COVERAGE OF CATASTROPHIC EXPENSES FOR PRESCRIPTION DRUGS AND INSULIN.

SEC. 202. COVERAGE OF CATASTROPHIC EXPENSES FOR PRESCRIPTION DRUGS AND INSULIN. (a) Description of Covered Outpatient Drugs.—Section 1861 (42 U.S.C. 1395x) is amended— (1) by amending subparagraph (J) of subsection (s)(2) to read as follows: “(J) covered outpatient drugs (as defined in subsection (t)); and”, and (2) in subsection (t)— (A) by inserting “and paragraph (2)” after “subsection (m)(5)”, (B) by inserting “(1)” after “(t)”, and (C) by adding at the end the following new paragraphs: “(2) Subject to paragraph (3), the term ‘covered outpatient drug’ means— “(A) a drug which may be dispensed only upon prescription and— “(i) which is approved for safety and effectiveness as a prescription drug under section 505 or 507 of the Federal Food, Drug, and Cosmetic Act or which is approved under section 505(j) of such Act; “(ii) (I) which was commercially used or sold in the United States before the date of the enactment of the Drug Amendments of 1962 or which is identical, similar, or related (within the meaning of section 310.6(b)(1) of title 21 of the Code of Federal Regulations) to such a drug, and (II) which has not been the subject of a final determination by the Secretary that it is a ‘new drug’ (within the meaning of section 201(p) of the Federal Food, Drug, and Cosmetic Act) or an action brought by the Secretary under section 301, 302(a), or 304(a) of such Act to enforce section 502(f) or 505(a) of such Act; or 102 STAT. 703 “(iii) (I) which is described in section 107(c)(3) of the Drug Amendments of 1962 and for which the Secretary has determined there is a compelling justification for its medical need, or is identical, similar, or related (within the meaning of section 310.6(b)(1) of title 21 of the Code of Federal Regulations) to such a drug, and (II) for which the Secretary has not issued a notice of an opportunity for a hearing under section 505(e) of the Federal Food, Drug, and Cosmetic Act on a proposed order of the Secretary to withdraw approval of an application for such drug under such section because the Secretary has determined that the drug is less than effective for all conditions of use prescribed, recommended, or suggested in its labeling; “(B) a biological product which— “(i) may only be dispensed upon prescription, “(ii) is licensed under section 351 of the Public Health Service Act, and “(iii) is produced at an establishment licensed under such section to produce such product; and “(C) insulin certified under section 506 of the Federal Food, Drug, and Cosmetic Act. “(3) (A) The term ‘covered outpatient drug’ does not include any drug, biological product, or insulin provided as, as part of, or as incident to, any of the following (and for which payment may be included under this title): “(i) Inpatient hospital services (described in subsection (b)(2)) “(ii) Extended care services (described in subsection (h)(5)). “(iii) Physicians’ services under subparagraph (A) or (B) of subsection (s)(2). “(iv) Dialysis supplies under subsection (s)(2)(F). “(v) Antigens under subsection (s)(2)(G). “(vi) Blood clotting factors for hemophiliacs under subsection (s)(2)(1). “(vii) Services of a physician assistant under subsection (s)(2)(K)(ii). “(viii) Pneumococcal, hepatitis B, or influenza vaccines under subsection (s)(10). “(ix) Rural health clinic services (under subsection (aa)(1)). “(x) Comprehensive outpatient rehabilitation facility services (under subsection (cc)(1). “(xi) Hospice care (as defined in subsection (dd)(1). “(xii) Certified nurse-midwife service (as defined in subsection (gg)(1). “(xiii) A covered surgical procedure in an ambulatory surgical center (under section 1832(a)(2)(F)(i)). “(B) With respect to covered outpatient drugs dispensed in 1990, the term ‘covered outpatient drug’ is limited— “(i) to drugs described in paragraph (2)(A) used in immunosuppressive therapy, and “(ii) to covered home IV drugs (as defined in paragraph (4)). “(C) The term ‘covered outpatient drug’ does not include a drug that is intravenously administered in a home setting unless it is a covered home IV drug. “(4) (A) The term ‘covered home IV drug’ means a covered out-patient drug dispensed to an individual that— 102 STAT. 704 “(i) is intravenously administered in a place of residence used as the individual’s home, and “(ii) (I) is an antibiotic drug and the Secretary has not determined, for the specific drug or for the indication to which it is applied, that the drug cannot generally be administered safely and effectively in a home setting, or “(II) is not an antibiotic drug and the Secretary has determined, for the specific drug and the indication for which the drug is being applied, that the drug can generally be administered safely and effectively in a home setting. “(B) Not later than January 1, 1990 (and periodically thereafter), the Secretary shall publish a list of the drugs, and indications for such drugs, that are covered home IV drugs (as defined in subparagraph (A)), with respect to which home intravenous drug therapy may be provided under this title.”. (b) Deductible and Payment Amounts—Part B is amended— (1) in subsection (a)(1) of section 1833 (42 U.S.C. 13951(b)), as amended by section 4U(h)(7)(A)(v)(1) of this Act— (A) by striking “and” before “(L)”, and (B) by adding at the end the following: “and (M) with respect to expenses incurred for covered outpatient drugs, the amounts paid shall be the amounts determined under section 1834(c)(2)”; (2) in subsection (a)(2) of such section by inserting “(other than covered outpatient drugs)” after “(2) in the case of services”; (3) in subsection (b) of such section— (A) in clause (1), by inserting “or for covered outpatient drugs” after “1861(s)(10)(A)”, and (B) in clause (2), by inserting “or with respect to covered outpatient drugs” after “home health services”; and (4) by adding at the end of section 1834 (42 U.S.C. 1395m) the following new subsection: “(c) Payment for Covered Outpatient Drugs.— “(1) Deductible.— “(A) Application.— “(i) In general.—Except as provided in clauses (ii) and (iii), payment shall be made under paragraph (2) only with respect to expenses incurred by an individual for covered outpatient drugs during a calendar year on or after such date in the year as the Secretary determines that the individual has incurred expenses in the year for covered outpatient drugs (during a period in which the individual is entitled to benefits under this part) equal to the amount of the catastrophic drug deductible specified in subparagraph (C) for that year. “(ii) Deductible not applied for post-hospital home intravenous drug therapy.