Order Code RL31084
CRS Report for Congress
Received through the CRS Web
Medicare: Selected Prescription Drug Proposals
in the 107th Congress
August 13, 2001
Jennifer O’Sullivan
Specialist in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

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Medicare: Selected Prescription Drug Proposals
in the 107th Congress
Summary
Medicare, the nationwide health insurance program for the aged and disabled, does
not cover most outpatient prescription drugs. On several occasions, the Congress has
considered providing coverage for at least a portion of beneficiaries’ drug costs. The issue
received renewed attention in the 106th Congress. However, there was no consensus on
how the coverage should be structured.
The issue has again received attention in the 107th Congress. The FY2002 Budget
Resolution provides $300 billion over the FY2003-FY2011 period for a Medicare reserve
fund for Medicare reform and prescription drug coverage. A number of bills have been
introduced, though at this writing no bill has been introduced or acted on by any of the
three committees of jurisdiction (House Ways and Means, House Energy and Commerce,
and Senate Finance).
The drug provisions of Medicare proposals introduced in both the 106th and 107th
Congresses contain a number of common themes. In general, they would make coverage
available to all Medicare beneficiaries on a voluntary basis. They would place a limit on
the amount of federal spending for the new benefit, thereby requiring beneficiaries (or their
supplementary insurance) to pay the remaining costs. Further, they would provide
assistance for low-income persons. However, there are a number of significant differences
between the bills. These include the degree of reliance and financial risk placed on the
private sector versus the public sector, the definition and scope of benefits, the federal
administrative structure, and implementation of low-income subsidies.
It is generally agreed that if Congress were to enact a drug benefit this year, it would
take several years before the program could be implemented. As an interim measure,
President Bush announced June 14, 2001, the creation of a Medicare Prescription Drug
Discount program. This program, which could be administered as early as fall 2001,
provides for the endorsement by Medicare of qualified privately-administered prescription
drug discount cards. Beneficiaries could obtain these cards either free of charge or for a
nominal enrollment charge; the card would provide access to discounts on prescription
drugs. While this does not establish a Medicare drug benefit, it is designed to give seniors
access to similar kinds of discounts as are available to the under age 65 population under
private insurance plans.
This report provides a side-by-side comparison of bills introduced in the 107th
Congress that have received the most attention. To date these are S. 358, introduced
by Senators Breaux and Frist, and S. 1135, introduced by Senator Graham et al. This
report is a companion report to CRS Report RL30819, Medicare Prescription Drug
Coverage for Beneficiaries: Background and Issues; that report includes a discussion
of the major benefit design questions that would need to be addressed as the Congress
develops a drug benefit. This report will be updated to reflect any legislative action.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
106th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
107th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Status of Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Overview of Major Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Private vs. Public Sector Responsibility . . . . . . . . . . . . . . . . . . . . . 3
Scope of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Low-Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
President Bush’s Medicare Drug Discount Program . . . . . . . . . . . . . . . . . . . 5
Summary of Major Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
General Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Previous Versions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Eligible Populations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Program Enrollment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Plan Enrollment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Information for Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Nature of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Scope of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Deductible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Cost-Sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Updates to Deductible and Coverage Limits . . . . . . . . . . . . . . . . . . . . . 12
Drug Pricing and Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Access to Negotiated Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Covered Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
New Federal Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Federal Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Definition of Eligible Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Establishment of Plans/Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Federal Payments to Plans and Benefit Administrators . . . . . . . . . . . . 17
Assumption of Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Plan Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Cost Controls/Formularies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Beneficiary Protections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Pharmacies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Relationship to Medicare+Choice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

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Relationship to Private Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Relationship to Medigap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Low-Income Subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Relationship to Medicaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Accounting Mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
CBO Cost Estimate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
List of Tables
Table 1. Side-by-Side Comparison of Selected Prescription Drug Bills
Introduced in the 107th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

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Medicare: Selected Prescription Drug
Proposals in the 107th Congress
Introduction
Medicare, the nationwide health insurance program for the aged and disabled, does
not cover most outpatient prescription drugs. The absence of an adequate prescription
drug benefit has been of concern to policymakers since the enactment of Medicare in
1965. On several occasions, the Congress has considered providing coverage for at least
a portion of beneficiaries’ drug costs. The issue received renewed attention in the 106th
Congress. However, there was no consensus on how the coverage should be structured.
The issue has again received attention in the 107th Congress. A number of bills have
been introduced, though at this writing no bill has been introduced or acted on by any of
the three committees of jurisdiction (House Ways and Means, House Energy and
Commerce, and Senate Finance).
One of the key concerns in designing a drug benefit is the potential costs and how
costs would increase over time. Another issue is the appropriate role of both the federal
government and the private sector in assuming the financial risk of coverage and
administering the benefit. Some observers suggest that a drug benefit should be added
directly to Medicare while others recommend alternative approaches for assuring coverage
for the target population. A further consideration is whether a major new benefit should
be added until structural reforms are made to the Medicare program as a whole.1
It is generally agreed that if Congress were to enact a drug benefit this year, it would
take several years before the program could actually be implemented. As an interim
measure, President Bush announced June 14, 2001, the creation of a Medicare
Prescription Drug Discount program. This program, which could be administered as early
as fall 2001, provides for the endorsement by Medicare of qualified privately-administered
prescription drug discount cards. Beneficiaries could obtain these cards either free of
charge or for a nominal enrollment charge; the card would provide access to discounts on
prescription drugs. While this does not establish a drug benefit, it is designed to give
seniors access to similar kinds of discounts as are available to the under age 65 population
under private insurance plans.
1For a discussion of the major issues that would need to be addressed as Congress considers
policy options, see: CRS Report RL30819, Medicare Prescription Drug Coverage for
Beneficiaries: Background and Issues, by Jennifer O’Sullivan.

