Order Code RL31496
Report for Congress
Received through the CRS Web
Medicare: Major Prescription
Drug Provisions of Selected Bills
July 10, 2002
Jennifer O’Sullivan
Specialist in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

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Medicare: Major Prescription
Drug Provisions of Selected Bills
Summary
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 has again
received attention this year.
There are a number of issues driving the prescription drug debate. One of the
key concerns in designing a drug benefit is the potential cost 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 single uniform drug benefit
should be added directly to Medicare’s other benefits. Others recommend offering
benefits through private plans which could offer different benefit packages provided
certain minimum standards were met. A further consideration is whether a major
new benefit should be added until structural reforms are made to the Medicare
program as a whole.
On June 28, 2002, the House passed the Medicare Modernization and
Prescription Drug Act of 2002 (H.R. 4954). Under the bill, a new optional benefit
would be established, effective January 1, 2005. The program would rely on private
plans to provide drug coverage and to bear some of the financial risk for drug costs;
federal subsidies would be provided to encourage participation. Coverage would be
provided through prescription drug plans (PDPs) or Medicare+Choice (M+C) plans.
Beneficiaries could purchase either a standard plan or an actuarially equivalent plan.
Low-income subsidies would be provided for persons with incomes below 175% of
poverty. A new Medicare Benefits Administration (MBA) would be established
within the Department of Health and Human Services (HHS) to administer the
benefit and the M+C program. The House-passed bill is considerably different from
the “House Democratic bill” (H.R.5019). Under the later bill, a single new benefit
would be added directly to Medicare and be available nationwide. The benefit would
be administered by contractors with the federal government assuming full financial
risk, except for a small portion of the administrative payment.
Senator Daschle has announced that the Senate will consider prescription drug
legislation prior to the August recess. Any bill approved by the Senate is expected
to be substantially different from the House-passed bill. Two measures are currently
under discussion. The first is the Medicare Outpatient Prescription Drug Act of 2002
(S. 2625 Graham et al.). This measure is similar in overall approach, but different
in a number of details, to the House Democratic bill. According to some accounts,
the Graham bill will be brought directly to the Senate floor, without prior committee
action, prior to the August recess. Another Senate measure, the so-called “tripartisan
proposal” may also be considered; however, as of this writing, this bill has not yet
been introduced. This report will be updated to reflect any legislative action.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Overview of Major Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Private vs. Public Sector Responsibility . . . . . . . . . . . . . . . . . . . . . . . . 3
Scope of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Low-Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Summary of Major Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Side-by-Side Comparison of Major Medicare Drug Provisions of Selected Bills . 6
In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Program Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Administration; Financial Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Pricing; Cost Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Low-Income subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Relationship to Other Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Drug Card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

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Medicare: Major Prescription Drug
Provisions of Selected Bills
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 has again received attention this year. On June 28, 2002, the House
passed the Medicare Modernization and Prescription Drug Act of 2002 (H.R. 4954)
by a vote of 221-208. Senator Daschle has announced that the Senate will consider
prescription drug legislation prior to the August recess. Any bill approved by the
Senate is expected to be substantially different from the House-passed bill.
There are a number of issues driving the prescription drug debate. One of the
key concerns in designing a drug benefit is the potential cost 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 single uniform drug benefit
should be added directly to Medicare’s other benefits. Others recommend offering
benefits through private plans which could offer different benefit packages provided
certain minimum standards were met. 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 would provide for the
endorsement by Medicare of qualified privately-administered prescription drug
discount cards. Beneficiaries could obtain these cards either free or for a nominal
enrollment charge; the card would provide access to discounts on prescription drugs.
While this plan would not establish a Medicare drug benefit, it was intended to give
seniors access to similar kinds of discounts as are available to the under age 65
1 For 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
population under private insurance plans. However, to date, implementation of the
card program has been held up by court action.2
Legislation
A number of bills have been introduced in the 107th Congress which would
establish a prescription drug benefit for Medicare beneficiaries. Some measures add
a new benefit to the Medicare program itself while others would provide the benefit
through private entities. Some other bills focus on the prices seniors pay for drugs.
As of this writing, a few measures are receiving the most attention. The first is
the House-passed bill, the Medicare Modernization and Prescription Drug Act of
2002 (H.R. 4954). The second bill is the Medicare Rx Drug Benefit and Discount
Act of 2002 (H.R.5019); this measure is commonly referred to as the House
Democratic bill. The rule governing debate on H.R. 4954 did not allow for
consideration of the Democratic bill. This was because the measure exceeded the 10-
year (2003-2012) House-passed budget resolution figure of $350 billion for
prescription drugs and Medicare modernization.
On the Senate side, two measures are currently under discussion. The first is the
Medicare Outpatient Prescription Drug Act of 2002 (S. 2625 Graham et al.).
According to some accounts, this measure will be brought directly to the Senate
floor, without prior committee action, prior to the August recess. Another Senate
measure, the so-called “tripartisan proposal” may also be considered; however, as of
this writing, this bill has not yet been introduced.
Overview of Major Proposals
The major proposals under consideration 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 Other individuals would have
a limit on out-of-pocket costs (a “catastrophic limit”) once they reached a certain
level of spending.
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.
2 For a discussion of the card program, see: 1) CRS Report RL31316, President Bush’s
Proposed Medicare-Endorsed Drug Discount Card Program: Status and Issues, by M.
Angeles Villarreal; and 2) CRS Congressional Distribution Memorandum, Medicare-
Endorsed Prescription Drug Card Assistance Initiative – Summary of Proposed
Regulations, by Jennifer O’Sullivan, March 13, 2002.

