Order Code RL31966
CRS Report for Congress
Received through the CRS Web
Medicare Prescription Drug
and Reform Legislation
Updated June 19, 2003
Jennifer O’Sullivan, Hinda Chaikind, Sibyl Tilson, Jennifer
Boulanger, and Paulette Morgan
Specialists and Analyst in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

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Medicare Prescription Drug and Reform Legislation
Summary
The Senate and House are both actively considering major legislation to add a
prescription drug benefit to the Medicare program. The bills would also establish a
new MedicareAdvantage program (Medicare Advantage program in the House bills)
to replace the current Medicare+Choice program. Under the newly established
program, plans (largely health maintenance organizations) would be paid based on
a system of bids and benchmarks, as opposed to the current law methodology of
basing payments on a formula set in law. Both bills would also establish regional
plans, referred to as Preferred Provider Organization (PPO) plans under the Senate
bill and Enhanced Fee-for-Service (EFFS) plans under the House bill. Drug benefits
and the new Advantage program would be administered by a new agency created
under both bills. Both bills would also establish a number of provider payment
adjustments, beneficiary cost-sharing adjustments, and change certain regulatory
practices.
On June 12, 2003, the Senate Finance Committee ordered reported S. 1, the
Prescription Drug and Medicare Improvement Act of 2003. The Senate began floor
debate on the measure on June 16, 2003. The House Ways and Means Committee
ordered reported H.R. 2473, the Medicare Prescription Drug and Modernization Act
of 2003, on June 17, 2003. The House Energy and Commerce Committee (which
shares jurisdiction over Medicare) began to mark-up slightly different versions of the
bill on June 17, 2003. Any differences in the bills reported by the two committees
are to be resolved before the legislation is considered by the full House at the end of
the month.
This report describes the major features of S. 1, as ordered reported, and the
measure to be considered by the House Ways and Means Committee, H.R. 2473, as
ordered reported. It will be updated to reflect legislative activity.

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Contents
Prescription Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Senate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
House . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Medicare Advantage, Preferred Provider Organizations, and Enhanced
Fee-for-Service Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Senate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
House . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
New Agency to Administer Medicare Part C and Part D . . . . . . . . . . . . . . . . . . 10
Appeals, Regulatory, and Contracting Provisions . . . . . . . . . . . . . . . . . . . . . . . . 11
Provisions Affecting Medicare’s Fee-for-Service Program Payments,
Beneficiary Cost-sharing Amounts and Covered Benefits . . . . . . . . . . . . . 12
List of Tables
Table 1. Fee-for-Service Payment Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . 14
Table 2. Beneficiary Cost Sharing Changes and Benefit Improvements . . . . . . 23

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Medicare Prescription Drug and
Reform Legislation
The Senate and House are beginning consideration of legislation to add a
prescription drug benefit to Medicare and reform a number of aspects of the program.
On June 12, 2003, the Senate Finance Committee ordered reported S. 1, the
Prescription Drug and Medicare Improvement Act of 2003. The Senate began floor
debate on the measure on June 16, 2003. The House Ways and Means Committee
and the House Energy and Commerce Committee (which share jurisdiction over
Medicare) began to mark-up slightly different versions of the Medicare Prescription
Drug and Modernization Act of 2003, beginning June 17, 2003. Any differences in
measures reported by the two committees are to be resolved before the measure is
considered by the full House at the end of the month.
The bills contain a similar structure in that both add a prescription drug benefit
and replace the existing Medicare+Choice program with a new program that
establishes payments based on a system of bids and benchmarks. Both bills would
create a new agency within the Department of Health and Human Services (HHS) to
administer the prescription drug benefit and the new MedicareAdvantage program.
Both bills also contain numerous provisions that would generally increase fee-for-
service Medicare payments, especially for rural health care providers, and would
modify numerous regulatory and administrative practices.
Despite the similar overall structure, there are significant differences between
the Senate and House bills that are currently under consideration. This report
describes the major features of S. 1, as ordered reported, and the measure to be
considered by the House Ways and Means Committee, as displayed on its Web site
on June 17, 2003.
Prescription Drugs
Senate
Title I of the Senate bill would establish a new outpatient prescription drug
benefit under a new Medicare Part D, effective January 1, 2006. The bill would rely
on private plans to provide coverage and to bear a portion of the financial risk for
drug costs; federal subsidies would be provided. In general, MedicareAdvantage
enrollees would obtain drug benefits through their MedicareAdvantage plan. Other
Part D enrollees would receive their drug coverage through enrollment in a Medicare
Prescription Drug Plan offered in the geographic area in which the beneficiary
resides. Persons currently receiving drug coverage through Medicaid would not be
eligible for Part D. Other persons with incomes below 160% of poverty would be

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eligible for low-income subsidies. The program would be administered by the
Administrator of the new Center for Medicare Choices.
Beneficiaries eligible on November 1, 2005, would have a 6-month open
enrollment period. Persons becoming eligible after that date would have a 7-month
initial enrollment period. Persons enrolling in Part D after their initial enrollment
period would be subject to delayed enrollment penalties. However, if they had
creditable drug coverage, they could elect to continue to receive such coverage, not
enroll in Part D, and subsequently enroll in Part D without penalty if they
involuntarily lost their other coverage. The Administrator would make direct
payments to sponsors of qualified retiree prescription drug plans for each beneficiary
enrolled in the plan who was not enrolled in Part D. The amount of the payment
would equal a portion of the monthly national average premium for the year, as
adjusted by risk adjusters.
Plans would be required to offer “qualified coverage.” “Qualified coverage”
would be either “standard coverage” or “actuarially equivalent coverage.” Both
would require access to negotiated prices for all drug costs. In 2006, “standard
coverage” would be defined as having a $275 deductible, 50% cost-sharing for drug
costs between $276 and the initial coverage limit of $4,500, then no coverage until
the beneficiary had out-of-pocket costs of $3,700 ($5,813 in total spending); and 10%
cost-sharing thereafter. Out-of-pocket costs counting toward the limit would include
costs paid by the individual (or by another individual such as a family member), paid
on behalf of a low-income individual under the low-income provisions, paid under
Medicaid, or paid under a state pharmaceutical assistance program. Any costs for
which the individual was reimbursed by insurance or otherwise could not be counted.
Entities could offer more generous drug coverage, if approved by the Administrator,
but only if they also offered a plan providing qualified coverage.
Entities would be required to meet a number of beneficiary protection
requirements, including those designed to assure beneficiary access to drugs.
Eligible entities would be required to have in place procedures to ensure that
beneficiaries were not charged more than the negotiated price of a covered drug.
Entities would be required to secure the participation in the network of a sufficient
number of pharmacies that dispensed drugs directly to patients (other than by mail
order) to ensure convenient access for beneficiaries. They would also be required to
establish a point-of-service method of operation under which the plan would provide
access to any or all pharmacies not participating in the network and could charge
beneficiaries, through adjustments in cost sharing, the additional costs associated
with this option.
Entities would be required to have in place a cost-effective drug utilization
management program and quality assurance measures including a medication therapy
management program. Entities could use a variety of cost control mechanisms
including formularies, tiered copayments, selective contracting with drug providers,
and mail order pharmacies. A formulary would be required to include drugs within
all therapeutic categories and classes of covered drugs (although not necessarily for
all drugs within such categories and classes). An enrollee would have the right to
appeal to obtain coverage for a drug not on the formulary if the prescribing physician

