-of-pocket 
        threshold.--
                ``(i) Institutionalized individuals.--In the case of an 
            individual who is a full-benefit dual eligible individual 
            and who is an institutionalized individual or couple (as 
            defined in section 1902(q)(1)(B)), the elimination of any 
            beneficiary coinsurance described in section 1860D-2(b)(2) 
            (for all amounts through the total amount of expenditures 
            at which benefits are available under section 1860D-
            2(b)(4)).
                ``(ii) Lowest income dual eligible individuals.--In the 
            case of an individual not described in clause (i) who is a 
            full-benefit dual eligible individual and whose income does 
            not exceed 100 percent of the poverty line applicable to a 
            family of the size involved, the substitution for the 
            beneficiary coinsurance described in section 1860D-2(b)(2) 
            (for all amounts through the total amount of expenditures 
            at which benefits are available under section 1860D-
            2(b)(4)) of a copayment amount that does not exceed $1 for 
            a generic drug or a preferred drug that is a multiple 
            source drug (as defined in section 1927(k)(7)(A)(i)) and $3 
            for any other drug, or, if less, the copayment amount 
            applicable to an individual under clause (iii).
                ``(iii) Other individuals.--In the case of an 
            individual not described in clause (i) or (ii), the 
            substitution for the beneficiary coinsurance described in 
            section 1860D-2(b)(2) (for all amounts through the total 
            amount of expenditures at which benefits are available 
            under section 1860D-2(b)(4)) of a copayment amount that 
            does not exceed the copayment amount specified under 
            section 1860D-2(b)(4)(A)(i)(I) for the drug and year 
            involved.
            ``(E) Elimination of cost-sharing above annual out-of-
        pocket threshold.--The elimination of any cost-sharing imposed 
        under section 1860D-2(b)(4)(A).
        ``(2) Other individuals with income below 150 percent of 
    poverty line.--In the case of a subsidy eligible individual who is 
    not described in paragraph (1), the individual is entitled under 
    this section to the following:
            ``(A) Sliding scale premium subsidy.--An income-related 
        premium subsidy determined on a linear sliding scale ranging 
        from 100 percent of the amount described in paragraph (1)(A) 
        for individuals with incomes at or below 135 percent of such 
        level to 0 percent of such amount for individuals with incomes 
        at 150 percent of such level.
            ``(B) Reduction of deductible.--A reduction in the annual 
        deductible applicable under section 1860D-2(b)(1) to $50.
            ``(C) Continuation of coverage above the initial coverage 
        limit.--The continuation of coverage from the initial coverage 
        limit (under paragraph (3) of section 1860D-2(b)) for 
        expenditures incurred through the total amount of expenditures 
        at which benefits are available under paragraph (4) of such 
        section, subject to the reduced coinsurance described in 
        subparagraph (D).
            ``(D) Reduction in cost-sharing below out-of-pocket 
        threshold.--The substitution for the beneficiary coinsurance 
        described in section 1860D-2(b)(2) (for all amounts above the 
        deductible under subparagraph (B) through the total amount of 
        expenditures at which benefits are available under section 
        1860D-2(b)(4)) of coinsurance of `15 percent' instead of 
        coinsurance of `25 percent' in section 1860D-2(b)(2).
            ``(E) Reduction of cost-sharing above annual out-of-pocket 
        threshold.--Subject to subsection (c), the substitution for the 
        cost-sharing imposed under section 1860D-2(b)(4)(A) of a 
        copayment or coinsurance not to exceed the copayment or 
        coinsurance amount specified under section 1860D-
        2(b)(4)(A)(i)(I) for the drug and year involved.
        ``(3) Determination of eligibility.--
            ``(A) Subsidy eligible individual defined.--For purposes of 
        this part, subject to subparagraph (F), the term `subsidy 
        eligible individual' means a part D eligible individual who--
                ``(i) is enrolled in a prescription drug plan or MA-PD 
            plan;
                ``(ii) has income below 150 percent of the poverty line 
            applicable to a family of the size involved; and
                ``(iii) meets the resources requirement described in 
            subparagraph (D) or (E).
            ``(B) Determinations.--
                ``(i) In general.--The determination of whether a part 
            D eligible individual residing in a State is a subsidy 
            eligible individual and whether the individual is described 
            in paragraph (1) shall be determined under the State plan 
            under title XIX for the State under section 1935(a) or by 
            the Commissioner of Social Security. There are authorized 
            to be appropriated to the Social Security Administration 
            such sums as may be necessary for the determination of 
            eligibility under this subparagraph.
                ``(ii) Effective period.--Determinations under this 
            subparagraph shall be effective beginning with the month in 
            which the individual applies for a determination that the 
            individual is a subsidy eligible individual and shall 
            remain in effect for a period specified by the Secretary, 
            but not to exceed 1 year.
                ``(iii) Redeterminations and appeals through 
            medicaid.--Redeterminations and appeals, with respect to 
            eligibility determinations under clause (i) made under a 
            State plan under title XIX, shall be made in accordance 
            with the frequency of, and manner in which, 
            redeterminations and appeals of eligibility are made under 
            such plan for purposes of medical assistance under such 
            title.
                ``(iv) Redeterminations and appeals through 
            commissioner.--With respect to eligibility determinations 
            under clause (i) made by the Commissioner of Social 
            Security--

                    ``(I) redeterminations shall be made at such time 
                or times as may be provided by the Commissioner; and
                    ``(II) the Commissioner shall establish procedures 
                for appeals of such determinations that are similar to 
                the procedures described in the third sentence of 
                section 1631(c)(1)(A).

                ``(v) Treatment of medicaid beneficiaries.--Subject to 
            subparagraph (F), the Secretary--

                    ``(I) shall provide that part D eligible 
                individuals who are full-benefit dual eligible 
                individuals (as defined in section 1935(c)(6)) or who 
                are recipients of supplemental security income benefits 
                under title XVI shall be treated as subsidy eligible 
                individuals described in paragraph (1); and
                    ``(II) may provide that part D eligible individuals 
                not described in subclause (I) who are determined for 
                purposes of the State plan under title XIX to be 
                eligible for medical assistance under clause (i), 
                (iii), or (iv) of section 1902(a)(10)(E) are treated as 
                being determined to be subsidy eligible individuals 
                described in paragraph (1).

            Insofar as the Secretary determines that the eligibility 
            requirements under the State plan for medical assistance 
            referred to in subclause (II) are substantially the same as 
            the requirements for being treated as a subsidy eligible 
            individual described in paragraph (1), the Secretary shall 
            provide for the treatment described in such subclause.
            ``(C) Income determinations.--For purposes of applying this 
        section--
                ``(i) in the case of a part D eligible individual who 
            is not treated as a subsidy eligible individual under 
            subparagraph (B)(v), income shall be determined in the 
            manner described in section 1905(p)(1)(B), without regard 
            to the application of section 1902(r)(2); and
                ``(ii) the term `poverty line' has the meaning given 
            such term in section 673(2) of the Community Services Block 
            Grant Act (42 U.S.C. 9902(2)), including any revision 
            required by such section.
        Nothing in clause (i) shall be construed to affect the 
        application of section 1902(r)(2) for the determination of 
        eligibility for medical assistance under title XIX.
            ``(D) Resource standard applied to full low-income subsidy 
        to be based on three times ssi resource standard.--The 
        resources requirement of this subparagraph is that an 
        individual's resources (as determined under section 1613 for 
        purposes of the supplemental security income program) do not 
        exceed--
                ``(i) for 2006 three times the maximum amount of 
            resources that an individual may have and obtain benefits 
            under that program; and
                ``(ii) for a subsequent year the resource limitation 
            established under this clause for the previous year 
            increased by the annual percentage increase in the consumer 
            price index (all items; U.S. city average) as of September 
            of such previous year.
        Any resource limitation established under clause (ii) that is 
        not a multiple of $10 shall be rounded to the nearest multiple 
        of $10.
            ``(E) Alternative resource standard.--
                ``(i) In general.--The resources requirement of this 
            subparagraph is that an individual's resources (as 
            determined under section 1613 for purposes of the 
            supplemental security income program) do not exceed--

                    ``(I) for 2006, $10,000 (or $20,000 in the case of 
                the combined value of the individual's assets or 
                resources and the assets or resources of the 
                individual's spouse); and
                    ``(II) for a subsequent year the dollar amounts 
                specified in this subclause (or subclause (I)) for the 
                previous year increased by the annual percentage 
                increase in the consumer price index (all items; U.S. 
                city average) as of September of such previous year.

            Any dollar amount established under subclause (II) that is 
            not a multiple of $10 shall be rounded to the nearest 
            multiple of $10.
                ``(ii) Use of simplified application form and 
            process.--The Secretary, jointly with the Commissioner of 
            Social Security, shall--

                    ``(I) develop a model, simplified application form 
                and process consistent with clause (iii) for the 
                determination and verification of a part D eligible 
                individual's assets or resources under this 
                subparagraph; and
                    ``(II) provide such form to States.

                ``(iii) Documentation and safeguards.--Under such 
            process--

                    ``(I) the application form shall consist of an 
                attestation under penalty of perjury regarding the 
                level of assets or resources (or combined assets and 
                resources in the case of a married part D eligible 
                individual) and valuations of general classes of assets 
                or resources;
                    ``(II) such form shall be accompanied by copies of 
                recent statements (if any) from financial institutions 
                in support of the application; and
                    ``(III) matters attested to in the application 
                shall be subject to appropriate methods of 
                verification.

                ``(iv) Methodology flexibility.--The Secretary may 
            permit a State in making eligibility determinations for 
            premium and cost-sharing subsidies under this section to 
            use the same asset or resource methodologies that are used 
            with respect to eligibility for medical assistance for 
            medicare cost-sharing described in section 1905(p) so long 
            as the Secretary determines that the use of such 
            methodologies will not result in any significant 
            differences in the number of individuals determined to be 
            subsidy eligible individuals.
            ``(F) Treatment of territorial residents.--In the case of a 
        part D eligible individual who is not a resident of the 50 
        States or the District of Columbia, the individual is not 
        eligible to be a subsidy eligible individual under this section 
        but may be eligible for financial assistance with prescription 
        drug expenses under section 1935(e).
        ``(4) Indexing dollar amounts.--
            ``(A) Copayment for lowest income dual eligible 
        individuals.--The dollar amounts applied under paragraph 
        (1)(D)(ii)--
                ``(i) for 2007 shall be the dollar amounts specified in 
            such paragraph increased by the annual percentage increase 
            in the consumer price index (all items; U.S. city average) 
            as of September of such previous year; or
                ``(ii) for a subsequent year shall be the dollar 
            amounts specified in this clause (or clause (i)) for the 
            previous year increased by the annual percentage increase 
            in the consumer price index (all items; U.S. city average) 
            as of September of such previous year.
        Any amount established under clause (i) or (ii), that is based 
        on an increase of $1 or $3, that is not a multiple of 5 cents 
        or 10 cents, respectively, shall be rounded to the nearest 
        multiple of 5 cents or 10 cents, respectively.
            ``(B) Reduced deductible.--The dollar amount applied under 
        paragraph (2)(B)--
                ``(i) for 2007 shall be the dollar amount specified in 
            such paragraph increased by the annual percentage increase 
            described in section 1860D-2(b)(6) for 2007; or
                ``(ii) for a subsequent year shall be the dollar amount 
            specified in this clause (or clause (i)) for the previous 
            year increased by the annual percentage increase described 
            in section 1860D-2(b)(6) for the year involved.
        Any amount established under clause (i) or (ii) that is not a 
        multiple of $1 shall be rounded to the nearest multiple of $1.
    ``(b) Premium Subsidy Amount.--
        ``(1) In general.--The premium subsidy amount described in this 
    subsection for a subsidy eligible individual residing in a PDP 
    region and enrolled in a prescription drug plan or MA-PD plan is 
    the low-income benchmark premium amount (as defined in paragraph 
    (2)) for the PDP region in which the individual resides or, if 
    greater, the amount specified in paragraph (3).
        ``(2) Low-income benchmark premium amount defined.--
            ``(A) In general.--For purposes of this subsection, the 
        term `low-income benchmark premium amount' means, with respect 
        to a PDP region in which--
                ``(i) all prescription drug plans are offered by the 
            same PDP sponsor, the weighted average of the amounts 
            described in subparagraph (B)(i) for such plans; or
                ``(ii) there are prescription drug plans offered by 
            more than one PDP sponsor, the weighted average of amounts 
            described in subparagraph (B) for prescription drug plans 
            and MA-PD plans described in section 1851(a)(2)(A)(i) 
            offered in such region.
            ``(B) Premium amounts described.--The premium amounts 
        described in this subparagraph are, in the case of--
                ``(i) a prescription drug plan that is a basic 
            prescription drug plan, the monthly beneficiary premium for 
            such plan;
                ``(ii) a prescription drug plan that provides 
            alternative prescription drug coverage the actuarial value 
            of which is greater than that of standard prescription drug 
            coverage, the portion of the monthly beneficiary premium 
            that is attributable to basic prescription drug coverage; 
            and
                ``(iii) an MA-PD plan, the portion of the MA monthly 
            prescription drug beneficiary premium that is attributable 
            to basic prescription drug benefits (described in section 
            1852(a)(6)(B)(ii)).
        The premium amounts described in this subparagraph do not 
        include any amounts attributable to late enrollment penalties 
        under section 1860D-13(b).
        ``(3) Access to 0 premium plan.--In no case shall the premium 
    subsidy amount under this subsection for a PDP region be less than 
    the lowest monthly beneficiary premium for a prescription drug plan 
    that offers basic prescription drug coverage in the region.
    ``(c) Administration of Subsidy Program.--
        ``(1) In general.--The Secretary shall provide a process 
    whereby, in the case of a part D eligible individual who is 
    determined to be a subsidy eligible individual and who is enrolled 
    in a prescription drug plan or is enrolled in an MA-PD plan--
            ``(A) the Secretary provides for a notification of the PDP 
        sponsor or the MA organization offering the plan involved that 
        the individual is eligible for a subsidy and the amount of the 
        subsidy under subsection (a);
            ``(B) the sponsor or organization involved reduces the 
        premiums or cost-sharing otherwise imposed by the amount of the 
        applicable subsidy and submits to the Secretary information on 
        the amount of such reduction;
            ``(C) the Secretary periodically and on a timely basis 
        reimburses the sponsor or organization for the amount of such 
        reductions; and
            ``(D) the Secretary ensures the confidentiality of 
        individually identifiable information.
    In applying subparagraph (C), the Secretary shall compute 
    reductions based upon imposition under subsections (a)(1)(D) and 
    (a)(2)(E) of unreduced copayment amounts applied under such 
    subsections.
        ``(2) Use of capitated form of payment.--The reimbursement 
    under this section with respect to cost-sharing subsidies may be 
    computed on a capitated basis, taking into account the actuarial 
    value of the subsidies and with appropriate adjustments to reflect 
    differences in the risks actually involved.
    ``(d) Relation to Medicaid Program.--For special provisions under 
the medicaid program relating to medicare prescription drug benefits, 
see section 1935.


        ``subsidies for part d eligible individuals for qualified 
                       prescription drug coverage

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

                    ``(I) 50 percent (or, for 2006 and 2007, 75 percent 
                or 90 percent if the conditions described in clause 
                (iii) are met for the year) of the difference between 
                the second threshold upper limit and the first 
                threshold upper limit; and
                    ``(II) 80 percent of the difference between such 
                adjusted allowable risk corridor costs and the second 
                threshold upper limit of the risk corridor.

                ``(iii) Conditions for application of higher percentage 
            for 2006 and 2007.--The conditions described in this clause 
            are met for 2006 or 2007 if the Secretary determines with 
            respect to such year that--

                    ``(I) at least 60 percent of prescription drug 
                plans and MA-PD plans to which this subsection applies 
                have adjusted allowable risk corridor costs for the 
                plan for the year that are more than the first 
                threshold upper limit of the risk corridor for the plan 
                for the year; and
                    ``(II) such plans represent at least 60 percent of 
                part D eligible individuals enrolled in any 
                prescription drug plan or MA-PD plan.

            ``(C) Reduction in payment if adjusted allowable risk 
        corridor costs below lower limit of risk corridor.--
                ``(i) Costs between first and second threshold lower 
            limits.--If the adjusted allowable risk corridor costs for 
            the plan for the year are less than the first threshold 
            lower limit, but not less than the second threshold lower 
            limit, of the risk corridor for the plan for the year, the 
            Secretary shall reduce the total of the payments made to 
            the sponsor or organization offering the plan for the year 
            under this section by an amount (or otherwise recover from 
            the sponsor or organization an amount) equal to 50 percent 
            (or, for 2006 and 2007, 75 percent) of the difference 
            between the first threshold lower limit of the risk 
            corridor and such adjusted allowable risk corridor costs.
                ``(ii) Costs below second threshold lower limit.--If 
            the adjusted allowable risk corridor costs for the plan for 
            the year are less the second threshold lower limit of the 
            risk corridor for the plan for the year, the Secretary 
            shall reduce the total of the payments made to the sponsor 
            or organization offering the plan for the year under this 
            section by an amount (or otherwise recover from the sponsor 
            or organization an amount) equal to the sum of--

                    ``(I) 50 percent (or, for 2006 and 2007, 75 
                percent) of the difference between the first threshold 
                lower limit and the second threshold lower limit; and
                    ``(II) 80 percent of the difference between the 
                second threshold upper limit of the risk corridor and 
                such adjusted allowable risk corridor costs.

        ``(3) Establishment of risk corridors.--
            ``(A) In general.--For each plan year the Secretary shall 
        establish a risk corridor for each prescription drug plan and 
        each MA-PD plan. The risk corridor for a plan for a year shall 
        be equal to a range as follows:
                ``(i) First threshold lower limit.--The first threshold 
            lower limit of such corridor shall be equal to--

                    ``(I) the target amount described in subparagraph 
                (B) for the plan; minus
                    ``(II) an amount equal to the first threshold risk 
                percentage for the plan (as determined under 
                subparagraph (C)(i)) of such target amount.

                ``(ii) Second threshold lower limit.--The second 
            threshold lower limit of such corridor shall be equal to--

                    ``(I) the target amount described in subparagraph 
                (B) for the plan; minus
                    ``(II) an amount equal to the second threshold risk 
                percentage for the plan (as determined under 
                subparagraph (C)(ii)) of such target amount.

                ``(iii) First threshold upper limit.--The first 
            threshold upper limit of such corridor shall be equal to 
            the sum of--

                    ``(I) such target amount; and
                    ``(II) the amount described in clause (i)(II).

                ``(iv) Second threshold upper limit.--The second 
            threshold upper limit of such corridor shall be equal to 
            the sum of--

                    ``(I) such target amount; and
                    ``(II) the amount described in clause (ii)(II).

            ``(B) Target amount described.--The target amount described 
        in this paragraph is, with respect to a prescription drug plan 
        or an MA-PD plan in a year, the total amount of payments paid 
        to the PDP sponsor or MA-PD organization for the plan for the 
        year, taking into account amounts paid by the Secretary and 
        enrollees, based upon the standardized bid amount (as defined 
        in section 1860D-13(a)(5) and as risk adjusted under subsection 
        (c)(1)), reduced by the total amount of administrative expenses 
        for the year assumed in such standardized bid.
            ``(C) First and second threshold risk percentage defined.--
                ``(i) First threshold risk percentage.--Subject to 
            clause (iii), for purposes of this section, the first 
            threshold risk percentage is--

                    ``(I) for 2006 and 2007, and 2.5 percent;
                    ``(II) for 2008 through 2011, 5 percent; and
                    ``(III) for 2012 and subsequent years, a percentage 
                established by the Secretary, but in no case less than 
                5 percent.

                ``(ii) Second threshold risk percentage.--Subject to 
            clause (iii), for purposes of this section, the second 
            threshold risk percentage is--

                    ``(I) for 2006 and 2007, 5 percent;
                    ``(II) for 2008 through 2011, 10 percent; and
                    ``(III) for 2012 and subsequent years, a percentage 
                established by the Secretary that is greater than the 
                percent established for the year under clause (i)(III), 
                but in no case less than 10 percent.

                ``(iii) Reduction of risk percentage to ensure 2 plans 
            in an area.--Pursuant to section 1860D-11(b)(2)(E)(ii), a 
            PDP sponsor may submit a bid that requests a decrease in 
            the applicable first or second threshold risk percentages 
            or an increase in the percents applied under paragraph (2).
        ``(4) Plans at risk for entire amount of supplemental 
    prescription drug coverage.--A PDP sponsor and MA organization that 
    offers a plan that provides supplemental prescription drug benefits 
    shall be at full financial risk for the provision of such 
    supplemental benefits.
        ``(5) No effect on monthly premium.--No adjustment in payments 
    made by reason of this subsection shall affect the monthly 
    beneficiary premium or the MA monthly prescription drug beneficiary 
    premium.
    ``(f) Disclosure of Information.--
        ``(1) In general.--Each contract under this part and under part 
    C shall provide that--
            ``(A) the PDP sponsor offering a prescription drug plan or 
        an MA organization offering an MA-PD plan shall provide the 
        Secretary with such information as the Secretary determines is 
        necessary to carry out this section; and
            ``(B) the Secretary shall have the right in accordance with 
        section 1857(d)(2)(B) (as applied under section 1860D-
        12(b)(3)(C)) to inspect and audit any books and records of a 
        PDP sponsor or MA organization that pertain to the information 
        regarding costs provided to the Secretary under subparagraph 
        (A).
        ``(2) Restriction on use of information.--Information disclosed 
    or obtained pursuant to the provisions of this section may be used 
    by officers, employees, and contractors of the Department of Health 
    and Human Services only for the purposes of, and to the extent 
    necessary in, carrying out this section.
    ``(g) Payment for Fallback Prescription Drug Plans.--In lieu of the 
amounts otherwise payable under this section to a PDP sponsor offering 
a fallback prescription drug plan (as defined in section 1860D-
3(c)(4)), the amount payable shall be the amounts determined under the 
contract for such plan pursuant to section 1860D-11(g)(5).