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CRS-3
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.
The House-passed bill would provide access to a drug-only benefit through
private insurance companies and other entities who wished to offer the benefit. A
portion of the financial risk for the cost of covered benefits would be placed on the
entities administering the benefit. In general, 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 incurring high costs.) The Administrator of the new Medicare Benefits
Administration would administer 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 be authorized to provide financial incentives in
addition to the federal subsidy and reinsurance payments.
Under the House Democrat and Graham bills, 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 both bills, 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 House Democrat and Graham bill there would be one specific
benefit available to all enrollees nationwide. Conversely, under the House-passed bill
there would be a minimum benefit level established. Under the House-passed bill,
the minimum benefit (referred to as “qualified coverage”) would be either specified
“standard coverage” or alternative coverage, provided it was actuarially equivalent
(i.e., had the same dollar value) 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).3 Several of the proposals would establish a new entity to administer
the drug benefit at the federal level. Under the House-passed plan, a new Medicare
Benefits Administration (MBA) would be established (outside of CMS, but within
HHS) to administer the drug benefit and Medicare+Choice. Under the House-passed
and 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.
3 Prior to June 14, 2001, this agency was known as the Health Care Financing
Administration (HCFA).

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CRS-4
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 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 discussed in this report would provide assistance to
persons below 150% of poverty – in terms of premiums that would have to be paid
for coverage and/or cost sharing once persons used benefits. As such, the bills would
pick up some of the costs now paid by Medicaid for the dual eligible population.
Both House plans provide for no, or very limited, beneficiary liability for covered
services for this population group. The Graham bill only provides premium
assistance for persons between 135% and 150% of poverty. 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.
Summary of Major Proposals
The following table is a side-by-side comparison of bills introduced in the 107th
Congress that have received the most attention to date. These are the House-passed
bill, the House Democratic bill, and the Graham bill. The summary is limited to the
Medicare prescription drug provisions. Both House bills contain additional
Medicare provisions.4 The House Democratic bill also contains drug-related
amendments to the Federal Food Drug and Cosmetic Act and the Public Health
Service Act. The Graham bill is limited to Medicare prescription drug provisions.
The summary highlights the major features of the bills. The first items provide
a broad overview (title and summary). This is followed by an overview of program
design (benefits, premiums, eligibility, and relationship to Medicare+Choice). The
next section reviews administration and financial risk (federal administration,
administration of benefit, establishment of plan/benefit, plan enrollment, federal
payments to plans, assumption of financial risk, and access). The next items relate
to pricing and cost controls (drug pricing and payment, access to negotiated prices,
and cost controls/formularies). The next item discusses beneficiary protections.
4 For a summary of the provisions of the House-passed bill, see CRS Report RL31462,
Major Provisions of the Medicare Modernization and Prescription Drug Act of 2002, H.R.
4954, as Passed by the House, by Jennifer O’Sullivan, Hinda Ripps Chaikind, and Sibyl
Tilson.

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CRS-5
Then the low-income subsidy provisions are reviewed. This is followed by a
discussion of the relationship between the new program and existing programs which
supplement Medicare benefits (Medicaid, private plans, and Medigap). The last item
discusses the drug card and the transitional low-income assistance program in the
House-passed bill.

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CRS-6
Side-by-Side Comparison of Major Medicare Drug Provisions of Selected Bills
In General
Provisions
H. R. 4954
H.R. 5019 (Rangel et al.)
S. 2625 (Graham et al.)
Title
Medicare Modernization and Prescription
Medicare Rx Drug Benefit and Discount
Medicare Outpatient Prescription Drug
Drug Act of 2002
Act of 2002
Act of 2002
Summary
Effective January 1, 2005, a new optional
Effective January 1, 2005, a new optional
Effective January 1, 2004, a new optional
benefit would be established under a new
benefit would be established under a new
benefit would be established under a new
Part D. The program would rely on
Part D. The program would be
Part D. The program would be
private plans to provide coverage and to
administered by the Secretary of Health
administered by the Secretary of Health
bear some of the financial risk for drug
and Human Services (HHS); the Secretary
and Human Services (HHS); the Secretary
costs; federal subsidies would be provided
would enter into contracts with pharmacy
would enter into contracts with eligible
to encourage participation. Coverage
contractors who would administer the
entities, which could include pharmacy
would be provided through prescription
program on a regional or national basis.
benefit managers, health plans, and retail
drug plans (PDPs) or Medicare+Choice
Coverage would be provided through
pharmacy delivery systems. The eligible
(M+C) plans. Beneficiaries could
M+C plans for M+C enrollees. The
entities would administer the benefit on a
purchase either a standard plan or an
federal government would assume
regional basis. Coverage would be
actuarially equivalent plan. Low income
financial risk except that a limited
provided through M+C plans for M+C
subsidies would be provided for persons
percentage of the administrative payment
enrollees. The federal government would
with incomes below 175% of poverty. A
would be adjusted to ensure that the
assume financial risk, but a percentage of
new Medicare Benefits Administration
co ntracto r p ursued performance
the management payments could be tied to
(MBA) would be established within the
requirements. A single benefit would be
performance requirements of the
Department of Health and Human
available nationwide. Assistance would be
contracted entity. A single benefit would
Services (HHS) to administer the benefit
provided for low-income persons with
be available nationwide. Persons with
and the M+C program.
incomes below 175% of poverty. The
incomes below 150% of poverty would
Secretary would be required to negotiate
receive assistance.
contracts with drug manufacturers that
specified the maximum prices that could
be charged to program enrollees.