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determined that the formulary drug was not as effective for treatment of the same
condition for the individual or had adverse effects for the individual.
The Administrator would be required to establish service areas in which plans
could offer benefits. The Administrator would establish at least 10 service areas
which would have to include at least one state. States could not be divided so that
portions of a state were in different service areas. To the extent possible, the
Administrator would include multi-state metropolitan statistical areas (MSAs) in a
single service area. The Administrator could divide MSAs where necessary to
establish service areas of such size and geography as to maximize plan participation.
The Administrator could conform service areas to those established for preferred
provider organizations under MedicareAdvantage.
Entities would submit bids to the Administrator; the bid would contain
information on proposed plans including benefits, actuarial value of the qualified
prescription drug coverage, the service area for the plan, and the monthly premium.
The Administrator could not approve a plan unless the premium, for both standard
coverage and for any additional benefits, accurately reflected the actuarial value of
the benefits less the actuarial value of reinsurance payments (paid to plans to cover
80% of costs associated with an individual’s spending above the catastrophic level).
The Administrator would have the authority to negotiate the terms and conditions of
the proposed monthly premiums and other terms and conditions of proposed plans.
The Administrator could approve a plan only if it provided the required benefits and
was not designed to result in a favorable selection of beneficiaries. The
Administrator would approve at least two contracts to offer a Medicare Prescription
Drug plan in an area. Contracts would be awarded for 2 years. If the Administrator
determined that at least two plans were not going to be available in the subsequent
year, the Administrator could reduce the amount of risk required by plans in a region.
Not later than September 1 of each year, beginning in 2005, the Administrator
would make a determination as to whether there were two approved bids in an area.
If not, the fallback mechanism would apply. Under this mechanism, the
Administrator would enter into an annual contract with an entity to provide Part D
enrollees in the area with standard coverage (including access to negotiated prices)
for the following year. The Administrator could enter into only one contract for each
such area. A single entity could be awarded contracts for more than one such area.
The Administrator could not enter into such a contract if the Administrator received
two or more qualified bids after exercising the authority to reduce risk for entities
when fewer than two plans submit a bid. Beneficiary premiums for a fallback plan
would be set at the premium amount that would apply if the plan premium equaled
the national weighted average premium, as adjusted for geographic differences in
drug prices.
Entities would be required to assume financial risk on a prospective basis for
costs of benefits in excess of amounts received from premium payments and
reinsurance payments. The Administrator would pay each entity offering a Medicare
Prescription Drug Plan an amount equal to the full monthly approved premium,
subject to adjustments to take into account the differences in risk of different
enrollees being served. Payments to plans would be geographically adjusted in a
budget neutral manner to account for differences across service areas. The bill would

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also establish risk corridors, defined as specified percentages above and below a
spending target (total premiums less administrative costs). No payment adjustment
would be made if allowable costs were within the first risk corridor. A portion of any
plan spending above or below these levels would be subject to adjustments. If
allowable costs exceeded the level, federal payments would be increased to account
for a portion of the excess costs. If they were below the level, a portion of the
payments would be reduced.
Beneficiaries would pay their portion of the premiums through a withholding
from their social security checks. If the plan’s monthly approved premium for
standard coverage was greater than the national monthly weighted average premium
for such coverage, the beneficiary would pay an additional amount.
Medicaid beneficiaries eligible for medical and drug benefits under their state
Medicaid program (including the medically needy) would continue to receive drug
benefits through Medicaid. Persons meeting the definition of qualified Medicare
beneficiary (QMB, income below 100% of poverty and assets generally below
$4,000), specified low-income beneficiary (SLIMB, income below 120% of poverty
and assets generally below $4,000) or qualified individual (QI-1, income below
135% of poverty and assets generally below $4,000) and not eligible for Medicaid
drug benefits, as well as other persons below 160% of the federal poverty level,
would receive their drug benefits through Part D. They would receive assistance for
premium and cost-sharing charges.
QMBs, SLMBs and QI-1s would have a 100% premium subsidy for premiums
provided the plan premium was at or below the national weighted average premium
(or the lowest premium in the area if none was below the national weighted average).
The benefit package for the QMB population would be defined as having a zero
deductible, cost-sharing of 2.5% for costs below the initial coverage limit; 5.0% cost-
sharing for costs above the initial coverage limit and below the annual catastrophic
limit, and 2.5% cost-sharing for costs above the catastrophic limit. The benefit
package for the SLMB and QI-1 population would be defined as having a zero
deductible, 5.0% cost-sharing for costs below the initial coverage limit; 10.0% cost-
sharing for costs above the initial coverage limit and below the annual catastrophic
limit, and 2.5% cost-sharing for costs above the catastrophic limit.
Persons with incomes below 160% of poverty, not otherwise eligible for low-
income benefits or Medicaid drug benefits would have a sliding scale premium
subsidy ranging from 100% of the premium at 135% of poverty to 0% at 160% of
poverty with no additional premium costs provided the plan premium was at or
below the national weighted average premium (or the lowest premium in the area if
none was below the national weighted average). The benefit package for this
population would be defined as having a $50 deductible, 10.0% cost-sharing for costs
below the initial coverage limit; 20.0% cost-sharing for costs above the initial
coverage limit and below the annual catastrophic limit, and 10.0% cost-sharing for
costs above the catastrophic limit.
States would make low-income eligibility determinations; the federal
government would pay an enhanced matching rate for administrative costs associated

