[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[S. 2374 Placed on Calendar Senate (PCS)]

                                                       Calendar No. 562

103d CONGRESS

  2d Session

                                S. 2374

_______________________________________________________________________

                                 A BILL

 To improve the United States private health care delivery system and 
    Federal health care programs, to control health care costs, to 
 guarantee access to health insurance coverage for all Americans, and 
                          for other purposes.

_______________________________________________________________________

                            August 11, 1994

            Read the second time and placed on the calendar





                                                       Calendar No. 562
103d CONGRESS
  2d Session
                                S. 2374

 To improve the United States private health care delivery system and 
    Federal health care programs, to control health care costs, to 
 guarantee access to health insurance coverage for all Americans, and 
                          for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

               August 9 (legislative day, August 8), 1994

Mr. Dole (for himself and Mr. Packwood) introduced the following bill; 
                     which was read the first time

                            August 11, 1994

            Read the second time and placed on the calendar

_______________________________________________________________________

                                 A BILL


 
 To improve the United States private health care delivery system and 
    Federal health care programs, to control health care costs, to 
 guarantee access to health insurance coverage for all Americans, and 
                          for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

             TITLE I--AFFORDABLE HEALTH INSURANCE COVERAGE

                       Subtitle A--Tax Incentives

SEC. 100. AMENDMENT OF 1986 CODE.

    Except as otherwise expressly provided, whenever in this subtitle 
an amendment or repeal is expressed in terms of an amendment to, or 
repeal of, a section or other provision, the reference shall be 
considered to be made to a section or other provision of the Internal 
Revenue Code of 1986.

  PART I--EQUITABLE TAX TREATMENT OF INDIVIDUALS PROVIDING OWN HEALTH 
                                  CARE

SEC. 101. DEDUCTION FOR INDIVIDUALS AND SELF-EMPLOYED INDIVIDUALS 
              PROVIDING OWN HEALTH INSURANCE.

    (a) General Rule.--Section 213 (relating to medical, dental, etc. 
expenses) is amended by adding at the end the following new subsection:
    ``(f) Health Insurance Costs of Individuals.--
            ``(1) In general.--The adjusted gross income limitation 
        under subsection (a) shall not apply to amounts paid by an 
        individual during the taxable year for qualified health 
        insurance costs (and such amounts shall not be taken into 
        account in determining whether such limitation applies to other 
        amounts).
            ``(2) Qualified health insurance costs.--For purposes of 
        this subsection--
                    ``(A) In general.--The term `qualified health 
                insurance costs' means amounts paid for insurance 
                described in subsection (d)(1)(D)(i) for the taxpayer, 
                the taxpayer's spouse, or any dependent (as defined in 
                section 152).
                    ``(B) Limitations.--For purposes of subparagraph 
                (A)--
                            ``(i) No deduction for employer-subsidized 
                        health costs.--Qualified health insurance costs 
                        shall not include any amount paid for insurance 
                        coverage of an individual for any month if the 
                        individual is eligible to participate for such 
                        month in an employer-subsidized health plan 
                        maintained by any employer of the taxpayer, the 
                        taxpayer's spouse, or any dependent.
                            ``(ii) Phase-in.--In the case of taxable 
                        years beginning after 1993 and before 2000, 
                        only the following percentages of the qualified 
                        health insurance costs shall be taken into 
                        account:

``If the taxable year                                    The applicable
begins in:                                               percentage is:
    1994 or 1995..................................           25 percent
    1996 or 1997..................................           50 percent
    1998 or 1999..................................          75 percent.
            ``(3) Deduction not allowed for self-employment tax 
        purposes.--The deduction allowable by reason of this subsection 
        shall not be taken into account in determining an individual's 
        net earnings from self-employment (within the meaning of 
        section 1402(a)) for purposes of chapter 2.''
    (b) Deduction Allowed Against Gross Income.--Section 62(a) 
(defining adjusted gross income) is amended by inserting after 
paragraph (15) the following new paragraph:
            ``(16) Deduction for health insurance premiums.--The 
        deduction allowed under section 213(a) for amounts described in 
        section 213(f).''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1993.

                   PART II--MEDICAL SAVINGS ACCOUNTS

SEC. 111. DEDUCTION FOR CONTRIBUTIONS TO MEDICAL SAVINGS ACCOUNTS.