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CRS-7
Program Design
Provisions
H. R. 4954
H.R. 5019 (Rangel et al.)
S. 2625 (Graham et al.)
Benefits
“Qualified coverage” would be either
There would be a single nationwide
There would be a single nationwide
“standard coverage” or “actuarially
benefit. In 2005, there would be a $100
benefit with no deductible. Cost-sharing
equivalent coverage.” In 2005, “standard
deductible, 20% coinsurance and a limit
would be based on tiered copayments.
coverage” would be defined as having a
on out-of-pocket spending (including cost-
Each drug would fall into one of four
$250 deductible, 20% cost-sharing for
sharing for drugs covered under Part B) of
classes: generic, preferred brand name,
drug costs between $251 and $1,000, 50%
$2,000. In addition, once an enrollee met
non-preferred brand name, and non-
cost-sharing for drug costs between
the stop-loss limit, they would not have to
formulary. In 2004, enrollees would pay
$1,001 and the initial coverage limit of
pay any cost-sharing for drugs covered
$10 for each prescription filled with a
$2,000, and then no coverage until the
under Part B. These dollar amounts
generic drug, $40 for each prescription
beneficiary had out-of-pocket costs of
would be increased in future years by the
filled with a preferred brand name drug,
$3,700 ($4,800 in total spending); once
percentage increase (projected in advance
and $60 for each prescription filled with a
the beneficiary reached the $3,700
by the Secretary, for the year involved) in
non-preferred brand name drug. For non-
catastrophic limit full coverage would be
per capita program expenditures.
formulary drugs, an entity could charge a
provided. The dollar amounts would be
Coinsurance would be applied differently
copayment higher than $60. Non-
increased in future years by the percentage
for preferred and non-preferred medicines.
preferred and non-formulary drugs
increase in the average per capita
For preferred medicines coinsurance
deemed medically necessary would be
expenditures for covered drugs for the
would equal 20% or a lower percentage
treated as brand-name preferred drugs.
year ending the previous July. Out-of-
established to encourage appropriate use
An enrollee would not pay for any
pocket costs counting toward the limit
of preferred medicines. For nonpreferred
prescriptions once the enrollee incurred
would include costs paid by the individual
medicines the coinsurance would be 20%
out-of-pocket costs for the year of $4,000
(or by another individual such as a family
of the price for the lowest cost preferred
(regardless of who paid the costs). For
member), paid on behalf of a low-income
medicine within the same therapeutic class
each year after 2005, the copayments and
individual under the subsidy provisions, or
plus an amount equal to the amount by
out-of-pocket limit would be increased by
paid under Medicaid. Any costs for which
which the price of the nonpreferred drug
the annual increase in prices (reflecting
the individual was reimbursed by
exceeded the lowest price preferred drug.
both price inflation and changes in
insurance or by another third-party
The extra payments for nonpreferred
therapeutic mix) as determined by the
payment arrangement could not be
drugs would not be considered countable
Secretary for the year ending the previous
counted. Plans could offer more generous
cost-sharing for purposes of meeting the
July. An eligible entity could charge
drug coverage, if approved by the MBA
deductible or stop-loss limit.
lower copayments if such reduction was
Administrator.
tied to performance requirements and
would not increase overall program costs.
For generic and preferred brand name
drugs, the enrollee would pay the
negotiated price minus $5 if such amount
was less than the respective copayment.