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with making eligibility determinations. Social Security offices would serve as
information and enrollment sites.
Medicaid beneficiaries who were eligible for drug benefits under their state
Medicaid program would remain in Medicaid. Beginning January 1, 2006, states
agreeing to provide a drug benefit to their dual eligible population that was at least
equivalent to minimum standards would be relieved of their responsibility to pay
Medicare Part B premiums for Medicaid and QMB eligibles between 74% and 100%
of the federal poverty level. Further, if on the date of enactment, a state provided
medical assistance to aged and disabled persons up to 100% of poverty, it would be
entitled to have the federal government assume the costs for Medicare Part A cost-
sharing.
Prior to implementation of the new Part D, the Secretary would establish a
temporary program under which the Secretary would endorse programs offered by
prescription drug card sponsors meeting certain requirements (including access to
negotiated rates) and would make available information on such programs to
beneficiaries. A beneficiary could only be enrolled in one endorsed program at a
time. Card sponsors could charge annual enrollment fees, not to exceed $25.
Beginning no later than January 1, 2004, all individuals meeting the definition of
QMB, SLMB, or QI-1, who were not eligible to receive drug benefits under
Medicaid, could receive assistance with their prescription drug costs. These persons
would have access, through a drug discount card, to up to $600 per year. The entire
$600 benefit would be available for the entire year; any balance left on the card in 1
year could be carried forward. Beneficiaries would be subject to cost-sharing
requirements which could not be less than 10% of the negotiated price for a drug.
House
Title I of the House bill would establish a new Voluntary Prescription Drug
Benefit Program under a new Medicare Part D, effective January 1, 2006. The
program would rely on private plans to provide coverage and to bear some of the
financial risk for drug costs; federal subsidies would be provided to encourage
participation. MedicareAdvantage (MA) organizations and enhanced fee-for-service
(EFFS) plans (see below) would be required to offer plans that included qualified
prescription drug coverage. An individual enrolled in a Medicare Advantage Rx plan
or EFFS Rx plan would obtain their drug coverage through the plan. An individual
not enrolled in either a MedicareAdvantage or EFFS plan could enroll in a new
prescription drug plan (PDP). Plans would determine payments and would be
expected to negotiate prices. Low-income subsidies would be provided for persons
below 150% of poverty. The new Medicare Benefits Administration (MBA), within
the Department of Health and Human Services (HHS) would administer the benefit.
Beneficiaries eligible on October 1, 2005, would have a 6-month open
enrollment period. Persons becoming eligible after that date would have a 7-month
initial enrollment period. Persons enrolling in Part D after their initial enrollment
period would be subject to delayed enrollment penalties. However, if they had
creditable drug coverage, they could elect to continue to receive such coverage, not
enroll in Part D, and subsequently enroll in Part D without penalty if they
involuntarily lost their other coverage. The Administrator would make direct

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payments to sponsors of qualified retiree prescription drug plans for each beneficiary
enrolled in the plan who was not enrolled in Part D. The amount of the payment
would equal 28% of allowable costs over the $250 deductible but not over $5,000.
Plans would be required to offer “qualified coverage.” “Qualified coverage”
would be defined as either “standard coverage” or actuarially equivalent coverage.
In both cases, access would have to be provided to negotiated prices. For 2006,
“standard coverage” would be defined as having a $250 deductible; 20% cost-sharing
up to the initial coverage limit ( $2,000, accounting for $600 in total out-of-pocket
costs and $2,000 in total spending); then no coverage until the beneficiary had out-of-
pocket costs of $3,500 ($4,900 total spending). Once the beneficiary reached the
catastrophic (“stop loss”) limit, full coverage would be provided. Out-of-pocket
costs counting toward the limit would include costs paid by the individual (or by
another family member on behalf of the individual), paid on behalf of a low-income
individual under the subsidy provisions, under the Medicaid program, or under state
pharmaceutical assistance programs. Any costs for which the individual was
reimbursed by insurance or otherwise would not count toward incurred costs.
The bill would increase the annual out-of-pocket threshold for each enrollee
whose adjusted gross income exceeded a specified income threshold. (Individuals
filing joint returns would each be treated separately with each person considered to
have an adjusted gross income equal to one-half of the total.) The portion of income
exceeding this income threshold ($60,000 in 2006), but below an income threshold
limit ($200,000 in 2006), would be considered in making this calculation. The
increase would be calculated as follows. First, the ratio of the annual out-of-pocket
limit to the income limit would be calculated and expressed as a percent. For 2006,
this would be $3,500 divided by $60,000 equaling 5.8%. This percentage would be
multiplied by any excess income over $60,000, but not over $200,000. Thus, the
catastrophic out-of-pocket limit would be $5,820 for an enrollee with an income of
$100,000 and $11,620 for persons with incomes at $200,000 or above.
PDP sponsors and entities offering MA Rx or EFFS Rx plans would be required
to meet a number of beneficiary protection requirements, including those designed
to assure beneficiary access to drugs. They would be required to permit the
participation of any pharmacy that met the plan’s terms and conditions. They could
reduce copayments below the otherwise applicable level for drugs dispensed through
in-network pharmacies; in no case could the reduction result in an increase in subsidy
payments made by the Administrator to the plan. They would be required to secure
participation in the network of a sufficient number of pharmacies that dispense drugs
directly to patients (other than by mail order) to assure convenient access. Sponsors
would permit enrollees to receive benefits through a community pharmacy, rather
than through mail-order, with any differential in cost paid by enrollees.
The PDP sponsor would be required to have an effective cost and drug
utilization management program; quality assurance measures including a medication
therapy management program and, for years beginning with 2007, an electronic
prescription drug program. Plans could use formularies. The formulary would have
to include drugs within each therapeutic category and class of covered outpatient
drugs, although not necessarily all drugs within such categories or classes. An
individual could appeal to obtain coverage for a drug not on the formulary if the

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prescribing physician determined that the formulary drug for treatment of the same
condition was not as effective for the individual or had adverse effects for the
individual.
PDP plan sponsors would be required to enter into a contract with the
Administrator. The contract could cover more than one plan. The Administrator
would have the same authority to negotiate the terms and conditions of the plans as
the Director of the Office of Personnel Management has with respect to Federal
Employee Health Benefits (FEHB) plans. The Administrator would be required to
take into account subsidy payments for covered benefits in negotiating the terms and
conditions regarding premiums. The Administrator would designate at least 10
service areas, consistent with EFFS regions. Each PDP sponsor would submit
information to the Administrator on the qualified drug coverage to be provided, the
actuarial value of the coverage, and information on the bid and premium for the
coverage The Administrator would review the submitted information for purposes
of conducting negotiations with the plan. The Administrator would approve the
premium only if it accurately reflected the actuarial value of the benefits and the 73%
average subsidy provided for under the bill.
The Administrator would assure that all eligible individuals would have a choice
of enrollment in at least two qualifying plan options, at least one of which was a
PDP, in their area of residence. The requirement would not be satisfied if only one
PDP sponsor or one MA or EFFS organization offered all the qualifying plans in the
area. If necessary to ensure such access, the Administrator would be authorized to
provide 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.
A PDP sponsor would permit each enrollee to have their premiums withheld
from their social security checks in the same manner as is currently done for Part B
premiums. Beneficiaries could also make payment of the premium through an
electronic funds transfer mechanism.
The bill would provide for subsidy payments to qualifying entities, consistent
with an overall subsidy level of 73%. Direct subsidies would be made for individuals
enrolled in a PDP, MA Rx or EFFS Rx plan, equal to 43% of the national weighted
average monthly bid amount. Reinsurance payments would be provided for 30% of
an individual’s allowable drug costs within a specified range ($1,000-$2,000 in
2006). Reinsurance, not to exceed 80%, would also be provided for costs over the
out-of-pocket threshold ($3,500 in 2006). In the aggregate, reinsurance payments
would equal 30% of total payments made by qualifying entities for standard
coverage.
The bill would provide income-related subsidies for low-income individuals.
Low-income persons would receive a premium subsidy (based on the value of
standard coverage). Individuals with incomes below 135% of poverty (as defined
under the QMB, SLIMB, and QI-1 programs) would have a subsidy equal to 100%