—The catastrophic drug deductible established under this paragraph shall not apply to covered home IV drugs dispensed in conjunction with home intravenous drug therapy services which are part of a continuous course of such therapy initiated while the individual was an inpatient in a hospital. “(iii) Deductible not applied to 1st year immunosuppressives.—The catastrophic drug deductible established under this paragraph shall not apply to 102 STAT. 705 drugs described in section 1861(t)(2)(A) used in immunosuppressive therapy and furnished, to an individual who receives an organ transplant for which payment is made under this title, within 1 year after the date of the transplant. “(B) Response to application.—If the system described in section 1842(o)(4) has not been established and an individual applies to the Secretary to establish that the individual has met the requirement of subparagraph (A), the Secretary shall promptly notify the individual (and, if the application was submitted by or through a participating pharmacy, the pharmacy) as to the date (if any) as of which the individual has met such requirement. “(C) Catastrophic drug deductible amount.— “(i) In general.— Subject to subparagraph (D), the catastrophic drug deductible specified in tins subparagraph for— “(I) 1990 is $550, “(II) 1991 is $600, “(III) 1992 is $652, and “(IV) any succeeding year, is such an amount as the Secretary determines will result in 16.8 percent of the average number of individuals covered under this part (other than individuals enrolled with an eligible organization under section 1876 or an organization described in section 1833(a)(1)(A)) during that succeeding year having incurred expenses for covered outpatient drugs sufficient to meet the catastrophic drug deductible so determined. “(ii) Rounding.—Any amount determined under this subparagraph which is not a multiple of $1 shall be rounded to the nearest multiple of $1. “(iii) Publication.—Before May 1 of each year (beginning with 1992) the Secretary shall publish in the Federal Register a proposed regulation establishing the amount of the catastrophic drug deductible under this subparagraph for the following year. During the last 3 days of September of such year, the Secretary shall publish in the Federal Register the final regulation establishing the amount of such deductible for the following year, which amount may not be greater than the amount specified in the proposed regulation. “(2) Payment amount.— “(A) In general.— Subject to the catastrophic drug deductible established under paragraph (1)(A) and except as provided in subparagraph (C), the amounts payable under this part with respect to a covered outpatient drug is equal to the payment percent (specified in subparagraph (B)) of the lesser of— “(i) the actual charge for the drug, or “(ii) the applicable payment limit established under paragraph (3). “(B) Payment percent.—For purposes of subparagraph (A), the payment percent is 100 percent minus the applicable coinsurance percent (specified in subparagraph (C)). 102 STAT. 706 “(C) Coinsurance percent.— For purposes of subparagraph (B), the coinsurance percent— “(i) for covered home IV drugs and for drugs described in paragraph (1)(A)(iii) (relating to immunosuppressive therapy during the 1st year after transplant), is 20 percent; and “(ii) for other covered outpatient drugs dispensed— “(I) in 1990 or 1991, is 50 percent, “(II) in 1992 is 40 percent, and “(III) in 1993 or a succeeding year is 20 percent. “(D) Treatment op certain cost-based prepaid organizations.—In applying subparagraph (A) in the case of an organization under a reasonable cost reimbursement contract under section 1876 and in the case of an organization receiving payment under section 1833(a)(1)(A) and providing coverage of covered outpatient drugs, the Secretary shall provide for an appropriate adjustment in the payment amounts otherwise made to reflect the aggregate increase in payments that would otherwise be made with respect to enrollees in such an organization if payments were made other than under such clause or such a contract on an individual-by-individual basis. “(3) Payment limits.— “(A) Payment limit for non-multiple source drugs and multiple-source drugs with restrictive prescriptions.— In the case of a drug that either is not a multiple source drug (as defined in paragraph (9)(A)) or is a multiple source drug and has a restrictive prescription (as defined in paragraph (9)(B)), the payment limit for the drug under this paragraph for a payment calculation period is equal to the lesser of— “(i) the 90th percentile of the actual charges (computed on a statewide basis, carrier-wide basis, or other appropriate geographic area basis, as specified by the Secretary) for the drug for the second previous payment calculation period, adjusted (as the Secretary determines to be appropriate) to reflect the number of tablets (or other dosage units) dispensed; or “(ii) the amount of the administrative allowance (established under paragraph (4)) plus the product of— “(I) the number of tablets (or other dosage units) dispensed, and “(II) the per tablet or unit average wholesale price for such drug (as determined under subparagraph (C) for the period for purposes of this subparagraph); except that clause (i) shall not apply to covered outpatient drugs dispensed before January 1, 1992. “(B) Payment limit for multiple source drugs without restrictive prescriptions.— In the case of a drug that is a multiple source drug but does not have a restrictive prescription, the payment limit for the drug under this paragraph for a payment calculation period is equal to the amount of the administrative allowance (established under paragraph (4)) plus the product of— “(i) the number of tablets (or other dosage units) dispensed, and 102 STAT. 707 “(ii) the unweighted median of the per tablet or unit average wholesale prices (determined under subparagraph (C) for purposes of this subparagraph) for such drug for the period. “(C) Determination of unit price.— “(i) In general.—For purposes of this paragraph, the Secretary shall determine, with respect to the dispensing of a covered outpatient drug in a payment calculation period (beginning on or after January 1, 1990), the per tablet or unit average wholesale price for the drug. “(ii) Basis for determinations.— “(I) Determination for non-multiple-source drugs.