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CRS-8
Provisions
H. R. 4954
H.R. 5019 (Rangel et al.)
S. 2625 (Graham et al.)
For non-preferred drugs, the enrollee
would pay the negotiated price if such
amount was less than the copayment.
Premiums
The plan sponsor would establish the
Premiums would be set at $25 per month
Premiums would be set at $25 per month
premium amount, subject to approval by
for 2005. This amount would be
for 2004. This amount would be
the Administrator. The premium for a
increased in future years by the percentage
increased in future years by the percentage
prescription drug plan could not vary
increase, (projected in advance by the
increase, (projected in advance by the
among individuals enrolled in the plan in
Secretary, for the year involved) in per
Secretary, for the year involved) in
the same service area, unless the
capita program expenditures. Enrollees
average per capita program expenditures.
individuals were subject to penalties for
would pay premiums through withholding
Enrollees would pay premiums through
late enrollment. Premiums would be paid
from social security checks in the same
withholding from social security checks in
to the plans. However, PDP sponsors
manner Part B premium payments are
the same manner Part B premium
would be required to permit each enrollee
withheld. Late enrollment penalties,
payments are withheld. Late enrollment
to pay premiums through withholding
calculated in the same manner as such
penalties, calculated in a similar manner
from social security checks in the same
penalties are calculated for Part B, would
as such penalties are calculated for Part B,
manner Part B premium payments are
be applied to persons who did not enroll
would be applied to premiums for persons
withheld or through an electronic funds
during their initial enrollment period or
who did not enroll during their initial
transfer.
during a special enrollment period
enrollment period or during a special
established due to involuntary loss of
enrollment period established due to
other drug coverage.
involuntary loss of other drug coverage.
Eligibility
All beneficiaries enrolled in Medicare Part
All beneficiaries enrolled in Medicare Part
All individuals enrolled in Part A or Part
A or Part B could elect to enroll in Part D
A or eligible to enroll in Part B could elect
B could elect to enroll in Part D. The
through enrollment in a M+C plan with
to enroll in Part D. An initial enrollment
Secretary would establish an enrollment
prescription drug coverage or in a PDP.
period would be established. For current
process. An initial enrollment period
The Administrator of the new MBA would
beneficiaries this would be the 7-month
would be established. For current
establish an enrollment process. An initial
period beginning August 1, 2004; for
beneficiaries, this would be a period of
election period would be established. For
future beneficiaries it would be the same
time determined by the Secretary before
current beneficiaries this would be the 6-
7-month period applicable for initial Part
January 1, 2004, so that Part D coverage
month period beginning November 2004;
B enrollment. Special enrollment periods
was effective as of such date. For future
for future beneficiaries it would be the
would apply for persons who involuntarily
beneficiaries, the enrollment procedures
same 7-month period applicable for initial
lost other drug coverage (including
would be similar to those used for Part B.
Part B enrollment. Special election
coverage offered by former employers);
Eligible beneficiaries with creditable drug
periods would apply for persons who
these persons would not be subject to late
coverage could elect to continue to receive
involuntarily lose other drug coverage.
enrollment penalties.
such coverage, not enroll in Part D, and
Persons electing coverage at the first
subsequently enroll in Part D without
opportunity and maintaining continuous
penalty if they involuntarily lost their

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CRS-9
Provisions
H. R. 4954
H.R. 5019 (Rangel et al.)
S. 2625 (Graham et al.)
coverage would be guaranteed the
other coverage; special enrollment periods
protection of community rating; otherwise
would apply for this group.
they could be subject to late enrollment
penalties.
Relationship to Medicare+Choice
An M+C enrollee would obtain benefits
M+C organizations would be required
M+C organizations would be required to
through the M+C plan if the plan provided
offer plans with drug coverage that was at
offer Part D drug benefits. M+C enrollees
qualified drug coverage. An M+C plan
least actuarially equivalent to Part D
would receive coverage through their
could not offer drug coverage (other than
benefits. An M+C enrollee would be
M+C plan.
that already required under Medicare)
required to obtain Part D drug benefits
unless the coverage was at least qualified
through the plan.
prescription drug coverage.
Administration; Financial Risk
Provisions
H. R. 4954
H.R. 5019 (Rangel et al.)
S. 2625 (Graham et al.)
Federal Administration
The new MBA, within HHS,
would
The Secretary (through CMS) would
The Secretary (through CMS) would
administer the new Part D drug benefit
administer the benefit. A newly created
administer the benefit. A newly created
and the M+C program. (The Centers for
Medicare Prescription Medicine Advisory
Medicare Prescription Drug Advisory
Medicare and Medicaid Services (CMS),
Committee would advise the Secretary.
Committee would advise the Secretary.
would retain responsibility for the
The Secretary could contract with
traditional fee-for-service program.) A
Medicare Consumer Coalitions (nonprofit
Medicare Policy Advisory Board would
entities whose board members were
be established within the MBA.
primarily Medicare beneficiaries) to
conduct information activities.
Administration of benefit
The benefit would be administered by a
The benefit would be administered by
The benefit would be administered by
M+C plan or PDP. A PDP plan sponsor
pharmacy contractors serving on a
M+C plans or by eligible entities serving
would be an entity certified under Part D
regional or national basis. The benefit
on a regional basis. The benefit could be
as meeting the Part D standards and
could be administered on a partial regional
administered on a partial regional basis, if
requirements. In general, a PDP sponsor
basis, if determined appropriate by the
determined appropriate by the Secretary.
would have to be licensed under state law
Secretary. The Secretary would determine
An entity could submit a single bid to
as a risk bearing entity eligible to offer
regions and assure that there were at least
provide coverage in multiple regions. The
health benefits or health insurance
10 in the U.S. Coverage would be
Secretary would determine regions and
coverage in each state in which it offered
provided through M+C plans for M+C
assure that there were at least 10 in the
a prescription drug plan.
enrollees. Contractors would be required
U.S. Entities would be required to meet
to meet Part D requirements. They would
Part D requirements. They would be
be authorized to enter into participation
authorized to enter into participation

