SEC. 101. MEDICARE PRESCRIPTION DRUG BENEFIT.

TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

SEC. 101. MEDICARE PRESCRIPTION DRUG BENEFIT.

`Part D--Voluntary Prescription Drug Benefit Program

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

`ELIGIBILITY, ENROLLMENT, AND INFORMATION

`(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.

`(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.

`(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

`(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).

`(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.

`(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).

`(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.

`(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

`(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).

`(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

`(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.

`(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.

`(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.

`(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.

`(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).

`(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).

`(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).

`(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

`(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).

`(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.

`(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.

`(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.

`(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.

`(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.

`(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.

`(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.

`REQUIREMENTS FOR AND CONTRACTS WITH PRESCRIPTION DRUG PLAN (PDP) SPONSORS

`(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).

`(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).

`(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.

`(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).

`(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.

`PREMIUMS; LATE ENROLLMENT PENALTY

`(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.

`(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).

`(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

`(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.

`(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.

`(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.

`(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.

`SUBSIDIES FOR PART D ELIGIBLE INDIVIDUALS FOR QUALIFIED PRESCRIPTION DRUG COVERAGE

`(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.

`(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.

`(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.

`(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).

`(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.

`(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.

`MEDICARE PRESCRIPTION DRUG ACCOUNT IN THE FEDERAL SUPPLEMENTARY MEDICAL INSURANCE TRUST FUND

`(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.

`(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.

`(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

`(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)).

`(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.

`(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.

`(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.

`(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.

`(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

`(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.

`(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

`(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.

`(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).

`(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.

`(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

`(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.

`(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.

`(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

`(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).

`(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.

`(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.

`(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.

`(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.

`(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.

`(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).

`(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.

`(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).

`(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).

`(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

`(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).

`(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

`(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).'.

`The previous sentence shall also apply to information disclosed under section 1860D-2(d)(2) or 1860D-4(c)(2)(E).'.

`(5) ELECTRONIC PRESCRIBING- An exception established by regulation under section 1860D-3(e)(6).'.

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Medicare Prescription Drug, Improvement, and Modernization Act
Implementation Tracking System (MITS)