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of the value of standard drug coverage provided under the plan. For individuals
between 135% and 150% of poverty, there would be a sliding scale premium subsidy
ranging from 100% of such value at 135% of poverty to 0% of such value at 150%
of poverty. For both groups, beneficiary cost-sharing for spending up to the initial
coverage limit would be reduced to an amount not to exceed $2 for a multiple source
or generic drug and $5 for a non-preferred drug. Sponsors and entities could not
charge individuals receiving cost-sharing subsidies more than $5 per prescription.
Sponsors and entities could reduce to zero the cost-sharing otherwise applicable for
generic drugs. The determination of whether an individual was a subsidy eligible
individual, and the amount of the subsidy, would be made by the state Medicaid
program or the Social Security Administration.
The bill would provide for the phased-in federal assumption of associated
administrative costs. The bill would also provide for the federal phase-in of the costs
of premiums and cost-sharing subsidies for dual eligibles (i.e., persons eligible for
Medicare and full Medicaid benefits, including drugs).
The bill would require the Secretary to establish a temporary program to endorse
prescription drug discount card programs meeting certain requirements and to make
available information on such programs to beneficiaries. The Secretary would begin
operation of the program within 90 days of enactment. The Secretary would provide
for an appropriate transition and discontinuation at the time the drug benefits first
become available under Part D. The Secretary could not endorse a program unless
it met certain requirements. The program would have to pass on to enrollees
discounts on drugs, including discounts negotiated with manufacturers. The annual
enrollment fee could not exceed $30.
Medicare Advantage, Preferred Provider
Organizations, and Enhanced Fee-for-Service Plans
Senate
This bill would establish the MedicareAdvantage (MA) program, which would
replace the Medicare+Choice (M+C) program. An MA plan could be a coordinated
care plan such as a Health Management Organization (HMO), a Provider Sponsored
Organization (PSO), a Medical Savings Account (MSA), a Private Fee-for-Service
Plan (PFFS), or a regional Preferred Provider Organization (PPO). In general,
Medicare beneficiaries entitled to Part A of Medicare and enrolled in both Parts B
and D could receive Medicare benefits through the FFS program or they could enroll
in an MA plan. In addition to current law requirements, each MA plan would be
required to offer qualified prescription drug coverage (except for PFFS plans) and a
maximum limitation on out-of-pocket expenses and a unified deductible.
Beneficiaries enrolling in a PFFS plan without drug coverage could choose to enroll
in an eligible entity under Part D.
Each year the Administrator would calculate a benchmark amount for each MA
payment area with respect to coverage of benefits available under Medicare FFS.
The benchmark would be the greater of one-twelfth of the annual M+C capitation

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rate for the payment area for the year or the local fee-for-service rate (the amount of
payment for a month in an MA payment area for benefits, as well as associated
claims processing costs, for an individual who elects to receive benefits under the
Medicare FFS program and is not enrolled in an MA plan).
For payments before 2006, the payment would be the same as under current law.
Beginning in 2006, MA plans would be paid based on the following new
methodology. Plans would submit a bid for their estimate of the cost of providing
the required services under the MA program. The Administrator would calculate a
weighted service area benchmark. The benchmark amount would be the greater of
one-twelfth of the annual M+C capitation rate for the payment area for the year or the
local fee-for-service rate. The Administrator would pay plans as follows: (1) for plan
bids that equal or exceed the weighted service area benchmark, the MA organization
would receive the weighted service area benchmark amount, and (2) for plan bids
below the weighted service area benchmark, the plan would receive the weighted
service area benchmark reduced by the amount of any premium reduction elected by
the plan.
Beginning January 1, 2006, a preferred provider organization (PPO) plan would
be offered to MA eligible individuals in preferred provider regions. There would be
at least 10 regions and each region would have to include at least one state. The
Administrator would calculate a benchmark amount for each region equal to the
average of each benchmark amount for each MA payment area within the region,
weighted by the number of MA eligible individuals residing in the payment area for
the year. Each plan would submit a bid for coverage of required benefits. The
Administrator would pay plans as follows: (1) for bids that equal or exceed the
regional benchmark, the MA organization would receive the regional benchmark
amount and (2) for bids below the regional benchmark, the plan would receive the
regional benchmark reduced by the amount of any premium reduction elected by the
plan. Risk corridors would be established so that PPOs would not initially be
responsible for all the risk of the medical benefits, in 2006 and 2007.
House
This bill would establish the MedicareAdvantage (MA) program, which would
replace the M+C program. In 2006, the bill would also establish the Medicare
Enhanced Fee-for-Service (EFFS) program to offer EFFS plans to EFFS eligible
individuals in one of 10 regions, under which Medicare beneficiaries would be
provided access to a range of EFFS plans that could include preferred provider
networks. Beginning in 2010, EFFS and MA plans in specially designated
competitive areas would begin to phase in competitive bidding in the same style as
the Federal Employees Health Benefits program (FEHBP).
The bill would establish the MA program under Part C of Medicare. For
payments before 2006, the payment amount would equal one-twelfth of the annual
MA capitation rate, for an individual for that area, reduced by any premium
reduction, as adjusted. Beginning in 2006, the administrator would pay plans as
follows. For plans below the benchmark (for which there were average per capita
monthly savings -the amount by which the risk-adjusted benchmark exceeds the risk-
adjusted bid), the payment would equal the unadjusted MA statutory non-drug

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monthly bid amount, as adjusted. For plans with bids at or above the benchmark (for
which there were no average per capita monthly savings), the payment amount would
equal the FFS area-specific non-drug monthly benchmark amount, as adjusted.
Beginning in 2006, EFFS plans would be required to provide either FFS or
preferred provider coverage, on a regional basis. Each year, beginning in 2006, an
EFFS organization would submit a monthly bid amount for each plan in each region
(the EFFS monthly bid amount). The Administrator would calculate a benchmark
amount equal to one-twelfth of the average (weighted by the number of EFFS eligible
individuals in each payment area) of the annual capitation rate calculated for that
area. For plans with bids below the benchmark (for which there were average per
capita monthly savings), the payment would equal the unadjusted EFFS statutory
non-drug monthly bid amount, as adjusted. The EFFS plan would provide the
enrollee a monthly rebate equal to 75% of the average per capita savings. For plans
with bids at or above the benchmark (for which there were no average per capita
monthly savings), the payment amount would equal the EFFS region-specific non-
drug monthly benchmark amount, as adjusted.
Beginning in 2010, this bill would provide for the phase in of a new payment
system for “competitive EFFS regions” defined as a region that during open season
offered at least two EFFS plans the previous year, each of which met minimum
enrollment requirements. Additionally, in order to be designated as a competitive
EFFS region, the region would have to have a minimum percentage of eligible
beneficiaries enrolled in either an EFFS or MA plan. The bill would also establish
“competitive MA areas”, with similar requirements. Payments would be based on
a competitive bidding system, with plans competing with each other and with the
traditional Medicare program. Similar to the rebates under the EFFS and MA
programs for non-competitive areas, beneficiaries in competitive regions or areas
would receive a rebate equal to 75% of the average per capita monthly savings.
All enrollees in competitive areas, including FFS enrollees, EFFS and MA
enrollees, could have an adjustment to their Medicare Part B premium, resulting in
either a higher or lower monthly Part B premium.
New Agency to Administer
Medicare Part C and Part D
Both bills would establish a new agency within the Department of Health and
Human Services (HHS) to administer MedicareAdvantage, and Part D, prescription
drugs. The provisions found in the Senate and House bills are very similar. Both
would establish a presidentially-appointed administrator who would report directly
to the Secretary and exercise all powers and duties of the agency. The Administrator
would negotiate, enter into, and enforce contracts with MedicareAdvantage plans
(and enhanced fee-for-service in the House bill) and with the prescription drug plan
offerors. The Administrator would hire staff for the new agency. The Senate bill
would leave current executive branch civil service laws in place, the House bill
would waive Chapter 31 of Title 5 of the U.S. Code (which addresses authority for
employment), except for 12 sections that would be retained: Sections 3102 - 2108,