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CRS-10
Provisions
H. R. 4954
H.R. 5019 (Rangel et al.)
S. 2625 (Graham et al.)
agreements with pharmacies who comply
agreements with pharmacies who comply
with program requirements.
with program requirements.
Submission of bids
Each PDP sponsor would be required to
The Secretary would enter into contracts
The Secretary would enter into contracts
submit to the MBA Administrator
with pharmacy contractors to administer
with eligible entities to administer the
information on the qualified drug
the benefit. The Secretary would accept
benefit; entities would include pharmacy
coverage to be provided including the
competitive bids from entities. The bid
benefit management companies, retail
premium. The Administrator could not
would include: a proposal for the
pharmacy delivery systems, health plans
approve the premium unless it accurately
estimated drug prices and projected annual
or insurers, states, or any other entity or
reflected: 1) the value of benefits
increases in prices, a statement regarding
combination of entities. The Secretary
provided; and 2) the 67% federal subsidy
what it would charge the Secretary to
would accept competitive bids from
for standard benefits. PDP plan sponsors
administer the benefit, a description of
entities. The bid would include: a
would be required to enter into a contract
access to pharmacy services, a detailed
proposal for estimated drug prices and
with the Administrator; the contract could
description of performance requirements,
projected annual increases in prices, a
cover more than one plan. The
and a detailed description standards the
statement regarding what it would charge
Administrator would have the same
entity would use in selecting preferred
the Secretary to administer the benefit, a
authority to negotiate the terms and
medications. The Secretary would award,
description of access to pharmacy
conditions of the plans as the Director of
on a competitive basis contracts for 2-5
services, a description of performance
the Office of Personnel Management has
year terms. At least two contracts would
requirements, and a description of
with respect to Federal Employee Health
be awarded per area unless only one entity
standards the entity would use in
Benefits (FEHB) plans.
submitted a bid meeting minimum
modifying the formulary. The Secretary
standards. The Secretary would consider
would award, on a competitive basis
the comparative merits of each bid.
contracts for 2-5 year terms. At least two
contracts would be awarded per area
unless only one entity submitted a bid
meeting minimum standards. The
Secretary would consider the comparative
merits of each bid.
Plan enrollment
Beneficiaries would enroll a M+C plan
Each individual would select (and could
Eligible beneficiaries not enrolled in a
with prescription drug coverage or in a
change the selection on a periodic basis)
M+C plan would make an annual election
PDP.
the pharmacy contractor to administer the
to enroll in a Medicare Prescription Drug
benefit for such individual.
Plan. A default option would be selected
by the Secretary for enrollees that failed to
select an entity.
Federal payments to plans
The federal government would pay direct
The Secretary would pay each pharmacy
The Secretary would pay each eligible
subsidies and reinsurance payments to
contractor for the administration of benefit
entity for the management of the benefit
PDPs, M+C plans, and qualified retiree
and for the negotiated prices (less cost-
and for the negotiated cost (less cost

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CRS-11
Provisions
H. R. 4954
H.R. 5019 (Rangel et al.)
S. 2625 (Graham et al.)
plans which would equal 67% of the value
sharing, plus a reasonable dispensing fee)
sharing) of prescription drugs used by
of standard coverage. Direct subsidies
for prescription drugs used by enrollees.
enrollees. A percentage of the
would be equal to 37% of the value of
The Secretary would include in the
management payment (as determined by
standard coverage provided under the
contract with a pharmacy contractor
the Secretary) would be tied the entity’s
plan. Reinsurance payments would be
incentives for cost and utilization
performance, including controlling costs,
equal to 30% of the value of standard
management and quality improvement;
providing quality clinical care, and
coverage. Reinsurance payments would
the contract could provide financial
providing quality service. The Secretary
be provided for: 1) 30% of an individual’s
incentives to encourage greater program
could reduce payments to reflect rebates
allowable drug costs between $1,001 and
savings. The Secretary would provide for
and price concessions obtained by the
$2,000 (in 2005); and 2) 80% for costs
performance standards for contractors
entity from manufacturers. Agreements
over the out-of-pocket limit ($3,700 in
which could include monetary bonuses if
between eligible entities and participating
2005). The Administrator would
the standards were met and penalties if
pharmacies would provide for payment of
proportionately adjust payments so that
they were not met.
a reasonable dispensing fee.
total reinsurance payments for the year
equaled 30% of total payments by
qualifying plans for standard coverage
during the year. The Administrator could
adjust direct subsidy payments in order to
avoid risk selection.
Assumption of financial risk
Plans would be required to assume full
The federal government would assume
The federal government would assume
financial risk on a prospective basis for
financial risk for the cost of benefits
financial risk for the cost of benefits
covered benefits except: 1) as covered by
except that a limited percentage (to be
except that a percentage (to be determined
federal direct subsidy payments or
determined by the Secretary) of the
by the Secretary) of the administrative
reinsurance payments for high cost
administrative payment would be adjusted
payment would be adjusted to ensure that
enrollees; or 2) as covered by federal
to ensure that the contractor pursues
the contractor pursued performance
incentive payments to encourage plans to
performance requirements; the Secretary
requirements. The percentage could be up
expand service areas for existing plans or
could not establish a percentage that
to 100%. The Secretary could not
establish new plans. The entity could
would jeopardize the ability of the
establish a percentage that would
obtain insurance or make other
contractor to administer the benefits in a
jeopardize the ability of the contractor to
arrangements for the cost of coverage
quality manner.
administer the benefits in a quality
provided to enrollees.
manner.
Access
The Administrator would assure that all
The Secretary would develop procedures
The Secretary would develop procedures
eligible individuals residing in the U.S.
for the provision of Part D benefits to
for the provision of Part D benefits to
would have a choice of enrollment in at
persons residing in areas not covered by a
persons residing in areas not covered by a
least two qualifying plan options (at least
contract. The Secretary would also
contract. The Secretary would also