    ``medicare prescription drug account in the federal supplementary 
                      medical insurance trust fund

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

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


  ``application to medicare advantage program and related managed care 
                                programs

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


             ``special rules for employer-sponsored programs

    ``Sec. 1860D-22. (a) Subsidy Payment.--
        ``(1) In general.--The Secretary shall provide in accordance 
    with this subsection for payment to the sponsor of a qualified 
    retiree prescription drug plan (as defined in paragraph (2)) of a 
    special subsidy payment equal to the amount specified in paragraph 
    (3) for each qualified covered retiree under the plan (as defined 
    in paragraph (4)). This subsection constitutes budget authority in 
    advance of appropriations Acts and represents the obligation of the 
    Secretary to provide for the payment of amounts provided under this 
    section.
        ``(2) Qualified retiree prescription drug plan defined.--For 
    purposes of this subsection, the term `qualified retiree 
    prescription drug plan' means employment-based retiree health 
    coverage (as defined in subsection (c)(1)) if, with respect to a 
    part D eligible individual who is a participant or beneficiary 
    under such coverage, the following requirements are met:
            ``(A) Attestation of actuarial equivalence to standard 
        coverage.--The sponsor of the plan provides the Secretary, 
        annually or at such other time as the Secretary may require, 
        with an attestation that the actuarial value of prescription 
        drug coverage under the plan (as determined using the processes 
        and methods described in section 1860D-11(c)) is at least equal 
        to the actuarial value of standard prescription drug coverage.
            ``(B) Audits.--The sponsor of the plan, or an administrator 
        of the plan designated by the sponsor, shall maintain (and 
        afford the Secretary access to) such records as the Secretary 
        may require for purposes of audits and other oversight 
        activities necessary to ensure the adequacy of prescription 
        drug coverage and the accuracy of payments made under this 
        section. The provisions of section 1860D-2(d)(3) shall apply to 
        such information under this section (including such actuarial 
        value and attestation) in a manner similar to the manner in 
        which they apply to financial records of PDP sponsors and MA 
        organizations.
            ``(C) Provision of disclosure regarding prescription drug 
        coverage.--The sponsor of the plan shall provide for disclosure 
        of information regarding prescription drug coverage in 
        accordance with section 1860D-13(b)(6)(B).
        ``(3) Employer and union special subsidy amounts.--
            ``(A) In general.--For purposes of this subsection, the 
        special subsidy payment amount under this paragraph for a 
        qualifying covered retiree for a coverage year enrolled with 
        the sponsor of a qualified retiree prescription drug plan is, 
        for the portion of the retiree's gross covered retiree plan-
        related prescription drug costs (as defined in subparagraph 
        (C)(ii)) for such year that exceeds the cost threshold amount 
        specified in subparagraph (B) and does not exceed the cost 
        limit under such subparagraph, an amount equal to 28 percent of 
        the allowable retiree costs (as defined in subparagraph (C)(i)) 
        attributable to such gross covered prescription drug costs.
            ``(B) Cost threshold and cost limit applicable.--
                ``(i) In general.--Subject to clause (ii)--

                    ``(I) the cost threshold under this subparagraph is 
                equal to $250 for plan years that end in 2006; and
                    ``(II) the cost limit under this subparagraph is 
                equal to $5,000 for plan years that end in 2006.

                ``(ii) Indexing.--The cost threshold and cost limit 
            amounts specified in subclauses (I) and (II) of clause (i) 
            for a plan year that ends after 2006 shall be adjusted in 
            the same manner as the annual deductible and the annual 
            out-of-pocket threshold, respectively, are annually 
            adjusted under paragraphs (1) and (4)(B) of section 1860D-
            2(b).
            ``(C) Definitions.--For purposes of this paragraph:
                ``(i) Allowable retiree costs.--The term `allowable 
            retiree costs' means, with respect to gross covered 
            prescription drug costs under a qualified retiree 
            prescription drug plan by a plan sponsor, the part of such 
            costs that are actually paid (net of discounts, 
            chargebacks, and average percentage rebates) by the sponsor 
            or by or on behalf of a qualifying covered retiree under 
            the plan.
                ``(ii) Gross covered retiree plan-related prescription 
            drug costs.--For purposes of this section, the term `gross 
            covered retiree plan-related prescription drug costs' 
            means, with respect to a qualifying covered retiree 
            enrolled in a qualified retiree prescription drug plan 
            during a coverage year, the costs incurred under the plan, 
            not including administrative costs, but including costs 
            directly related to the dispensing of covered part D drugs 
            during the year. Such costs shall be determined whether 
            they are paid by the retiree or under the plan.
            ``(iii) Coverage year.--The term `coverage year' has the 
        meaning given such term in section 1860D-15(b)(4).
        ``(4) Qualifying covered retiree defined.--For purposes of this 
    subsection, the term `qualifying covered retiree' means a part D 
    eligible individual who is not enrolled in a prescription drug plan 
    or an MA-PD plan but is covered under a qualified retiree 
    prescription drug plan.
        ``(5) Payment methods, including provision of necessary 
    information.--The provisions of section 1860D-15(d) (including 
    paragraph (2), relating to requirement for provision of 
    information) shall apply to payments under this subsection in a 
    manner similar to the manner in which they apply to payment under 
    section 1860D-15(b).
        ``(6) Construction.--Nothing in this subsection shall be 
    construed as--
            ``(A) precluding a part D eligible individual who is 
        covered under employment-based retiree health coverage from 
        enrolling in a prescription drug plan or in an MA-PD plan;
            ``(B) precluding such employment-based retiree health 
        coverage or an employer or other person from paying all or any 
        portion of any premium required for coverage under a 
        prescription drug plan or MA-PD plan on behalf of such an 
        individual;
            ``(C) preventing such employment-based retiree health 
        coverage from providing coverage--
                ``(i) that is better than standard prescription drug 
            coverage to retirees who are covered under a qualified 
            retiree prescription drug plan; or
                ``(ii) that is supplemental to the benefits provided 
            under a prescription drug plan or an MA-PD plan, including 
            benefits to retirees who are not covered under a qualified 
            retiree prescription drug plan but who are enrolled in such 
            a prescription drug plan or MA-PD plan; or
            ``(D) preventing employers to provide for flexibility in 
        benefit design and pharmacy access provisions, without regard 
        to the requirements for basic prescription drug coverage, so 
        long as the actuarial equivalence requirement of paragraph 
        (2)(A) is met.
    ``(b) Application of MA Waiver Authority.--The provisions of 
section 1857(i) shall apply with respect to prescription drug plans in 
relation to employment-based retiree health coverage in a manner 
similar to the manner in which they apply to an MA plan in relation to 
employers, including authorizing the establishment of separate premium 
amounts for enrollees in a prescription drug plan by reason of such 
coverage and limitations on enrollment to part D eligible individuals 
enrolled under such coverage.
    ``(c) Definitions.--For purposes of this section:
        ``(1) Employment-based retiree health coverage.--The term 
    `employment-based retiree health coverage' means health insurance 
    or other coverage of health care costs (whether provided by 
    voluntary insurance coverage or pursuant to statutory or 
    contractual obligation) for part D eligible individuals (or for 
    such individuals and their spouses and dependents) under a group 
    health plan based on their status as retired participants in such 
    plan.
        ``(2) Sponsor.--The term `sponsor' means a plan sponsor, as 
    defined in section 3(16)(B) of the Employee Retirement Income 
    Security Act of 1974, in relation to a group health plan, except 
    that, in the case of a plan maintained jointly by one employer and 
    an employee organization and with respect to which the employer is 
    the primary source of financing, such term means such employer.
        ``(3) Group health plan.--The term `group health plan' includes 
    such a plan as defined in section 607(1) of the Employee Retirement 
    Income Security Act of 1974 and also includes the following:
            ``(A) Federal and state governmental plans.--Such a plan 
        established or maintained for its employees by the Government 
        of the United States, by the government of any State or 
        political subdivision thereof, or by any agency or 
        instrumentality of any of the foregoing, including a health 
        benefits plan offered under chapter 89 of title 5, United 
        States Code.
            ``(B) Collectively bargained plans.--Such a plan 
        established or maintained under or pursuant to one or more 
        collective bargaining agreements.
            ``(C) Church plans.--Such a plan established and maintained 
        for its employees (or their beneficiaries) by a church or by a 
        convention or association of churches which is exempt from tax 
        under section 501 of the Internal Revenue Code of 1986.


                ``state pharmaceutical assistance programs

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


    ``coordination requirements for plans providing prescription drug 
                                coverage

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

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


       ``medicare prescription drug discount card and transitional 
                           assistance program

    ``Sec. 1860D-31. (a) Establishment of Program.--
        ``(1) In general.--The Secretary shall establish a program 
    under this section--
            ``(A) to endorse prescription drug discount card programs 
        that meet the requirements of this section in order to provide 
        access to prescription drug discounts through prescription drug 
        card sponsors for discount card eligible individuals throughout 
        the United States; and
            ``(B) to provide for transitional assistance for 
        transitional assistance eligible individuals enrolled in such 
        endorsed programs.
        ``(2) Period of operation.--
            ``(A) Implementation deadline.--The Secretary shall 
        implement the program under this section so that discount cards 
        and transitional assistance are first available by not later 
        than 6 months after the date of the enactment of this section.
            ``(B) Expediting implementation.--The Secretary shall 
        promulgate regulations to carry out the program under this 
        section which may be effective and final immediately on an 
        interim basis as of the date of publication of the interim 
        final regulation. If the Secretary provides for an interim 
        final regulation, the Secretary shall provide for a period of 
        public comments on such regulation after the date of 
        publication. The Secretary may change or revise such regulation 
        after completion of the period of public comment.
            ``(C) Termination and transition.--
                ``(i) In general.--Subject to clause (ii)--

                    ``(I) the program under this section shall not 
                apply to covered discount card drugs dispensed after 
                December 31, 2005; and
                    ``(II) transitional assistance shall be available 
                after such date to the extent the assistance relates to 
                drugs dispensed on or before such date.

                ``(ii) Transition.--In the case of an individual who is 
            enrolled in an endorsed discount card program as of 
            December 31, 2005, during the individual's transition 
            period (if any) under clause (iii), in accordance with 
            transition rules specified by the Secretary--

                    ``(I) such endorsed program may continue to apply 
                to covered discount card drugs dispensed to the 
                individual under the program during such transition 
                period;
                    ``(II) no annual enrollment fee shall be applicable 
                during the transition period;
                    ``(III) during such period the individual may not 
                change the endorsed program plan in which the 
                individual is enrolled; and

                    ``(IV) the balance of any transitional assistance 
                remaining on January 1, 2006, shall remain available 
                for drugs dispensed during the individual's transition 
                period.

                ``(iii) Transition period.--The transition period under 
            this clause for an individual is the period beginning on 
            January 1, 2006, and ending in the case of an individual 
            who--

                    ``(I) is enrolled in a prescription drug plan or an 
                MA-PD plan before the last date of the initial 
                enrollment period under section 1860D-1(b)(2)(A), on 
                the effective date of the individual's coverage under 
                such part; or
                    ``(II) is not so enrolled, on the last day of such 
                initial period.

        ``(3) Voluntary nature of program.--Nothing in this section 
    shall be construed as requiring a discount card eligible individual 
    to enroll in an endorsed discount card program under this section.
        ``(4) Glossary and definitions of terms.--For purposes of this 
    section:
            ``(A) Covered discount card drug.--The term `covered 
        discount card drug' has the meaning given the term `covered 
        part D drug' in section 1860D-2(e).
            ``(B) Discount card eligible individual.--The term 
        `discount card eligible individual' is defined in subsection 
        (b)(1)(A).
            ``(C) Endorsed discount card program; endorsed program.--
        The terms `endorsed discount card program' and `endorsed 
        program' mean a prescription drug discount card program that is 
        endorsed (and for which the sponsor has a contract with the 
        Secretary) under this section.
            ``(D) Negotiated price.--Negotiated prices are described in 
        subsection (e)(1)(A)(ii).
            ``(E) Prescription drug card sponsor; sponsor.--The terms 
        `prescription drug card sponsor' and `sponsor' are defined in 
        subsection (h)(1)(A).
            ``(F) State.--The term `State' has the meaning given such 
        term for purposes of title XIX.
            ``(G) Transitional assistance eligible individual.--The 
        term `transitional assistance eligible individual' is defined 
        in subsection (b)(2).
    ``(b) Eligibility for Discount Card and for Transitional 
Assistance.--For purposes of this section:
        ``(1) Discount card eligible individual.--
            ``(A) In general.--The term `discount card eligible 
        individual' means an individual who--
                ``(i) is entitled to benefits, or enrolled, under part 
            A or enrolled under part B; and
                ``(ii) subject to paragraph (4), is not an individual 
            described in subparagraph (B).
            ``(B) Individual described.--An individual described in 
        this subparagraph is an individual described in subparagraph 
        (A)(i) who is enrolled under title XIX (or under a waiver under 
        section 1115 of the requirements of such title) and is entitled 
        to any medical assistance for outpatient prescribed drugs 
        described in section 1905(a)(12).
        ``(2) Transitional assistance eligible individual.--
            ``(A) In general.--Subject to subparagraph (B), the term 
        `transitional assistance eligible individual' means a discount 
        card eligible individual who resides in one of the 50 States or 
        the District of Columbia and whose income (as determined under 
        subsection (f)(1)(B)) is not more than 135 percent of the 
        poverty line (as defined in section 673(2) of the Community 
        Services Block Grant Act, 42 U.S.C. 9902(2), including any 
        revision required by such section) applicable to the family 
        size involved (as determined under subsection (f)(1)(B)).
            ``(B) Exclusion of individuals with certain prescription 
        drug coverage.--Such term does not include an individual who 
        has coverage of, or assistance for, covered discount card drugs 
        under any of the following:
                ``(i) A group health plan or health insurance coverage 
            (as such terms are defined in section 2791 of the Public 
            Health Service Act), other than coverage under a plan under 
            part C and other than coverage consisting only of excepted 
            benefits (as defined in such section).
                ``(ii) Chapter 55 of title 10, United States Code 
            (relating to medical and dental care for members of the 
            uniformed services).
                ``(iii) A plan under chapter 89 of title 5, United 
            States Code (relating to the Federal employees' health 
            benefits program).
        ``(3) Special transitional assistance eligible individual.--The 
    term `special transitional assistance eligible individual' means a 
    transitional assistance eligible individual whose income (as 
    determined under subsection (f)(1)(B)) is not more than 100 percent 
    of the poverty line (as defined in section 673(2) of the Community 
    Services Block Grant Act, 42 U.S.C. 9902(2), including any revision 
    required by such section) applicable to the family size involved 
    (as determined under subsection (f)(1)(B)).
        ``(4) Treatment of medicaid medically needy.--For purposes of 
    this section, the Secretary shall provide for appropriate rules for 
    the treatment of medically needy individuals described in section 
    1902(a)(10)(C) as discount card eligible individuals and as 
    transitional assistance eligible individuals.
    ``(c) Enrollment and Enrollment Fees.--
        ``(1) Enrollment process.--The Secretary shall establish a 
    process through which a discount card eligible individual is 
    enrolled and disenrolled in an endorsed discount card program under 
    this section consistent with the following:
            ``(A) Continuous open enrollment.--Subject to the 
        succeeding provisions of this paragraph and subsection (h)(9), 
        a discount card eligible individual who is not enrolled in an 
        endorsed discount card program and is residing in a State may 
        enroll in any such endorsed program--
                ``(i) that serves residents of the State; and
                ``(ii) at any time beginning on the initial enrollment 
            date, specified by the Secretary, and before January 1, 
            2006.
            ``(B) Use of standard enrollment form.--An enrollment in an 
        endorsed program shall only be effected through completion of a 
        standard enrollment form specified by the Secretary. Each 
        sponsor of an endorsed program shall transmit to the Secretary 
        (in a form and manner specified by the Secretary) information 
        on individuals who complete such enrollment forms and, to the 
        extent provided under subsection (f), information regarding 
        certification as a transitional assistance eligible individual.
            ``(C) Enrollment only in one program.--
                ``(i) In general.--Subject to clauses (ii) and (iii), a 
            discount card eligible individual may be enrolled in only 
            one endorsed discount card program under this section.
                ``(ii) Change in endorsed program permitted for 2005.--
            The Secretary shall establish a process, similar to (and 
            coordinated with) the process for annual, coordinated 
            elections under section 1851(e)(3) during 2004, under which 
            an individual enrolled in an endorsed discount card program 
            may change the endorsed program in which the individual is 
            enrolled for 2005.
                ``(iii) Additional exceptions.--The Secretary shall 
            permit an individual to change the endorsed discount card 
            program in which the individual is enrolled in the case of 
            an individual who changes residence to be outside the 
            service area of such program and in such other exceptional 
            cases as the Secretary may provide (taking into account the 
            circumstances for special election periods under section 
            1851(e)(4)). Under the previous sentence, the Secretary may 
            consider a change in residential setting (such as placement 
            in a nursing facility) or enrollment in or disenrollment 
            from a plan under part C through which the individual was 
            enrolled in an endorsed program to be an exceptional 
            circumstance.
            ``(D) Disenrollment.--
                ``(i) Voluntary.--An individual may voluntarily 
            disenroll from an endorsed discount card program at any 
            time. In the case of such a voluntary disenrollment, the 
            individual may not enroll in another endorsed program, 
            except under such exceptional circumstances as the 
            Secretary may recognize under subparagraph (C)(iii) or 
            during the annual coordinated enrollment period provided 
            under subparagraph (C)(ii).
                ``(ii) Involuntary.--An individual who is enrolled in 
            an endorsed discount card program and not a transitional 
            assistance eligible individual may be disenrolled by the 
            sponsor of the program if the individual fails to pay any 
            annual enrollment fee required under the program.
            ``(E) Application to certain enrollees.--In the case of a 
        discount card eligible individual who is enrolled in a plan 
        described in section 1851(a)(2)(A) or under a reasonable cost 
        reimbursement contract under section 1876(h) that is offered by 
        an organization that also is a prescription discount card 
        sponsor that offers an endorsed discount card program under 
        which the individual may be enrolled and that has made an 
        election to apply the special rules under subsection (h)(9)(B) 
        for such an endorsed program, the individual may only enroll in 
        such an endorsed discount card program offered by that sponsor.
        ``(2) Enrollment fees.--
            ``(A) In general.--Subject to the succeeding provisions of 
        this paragraph, a prescription drug card sponsor may charge an 
        annual enrollment fee for each discount card eligible 
        individual enrolled in an endorsed discount card program 
        offered by such sponsor. The annual enrollment fee for either 
        2004 or 2005 shall not be prorated for portions of a year. 
        There shall be no annual enrollment fee for a year after 2005.
            ``(B) Amount.--No annual enrollment fee charged under 
        subparagraph (A) may exceed $30.
            ``(C) Uniform enrollment fee.--A prescription drug card 
        sponsor shall ensure that the annual enrollment fee (if any) 
        for an endorsed discount card program is the same for all 
        discount card eligible individuals enrolled in the program and 
        residing in the State.
            ``(D) Collection.--The annual enrollment fee (if any) 
        charged for enrollment in an endorsed program shall be 
        collected by the sponsor of the program.
            ``(E) Payment of fee for transitional assistance eligible 
        individuals.--Under subsection (g)(1)(A), the annual enrollment 
        fee (if any) otherwise charged under this paragraph with 
        respect to a transitional assistance eligible individual shall 
        be paid by the Secretary on behalf of such individual.
            ``(F) Optional payment of fee by state.--
                ``(i) In general.--The Secretary shall establish an 
            arrangement under which a State may provide for payment of 
            some or all of the enrollment fee for some or all enrollees 
            who are not transitional assistance eligible individuals in 
            the State, as specified by the State under the arrangement. 
            Insofar as such a payment arrangement is made with respect 
            to an enrollee, the amount of the enrollment fee shall be 
            paid directly by the State to the sponsor.
                ``(ii) No federal matching available under medicaid or 
            schip.--Expenditures made by a State for enrollment fees 
            described in clause (i) shall not be treated as State 
            expenditures for purposes of Federal matching payments 
            under title XIX or XXI.
            ``(G) Rules in case of changes in program enrollment during 
        a year.--The Secretary shall provide special rules in the case 
        of payment of an annual enrollment fee for a discount card 
        eligible individual who changes the endorsed program in which 
        the individual is enrolled during a year.
        ``(3) Issuance of discount card.--Each prescription drug card 
    sponsor of an endorsed discount card program shall issue, in a 
    standard format specified by the Secretary, to each discount card 
    eligible individual enrolled in such program a card that 
    establishes proof of enrollment and that can be used in a 
    coordinated manner to identify the sponsor, program, and individual 
    for purposes of the program under this section.
        ``(4) Period of access.--In the case of a discount card 
    eligible individual who enrolls in an endorsed program, access to 
    negotiated prices and transitional assistance, if any, under such 
    endorsed program shall take effect on such date as the Secretary 
    shall specify.
    ``(d) Provision of Information on Enrollment and Program 
Features.--
        ``(1) Secretarial responsibilities.--
            ``(A) In general.--The Secretary shall provide for 
        activities under this subsection to broadly disseminate 
        information to discount card eligible individuals (and 
        prospective eligible individuals) regarding--
                ``(i) enrollment in endorsed discount card programs; 
            and
                ``(ii) the features of the program under this section, 
            including the availability of transitional assistance.
            ``(B) Promotion of informed choice.--In order to promote 
        informed choice among endorsed prescription drug discount card 
        programs, the Secretary shall provide for the dissemination of 
        information which--
                ``(i) compares the annual enrollment fee and other 
            features of such programs, which may include comparative 
            prices for covered discount card drugs; and
                ``(ii) includes educational materials on the 
            variability of discounts on prices of covered discount card 
            drugs under an endorsed program.
        The dissemination of information under clause (i) shall, to the 
        extent practicable, be coordinated with the dissemination of 
        educational information on other medicare options.
            ``(C) Special rule for initial enrollment date under the 
        program.--To the extent practicable, the Secretary shall 
        ensure, through the activities described in subparagraphs (A) 
        and (B), that discount card eligible individuals are provided 
        with such information at least 30 days prior to the initial 
        enrollment date specified under subsection (c)(1)(A)(ii).
            ``(D) Use of medicare toll-free number.--The Secretary 
        shall provide through the toll-free telephone number 1-800-
        MEDICARE for the receipt and response to inquiries and 
        complaints concerning the program under this section and 
        endorsed programs.
        ``(2) Prescription drug card sponsor responsibilities.--
            ``(A) In general.--Each prescription drug card sponsor that 
        offers an endorsed discount card program shall make available 
        to discount card eligible individuals (through the Internet and 
        otherwise) information that the Secretary identifies as being 
        necessary to promote informed choice among endorsed discount 
        card programs by such individuals, including information on 
        enrollment fees and negotiated prices for covered discount card 
        drugs charged to such individuals.
            ``(B) Response to enrollee questions.--Each sponsor 
        offering an endorsed discount card program shall have a 
        mechanism (including a toll-free telephone number) for 
        providing upon request specific information (such as negotiated 
        prices and the amount of transitional assistance remaining 
        available through the program) to discount card eligible 
        individuals enrolled in the program. The sponsor shall inform 
        transitional assistance eligible individuals enrolled in the 
        program of the availability of such toll-free telephone number 
        to provide information on the amount of available transitional 
        assistance.
            ``(C) Information on balance of transitional assistance 
        available at point-of-sale.--Each sponsor offering an endorsed 
        discount card program shall have a mechanism so that 
        information on the amount of transitional assistance remaining 
        under subsection (g)(1)(B) is available (electronically or by 
        telephone) at the point-of-sale of covered discount card drugs.
        ``(3) Public disclosure of pharmaceutical prices for equivalent 
    drugs.--
            ``(A) In general.--A prescription drug card sponsor 
        offering an endorsed discount card program shall provide that 
        each pharmacy that dispenses a covered discount card drug shall 
        inform a discount card eligible individual enrolled in the 
        program of any differential between the price of the drug to 
        the enrollee and the price of the lowest priced generic covered 
        discount card drug under the program that is therapeutically 
        equivalent and bioequivalent and available at such pharmacy.
            ``(B) Timing of notice.--
                ``(i) In general.--Subject to clause (ii), the 
            information under subparagraph (A) shall be provided at the 
            time of purchase of the drug involved, or, in the case of 
            dispensing by mail order, at the time of delivery of such 
            drug.
                ``(ii) Waiver.--The Secretary may waive clause (i) in 
            such circumstances as the Secretary may specify.
    ``(e) Discount Card Features.--
        ``(1) Savings to enrollees through negotiated prices.--
            ``(A) Access to negotiated prices.--
                ``(i) In general.--Each prescription drug card sponsor 
            that offers an endorsed discount card program shall provide 
            each discount card eligible individual enrolled in the 
            program with access to negotiated prices.
                ``(ii) Negotiated prices.--For purposes of this 
            section, negotiated prices shall take into account 
            negotiated price concessions, such as discounts, direct or 
            indirect subsidies, rebates, and direct or indirect 
            remunerations, for covered discount card drugs, and include 
            any dispensing fees for such drugs.
            ``(B) Ensuring pharmacy access.--Each prescription drug 
        card sponsor offering an endorsed discount card program shall 
        secure the participation in its network of a sufficient number 
        of pharmacies that dispense (other than solely by mail order) 
        drugs directly to enrollees to ensure convenient access to 
        covered discount card drugs at negotiated prices (consistent 
        with rules established by the Secretary). The Secretary shall 
        establish convenient access rules under this clause that are no 
        less favorable to enrollees than the standards for convenient 
        access to pharmacies included in the statement of work of 
        solicitation (#MDA906-03-R-0002) of the Department of Defense 
        under the TRICARE Retail Pharmacy (TRRx) as of March 13, 2003.
            ``(C) Prohibition on charges for required services.--
                ``(i) In general.--Subject to clause (ii), a 
            prescription drug card sponsor (and any pharmacy 
            contracting with such sponsor for the provision of covered 
            discount card drugs to individuals enrolled in such 
            sponsor's endorsed discount card program) may not charge an 
            enrollee any amount for any items and services required to 
            be provided by the sponsor under this section.
                ``(ii) Construction.--Nothing in clause (i) shall be 
            construed to prevent--