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CRS-2
Legislation
106th Congress
A number of bills were introduced in the 106th Congress which would have
established a prescription drug benefit for Medicare beneficiaries. Some measures added
a new benefit to the Medicare program itself. Other proposals provided a new drug
benefit through another federal or state program. Still other measures focused on private
insurance coverage. Some other bills focused on the prices seniors pay for drugs.
The House passed the Medicare Rx 2000 Act (H.R. 4680, as amended) on June 28,
2000. The House bill relied on private insurance companies and other private sector
entities to provide coverage. These entities were to be partially subsidized for assuming
the risk of prescription drug costs. At a minimum, plans would have had to provide
“qualified coverage.” “Qualified coverage” was defined as “standard coverage” or
coverage that was actuarially equivalent (i.e., had an equivalent dollar value). “Standard
coverage” was defined as having: 1) a deductible ($250 in 2003), 2) then 50% cost-
sharing up to an initial coverage limit (the next $2,100 in 2003, accounting for $1,300 in
total out-of-pocket costs ($1,050 plus $250 deductible) and $2,350 total spending); 3)
then no coverage until the beneficiary had out-of-pocket costs of $6,000 ($7,050 in total
spending; and 4) once the beneficiary reached the $6,000 catastrophic limit full coverage
would be provided. Low-income seniors would receive assistance for premiums and costs
not paid by the new benefit. The drug benefit and the Medicare+Choice program were
to be administered by a new Medicare Benefits Administration.
Several other measures received considerable attention in the 106th Congress. These
included proposals offered by President Clinton (S. 2342) and similar Democratic bills (S.
2541 and H.R. 4770), measures introduced by Senators Breaux and Frist (S. 1895 and
S. 2807), and a bill introduced by Senators Graham and Robb. The Senate Finance
Committee held a number of hearings but did not report a bill.2
107th Congress
Status of Legislation. The issue of prescription drug coverage is again receiving
considerable attention in the 107th Congress. The FY2002 Budget Resolution provides
$300 billion over the FY2003-FY2011 period for a Medicare reserve fund for Medicare
reform and prescription drug coverage.3 As of this writing, the three committees of
2For discussion of the House-passed bill as well as other major bills considered in the 106th
Congress see: CRS Report RL30584, Medicare: Selected Prescription Drug Proposals
in the 106th Congress, by Jennifer O’Sullivan; and CRS Report RL30593, Medicare: Side-
by-Side Comparison of Selected Prescription Drug Bills, by Jennifer O’Sullivan and Heidi
Yacker.
3For a further discussion of Medicare financing and other structural reform issues see: CRS
Report RL31058, Medicare Structural Reform: Background and Options, by Jennifer
(continued...)

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CRS-3
jurisdiction have indicated that they are working on bills which would address both drug
coverage as well as other reform items. However, committee bills have not yet been
introduced.
Several other bills have been introduced. To date the two that have received the
most attention are: 1) S. 358, the “Medicare Prescription Drug and Modernization Act of
2001 (Breaux and Frist, also known as “Breaux-Frist 2"); and 2) S.1135, the Medicare
Reform Act of 2001 (Graham et al.). Both are similar, but not identical, to measures
introduced in the 106th Congress.
Overview of Major Proposals
Proposals introduced in both the 106th and 107th Congresses contain a number of
common themes. In general, they would make coverage available to all Medicare
beneficiaries on a voluntary basis. They would have a limit on the amount of federal
spending for the new benefit. Beneficiaries would be expected to assume specified costs
of the new benefit in the form of premiums and cost-sharing charges. The bills generally
would pay most or all of these charges for the low-income (generally persons below 135%
of poverty). Other individuals would have a limit on out-of-pocket costs (a “catastrophic
limit”).
There are, however, a number of significant differences between the bills. These
include the degree of reliance and financial risk placed on the private sector versus the
public sector, the definition and scope of benefits, the federal administrative structure, and
implementation of low-income subsidies.
Private vs. Public Sector Responsibility. Virtually all proposals would
place some measure of responsibility on the private sector for administration of a drug plan.
It is the degree of reliance placed on the public versus the private sector that is one of the
key areas of difference among the various proposals.
Last year’s House-passed bill would have provided access to a drug-only benefit
through private insurance companies and other entities who wished to offer the benefit.
This year’s Breaux-Frist 2 plan would also provide access to a drug benefit through
private entities or Medicare+Choice plans. Under these proposals, most of the financial
risk for the cost of covered benefits would be placed on the entities administering the
benefit.
Under the House-passed bill, the Administrator of the new Medicare Benefits
Administration would have administered the program in a manner such that eligible
individuals would be assured access to at least two plans. If necessary to ensure access,
the Administrator would have been authorized to provide financial incentives. The Breaux-
Frist 2 bill specifically requires the Commissioner of a new Competitive Medicare Agency
3(...continued)
O’Sullivan, Hinda Ripps Chaikind, and Sibyl Tilson.

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CRS-4
(CMA) to develop procedures for the provision of standard prescription drug coverage
to each beneficiary residing in an area where there were no private entities providing
coverage. The Commissioner could establish procedures that permitted partial risk-sharing
arrangements if the Commissioner determined that this would generate bids in areas with
no Medicare Prescription Plus plans or Medicare+Choice plans providing coverage.
Under both bills, the private plans would be at risk for any costs in excess of federal
subsidy payments and federal reinsurance payments. Reinsurance payments are made to
cover a portion of the costs paid by plans for individuals exceeding the catastrophic out-of-
pocket limit.
Under the Graham bill, the new benefit would be administered at the federal level like
other Medicare benefits and the federal government would bear most of the financial risk
of coverage. The actual operation of the benefit would be through contracts with private
entities such as pharmaceutical benefit managers (PBMs). PBMs currently administer the
drug benefit, including negotiating price discounts, for many private insurance plans.
Under the Graham bill, a portion of the administrative fees for these entities would be put
at risk; specifically, an adjustment would be made in administrative payments to ensure that
entities complied with requirements relating to performance goals.
Scope of Benefits. Another key difference among proposals is the scope of
benefits. Under the Graham bill there would be one specific benefit available to all
enrollees nationwide. Conversely, under last year’s House-passed bill and Breaux-Frist
2 there would be a minimum benefit level established. Under the House-passed bill and
Breaux-Frist 2, the minimum benefit (referred to as “qualified coverage”) would be either
specified “standard coverage” or alternative coverage, provided it was actuarially
equivalent to standard coverage and had the same limit on out-of-pocket spending.

Administration. Medicare is currently administered by the Centers for Medicare
and Medicaid Services (CMS) within the Department of Health and Human Services
(HHS). Prior to June 14, 2001, this agency was known as the Health Care Financing
Administration (HCFA). Several of the proposals would establish a new entity to
administer the drug benefit at the federal level. Under the last year’s House-passed plan,
a new Medicare Benefits Administration (MBA) would have been established (outside of
HCFA, but within HHS) to administer the drug benefit and Medicare+Choice. Under
Breaux-Frist 2, a new Competitive Medicare Agency (outside of HHS) would be
established to administer the drug benefit and Medicare+Choice; an independent Medicare
Competition and Prescription Drug Advisory Board would be set up to advise the
Commissioner of this agency. Under the Graham bill, the benefit would be administered
by CMS; an advisory committee would be established to advise the Secretary on policies
related to the drug benefit.
Low-Income. Under current law, some low income aged and disabled Medicare
beneficiaries are also eligible for drug coverage under Medicaid. Those persons entitled
to full Medicaid protection generally have prescription drug coverage. Some groups
receive more limited Medicaid benefits. Qualified Medicare Beneficiaries (QMBs) are
persons with incomes below poverty and resources below $4,000; these persons receive
Medicaid assistance for Medicare cost-sharing and premium charges. Specified Low