—For purposes of subparagraph (A), such determination shall be based on a biannual survey conducted by the Secretary of a representative sample of direct sellers, wholesalers, or pharmacies (as appropriate) of wholesale (or comparable direct) prices (excluding discounts to pharmacies); except that if, because of low volume of sales for the drug or other appropriate reasons or in the case of covered outpatient drugs during 1990, the Secretary determines that such a survey is not appropriate with respect to a specific drug, such determination shall be based on published average wholesale (or comparable direct) prices for the drug. “(II) Determination for multiple-source drugs.—For purposes of subparagraph (B), the Secretary may base the determination under this subparagraph on the published average wholesale (or comparable direct) prices for the drug or on a biannual survey conducted by the Secretary of a representative sample of direct sellers, wholesalers, or pharmacists (as appropriate) of wholesale (or comparable direct) prices (excluding discounts to pharmacies). “(III) Compliance with survey required.—If a wholesaler or direct seller of a covered outpatient drug refuses, after being requested by the Secretary, to provide the information required in a survey under this clause, or deliberately provides information that is false, the Secretary may impose a civil money penalty of not to exceed $10,000 for each such refusal or provision of false information. The provisions of section 1128A (other than subsections (a) and (b)) shall apply to civil money penalties under the previous sentence in the same manner as such provisions apply to a penalty or proceeding under section 1128A(a). Information gathered pursuant to the survey shall not be disclosed except as the Secretary determines to be necessary to carry out the purposes of this part. “(iii) Quantity and timing.—Such determination shall be based on the price or prices for purchases in reasonable quantities and shall be made for a payment calculation period based on prices for the first day of 102 STAT. 708the first month of the previous payment calculation period. “(iv) Geographic basis.—The Secretary shall make such determination, and calculate the payment limits under this paragraph, on a national basis; except that the Secretary may make such determination, and calculate such payment limits, on a regional basis to take account of limitations on the availability of drug products and variations among regions in the average wholesale prices for a drug product. “(4) Administrative allowance for purposes of payment limits.— “(A) In general.— Except as provided in subparagraph (B), for drugs dispensed in— “(i) 1990 or 1991, the administrative allowance under this paragraph is— “(I) $4.50 for drugs dispensed by a participating pharmacy, or “(II) $2.50 for drugs dispensed by another pharmacy; or “(ii) a subsequent year, the administrative allowance under this paragraph is the administrative allowance under this paragraph for the preceding year increased by the percentage increase (if any) in the implicit price deflator for gross national product (as published by the Department of Commerce in its ‘Survey of Current Business’) over the 12-month period ending with August of such preceding year. Any allowance determined under the clause (ii) which is not a multiple of 1 cent shall be rounded to the nearest multiple of 1 cent. “(B) Adjustment in allowance for mail service pharmacies.—The Secretary may, by regulation and after consultation with pharmacists, elderly groups, and private insurers, reduce the administrative allowances established under subparagraph (A) for any drug dispensed by a mail service pharmacy (as defined by the Secretary) based on differences between such pharmacies and other pharmacies with respect to operating costs and other economies. “(5) Assuring appropriate prescribing and dispensing practices.— “(A) In general.— The Secretary shall establish a program to identify (and to educate physicians and pharmacists concerning)— “(i) instances or patterns of unnecessary or inappropriate prescribing or dispensing practices for covered outpatient drugs, “(ii) instances or patterns of substandard care with respect to such drugs, and “(iii) potential adverse reactions. “(B) Standards.—In carrying out the program under subparagraph (A), the Secretary shall establish for each covered outpatient drug standards for the prescribing of the drug which are based on accepted medical practice. In establishing such standards, the Secretary shall incorporate standards from such current authoritative compendia as the Secretary may select; except that the Secretary may 102 STAT. 709modify such a standard by regulation on the basis of scientific and medical information that such standard is not consistent with the safe and effective use of the drug. “(C) Prohibition of formulary.— Nothing in this title (including paragraph (8)), other than sections 1861(t)(4)(A) and 1862(c), shall be construed as authorizing the Secretary to exclude from coverage or to deny payment— “(i) for any specific covered outpatient drug, or specific class of covered outpatient drug, or “(ii) for any specific use of such a drug for a specific indication unless such exclusion is pursuant to section 1862(a)(1) based on a finding by the Secretary that such use is not safe or is not effective. “(6) Treatment of certain prepaid organizations.— “(A) General rule counting prepaid plan expenses towards the catastrophic drug deductible.—Except as provided in subparagraph (B), expenses incurred by (or on behalf of) a medicare beneficiary for covered outpatient drugs shall be counted (consistent with subparagraph (C)) toward the catastrophic drug deductible established under paragraph (1) whether or not, at the time the expenses were incurred, the beneficiary was enrolled in a plan under section 1833(a)(1)(A) or under section 1876. “(B) Treatment of drug buy-out plan expenses.— In the case of a medicare beneficiary enrolled in a month in a drug buy-out plan (as defined in subparagraph (D))— “(i) expenses incurred by the beneficiary for covered outpatient drugs reimbursed under the plan shall not be counted towards the catastrophic drug deductible, but “(ii) if the individual disenrolls from the plan during the year, the beneficiary is deemed to have incurred, for each month of such enrollment, expenses for covered outpatient drugs in an amount equal to the actuarial value (with respect to such month) of the deductible for covered outpatient drugs (as computed by the Secretary for purposes of section 1876(e)(1)) applicable on the average to individuals in the United States. “(C) Treatment of expenses for covered outpatient drugs incurred while enrolled in a prepaid plan other than a drug buy-out plan.