                    ``(I) the sponsor from charging the annual 
                enrollment fee (except in the case of a transitional 
                assistance eligible individual); and
                    ``(II) the pharmacy dispensing the covered discount 
                card drug, from imposing a charge (consistent with the 
                negotiated price) for the covered discount card drug 
                dispensed, reduced by the amount of any transitional 
                assistance made available.

            ``(D) Inapplicability of medicaid best price rules.--The 
        prices negotiated from drug manufacturers for covered discount 
        card drugs under an endorsed discount card program under this 
        section shall (notwithstanding any other provision of law) not 
        be taken into account for the purposes of establishing the best 
        price under section 1927(c)(1)(C).
        ``(2) Reduction of medication errors and adverse drug 
    interactions.--Each endorsed discount card program shall implement 
    a system to reduce the likelihood of medication errors and adverse 
    drug interactions and to improve medication use.
    ``(f) Eligibility Procedures for Endorsed Programs and Transitional 
Assistance.--
        ``(1) Determinations.--
            ``(A) Procedures.--The determination of whether an 
        individual is a discount card eligible individual or a 
        transitional assistance eligible individual or a special 
        transitional assistance eligible individual (as defined in 
        subsection (b)) shall be determined under procedures specified 
        by the Secretary consistent with this subsection.
            ``(B) Income and family size determinations.--For purposes 
        of this section, the Secretary shall define the terms `income' 
        and `family size' and shall specify the methods and period for 
        which they are determined. If under such methods income or 
        family size is determined based on the income or family size 
        for prior periods of time, the Secretary shall permit (whether 
        through a process of reconsideration or otherwise) an 
        individual whose income or family size has changed to elect to 
        have eligibility for transitional assistance determined based 
        on income or family size for a more recent period.
        ``(2) Use of self-certification for transitional assistance.--
            ``(A) In general.--Under the procedures specified under 
        paragraph (1)(A) an individual who wishes to be treated as a 
        transitional assistance eligible individual or a special 
        transitional assistance eligible individual under this section 
        (or another qualified person on such individual's behalf) shall 
        certify on the enrollment form under subsection (c)(1)(B) (or 
        similar form specified by the Secretary), through a simplified 
        means specified by the Secretary and under penalty of perjury 
        or similar sanction for false statements, as to the amount of 
        the individual's income, family size, and individual's 
        prescription drug coverage (if any) insofar as they relate to 
        eligibility to be a transitional assistance eligible individual 
        or a special transitional assistance eligible individual. Such 
        certification shall be deemed as consent to verification of 
        respective eligibility under paragraph (3). A certification 
        under this paragraph may be provided before, on, or after the 
        time of enrollment under an endorsed program.
            ``(B) Treatment of self-certification.--The Secretary shall 
        treat a certification under subparagraph (A) that is verified 
        under paragraph (3) as a determination that the individual 
        involved is a transitional assistance eligible individual or 
        special transitional assistance eligible individual (as the 
        case may be) for the entire period of the enrollment of the 
        individual in any endorsed program.
        ``(3) Verification.--
            ``(A) In general.--The Secretary shall establish methods 
        (which may include the use of sampling and the use of 
        information described in subparagraph (B)) to verify 
        eligibility for individuals who seek to enroll in an endorsed 
        program and for individuals who provide a certification under 
        paragraph (2).
            ``(B) Information described.--The information described in 
        this subparagraph is as follows:
                ``(i) Medicaid-related information.--Information on 
            eligibility under title XIX and provided to the Secretary 
            under arrangements between the Secretary and States in 
            order to verify the eligibility of individuals who seek to 
            enroll in an endorsed program and of individuals who 
            provide certification under paragraph (2).
                ``(ii) Social security information.--Financial 
            information made available to the Secretary under 
            arrangements between the Secretary and the Commissioner of 
            Social Security in order to verify the eligibility of 
            individuals who provide such certification.
                ``(iii) Information from secretary of the treasury.--
            Financial information made available to the Secretary under 
            section 6103(l)(19) of the Internal Revenue Code of 1986 in 
            order to verify the eligibility of individuals who provide 
            such certification.
            ``(C) Verification in cases of medicaid enrollees.--
                ``(i) In general.--Nothing in this section shall be 
            construed as preventing the Secretary from finding that a 
            discount card eligible individual meets the income 
            requirements under subsection (b)(2)(A) if the individual 
            is within a category of discount card eligible individuals 
            who are enrolled under title XIX (such as qualified 
            medicare beneficiaries (QMBs), specified low-income 
            medicare beneficiaries (SLMBs), and certain qualified 
            individuals (QI-1s)).
                ``(ii) Availability of information for verification 
            purposes.--As a condition of provision of Federal financial 
            participation to a State that is one of the 50 States or 
            the District of Columbia under title XIX, for purposes of 
            carrying out this section, the State shall provide the 
            information it submits to the Secretary relating to such 
            title in a manner specified by the Secretary that permits 
            the Secretary to identify individuals who are described in 
            subsection (b)(1)(B) or are transitional assistance 
            eligible individuals or special transitional assistance 
            eligible individuals.
        ``(4) Reconsideration.--
            ``(A) In general.--The Secretary shall establish a process 
        under which a discount card eligible individual, who is 
        determined through the certification and verification methods 
        under paragraphs (2) and (3) not to be a transitional 
        assistance eligible individual or a special transitional 
        assistance eligible individual, may request a reconsideration 
        of the determination.
            ``(B) Contract authority.--The Secretary may enter into a 
        contract to perform the reconsiderations requested under 
        subparagraph (A).
            ``(C) Communication of results.--Under the process under 
        subparagraph (A) the results of such reconsideration shall be 
        communicated to the individual and the prescription drug card 
        sponsor involved.
    ``(g) Transitional Assistance.--
        ``(1) Provision of transitional assistance.--An individual who 
    is a transitional assistance eligible individual (as determined 
    under this section) and who is enrolled with an endorsed program is 
    entitled--
            ``(A) to have payment made of any annual enrollment fee 
        charged under subsection (c)(2) for enrollment under the 
        program; and
            ``(B) to have payment made, up to the amount specified in 
        paragraph (2), under such endorsed program of 90 percent (or 95 
        percent in the case of a special transitional assistance 
        eligible individual) of the costs incurred for covered discount 
        card drugs obtained through the program taking into account the 
        negotiated price (if any) for the drug under the program.
        ``(2) Limitation on dollar amount.--
            ``(A) In general.--Subject to subparagraph (B), the amount 
        specified in this paragraph for a transitional assistance 
        eligible individual--
                ``(i) for costs incurred during 2004, is $600; or
                ``(ii) for costs incurred during 2005, is--

                    ``(I) $600, plus
                    ``(II) except as provided in subparagraph (E), the 
                amount by which the amount available under this 
                paragraph for 2004 for that individual exceeds the 
                amount of payment made under paragraph (1)(B) for that 
                individual for costs incurred during 2004.

            ``(B) Proration.--
                ``(i) In general.--In the case of an individual not 
            described in clause (ii) with respect to a year, the 
            Secretary may prorate the amount specified in subparagraph 
            (A) for the balance of the year involved in a manner 
            specified by the Secretary.
                ``(ii) Individual described.--An individual described 
            in this clause is a transitional assistance eligible 
            individual who--

                    ``(I) with respect to 2004, enrolls in an endorsed 
                program, and provides a certification under subsection 
                (f)(2), before the initial implementation date of the 
                program under this section; and
                    ``(II) with respect to 2005, is enrolled in an 
                endorsed program, and has provided such a 
                certification, before February 1, 2005.

            ``(C) Accounting for available balances in cases of changes 
        in program enrollment.--In the case of a transitional 
        assistance eligible individual who changes the endorsed 
        discount card program in which the individual is enrolled under 
        this section, the Secretary shall provide a process under which 
        the Secretary provides to the sponsor of the endorsed program 
        in which the individual enrolls information concerning the 
        balance of amounts available on behalf of the individual under 
        this paragraph.
            ``(D) Limitation on use of funds.--Pursuant to subsection 
        (a)(2)(C), no assistance shall be provided under paragraph 
        (1)(B) with respect to covered discount card drugs dispensed 
        after December 31, 2005.
            ``(E) No rollover permitted in case of voluntary 
        disenrollment.--Except in such exceptional cases as the 
        Secretary may provide, in the case of a transitional assistance 
        eligible individual who voluntarily disenrolls from an endorsed 
        plan, the provisions of subclause (II) of subparagraph (A)(ii) 
        shall not apply.
        ``(3) Payment.--The Secretary shall provide a method for the 
    reimbursement of prescription drug card sponsors for assistance 
    provided under this subsection.
        ``(4) Coverage of coinsurance.--
            ``(A) Waiver permitted by pharmacy.--Nothing in this 
        section shall be construed as precluding a pharmacy from 
        reducing or waiving the application of coinsurance imposed 
        under paragraph (1)(B) in accordance with section 
        1128B(b)(3)(G).
            ``(B) Optional payment of coinsurance by state.--
                ``(i) In general.--The Secretary shall establish an 
            arrangement under which a State may provide for payment of 
            some or all of the coinsurance under paragraph (1)(B) for 
            some or all enrollees in the State, as specified by the 
            State under the arrangement. Insofar as such a payment 
            arrangement is made with respect to an enrollee, the amount 
            of the coinsurance shall be paid directly by the State to 
            the pharmacy involved.
                ``(ii) No federal matching available under medicaid or 
            schip.--Expenditures made by a State for coinsurance 
            described in clause (i) shall not be treated as State 
            expenditures for purposes of Federal matching payments 
            under title XIX or XXI.
                ``(iii) Not treated as medicare cost-sharing.--
            Coinsurance described in paragraph (1)(B) shall not be 
            treated as coinsurance under this title for purposes of 
            section 1905(p)(3)(B).
            ``(C) Treatment of coinsurance.--The amount of any 
        coinsurance imposed under paragraph (1)(B), whether paid or 
        waived under this paragraph, shall not be taken into account in 
        applying the limitation in dollar amount under paragraph (2).
        ``(5) Ensuring access to transitional assistance for qualified 
    residents of long-term care facilities and american indians.--
            ``(A) Residents of long-term care facilities.--The 
        Secretary shall establish procedures and may waive requirements 
        of this section as necessary to negotiate arrangements with 
        sponsors to provide arrangements with pharmacies that support 
        long-term care facilities in order to ensure access to 
        transitional assistance for transitional assistance eligible 
        individuals who reside in long-term care facilities.
            ``(B) American indians.--The Secretary shall establish 
        procedures and may waive requirements of this section to ensure 
        that, for purposes of providing transitional assistance, 
        pharmacies operated by the Indian Health Service, Indian tribes 
        and tribal organizations, and urban Indian organizations (as 
        defined in section 4 of the Indian Health Care Improvement Act) 
        have the opportunity to participate in the pharmacy networks of 
        at least two endorsed programs in each of the 50 States and the 
        District of Columbia where such a pharmacy operates.
        ``(6) No impact on benefits under other programs.--The 
    availability of negotiated prices or transitional assistance under 
    this section shall not be treated as benefits or otherwise taken 
    into account in determining an individual's eligibility for, or the 
    amount of benefits under, any other Federal program.
        ``(7) Disregard for purposes of part c.--Nonuniformity of 
    benefits resulting from the implementation of this section 
    (including the provision or nonprovision of transitional assistance 
    and the payment or waiver of any enrollment fee under this section) 
    shall not be taken into account in applying section 1854(f).
    ``(h) Qualification of Prescription Drug Card Sponsors and 
Endorsement of Discount Card Programs; Beneficiary Protections.--
        ``(1) Prescription drug card sponsor and qualifications.--
            ``(A) Prescription drug card sponsor and sponsor defined.--
        For purposes of this section, the terms `prescription drug card 
        sponsor' and `sponsor' mean any nongovernmental entity that the 
        Secretary determines to be appropriate to offer an endorsed 
        discount card program under this section, which may include--
                ``(i) a pharmaceutical benefit management company;
                ``(ii) a wholesale or retail pharmacy delivery system;
                ``(iii) an insurer (including an insurer that offers 
            medicare supplemental policies under section 1882);
                ``(iv) an organization offering a plan under part C; or
                ``(v) any combination of the entities described in 
            clauses (i) through (iv).
            ``(B) Administrative qualifications.--Each endorsed 
        discount card program shall be operated directly, or through 
        arrangements with an affiliated organization (or 
        organizations), by one or more entities that have demonstrated 
        experience and expertise in operating such a program or a 
        similar program and that meets such business stability and 
        integrity requirements as the Secretary may specify.
            ``(C) Accounting for transitional assistance.--The sponsor 
        of an endorsed discount card program shall have arrangements 
        satisfactory to the Secretary to account for the assistance 
        provided under subsection (g) on behalf of transitional 
        assistance eligible individuals.
        ``(2) Applications for program endorsement.--
            ``(A) Submission.--Each prescription drug card sponsor that 
        seeks endorsement of a prescription drug discount card program 
        under this section shall submit to the Secretary, at such time 
        and in such manner as the Secretary may specify, an application 
        containing such information as the Secretary may require.
            ``(B) Approval; compliance with applicable requirements.--
        The Secretary shall review the application submitted under 
        subparagraph (A) and shall determine whether to endorse the 
        prescription drug discount card program. The Secretary may not 
        endorse such a program unless--
                ``(i) the program and prescription drug card sponsor 
            offering the program comply with the applicable 
            requirements under this section; and
                ``(ii) the sponsor has entered into a contract with the 
            Secretary to carry out such requirements.
            ``(C) Termination of endorsement and contracts.--An 
        endorsement of an endorsed program and a contract under 
        subparagraph (B) shall be for the duration of the program under 
        this section (including any transition applicable under 
        subsection (a)(2)(C)(ii)), except that the Secretary may, with 
        notice and for cause (as defined by the Secretary), terminate 
        such endorsement and contract.
            ``(D) Ensuring choice of programs.--
                ``(i) In general.--The Secretary shall ensure that 
            there is available to each discount card eligible 
            individual a choice of at least 2 endorsed programs (each 
            offered by a different sponsor).
                ``(ii) Limitation on number.--The Secretary may limit 
            (but not below 2) the number of sponsors in a State that 
            are awarded contracts under this paragraph.
        ``(3) Service area encompassing entire states.--Except as 
    provided in paragraph (9), if a prescription drug card sponsor that 
    offers an endorsed program enrolls in the program individuals 
    residing in any part of a State, the sponsor must permit any 
    discount card eligible individual residing in any portion of the 
    State to enroll in the program.
        ``(4) Savings to medicare beneficiaries.--Each prescription 
    drug card sponsor that offers an endorsed discount card program 
    shall pass on to discount card eligible individuals enrolled in the 
    program negotiated prices on covered discount card drugs, including 
    discounts negotiated with pharmacies and manufacturers, to the 
    extent disclosed under subsection (i)(1).
        ``(5) Grievance mechanism.--Each prescription drug card sponsor 
    shall provide meaningful procedures for hearing and resolving 
    grievances between the sponsor (including any entity or individual 
    through which the sponsor carries out the endorsed discount card 
    program) and enrollees in endorsed discount card programs of the 
    sponsor under this section in a manner similar to that required 
    under section 1852(f).
        ``(6) Confidentiality of enrollee records.--
            ``(A) In general.--For purposes of the program under this 
        section, the operations of an endorsed program are covered 
        functions and a prescription drug card sponsor is a covered 
        entity for purposes of applying part C of title XI and all 
        regulatory provisions promulgated thereunder, including 
        regulations (relating to privacy) adopted pursuant to the 
        authority of the Secretary under section 264(c) of the Health 
        Insurance Portability and Accountability Act of 1996 (42 U.S.C. 
        1320d-2 note).
            ``(B) Waiver authority.--In order to promote participation 
        of sponsors in the program under this section, the Secretary 
        may waive such relevant portions of regulations relating to 
        privacy referred to in subparagraph (A), for such appropriate, 
        limited period of time, as the Secretary specifies.
        ``(7) Limitation on provision and marketing of products and 
    services.--The sponsor of an endorsed discount card program--
            ``(A) may provide under the program--
                ``(i) a product or service only if the product or 
            service is directly related to a covered discount card 
            drug; or
                ``(ii) a discount price for nonprescription drugs; and
            ``(B) may, to the extent otherwise permitted under 
        paragraph (6) (relating to application of HIPAA requirements), 
        market a product or service under the program only if the 
        product or service is directly related to--
                ``(i) a covered discount card drug; or
                ``(ii) a drug described in subparagraph (A)(ii) and the 
            marketing consists of information on the discounted price 
            made available for the drug involved.
        ``(8) Additional protections.--Each endorsed discount card 
    program shall meet such additional requirements as the Secretary 
    identifies to protect and promote the interest of discount card 
    eligible individuals, including requirements that ensure that 
    discount card eligible individuals enrolled in endorsed discount 
    card programs are not charged more than the lower of the price 
    based on negotiated prices or the usual and customary price.
        ``(9) Special rules for certain organizations.--
            ``(A) In general.--In the case of an organization that is 
        offering a plan under part C or enrollment under a reasonable 
        cost reimbursement contract under section 1876(h) that is 
        seeking to be a prescription drug card sponsor under this 
        section, the organization may elect to apply the special rules 
        under subparagraph (B) with respect to enrollees in any plan 
        described in section 1851(a)(2)(A) that it offers or under such 
        contract and an endorsed discount card program it offers, but 
        only if it limits enrollment under such program to individuals 
        enrolled in such plan or under such contract.
            ``(B) Special rules.--The special rules under this 
        subparagraph are as follows:
                ``(i) Limitation on enrollment.--The sponsor limits 
            enrollment under this section under the endorsed discount 
            card program to discount card eligible individuals who are 
            enrolled in the part C plan involved or under the 
            reasonable cost reimbursement contract involved and is not 
            required nor permitted to enroll other individuals under 
            such program.
                ``(ii) Pharmacy access.--Pharmacy access requirements 
            under subsection (e)(1)(B) are deemed to be met if the 
            access is made available through a pharmacy network (and 
            not only through mail order) and the network used by the 
            sponsor is approved by the Secretary.
                ``(iii) Sponsor requirements.--The Secretary may waive 
            the application of such requirements for a sponsor as the 
            Secretary determines to be duplicative or to conflict with 
            a requirement of the organization under part C or section 
            1876 (as the case may be) or to be necessary in order to 
            improve coordination of this section with the benefits 
            under such part or section.
    ``(i) Disclosure and Oversight.--
        ``(1) Disclosure.--Each prescription drug card sponsor offering 
    an endorsed discount card program shall disclose to the Secretary 
    (in a manner specified by the Secretary) information relating to 
    program performance, use of prescription drugs by discount card 
    eligible individuals enrolled in the program, the extent to which 
    negotiated price concessions described in subsection (e)(1)(A)(ii) 
    made available to the entity by a manufacturer are passed through 
    to enrollees through pharmacies or otherwise, and such other 
    information as the Secretary may specify. The provisions of section 
    1927(b)(3)(D) shall apply to drug pricing data reported under the 
    previous sentence (other than data in aggregate form).
        ``(2) Oversight; audit and inspection authority.--The Secretary 
    shall provide appropriate oversight to ensure compliance of 
    endorsed discount card programs and their sponsors with the 
    requirements of this section. The Secretary shall have the right to 
    audit and inspect any books and records of a prescription discount 
    card sponsor (and of any affiliated organization referred to in 
    subsection (h)(1)(B)) that pertain to the endorsed discount card 
    program under this section, including amounts payable to the 
    sponsor under this section.
        ``(3) Sanctions for abusive practices.--The Secretary may 
    implement intermediate sanctions or may revoke the endorsement of a 
    program offered by a sponsor under this section if the Secretary 
    determines that the sponsor or the program no longer meets the 
    applicable requirements of this section or that the sponsor has 
    engaged in false or misleading marketing practices. The Secretary 
    may impose a civil money penalty in an amount not to exceed $10,000 
    for conduct that a party knows or should know is a violation of 
    this section. The provisions of section 1128A (other than 
    subsections (a) and (b) and the second sentence of subsection (f)) 
    shall apply to a civil money penalty under the previous sentence in 
    the same manner as such provisions apply to a penalty or proceeding 
    under section 1128A(a).
    ``(j) Treatment of Territories.--
        ``(1) In general.--The Secretary may waive any provision of 
    this section (including subsection (h)(2)(D)) in the case of a 
    resident of a State (other than the 50 States and the District of 
    Columbia) insofar as the Secretary determines it is necessary to 
    secure access to negotiated prices for discount card eligible 
    individuals (or, at the option of the Secretary, individuals 
    described in subsection (b)(1)(A)(i)).
        ``(2) Transitional assistance.--
            ``(A) In general.--In the case of a State, other than the 
        50 States and the District of Columbia, if the State 
        establishes a plan described in subparagraph (B) (for providing 
        transitional assistance with respect to the provision of 
        prescription drugs to some or all individuals residing in the 
        State who are described in subparagraph (B)(i)), the Secretary 
        shall pay to the State for the entire period of the operation 
        of this section an amount equal to the amount allotted to the 
        State under subparagraph (C).
            ``(B) Plan.--The plan described in this subparagraph is a 
        plan that--
                ``(i) provides transitional assistance with respect to 
            the provision of covered discount card drugs to some or all 
            individuals who are entitled to benefits under part A or 
            enrolled under part B, who reside in the State, and who 
            have income below 135 percent of the poverty line; and
                ``(ii) assures that amounts received by the State under 
            this paragraph are used only for such assistance.
            ``(C) Allotment limit.--The amount described in this 
        subparagraph for a State is equal to $35,000,000 multiplied by 
        the ratio (as estimated by the Secretary) of--
                ``(i) the number of individuals who are entitled to 
            benefits under part A or enrolled under part B and who 
            reside in the State (as determined by the Secretary as of 
            July 1, 2003), to
                ``(ii) the sum of such numbers for all States to which 
            this paragraph applies.
            ``(D) Continued availability of funds.--Amounts made 
        available to a State under this paragraph which are not used 
        under this paragraph shall be added to the amount available to 
        that State for purposes of carrying out section 1935(e).
    ``(k) Funding.--
        ``(1) Establishment of transitional assistance account.--
            ``(A) In general.--There is created within the Federal 
        Supplementary Medical Insurance Trust Fund established by 
        section 1841 an account to be known as the `Transitional 
        Assistance Account' (in this subsection referred to as the 
        `Account').
            ``(B) Funds.--The Account shall consist of such gifts and 
        bequests as may be made as provided in section 201(i)(1), 
        accrued interest on balances in the Account, and such amounts 
        as may be deposited in, or appropriated to, the Account as 
        provided in this subsection.
            ``(C) Separate from rest of trust fund.--Funds provided 
        under this subsection to the Account shall be kept separate 
        from all other funds within the Federal Supplementary Medical 
        Insurance Trust Fund, but shall be invested, and such 
        investments redeemed, in the same manner as all other funds and 
        investments within such Trust Fund.
        ``(2) Payments from account.--
            ``(A) In general.--The Managing Trustee shall pay from time 
        to time from the Account such amounts as the Secretary 
        certifies are necessary to make payments for transitional 
        assistance provided under subsections (g) and (j)(2).
            ``(B) Treatment in relation to part b premium.--Amounts 
        payable from the Account shall not be taken into account in 
        computing actuarial rates or premium amounts under section 
        1839.
        ``(3) Appropriations to cover benefits.--There are appropriated 
    to the Account in a fiscal year, out of any moneys in the Treasury 
    not otherwise appropriated, an amount equal to the payments made 
    from the Account in the year.
        ``(4) For administrative expenses.--There are authorized to be 
    appropriated to the Secretary such sums as may be necessary to 
    carry out the Secretary's responsibilities under this section.
        ``(5) Transfer of any remaining balance to medicare 
    prescription drug account.--Any balance remaining in the Account 
    after the Secretary determines that funds in the Account are no 
    longer necessary to carry out the program under this section shall 
    be transferred and deposited into the Medicare Prescription Drug 
    Account under section 1860D-16.
        ``(6) Construction.--Nothing in this section shall be construed 
    as authorizing the Secretary to provide for payment (other than 
    payment of an enrollment fee on behalf of a transitional assistance 
    eligible individual under subsection (g)(1)(A)) to a sponsor for 
    administrative expenses incurred by the sponsor in carrying out 
    this section (including in administering the transitional 
    assistance provisions of subsections (f) and (g)).