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Income Beneficiaries (SLIMBs) meet the QMB definition except that their income limit is
above the QMB level; the SLIMB limit is 120% of poverty. QMBs and SLIMBs only
receive drug benefits if they are also entitled to full Medicaid coverage. Under a temporary
program, the SLIMB level can be extended to certain persons under 135% of poverty
who are not otherwise eligible for Medicaid.
All of the major proposals would provi de significant assistance to persons below
135% of poverty – in terms of premiums that would have to be paid for coverage and/or
cost sharing once persons used benefits. The plans provide for no, or very limited,
beneficiary liability for covered services for this population group. Some of the proposals
would extend the low-income assistance protections to persons at slightly higher income
levels. The proposals differ in what portion of the costs of low-income subsidies would
be paid under the current federal-state Medicaid program and what portion would be fully
paid by the federal government.
President Bush’s Medicare Drug Discount Program
On July 12, 2001, the President announced the President’s Framework to
Strengthen Medicare. This document included the outlines for Medicare reform and
prescription drug coverage. It did not include statutory language; instead the
Administration intends to work with the Congress in developing legislation.
On the same day, the President announced a new national drug discount program for
Medicare beneficiaries. The Administration intends to implement the program
administratively; that is, no legislation will be requested.4 This discount program is viewed
as an interim step until a legislative reform package, including both a drug benefit and other
Medicare reforms, is enacted.
The drug discount program is intended to give seniors access to similar kinds of
discounts as are available to the under age 65 population under private insurance plans.
Under the discount plan, Medicare will endorse and promote qualified privately-
administered prescription drug discount cards. Approved card sponsors (PBMs and
similar entities) will make the cards available either free or at a one-time enrollment charge
(not to exceed $25). Beneficiaries could enroll in only one Medicare-endorsed card
program at a time; they could change enrollment on a semi-annual basis.
Approved card sponsors will be required to enroll all Medicare beneficiaries willing
to participate. They must provide a discount on at least one brand and/or generic drug in
each therapeutic class. They will be required to offer a national or regional pharmacy
network, providing strong retail access. Applicants are urged to include a mail-order
service as part of their program; however, mail-order only plans will not be approved.
4On July 17, 2001, the National Association of Chain Drug Stores and the National
Community Pharmacy Association filed a suit against HHS stating that the Administration
violated the Administrative Procedures Act in the way the it established the program.

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Medicare will require approved card sponsors to publish the discounted prices. Approved
plans could not charge fees to CMS.
The discount program is a private program; it is not financed by federal dollars. The
federal oversight role is limited to annual certification of plans based on specified criteria
including membership thresholds, pharmacy network thresholds, and the inclusion of all
therapeutic classes in the discount program.
Card sponsors will be required to participate in and help finance a Consortium to
handle all enrollment and eligibility functions as well as publicize comparative information
on the different discounted drug prices and quality enhancements available from various
card sponsors. By October 1, 2001, the Consortium will be required to implement a
system to permit seniors to compare card programs on such factors as formulary content,
networks and discounts. By October 1, 2002, the Consortium would be expected to help
consumers comparison shop by providing them with the actual discounted prices
associated with various card programs, including information on generic and formulary
alternatives.
CMS intends to launch a major education campaign in the fall of 2001. On July 16,
2001, CMS published the requirements for endorsement. Medicare’s endorsement will be
based on qualification requirements relating to experience, customer service, discounts and
access. The endorsement will be for 14 months. The first endorsement cycle would be
effective November 1, 2001-December 31, 2002.
Summary of Major Proposals
Table 1 is a side-by-side comparison of bills introduced in the 107th Congress
that have received the most attention to date. As noted earlier, no committee bills have
been introduced to date. The summary is limited to the prescription drug provisions,
though the bills may contain other Medicare provisions.
The summary highlights the major features of the bills. The first items provide a broad
overview (Title, General Approach, Previous Versions, and Effective Date). This is
followed by beneficiary coverage items (Eligible Populations, Program Enrollment, Plan
Enrollment, and Information for Beneficiaries). Next is a discussion of benefits (Nature of
Benefits, Scope of Benefits, Premium, Deductible, Cost-Sharing, and Updates to
Deductible and Cost-Sharing Amounts). The next items relate to drugs (Drug Pricing and
Payment, Access to Negotiated Prices, and Covered Drugs). The next items relate to
administration (New Federal Agency, Federal Administration, Definition of Eligible Entity,
Establishment of Plans/Benefits, Access, Federal Payments to Plans or Benefit
Administrators, and Assumption of Risk). This is followed by plan requirements (Plan
Requirements, Cost Controls/Formularies, Beneficiary Protections, and Pharmacies). The
next items relate to existing programs which supplement Medicare benefits (Relationship
to Medicare+Choice, Relationship to Private Plans, and Relationship to Medigap). Then
the low-income provisions are reviewed (Low-Income Subsidies and Relationship to

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Medicaid). Finally, other administrative and financing items are outlined (Reports,
Accounting Mechanism, Financing, and CBO Cost Estimate).

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CRS-8
Table 1. Side-by-Side Comparison of Selected Prescription Drug Bills
Introduced in the 107th Congress
Title
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
Medicare Prescription Drug and Modernization Act of 2001
Medicare Reform Act of 2001
General Approach
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
The Commissioner of the newly established Competitive Medicare
A new voluntary benefit would be established under a new Part D.
Agency (CMA) would be required to establish a Prescription Drug
The benefit would be administered by the Secretary of Health and
and Supplemental Benefit program under Title XXII of the Social
Human Services (HHS). Enrolled beneficiaries would obtain
Security Act. Eligible beneficiaries would voluntarily enroll and
coverage through either a Medicare+Choice plan or through
receive access to covered outpatient drugs and, in certain cases,
enrollment in a plan offered by an eligible entity under contract with
other supplemental benefits through enrollment in either a Medicare
HHS. The federal government would bear most of the financial risk
Prescription Plus plan offered by a private entity or a
of coverage. (The bill also includes other Medicare provisions;
Medicare+Choice plan. These entities would assume most of the
these would expand coverage of preventive benefits, create an
risk of benefit costs. All persons would receive a minimum of a 25%
independent panel to make coverage decisions, set up a
discount on that portion of their premium related to qualified
demonstration program to improve Medicare+Choice, provide for
prescription drug coverage. All current Medicare benefits would be
management improvements to the traditional Medicare program, and
guaranteed and be unaffected by the new program. (The bill also
income-relate the Part B premium.)
includes provisions that establish the CMA, modify the
Medicare+Choice program, and establish Medicare Consumer
coalitions.)
Previous Versions
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
This bill, is frequently referred to as “Breaux-Frist 2". It is similar,
The drug portion of this bill is similar to S. 10 (Daschle), though
but not identical to S. 2807 (Breaux and Frist) from the 106th Congress
there are a number of differences between the two bills. S. 10 is very
which was also known as Breaux-Frist 2. “Breaux Frist 1" (S. 357 in
similar, but not identical to, S.Amdt. 3598 (Robb) to H.R. 4577,
the 107th Congress, S. 1895 in the 106th Congress) provides for more
submitted on June 22, 2000 (106th Congress) and not agreed to on the
extensive Medicare reforms.
same date by a 44-53 roll call vote. The Senate amendment was very
similar, but not identical to S. 2758, the Medicare Outpatient Drug
Act (the MOD Act) introduced on June 20, 2000, by Senators
Graham, Bryan, Robb, et.al.