    (a) In General.--Part VII of subchapter B of chapter 1 (relating to 
additional itemized deductions for individuals) is amended by 
redesignating section 220 as section 221 and by inserting after section 
219 the following new section:

``SEC. 220. CONTRIBUTIONS TO MEDICAL SAVINGS ACCOUNTS.

    ``(a) Deduction Allowed.--In the case of an eligible individual, 
there shall be allowed as a deduction the amounts paid in cash during 
the taxable year by such individual to a medical savings account for 
the benefit of such individual or for the benefit of any spouse or 
dependent of such individual who is an eligible individual.
    ``(b) Limitations.--
            ``(1) Only 1 account per family.--Except as provided in 
        regulations prescribed by the Secretary, no deduction shall be 
        allowed under subsection (a) for amounts paid to any medical 
        savings account for the benefit of an individual, such 
        individual's spouse, or any dependent of such individual if 
        such individual, spouse, or dependent is a beneficiary of any 
        other medical savings account.
            ``(2) Dollar limitation.--
                    ``(A) In general.--The amount allowable as a 
                deduction under subsection (a) with respect to any 
                individual for the taxable year shall not exceed the 
                lesser of--
                            ``(i) $2,000 ($4,000 in the case of a 
                        medical savings account established on behalf 
                        of more than 1 individual), or
                            ``(ii) the high deductible health plan 
                        differential.
                In the case of a married individual filing a separate 
                return, clause (i) shall be applied by substituting 
                `$1,000' for `$2,000' and `$2,000' for `$4,000'.
                    ``(B) High deductible health plan differential.--
                For purposes of subparagraph (A)(ii), the high 
                deductible health plan differential with respect to any 
                individual is the amount by which the cost of the high 
                deductible health plan in which the individual is 
                enrolled is less than the cost of the health plan 
                providing the FedMed benefit package (within the 
                meaning of section 21115(b) of the Social Security 
                Act).
            ``(3) Phase-in of deduction.--In the case of taxable years 
        beginning after December 31, 1994, and before January 1, 2000, 
        only the following percentages of the deduction allowable under 
        this section (without regard to this paragraph) shall be 
        allowed:

``If the taxable year                                    The applicable
begins in:                                               percentage is:
    1995..........................................           25 percent
    1996 or 1997..................................           50 percent
    1998 or 1999..................................          75 percent.
    ``(c) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Eligible individual.--The term `eligible individual' 
        means any individual--
                    ``(A) who is covered under a high deductible health 
                plan during any portion of the calendar year with or 
                within which the taxable year begins, and
                    ``(B) who is not eligible during such calendar 
                year--
                            ``(i) to participate in an employer-
                        subsidized health plan maintained by an 
                        employer of the individual, the individual's 
                        spouse, or any dependent of either, or
                            ``(ii) to receive any employer contribution 
                        to a medical savings account.
        For purposes of subparagraph (B), a self-employed individual 
        (within the meaning of section 401(c)) shall not be treated as 
        his own employer.
            ``(2) High deductible health plan.--The term `high 
        deductible health plan' means a health plan which has--
                    ``(A) a deductible for each individual covered by 
                the plan which is not less than $1,000, and
                    ``(B) a family deductible which is not less than 
                $2,000.
            ``(3) Medical savings account.--The term `medical savings 
        account' has the meaning given such term by section 7705.
            ``(4) Time when contributions deemed made.--A contribution 
        shall be deemed to be made on the last day of the preceding 
        taxable year if the contribution is made on account of such 
        taxable year and is made not later than the time prescribed by 
        law for filing the return for such taxable year (not including 
        extensions thereof).''
    (b) Deduction Allowed Against Gross Income.--Subsection (a) of 
section 62 (defining adjusted gross income), as amended by section 101, 
is amended by inserting after paragraph (16) the following new 
paragraph:
            ``(17) Medical savings accounts.--The deduction allowed by 
        section 220.''
    (c) Clerical Amendment.--The table of sections for part VII of 
subchapter B of chapter 1 is amended by striking the last item and 
inserting the following new item:

                              ``Sec. 220. Contributions to medical 
                                        savings accounts.''
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1994.

SEC. 112. EXCLUSION FROM INCOME OF EMPLOYER CONTRIBUTIONS TO MEDICAL 
              SAVINGS ACCOUNTS.