---

CRS-11
3110-3113, 3136m, and 3151.1 The House bill would also waive Chapter 51
(regarding job classification), except Section 5101 requiring classification of
positions according to certain principles, and Chapter 53 (regarding pay rates and
systems), except Section 5301 establishing principles of pay systems.
Both bills would create an Office of Beneficiary Assistance within the new
agency to coordinate Medicare beneficiary outreach and education efforts and to
provide Medicare benefit and appeals information to beneficiaries. Both bills would
create an advisory board within the new agency to advise, consult with, and make
recommendations to the Administrator. The board recommendations would be
submitted directly to Congress without any review within the federal government.
The Senate bill would name the new agency the Center for Medicare Choices
and the provision creating the agency is found in Title III. The House bill would
name the new agency the Medicare Benefits Administration and the provision
creating the new agency is found in Title VIII.
Appeals, Regulatory, and Contracting Provisions
Both the Senate bill in Title V and the House bill in Title IX contain numerous
provisions addressing Medicare appeals, regulatory relief and contracting reform.
The Senate provisions were drawn from S. 30182 that was introduced in the 107th
Congress and the House provisions were drawn from H.R. 810 of the 108th
Congress.3 These two titles are substantially similar.
1 The 12 sections of chapter 31 that would be retained are: 3102, permitting agencies to hire
personal assistants for handicapped employees; 3103, requiring employees to render services
in connection with and for the purposes of the appropriation from which the individual is
paid; 3104, permitting the Director of the Office of Personnel Management (OPM) to
establish, and revise, the maximum number of scientific or professional positions outside
of the General Schedule for carrying out research and development functions; 3105,
requiring agencies to appoint as many administrative law judges (ALJs) as are necessary for
hearings and other such proceedings; 3106, prohibiting agency heads from employing
private attorneys in litigation that is against the agency and requires the matter be referred
to the Department of Justice; 3107, prohibiting the employment of publicity experts unless
specifically appropriated for that purpose; 3108, prohibiting the employment of Pinkerton
Detective Agency employees or employees from similar organizations; 3110, prohibiting
the employment of relatives; 3111, permitting agencies to accept volunteer services of
students; 3112, giving hiring preferences to veterans; 3113, barring federal re-employment
if the employee is convicted of certain specified crimes relating to bribery of a public
official and drug related crimes; 3136m, no such provision; and 3151, permitting the
Attorney General to establish a personnel system for senior executives in the FBI and DEA.
Among the 8 sections that would be waived are those establishing the Senior Executive
Service.
2 A summary of the major provisions of S. 3018 can be found in the CRS Report RL31610,
Major Medicare Provisions of H.R. 4954, As Passed by the House, and S. 3018, by Jennifer
O’Sullivan, Hinda Chaikind, and Sibyl Tilson.
3 A complete summary of the provisions of H.R. 810 can be found in the CRS Report
(continued...)

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CRS-12
These titles would modify how Medicare regulations and guidance are
communicated; would modify the procedures used to resolve payment disputes; and
would establish various provider appeal processes, particularly for those who face
termination of Medicare participation or denial of their application to participate in
the program. As well as attempting to minimize Medicare’s administrative burden,
the bills would give the Secretary the authority to competitively contract for claims
processing services with any qualified entities; establish that these contracts be
competitively bid (at least every 6 years in the Senate bill and every 5 years in the
House bill); and place new requirements on the Medicare claims processing
contractors, including an increased emphasis on provider education. The bills would
refine the information required to be provided in the appeals process and make other
modifications. The Senate bill would require a report on transferring the
administrative law judge (ALJ) function for Medicare hearings from the Social
Security Administration (SSA) to HHS. The House bill, in addition to the report,
would require transferring the ALJ function by October 1, 2005. Other program
changes, demonstration projects, and mandated studies are also included in the bills.
Many of the provisions codify initiatives underway within the Centers for
Medicare and Medicaid Services (CMS), the agency that administers Medicare, under
its current authority. The proposed legislation authorizes increased funding but
action by the appropriations committees would be required for CMS to receive
additional money.
Provisions Affecting Medicare’s Fee-for-Service
Program Payments, Beneficiary Cost-sharing
Amounts and Covered Benefits
The proposed Medicare reform legislation under consideration in both the
House and the Senate contain various provisions that adjust program and beneficiary
payments for different covered services provided in traditional (or fee-for-service,
FFS) Medicare. Certain provisions modify the covered benefits as well. A
comparison of the majority of significant provisions affecting FFS provider
payments, beneficiary cost-sharing amounts and covered FFS benefits can be found
in the table below. By necessity, the provision descriptions are brief; however a
section reference has been included for the provisions in both S. 1 and the House bill
to assist readers in finding the specific legislative language.
3 (...continued)
RL31901, Major Provisions of H.R. 810, As Reported by the House Ways and Means
Committee and the Energy and Commerce Committee, by Jennifer Boulanger and Sibyl
Tilson.

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CRS-13
Several general points can be made:
! the actual monetary benefit accruing to specific kinds of providers,
physicians or suppliers will vary depending upon the specific
structure of the payment adjustment; these payment adjustments can
be different in S. 1 and the House bill. Of course, the actual benefit
accruing to an individual provider or physician will depend upon a
myriad of unique circumstances;
! to some extent, the provisions increasing payments to rural providers
that are contained in S. 1 become effective at a later date or on a
longer phased-in basis than the comparable provisions contained in
the House bill;
! S. 1 partially finances the proposed prescription drug benefit through
freezing certain durable medical equipment (DME) fee schedules as
well as extending certain user fees imposed by the U.S. Customs
Service (Section 614). The House bill proposes reductions in the
updates for hospitals, ambulatory surgery centers, and home health
services, and would also freeze per resident payment amounts for
direct graduate education reimbursement to high cost hospitals. To
some extent, however, reductions in either bill are counterbalanced
with other payment changes that increase Medicare payments to
particular subsets of providers.
! Both bills increase beneficiary cost-sharing amounts in traditional
Medicare. Both bills schedule annual increases in the Part B
deductible amount that must be met before program payments will
be made for covered Part B services. S. 1 sets the deductible amount
at $125 in 2006 and provides for annual increases based on changes
in the consumer price index for urban consumers (CPI-U) each year
thereafter. In the House bill, beneficiaries’ deductibles would be
increased annually as well, but the increase would not be based on
the CPI-U. Rather the deductible amount would be increased by the
same percentage amount traditionally used to increase the Part B
premium. Specifically, the annual percentage increase in the
monthly actuarial value of benefits payable from the Federal
Supplementary Medical Insurance Trust Fund (rounded to the
nearest dollar) would be used as the update. S-1 establishes
beneficiary coinsurance and deductible requirements for clinical
laboratory services; the House bill establishes a beneficiary
copayment for each 60-day episode of home-health care at 1.5% of
the national average payment rate per episode. Absent timely
regulatory action, the copayment would be set at $40.
! The House bill provides for improved coverage of preventive
services, including an initial preventive examination and waives the
deductible for certain cancer screening tests.