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Effective Date
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
January 2004
January 1, 2004
Eligible Populations
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
All Medicare beneficiaries enrolled in both Parts A and B who
All Medicare beneficiaries (enrolled in Part A, Part B, or both) who
elected to enroll.
elected to enroll.
Program Enrollment
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
The Commissioner would establish an enrollment process which
The Secretary would establish an enrollment process which would
would be similar to that established for Medicare Part B.
be similar to that for Medicare Part B (including provisions deeming
Beneficiaries would have a one-time enrollment opportunity. For
persons enrolled when they first become eligible). An individual’s
current beneficiaries this would be the 6-month period beginning
initial enrollment opportunity would generally occur when an
November 2003; for future beneficiaries it would be the same 7-
individual first became eligible for Medicare.
month period applicable for initial Part B enrollment. A special
enrollment period would be established for persons involuntarily
The Secretary would establish an initial open enrollment period for
losing other drug coverage under Medicaid, a group health plan,
current enrollees. Late enrollment penalties, similar to those
Medigap, a state pharmaceutical assistance program, or veterans
applicable under Part B, would apply for persons who did not enroll
coverage; persons would be required to enroll within 63 days of
during their initial enrollment period. Late enrollment penalties
losing other coverage.
would not apply in cases where an individual was 1) previously
covered under a group health plan (including a qualified retiree
prescription drug plan) which provided coverage at least equal to
the value of Part D coverage; and 2) such coverage terminated, or
ceased to provide or reduced the value of coverage below the Part D
level within the previous 60 days. Late enrollment penalties would
also not apply for persons losing their eligibility for drug coverage
under Medicaid, a state pharmaceutical assistance program, or
veterans coverage within the previous 60 days.

---

CRS-10
Plan Enrollment
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
The Commissioner would establish a process, consistent with that
The Secretary would establish a process through which beneficiaries
established for Medicare+Choice, for individuals to make an annual
enrolled in Part D, but not in a Medicare+Choice plan, would make an
election to enroll in a Medicare Prescription Plus Plan offered by an
annual election to enroll in a plan offered by an eligible entity. The
entity serving their geographic area.
rules would be similar to, and coordinate with, those for
Medicare+Choice enrollment.
Information for Beneficiaries
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
The Commissioner would establish a process, similar to that
The Secretary would conduct activities to broadly disseminate
established for Medicare+Choice to broadly disseminate
information regarding drug coverage. To the extent practicable, this
information. The information activities would be coordinated with
information would be made available 30 days prior to a beneficiary’s
other required information activities, including those for
first enrollment period. Information would include comparative
Medicare+Choice. The Commissioner could establish Medicare
information for each eligible entity on: 1) benefits provided,
Consumer Coalitions (nonprofit entities primarily composed of
including prices beneficiaries will be charged, preferred pharmacies
beneficiaries) to help provide information to beneficiaries; such
used, formularies, and appeals processes; 2) quality and
sums as may be necessary would be authorized for this purpose.
performance; 3) beneficiary cost-sharing; 4) results of consumer
satisfaction surveys; and 5) additional information as determined by
the Secretary. The information activities would be coordinated with
other required information activities including those for
Medicare+Choice. The Secretary could contract with Medicare
Consumer Coalitions (nonprofit entities made up primarily of
beneficiaries) to conduct information activities; such sums as may
be necessary would be authorized for this purpose.
Nature of Benefits
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
“Qualified coverage” would be either “standard coverage” or
A specified benefit would be available to all enrollees nationwide.
“actuarially equivalent coverage” (i.e., having an equivalent dollar
value). Plans could offer more generous drug coverage; they could
also offer supplemental non-drug benefits. If an entity offered more
generous coverage, it would also be required to offer a Medicare
Prescription Plus plan in the area meeting minimum coverage criteria
only.

---

CRS-11
Scope of Benefits
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.
“Standard coverage” would be defined as having a deductible ($250
The benefit would be subject to a deductible ($250 in 2004), 50%
in 2004), 50% cost-sharing up to the initial coverage limit (the next
coinsurance until beneficiary out-of-pocket costs reached a
$2,100 in 2004 (accounting for $1,300 in total out-of-pocket costs and
specified level ($3,500 in 2004), and then 25% coinsurance until out-
$2,350 total spending), then no coverage until the beneficiary had
of-pocket costs reached the out-of-pocket limit ($4,000 in 2004).
out-of-pocket costs of $6,000 ($7,050 in total spending); once the
beneficiary reached the $6,000 catastrophic limit full coverage would
be provided. The annual dollar amounts would be increased by the
increase in average per capita aggregate expenditures for drugs by
Medicare beneficiaries for the year ending the previous July. Plans
could offer a package that was actuarially equivalent to the standard
package, subject to certain conditions, including having a limit on
out-of-pocket costs the same as that under standard coverage.
A Medicare Prescription Plus plan could provide more generous
drug benefits. It could also offer coverage of non-drug benefits
subject to certain conditions. If these non-drug benefits included
coverage of any Medicare cost-sharing charges and related charges
specified as core benefits under Medigap, the plan would have to
cover at least all such charges that would be covered under
Medigap Plan A. If an entity offered more generous coverage, it
would also be required to offer a Medicare Prescription Plus plan in
the area meeting qualified coverage criteria only. Further, the
Commissioner would have to find that the benefits were not
designed to result in favorable selection of beneficiaries.

---

CRS-12
Premium
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
A plan would be required to charge a uniform premium for
Beneficiaries would pay a monthly premium equal to 50% of
individuals enrolled in the plan in the same service area.
estimated average per capita program costs; premiums paid by
Beneficiaries would pay the premium amount (less any discount) in
former employers would equal two-thirds of the total. The remaining
the same manner as Part B premiums are paid (generally as a
amount would be paid by the federal government. Premiums would
deduction from an individual’s social security check). All
be collected in the same way as Part B premiums; for most persons
beneficiaries would receive a discount of at least 25% of the value of
this is a deduction from social security checks.
standard coverage. (The low income would receive a larger
discount, see below.) This discount would be included as taxable
Higher income beneficiaries would receive a lower premium
income to the beneficiary.
contribution from the federal government. Individuals with adjusted
gross incomes between $75,000 and $100,000 and couples with
adjusted gross incomes between $150,000 and $200,000 would have
the government premium contribution reduced from 50% to 25%,
calculated on a sliding scale basis. (These income amounts would
be adjusted for inflation as measured by the consumer price index for
years after 2004.) All beneficiaries would receive a minimum 25%
government subsidy.
Deductible
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
In 2004, the deductible for standard coverage would be $250.
The benefit would be subject to an annual deductible ($250 in 2004).
An entity offering a plan could waive the deductible for generic
drugs if: 1) the Secretary determined that the waiver was tied to
performance goals established by the Secretary; and 2) would not
result in an increase in federal costs. In this case, any coinsurance
paid with respect to a generic drug would be credited toward the
deductible.