    (a) In General.--Section 106 (relating to contributions by 
employers to accident and health plans) is amended by adding at the end 
the following new subsection:
    ``(b) Contributions to Medical Savings Accounts.--
            ``(1) Treatment of contributions.--
                    ``(A) In general.--Gross income of an employee who 
                is covered by a high deductible health plan of an 
                employer shall not include any employer contribution to 
                a medical savings account on behalf of the employee or 
                the employee's spouse or dependents.
                    ``(B) No constructive receipt.--No amount shall be 
                included in the gross income of any employee solely 
                because the employee may choose between the 
                contributions described in subparagraph (A) and 
                employer contributions to a health plan of the 
                employer.
            ``(2) Dollar limitation.--The amount which may be excluded 
        under paragraph (1) for any taxable year shall not exceed the 
        lesser of--
                    ``(A) $2,000 ($4,000 in the case of a medical 
                savings account established on behalf of more than one 
                individual), or
                    ``(B) the high deductible health plan differential.
            ``(3) High deductible health plan differential.--For 
        purposes of paragraph (2)(B), the high deductible health plan 
        differential with respect to any employee is the amount by 
        which the cost of the high deductible health plan in which the 
        employee is enrolled is less than--
                    ``(A) the cost of the health plan (for the same 
                class of enrollment) which--
                            ``(i) the employee is eligible to enroll in 
                        through the employer, and
                            ``(ii) has the highest cost of all health 
                        plans in which the employee may enroll in 
                        through the employer, or
                    ``(B) if the employee is not eligible to enroll in 
                any such health plan through the employer, the cost of 
                the health plan providing the FedMed benefit package.
            ``(4) Definitions.--For purposes of this subsection--
                    ``(A) In general.--The term `FedMed benefit 
                package' has the meaning given such term by section 
                21115(b) of the Social Security Act.
                    ``(B) High deductible health plan.--The term `high 
                deductible health plan' has the meaning given such term 
                by section 220(c)(2).
                    ``(C) Medical savings account.--The term `medical 
                savings account' has the meaning given such term by 
                section 7705.''
    (b) Employer Payments Excluded From Employment Tax Base.--
            (1) Social security taxes.--
                    (A) Subsection (a) of section 3121 is amended by 
                striking ``or'' at the end of paragraph (20), by 
                striking the period at the end of paragraph (21) and 
                inserting ``; or'', and by inserting after paragraph 
                (21) the following new paragraph:
            ``(22) any payment made to or for the benefit of an 
        employee if at the time of such payment it is reasonable to 
        believe that the employee will be able to exclude such payment 
        from income under section 106(b).''
                    (B) Subsection (a) of section 209 of the Social 
                Security Act is amended by striking ``or'' at the end 
                of paragraph (18), by striking the period at the end of 
                paragraph (19) and inserting ``; or'', and by inserting 
                after paragraph (19) the following new paragraph:
            ``(20) any payment made to or for the benefit of an 
        employee if at the time of such payment it is reasonable to 
        believe that the employee will be able to exclude such payment 
        from income under section 106(b) of the Internal Revenue Code 
        of 1986.''
            (2) Railroad retirement tax.--Subsection (e) of section 
        3231 is amended by adding at the end the following new 
        paragraph:
            ``(10) medical savings account contributions.--The term 
        `compensation' shall not include any payment made to or for the 
        benefit of an employee if at the time of such payment it is 
        reasonable to believe that the employee will be able to exclude 
        such payment from income under section 106(b).''
            (3) Unemployment tax.--Subsection (b) of section 3306 is 
        amended by striking ``or'' at the end of paragraph (15), by 
        striking the period at the end of paragraph (16) and inserting 
        ``; or'', and by inserting after paragraph (16) the following 
        new paragraph:
            ``(17) any payment made to or for the benefit of an 
        employee if at the time of such payment it is reasonable to 
        believe that the employee will be able to exclude such payment 
        from income under section 106(b).''
            (4) Withholding tax.--Subsection (a) of section 3401 is 
        amended by striking ``or'' at the end of paragraph (19), by 
        striking the period at the end of paragraph (20) and inserting 
        ``; or'', and by inserting after paragraph (20) the following 
        new paragraph:
            ``(21) any payment made to or for the benefit of an 
        employee if at the time of such payment it is reasonable to 
        believe that the employee will be able to exclude such payment 
        from income under section 106(b).''
    (c) Conforming Amendment.--Section 106 is amended by striking 
``Gross'' and inserting:
    ``(a) General Rule.--Gross''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1994.