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CRS-14
Table 1. Fee-for-Service Payment Adjustments
Provision
S. 1
H.R. 2473
RURAL PROVISIONS
Equalize standard rate used
Section 401. Phase-in one-half
Section 402. Pays large urban
in operating inpatient
difference in last three quarters of
amount to all hospitals starting
prospective payment
FY2004. Provides large urban amount
in FY2004.
system (IPSS)
for all hospitals in FY2005.
Revise labor- related share
Section 402. Decrease labor-related
Section 416. Decreases labor-
in operating IPSS that is
share for hospitals in low value wage
related share for hospitals from
adjusted to reflect area wage
index areas. Change from 71.1% to
71.1% to 62% for FY2004 and
differences
68% for FY2004 and subsequently.
subsequently.
Low-volume adjustment for
Section 403. Provides as much as a
No provision.
eligible IPPS hospitals
25% graduated payment amount for
hospitals with up to 2,000 total
discharges over 3-year period that
have higher costs associated with
lower volume starting in FY2005.
Equalize disproportionate
Section 404. Formula establishing
Section 401. DSH formula for
share hospital adjustment
DSH adjustment for large urban
large urban hospitals applied to
(DSH) to increase DSH
hospitals applied to all hospitals on
other hospitals. DSH adjustment
payments to small urban and
or after FY2004.
capped at 10% for all these
rural hospitals
hospitals except rural referral
centers (RRCs)
Changes to Critical Access
Section 405. Increases bed limit for
Section 405. Permits seasonal
Hospital (CAH) program
CAHs to 25; removes 35-mile limit
adjustment of up to five beds and
for cost-based reimbursement of CAH
includes the other Senate
ambulances; permits periodic interim
provisions except does not
payments (PIP); clarifies physician
exclude CAH data from IPPS
billing arrangement; permits payment
w a g e i n d e x . S m a l l e r
for additional on-call emergency room
authorizations for existing grant
p r o v i d e r s ; e x t e n d s l a p s e d
programs. Section 403.
authorization and also changes
Establishes essential hospital as
existing grant program for rural
part of CAH definition.
hospitals and states; and excludes
CAH hospital wage data from IPPS
wage index.
Existing hospital outpatient
Section 424. Extends existing HOPD
Section 407. Extends hold-
department (HOPD) hold-
hold-harmless provisions until 2006
harmless provisions until 2006
h a r m l e s s p r o v i s i o n s
for small rural hospitals. Establishes
for small rural hospitals.
extended and expanded.
comparable hold-harmless provisions
Hold-harmless provisions
for sole community hospitals (SCHs)
insure that payments under
for 2006.
new HOPD prospective
payment system (PPS) are
not lower than they would
have been under prior
payment system.

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CRS-15
Provision
S. 1
H.R. 2473
Missing cost reports for sole
No provision.
Section 414. Otherwise
community hospitals (SCHs)
qualified hospital can be SCH if
missing cost report data. Must
have data from one of the
relevant years.
Increased HOPD payments
Section 425. Increase HOPD fee
No provision.
for rural hospitals
schedule amounts by 5% for 2005-
2008; these increases are not included
i n hold-harmless calculation
mentioned previously.
Increase ground ambulance
Section 426. Provides a 5% increase
Section 410. Increase in base
fees
for services provided in rural area (or
rate of fee schedule for eligible
rural census tract) from January 1,
rural providers with low-volume
2005 though December 31, 2007.
of service. Additional payments
may be made for providers in
frontier areas.
Air ambulance
Section 427. Expands definition of
No provision.
medically necessary covered air
ambulance services.
Rural clinic reimbursement
Section 429. Establishes $80.00 as
No provision.
per visit upper payment limit for 2005.
Uses medical economic index (MEI)
for primary care to update limit in
subsequent years.
Exclusions from skilled
Section 430. Excludes rural health
Section 408. Limits exclusion to
nursing facility (SNF)
clinic (RHC) and federally qualified
RHC and FQHC clinic visit.
prospective payment system
health clinic (FQHC) clinic visits as
(PPS)
well as CAH joint venture services
from SNF-PPS.
Increase in home health
Section 451. 5% increase in rural
Section 411. 5% increase for
payments for rural providers
home health payments 2004-2006.
home health services in rural
areas in 2004 and 2005.
Safe harbor for collaborative
No provision.
Section 412. Anti-kickback
efforts
e x c e p t i o n f o r c e r t a i n
arrangements with health care
professionals and health centers
that are deemed to protect a
professional’s independence
regarding the provision of
medically appropriate treatment.
C l i n i c a l d i a g n o s t i c
Section 428. SCHs would receive
No provision.
laboratory tests in a sole
reasonable cost reimbursement for
community hospital (SCH)
tests in 2005 and 2006.

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CRS-16
Provision
S. 1
H.R. 2473
Hospital loan program for
Section 629. Establishes capital
No provision.
rural entities
infrastructure loan program.
HOSPICE
Additional hospice services
Section 406. Permits core hospice
No provision.
provided under arrangement
services to be provided under
arrangement.
Allow nurse practitioner and
Section 407. Allows nurse
Section 409. Permits NPs to act
others to be attending
practitioners (NPs) and physician
as attending physicians in certain
physicians
assistants to act as attending physician
circumstances.
for hospice patients in certain
circumstances.
Consultative physician
No provision.
Section 512. Provides payment
services under certain
for consultative services
circumstances.
provided by hospice physicians
to terminally ill beneficiaries
who have not elected the hospice
benefit.
HOSPITALS
Reduction in inpatient
No provision.
Section 501. Update would be
prospective payment system
reduced to market basket (MB)-
(IPPS) operating update
0.4 percentage points for
FY2004-FY2007.
Payments to hospitals in
Section 409. Bases IPPS payments to
Section 503. Increases national
Puerto Rico (PR)
PR hospitals on 100% of federal rate
share of standardized amount on
from FY2004-FY2009.
phased-in basis to 75%
nat i onal/25% PR dur i ng
FY2006.
Extension of direct payment
Section 436. Reestablishes direct
Section 724. Similar provision
for certain hospital-based
payment for certain hospital-based
for inpatient and outpatient
pathology services
pathology services during 2005.
services provided on or after
January 1, 2001 and before
January 1, 2006. (Section may be
renumbered as 734.
G A O s t u d y o n
Section 413. Requires GAO study on
No provision.
appropriateness of hospital
need for geographic adjustments to
payments
reflect legitimate differences in
hospital costs within 18 months of
enactment.
Recognition of new medical
No provision.
Section 502. Mandates changes
technologies in IPPS
to existing process to direct
additional payments to hospitals.