---

CRS-13
Cost-Sharing
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
“Standard coverage” would be defined as having 50% cost-sharing
In 2004, beneficiary cost-sharing would equal 50% of costs until out-
up to the initial coverage limit (the next $2,100 after the $250
of-pocket costs totaled $3,500. At this point, beneficiary cost-
deductible in 2004, accounting for total spending of $2,350), and full
sharing would be reduced to 25%. There would be no cost sharing
coverage after an annual limit in out-of-pocket spending ($6,000 in
once out-of-pocket costs reached $4,000. Thus, assuming no waiver
2004). Thus in 2004, the beneficiary would pay the first $250, $1,050
of the deductible, the beneficiary would pay 100% of the first $250,
of the next $2,100 (with the plan paying the other $1,050), and all
50% of the next $6,500 ($6,750 total, $3,500 total out-of-pocket), and
costs for drug spending between $2,350 and $7,050. The plan would
25% of the next $2,000 ($8,750 total, $4,000 total out-of-pocket). Any
pay in full for all costs over $7,050 ($6,000 in out-of-pocket costs).
remaining costs would be paid by the program. An entity
Out-of-pocket costs counting toward the limit would include costs
administering the benefit could reduce the cost-sharing if the
paid by a state program but not those covered as benefits under
Secretary determined that the reduction was tied to performance
other third-party coverage.
goals and such reduction would not increase federal costs. Entities
could also require higher cost-sharing for drugs not on their
formulary (see below), except that higher cost-sharing would not be
permitted if the drug was determined to be medically necessary
(based on professional medical judgment, the medical condition of
the beneficiary, and other medical evidence) to prevent or slow the
deterioration of, or improve or maintain, the health of an eligible
beneficiary.
Updates to Deductible and Coverage Limits
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
The annual dollar amounts would be increased by the increase in
The dollar amounts would be increased in future years (beginning in
average per capita aggregate expenditures for drugs by Medicare
2005) by the percentage increase in average per capita expenditures
beneficiaries for the year ending the previous July.
under the program in the preceding year over such expenditures in
2004.

Drug Pricing and Payment
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
The entity would determine payments and would be expected to
The contracting entity’s bid would include a proposal for the
negotiate discounts.
estimated prices for covered drugs and projected annual increase in
prices. The entity would be expected to negotiate discounts.

---

CRS-14
Access to Negotiated Prices
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
Both standard and actuarially equivalent coverage would have to
Plans would provide that beneficiaries would have access to
provide beneficiaries access to negotiated prices, even when the
negotiated prices (including applicable discounts) regardless of the
plan was under no obligation to pay for the benefits. The entity or
fact that no or only partial benefits are paid because of the
Medicare+Choice plan would issue a drug discount card.
application of the deductible or coinsurance.

Covered Drugs
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
In general, coverage would be extended to outpatient prescription
In general, coverage would be extended to outpatient prescription
drugs meeting FDA criteria, biological products, and insulin. Drugs
drugs meeting FDA criteria, biological products, and insulin.
currently covered under Medicare would continue to be covered
Prescription drugs and biological products meeting the criteria but
under the basic program. Drugs excluded under Medicaid would not
also available over-the-counter would also be covered. Drugs
be covered, except those for smoking cessation.
currently covered under Medicare would continue to be covered
under the basic program. Drugs excluded under Medicaid would not
be covered, except those for smoking cessation.
All therapeutic classes of covered outpatient drugs would be
covered.

---

CRS-15
New Federal Agency
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
An independent agency, the Competitive Medicare Agency would
Not applicable. However, a new Medicare Prescription Drug
be set up in the executive branch outside of HHS. The Agency
Advisory Committee would be established to advise the Secretary
would administer the Medicare Prescription Drug and Supplemental
on policies related to the drug benefit (see below).
Benefit Program under the new Title XXII and the Medicare+Choice
program. (HHS would retain responsibility for the traditional fee-for-
service program.) The head of the Agency would be a
Commissioner appointed by the President, with the advice and
consent of the Senate, for a 6-year term. The Commissioner and the
Secretary of HHS would consult on an ongoing basis to ensure
coordination of programs and would exchange data as appropriate.
The Commissioner would prepare an annual budget for the agency
that would be submitted to the President and Congress without
revision, together with the President’s budget for the Agency. The
Commissioner would serve as a member of the Board of Trustees of
the Medicare trust funds.
An independent 7-member Medicare Competition and Prescription
Drug Advisory Board would be set up to advise the Commissioner
on policies related to the new program and Medicare+Choice (see
below).

