Title II, SEC. 2002. PAYMENT RULES AND RELATED REQUIREMENTS FOR COVERED OUTPATIENT DRUGS. (a) In General. Section 1834 of the Social Security Act (42 U.S.C. 1395m) is amended by inserting after subsection (c) the following new subsection: ``(d) Payment for and Certain Requirements Concerning Covered Outpatient Drugs. ``(1) Deductible. ``(A) In general. Payment shall be made under paragraph (2) only for expenses incurred by an individual for a covered outpatient drug during a calendar year after the individual has incurred expenses in the year for such drugs (during a period in which the individual is entitled to benefits under this part) equal to the deductible amount for that year. ``(B) Deductible amount. ``(i) For purposes of subparagraph (A), the deductible amount is ``(I) for 1996, $250, and ``(II) for any succeeding year, the amount (rounded to the nearest dollar) that the Secretary estimates will ensure that the percentage 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 the year who will incur expenses for covered outpatient drugs equal to or greater than such amount will be the same as the percentage for the previous year. ``(ii) The Secretary shall promulgate the deductible amount for 1997 and each succeeding year during September of the previous year. ``(C) Special rule for determination of expenses incurred. In determining the amount of expenses incurred by an individual for covered outpatient drugs during a year for purposes of subparagraph (A), there shall not be included any expenses incurred with respect to a drug to the extent such expenses exceed the payment basis for such drug under paragraph (3). ``(2) Payment amount. ``(A) In general. Subject to the deductible established under paragraph (1), the amount payable under this part for a covered outpatient drug furnished to an individual during a calendar year shall be equal to ``(i) 80 percent of the payment basis described in paragraph (3), in the case of an individual who has not incurred expenses for covered outpatient drugs during the year (including the deductible imposed under paragraph (1)) in excess of the out-of-pocket limit for the year under subparagraph (B); and ``(ii) 100 percent of the payment basis described in paragraph (3), in the case of any other individual. ``(B) Out-of-pocket limit described. ``(i) For purposes of subparagraph (A), the out-of-pocket limit for a year is equal to ``(I) for 1996, $1000, and ``(II) for any succeeding year, the amount (rounded to the nearest dollar) that the Secretary estimates will ensure that the percentage 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 the year who will incur expenses for covered outpatient drugs equal to or greater than such amount will be the same as the percentage for the previous year. ``(ii) The Secretary shall promulgate the out-of-pocket limit for 1997 and each succeeding year during September of the previous year. ``(C) Special rule for determination of expenses incurred. In determining the amount of expenses incurred by an individual for covered outpatient drugs during a year for purposes of subparagraph (A), there shall not be included any expenses incurred with respect to a drug to the extent such expenses exceed the payment basis for such drug under paragraph (3). ``(3) Payment basis. For purposes of paragraph (2), the payment basis is the lesser of ``(A) the actual charge for a covered outpatient drug, or ``(B) the applicable payment limit established under paragraph (4). ``(4) Payment limits. ``(A) Payment limit for single source drugs and multiple source drugs with restrictive prescriptions. In the case of a covered outpatient drug that is a multiple source drug which has a restrictive prescription, or that is single source drug, the payment limit for a payment calculation period is equal to ``(i) for drugs furnished after 1996, the 90th percentile of the actual charges (computed on the geographic basis specified by the Secretary) for the drug product for the second previous payment calculation period, or ``(ii) the amount of the administrative allowance (established under paragraph (5)) plus the product of the number of dosage units dispensed and the per unit estimated acquisition cost for the drug product (determined under subparagraph (C)) for the period, whichever is less. ``(B) Payment limit for multiple source drugs without restrictive prescriptions. In the case of a drug that is a multiple source drug which does not have a restrictive prescription, the payment limit for a payment calculation period is equal to the amount of the administrative allowance (established under paragraph (5)) plus the product of the number of dosage units dispensed and the unweighted median of the unit estimated acquisition cost (determined under subparagraph (C)) for the drug products for the period. ``(C) Determination of unit price. ``(i) In general. The Secretary shall determine, for the dispensing of a covered outpatient drug product in a payment calculation period, the estimated acquisition cost for the drug product. With respect to any covered outpatient drug product, such cost may not exceed 93 percent of the average manufacturer non-retail price for the drug (as defined in section 1850(f)(2)) during the period. ``(ii) Compliance with request for information. If a wholesaler or direct seller of a covered outpatient drug refuses, after being requested by the Secretary, to provide price information requested to carry out clause (i), 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 they apply to a penalty or proceeding under section 1128A(a). Information gathered pursuant to clause (i) shall not be disclosed except as the Secretary determines to be necessary to carry out the purposes of this part. ``(5) Administrative allowance for purposes of payment limit. ``(A) In general. Except as provided in subparagraph (B), the administrative allowance under paragraph (4) is ``(i) for 1996, $5, and ``(ii) for each succeeding year, the amount for the previous year adjusted by