         ``Subpart 5--Definitions and Miscellaneous Provisions


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

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


                        ``miscellaneous provisions

    ``Sec. 1860D-42. (a) Access to Coverage in Territories.--The 
Secretary may waive such requirements of this part, including section 
1860D-3(a)(1), insofar as the Secretary determines it is necessary to 
secure access to qualified prescription drug coverage for part D 
eligible individuals residing in a State (other than the 50 States and 
the District of Columbia).
    ``(b) Application of Demonstration Authority.--The provisions of 
section 402 of the Social Security Amendments of 1967 (Public Law 90-
248) shall apply with respect to this part and part C in the same 
manner it applies with respect to parts A and B, except that any 
reference with respect to a Trust Fund in relation to an experiment or 
demonstration project relating to prescription drug coverage under this 
part shall be deemed a reference to the Medicare Prescription Drug 
Account within the Federal Supplementary Medical Insurance Trust 
Fund.''.
    (b) Submission of Legislative Proposal.--Not later than 6 months 
after the date of the enactment of this Act, the Secretary shall submit 
to the appropriate committees of Congress a legislative proposal 
providing for such technical and conforming amendments in the law as 
are required by the provisions of this title and title II.
    (c) Study on Transitioning Part B Prescription Drug Coverage.--Not 
later than January 1, 2005, the Secretary shall submit a report to 
Congress that makes recommendations regarding methods for providing 
benefits under subpart 1 of part D of title XVIII of the Social 
Security Act for outpatient prescription drugs for which benefits are 
provided under part B of such title.
    (d) Report on Progress in Implementation of Prescription Drug 
Benefit.--Not later than March 1, 2005, the Secretary shall submit a 
report to Congress on the progress that has been made in implementing 
the prescription drug benefit under this title. The Secretary shall 
include in the report specific steps that have been taken, and that 
need to be taken, to ensure a timely start of the program on January 1, 
2006. The report shall include recommendations regarding an appropriate 
transition from the program under section 1860D-31 of the Social 
Security Act to prescription drug benefits under subpart 1 of part D of 
title XVIII of such Act.
    (e) Additional Conforming Changes.--
        (1) Conforming references to previous part d.--Any reference in 
    law (in effect before the date of the enactment of this Act) to 
    part D of title XVIII of the Social Security Act is deemed a 
    reference to part E of such title (as in effect after such date).
        (2) Conforming amendment permitting waiver of cost-sharing.--
    Section 1128B(b)(3) (42 U.S.C. 1320a-7b(b)(3)) is amended--
            (A) by striking ``and'' at the end of subparagraph (E);
            (B) by striking the period at the end of subparagraph (F) 
        and inserting ``; and''; and
            (C) by adding at the end the following new subparagraph:
        ``(G) the waiver or reduction by pharmacies (including 
    pharmacies of the Indian Health Service, Indian tribes, tribal 
    organizations, and urban Indian organizations) of any cost-sharing 
    imposed under part D of title XVIII, if the conditions described in 
    clauses (i) through (iii) of section 1128A(i)(6)(A) are met with 
    respect to the waiver or reduction (except that, in the case of 
    such a waiver or reduction on behalf of a subsidy eligible 
    individual (as defined in section 1860D-14(a)(3)), section 
    1128A(i)(6)(A) shall be applied without regard to clauses (ii) and 
    (iii) of that section).''.
        (3) Medicare prescription drug account.--
            (A) Section 201(g) (42 U.S.C. 401(g)) is amended--
                (i) in paragraph (1)(B)(i)(V), by inserting ``(and, of 
            such portion, the portion of such costs which should have 
            been borne by the Medicare Prescription Drug Account in 
            such Trust Fund)'' after ``Trust Fund''; and
                (ii) in paragraph (1)(B)(ii)(III), by inserting ``(and, 
            of such portion, the portion of such costs which should 
            have been borne by the Medicare Prescription Drug Account 
            in such Trust Fund)'' after ``Trust Fund''.
            (B) Section 201(i)(1) (42 U.S.C. 401(i)(1)) is amended by 
        inserting ``(and for the Medicare Prescription Drug Account and 
        the Transitional Assistance Account in such Trust Fund)'' after 
        ``Federal Supplementary Medical Insurance Trust Fund''.
            (C) Section 1841 (42 U.S.C. 1395t) is amended--
                (i) in the last sentence of subsection (a)--

                    (I) by striking ``and'' before ``such amounts''; 
                and
                    (II) by inserting before the period the following: 
                ``, and such amounts as may be deposited in, or 
                appropriated to, the Medicare Prescription Drug Account 
                established by section 1860D-16'';

                (ii) in subsection (g), by adding at the end the 
            following: ``The payments provided for under part D, other 
            than under section 1860D-31(k)(2), shall be made from the 
            Medicare Prescription Drug Account in the Trust Fund.'';
                (iii) in subsection (h), by inserting ``or pursuant to 
            section 1860D-13(c)(1) or 1854(d)(2)(A) (in which case 
            payments shall be made in appropriate part from the 
            Medicare Prescription Drug Account in the Trust Fund)'' 
            after ``1840(d)''; and
                (iv) in subsection (i), by inserting after ``and 
            section 1842(g)'' the following: ``and pursuant to sections 
            1860D-13(c)(1) and 1854(d)(2)(A) (in which case payments 
            shall be made in appropriate part from the Medicare 
            Prescription Drug Account in the Trust Fund)''.
            (D) Section 1853(f) (42 U.S.C. 1395w-23(f)) is amended--
                (i) in the heading by striking ``Trust Fund'' and 
            inserting ``Trust Funds''; and
                (ii) by inserting after the first sentence the 
            following: ``Payments to MA organizations for statutory 
            drug benefits provided under this title are made from the 
            Medicare Prescription Drug Account in the Federal 
            Supplementary Medical Insurance Trust Fund.''.
        (4) Application of confidentiality for drug pricing data.--
    Section 1927(b)(3)(D) (42 U.S.C. 1396r-8(b)(3)(D)) is amended by 
    adding after and below clause (iii) the following:
        ``The previous sentence shall also apply to information 
        disclosed under section 1860D-2(d)(2) or 1860D-4(c)(2)(E).''.
        (5) Clarification of treatment of part a enrollees.--Section 
    1818(a) (42 U.S.C. 1395i-2(a)) is amended by adding at the end the 
    following: ``Except as otherwise provided, any reference to an 
    individual entitled to benefits under this part includes an 
    individual entitled to benefits under this part pursuant to an 
    enrollment under this section or section 1818A.''.
        (6) Disclosure.--Section 6103(l)(7)(D)(ii) of the Internal 
    Revenue Code of 1986 is amended by inserting ``or subsidies 
    provided under section 1860D-14 of such Act'' after ``Social 
    Security Act''.
        (7) Extension of study authority.--Section 1875(b) (42 U.S.C. 
    1395ll(b)) is amended by striking ``the insurance programs under 
    parts A and B'' and inserting ``this title''.
        (8) Conforming amendments relating to facilitation of 
    electronic prescribing.--
            (A) Section 1128B(b)(3)(C) (42 U.S.C. 1320a-7b(b)(3)(C)) is 
        amended by inserting ``or in regulations under section 1860D-
        3(e)(6)'' after ``1987''.
            (B) Section 1877(b) (42 U.S.C. 1395nn(b)) is amended by 
        adding at the end the following new paragraph:
        ``(5) Electronic prescribing.--An exception established by 
    regulation under section 1860D-3(e)(6).''.
        (9) Other changes.--Section 1927(g)(1)(B)(i) (42 U.S.C. 1396r-
    8(g)(1)(B)(i)) is amended--
            (A) by adding ``and'' at the end of subclause (II); and
            (B) by striking subclause (IV).

SEC. 102. MEDICARE ADVANTAGE CONFORMING AMENDMENTS.

    (a) Conforming Amendments to Enrollment Process.--
        (1) Extending open enrollment periods.--Section 1851(e) (42 
    U.S.C. 1395w-21(e)) is amended--
            (A) in paragraph (2), by striking ``2004'' and ``2005'' and 
        inserting ``2005'' and ``2006'' each place it appears; and
            (B) in paragraph (4), by striking ``2005'' and inserting 
        ``2006'' each place it appears.
        (2) Establishment of special annual, coordinated election 
    period for 6 months beginning november 15, 2005.--Section 
    1851(e)(3)(B) (42 U.S.C. 1395w-21(e)(3)(B)) is amended to read as 
    follows:
            ``(B) Annual, coordinated election period.--For purposes of 
        this section, the term `annual, coordinated election period' 
        means--
                ``(i) with respect to a year before 2002, the month of 
            November before such year;
                ``(ii) with respect to 2002, 2003, 2004, and 2005, the 
            period beginning on November 15 and ending on December 31 
            of the year before such year;
                ``(iii) with respect to 2006, the period beginning on 
            November 15, 2005, and ending on May 15, 2006; and
                ``(iv) with respect to 2007 and succeeding years, the 
            period beginning on November 15 and ending on December 31 
            of the year before such year.''.
        (3) Special information campaign.--Section 1851(e)(3) (42 
    U.S.C. 1395w-21(e)(3)) is amended--
            (A) in subparagraph (C), by inserting ``and during the 
        period described in subparagraph (B)(iii)'' after ``(beginning 
        with 1999)''; and
            (B) in subparagraph (D)--
                (i) in the heading by striking ``campaign in 1998'' and 
            inserting ``campaigns''; and
                (ii) by adding at the end the following: ``During the 
            period described in subparagraph (B)(iii), the Secretary 
            shall provide for an educational and publicity campaign to 
            inform MA eligible individuals about the availability of MA 
            plans (including MA-PD plans) offered in different areas 
            and the election process provided under this section.''.
        (4) Coordinating initial enrollment periods.--Section 
    1851(e)(1) (42 U.S.C. 1395w-21(e)(1)) is amended by adding at the 
    end the following new sentence: ``If any portion of an individual's 
    initial enrollment period under part B occurs after the end of the 
    annual, coordinated election period described in paragraph 
    (3)(B)(iii), the initial enrollment period under this part shall 
    further extend through the end of the individual's initial 
    enrollment period under part B.''.
        (5) Coordination of effectiveness of elections during annual 
    coordinated election period for 2006.--Section 1851(f)(3) (42 
    U.S.C. 1395w-21(f)(3)) is amended by inserting ``, other than the 
    period described in clause (iii) of such subsection'' after 
    ``subsection (e)(3)(B)''.
        (6) Limitation on one-change rule to same type of plan.--
    Section 1851(e)(2) (42 U.S.C. 1395w-21(e)(2)) is amended--
            (A) in subparagraph (B)(i), by inserting ``, subparagraph 
        (C)(iii),'' after ``clause (ii)'';
            (B) in subparagraph (C)(i), by striking ``clause (ii)'' and 
        inserting ``clauses (ii) and (iii)''; and
            (C) by adding at the end of subparagraph (C) the following 
        new clause:
                ``(iii) Limitation on exercise of right with respect to 
            prescription drug coverage.--Effective for plan years 
            beginning on or after January 1, 2006, in applying clause 
            (i) (and clause (i) of subparagraph (B)) in the case of an 
            individual who--

                    ``(I) is enrolled in an MA plan that does provide 
                qualified prescription drug coverage, the individual 
                may exercise the right under such clause only with 
                respect to coverage under the original fee-for-service 
                plan or coverage under another MA plan that does not 
                provide such coverage and may not exercise such right 
                to obtain coverage under an MA-PD plan or under a 
                prescription drug plan under part D; or
                    ``(II) is enrolled in an MA-PD plan, the individual 
                may exercise the right under such clause only with 
                respect to coverage under another MA-PD plan (and not 
                an MA plan that does not provide qualified prescription 
                drug coverage) or under the original fee-for-service 
                plan and coverage under a prescription drug plan under 
                part D.''.

    (b) Promotion of E-Prescribing by MA Plans.--Section 1852(j) (42 
U.S.C. 1395w-22(j)) is amended by adding at the end the following new 
paragraph:
        ``(7) Promotion of E-Prescribing by MA Plans.--
            ``(A) In general.--An MA-PD plan may provide for a separate 
        payment or otherwise provide for a differential payment for a 
        participating physician that prescribes covered part D drugs in 
        accordance with an electronic prescription drug program that 
        meets standards established under section 1860D-4(e).
            ``(B) Considerations.--Such payment may take into 
        consideration the costs of the physician in implementing such a 
        program and may also be increased for those participating 
        physicians who significantly increase--
                ``(i) formulary compliance;
                ``(ii) lower cost, therapeutically equivalent 
            alternatives;
                ``(iii) reductions in adverse drug interactions; and
                ``(iv) efficiencies in filing prescriptions through 
            reduced administrative costs.
            ``(C) Structure.--Additional or increased payments under 
        this subsection may be structured in the same manner as 
        medication therapy management fees are structured under section 
        1860D-4(c)(2)(E).''.
    (c) Other Conforming Amendments.--
        (1) Section 1851(a)(1) (42 U.S.C. 1395w-21(a)(1)) is amended--
            (A) by inserting ``(other than qualified prescription drug 
        benefits)'' after ``benefits'';
            (B) by striking the period at the end of subparagraph (B) 
        and inserting a comma; and
            (C) by adding after and below subparagraph (B) the 
        following:
    ``and may elect qualified prescription drug coverage in accordance 
    with section 1860D-1.''.
        (2) Effective date.--The amendments made by this subsection 
    shall apply on and after January 1, 2006.

SEC. 103. MEDICAID AMENDMENTS.