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CRS-12
Provisions
H. R. 4954
H.R. 5019 (Rangel et al.)
S. 2625 (Graham et al.)
one of which was a PDP) in their area of
develop procedures to assure that
develop procedures to assure that
residence. The requirement would not be
beneficiaries residing in more than one
beneficiaries residing in more than one
satisfied if only one PDP sponsor or M+C
area in a year were provided benefits
area in a year were provided benefits
organization offered all the qualifying
throughout the year.
throughout the year.
plans in the area. If necessary to ensure
such access, the Administrator would be
authorized to provide financial incentives,
including the partial underwriting of risk,
for a PDP sponsor to expand its service
area under an existing prescription drug
plan to adjoining or additional areas, or to
establish such a plan, including offering
such plan on a regional or nationwide
basis. The assistance would be available
only so long as, and to the extent
necessary, to assure the guaranteed access.
However, the Administrator could never
provide for the full underwriting of
financial risk for any PDP sponsor, nor
could the Administrator provide for any
assumption of financial risk for a public
PDP sponsor offering a nationwide drug
plan. Additionally, the Administrator
would be directed to seek to maximize the
assumption of financial risk by PDP
sponsors and M+C organizations.
Pricing; Cost Controls
Provisions
H. R. 4954
H.R. 5019 (Rangel et al.)
S. 2625 (Graham et al.)
Drug pricing and payment
The PDP sponsor would determine
The Secretary would be required to
The contracting entity’s bid would include
payments and would be expected to
n e g o t i a t e c o n t r a c t s wi t h d r u g
a proposal for the estimated prices for
negotiate discounts.
manufacturers that specify the maximum
covered drugs and projected annual
prices that may be charged to program
increase in prices. The entity would be
enrollees. The Secretary would be
expected to negotiate prices.
required to take into account the goal of
developing breakthrough medicines.

---

CRS-13
Provisions
H. R. 4954
H.R. 5019 (Rangel et al.)
S. 2625 (Graham et al.)
Access to negotiated prices
Both standard coverage and actuarially
The contract between the Secretary and
Plans would provide that beneficiaries
equivalent coverage would have to
the pharmacy contractor would require the
would have access to negotiated prices
provide beneficiaries access to negotiated
contractor to negotiate contracts with
prices (including applicable discounts)
manufacturers that provide for maximum
even when no benefits may be payable
prices that are lower than those negotiated
because the beneficiary had reached the
by the Secretary, if applicable. The
initial coverage limit.
reduction would be passed on to
beneficiaries and the Secretary would hold
the contractor accountable for meeting
performance requirements with respect to
price reductions and limiting price
increases.
Cost controls/formularies
Plans would be allowed to
have
Preferred medicines (which would have
Entities would be required to use cost
formularies restricting coverage to certain
lower cost sharing) would be designated
control strategies that could include
drugs. Plans electing to use a formulary
by the Secretary or the pharmacy
alternative methods of distribution,
would be required to establish a
contractor for a therapeutic class.
preferred pharmacy networks, generic
pharmaceutical and therapeutic committee
Pharmacy contractors would be required
substitution, therapeutic interchange,
(that included at least one practicing
to have in place procedures to treat, on a
d i s e a s e ma n a g e me n t p r o g r a ms ,
physician and one practicing pharmacist)
case-by-case basis, non-preferred
medication therapy management, and
to develop and revise the formulary. The
medicines as preferred medicines if the
informing beneficiaries of price
formulary would be required to include
preferred medicine was determined not to
differences between generic and brand
drugs within all therapeutic categories and
be as effective for, or to have significant
name drugs. Entities would be required to
classes of covered drugs (although not
adverse effects on, the enrollee. The
establish formularies. The formulary
necessarily for all drugs within such
procedures wo uld require that
would be developed by a pharmacy and
categories and classes). Plans could offer
determinations be based on professional
therapeutics committee in accordance with
tiered cost-sharing for drugs included
medical judgment, medical condition of
standards developed by the Secretary in
within a formulary and lower cost-sharing
the enrollee and medical evidence.
consultation with the Medicare
for preferred drugs in the formulary. An
Prescription Drug Advisory Committee.
enrollee would have the right to appeal to
The Secretary, directly or through
All brand name drugs in the formulary
obtain coverage for a drug not on the
contracts with pharmacy contractors,
would be designated preferred or non-
formulary if the prescribing physician
would employ mechanisms to provide
preferred. The formulary would have to
determined that the formulary drug was
services appropriately and efficiently;
include: 1) all generic covered drugs, 2)
not as effective for the individual or had
mechanisms could include: 1) price
at least one preferred brand name drug for
adverse effects for the individual.
negotiations; 2) reduction in coinsurance
each therapeutic class, and 3) at least one
below 20% for preferred medicines; 3)
non-preferred brand name drug for each
methods to reduce medication errors and
therapeutic class (if there is more than one
encourage appropriate use of medications;
brand name drug available). Entities