---

CRS-16
Federal Administration
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
The Commissioner would establish a Prescription Drug and
The Secretary would: 1) establish a Part D enrollment process for
Supplemental Benefit Program. The Commissioner would establish a
beneficiaries; 2) establish an annual process for beneficiary
program enrollment process and a process through which
enrollment with eligible entities; and 3) conduct information
beneficiaries would enroll, on an annual basis, in a Medicare
activities. The Secretary would establish a competitive bidding
Prescription Plus plan. The Commissioner of the new agency would
process for the award of contracts to eligible entities to administer
have responsibility for: 1) coordinating determinations of
and deliver the drug benefit. At least 10 different coverage areas
beneficiary eligibility and enrollment under Title XVIII and the new
would be established. The Secretary would consider the
drug program with the Commissioner of Social Security; 2) entering
comparative merits of each bid based on past performance and other
into and enforcing contracts with entities for the offering of
factors. At least two contracts would be awarded in each area
Medicare Prescription Plus plans; 3) disseminating comparative
unless only one entity met the bidding requirements. Each contract
information regarding benefits and quality; 4) dissemination of
would be awarded for 2-5 years. The Secretary would approve
appeals rights information; and 5) establishing a Medicare
marketing material and application forms.
beneficiary education program. The Commissioner would also
establish processes for determining the actuarial value of
The Secretary could not award a contract unless the entity agreed to
prescription drug coverage and for determining the annual
comply with terms and conditions specified by the Secretary
percentage increase in coverage limits.
including those relating to: 1) quality and financial standards; 2)
procedures to ensure proper utilization and avoidance of adverse
The Commissioner would review proposed plans based on
drug reactions; 3) patient protections; 4) procedures to control
information submitted by eligible entities and approve or disapprove
fraud, abuse, and waste; and 5) submission of reports; 6) approval of
the proposal. The Commissioner would have the same authority to
marketing material and application forms; and 7) maintenance of
negotiate terms and conditions of premiums and other terms of the
records.
plans as the Director of the Office of Personnel Management has
with respect to Federal Employee Health Benefits plans.
A 19-member Medicare Prescription Drug Advisory Committee
would be established to advise the Secretary on policies related to
An independent 7-member Medicare Competition and Prescription
development of: 1) guidelines for implementation and administration
Drug Advisory Board would be set up to advise the Commissioner
of the benefit; 2) standards for contracting entities for their
on policies related to the new program and Medicare+Choice. Three
Pharamacy and Theurapeutic (P&T) committees; 3) standards for
members would be appointed by the President (no more than two
entities for determining if a drug is medically necessary to prevent or
from the same party), two by the President pro tempore of the Senate
slow the deterioration of, or improve or maintain, the health of an
(each from a different party) and two by the Speaker of the House
eligible beneficiary; 4) standards for defining therapeutic classes and
(each from a different party). The Board would submit reports to the
adding new classes to the formulary; 5) procedures to evaluate bids
Commissioner and the Congress as determined appropriate. It would
from eligible entities; and 6) procedures to ensure that contracting
be required to submit reports directly to Congress; no officer or
entities are in compliance with Part D requirements. The Committee
agency could require that they be submitted to any federal officer or
membership would be representative of physicians (nine members),
agency for prior review or approval.
pharmacists (four members), Centers for Medicare and Medicaid
Services (one member), actuaries, pharmacoeconomists, researchers
and appropriate experts (four members), and emerging drug
technologies (one member).

---

CRS-17
Definition of Eligible Entity
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
An eligible entity would be any risk-bearing entity the Commissioner
An eligible entity would be any entity the Secretary determined to be
determined to be appropriate to administer the benefit including a
appropriate to administer the benefit including: a pharmacy benefit
pharmaceutical benefit management company; a wholesale or retail
management company (PBM); retail pharmacy delivery system;
pharmacist delivery system; an insurer (including an insurer that
health plan or insurer; a state (through mechanisms established
offers Medigap policies); another entity, or any combination of
under a Medicaid state plan); any other entity approved by the
these.
Secretary; or any combination of such entities if the Secretary
determined that the combination increased the scope or efficiency of
the provision of benefits and was not anticompetitive.
Establishment of Plans/Benefits
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
Each entity intending to offer a plan would be required to submit to
An entity’s bid (which could include multiple areas) would include:
the Commissioner information on coverage provided, actuarial value
1) a proposal for the estimated prices for covered drugs, projected
of the coverage, monthly premium to be charged for the coverage,
annual increase in prices, including differentials between formulary
and the service area for the plan.
and nonformulary prices, if applicable; 2) the amount the entity
would charge the government for administering the benefit; 3) a
The Commissioner could approve a service area only if the
statement regarding whether the entity would waive the deductible
Commissioner found that it was not designed so as to discriminate
for generic drugs and how the waiver is tied to performance goals; 4)
based on health status, economic status, or prior receipt of health
a statement of whether there would be any coinsurance reduction
care of eligible beneficiaries. Further, the benefit package could not
and how that is tied to performance goals; 5) a detailed description
be designed so as to lead to favorable selection of beneficiaries.
of performance goals; 6) a detailed description of access to
pharmacy services including whether the entity would use a
preferred pharmacy network, and if so, whether the entity would
offer access outside the network and what the coinsurance would
be; 7) the procedures for modifying a formulary, if one is used; 8)a
detailed description of any ownership or shared financial interests
with other entities involved in delivering the drug benefit; 9) a
description of the entity’s estimated marketing and advertising
expenditures; and 10) other information deemed necessary by the
Secretary.
Eligible entities would be required to offer drugs on a regional basis,
except that the Secretary could permit coverage on a partial regional
basis if the region was at least the size of the commercial service area
of the entity and the area was not smaller than a state.

---

CRS-18
Access
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
The Commissioner would develop procedures for the provision of
The Secretary would develop procedures for the provision of
standard prescription drug coverage to each beneficiary residing in
covered drugs to each eligible beneficiary that resides in an area not
an area where there were no Medicare Prescription Plus plans or
covered by a contract. The Secretary would also develop
Medicare+Choice plans providing coverage. The Commissioner
procedures to ensure that each beneficiary that resides in different
could establish procedures that permit partial risk-sharing
areas in a year is provided benefits throughout the year.
arrangements (that is the government would share some of the
costs) if the Commissioner determined that this would generate bids
in areas with no Medicare Prescription Plus plans or available
Medicare+Choice plans providing qualified drug coverage.
Federal Payments to Plans and Benefit Administrators
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
The Commissioner would pay to each eligible entity the full amount
The Secretary would establish procedures for making payments to
of the premium for each beneficiary minus administrative costs
eligible entities.
levied on the plan. The Commissioner would provide a process for
notifying eligible entities of low-income persons eligible for reduced
cost-sharing and for reimbursement of the amount of such
reductions.
The Commissioner would provide for reinsurance payments to
Medicare Prescription Plus plans, Medicare+Choice plans providing
qualified prescription drug coverage, and qualified retiree drug
plans. In 2004, the reinsurance payment would cover 80% of costs
exceeding $7,050 (the point at which beneficiary out-of-pocket
payments cease). This amount would be increased in future years
by the percentage increase in average per capita aggregate
expenditures for drugs by Medicare beneficiaries for the year ending
the previous July. The payment method would be determined by the
Commissioner and could use an interim payment system based on
estimates.

---

CRS-19
Assumption of Risk
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
The entity would be required to assume full financial risk for the cost
A portion of an entity’s administrative fees would be put at risk. An
of covered benefits except: 1) as covered by federal reinsurance
adjustment would be made in payments for administration to ensure
payments for high cost enrollees; and 2) as provided for under any
that the entity complies with requirements related to: 1) quality
partial risk sharing arrangements developed by the Commissioner to
service (including sustained pharmacy network access, timeliness
encourage bids (see Access, above). The entity could obtain
and accuracy of service delivery in claims processing and card
insurance or make other arrangements for the cost of coverage
production, pharmacy and member support services and timely
provided to enrollees.
action with regard to appeals); 2) quality clinical care (including
notification to prevent adverse drug reactions and specific clinical
suggestions to improve health); and 3) control of Medicare costs
(including generic substitution, price discounts and other factors
that do not reduce access to necessary drugs). The Secretary would
determine the percentage of payments that would be tied to
performance goals; however, the percentage could not be set at a
level that jeopardized the ability of an eligible entity to administer
and deliver the benefits in a quality manner.
Plan Requirements
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
An entity would have to be licensed as a risk-bearing entity in each
Entities would have to meet specified requirements including those
state in which it offered a Medicare Prescription Plus plan.
relating to quality and financial standards, beneficiary protections
Alternatively it could meet solvency and other standards
(see below), and procedures to control fraud and abuse. The entity
established for entities not licensed by the state. It would also have
would be required to submit annual reports on: 1) prices that the
to meet beneficiary protection requirements (see below).
entity is paying for drugs; 2) prices enrolles will be charged;
3)administrative costs; 4) utilization of benefits; and 5) marketing
An entity’s contract with the Commissioner could cover more than
and advertizing expenditures.
one Medicare Prescription Plus plan. The Commissioner would
establish standards for eligible entities. As is the case for
Medicare+Choice, the standards established for plans would
supersede state laws to the extent they were inconsistent. The
following state standards would be specifically preempted: benefit
requirements, requirements relating to inclusion or treatment of
providers, and coverage determinations (including related appeals
and grievance processes).