— The Secretary may not enter into a contract with an organization under section 1876, or provide for payment under section 1833(a)(1)(A) with respect to an organization which provides reimbursement for covered outpatient drugs, with respect to a plan that is not a drug buy-out plan, unless the organization provides assurances, satisfactory to the Secretary, that— “(i) the organization will maintain and make available, for its enrollees and in coordination with the appropriate carriers under this part, an accounting of expenses incurred by (or on behalf of) enrollees under the plan for covered outpatient drugs; and “(ii) the organization will take into account, in any deductibles established under the plan in a year with respect to covered outpatient drugs under this part, the amounts of expenses for covered outpatient drugs in-102 STAT. 710curred in the year by (or on behalf of) the beneficiary and otherwise counted towards the catastrophic drug deductible in the year. “(D) Drug buy-out plan defined.— In this paragraph, the term ‘drug buy-out plan’ means a plan under section 1833(a)(1)(A) or offered by an organization under section 1876 and with respect to which— “(i) the amount of any deductible under the plan with respect to covered outpatient drugs under this title, is less than 50 percent of— “(ii) the catastrophic drug deductible specified in paragraph (1)(C). “(E) Medicare beneficiary defined.—In this subsection, the term ‘medicare beneficiary’ means, with respect to a month, an individual covered for benefits under this part for the month. “(F) Treatment of plan charges.—In the case of covered outpatient drugs furnished by an eligible organization under section 1876(b) or an organization described in section 1833(a)(1)(A) which does not impose charges on covered outpatient drugs dispensed to its members, for purposes of this subsection the actual charges of the organization shall be the organization’s standard charges to members, and other individuals, not entitled to benefits with respect to such drugs. “(7) Physician guide.— “(A) In general.—The Secretary shall develop, and update annually, an information guide for physicians concerning the comparative average wholesale prices of at least 500 of the most commonly prescribed covered out-patient drugs. Such guide shall, to the extent practicable, group covered outpatient drugs (including multiple source drugs) in a manner useful to physicians by therapeutic category or with respect to the conditions for which they are prescribed. Such guide shall specify the average wholesale prices on the basis of the amount of the drug required for a typical daily therapeutic regimen. “(B) Mailing guide.— The Secretary shall provide for mailing, in January of each year (beginning with 1991), a copy of the guide developed and updated under subparagraph (A)— “(i) to each hospital with an agreement in effect under section 1866, “(ii) to each physician (as defined in section 1861(r)(1)) who routinely provides services under this part, and “(iii) to Social Security offices, senior citizen centers, and other appropriate places. “(8) Reports on outlays and receipts; special cost controls.— “(A) Compilation of information.— The Secretary shall compile information on— “(i) manufacturers’ prices for coveted outpatient drugs, and on charges of pharmacists for covered out-patient drugs, and “(ii) the use of covered outpatient drugs by individuals entitled to benefits under this part. 102 STAT. 711 The information compiled under clause (i) shall include a comparison of the increases in prices and charges for covered outpatient drugs during each 6 month period (beginning with January 1987) with the semiannual average increase in such prices and charges during the 6 years beginning with 1981. “(B) Reports.—The Secretary shall submit to the Committees on Ways and Means and Energy and Commerce of the House of Representatives and the Committee on Finance of the Senate a report, in May and November of 1989 and 1990 and in May of each succeeding year, providing the information compiled under subparagraph (A). For each such report submitted after 1991, the report shall include an explanation of the extent to which the increases in outlays for covered outpatient drugs under this part are due to the factors described in subparagraphs (A)(1) and (A)(ii). “(C) Monthly reports on outlays and receipts.—Within 30 days after the end of each month (beginning with October 1991 and ending with April 1993), the Secretary shall report to Congress on the outlays and receipts of the Federal Catastrophic Drug Insurance Trust Fund (in this paragraph referred to as the ‘Trust Fund’) in the month. “(D) Budgetary information.— “(i) In general.— In each report submitted under subparagraph (B) after 1991, the Secretary shall include information on— “(I) the projected budgetary status of the Trust Fund for the succeeding year, “(II) the projected increases in manufacturers’ prices for covered outpatient drugs and in charges of pharmacists for covered outpatient drugs, ‘(III) the projected level of utilization of covered outpatient drugs by medicare beneficiaries, and “(IV) the projected administrative costs relating to covered outpatient drugs. “(ii) Determination and publication of any outlay controls for 1993 and 1994.— For each such report in 1992 and 1993, the Secretary— “(I) shall determine in the report whether the anticipated outlays and receipts of the Trust Fund for the succeeding year will provide for at least the minimum contingency margin specified in subparagraph (F) for that succeeding year, and “(II) if not, shall include in the report (and shall publish in the Federal Register by May 1 of the year a proposed regulation to carry out) changes in the provisions of this part (consistent with subparagraph (E)) in order to reduce outlays from the Trust Fund in that succeeding year sufficiently to provide for the minimum contingency margin specified in subparagraph (F). Any changes described in subclause (ID in such report shall reflect appropriately each of the anticipated causes of increased or unanticipated outlays for covered outpatient drugs. 102 STAT. 712 “(iii) Effectiveness of regulatory changes.—If proposed regulations are published under clause (ii)(II) in 1992 or 1993, during the last 3 days of September of such year, the Secretary shall publish in the Federal Register a final regulation to implement the changes described in such clause. Notwithstanding any other provision of this part, but subject to subparagraph (E) and unless otherwise provided by law, such changes shall become effective on January 1 of the succeeding year and shall apply only during that succeeding year. Such final regulation may not revise the proposed regulation in a manner that would result in a greater reduction in outlays than would have been the case under the proposed regulation. “(E) Limitation on changes.