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CRS-14
Provisions
H. R. 4954
H.R. 5019 (Rangel et al.)
S. 2625 (Graham et al.)
and 4) permitting pharmacy contractors,
would have to have procedures to treat
as approved by the Secretary, to make
non-preferred and non-formulary drugs as
exceptions to the cost-sharing provisions
preferred brand-name drugs if the
for nonpreferred medicines, to secure best
preferred drug was determined not to be as
prices for enrollees.
effective for the enrollee in preventing or
slowing the deterioration of, or improving
Price negotiations would be conducted in
or maintaining the health of the enrollee or
such a manner so that: 1) there was at
to have a significant adverse effect for the
least one contract for a medicine in each
enrollee.
therapeutic class; 2) if more than one
medicine was available in a class, there
were contracts for at least two medicines
in the class unless determined clinically
inappropriate; and 3) if more than two
medicines were available in a class, there
were contracts for at least two medicines
in a class and a contract for a generic
substitute, unless determined clinically
inappropriate.
Requirements
Provisions
H. R. 4954
H.R. 5019 (Rangel et al.)
S. 2625 (Graham et al.)
Beneficiary protections
Plans would be required to comply with a
The Secretary would establish standards
The Secretary could not award a contract
number of beneficiary protection
and programs for quality and other
to an entity unless the entity: 1) met
provisions including those related to: 1)
standards including those related to: 1)
quality and financial standards; 2) had in
community-rated premiums; 2) non-
access (including 24-hour/7-day a week
place drug utilization review procedures to
discrimination; 3) information disclosure;
access, on-line review to evaluate for
ensure appropriate utilization of drugs and
4) assuring the participation of a sufficient
medicine therapy problems, and adherence
avoidance of adverse drug reactions; 3)
number of pharmacies; 5) issuance of a
of any preferred pharmacy network to
ensured 24hour/7-day a week access to
card so beneficiaries could assure access
minimum access standards); 2)assuring
drugs; 4) ensured that pharmacies would
to negotiated prices when coverage is not
compliance of pharmacies with negotiated
not overcharge enrollees; 5) had
otherwise available under the plan; 6) a
prices; 3) enrollee counseling; 4)
procedures for determining if non-
cost and drug utilization management
education of providers, pharmacists, and
formulary and non-preferred drugs were
program including medication therapy
enrollees; and 5) provision of cost data to
medically necessary; 6) had an appeals
management and an electro nic
the Secretary. Pharmacy contractors
process for enrollees; 7) had procedures to
prescription drug program that provides
would be required to have in place
safeguard the privacy of medical records;

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CRS-15
Provisions
H. R. 4954
H.R. 5019 (Rangel et al.)
S. 2625 (Graham et al.)
for electronic transfer of prescriptions and
procedures to ensure timely procedures for
and 8) had procedures to deter medical
provision of information to the prescribing
internal and external review of denials of
errors and ensure that contracted
health professional; and 7) provisions for
coverage and other complaints.
pharmacies have such procedures.
hearing and resolving grievances and
handling appeals.
Low-Income subsidies
Provisions
H. R. 4954
H.R. 5019 (Rangel et al.)
S. 2625 (Graham et al.)
Subsidies
Low-income persons would receive a
Persons meeting the definition of qualified
Persons meeting the definition of qualified
premium subsidy (based on the value of
Medicare beneficiaries (QMBs, persons
Medicare beneficiaries (QMBs, i.e.,
standard coverage). Individuals with
with incomes below 100% of poverty and
persons with incomes below 100% of
incomes at or below 150% of poverty (and
assets below $2,000), and persons meeting
poverty), and persons meeting the QMB
assets below $4,000) would have a
the QMB definition except that their
definition except that their incomes were
subsidy equal to 100% of the value of
incomes were between 100% and 150% of
between 100% and 135% of poverty,
standard drug coverage provided under
poverty, would have their Part D
would have their Part D premiums and
the plan. Individuals with incomes
premiums, deductibles, and countable cost
copayments paid by Medicaid. Enrollees
between 150% and 175% of poverty
sharing paid by Medicaid. Persons
between 135% and 150% of poverty
would have a sliding scale premium
meeting the QMB definition except that
would pay a reduced Part D premium,
subsidy ranging from 100% of such value
their incomes were between 150% and
calculated on a sliding scale basis. In
at 150% of poverty to 0% of such value at
175% of poverty would have their Part D
determining QMB qualification for
175% of poverty. For both groups,
deductibles and countable cost-sharing
payment of Part D premiums and
beneficiary cost-sharing for spending up
paid by Medicaid; their Part D premiums
copayments, asset requirements would not
to the initial coverage limit ($2,000 in
would be reduced on a sliding scale basis
apply.
2005) would be reduced to an amount not
ranging from 100% of the premium at
to exceed $2 for a multiple source or
150% of poverty to 0% at 175% of
generic drug and $5 for a non-preferred
poverty.
drug. PDPs could not charge individuals
receiving cost-sharing subsidies more than
$5 per prescription. PDPs could reduce to
zero the cost-sharing otherwise applicable
for generic drugs.