---

CRS-20
Cost Controls/Formularies
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
An entity offering a Medicare Prescription Plus plan or
Contracting entities could employ mechanisms to provide benefits
Medicare+Choice plan could use cost control mechanisms
economically including formularies, alternative distribution methods,
customarily used in employer-sponsored health care plans that offer
and generic drug substitution. They could use mechanisms to
coverage for outpatient prescription drugs. These include
encourage beneficiaries to select cost-effective drugs or less costly
formularies, tiered copayments, selective contracting with providers
means of receiving drugs including use of pharmacy incentive
of outpatient prescription drugs, and mail order pharmacies.
programs, therapeutic interchange programs, and disease
management programs. They could also encourage pharmacy
Entities using formularies would be required to include drugs within
providers to inform beneficiaries of price differences between
all therapeutic categories and classes of covered drugs (although
generic and nongeneric drugs and to provide medication therapy
not necessarily all drugs within such categories and classes).
management programs. Any formulary would have to comply with
Entities would have a process for beneficiaries to appeal denials of
standards established by the Secretary in consultation with the
coverage based on application of the formulary.
Medicare Prescription Drug Advisory Committee. The entity would
be required to use a pharmacy and therapeutics committee to
develop and implement the formulary. The formulary would be
required to include at least two drugs from each therapeutic class
(unless only one drug was available in the class) unless clinically
inappropriate, and a generic substitute (if available) if more than two
drugs were available in a class and it was not clinically inappropriate.
Further, the contracting entity would be required to develop
procedures for modification of the formulary and to disclose to
current and prospective beneficiaries related information. Entities
would be required to cover nonformulary drugs when determined
medically necessary (based on professional medical judgment, the
medical condition of the beneficiary, and other medical evidence) to
prevent or slow the deterioration of, or improve or maintain, the
health of an eligible beneficiary.
Entities could require higher cost-sharing for nonformulary drugs
except when such nonformulary drug is determined medically
necessary. They could educate prescribing providers, pharmacists,
and beneficiaries about the medical and cost benefits of formulary
drugs. Further, they could request prescribing providers to consider
a formulary drug prior to dispensing of a nonformulary drug so long
as the requirement did not unduly delay provision of the drug.

---

CRS-21
Beneficiary Protections
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
An entity offering a Medicare Prescription Plus plan would be
Contracting entities would be required to comply with requirements
required to disclose in a clear, accurate and standardized form to
relating to: 1) quality; 2) drug utilization review procedures to ensure
each enrollee information on access to covered outpatient drugs,
proper utilization and compliance, and avoidance of adverse drug
formulary provisions, cost-sharing requirements and grievance and
reactions; 3) procedures to guarantee patient confidentiality and
appeals procedures. Beneficiaries would have the right to obtain
timely transfer of records; and 4) procedures for working with the
more detailed information on request. Plans would also be required
Secretary to deter medical errors related to the provision of drugs.
to furnish beneficiaries information on benefits provided. Further,
Entities would be required to ensure that covered drugs are
plans would be required to provide access to negotiated prices, even
accessible and convenient to beneficiaries by 1) offering services 24
when the plan is under no obligation to pay for the benefits.
hours a day and 7 days a week for emergencies; and 2) if a pharmacy
network is used, the network complies with standards. The entity
Plans would be required to establish cost and drug utilization
would be required to have procedures to assure that charges for
management, quality assurance, and fraud and abuse control
drugs do not exceed the negotiated price and the retail pharmacy
programs. Entities would be required to have meaningful procedures
dispensing the drug does not charge the beneficiary more than the
for resolving grievances and protecting confidentiality and accuracy
beneficiary’s obligation. The entity would also be required to have
of enrollee records. Further they would be required to provide
procedures to determine if a non-formulary drug is medically
enrollees access to expedited coverage determinations and a
necessary (based on professional medical judgment, the medical
procedure for reconsideration and appeals of benefit denials; these
condition of the beneficiary, and other medical evidence) to prevent
requirements would be the same as those applicable for
or slow the deterioration of, or improve or maintain, the health of an
Medicare+Choice plans. Entities would also assure that premiums
eligible beneficiary. Further, entities would have to have procedures
charged are the same for all individuals enrolled in a plan.
(comparable to those applicable for Medicare+Choice) to ensure
timely internal and external review and resolution of denials of
coverage and complaints. Beneficiaries would be provided with
information on appeals procedures at the time of enrollment.
Pharmacies
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
No provision.
The entity would be required to ensure than any retail pharmacy that
it contracts with meets minimum quality and technology standards.
If the entity uses a preferred pharmacy network, the network would
be required to meet minimum access standards; in establishing the
standards, the Secretary would take into account reasonable
distances to pharmacy services in both urban and rural areas.

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CRS-22
Relationship to Medicare+Choice
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
A Medicare+Choice enrollee would obtain benefits through the
Medicare+Choice plans would be required to offer Part D drug
Medicare+Choice plan if the plan provided qualified drug coverage.
benefits. Enrollees electing the drug benefit would receive these
A Medicare+Choice plan could not offer drug coverage (other than
benefits through the plan. Capitation payments to the plans would
that already required under Medicare) unless the coverage was at
be adjusted accordingly with a separate calculation made for Part D
least qualified prescription drug coverage and the plan complied
benefits. Medicare+Choice enrollees could not be required to pay
with the beneficiary protections required for Medicare Prescription
deductible or coinsurance charges that exceed those specified under
Plus plans. Medicare+Choice plans would be required to compute
Part D.
and publish: a) a premium for drug benefits that is separate from
other coverage; b) the ratio of the actuarial value of standard drug
coverage to the actuarial value of drug coverage offered under the
plan; and c) the portion of the premium attributable to standard
benefits. Medicare+Choice organizations would be permitted to
reduce the amount of premiums charged.
Relationship to Private Plans
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
Qualified retiree prescription drug plans would be eligible for
The Secretary would be authorized to develop an Employer
reinsurance payments. Qualified coverage would be defined as
Incentive Program under which employers and other sponsors of
employment-based retiree health coverage meeting certain
employment-based retiree coverage that is at least equivalent to that
requirements. The sponsor of the plan would be required to
under the new Part D would receive incentive payments. Such
annually attest to the Commissioner (and to provide such other
payments would be made in behalf of beneficiaries who obtained
assurances as required by the Commissioner) that coverage met the
drug coverage under the sponsors plan rather than Medicare. The
requirements for qualified prescription drug coverage. The sponsor
incentive payment would equal two-thirds of the premium amount
and the plan would have to maintain and provide access to records
the beneficiary would otherwise pay if the individual were enrolled in
needed to ensure the adequacy of coverage and accuracy of
Part D. Plan sponsors would be required to provide certain
payments made.
assurances and information to the Secretary.