— In making regulatory changes under subparagraph (D), the Secretary may not— “(i) provide for a formulary (in violation of paragraph (5)(0); “(ii) change the methodology for determining whether for a year an individual has met the catastrophic drug deductible established under paragraph “(iii) increase the coinsurance percent under paragraph (2)(0 for a year above the coinsurance percent in effect during the previous year. Clause (ii) shall not be construed as prohibiting the Secretary from increasing the amount of the catastrophic drug deductible under paragraph (1)(A). “(F) Minimum contingency margin defined.— In this paragraph, the term ‘minimum contingency margin’ means— “(i) for 1993, 50 percent, and “(ii) for 1994, 25 percent. Such margin shall be determined as of the close of each calendar year and shall be determined based on the total outlays from the Trust Fund during the year. “(9) Definitions.— In this subsection: “(A) Multiple source drug.— “(i) In general.— The term ‘multiple source drug’ means, with respect to a payment calculation period, a covered outpatient drug for which there are 2 or more drug products which— “(I) are rated as therapeutically equivalent (under the Food and Drug Administration’s most recent publication of ‘Approved Drug Products with Therapeutic Equivalence Evaluations’), “(II) except as provided in clause (ii), are pharmaceutically equivalent and bioequivalent, as defined in clause (iii) and as determined by the Food and Drug Administration, and “(III) are sold or marketed during the period. “(ii) Exception.—Subclause (II) of clause (i) shall not apply if the Food and Drug Administration changes by regulation (after an opportunity for public comment of 90 days) the requirement that, for purposes of the publication described in clause (i)(I), in order for drug products to be rated as therapeutically equivalent, 102 STAT. 713 they must be pharmaceutically equivalent and bioequivalent, as defined in clause (iii). “(iii) Definitions.— For purposes of this subparagraph: “(I) Pharmaceutically equivalent.—Drug products are pharmaceutically equivalent if the products contain identical amounts of the same active drug ingredient in the same dosage form and meet compendial or other applicable standards of strength, quality, purity, and identity. “(II) Bioequivalent.—Drugs are bioequivalent if they do not present a known or potential bioequivalence problem or, if they do present such a problem, are shown to meet an appropriate standard of bioequivalence. “(III) Sold or marketed.— A drug is considered to be sold or marketed during a period if it is listed in the publications referred to in clause (i)(I), unless the Secretary determines that such sale or marketing is not actually taking place. “(B) Restrictive prescription.— A drug has a ‘restrictive prescription’ only if— “(i) in the case of a written prescription, the prescription for the drug indicates, in the handwriting of the physician or other person prescribing the drug and with an appropriate phrase (such as ‘brand medically necessary’) recognized by the Secretary, that the particular drug must be dispensed, or “(ii) in the case of a prescription issued by telephone— “(I) the physician or other person prescribing the drug (through use of such an appropriate phrase) states that the particular drug must be dispensed, and “(II) the physician or other person submits to the pharmacy involved, within 30 days after the date of the telephone prescription, a written confirmation which is in the handwriting of the physician or other person prescribing the drug and which indicates with such appropriate phrase that the particular drug was required to have been dispensed. “(C) Payment calculation period.—The term ‘payment calculation period’ means the 6-month period beginning with January of each year and the 6-month period beginning with July of each year. “(D) Outlays; receipts.—The terms ‘outlays’ and ‘receipts’ mean, with respect to a year or other period, gross outlays and receipts, as such terms are employed in the ‘Monthly Treasury Statement of Receipts and Outlays of the United States Government (MTS)’, as published by the Department of the Treasury, for months in such year or other period.”. (c) Participating Pharmacies; Civil Money Penalties.— (1) Participating pharmacies.— Section 1842 (42 U.S.C. 1395t) is amended— 102 STAT. 714 (A) in subsection (h)(1), by inserting before the period at the end of the second sentence the following: “, except that, with respect to a supplier of covered outpatient drugs, the term ‘participating supplier’ means a participating pharmacy (as defined in subsection (o)(1))”; (B) in subsection (h)(4), is amended by adding at the end the following: “In publishing directories under this paragraph, the Secretary shall provide for separate directories (wherever appropriate) for participating pharmacies.”; and (C) by adding at the end the following new subsection: “(o) (1) For purposes of this section, the term ‘participating pharmacy’ means, with respect to covered outpatient drugs dispensed on or after January 1, 1991, an entity which is authorized under a State law to dispense covered outpatient drugs and which has entered into an agreement with the Secretary, providing at least the following: “(A) The entity agrees to accept payment under this part on an assignment-related basis for all covered outpatient drugs dispensed to an individual entitled to benefits under this part (in this subsection referred to as a ‘medicare beneficiary’) during a year after— “(i) the Secretary has notified the entity, through the electronic system described in subparagraph (D)(i), or “(ii) in the absence of such a system, the entity is otherwise notified that the Secretary has determined, that the individual has met the catastrophic drug deductible with respect to such drugs under section 1834(c)(1) for the year. “(B) The entity agrees— “(i) not to refuse to dispense covered outpatient drugs stocked by the entity to any medicare beneficiary, and “(ii) not to charge medicare beneficiaries (regardless of whether or not the beneficiaries are enrolled under a prepaid health plan or with eligible organization under section 1876) more for such drugs than the amount it charges to the general public (as determined by the Secretary in regulations). “(C) The entity agrees to keep patient records (including records on expenses) for all covered outpatient drugs dispensed to all medicare beneficiaries. “(D) The entity agrees to submit information (in a manner specified by the Secretary to be necessary to administer this title) on all purchases of covered outpatient drugs dispensed to medicare beneficiaries. “(E) The entity agrees— “(i) to offer to counsel, or to offer to provide information (consistent with State law respecting the provision of such information) to, each medicare beneficiary on the appropriate use of a drug to be dispensed and whether there are potential interactions between the drug and other drugs dispensed to the beneficiary; and “(ii) to advise the beneficiary on the availability (consistent with State laws respecting substitution of drugs) of therapeutically equivalent covered outpatient drugs. “(F) The entity agrees to provide the information requested by the Secretary in surveys under section 1834(c)(3)(C)(ii). Nothing in this paragraph shall be construed as requiring a pharmacy operated by an eligible organization (described in section 1876(b)) or an organization described in section 1833(a)(1)(A) for the 102 STAT. 715 exclusive benefit of its members to dispense covered outpatient drugs to individuals who are not members of the organization. “(2) The Secretary shall provide to each participating pharmacy.