the percentage change in the consumer price index for all urban consumers (U.S. city average) for the 12-month period ending with June of that previous year. ``(B) Reduction for mail order pharmacies. The Secretary may, after consulting with representatives of pharmacists, individuals enrolled under this part, and of private insurers, reduce the administrative allowances established under subparagraph (A) for any covered outpatient drug dispensed by a mail order pharmacy, based on differences between such pharmacies and other pharmacies with respect to operating costs and other economies. ``(6) 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, ``(iii) potential adverse reactions, and ``(iv) appropriate use of generic products. ``(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 modify 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) Drug use review. The Secretary may provide for a drug use review program with respect to covered outpatient drugs dispensed to individuals eligible for benefits under this part. Such program may include such elements as the Secretary determines to be necessary to assure that prescriptions (i) are appropriate, (ii) are medically necessary, and (iii) are not likely to result in adverse medical results, including any elements of the State drug use review programs required under section 1927(g) that the Secretary determines to be appropriate. ``(7) Administrative improvements. The Secretary shall develop, in consultation with representatives of pharmacies and of other interested persons, a standard claims form for covered outpatient drugs in accordance with title V of the Health Security Act. ``(8) Definitions. In this subsection: ``(A) Multiple and single source drugs. The terms `multiple source drug' and `single source drug' have the meanings of those terms under section 1927(k)(7). ``(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 a particular drug product 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 a particular drug product 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 product 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.''. (b) Submission of Claims by Pharmacies. Section 1848(g)(4) of such Act (42 U.S.C. 1395w 4(g)(4)) is amended (1) in the heading (A) by striking ``Physician'', and (B) by inserting ``by physicians and suppliers'' after ``claims'', (2) in the matter in subparagraph (A) preceding clause (i) (A) by striking ``For services furnished on or after September 1, 1990, within 1 year'' and inserting ``Within 1 year (90 days in the case of covered outpatient drugs)'', (B) by striking ``a service'' and inserting ``an item or service'', and (C) by inserting ``or of providing a covered outpatient drug,'' after ``basis,'' and (3) in subparagraph (A)(i), by inserting ``item or'' before ``service. (c) Special Rules for Carriers. (1) Use of regional carriers. Section 1842(b)(2) of such Act (42 U.S.C. 1395u(b)(2)) is amended by adding at the end the following: ``(D) With respect to activities related to covered outpatient drugs, the Secretary may enter into contracts with carriers under this section to perform the activities on a regional basis.''. (2) Payment on other than a cost basis. Section 1842(c)(1)(A) of such Act (42 U.S.C. 1395u(c)(1)(A)) is amended (A) by inserting ``(i)'' after ``(c)(1)(A)'', (B) in the first sentence, by inserting ``, except as otherwise provided in clause (ii),'' after ``under this part, and'', and (C) by adding at the end the following: ``(ii) To the extent that a contract under this section provides for activities related to covered outpatient drugs, the Secretary may provide for payment for those activities based on any method of payment determined by the Secretary to be appropriate.''. (3) Use of other entities for covered outpatient drugs. Section 1842(f) of such Act (42 U.S.C. 1395u(f)) is amended (A) by striking ``and'' at the end of paragraph (1), (B) by substituting ``; and'' for the period at the end of paragraph (2), and, (C) by adding at the end the following: ``(3) with respect to activities related to covered outpatient drugs, any other private entity which the Secretary determines is qualified to conduct such activities.''. (4) Designated carriers to process claims of railroad retirees. Section 1842(g) of such Act (42 U.S.C. 1395u(g)) is amended by inserting ``(other than functions related to covered outpatient drugs)'' after ``functions''. (d) Contracts for Automatic Data Processing Equipment. Actions taken before 1995 that affect contracts related to the processing of claims for covered outpatient drugs (as defined in section 1861(t) of the Social Security Act) shall not be subject to section 111 of the Federal Property and Administrative Services Act of 1949, and shall not be subject to administrative or judicial review. (e) Conforming Amendments. (1)(A) Section 1833(a)(1) of such Act (42 U.S.C. 1395l(a)(1)), as amended by section 13544(b)(2) of OBRA 1993, is amended (i) by striking ``and'' at the end of clause (O), and (ii) by inserting before the semicolon at the end the following: ``, and (Q) with respect to covered outpatient drugs, the amounts paid shall be as prescribed by section 1834(d)''. (B) Section 1833(a)(2) of such Act (42 U.S.C. 1395l(a)(2)) is amended in the matter preceding subparagraph (A) by inserting ``, except for covered outpatient drugs,'' after ``and (I) of such section''. (2) Section 1833(b)(2) of such Act (42 U.S.C. 1395l(b)(2)) is amended by inserting ``or with respect to covered outpatient drugs'' before the comma. (3) The first sentence of section 1842(h)(2) of such Act (42 U.S.C. 1395u(h)(2)) is amended by inserting ``(other than a carrier described in subsection (f)(3))'' after ``Each carrier''. (4) The first sentence of section 1866(a)(2)(A) of such Act (42 U.S.C. 1395cc(a)(2)(A)) is amended (A) in clause (i), by inserting ``section 1834(d), after ``section 1833(b),'', and (B) in clause (ii), by inserting ``, other than for covered outpatient drugs,'' after ``provider)''.