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CRS-23
Relationship to Medigap
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
No Medigap policy that provided coverage for prescription drugs
The 3 of the 10 standardized Medigap plans offering drug coverage
could be sold to an individual after January 1, 2004, unless it
would have to be revised to complement, not duplicate Part D. The
replaced a policy for an individual that included drug coverage.
revised drug packages could not offer coverage for the Part D
Individuals enrolled in the new Title XXII program who terminated
deductible or for more than 90% of the Part D coinsurance.
enrollment in a Medigap policy with prescription drug coverage or
another policy with drug coverage would be guaranteed enrollment
in a Medigap non-drug policy if enrollment occurred within 63 days
of the termination of prior coverage.
Low-Income Subsidies
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
Low-income persons would receive a discount on their premiums
Medicaid would cover Part D premiums, coinsurance, and deductible
(based on the value of standard coverage). Individuals with
for persons below 135% of poverty. (Coinsurance and deductible
incomes below 135% of poverty (and assets below $4,000) would
amounts would be based on drug payment amounts determined
have a discount equal to 100% of the value of standard drug
under Part D not Medicaid.) Beneficiaries between 135% and 150%
coverage provided under the plan. Beneficiary cost-sharing for such
of poverty would pay a reduced Part D premium, calculated on a
individuals would be nominal. For individuals between 135% and
sliding scale basis.
150% of poverty, there would be a sliding scale discount on their
premiums ranging from 100% of such value at 135% of poverty to
25% of such value at 150% of poverty. There would be no cost-
sharing subsidy for this group.
The maximum amount of cost-sharing subsidy that could be
provided for an enrollee under 135% of poverty could not exceed
95% of the maximum amount of cost-sharing that could be incurred
for standard coverage. Beneficiary cost-sharing for these persons
would be nominal as determined by the Commissioner. A plan could
waive or reduce the amount of cost-sharing otherwise applicable.

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CRS-24
Relationship to Medicaid
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
The new Title XXII coverage would be primary to any drug benefits
Low-income subsidies would be provided through Medicaid. The
under Medicaid. The plan would require states to make eligibility
current federal-state matching rate would apply for those below
determinations for low- income subsidies; there would be a 5 year
120% of poverty. The federal matching rate would be 100% for
phase-in of increased matching rates for this activity so that there
those between 120% and 135% of poverty. The federal matching
would be full federal funding beginning in 2008.
rate would be 100% for premiums for those between 135% and 150%
of poverty.
Dual eligibles (i.e., persons eligible for Medicare and full Medicaid
benefits, including drugs) would have their low-income subsidy
costs picked up by Medicaid. Over a 5 year period the federal
matching rate for these costs would be increased to cover 50% of
what would otherwise be state costs. (For example, if the regular
state matching rate for Medicaid costs was 40%, the state matching
rate for low income subsidies would be 20% after 5 years.) States
would be required to maintain Medicaid benefits as a wrap around to
Medicare benefits for dual eligibles; states could require that these
persons elect Medicare drug coverage.
Reports
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
By January 1, 2003, the Commissioner would be required to submit a
HHS would be required to report, within 2 years of enactment, on the
report on permitting Part B only individuals to enroll. The
feasibility and advisability of: 1) establishing a uniform format for
Commissioner would be required to submit an annual report on the
pharmacy benefit cards; and 2) development of systems to
administration of the new drug benefit and Medicare+Choice.
electronically transfer prescriptions.
The annual reporting requirements for the Board of Trustees of the
Hospital Insurance (Part A) and Supplementary Medical Insurance
(Part B) trust funds would be expanded. The Board would be
required to submit a combined report on the two trust funds as well
as the Medicare Prescription Drug Account. The report would
include information on total amounts obligated from the general
revenues of the Treasury in the past year for benefits; a historical
overview of spending; 10-year and 50-year projections; and overall
spending from general revenues in relation to GDP growth.
A report on the effectiveness of Medicare Consumer Coalitions (if
the Commissions were established) would be due by December 31,
2004.

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CRS-25
Accounting Mechanism
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
A Medicare Prescription Drug Account would be created within the
A Prescription Drug Account would be created within the Part B
Part B trust fund. Funds provided under the new Title XXII to the
trust fund. Funds provided under the new program to the Account
Account would be kept separate from all other funds within Part B.
would be kept separate from all other funds within Part B. Program
Program costs would be paid from the Account.
costs would be paid from the Account.
The Commissioner could levy on Medicare Prescription plans and
Medicare+Choice plans providing qualified drug coverage an
assessment to pay the estimated expenses of the Commissioner for
administering the new Title XXII. The assessments would be
deposited in the Medicare Prescription Drug Account.
Financing
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
Appropriations would be made from the general fund to cover
Appropriations would be made from the general fund to cover
program costs exceeding premium collections and other fees.
program costs exceeding premium collections.
Appropriations for administrative expenses of the Competitive
Medicare Agency would be authorized on a biennial basis. Such
funds as may be necessary would be authorized to be appropriated
out of the Trust Funds to carry out the purposes of the Agency.
CBO Cost Estimate
S. 358 (“Breaux-Frist 2")
S. 1135 (Graham et al.)
Not available. However, on June 11, 2001, CBO presented an
Not available. However, on June 11, 2001, CBO presented an
updated estimate of S. 2807, “as introduced by Senators Breaux and
updated estimate of S.Amdt. 3598 to H.R. 4577 from the 106th
Frist and modified in discussion with staff.” This bill from the 106th
Congress; the drug provisions of this bill (S. 1135) are similar to that
Congress is similar to S. 358 from this Congress. The CBO’s
amendment though there are a number of differences between the
updated estimate of S. 2807, which presumes an implementation date
two versions. The CBO’s updated estimate of the amendment,
of 2004, is $175.9 billion for the FY2002-2011 period.
which presumes an implementation date of 2004, is $318.2 billion for
the FY2002-2011 period.

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