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


   ``special provisions relating to medicare prescription drug benefit

    ``Sec. 1935. (a) Requirements Relating to Medicare Prescription 
Drug Low-Income Subsidies and Medicare Transitional Prescription Drug 
Assistance.--As a condition of its State plan under this title under 
section 1902(a)(66) and receipt of any Federal financial assistance 
under section 1903(a), a State shall do the following:
        ``(1) Information for transitional prescription drug assistance 
    verification.--The State shall provide the Secretary with 
    information to carry out section 1860D-31(f)(3)(B)(i).
        ``(2) Eligibility determinations for low-income subsidies.--The 
    State shall--
            ``(A) make determinations of eligibility for premium and 
        cost-sharing subsidies under and in accordance with section 
        1860D-14;
            ``(B) inform the Secretary of such determinations in cases 
        in which such eligibility is established; and
            ``(C) otherwise provide the Secretary with such information 
        as may be required to carry out part D, other than subpart 4, 
        of title XVIII (including section 1860D-14).
        ``(3) Screening for eligibility, and enrollment of, 
    beneficiaries for medicare cost-sharing.--As part of making an 
    eligibility determination required under paragraph (2) for an 
    individual, the State shall make a determination of the 
    individual's eligibility for medical assistance for any medicare 
    cost-sharing described in section 1905(p)(3) and, if the individual 
    is eligible for any such medicare cost-sharing, offer enrollment to 
    the individual under the State plan (or under a waiver of such 
    plan).
    ``(b) Regular Federal Subsidy of Administrative Costs.--The amounts 
expended by a State in carrying out subsection (a) are expenditures 
reimbursable under the appropriate paragraph of section 1903(a).''.
    (b) Phased-In Federal Assumption of Medicaid Responsibility for 
Premium and Cost-Sharing Subsidies for Dually Eligible Individuals.--
Section 1935, as inserted by subsection (a)(2), is amended by adding at 
the end the following new subsection:
    ``(c) Federal Assumption of Medicaid Prescription Drug Costs for 
Dually Eligible Individuals.--
        ``(1) Phased-down state contribution.--
            ``(A) In general.--Each of the 50 States and the District 
        of Columbia for each month beginning with January 2006 shall 
        provide for payment under this subsection to the Secretary of 
        the product of--
                ``(i) the amount computed under paragraph (2)(A) for 
            the State and month;
                ``(ii) the total number of full-benefit dual eligible 
            individuals (as defined in paragraph (6)) for such State 
            and month; and
                ``(iii) the factor for the month specified in paragraph 
            (5).
            ``(B) Form and manner of payment.--Payment under 
        subparagraph (A) shall be made in a manner specified by the 
        Secretary that is similar to the manner in which State payments 
        are made under an agreement entered into under section 1843, 
        except that all such payments shall be deposited into the 
        Medicare Prescription Drug Account in the Federal Supplementary 
        Medical Insurance Trust Fund.
            ``(C) Compliance.--If a State fails to pay to the Secretary 
        an amount required under subparagraph (A), interest shall 
        accrue on such amount at the rate provided under section 
        1903(d)(5). The amount so owed and applicable interest shall be 
        immediately offset against amounts otherwise payable to the 
        State under section 1903(a), in accordance with the Federal 
        Claims Collection Act of 1996 and applicable regulations.
            ``(D) Data match.--The Secretary shall perform such 
        periodic data matches as may be necessary to identify and 
        compute the number of full-benefit dual eligible individuals 
        for purposes of computing the amount under subparagraph (A).
        ``(2) Amount.--
            ``(A) In general.--The amount computed under this paragraph 
        for a State described in paragraph (1) and for a month in a 
        year is equal to--
                ``(i) \1/12\ of the product of--

                    ``(I) the base year State medicaid per capita 
                expenditures for covered part D drugs for full-benefit 
                dual eligible individuals (as computed under paragraph 
                (3)); and
                    ``(II) a proportion equal to 100 percent minus the 
                Federal medical assistance percentage (as defined in 
                section 1905(b)) applicable to the State for the fiscal 
                year in which the month occurs; and

                ``(ii) increased for each year (beginning with 2004 up 
            to and including the year involved) by the applicable 
            growth factor specified in paragraph (4) for that year.
            ``(B) Notice.--The Secretary shall notify each State 
        described in paragraph (1) not later than October 15 before the 
        beginning of each year (beginning with 2006) of the amount 
        computed under subparagraph (A) for the State for that year.
        ``(3) Base year state medicaid per capita expenditures for 
    covered part D drugs for full-benefit dual eligible individuals.--
            ``(A) In general.--For purposes of paragraph (2)(A), the 
        `base year State medicaid per capita expenditures for covered 
        part D drugs for full-benefit dual eligible individuals' for a 
        State is equal to the weighted average (as weighted under 
        subparagraph (C)) of--
                ``(i) the gross per capita medicaid expenditures for 
            prescription drugs for 2003, determined under subparagraph 
            (B); and
                ``(ii) the estimated actuarial value of prescription 
            drug benefits provided under a capitated managed care plan 
            per full-benefit dual eligible individual for 2003, as 
            determined using such data as the Secretary determines 
            appropriate.
            ``(B) Gross per capita medicaid expenditures for 
        prescription drugs.--
                ``(i) In general.--The gross per capita medicaid 
            expenditures for prescription drugs for 2003 under this 
            subparagraph is equal to the expenditures, including 
            dispensing fees, for the State under this title during 2003 
            for covered outpatient drugs, determined per full-benefit-
            dual-eligible-individual for such individuals not receiving 
            medical assistance for such drugs through a medicaid 
            managed care plan.
                ``(ii) Determination.--In determining the amount under 
            clause (i), the Secretary shall--

                    ``(I) use data from the Medicaid Statistical 
                Information System (MSIS) and other available data;
                    ``(II) exclude expenditures attributable to covered 
                outpatient prescription drugs that are not covered part 
                D drugs (as defined in section 1860D-2(e)); and
                    ``(III) reduce such expenditures by the product of 
                such portion and the adjustment factor (described in 
                clause (iii)).

                ``(iii) Adjustment factor.--The adjustment factor 
            described in this clause for a State is equal to the ratio 
            for the State for 2003 of--

                    ``(I) aggregate payments under agreements under 
                section 1927; to
                    ``(II) the gross expenditures under this title for 
                covered outpatient drugs referred to in clause (i).

            Such factor shall be determined based on information 
            reported by the State in the medicaid financial management 
            reports (form CMS-64) for the 4 quarters of calendar year 
            2003 and such other data as the Secretary may require.
            ``(C) Weighted average.--The weighted average under 
        subparagraph (A) shall be determined taking into account--
                ``(i) with respect to subparagraph (A)(i), the average 
            number of full-benefit dual eligible individuals in 2003 
            who are not described in clause (ii); and
                ``(ii) with respect to subparagraph (A)(ii), the 
            average number of full-benefit dual eligible individuals in 
            such year who received in 2003 medical assistance for 
            covered outpatient drugs through a medicaid managed care 
            plan.
        ``(4) Applicable growth factor.--The applicable growth factor 
    under this paragraph for--
            ``(A) each of 2004, 2005, and 2006, is the average annual 
        percent change (to that year from the previous year) of the per 
        capita amount of prescription drug expenditures (as determined 
        based on the most recent National Health Expenditure 
        projections for the years involved); and
            ``(B) a succeeding year, is the annual percentage increase 
        specified in section 1860D-2(b)(6) for the year.
        ``(5) Factor.--The factor under this paragraph for a month--
            ``(A) in 2006 is 90 percent;
            ``(B) in 2007 is 88\1/3\ percent;
            ``(C) in 2008 is 86\2/3\ percent;
            ``(D) in 2009 is 85 percent;
            ``(E) in 2010 is 83\1/3\ percent;
            ``(F) in 2011 is 81\2/3\ percent;
            ``(G) in 2012 is 80 percent;
            ``(H) in 2013 is 78\1/3\ percent;
            ``(I) in 2014 is 76\2/3\ percent; or
            ``(J) after December 2014, is 75 percent.
        ``(6) Full-benefit dual eligible individual defined.--
            ``(A) In general.--For purposes of this section, the term 
        `full-benefit dual eligible individual' means for a State for a 
        month an individual who--
                ``(i) has coverage for the month for covered part D 
            drugs under a prescription drug plan under part D of title 
            XVIII, or under an MA-PD plan under part C of such title; 
            and
                ``(ii) is determined eligible by the State for medical 
            assistance for full benefits under this title for such 
            month under section 1902(a)(10)(A) or 1902(a)(10)(C), by 
            reason of section 1902(f), or under any other category of 
            eligibility for medical assistance for full benefits under 
            this title, as determined by the Secretary.
            ``(B) Treatment of medically needy and other individuals 
        required to spend down.--In applying subparagraph (A) in the 
        case of an individual determined to be eligible by the State 
        for medical assistance under section 1902(a)(10)(C) or by 
        reason of section 1902(f), the individual shall be treated as 
        meeting the requirement of subparagraph (A)(ii) for any month 
        if such medical assistance is provided for in any part of the 
        month.''.
    (c) Medicaid Coordination With Medicare Prescription Drug 
Benefits.--Section 1935, as so inserted and amended, is further amended 
by adding at the end the following new subsection:
    ``(d) Coordination of Prescription Drug Benefits.--
        ``(1) Medicare as primary payor.--In the case of a part D 
    eligible individual (as defined in section 1860D-1(a)(3)(A)) who is 
    described in subsection (c)(6)(A)(ii), notwithstanding any other 
    provision of this title, medical assistance is not available under 
    this title for such drugs (or for any cost-sharing respecting such 
    drugs), and the rules under this title relating to the provision of 
    medical assistance for such drugs shall not apply. The provision of 
    benefits with respect to such drugs shall not be considered as the 
    provision of care or services under the plan under this title. No 
    payment may be made under section 1903(a) for prescribed drugs for 
    which medical assistance is not available pursuant to this 
    paragraph.
        ``(2) Coverage of certain excludable drugs.--In the case of 
    medical assistance under this title with respect to a covered 
    outpatient drug (other than a covered part D drug) furnished to an 
    individual who is enrolled in a prescription drug plan under part D 
    of title XVIII or an MA-PD plan under part C of such title, the 
    State may elect to provide such medical assistance in the manner 
    otherwise provided in the case of individuals who are not full-
    benefit dual eligible individuals or through an arrangement with 
    such plan.''.
    (d) Treatment of Territories.--
        (1) In general.--Section 1935, as so inserted and amended, is 
    further amended--
            (A) in subsection (a) in the matter preceding paragraph 
        (1), by inserting ``subject to subsection (e)'' after ``section 
        1903(a)'';
            (B) in subsection (c)(1), by inserting ``subject to 
        subsection (e)'' after ``1903(a)(1)''; and
            (C) by adding at the end the following new subsection:
    ``(e) Treatment of Territories.--
        ``(1) In general.--In the case of a State, other than the 50 
    States and the District of Columbia--
            ``(A) the previous provisions of this section shall not 
        apply to residents of such State; and
            ``(B) if the State establishes and submits to the Secretary 
        a plan described in paragraph (2) (for providing medical 
        assistance with respect to the provision of prescription drugs 
        to part D eligible individuals), the amount otherwise 
        determined under section 1108(f) (as increased under section 
        1108(g)) for the State shall be increased by the amount for the 
        fiscal period specified in paragraph (3).
        ``(2) Plan.--The Secretary shall determine that a plan is 
    described in this paragraph if the plan--
            ``(A) provides medical assistance with respect to the 
        provision of covered part D drugs (as defined in section 1860D-
        2(e)) to low-income part D eligible individuals;
            ``(B) provides assurances that additional amounts received 
        by the State that are attributable to the operation of this 
        subsection shall be used only for such assistance and related 
        administrative expenses and that no more than 10 percent of the 
        amount specified in paragraph (3)(A) for the State for any 
        fiscal period shall be used for such administrative expenses; 
        and
            ``(C) meets such other criteria as the Secretary may 
        establish.
        ``(3) Increased amount.--
            ``(A) In general.--The amount specified in this paragraph 
        for a State for a year is equal to the product of--
                ``(i) the aggregate amount specified in subparagraph 
            (B); and
                ``(ii) the ratio (as estimated by the Secretary) of--

                    ``(I) the number of individuals who are entitled to 
                benefits under part A or enrolled under part B and who 
                reside in the State (as determined by the Secretary 
                based on the most recent available data before the 
                beginning of the year); to
                    ``(II) the sum of such numbers for all States that 
                submit a plan described in paragraph (2).

            ``(B) Aggregate amount.--The aggregate amount specified in 
        this subparagraph for--
                ``(i) the last 3 quarters of fiscal year 2006, is equal 
            to $28,125,000;
                ``(ii) fiscal year 2007, is equal to $37,500,000; or
                ``(iii) a subsequent year, is equal to the aggregate 
            amount specified in this subparagraph for the previous year 
            increased by annual percentage increase specified in 
            section 1860D-2(b)(6) for the year involved.
        ``(4) Report.--The Secretary shall submit to Congress a report 
    on the application of this subsection and may include in the report 
    such recommendations as the Secretary deems appropriate.''.
        (2) Conforming amendment.--Section 1108(f) (42 U.S.C. 1308(f)) 
    is amended by inserting ``and section 1935(e)(1)(B)'' after 
    ``Subject to subsection (g)''.
    (e) Amendment to Best Price.--
        (1) In general.--Section 1927(c)(1)(C)(i) (42 U.S.C. 1396r-
    8(c)(1)(C)(i)) is amended--
            (A) by striking ``and'' at the end of subclause (III);
            (B) by striking the period at the end of subclause (IV) and 
        inserting a semicolon; and
            (C) by adding at the end the following new subclauses:

                    ``(V) the prices negotiated from drug manufacturers 
                for covered discount card drugs under an endorsed 
                discount card program under section 1860D-31; and
                    ``(VI) any prices charged which are negotiated by a 
                prescription drug plan under part D of title XVIII, by 
                an MA-PD plan under part C of such title with respect 
                to covered part D drugs or by a qualified retiree 
                prescription drug plan (as defined in section 1860D-
                22(a)(2)) with respect to such drugs on behalf of 
                individuals entitled to benefits under part A or 
                enrolled under part B of such title.''.

        (2) In general.--Section 1927(c)(1)(C)(i)(VI) of the Social 
    Security Act, as added by paragraph (1), shall apply to prices 
    charged for drugs dispensed on or after January 1, 2006.
    (f) Extension of Medicare Cost-Sharing for Part B Premium for 
Qualifying Individuals Through September 2004.--
        (1) In general.--Section 1902(a)(10)(E)(iv) (42 U.S.C. 
    1396a(a)(10)(E)(iv)), as amended by section 401(a) of Public Law 
    108-89, is amended by striking ``ending with March 2004'' and 
    inserting ``ending with September 2004''.
        (2) Total amount available for allocation.--Section 1933(g) (42 
    U.S.C. 1396u-3(g)), as added by section 401(c) of Public Law 108-
    89, is amended--
            (A) in the matter preceding paragraph (1), by striking 
        ``March 31, 2004'' and inserting ``September 30, 2004''; and
            (B) in paragraph (2), by striking ``$100,000,000'' and 
        inserting ``$300,000,000''.
        (3) Effective date.--The amendments made by this subsection 
    shall apply to calendar quarters beginning on or after April 1, 
    2004.
    (g) Outreach by the Commissioner of Social Security.--Section 1144 
(42 U.S.C. 1320b-14) is amended--
        (1) in the section heading, by inserting ``and subsidies for 
    low-income individuals under title xviii'' after ``cost-sharing'';
        (2) in subsection (a)--
            (A) in paragraph (1)--
                (i) in subparagraph (A), by inserting ``for the 
            transitional assistance under section 1860D-31(f), or for 
            premium and cost-sharing subsidies under section 1860D-14'' 
            before the semicolon; and
                (ii) in subparagraph (B), by inserting ``, program, and 
            subsidies'' after ``medical assistance''; and
            (B) in paragraph (2)--
                (i) in the matter preceding subparagraph (A), by 
            inserting ``, the transitional assistance under section 
            1860D-31(f), or premium and cost-sharing subsidies under 
            section 1860D-14'' after ``assistance''; and
                (ii) in subparagraph (A), by striking ``such 
            eligibility'' and inserting ``eligibility for medicare 
            cost-sharing under the medicaid program''; and
        (3) in subsection (b)--
            (A) in paragraph (1)(A), by inserting ``, for transitional 
        assistance under section 1860D-31(f), or for premium and cost-
        sharing subsidies for low-income individuals under section 
        1860D-14'' after ``1933''; and
            (B) in paragraph (2), by inserting ``, program, and 
        subsidies'' after ``medical assistance''.

SEC. 104. MEDIGAP AMENDMENTS.

    (a) Rules Relating to Medigap Policies That Provide Prescription 
Drug Coverage.--
        (1) In general.--Section 1882 (42 U.S.C. 1395ss) is amended by 
    adding at the end the following new subsection:
    ``(v) Rules Relating to Medigap Policies That Provide Prescription 
Drug Coverage.--
        ``(1) Prohibition on sale, issuance, and renewal of new 
    policies that provide prescription drug coverage.--
            ``(A) In general.--Notwithstanding any other provision of 
        law, on or after January 1, 2006, a medigap Rx policy (as 
        defined in paragraph (6)(A)) may not be sold, issued, or 
        renewed under this section--
                ``(i) to an individual who is a part D enrollee (as 
            defined in paragraph (6)(B)); or
                ``(ii) except as provided in subparagraph (B), to an 
            individual who is not a part D enrollee.
            ``(B) Continuation permitted for non-part d enrollees.--
        Subparagraph (A)(ii) shall not apply to the renewal of a 
        medigap Rx policy that was issued before January 1, 2006.
            ``(C) Construction.--Nothing in this subsection shall be 
        construed as preventing the offering on and after January 1, 
        2006, of `H', `I', and `J' policies described in paragraph 
        (2)(D)(i) if the benefit packages are modified in accordance 
        with paragraph (2)(C).
        ``(2) Elimination of duplicative coverage upon part d 
    enrollment.--
            ``(A) In general.--In the case of an individual who is 
        covered under a medigap Rx policy and enrolls under a part D 
        plan--
                ``(i) before the end of the initial part D enrollment 
            period, the individual may--

                    ``(I) enroll in a medicare supplemental policy 
                without prescription drug coverage under paragraph (3); 
                or
                    ``(II) continue the policy in effect subject to the 
                modification described in subparagraph (C)(i); or

                ``(ii) after the end of such period, the individual may 
            continue the policy in effect subject to such modification.
            ``(B) Notice required to be provided to current 
        policyholders with medigap rx policy.--No medicare supplemental 
        policy of an issuer shall be deemed to meet the standards in 
        subsection (c) unless the issuer provides written notice (in 
        accordance with standards of the Secretary established in 
        consultation with the National Association of Insurance 
        Commissioners) during the 60-day period immediately preceding 
        the initial part D enrollment period, to each individual who is 
        a policyholder or certificate holder of a medigap Rx policy (at 
        the most recent available address of that individual) of the 
        following:
                ``(i) If the individual enrolls in a plan under part D 
            during the initial enrollment period under section 1860D-
            1(b)(2)(A), the individual has the option of--

                    ``(I) continuing enrollment in the individual's 
                current plan, but the plan's coverage of prescription 
                drugs will be modified under subparagraph (C)(i); or
                    ``(II) enrolling in another medicare supplemental 
                policy pursuant to paragraph (3).

                ``(ii) If the individual does not enroll in a plan 
            under part D during such period, the individual may 
            continue enrollment in the individual's current plan 
            without change, but--

                    ``(I) the individual will not be guaranteed the 
                option of enrollment in another medicare supplemental 
                policy pursuant to paragraph (3); and
                    ``(II) if the current plan does not provide 
                creditable prescription drug coverage (as defined in 
                section 1860D-13(b)(4)), notice of such fact and that 
                there are limitations on the periods in a year in which 
                the individual may enroll under a part D plan and any 
                such enrollment is subject to a late enrollment 
                penalty.

                ``(iii) Such other information as the Secretary may 
            specify (in consultation with the National Association of 
            Insurance Commissioners), including the potential impact of 
            such election on premiums for medicare supplemental 
            policies.
            ``(C) Modification.--
                ``(i) In general.--The policy modification described in 
            this subparagraph is the elimination of prescription 
            coverage for expenses of prescription drugs incurred after 
            the effective date of the individual's coverage under a 
            part D plan and the appropriate adjustment of premiums to 
            reflect such elimination of coverage.
                ``(ii) Continuation of renewability and application of 
            modification.--No medicare supplemental policy of an issuer 
            shall be deemed to meet the standards in subsection (c) 
            unless the issuer--

                    ``(I) continues renewability of medigap Rx policies 
                that it has issued, subject to subclause (II); and
                    ``(II) applies the policy modification described in 
                clause (i) in the cases described in clauses (i)(II) 
                and (ii) of subparagraph (A).

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

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

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

SEC. 106. STATE PHARMACEUTICAL ASSISTANCE TRANSITION COMMISSION.

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

SEC. 107. STUDIES AND REPORTS.

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

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

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

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

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

SEC. 110. CONFLICT OF INTEREST STUDY.

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

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

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

                      TITLE II--MEDICARE ADVANTAGE
        Subtitle A--Implementation of Medicare Advantage Program

SEC. 201. IMPLEMENTATION OF MEDICARE ADVANTAGE PROGRAM.

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

                   Subtitle B--Immediate Improvements

SEC. 211. IMMEDIATE IMPROVEMENTS.