— “(A) a distinctive emblem (suitable for display to the public) indicating that the pharmacy is a participating pharmacy, and “(B) upon request, such electronic equipment and technical assistance (other than the costs of obtaining, maintaining, or expanding telephone service) as the Secretary determines may be necessary for the pharmacy to submit claims using the electronic system established under paragraph (4). “(3) The Secretary shall provide for periodic audits of participating pharmacies to assure— “(A) compliance with the requirements for participation under this title, and “(B) the accuracy of information submitted by the pharmacies under this title. “(4) The Secretary shall establish, by not later than January 1, 1991, a point-of-sale electronic system for use by carriers and participating pharmacies in the submission of information respecting covered outpatient drugs dispensed to medicare beneficiaries under this part. “(5) Notwithstanding subsection (b)(3)(B), payment for covered outpatient drugs may be made on the basis of an assignment described in clause (ii) of that subsection only to a participating pharmacy.”. (2) Civil money penalties fob violation of participation agreement, for e)(cessive charges for nonparticipating pharmacies and for failure to provide survey information.— Section 1128A(a) (42 U.S.C. 1320a–7a(a)) is amended— (A) by striking “or” at the end of paragraph (1), (B) in paragraph (2)(C), by inserting “or to be a participating pharmacy under section 1842(o)” after “1842(h)(1)”, (C) by striking “, or” at the end of paragraph (2) and inserting a semicolon, (D) by adding “or” at the end of paragraph (3), and (E) by inserting after paragraph (3) the following new paragraph: “(4) in the case of a participating or nonparticipating pharmacy (as defined for purposes of part B of title )(VIII)— “(A) presents or causes to be presented to any person a request for payment for covered outpatient drugs dispensed to an individual entitled to benefits under part B of title )(VIII and for which the amount charged by the pharmacy is greater than the amount the pharmacy charges the general public (as determined by the Secretary in regulations), or “(B) fails to provide the information requested by the Secretary in a survey under section 1834(c)(3)(C)(ii);”. (d) Limitation on Length of Prescription.—Section 1862(c) (42 U.S.C. 1395y(c)) is amended— (1) by redesignating subparagraphs (A) through (D) of paragraph (1) as clauses (i) through (iv), respectively; (2) in paragraph (2)(A), by striking “paragraph (1)” and inserting “subparagraph (A)”; (3) by redesignating subparagraphs (A) and (B) of paragraph (2) as clauses (i) and (ii), respectively; 102 STAT. 716 (4) by redesignating paragraphs (1) and (2) as subparagraphs (A) and (B), respectively; (5) by inserting “(1)” after “(c)”; and (6) by adding at the end the following new paragraph: “(2) No payment may be made under part B for any expense incurred for a covered outpatient drug if the drug is dispensed in a quantity exceeding a supply of 30 days or such longer period of time (not to exceed 90 days, except in exceptional circumstances) as the Secretary may authorize.”. (e) Use of Carriers, Fiscal Intermediaries, and Other Entities in Administration.— (1) Authorizing use of other entities in electronic claims system.— Section 1842(f) (42 U.S.C. 1395u(f)) is amended— (A) by striking “and” at the end of paragraph (1), (B) by striking the period at the end of paragraph (2) and inserting and”, and (C) by adding at the end the following new paragraph: “(3) with respect to implementation and operation (and related functions) of the electronic system established under subsection (o)(4), a voluntary association, corporation, partnership, or other nongovernmental organization, which the Secretary determines to be qualified to conduct such activities.”. (2) Additional functions of carriers.— Section 1842(b)(3) (42 U.S.C. 1395u(b)(3)), as amended by section 201(c) of this Act, is amended— (A) by striking “and” at the end of subparagraph (H), and (B) by inserting after subparagraph (I) the following new subparagraphs: “(J) if it makes determinations or payments with respect to covered outpatient drugs, will— “(i) receive information transmitted under the electronic system established under subsection (o)(4), and “(ii) respond to requests by participating pharmacies (and individuals entitled to benefits under this part) as to whether or not such an individual has met the catastrophic drug deductible established under section 1834(c)(1)(A) for a year; and “(K) will enter into such contracts with organizations described in subsection (f)(3) as the Secretary determines may be necessary to implement and operate (and for related functions with respect to) the electronic system established under subsection (o)(4) for covered outpatient drugs under this part;”. (3) Special contract provisions for electronic claims system.— (A) Payment on other than a cost basis.— Section 1842(c)(1)(A) (42 U.S.C. 1395u(c)(1)(A)) is amended— (i) by inserting “(i)” after “(c)(1)(A)”, (ii) in the first sentence, by inserting “, except as provided in clause (ii),” after “under this part, and”, and (iii) by adding at the end the following new clause: “(ii) To the extent that a contract under this section provides for implementation and operation (and related functions) of the electronic system established under subsection (o)(4) for covered out-patient drugs, the Secretary may provide for payment for such activities based on any method of payment determined by the Secretary to be appropriate.”. 102 STAT. 717 (B) Application of different performance standards.