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CRS-17
Provision
S. 1
H.R. 2473
Wage index adjustment for
No provision.
Section 504. Adjusts hospital’s
IPPS hospitals
wage index if more than 10% of
employees commute from a
higher wage index area.
Loan program for certain
Section 608. Establishes loan
No provision.
cancer hospitals in selected
program for certain cancer hospitals in
states
states with populations less than 3
million.
Change in self-referral
Section 453. Limits exception to self-
Section 505. Requires MedPAC
exception for specialty
referral prohibition to acute hospitals
report on specialty hospitals
hospitals
offering spectrum of services or
examining the extent of self-
specialty hospitals that were
referrals, quality of care, impact
substantially complete by June 12,
on acute general hospitals as
2003.
well as differences in Medicaid
utilization and uncompensated
care provided. Requires the
Secretary to submit the report
and recommendations to
Congress within 1 year of
enactment.
More frequent updates to
No provision.
Section 404. Directs Secretary
hospital market basket
to establish more frequent
updates to hospital market basket
(MB).
Establishment of essential
No provision.
Section 403. Establishes
hospital as new type of CAH
essential hospital as part of CAH
definition.
TEACHING HOSPITALS
Payment for existing
Section 411. Establishes payment for
No provision.
residencies in nonhospital
resident training in nonhospital
settings
providers. Excludes dentists and
podiatrists from 3-year rolling average
used to calculate graduate medical
education payments.
Medicare payments for
Section 408. Establishes clinical
No provision.
psychologists
psychologist training as allied health
reimbursement.
Medicare graduate medical
Section 410. Provides for payment of
No provision.
education payments for 2-
2-year geriatric fellowships (rather
year geriatric fellowships
than 1-year fellowships necessary for
certification).
Extension of update limit on
No provision.
Section 711. Hospitals with per
direct graduate medical
resident amounts above 140% of
education reimbursement of
the locality adjusted national
high cost residents
average would not get increases
from FY2004-2007.

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CRS-18
Provision
S. 1
H.R. 2473
Redistribution of resident
No provision.
Section 406. Redistributes
positions
unused resident positions from
those hospitals under existing
cap. Priority given to hospitals
in small urban and rural areas.
SKILLED NURSING FACILITIES (SNFs) AND SERVICES PROVIDED TO SNF
RESIDENTS
Increases in SNF payments
No provision.
Section 511. Increases SNF
for residents with AIDs
payment for resident with AIDS
by 128% beginning in FY2004.
Exclusion of services
Section 430. Excludes RHC and
Section 408. Limits the
provided by certain rural
FQHC clinic visits and certain CAH
exclusion to RHC and FQHC
entities from SNF PPS (also
joint ventured services from SNF-PPS
clinic visits.
included in table as rural
provision)
One-year moratorium on
No provision.
Section 624. Mandated therapy
therapy caps
cap would be suspended in 2004.
PAYMENTS FOR CURRENTLY COVERED OUTPATIENT DRUGS AND SERVICES
Payment amounts
Section 433(a). Existing drugs paid
Section 621(a). From 2004-
at 85% of average wholesale price
2006 payment is no less than
(AWP) as of April 1, 2003 which
95% of AWP or transition
would be updated in subsequent years
percentage. The transition
by increases in the CPI for medical
percentage for sole source drugs
care. The Secretary to determine
is 83%-71% of AWP from 2004-
market price. If average market price
06; multisource drugs is 81.5%-
(AMP) differs from AWP, then AMP
68% of AWP from 2004-2006;
would be paid, subject to 15%
generic drugs is 46% from 2004-
dampening effect. Requires
2006. Existing threshold for
manufacturers to provide information
separate ambulatory payment
on expected price of new drug.
classification (APC) payment as
higher cost drug would be
dropped from $150 to $50.
Payment for blood clotting
Section 433(b). Establishes separate
Section 303(f). Requires
factors
payment for blood clotting factors.
MedPAC recommendations in
Directs Secretary to review GAO
2004 annual report.
report on too high current payments.
Budget-neutrality requirement for
2004. Payment updated by CPI for
medical care.
H o m e i n f u s i o n a n d
Section 433(b). Separate payment
Section 602(b). Requires GAO
inhalation drugs
would be made for these drugs
study on adequacy of payments
beginning January 1, 2004. Some
for inhalation therapy, due not
restrictions apply.
later than May 1, 2004.

---

CRS-19
Provision
S. 1
H.R. 2473
Pharmacy dispensing fee
Section 433(b). Authorizes
No provision.
dispensing fees for certain covered
drugs.
Discarded chemotherapy
Section 433(b). Permits payments for
No provision.
drugs
discarded cancer drugs in certain
circumstances.
Transitional pass-through
Section 437. Requires that pass-
No provision.
payments for new drugs
through payments be calculated as if
legislation was not passed. Requires
GAO to report on issue.
Functional equivalence
Section 438. Secretary would not be
Section 621(c). Secretary
standard used to establish
allowed to issue regulations or apply
would be allowed to issue
eligibility for additional
standard.
regulations and apply standard.
transitional pass-through
Would not be able to be applied
payments for new drugs in
prior to June 13, 2003.
HOPD-PPS
Coverage of clinical trials
Section 439. Covers routine costs of
Section 723(b). Same provision.
clinical trials in certain instances.
Improved payment for
No provision.
Section 614. Codifies existing
cer t ai n mammogr aphy
exclusion from h ospital
services
outpatient prospective payment
s y s t e m o f s c r e e n i n g
m a m m o g r a p h y s e r v i c e s .
Expands exclusion to unilateral
and bila t eral diagnostic
mammography.
Spe c i a l p a yme n t f or
No provision.
Section 621(b). From 2004-
brachytherapy, an advanced
2006, Medicare payments are
cancer therapy where
charges adjusted to cost.
radioactive seeds or sources
Additional brachytherapy seeds
are placed near the tumor
would have separate ambulatory
itself.
payment categories (APCs)
created. Requires GAO report by
2005.
Hospital acquisition cost
No provision.
Section 621(d). Requires
study
Secretary to study hospital
acquisition costs for drugs
g r e a t e r t h a n $ 5 0 i n
representative sample of
hospitals.
AMBULATORY SURGICAL CENTERS
Reduction in update for
No provision.
Section 625. Establishes ASC
ambulatory surgical centers
update as the CPI-U minus two
(ASCs)
percentage points (but above
zero) for 2004-2008