    (a) Equalizing Payments With Fee-for-Service.--
        (1) In general.--Section 1853(c)(1) (42 U.S.C. 1395w-23(c)(1)) 
    is amended by adding at the end the following:
            ``(D) 100 percent of fee-for-service costs.--
                ``(i) In general.--For each year specified in clause 
            (ii), the adjusted average per capita cost for the year 
            involved, determined under section 1876(a)(4) and adjusted 
            as appropriate for the purpose of risk adjustment, for the 
            MA payment area for individuals who are not enrolled in an 
            MA plan under this part for the year, but adjusted to 
            exclude costs attributable to payments under section 
            1886(h).
                ``(ii) Periodic rebasing.--The provisions of clause (i) 
            shall apply for 2004 and for subsequent years as the 
            Secretary shall specify (but not less than once every 3 
            years).
                ``(iii) Inclusion of costs of va and dod military 
            facility services to medicare-eligible beneficiaries.--In 
            determining the adjusted average per capita cost under 
            clause (i) for a year, such cost shall be adjusted to 
            include the Secretary's estimate, on a per capita basis, of 
            the amount of additional payments that would have been made 
            in the area involved under this title if individuals 
            entitled to benefits under this title had not received 
            services from facilities of the Department of Defense or 
            the Department of Veterans Affairs.''.
        (2) Conforming amendment.--Such section is further amended, in 
    the matter before subparagraph (A), by striking ``or (C)'' and 
    inserting ``(C), or (D)''.
    (b) Change in Budget Neutrality for Blend.--Section 1853(c) (42 
U.S.C. 1395w-23(c)) is amended--
        (1) in paragraph (1)(A), by inserting ``(for a year other than 
    2004)'' after ``multiplied''; and
        (2) in paragraph (5), by inserting ``(other than 2004)'' after 
    ``for each year''.
    (c) Increasing Minimum Percentage Increase to National Growth 
Rate.--
        (1) In general.--Section 1853(c)(1) (42 U.S.C. 1395w-23(c)(1)) 
    is amended--
            (A) in subparagraph (A), by striking ``The sum'' and 
        inserting ``For a year before 2005, the sum'';
            (B) in subparagraph (B)(iv), by striking ``and each 
        succeeding year'' and inserting ``, 2003, and 2004'';
            (C) in subparagraph (C)(iv), by striking ``and each 
        succeeding year'' and inserting ``and 2003''; and
            (D) by adding at the end of subparagraph (C) the following 
        new clause:
                ``(v) For 2004 and each succeeding year, the greater 
            of--

                    ``(I) 102 percent of the annual MA capitation rate 
                under this paragraph for the area for the previous 
                year; or
                    ``(II) the annual MA capitation rate under this 
                paragraph for the area for the previous year increased 
                by the national per capita MA growth percentage, 
                described in paragraph (6) for that succeeding year, 
                but not taking into account any adjustment under 
                paragraph (6)(C) for a year before 2004.''.

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

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

SEC. 221. ESTABLISHMENT OF MA REGIONAL PLANS.

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


                  ``special rules for ma regional plans

    ``Sec. 1858. (a) Regional Service Area; Establishment of MA 
Regions.--
        ``(1) Coverage of entire ma region.--The service area for an MA 
    regional plan shall consist of an entire MA region established 
    under paragraph (2) and the provisions of section 1854(h) shall not 
    apply to such a plan.
        ``(2) Establishment of ma regions.--
            ``(A) MA region.--For purposes of this title, the term `MA 
        region' means such a region within the 50 States and the 
        District of Columbia as established by the Secretary under this 
        paragraph.
            ``(B) Establishment.--
                ``(i) Initial establishment.--Not later than January 1, 
            2005, the Secretary shall first establish and publish MA 
            regions.
                ``(ii) Periodic review and revision of service areas.--
            The Secretary may periodically review MA regions under this 
            paragraph and, based on such review, may revise such 
            regions if the Secretary determines such revision to be 
            appropriate.
            ``(C) Requirements for ma regions.--The Secretary shall 
        establish, and may revise, MA regions under this paragraph in a 
        manner consistent with the following:
                ``(i) Number of regions.--There shall be no fewer than 
            10 regions, and no more than 50 regions.
                ``(ii) Maximizing availability of plans.--The regions 
            shall maximize the availability of MA regional plans to all 
            MA eligible individuals without regard to health status, 
            especially those residing in rural areas.
            ``(D) Market survey and analysis.--Before establishing MA 
        regions, the Secretary shall conduct a market survey and 
        analysis, including an examination of current insurance 
        markets, to determine how the regions should be established.
        ``(3) National plan.--Nothing in this subsection shall be 
    construed as preventing an MA regional plan from being offered in 
    more than one MA region (including all regions).
    ``(b) Application of Single Deductible and Catastrophic Limit on 
Out-of-Pocket Expenses.--An MA regional plan shall include the 
following:
        ``(1) Single deductible.--Any deductible for benefits under the 
    original medicare fee-for-service program option shall be a single 
    deductible (instead of a separate inpatient hospital deductible and 
    a part B deductible) and may be applied differentially for in-
    network services and may be waived for preventive or other items 
    and services.
        ``(2) Catastrophic limit.--
            ``(A) In-network.--A catastrophic limit on out-of-pocket 
        expenditures for in-network benefits under the original 
        medicare fee-for-service program option.
            ``(B) Total.--A catastrophic limit on out-of-pocket 
        expenditures for all benefits under the original medicare fee-
        for-service program option.
    ``(c) Portion of Total Payments to an Organization Subject to Risk 
for 2006 and 2007.--
        ``(1) Application of risk corridors.--
            ``(A) In general.--This subsection shall only apply to MA 
        regional plans offered during 2006 or 2007.
            ``(B) Notification of allowable costs under the plan.--In 
        the case of an MA organization that offers an MA regional plan 
        in an MA region in 2006 or 2007, the organization shall notify 
        the Secretary, before such date in the succeeding year as the 
        Secretary specifies, of--
                ``(i) its total amount of costs that the organization 
            incurred in providing benefits covered under the original 
            medicare fee-for-service program option for all enrollees 
            under the plan in the region in the year and the portion of 
            such costs that is attributable to administrative expenses 
            described in subparagraph (C); and
                ``(ii) its total amount of costs that the organization 
            incurred in providing rebatable integrated benefits (as 
            defined in subparagraph (D)) and with respect to such 
            benefits the portion of such costs that is attributable to 
            administrative expenses described in subparagraph (C) and 
            not described in clause (i) of this subparagraph.
            ``(C) Allowable costs defined.--For purposes of this 
        subsection, the term `allowable costs' means, with respect to 
        an MA regional plan for a year, the total amount of costs 
        described in subparagraph (B) for the plan and year, reduced by 
        the portion of such costs attributable to administrative 
        expenses incurred in providing the benefits described in such 
        subparagraph.
            ``(D) Rebatable integrated benefits.--For purposes of this 
        subsection, the term `rebatable integrated benefits' means such 
        non-drug supplemental benefits under subclause (I) of section 
        1854(b)(1)(C)(ii) pursuant to a rebate under such section that 
        the Secretary determines are integrated with the benefits 
        described in subparagraph (B)(i).
        ``(2) Adjustment of payment.--
            ``(A) No adjustment if allowable costs within 3 percent of 
        target amount.--If the allowable costs for the plan for the 
        year are at least 97 percent, but do not exceed 103 percent, of 
        the target amount for the plan and year, there shall be no 
        payment adjustment under this subsection for the plan and year.
            ``(B) Increase in payment if allowable costs above 103 
        percent of target amount.--
                ``(i) Costs between 103 and 108 percent of target 
            amount.--If the allowable costs for the plan for the year 
            are greater than 103 percent, but not greater than 108 
            percent, of the target amount for the plan and year, the 
            Secretary shall increase the total of the monthly payments 
            made to the organization offering the plan for the year 
            under section 1853(a) by an amount equal to 50 percent of 
            the difference between such allowable costs and 103 percent 
            of such target amount.
                ``(ii) Costs above 108 percent of target amount.--If 
            the allowable costs for the plan for the year are greater 
            than 108 percent of the target amount for the plan and 
            year, the Secretary shall increase the total of the monthly 
            payments made to the organization offering the plan for the 
            year under section 1853(a) by an amount equal to the sum 
            of--

                    ``(I) 2.5 percent of such target amount; and
                    ``(II) 80 percent of the difference between such 
                allowable costs and 108 percent of such target amount.

            ``(C) Reduction in payment if allowable costs below 97 
        percent of target amount.--
                ``(i) Costs between 92 and 97 percent of target 
            amount.--If the allowable costs for the plan for the year 
            are less than 97 percent, but greater than or equal to 92 
            percent, of the target amount for the plan and year, the 
            Secretary shall reduce the total of the monthly payments 
            made to the organization offering the plan for the year 
            under section 1853(a) by an amount (or otherwise recover 
            from the plan an amount) equal to 50 percent of the 
            difference between 97 percent of the target amount and such 
            allowable costs.
                ``(ii) Costs below 92 percent of target amount.--If the 
            allowable costs for the plan for the year are less than 92 
            percent of the target amount for the plan and year, the 
            Secretary shall reduce the total of the monthly payments 
            made to the organization offering the plan for the year 
            under section 1853(a) by an amount (or otherwise recover 
            from the plan an amount) equal to the sum of--

                    ``(I) 2.5 percent of such target amount; and
                    ``(II) 80 percent of the difference between 92 
                percent of such target amount and such allowable costs.

            ``(D) Target amount described.--For purposes of this 
        paragraph, the term `target amount' means, with respect to an 
        MA regional plan offered by an organization in a year, an 
        amount equal to--
                ``(i) the sum of--

                    ``(I) the total monthly payments made to the 
                organization for enrollees in the plan for the year 
                that are attributable to benefits under the original 
                medicare fee-for-service program option (as defined in 
                section 1852(a)(1)(B));
                    ``(II) the total of the MA monthly basic 
                beneficiary premium collectable for such enrollees for 
                the year; and
                    ``(III) the total amount of the rebates under 
                section 1854(b)(1)(C)(ii) that are attributable to 
                rebatable integrated benefits; reduced by

                ``(ii) the amount of administrative expenses assumed in 
            the bid insofar as the bid is attributable to benefits 
            described in clause (i)(I) or (i)(III).
        ``(3) Disclosure of information.--
            ``(A) In general.--Each contract under this part shall 
        provide--
                ``(i) that an MA organization offering an MA regional 
            plan shall provide the Secretary with such information as 
            the Secretary determines is necessary to carry out this 
            subsection; and
                ``(ii) that, pursuant to section 1857(d)(2)(B), the 
            Secretary has the right to inspect and audit any books and 
            records of the organization that pertain to the information 
            regarding costs provided to the Secretary under paragraph 
            (1)(B).
            ``(B) Restriction on use of information.--Information 
        disclosed or obtained pursuant to the provisions of this 
        subsection may be used by officers, employees, and contractors 
        of the Department of Health and Human Services only for the 
        purposes of, and to the extent necessary in, carrying out this 
        subsection.
    ``(d) Organizational and Financial Requirements.--
        ``(1) In general.--In the case of an MA organization that is 
    offering an MA regional plan in an MA region and--
            ``(A) meets the requirements of section 1855(a)(1) with 
        respect to at least one such State in such region; and
            ``(B) with respect to each other State in such region in 
        which it does not meet requirements, it demonstrates to the 
        satisfaction of the Secretary that it has filed the necessary 
        application to meet such requirements,
    the Secretary may waive such requirement with respect to each State 
    described in subparagraph (B) for such period of time as the 
    Secretary determines appropriate for the timely processing of such 
    an application by the State (and, if such application is denied, 
    through the end of such plan year as the Secretary determines 
    appropriate to provide for a transition).
        ``(2) Selection of appropriate state.--In applying paragraph 
    (1) in the case of an MA organization that meets the requirements 
    of section 1855(a)(1) with respect to more than one State in a 
    region, the organization shall select, in a manner specified by the 
    Secretary among such States, one State the rules of which shall 
    apply in the case of the States described in paragraph (1)(B).
    ``(e) Stabilization Fund.--
        ``(1) Establishment.--The Secretary shall establish under this 
    subsection an MA Regional Plan Stabilization Fund (in this 
    subsection referred to as the `Fund') which shall be available for 
    two purposes:
            ``(A) Plan entry.--To provide incentives to have MA 
        regional plans offered in each MA region under paragraph (3).
            ``(B) Plan retention.--To provide incentives to retain MA 
        regional plans in certain MA regions with below-national-
        average MA market penetration under paragraph (4).
        ``(2) Funding.--
            ``(A) Initial funding.--
                ``(i) In general.--There shall be available to the 
            Fund, for expenditures from the Fund during the period 
            beginning on January 1, 2007, and ending on December 31, 
            2013, a total of $10,000,000,000.
                ``(ii) Payment from trust funds.--Such amount shall be 
            available to the Fund, as expenditures are made from the 
            Fund, from the Federal Hospital Insurance Trust Fund and 
            the Federal Supplementary Medical Insurance Trust Fund in 
            the proportion specified in section 1853(f).
            ``(B) Additional funding from savings.--
                ``(i) In general.--There shall also be made available 
            to the Fund, 50 percent of savings described in clause 
            (ii).
                ``(ii) Savings.--The savings described in this clause 
            are 25 percent of the average per capita savings described 
            in section 1854(b)(4)(C) for which monthly rebates are 
            provided under section 1854(b)(1)(C) in the fiscal year 
            involved that are attributable to MA regional plans.
                ``(iii) Availability.--Funds made available under this 
            subparagraph shall be transferred into a special account in 
            the Treasury from the Federal Hospital Insurance Trust Fund 
            and the Federal Supplementary Medical Insurance Trust Fund 
            in the proportion specified in section 1853(f) on a monthly 
            basis.
            ``(C) Obligations.--Amounts in the Fund shall be available 
        in advance of appropriations to MA regional plans in qualifying 
        MA regions only in accordance with paragraph (5).
            ``(D) Ordering.--Expenditures from the Fund shall first be 
        made from amounts made available under subparagraph (A).
        ``(3) Plan entry funding.--
            ``(A) In general.--Funding is available under this 
        paragraph for a year only as follows:
                ``(i) National plan.--For a national bonus payment 
            described in subparagraph (B) for the offering by a single 
            MA organization of an MA regional plan in each MA region in 
            the year, but only if there was not such a plan offered in 
            each such region in the previous year. Funding under this 
            clause is only available with respect to any individual MA 
            organization for a single year, but may be made available 
            to more than one such organization in the same year.
                ``(ii) Regional plans.--Subject to clause (iii), for an 
            increased amount under subparagraph (C) for an MA regional 
            plan offered in an MA region which did not have any MA 
            regional plan offered in the prior year.
                ``(iii) Limitation on regional plan funding in case of 
            national plan.--In no case shall there be any payment 
            adjustment under subparagraph (C) for a year for which a 
            national payment adjustment is made under subparagraph (B).
            ``(B) National bonus payment.--The national bonus payment 
        under this subparagraph shall--
                ``(i) be available to an MA organization only if the 
            organization offers MA regional plans in every MA region;
                ``(ii) be available with respect to all MA regional 
            plans of the organization regardless of whether any other 
            MA regional plan is offered in any region; and
                ``(iii) subject to amounts available under paragraph 
            (5) for a year, be equal to 3 percent of the benchmark 
            amount otherwise applicable for each MA regional plan 
            offered by the organization.
            ``(C) Regional payment adjustment.--
                ``(i) In general.--The increased amount under this 
            subparagraph for an MA regional plan in an MA region for a 
            year shall be an amount, determined by the Secretary, based 
            on the bid submitted for such plan (or plans) and shall be 
            available to all MA regional plans offered in such region 
            and year. Such amount may be based on the mean, mode, or 
            median, or other measure of such bids and may vary from 
            region to region. The Secretary may not limit the number of 
            plans or bids in a region.
                ``(ii) Multi-year funding.--

                    ``(I) In general.--Subject to amounts available 
                under paragraph (5), funding under this subparagraph 
                shall be available for a period determined by the 
                Secretary.
                    ``(II) Report.--If the Secretary determines that 
                funding will be provided for a second consecutive year 
                with respect to an MA region, the Secretary shall 
                submit to the Congress a report that describes the 
                underlying market dynamics in the region and that 
                includes recommendations concerning changes in the 
                payment methodology otherwise provided for MA regional 
                plans under this part.

                ``(iii) Application to all plans in a region.--Funding 
            under this subparagraph with respect to an MA region shall 
            be made available with respect to all MA regional plans 
            offered in the region.
                ``(iv) Limitation on availability of plan retention 
            funding in next year.--If an increased amount is made 
            available under this subparagraph with respect to an MA 
            region for a period determined by the Secretary under 
            clause (ii)(I), in no case shall funding be available under 
            paragraph (4) with respect to MA regional plans offered in 
            the region in the year following such period.
            ``(D) Application.--Any additional payment under this 
        paragraph provided for an MA regional plan for a year shall be 
        treated as if it were an addition to the benchmark amount 
        otherwise applicable to such plan and year, but shall not be 
        taken into account in the computation of any benchmark amount 
        for any subsequent year.
        ``(4) Plan retention funding.--
            ``(A) In general.--Funding is available under this 
        paragraph for a year with respect to MA regional plans offered 
        in an MA region for the increased amount specified in 
        subparagraph (B) but only if the region meets the requirements 
        of subparagraphs (C) and (E).
            ``(B) Payment increase.--The increased amount under this 
        subparagraph for an MA regional plan in an MA region for a year 
        shall be an amount, determined by the Secretary, that does not 
        exceed the greater of--
                ``(i) 3 percent of the benchmark amount applicable in 
            the region; or
                ``(ii) such amount as (when added to the benchmark 
            amount applicable to the region) will result in the ratio 
            of--

                    ``(I) such additional amount plus the benchmark 
                amount computed under section 1854(b)(4)(B)(i) for the 
                region and year, to the adjusted average per capita 
                cost for the region and year, as estimated by the 
                Secretary under section 1876(a)(4) and adjusted as 
                appropriate for the purpose of risk adjustment; being 
                equal to
                    ``(II) the weighted average of such benchmark 
                amounts for all the regions and such year, to the 
                average per capita cost for the United States and such 
                year, as estimated by the Secretary under section 
                1876(a)(4) and adjusted as appropriate for the purpose 
                of risk adjustment.

            ``(C) Regional requirements.--The requirements of this 
        subparagraph for an MA region for a year are as follows:
                ``(i) Notification of plan exit.--The Secretary has 
            received notice (in such form and manner as the Secretary 
            specifies) before a year that one or more MA regional plans 
            that were offered in the region in the previous year will 
            not be offered in the succeeding year.
                ``(ii) Regional plans available from fewer than 2 ma 
            organizations in the region.--The Secretary determines that 
            if the plans referred to in clause (i) are not offered in 
            the year, fewer than 2 MA organizations will be offering MA 
            regional plans in the region in the year involved.
                ``(iii) Percentage enrollment in ma regional plans 
            below national average.--For the previous year, the 
            Secretary determines that the average percentage of MA 
            eligible individuals residing in the region who are 
            enrolled in MA regional plans is less than the average 
            percentage of such individuals in the United States 
            enrolled in such plans.
            ``(D) Application.--Any additional payment under this 
        paragraph provided for an MA regional plan for a year shall be 
        treated as if it were an addition to the benchmark amount 
        otherwise applicable to such plan and year, but shall not be 
        taken into account in the computation of any benchmark amount 
        for any subsequent year.
            ``(E) 2-consecutive-year limitation.--
                ``(i) In general.--In no case shall any funding be 
            available under this paragraph in an MA region in a period 
            of consecutive years that exceeds 2 years.
                ``(ii) Report.--If the Secretary determines that 
            funding will be provided under this paragraph for a second 
            consecutive year with respect to an MA region, the 
            Secretary shall submit to the Congress a report that 
            describes the underlying market dynamics in the region and 
            that includes recommendations concerning changes in the 
            payment methodology otherwise provided for MA regional 
            plans under this part.
        ``(5) Funding limitation.--
            ``(A) In general.--The total amount expended from the Fund 
        as a result of the application of this subsection through the 
        end of a calendar year may not exceed the amount available to 
        the Fund as of the first day of such year. For purposes of this 
        subsection, amounts that are expended under this title insofar 
        as such amounts would not have been expended but for the 
        application of this subsection shall be counted as amounts 
        expended as a result of such application.
            ``(B) Application of limitation.--The Secretary may 
        obligate funds from the Fund for a year only if the Secretary 
        determines (and the Chief Actuary of the Centers for Medicare & 
        Medicaid Services and the appropriate budget officer certify) 
        that there are available in the Fund at the beginning of the 
        year sufficient amounts to cover all such obligations incurred 
        during the year consistent with subparagraph (A). The Secretary 
        shall take such steps, in connection with computing additional 
        payment amounts under paragraphs (3) and (4) and including 
        limitations on enrollment in MA regional plans receiving such 
        payments, as will ensure that sufficient funds are available to 
        make such payments for the entire year. Funds shall only be 
        made available from the Fund pursuant to an apportionment made 
        in accordance with applicable procedures.
        ``(6) Secretary reports.--Not later than April 1 of each year 
    (beginning in 2008), the Secretary shall submit a report to 
    Congress and the Comptroller General of the United States that 
    includes--
            ``(A) a detailed description of--
                ``(i) the total amount expended as a result of the 
            application of this subsection in the previous year 
            compared to the total amount that would have been expended 
            under this title in the year if this subsection had not 
            been enacted;
                ``(ii) the projections of the total amount that will be 
            expended as a result of the application of this subsection 
            in the year in which the report is submitted compared to 
            the total amount that would have been expended under this 
            title in the year if this subsection had not been enacted;
                ``(iii) amounts remaining within the funding limitation 
            specified in paragraph (5); and
                ``(iv) the steps that the Secretary will take under 
            paragraph (5)(B) to ensure that the application of this 
            subsection will not cause expenditures to exceed the amount 
            available in the Fund; and
            ``(B) a certification from the Chief Actuary of the Centers 
        for Medicare & Medicaid Services that the description provided 
        under subparagraph (A) is reasonable, accurate, and based on 
        generally accepted actuarial principles and methodologies.
        ``(7) Biennial gao reports.--Not later than January 1 of 2009, 
    2011, 2013, and 2015, the Comptroller General of the United States 
    shall submit to the Secretary and Congress a report on the 
    application of additional payments under this subsection. Each 
    report shall include--
            ``(A) an evaluation of--
                ``(i) the quality of care provided to individuals 
            enrolled in MA regional plans for which additional payments 
            were made under this subsection;
                ``(ii) the satisfaction of such individuals with 
            benefits under such a plan;
                ``(iii) the costs to the medicare program for payments 
            made to such plans; and
                ``(iv) any improvements in the delivery of health care 
            services under such a plan;
            ``(B) a comparative analysis of the performance of MA 
        regional plans receiving payments under this subsection with MA 
        regional plans not receiving such payments; and
            ``(C) recommendations for such legislation or 
        administrative action as the Comptroller General determines to 
        be appropriate.
    ``(f) Computation of Applicable MA Region-Specific Non-Drug Monthly 
Benchmark Amounts.--
        ``(1) Computation for regions.--For purposes of section 
    1853(j)(2) and this section, subject to subsection (e), the term 
    `MA region-specific non-drug monthly benchmark amount' means, with 
    respect to an MA region for a month in a year, the sum of the 2 
    components described in paragraph (2) for the region and year. The 
    Secretary shall compute such benchmark amount for each MA region 
    before the beginning of each annual, coordinated election period 
    under section 1851(e)(3)(B) for each year (beginning with 2006).
        ``(2) 2 components.--For purposes of paragraph (1), the 2 
    components described in this paragraph for an MA region and a year 
    are the following:
            ``(A) Statutory component.--The product of the following:
                ``(i) Statutory region-specific non-drug amount.--The 
            statutory region-specific non-drug amount (as defined in 
            paragraph (3)) for the region and year.
                ``(ii) Statutory national market share.--The statutory 
            national market share percentage, determined under 
            paragraph (4) for the year.
            ``(B) Plan-bid component.--The product of the following:
                ``(i) Weighted average of ma plan bids in region.--The 
            weighted average of the plan bids for the region and year 
            (as determined under paragraph (5)(A)).
                ``(ii) Non-statutory market share.--1 minus the 
            statutory national market share percentage, determined 
            under paragraph (4) for the year.
        ``(3) Statutory region-specific non-drug amount.--For purposes 
    of paragraph (2)(A)(i), the term `statutory region-specific non-
    drug amount' means, for an MA region and year, an amount equal the 
    sum (for each MA local area within the region) of the product of--
            ``(A) MA area-specific non-drug monthly benchmark amount 
        under section 1853(j)(1)(A) for that area and year; and
            ``(B) the number of MA eligible individuals residing in the 
        local area, divided by the total number of MA eligible 
        individuals residing in the region.
        ``(4) Computation of statutory market share percentage.--
            ``(A) In general.--The Secretary shall determine for each 
        year a statutory national market share percentage that is equal 
        to the proportion of MA eligible individuals nationally who 
        were not enrolled in an MA plan during the reference month.
            ``(B) Reference month defined.--For purposes of this part, 
        the term `reference month' means, with respect to a year, the 
        most recent month during the previous year for which the 
        Secretary determines that data are available to compute the 
        percentage specified in subparagraph (A) and other relevant 
        percentages under this part.
        ``(5) Determination of weighted average ma bids for a region.--
            ``(A) In general.--For purposes of paragraph (2)(B)(i), the 
        weighted average of plan bids for an MA region and a year is 
        the sum, for MA regional plans described in subparagraph (D) in 
        the region and year, of the products (for each such plan) of 
        the following:
                ``(i) Monthly ma statutory non-drug bid amount.--The 
            unadjusted MA statutory non-drug monthly bid amount for the 
            plan.
                ``(ii) Plan's share of ma enrollment in region.--The 
            factor described in subparagraph (B) for the plan.
            ``(B) Plan's share of ma enrollment in region.--
                ``(i) In general.--Subject to the succeeding provisions 
            of this subparagraph, the factor described in this 
            subparagraph for a plan is equal to the number of 
            individuals described in subparagraph (C) for such plan, 
            divided by the total number of such individuals for all MA 
            regional plans described in subparagraph (D) for that 
            region and year.
                ``(ii) Single plan rule.--In the case of an MA region 
            in which only a single MA regional plan is being offered, 
            the factor described in this subparagraph shall be equal to 
            1.
                ``(iii) Equal division among multiple plans in year in 
            which plans are first available.--In the case of an MA 
            region in the first year in which any MA regional plan is 
            offered, if more than one MA regional plan is offered in 
            such year, the factor described in this subparagraph for a 
            plan shall (as specified by the Secretary) be equal to--