---

CRS-16
Relationship to Other Coverage
Provisions
H. R. 4954
H.R. 5019 (Rangel et al.)
S. 2625 (Graham et al.)
Relationship to Medicaid
States would be required
to
make
Medicaid costs associated with paying
The current federal-state matching rate
eligibility determinations for low-income
Part D cost-sharing charges for persons
would apply for Medicaid costs associated
subsidies; there would be a phase-in of the
with incomes above 100% of poverty
with paying Part D premiums and cost-
federal assumption of associated
would be paid by the federal government.
sharing for those below 120% of poverty.
administrative costs. (Alternatively, the
The federal matching rate would be 100%
eligibility determinations could be made
for those between 120% and 150% of
by the Social Security Administration.)
poverty.
There would also be a federal phase-in of
the costs of premiums and cost-sharing
subsidies for dual eligibles. 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 Part D drug coverage.
The bill would also exempt any prices
negotiated by a PDP, Medicare+Choice
plan, or qualified retiree program from
Medicaid’s determination of “best price”
for purposes of the Medicaid drug rebate
program.
Relationship to private plans
Qualified prescription drug plans offered
The Secretary would make payments to
The Secretary would make payments to
by employers to retirees would be eligible
retiree health plans offering coverage that
retiree health plans offering coverage that
for direct subsidies and reinsurance
was not less than Part D coverage.
was not less than Part D coverage.
payments. At a minimum, qualified
Payments would equal two-thirds of the
Payments would equal two-thirds of the
retiree coverage would have to meet the
estimated average per capita government
estimated average per capita government
requirements for qualified prescription
contribution for Part D enrollees.
contribution for Part D enrollees.
drug coverage.
Relationship to Medigap
Effective January 1, 2005, the issuance of
The bill would modify current
The three of the 10 standardized Medigap
new Medigap policies with prescription
requirements for standardized Medigap
plans offering drug coverage would have
drug coverage would be prohibited unless
policies. Effective January 1, 2005, an
to be revised to complement, not
1) the policies replaced another policy
appropriate number of such polices would
duplicate, Part D. The revised drug
with drug coverage; or 2) policies met
have to provide coverage for medicines
packages could not offer coverage for
requirements for two new standardized
which complemented, but did not
more than 90% of the Part D copayments.
policies for all Medicare services. The
duplicate, Part D benefits.
Effective January 1, 2004, the issuance of
first new policy would have the following
any of the old standardized policies with

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CRS-17
Provisions
H. R. 4954
H.R. 5019 (Rangel et al.)
S. 2625 (Graham et al.)
benefits (notwithstanding other provisions
drug coverage would be prohibited. The
of law relating to core benefits): 1)
bill would guarantee issuance, during the
coverage of 50% of the cost-sharing
period established by the Secretary for
otherwise applicable (except coverage of
Part D enrollment, of the benefit package
100% cost-sharing applicable for
the Secretary determined most comparable
preventive benefits); 2) no coverage of the
to the old standardized drug policy held
Part B deductible; 3) coverage of all
by the policyholder.
hospital coinsurance for long stays (as in
current core package); and 4) a limitation
on annual out-of-pocket costs of $4,000 in
2005 (increased in future years by an
appropriate inflation adjustment as
specified by the Secretary). The second
new policy would have the same benefit
structure as the first new policy, except
that: 1) coverage would be provided for
75%, rather than 50%, of cost-sharing
otherwise applicable; and 2) the limitation
on out-of-pocket costs would be $2,000,
rather than $4,000. Both policies could
provide for coverage of Part D cost-
sharing; however, neither policy could
cover the Part D deductible. The bill
would require plans to sell any of the
Plans A through Plan G to individuals
who enroll in Part D within 63 days and
who were covered until then by Medigap
policy H, I, or J.

---

CRS-18
Drug Card
Provisions
H. R. 4954
H.R. 5019 (Rangel et al.)
S. 2625 (Graham et al.)
Discount Drug Card Program
The provision would require the Secretary
No provision
No provision
to endorse prescription drug discount
programs meeting certain requirements
and to make available information on such
programs to beneficiaries. The program:
1) would have to pass on to enrollees
discounts on drugs, including discounts
negotiated with manufacturers; 2)could
not be limited to mail order drugs; 3)
would have to provide pharmaceutical
support services, such as education and
counseling, and services to prevent
adverse drug interactions; 4) would have
to provide information to enrollees that
the Secretary identified as being necessary
to provide for informed choice by
beneficiaries among endorsed programs;
5) would have to safeguard individually
identifiable information in accordance
with the Health Insurance Portability and
accountability Act (HIPAA); and 6) would
have to meet requirements the Secretary
found necessary to participate in the
transitional low-income assistance
program (see below). A beneficiary could
only be enrolled in one endorsed program
at a time. Annual enrollment fees could
not exceed $25.
Transitional Low-Income Assistance
The bill would provide for the
Program
implementation of a transitional
prescription drug assistance program, until
the Part D program was implemented, for
Medicare beneficiaries with incomes
under 175% of poverty who did not have
drug coverage under Medicaid, Medigap,

---

CRS-19
Provisions
H. R. 4954
H.R. 5019 (Rangel et al.)
S. 2625 (Graham et al.)
group health insurance, or federally-
supported health care programs under the
Department of Defense, Veterans
Administration, Federal Employees Health
Benefits program, or the Indian Health
Care Improvement Act. Individuals
eligible for assistance would have to be
enrolled under a prescription drug
discount card program (or an alternative
state program approved by the Secretary).
Appropriations totaling $300 million in
FY2003, $2.1 billion in FY2004, and
$500 million in FY2005 would be
available. Funds would be allotted among
the states based on the proportion of
Medicare beneficiaries with incomes
below 175% of poverty. The assistance
would be in the form of a discount in
addition to that available under the
discount card program. States could
continue to provide assistance under their
own pharmaceutical assistance programs.

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