---

CRS-20
Provision
S. 1
H.R. 2473
AMBULANCE
Changes to ambulance fee
No provision.
Section 622. Modifies current
schedule
law payment methodology to
incorporate regional fee schedule
amounts. By 2010, fee schedule
would be based totally on
national rates. Increases
payments by 25% of the
otherwise established payment
amount for trips longer than 50
miles beginning in January 1,
2004 through December 31,
2008. GAO study is required.
PAYMENTS FOR RENAL DIALYSIS SERVICES
Temporary increase in
Section 423. Provides for 1.6%
Section 623(c). Provides for
composite rate for end stage
increase in composite rate for 2005
1.6% increase in composite rate
renal disease (ESRD)
and 2006.
for 2004.
services
Composite rate increase for
Section 433(b). ESRD composite rate
No provision.
administration of drugs
increased by 0.05% in 2005 including
related to ESRD services.
temporary payment increase of earlier
section. ESRD composite rate
increased in 2006 by 0.05% without
1.6% temporary increase in Section
423.
Codifies existing alternative
No provision.
Section 623(a). Requires
s e r v i c e d e l i v e r y
establishment of advisory board
demonstration project for
for demonstration of ESRD
providing ESRD services
alternative delivery model.
Composite rate exception for
No provision.
Section 623(b). Restores
pediatric facilities
composite rate exception for
pediatric facilities.
PHYSICIANS
Flo o r o n ge ographic
Section 421. Raise work geographic
No provision.
adjustments
adjustment to .980 for 2004. Raise
work geographic adjustment to 1.0 in
2005, 2006, 2007. Practice expense
and malpractice adjustments raised to
1.0 for services in CY2005-CY2008.
Update to conversion factor
No provision.
Section 601. Update to
conversion factor could not be
less than 1.5% in CY2004 and
CY2005.

---

CRS-21
Provision
S. 1
H.R. 2473
Change sustainable growth
No provision.
Section 601. Incorporates 10-
rate (SGR) calculation
year rolling average calculation
of GDP.
M e d i c a r e I n c e n t i v e
Section 422. Specifies that the
Section 417. Provides a 5%
Payments
Secretary responsible for identifying
payment increase to physicians
physicians who are eligible for
in certain areas with low ratios
existing 10% payment increase.
of physicians to beneficiaries.
Adjustment to physician
Section 433(b). Incorporates
Section 303(a). Includes general
relative values to incorporate
oncology survey data into practice
instruction to include specialty
survey data collected by
expense adjustment; payment
data collected by outside entities.
outside entities
adjustment for multiple chemotherapy
No specific reference to
doses in a day; non-physician
oncology. Budget neutrality
workpool not affected.
requirement waived for 2005.
Same non-physician workpool
provision.
U s e o f c o m p e t i t i v e
No provision.
Section 303(b). Establishes
contracting program to
competitive acquisition program
provide prescription drugs to
for oncology drugs in 2005 and
physicians
nononcology drugs in 2006.
Payments based on bid prices
which can be adjusted for
rebates and discounts. Other
provisions apply.
P a y m e n t s f o r
No provision.
Section 303(c). Extends
radiopharmaceuticals
existing payment methods for
radiopharmaceuticals.
GAO Study
Section 445. Requires GAO report on
Section 413. Same provision.
geographic difference in physician
payments within 1 year of enactment.
GAO and IOM Study
No provision.
Section 602. GAO study on
beneficiary access. IOM study
on adequacy of supply of
physicians and specialists.
MedPAC Report
No provision.
Section 603. Requires MedPAC
report on refinements to practice
expense component.

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CRS-22
Provision
S. 1
H.R. 2473
DURABLE MEDICAL EQUIPMENT (DME)
Certain DME Fee schedules
Section 431. No increase in certain
No provision.
frozen
DME fee schedules from 2004-2010.
Class III medical devices would be
exempt. Prosthetics, prosthetic
devices, custom orthodics would be
updated by CPI. Quality assurance
program initiated.
Competitive acquisition
No provision.
Section 302. Establishes
demonstration project for
demonstration project for
DME
competitive bidding for DME.
Increase payments for
No provision.
Section 626. Bases payments
custom made orthotics and
for these items as if they are a
shoes for beneficiaries with
prosthetic or orthotic device
severe diabetic foot disease
subject to certain limits.
HOME HEALTH
Increase payments for rural
Section 451. Provides temporary 5%
Section 411. Provides 5%
home health providers
increase in rural home health
increase in rural home health
payments in 2005-2006.
payments in FY2004.
Limit effect of reduction in
Section 452. Limits effect of any area
No provision.
wage index
wage reduction to 3% in FY2005-
2006.
Reduce update in home
No provision.
Section 701. Changes payment
health
year to calendar year basis.
Establishes home health updates
as MB minus 0.4 percentage
points from 2004-2006.
MedPAC study of home
No provision.
Section 703. Requires MedPAC
health margins
study on home health margins be
submitted within 2 years of
enactment.
Source: Congressional Research Service.

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CRS-23
Table 2. Beneficiary Cost Sharing Changes and Benefit Improvements
Provision
S. 1
H.R. 2473
Deductible and coinsurance for
Section 432. Clinical laboratory
No provision.
clinical diagnostic laboratory
tests across all settings subject to
services
beneficiary cost-sharing and
deductible.
Scheduled annual increases in
Section 434. Increases
Section 628. Increases Part B
Part B deductible amount
deductible from $100 to $125 in
deductible by the same
2006; increased by CPI-U in
percentage increase applied to
following years
the Part B premium each year
starting in 2004.
Establish copayment for home
No provision.
Section 702. Establishes
health episodes for certain
beneficiary copayment for each
beneficiaries
60-day episode at 1.5% of the
national average payment rate
per episode in the year for
services in 2004. Absent timely
regulatory action, the copayment
would be $40.
Waiver of Part B late fee for
Section 440. Waives required
Section 627. Same provision.
certain military retirees
Part B late fee for certain military
retirees.
Waiver of deductible for
No provision.
Section 614. Waives deductible
colorectal cancer screening tests
for these tests.
Coverage of clinical trials
Section 439. Routine costs of
Section 723(b). Same provision.
clinical trials in certain instances
would be covered.
Coverage of an initial preventive
No provision.
Section 611. Establishes
examination
coverage of initial preventative
examinations in accordance with
U.S. Preventive Services Task
Force recommendations within 6
months of beneficiary enrollment
in program. Waives Part B cost
sharing.
Coverage of cholesterol and
No provision.
Section 612. Establishes
blood lipid screening
coverage under standards
determined by the Secretary, but
no more than two times per year.

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CRS-24
Provision
S. 1
H.R. 2473
Complex and chronic care
Section 443. Establishes a 3-year
Section 721. Provides care
provisions
demonstration on complex
improvement services to certain
clinical care management.
beneficiaries with chronic
Section 444. Establishes a 5-year
conditions. Section 722.
d e m o n s t r a t i o n o n c a r e
Provides comparable services to
coordination under fee-for-
b e n e f i c i a r i e s i n
service Medicare for certain high-
M e d i c a r e A d v a n t a g e a n d
risk beneficiaries.
Enhanced FFS.
Source: Congressional Research Service.

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