                    ``(I) 1 divided by the number of such plans offered 
                in such year; or
                    ``(II) a factor for such plan that is based upon 
                the organization's estimate of projected enrollment, as 
                reviewed and adjusted by the Secretary to ensure 
                reasonableness and as is certified by the Chief Actuary 
                of the Centers for Medicare & Medicaid Services.

            ``(C) Counting of individuals.--For purposes of 
        subparagraph (B)(i), the Secretary shall count for each MA 
        regional plan described in subparagraph (D) for an MA region 
        and year, the number of individuals who reside in the region 
        and who were enrolled under such plan under this part during 
        the reference month.
            ``(D) Plans covered.--For an MA region and year, an MA 
        regional plan described in this subparagraph is an MA regional 
        plan that is offered in the region and year and was offered in 
        the region in the reference month.
    ``(g) Election of Uniform Coverage Determination.--Instead of 
applying section 1852(a)(2)(C) with respect to an MA regional plan, the 
organization offering the plan may elect to have a local coverage 
determination for the entire MA region be the local coverage 
determination applied for any part of such region (as selected by the 
organization).
    ``(h) Assuring Network Adequacy.--
        ``(1) In general.--For purposes of enabling MA organizations 
    that offer MA regional plans to meet applicable provider access 
    requirements under section 1852 with respect to such plans, the 
    Secretary may provide for payment under this section to an 
    essential hospital that provides inpatient hospital services to 
    enrollees in such a plan where the MA organization offering the 
    plan certifies to the Secretary that the organization was unable to 
    reach an agreement between the hospital and the organization 
    regarding provision of such services under the plan. Such payment 
    shall be available only if--
            ``(A) the organization provides assurances satisfactory to 
        the Secretary that the organization will make payment to the 
        hospital for inpatient hospital services of an amount that is 
        not less than the amount that would be payable to the hospital 
        under section 1886 with respect to such services; and
            ``(B) with respect to specific inpatient hospital services 
        provided to an enrollee, the hospital demonstrates to the 
        satisfaction of the Secretary that the hospital's costs of such 
        services exceed the payment amount described in subparagraph 
        (A).
        ``(2) Payment amounts.--The payment amount under this 
    subsection for inpatient hospital services provided by a subsection 
    (d) hospital to an enrollee in an MA regional plan shall be, 
    subject to the limitation of funds under paragraph (3), the amount 
    (if any) by which--
            ``(A) the amount of payment that would have been paid for 
        such services under this title if the enrollees were covered 
        under the original medicare fee-for-service program option and 
        the hospital were a critical access hospital; exceeds
            ``(B) the amount of payment made for such services under 
        paragraph (1)(A).
        ``(3) Available amounts.--There shall be available for payments 
    under this subsection--
            ``(A) in 2006, $25,000,000; and
            ``(B) in each succeeding year the amount specified in this 
        paragraph for the preceding year increased by the market basket 
        percentage increase (as defined in section 1886(b)(3)(B)(iii)) 
        for the fiscal year ending in such succeeding year.
    Payments under this subsection shall be made from the Federal 
    Hospital Insurance Trust Fund.
        ``(4) Essential hospital.--In this subsection, the term 
    `essential hospital' means, with respect to an MA regional plan 
    offered by an MA organization, a subsection (d) hospital (as 
    defined in section 1886(d)) that the Secretary determines, based 
    upon an application filed by the organization with the Secretary, 
    is necessary to meet the requirements referred to in paragraph (1) 
    for such plan.''.
    (d) Conforming Amendments.--
        (1) Relating to ma regions.--Section 1853(d) (42 U.S.C. 1395w-
    23(d)) is amended--
            (A) by amending the heading to read as follows: ``MA 
        Payment Area; MA Local Area; MA Region Defined'';
            (B) by redesignating paragraphs (2) and (3) as paragraphs 
        (3) and (4), respectively;
            (C) by amending paragraph (1) to read as follows:
        ``(1) MA payment area.--In this part, except as provided in 
    this subsection, the term `MA payment area' means--
            ``(A) with respect to an MA local plan, an MA local area 
        (as defined in paragraph (2)); and
            ``(B) with respect to an MA regional plan, an MA region (as 
        established under section 1858(a)(2)).'';
            (D) by inserting after paragraph (1) the following new 
        paragraph:
        ``(2) MA local area.--The term `MA local area' means a county 
    or equivalent area specified by the Secretary.''; and
            (E) in paragraph (4), as so redesignated--
                (i) in subparagraph (A), by inserting ``for MA local 
            plans'' after ``paragraph (1)'';
                (ii) in subparagraph (A)(iii), by striking ``paragraph 
            (1)'' and inserting ``paragraph (1)(A)''; and
                (iii) in subparagraph (B)--

                    (I) by inserting ``with respect to MA local plans'' 
                after ``established under this section'';
                    (II) by inserting ``for such plans'' after 
                ``payments under this section''; and
                    (III) by inserting ``for such plans'' after ``made 
                under this section''.

        (2) MA local area defined.--Section 1859(c) (42 U.S.C. 1395w-
    29(c)) is amended by adding at the end the following:
        ``(5) MA local area.--The term `MA local area' is defined in 
    section 1853(d)(2).''.
        (3) Application of special benefit rules to ppos and regional 
    plans.--Section 1852(a) (42 U.S.C. 1395w-22(a)) is amended--
            (A) in paragraph (1), by inserting ``and except as provided 
        in paragraph (6) for MA regional plans'' after ``MSA plans''; 
        and
            (B) by adding at the end the following new paragraph:
        ``(6) Special benefit rules for regional plans.--In the case of 
    an MA plan that is an MA regional plan, benefits under the plan 
    shall include the benefits described in paragraphs (1) and (2) of 
    section 1858(b).''.
        (4) Application of capitation rates to local areas.--Section 
    1853(c)(1) (42 U.S.C. 1395w-23(c)(1)) is amended by inserting 
    ``that is an MA local area'' after ``for a Medicare+Choice payment 
    area''.
        (5) Network adequacy hospital payments.--Section 1851(i)(2) (42 
    U.S.C. 1395w-21(i)(2)) is amended by inserting ``1858(h),'' after 
    ``1857(f)(2),''.

SEC. 222. COMPETITION PROGRAM BEGINNING IN 2006.

    (a) Submission of Bidding and Rebate Information Beginning in 
2006.--
        (1) In general.--Section 1854 (42 U.S.C. 1395w-24) is amended--
            (A) by amending paragraph (1) of subsection (a) to read as 
        follows:
        ``(1) In general.--
            ``(A) Initial submission.--Not later than the second Monday 
        in September of 2002, 2003, and 2004 (or the first Monday in 
        June of each subsequent year), each MA organization shall 
        submit to the Secretary, in a form and manner specified by the 
        Secretary and for each MA plan for the service area (or segment 
        of such an area if permitted under subsection (h)) in which it 
        intends to be offered in the following year the following:
                ``(i) The information described in paragraph (2), (3), 
            (4), or (6)(A) for the type of plan and year involved.
                ``(ii) The plan type for each plan.
                ``(iii) The enrollment capacity (if any) in relation to 
            the plan and area.
            ``(B) Beneficiary rebate information.--In the case of a 
        plan required to provide a monthly rebate under subsection 
        (b)(1)(C) for a year, the MA organization offering the plan 
        shall submit to the Secretary, in such form and manner and at 
        such time as the Secretary specifies, information on--
                ``(i) the manner in which such rebate will be provided 
            under clause (ii) of such subsection; and
                ``(ii) the MA monthly prescription drug beneficiary 
            premium (if any) and the MA monthly supplemental 
            beneficiary premium (if any).
            ``(C) Paperwork reduction for offering of ma regional plans 
        nationally or in multi-region areas.--The Secretary shall 
        establish requirements for information submission under this 
        subsection in a manner that promotes the offering of MA 
        regional plans in more than one region (including all regions) 
        through the filing of consolidated information.''; and
            (B) by adding at the end of subsection (a) the following:
        ``(6) Submission of bid amounts by ma organizations beginning 
    in 2006.--
            ``(A) Information to be submitted.--For an MA plan (other 
        than an MSA plan) for a plan year beginning on or after January 
        1, 2006, the information described in this subparagraph is as 
        follows:
                ``(i) The monthly aggregate bid amount for the 
            provision of all items and services under the plan, which 
            amount shall be based on average revenue requirements (as 
            used for purposes of section 1302(8) of the Public Health 
            Service Act) in the payment area for an enrollee with a 
            national average risk profile for the factors described in 
            section 1853(a)(1)(C) (as specified by the Secretary).
                ``(ii) The proportions of such bid amount that are 
            attributable to--

                    ``(I) the provision of benefits under the original 
                medicare fee-for-service program option (as defined in 
                section 1852(a)(1)(B));
                    ``(II) the provision of basic prescription drug 
                coverage; and
                    ``(III) the provision of supplemental health care 
                benefits.

                ``(iii) The actuarial basis for determining the amount 
            under clause (i) and the proportions described in clause 
            (ii) and such additional information as the Secretary may 
            require to verify such actuarial bases and the projected 
            number of enrollees in each MA local area.
                ``(iv) A description of deductibles, coinsurance, and 
            copayments applicable under the plan and the actuarial 
            value of such deductibles, coinsurance, and copayments, 
            described in subsection (e)(4)(A).
                ``(v) With respect to qualified prescription drug 
            coverage, the information required under section 1860D-4, 
            as incorporated under section 1860D-11(b)(2), with respect 
            to such coverage.
        In the case of a specialized MA plan for special needs 
        individuals, the information described in this subparagraph is 
        such information as the Secretary shall specify.
            ``(B) Acceptance and negotiation of bid amounts.--
                ``(i) Authority.--Subject to clauses (iii) and (iv), 
            the Secretary has the authority to negotiate regarding 
            monthly bid amounts submitted under subparagraph (A) (and 
            the proportions described in subparagraph (A)(ii)), 
            including supplemental benefits provided under subsection 
            (b)(1)(C)(ii)(I) and in exercising such authority the 
            Secretary shall have authority similar to the authority of 
            the Director of the Office of Personnel Management with 
            respect to health benefits plans under chapter 89 of title 
            5, United States Code.
                ``(ii) Application of fehbp standard.--Subject to 
            clause (iv), the Secretary may only accept such a bid 
            amount or proportion if the Secretary determines that such 
            amount and proportions are supported by the actuarial bases 
            provided under subparagraph (A) and reasonably and 
            equitably reflects the revenue requirements (as used for 
            purposes of section 1302(8) of the Public Health Service 
            Act) of benefits provided under that plan.
                ``(iii) Noninterference.--In order to promote 
            competition under this part and part D and in carrying out 
            such parts, the Secretary may not require any MA 
            organization to contract with a particular hospital, 
            physician, or other entity or individual to furnish items 
            and services under this title or require a particular price 
            structure for payment under such a contract to the extent 
            consistent with the Secretary's authority under this part.
                ``(iv) Exception.--In the case of a plan described in 
            section 1851(a)(2)(C), the provisions of clauses (i) and 
            (ii) shall not apply and the provisions of paragraph 
            (5)(B), prohibiting the review, approval, or disapproval of 
            amounts described in such paragraph, shall apply to the 
            negotiation and rejection of the monthly bid amounts and 
            the proportions referred to in subparagraph (A).''.
        (2) Definition of benefits under the original medicare fee-for-
    service program option.--Section 1852(a)(1) (42 U.S.C. 1395w-
    22(a)(1)) is amended--
            (A) by striking ``In general.--Except'' and inserting 
        ``Requirement.--
            ``(A) In general.--Except''; and
            (B) by striking ``title XI'' and all that follows and 
        inserting the following: ``title XI, benefits under the 
        original medicare fee-for-service program option (and, for plan 
        years before 2006, additional benefits required under section 
        1854(f)(1)(A)).
            ``(B) Benefits under the original medicare fee-for-service 
        program option defined.--
                ``(i) In general.--For purposes of this part, the term 
            `benefits under the original medicare fee-for-service 
            program option' means those items and services (other than 
            hospice care) for which benefits are available under parts 
            A and B to individuals entitled to benefits under part A 
            and enrolled under part B, with cost-sharing for those 
            services as required under parts A and B or an actuarially 
            equivalent level of cost-sharing as determined in this 
            part.
                ``(ii) Special rule for regional plans.--In the case of 
            an MA regional plan in determining an actuarially 
            equivalent level of cost-sharing with respect to benefits 
            under the original medicare fee-for-service program option, 
            there shall only be taken into account, with respect to the 
            application of section 1858(b)(2), such expenses only with 
            respect to subparagraph (A) of such section.''.
        (3) Conforming amendment relating to supplemental health 
    benefits.--Section 1852(a)(3) (42 U.S.C. 1395w-22(a)(3)) is amended 
    by adding at the end the following: ``Such benefits may include 
    reductions in cost-sharing below the actuarial value specified in 
    section 1854(e)(4)(B).''.
    (b) Providing for Beneficiary Savings for Certain Plans.--
        (1) Beneficiary rebates.--Section 1854(b)(1) (42 U.S.C. 1395w-
    24(b)(1)) is amended--
            (A) in subparagraph (A), by striking ``The monthly amount'' 
        and inserting ``Subject to the rebate under subparagraph (C), 
        the monthly amount (if any)''; and
            (B) by adding at the end the following new subparagraph:
            ``(C) Beneficiary rebate rule.--
                ``(i) Requirement.--The MA plan shall provide to the 
            enrollee a monthly rebate equal to 75 percent of the 
            average per capita savings (if any) described in paragraph 
            (3)(C) or (4)(C), as applicable to the plan and year 
            involved.
                ``(ii) Form of rebate.--A rebate required under this 
            subparagraph shall be provided through the application of 
            the amount of the rebate toward one or more of the 
            following:

                    ``(I) Provision of supplemental health care 
                benefits and payment for premium for supplemental 
                benefits.--The provision of supplemental health care 
                benefits described in section 1852(a)(3) in a manner 
                specified under the plan, which may include the 
                reduction of cost-sharing otherwise applicable as well 
                as additional health care benefits which are not 
                benefits under the original medicare fee-for-service 
                program option, or crediting toward an MA monthly 
                supplemental beneficiary premium (if any).
                    ``(II) Payment for premium for prescription drug 
                coverage.--Crediting toward the MA monthly prescription 
                drug beneficiary premium.
                    ``(III) Payment toward part b premium.--Crediting 
                toward the premium imposed under part B (determined 
                without regard to the application of subsections (b), 
                (h), and (i) of section 1839).