—The Secretary of Health and Human Services, before entering into contracts under section 1842 of the Social Security Act with respect to the implementation and operation (and related functions) of the electronic system for covered outpatient drugs, shall establish standards with respect to performance with respect to such activities. The provisions of section 1153(e)(2), and paragraphs (1) and (2) of section 1153(h), of such Act shall apply to such activities in the same manner as they apply to contracts with peer review organizations, instead of the requirements of the last 2 sentences of section 1842(b)(2) of such Act. (C) Use of regional carriers.— Section 1842(b)(2) is amended by adding at the end the following new sentence: “With respect to activities relating to implementation and operation (and related functions) of the electronic system established under subsection (o)(4), the Secretary may enter into contracts with carriers under this section to perform such activities on a regional basis.”. (4) Adjustment of carrier obligations.— (A) No toll-free telephone number required of limited carriers.—Section 1842(h)(2) (42 U.S.C. 1395u(h)(2)) is amended by inserting “(other than a carrier described in subsection (f)(3))” after “Each carrier”. (B) Delay in application of coordinated benefits with medigap.—The provisions of subparagraph (B) of section 1842(h)(3) of the Social Security Act shall not apply to covered outpatient drugs (other than drugs described in section 1861(s)(2)(J) of such Act as of the date of the enactment of this Act) dispensed before January 1, 1993. (5) Batch prompt processing of claims.— Section 1842(c) (42 U.S.C. 1395u(c)) is amended— (A) in paragraphs (2)(A) and (3)(A), by striking “Each” and inserting “Except as provided in paragraph (3), each”; (B) by adding at the end the following new paragraph: “(4) (A) Each contract under this section which provides for the disbursement of funds, as described in subsection (a)(1)(B), with respect to claims for payment for covered outpatient drugs shall provide for a payment cycle under which each carrier will, on a monthly basis, make a payment with respect to all claims which were received and approved for payment in the period since the most recent date on which such a payment was made with respect to the participating pharmacy or individual submitting the claim. “(B) If payment is not issued, mailed, or otherwise transmitted within 5 days of when such a payment is required to be made under subparagraph (A), interest shall be paid at the rate used for purposes of section 3902(a) of title 31, United States Code (relating to interest penalties for failure to make prompt payments) for the period beginning on the day after such 5-day period and ending on the date on which payment is made.”. (f) Modification of HMO/CMP Contracts.— (1) Separate actuarial determination for covered out-patient drug benefit.—Section 1876(e)(1) (42 U.S.C. 1395mm(e)(1)) is amended by adding at the end thereof the following new sentence: “The preceding sentence shall be applied separately with respect to covered outpatient drugs.”. 102 STAT. 718 (2) Additional optional benefits.—Section 1876(g)(3)(A) (42 U.S.C. 1395mm(g)(3)(A)) is amended by striking rate” and inserting “rates”. (g) Requiring Submission of Diagnostic Information.—Section 1842 (42 U.S.C. 1395u), as amended by subsection (c)(1)(C), is amended by adding at the end the following new subsection: “(p) (1) Each request for payment, or bill submitted, for an item or service furnished by a physician for which payment may be made under this part shall include the appropriate diagnosis code (or codes) as established by the Secretary for such item or service. “(2) In the case of a request for payment for an item or service furnished by a physician on an assignment-related basis which does not include the code (or codes) required under paragraph (1), payment may be denied under this part. “(3) In the case of a request for payment for an item or service furnished by a physician not submitted on an assignment-related basis and which does not include the code (or codes) required under paragraph (1)— “(A) if the physician knowingly and willfully fails to provide the code (or codes) promptly upon request of the Secretary or a carrier, the physician may be subject to a civil money penalty in an amount not to exceed $2,000, and “(B) if the physician knowingly, willfully, and in repeated cases fails, after being notified by the Secretary of the obligations and requirements of this subsection, to include the code (or codes) required under paragraph (1), the physician may be subject to the sanction described in section 1842(j)(2)(A). The provisions of section 1128A (other than subsections (a) and (b)) shall apply to civil money penalties under subparagraph (A) in the same manner as they apply to a penalty or proceeding under section 1128A(a).”. (h) Conforming Amendments.— (1) The first sentence of section 1866(a)(2)(A) (42 U.S.C. 1395cc(a)(2)(A)) is amended— (A) by inserting “1834(c),” after “1833(b),”, and (B) by inserting “and in the case of covered outpatient drugs, applicable coinsurance percent (specified in section 1834(c)(2)(C)) of the lesser of the actual charges for the drugs or the payment limit (established under section 1834(c)(3))” after “established by the Secretary”. (2) Section 1903(i)(5) (42 U.S.C. 1396b(i)(5)) is amended by striking “section 1862(c)” and inserting “section 1862(c)(1)” (i) Reports on Medicare Beneficiary Drug Expenses.— (1) hhs.— The Secretary of Health and Human Services, by not later than April 1, 1989— (A) using data from the 1987 National Medical Expenditures Survey (conducted by the National Center for Health Services Research and Health Care Technology Assessment), shall report to Congress on expenses incurred by medicare beneficiaries for outpatient prescription drugs, and (B) shall provide the Director of the Congressional Budget Office with such data from that Survey as the Director may request to make the estimates required under paragraph (2). (2) Reestimation of costs.—The Director of the Concessional Budget Office shall transmit to the Congress, not later 102 STAT. 719than June 1, 1989, or, if later, 60 days after the date of providing data requested under paragraph (1)(B), the Director’s estimate of the outlays which will be made (in each of fiscal years 1990, 1991, 1992, and 1993) under the medicare program for covered outpatient drugs (under the amendments made by this section). (j) Prescription Drug Payment Review Commission.