                ``(iii) Disclosure relating to rebates.--The plan shall 
            disclose to the Secretary information on the form and 
            amount of the rebate provided under this subparagraph or 
            the actuarial value in the case of supplemental health care 
            benefits.
                ``(iv) Application of part b premium reduction.--
            Insofar as an MA organization elects to provide a rebate 
            under this subparagraph under a plan as a credit toward the 
            part B premium under clause (ii)(III), the Secretary shall 
            apply such credit to reduce the premium under section 1839 
            of each enrollee in such plan as provided in section 
            1840(i).''.
        (2) Revision of premium terminology.--Section 1854(b)(2) (42 
    U.S.C. 1395w-24(b)(2)) is amended--
            (A) in the heading, by inserting ``and bid'' after 
        ``Premium'';
            (B) by redesignating subparagraph (C) as subparagraph (D);
            (C) by striking subparagraphs (A) and (B) and inserting the 
        following:
            ``(A) MA monthly basic beneficiary premium.--The term `MA 
        monthly basic beneficiary premium' means, with respect to an MA 
        plan--
                ``(i) described in section 1853(a)(1)(B)(i) (relating 
            to plans providing rebates), zero; or
                ``(ii) described in section 1853(a)(1)(B)(ii), the 
            amount (if any) by which the unadjusted MA statutory non-
            drug monthly bid amount (as defined in subparagraph (E)) 
            exceeds the applicable unadjusted MA area-specific non-drug 
            monthly benchmark amount (as defined in section 1853(j)).
            ``(B) MA monthly prescription drug beneficiary premium.--
        The term `MA monthly prescription drug beneficiary premium' 
        means, with respect to an MA plan, the base beneficiary premium 
        (as determined under section 1860D-13(a)(2) and as adjusted 
        under section 1860D-13(a)(1)(B)), less the amount of rebate 
        credited toward such amount under section 
        1854(b)(1)(C)(ii)(II).
            ``(C) MA monthly supplemental beneficiary premium.--The 
        term `MA monthly supplemental beneficiary premium' means, with 
        respect to an MA plan, the portion of the aggregate monthly bid 
        amount submitted under clause (i) of subsection (a)(6)(A) for 
        the year that is attributable under clause (ii)(III) of such 
        subsection to the provision of supplemental health care 
        benefits, less the amount of rebate credited toward such 
        portion under section 1854(b)(1)(C)(ii)(I).''; and
            (D) by adding at the end the following:
            ``(E) Unadjusted ma statutory non-drug monthly bid 
        amount.--The term `unadjusted MA statutory non-drug monthly bid 
        amount' means the portion of the bid amount submitted under 
        clause (i) of subsection (a)(6)(A) for the year that is 
        attributable under clause (ii)(I) of such subsection to the 
        provision of benefits under the original medicare fee-for-
        service program option (as defined in section 
        1852(a)(1)(B)).''.
        (3) Computation of savings.--Section 1854(b) (42 U.S.C. 1395w-
    24(b)) is further amended by adding at the end the following new 
    paragraphs:
        ``(3) Computation of average per capita monthly savings for 
    local plans.--For purposes of paragraph (1)(C)(i), the average per 
    capita monthly savings referred to in such paragraph for an MA 
    local plan and year is computed as follows:
            ``(A) Determination of statewide average risk adjustment 
        for local plans.--
                ``(i) In general.--Subject to clause (iii), the 
            Secretary shall determine, at the same time rates are 
            promulgated under section 1853(b)(1) (beginning with 2006) 
            for each State, the average of the risk adjustment factors 
            to be applied under section 1853(a)(1)(C) to payment for 
            enrollees in that State for MA local plans.
                ``(ii) Treatment of states for first year in which 
            local plan offered.--In the case of a State in which no MA 
            local plan was offered in the previous year, the Secretary 
            shall estimate such average. In making such estimate, the 
            Secretary may use average risk adjustment factors applied 
            to comparable States or applied on a national basis.
                ``(iii) Authority to determine risk adjustment for 
            areas other than states.--The Secretary may provide for the 
            determination and application of risk adjustment factors 
            under this subparagraph on the basis of areas other than 
            States or on a plan-specific basis.
            ``(B) Determination of risk adjusted benchmark and risk-
        adjusted bid for local plans.--For each MA plan offered in a 
        local area in a State, the Secretary shall--
                ``(i) adjust the applicable MA area-specific non-drug 
            monthly benchmark amount (as defined in section 1853(j)(1)) 
            for the area by the average risk adjustment factor computed 
            under subparagraph (A); and
                ``(ii) adjust the unadjusted MA statutory non-drug 
            monthly bid amount by such applicable average risk 
            adjustment factor.
            ``(C) Determination of average per capita monthly 
        savings.--The average per capita monthly savings described in 
        this subparagraph for an MA local plan is equal to the amount 
        (if any) by which--
                ``(i) the risk-adjusted benchmark amount computed under 
            subparagraph (B)(i); exceeds
                ``(ii) the risk-adjusted bid computed under 
            subparagraph (B)(ii).
        ``(4) Computation of average per capita monthly savings for 
    regional plans.--For purposes of paragraph (1)(C)(i), the average 
    per capita monthly savings referred to in such paragraph for an MA 
    regional plan and year is computed as follows:
            ``(A) Determination of regionwide average risk adjustment 
        for regional plans.--
                ``(i) In general.--The Secretary shall determine, at 
            the same time rates are promulgated under section 
            1853(b)(1) (beginning with 2006) for each MA region the 
            average of the risk adjustment factors to be applied under 
            section 1853(a)(1)(C) to payment for enrollees in that 
            region for MA regional plans.
                ``(ii) Treatment of regions for first year in which 
            regional plan offered.--In the case of an MA region in 
            which no MA regional plan was offered in the previous year, 
            the Secretary shall estimate such average. In making such 
            estimate, the Secretary may use average risk adjustment 
            factors applied to comparable regions or applied on a 
            national basis.
                ``(iii) Authority to determine risk adjustment for 
            areas other than regions.--The Secretary may provide for 
            the determination and application of risk adjustment 
            factors under this subparagraph on the basis of areas other 
            than MA regions or on a plan-specific basis.
            ``(B) Determination of risk-adjusted benchmark and risk-
        adjusted bid for regional plans.--For each MA regional plan 
        offered in a region, the Secretary shall--
                ``(i) adjust the applicable MA area-specific non-drug 
            monthly benchmark amount (as defined in section 1853(j)(2)) 
            for the region by the average risk adjustment factor 
            computed under subparagraph (A); and
                ``(ii) adjust the unadjusted MA statutory non-drug 
            monthly bid amount by such applicable average risk 
            adjustment factor.
            ``(C) Determination of average per capita monthly 
        savings.--The average per capita monthly savings described in 
        this subparagraph for an MA regional plan is equal to the 
        amount (if any) by which--
                ``(i) the risk-adjusted benchmark amount computed under 
            subparagraph (B)(i); exceeds
                ``(ii) the risk-adjusted bid computed under 
            subparagraph (B)(ii).''.
    (c) Collection of Premiums.--Section 1854(d) (42 U.S.C. 1395w-
24(d)) is amended--
        (1) by striking ``Premiums.--Each'' and inserting ``Premiums.--
        ``(1) In general.--Each''; and
        (2) by adding at the end the following new paragraphs:
        ``(2) Beneficiary's option of payment through withholding from 
    social security payment or use of electronic funds transfer 
    mechanism.--In accordance with regulations, an MA organization 
    shall permit each enrollee, at the enrollee's option, to make 
    payment of premiums (if any) under this part to the organization 
    through--
            ``(A) withholding from benefit payments in the manner 
        provided under section 1840 with respect to monthly premiums 
        under section 1839;
            ``(B) an electronic funds transfer mechanism (such as 
        automatic charges of an account at a financial institution or a 
        credit or debit card account); or
            ``(C) such other means as the Secretary may specify, 
        including payment by an employer or under employment-based 
        retiree health coverage (as defined in section 1860D-22(c)(1)) 
        on behalf of an employee or former employee (or dependent).
    All premium payments that are withheld under subparagraph (A) shall 
    be credited to the appropriate Trust Fund (or Account thereof), as 
    specified by the Secretary, under this title and shall be paid to 
    the MA organization involved. No charge may be imposed under an MA 
    plan with respect to the election of the payment option described 
    in subparagraph (A). The Secretary shall consult with the 
    Commissioner of Social Security and the Secretary of the Treasury 
    regarding methods for allocating premiums withheld under 
    subparagraph (A) among the appropriate Trust Funds and Account.
        ``(3) Information necessary for collection.--In order to carry 
    out paragraph (2)(A) with respect to an enrollee who has elected 
    such paragraph to apply, the Secretary shall transmit to the 
    Commissioner of Social Security--
            ``(A) by the beginning of each year, the name, social 
        security account number, consolidated monthly beneficiary 
        premium described in paragraph (4) owed by such enrollee for 
        each month during the year, and other information determined 
        appropriate by the Secretary, in consultation with the 
        Commissioner of Social Security; and
            ``(B) periodically throughout the year, information to 
        update the information previously transmitted under this 
        paragraph for the year.
        ``(4) Consolidated monthly beneficiary premium.--In the case of 
    an enrollee in an MA plan, the Secretary shall provide a mechanism 
    for the consolidation of--
            ``(A) the MA monthly basic beneficiary premium (if any);
            ``(B) the MA monthly supplemental beneficiary premium (if 
        any); and
            ``(C) the MA monthly prescription drug beneficiary premium 
        (if any).''.
    (d) Computation of MA Area-Specific Non-Drug Benchmark.--Section 
1853 (42 U.S.C. 1395w-23) is amended by adding at the end the following 
new subsection:
    ``(j) Computation of Benchmark Amounts.--For purposes of this part, 
the term `MA area-specific non-drug monthly benchmark amount' means for 
a month in a year--
        ``(1) with respect to--
            ``(A) a service area that is entirely within an MA local 
        area, an amount equal to \1/12\ of the annual MA capitation 
        rate under section 1853(c)(1) for the area for the year, 
        adjusted as appropriate for the purpose of risk adjustment; or
            ``(B) a service area that includes more than one MA local 
        area, an amount equal to the average of the amounts described 
        in subparagraph (A) for each such local MA area, weighted by 
        the projected number of enrollees in the plan residing in the 
        respective local MA areas (as used by the plan for purposes of 
        the bid and disclosed to the Secretary under section 
        1854(a)(6)(A)(iii)), adjusted as appropriate for the purpose of 
        risk adjustment; or
        ``(2) with respect to an MA region for a month in a year, the 
    MA region-specific non-drug monthly benchmark amount, as defined in 
    section 1858(f) for the region for the year.''.
    (e) Payment of Plans Based on Bid Amounts.--
        (1) In general.--Section 1853(a)(1) (42 U.S.C. 1395w-23(a)(1)) 
    (42 U.S.C. 1395w-23) is amended--
            (A) by redesignating subparagraph (B) as subparagraph (H); 
        and
            (B) in subparagraph (A), by striking ``in an amount'' and 
        all that follows and inserting the following: ``in an amount 
        determined as follows:
                ``(i) Payment before 2006.--For years before 2006, the 
            payment amount shall be equal to \1/12\ of the annual MA 
            capitation rate (as calculated under subsection (c)(1)) 
            with respect to that individual for that area, adjusted 
            under subparagraph (C) and reduced by the amount of any 
            reduction elected under section 1854(f)(1)(E).
                ``(ii) Payment for original fee-for-service benefits 
            beginning with 2006.--For years beginning with 2006, the 
            amount specified in subparagraph (B).
            ``(B) Payment amount for original fee-for-service benefits 
        beginning with 2006.--
                ``(i) Payment of bid for plans with bids below 
            benchmark.--In the case of a plan for which there are 
            average per capita monthly savings described in section 
            1854(b)(3)(C) or 1854(b)(4)(C), as the case may be, the 
            amount specified in this subparagraph is equal to the 
            unadjusted MA statutory non-drug monthly bid amount, 
            adjusted under subparagraph (C) and (if applicable) under 
            subparagraphs (F) and (G), plus the amount (if any) of any 
            rebate under subparagraph (E).
                ``(ii) Payment of benchmark for plans with bids at or 
            above benchmark.--In the case of a plan for which there are 
            no average per capita monthly savings described in section 
            1854(b)(3)(C) or 1854(b)(4)(C), as the case may be, the 
            amount specified in this subparagraph is equal to the MA 
            area-specific non-drug monthly benchmark amount, adjusted 
            under subparagraph (C) and (if applicable) under 
            subparagraphs (F) and (G).
                ``(iii) Payment of benchmark for msa plans.--
            Notwithstanding clauses (i) and (ii), in the case of an MSA 
            plan, the amount specified in this subparagraph is equal to 
            the MA area-specific non-drug monthly benchmark amount, 
            adjusted under subparagraph (C).
            ``(C) Demographic adjustment, including adjustment for 
        health status.--The Secretary shall adjust the payment amount 
        under subparagraph (A)(i) and the amount specified under 
        subparagraph (B)(i), (B)(ii), and (B)(iii) for such risk 
        factors as age, disability status, gender, institutional 
        status, and such other factors as the Secretary determines to 
        be appropriate, including adjustment for health status under 
        paragraph (3), so as to ensure actuarial equivalence. The 
        Secretary may add to, modify, or substitute for such adjustment 
        factors if such changes will improve the determination of 
        actuarial equivalence.
            ``(D) Separate payment for federal drug subsidies.--In the 
        case of an enrollee in an MA-PD plan, the MA organization 
        offering such plan also receives--
                ``(i) subsidies under section 1860D-15 (other than 
            under subsection (g)); and
                ``(ii) reimbursement for premium and cost-sharing 
            reductions for low-income individuals under section 1860D-
            14(c)(1)(C).
            ``(E) Payment of rebate for plans with bids below 
        benchmark.--In the case of a plan for which there are average 
        per capita monthly savings described in section 1854(b)(3)(C) 
        or 1854(b)(4)(C), as the case may be, the amount specified in 
        this subparagraph is the amount of the monthly rebate computed 
        under section 1854(b)(1)(C)(i) for that plan and year (as 
        reduced by the amount of any credit provided under section 
        1854(b)(1)(C)(iv)).
            ``(F) Adjustment for intra-area variations.--
                ``(i) Intra-regional variations.--In the case of 
            payment with respect to an MA regional plan for an MA 
            region, the Secretary shall also adjust the amounts 
            specified under subparagraphs (B)(i) and (B)(ii) in a 
            manner to take into account variations in MA local payment 
            rates under this part among the different MA local areas 
            included in such region.
                ``(ii) Intra-service area variations.--In the case of 
            payment with respect to an MA local plan for a service area 
            that covers more than one MA local area, the Secretary 
            shall also adjust the amounts specified under subparagraphs 
            (B)(i) and (B)(ii) in a manner to take into account 
            variations in MA local payment rates under this part among 
            the different MA local areas included in such service area.
            ``(G) Adjustment relating to risk adjustment.--The 
        Secretary shall adjust payments with respect to MA plans as 
        necessary to ensure that--
                ``(i) the sum of--

                    ``(I) the monthly payment made under subparagraph 
                (A)(ii); and
                    ``(II) the MA monthly basic beneficiary premium 
                under section 1854(b)(2)(A); equals

                ``(ii) the unadjusted MA statutory non-drug monthly bid 
            amount, adjusted in the manner described in subparagraph 
            (C) and, for an MA regional plan, subparagraph (F).''.
    (f) Conforming Changes to Annual Announcement Process.--Section 
1853(b) (42 U.S.C. 1395w-23(b)(1)) is amended--
        (1) by amending paragraph (1) to read as follows:
        ``(1) Annual announcements.--
            ``(A) For 2005.--The Secretary shall determine, and shall 
        announce (in a manner intended to provide notice to interested 
        parties), not later than the second Monday in May of 2004, with 
        respect to each MA payment area, the following:
                ``(i) MA capitation rates.--The annual MA capitation 
            rate for each MA payment area for 2005.
                ``(ii) Adjustment factors.--The risk and other factors 
            to be used in adjusting such rates under subsection 
            (a)(1)(C) for payments for months in 2005.
            ``(B) For 2006 and subsequent years.--For a year after 
        2005--
                ``(i) Initial announcement.--The Secretary shall 
            determine, and shall announce (in a manner intended to 
            provide notice to interested parties), not later than the 
            first Monday in April before the calendar year concerned, 
            with respect to each MA payment area, the following:

                    ``(I) MA capitation rates; ma local area 
                benchmark.--The annual MA capitation rate for each MA 
                payment area for the year.
                    ``(II) Adjustment factors.--The risk and other 
                factors to be used in adjusting such rates under 
                subsection (a)(1)(C) for payments for months in such 
                year.

                ``(ii) Regional benchmark announcement.--The Secretary 
            shall determine, and shall announce (in a manner intended 
            to provide notice to interested parties), on a timely basis 
            before the calendar year concerned, with respect to each MA 
            region and each MA regional plan for which a bid was 
            submitted under section 1854, the MA region-specific non-
            drug monthly benchmark amount for that region for the year 
            involved.''; and
        (2) in paragraph (3), by striking ``in the announcement'' and 
    all that follows and inserting ``in such announcement.''.
    (g) Other Amendments Relating to Premiums and Bid Amounts.--
        (1) In general.--Section 1854 (42 U.S.C. 1395w-24) is amended--
            (A) by amending the section heading to read as follows:


                      ``premiums and bid amounts'';

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

SEC. 223. EFFECTIVE DATE.

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

                     Subtitle D--Additional Reforms

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

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

SEC. 232. AVOIDING DUPLICATIVE STATE REGULATION.

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

SEC. 233. MEDICARE MSAS.

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

SEC. 234. EXTENSION OF REASONABLE COST CONTRACTS.

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

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

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

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

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

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

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

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

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

         Subtitle E--Comparative Cost Adjustment (CCA) Program

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

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


               ``comparative cost adjustment (cca) program

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

                    ``(I) the sum of the amount of the adjusted premium 
                and the CCA non-drug benchmark for the area; is equal 
                to
                    ``(II) the sum of the unadjusted premium plus the 
                amount of such fee-for-service area-specific non-drug 
                amount for the area.

            ``(B) Limitation.--In no case shall the actual amount of an 
        adjustment under subparagraph (A) for an area and month in a 
        year result in an adjustment that exceeds the maximum 
        adjustment permitted under subparagraph (C) for the area and 
        year, or, if less, the maximum annual adjustment permitted 
        under subparagraph (D) for the area and year.
            ``(C) Phase-in of adjustment.--The amount of an adjustment 
        under subparagraph (A) for a CCA area and year may not exceed 
        the product of the phase-in fraction for the year under 
        subsection (d)(3)(B) multiplied by the amount of the adjustment 
        otherwise computed under subparagraph (A) for the area and 
        year, determined without regard to this subparagraph and 
        subparagraph (D).
            ``(D) 5-percent limitation on adjustment.--The amount of 
        the adjustment under this subsection for months in a year shall 
        not exceed 5 percent of the amount of the monthly premium 
        amount determined for months in the year under section 1839 
        without regard to subsections (b), (f), and (i) of such section 
        and this subsection.''.
    (b) Conforming Amendments.--
        (1) MA local plans.--
            (A) Section 1853(j)(1)(A) (42 U.S.C. 1395w-23(j)(1)(A)), as 
        added by section 222(d), is amended by inserting ``subject to 
        section 1860C-1(d)(2)(A),'' after ``within an MA local area,''.
            (B) Section 1853(b)(1)(B), as amended by section 222(f)(1), 
        is amended by adding at the end the following new clause:
                ``(iii) Benchmark announcement for cca local areas.--
            The Secretary shall determine, and shall announce (in a 
            manner intended to provide notice to interested parties), 
            on a timely basis before the calendar year concerned, with 
            respect to each CCA area (as defined in section 1860C-
            1(b)(1)(A)), the CCA non-drug monthly benchmark amount 
            under section 1860C-1(e)(1) for that area for the year 
            involved.''.
        (2) Premium adjustment.--
            (A) Section 1839 (42 U.S.C. 1395r) is amended by adding at 
        the end the following new subsection:
    ``(h) Potential Application of Comparative Cost Adjustment in CCA 
Areas.--
        ``(1) In general.--Certain individuals who are residing in a 
    CCA area under section 1860C-1 who are not enrolled in an MA plan 
    under part C may be subject to a premium adjustment under 
    subsection (f) of such section for months in which the CCA program 
    under such section is in effect in such area.
        ``(2) No effect on late enrollment penalty or income-related 
    adjustment in subsidies.--Nothing in this subsection or section 
    1860C-1(f) shall be construed as affecting the amount of any 
    premium adjustment under subsection (b) or (i). Subsection (f) 
    shall be applied without regard to any premium adjustment referred 
    to in paragraph (1).
        ``(3) Implementation.--In order to carry out a premium 
    adjustment under this subsection and section 1860C-1(f) (insofar as 
    it is effected through the manner of collection of premiums under 
    section 1840(a)), the Secretary shall transmit to the Commissioner 
    of Social Security--
            ``(A) at the beginning of each year, the name, social 
        security account number, and the amount of the premium 
        adjustment (if any) for each individual enrolled under this 
        part for each month during the year; and
            ``(B) periodically throughout the year, information to 
        update the information previously transmitted under this 
        paragraph for the year.''.
            (B) Section 1844(c) (42 U.S.C. 1395w(c)) is amended by 
        inserting ``and without regard to any premium adjustment 
        effected under sections 1839(h) and 1860C-1(f)'' before the 
        period at the end.
    (c) No Change in Medicare's Defined Benefit Package.--Nothing in 
this part (or the amendments made by this part) shall be construed as 
changing the entitlement to defined benefits under parts A and B of 
title XVIII of the Social Security Act.

             TITLE III--COMBATTING WASTE, FRAUD, AND ABUSE

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

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

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

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


         ``competitive acquisition of certain items and services

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

                    ``(I) 10 of the largest metropolitan statistical 
                areas in 2007;
                    ``(II) 80 of the largest metropolitan statistical 
                areas in 2009; and
                    ``(III) additional areas after 2009; and

                ``(ii) may be phased in first among the highest cost 
            and highest volume items and services or those items and 
            services that the Secretary determines have the largest 
            savings potential.
            ``(C) Waiver of certain provisions.--In carrying out the 
        programs, the Secretary may waive such provisions of the 
        Federal Acquisition Regulation as are necessary for the 
        efficient implementation of this section, other than provisions 
        relating to confidentiality of information and such other 
        provisions as the Secretary determines appropriate.
        ``(2) Items and services described.--The items and services 
    referred to in paragraph (1) are the following:
            ``(A) Durable medical equipment and medical supplies.--
        Covered items (as defined in section 1834(a)(13)) for which 
        payment would otherwise be made under section 1834(a), 
        including items used in infusion and drugs (other than 
        inhalation drugs) and supplies used in conjunction with durable 
        medical equipment, but excluding class III devices under the 
        Federal Food, Drug, and Cosmetic Act.
            ``(B) Other equipment and supplies.--Items and services 
        described in section 1842(s)(2)(D), other than parenteral 
        nutrients, equipment, and supplies.
            ``(C) Off-the-shelf orthotics.--Orthotics described in 
        section 1861(s)(9) for which payment would otherwise be made 
        under section 1834(h) which require minimal self-adjustment for 
        appropriate use and do not require expertise in trimming, 
        bending, molding, assembling, or customizing to fit to the 
        individual.
        ``(3) Exception authority.--In carrying out the programs under 
    this section, the Secretary may exempt--
            ``(A) rural areas and areas with low population density 
        within urban areas that are not competitive, unless there is a 
        significant national market through mail order for a particular 
        item or service; and
            ``(B) items and services for which the application of 
        competitive acquisition is not likely to result in significant 
        savings.
        ``(4) Special rule for certain rented items of durable medical 
    equipment and oxygen.--In the case of a covered item for which 
    payment is made on a rental basis under section 1834(a) and in the 
    case of payment for oxygen under section 1834(a)(5), the Secretary 
    shall establish a process by which rental agreements for the 
    covered items and supply arrangements with oxygen suppliers entered 
    into before the application of the competitive acquisition program 
    under this section for the item may be continued notwithstanding 
    this section. In the case of any such continuation, the supplier 
    involved shall provide for appropriate servicing and replacement, 
    as required under section 1834(a).
        ``(5) Physician authorization.--
            ``(A) In general.--With respect to items or services 
        included within a particular HCPCS code, the Secretary may 
        establish a process for certain items and services under which 
        a physician may prescribe a particular brand or mode of 
        delivery of an item or service within such code if the 
        physician determines that use of the particular item or service 
        would avoid an adverse medical outcome on the individual, as 
        determined by the Secretary.
            ``(B) No effect on payment amount.--A prescription under 
        subparagraph (A) shall not affect the amount of payment 
        otherwise applicable for the item or service under the code 
        involved.
        ``(6) Application.--For each competitive acquisition area in 
    which the program is implemented under this subsection with respect 
    to items and services, the payment basis determined under the 
    competition conducted under subsection (b) shall be substituted for 
    the payment basis otherwise applied under section 1834(a), section 
    1834(h), or section 1842(s), as appropriate.
    ``(b) Program Requirements.--
        ``(1) In general.--The Secretary shall conduct a competition 
    among entities supplying items and services described in subsection 
    (a)(2) for each competitive acquisition area in which the program 
    is implemented under subsection (a) with respect to such items and 
    services.
        ``(2) Conditions for awarding contract.--
            ``(A) In general.--The Secretary may not award a contract 
        to any entity under the competition conducted in an competitive 
        acquisition area pursuant to paragraph (1