—Part B is amended by adding at the end the following new section: “prescription drug payment review commission “Sec. 1847. (a) (1) The Director of the Congressional Office of Technology Assessment (in this section referred to as the ‘Director’ and the ‘Office’, respectively) shall provide for the appointment of a Prescription Drug Payment Review Commission (in this section referred to as the ‘Commission’), to be composed of individuals with expertise in the provision and financing of covered outpatient drugs appointed by the Director (without regard to the provisions of title 5, United States Code, governing appointments in the competitive service). “(2) The Commission shall consist of 11 individuals. Members of the Commission shall first be appointed by no later than January 1, 1989, for a term of 3 years, except that the Director may provide initially for such shorter terms as will insure that (on a continuing basis) the terms of no more than 4 members expire in any one year. “(3) The membership of the Commission shall include recognized experts in the fields of health care economics, medicine, pharmacology, pharmacy, and prescription drug reimbursement, as well as at least one individual who is a medicare beneficiary. “(b) (1) The Commission shall submit to Congress an annual report no later than May 1 of each year, beginning with 1990, concerning methods of determining payment for covered outpatient drugs under this part. “(2) Such report, in 1992 and thereafter, shall include, with respect to the previous year, information on— “(A) increases in manufacturers’ prices for covered outpatient drugs and in charges of pharmacists for covered outpatient drugs, “(B) the level of utilization of covered outpatient drugs by medicare beneficiaries, and “(C) administrative costs relating to covered outpatient drugs. “(3) Such report, in 1992 and thereafter, shall include comments on the budgetary status of the Federal Catastrophic Drug Insurance Trust Fund and recommendations for any reductions in outlays that may be required to achieve the contingency margin (established under section 1841A(d) for the following year), taking into account each of the causes of increased or unanticipated outlays for covered outpatient drugs in the year. “(c) Section 1845(c)(1) shall apply to the Commission in the same manner as it applies to the Physician Payment Review Commission. “(d) There are authorized to be appropriated such sums as may be necessary to carry out the provisions of this section. Such sums shall be payable from the Federal Catastrophic Drug Insurance Trust Fund.”. (k) Additional Studies.— (1) hhs.— The Secretary of Health and Human Services (in this section referred to as the “Secretary”) shall conduct the 102 STAT. 720 following studies, and report to Congress on the results of each such study by the following dates: (A) A study of the possibility of including drugs which have not yet been approved under section 505 or 507 of the Federal Food, Drug, and Cosmetic Act and biological products which have not been licensed under section 351 of the Public Health Service Act but which are commonly used in the treatment of cancer or in immunosuppressive therapy and other experimental drugs and biological products as covered outpatient drugs under the medicare program, for which a report shall be made by January 1, 1990. The study under this subparagraph shall be conducted in consultation with an advisory board of consumers, experts in the fields of cancer chemotherapy and immunosuppressive therapy, representatives of pharmaceutical manufacturers, and such other individuals as the Secretary may select. (B) A study to evaluate the potential to use mail service pharmacies to reduce costs to the medicare program and to medicare beneficiaries, for which a report shall be made by January 1, 1990. (C) A study of methods to improve utilization review of covered outpatient drugs, for which a report shall be made by January 1, 1993. (D) A longitudinal study, to be conducted as a follow-up to the data collected under the survey referred to in subsection (i)(1)(A), on the use of outpatient prescription drugs by medicare beneficiaries with respect to medical necessity, potential for adverse drug interactions, cost (including whether lower cost drugs could have been used), and patient stockpiling or wastage, for which a report shall be made by January 1, 1993. (2) gao.— The Comptroller General shall conduct the following studies, and report to Congress on the results of each such study by not later than May 1, 1991: (A) A study comparing average wholesale prices with actual pharmacy acquisition costs by type of pharmacy. (B) A study to determine the overhead costs of retail pharmacies. (C) A study of the discounts given by pharmacies to other third-party insurers. Pharmacies which fail to provide the Comptroller General with reasonable access to necessary records to carry out the studies under this paragraph are subject to exclusion from the medicare and medicare programs under section 1128(a) of the Social Security Act. (l) Development of Standard Medicare Claims Form.— (1) The Secretary shall develop, in consultation with representatives of pharmacies and other interested individuals, a standard claims form (and a standard electronic claims format) to be used in requests for payment for covered outpatient drugs under the medicare program and other third-party payors. (2) Not later than October 1, 1989, the Secretary shall distribute official sample copies of the format developed under paragraph (1) to pharmacies and other interested parties and by not later than October 1, 1990, shall distribute official sample copies of the form developed under paragraph (1) to pharmacies and other interested parties. 102 STAT. 721 (m) Effective Dates.— (1) In general.—Except as otherwise provided in this subsection, the amendments made by this section shall apply to items dispensed on or after January 1, 1990. (2) Carriers.—The amendments made by subsection (e) shall take effect on the date of the enactment of this Act; except that the amendments made by subsection (e)(5) shall take effect on January 1, 1991, but shall not be construed as requiring payment before February 1, 1991. (3) HMO/CMP enrollments.—The amendment made by subsection (f) shall apply to enrollments effected on or after January 1, 1990. (4) Diagnostic coding.—The amendment made by subsection (g) shall apply to services furnished after March 31, 1989. (5) Transition.—With respect to administrative expenses (and costs of the Prescription Drug Payment Review Commission) for periods before January 1, 1990, amounts otherwise payable from the Federal Catastrophic Drug Insurance Trust Fund shall be payable from the Federal Supplementary Medical Insurance Trust Fund and shall also be treated as a debit to the Medicare Catastrophic Coverage Account.