SEC. 113. MEDICAL SAVINGS ACCOUNTS.

    (a) In General.--Chapter 79 is amended by adding at the end the 
following new section:

``SEC. 7705. MEDICAL SAVINGS ACCOUNTS.

    ``(a) General Rule.--The term `medical savings account' means a 
trust created or organized in the United States for the exclusive 
benefit of the beneficiaries of the trust, but only if the written 
governing instrument creating the trust meets the following 
requirements:
            ``(1) Except in the case of a rollover contribution 
        described in subsection (c)(4), no contribution will be 
        accepted unless--
                    ``(A) it is in cash, and
                    ``(B) it is made for a period during which the 
                individual on whose behalf it is made is covered under 
                a high deductible health plan.
            ``(2) Contributions will not be accepted for any calendar 
        year in excess of $2,000 ($4,000 in the case of an account 
        established on behalf of the individual and the individual's 
        spouse and dependents).
            ``(3) The trustee is a bank (as defined in section 408(n)), 
        insurance company (as defined in section 816), or another 
        person who demonstrates to the satisfaction of the Secretary 
        that the manner in which such person will administer the trust 
        will be consistent with the requirements of this section.
            ``(4) The assets of the trust will not be commingled with 
        other property except in a common trust fund or common 
        investment fund.
            ``(5) No part of the trust assets will be invested in life 
        insurance contracts.
            ``(6) The interest of an individual in the balance in the 
        individual's account is nonforfeitable.
    ``(b) Tax Treatment of Accounts.--
            ``(1) Account taxed as grantor trust.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the account beneficiary of a medical 
                savings account shall be treated for purposes of this 
                title as the owner of such account and shall be subject 
                to tax thereon in accordance with subpart E of part I 
                of subchapter J of this chapter (relating to grantors 
                and others treated as substantial owners).
                    ``(B) Treatment of capital losses.--With respect to 
                assets held in a medical savings account, any capital 
                loss for a taxable year from the sale or exchange of 
                such an asset shall be allowed only to the extent of 
                capital gains from such assets for such taxable year. 
                Any capital loss which is disallowed under the 
                preceding sentence shall be treated as a capital loss 
                from the sale or exchange of such an asset in the next 
                taxable year.
            ``(2) Account terminates if individual engages in 
        prohibited transaction.--
                    ``(A) In general.--If, during any taxable year of 
                the account beneficiary, such beneficiary engages in 
                any transaction prohibited by section 4975 with respect 
                to the account, the account shall cease to be a medical 
                savings account as of the first day of such taxable 
                year.
                    ``(B) Account treated as distributing all its 
                assets.--In any case in which any account ceases to be 
                a medical savings account by reason of subparagraph (A) 
                on the first day of any taxable year, subsection (c) 
                shall be applied as if--
                            ``(i) there were a distribution on such 
                        first day in an amount equal to the fair market 
                        value (on such first day) of all assets in the 
                        account (on such first day), and
                            ``(ii) no portion of such distribution were 
                        used to pay qualified medical expenses.
            ``(3) Effect of pledging account as security.--If, during 
        any taxable year, the account beneficiary uses the account or 
        any portion thereof as security for a loan, the portion so used 
        is treated as distributed and not used to pay qualified medical 
        expenses.
    ``(c) Tax Treatment of Distributions.--
            ``(1) Inclusion of amounts not used for qualified medical 
        expenses.--
                    ``(A) In general.--Any amount paid or distributed 
                out of a medical savings account which is not used 
                exclusively to pay the qualified medical expenses of 
                the account beneficiary or of the spouse or dependents 
                of such beneficiary shall be included in the gross 
                income of such beneficiary to the extent such amount 
                does not exceed the excess of--
                            ``(i) the aggregate contributions to such 
                        account which were not includible in gross 
                        income by reason of section 106(b) or which 
                        were deductible under section 220, over
                            ``(ii) the aggregate prior payments or 
                        distributions from such account which were 
                        includible in gross income under this 
                        paragraph.
                    ``(B) Special rules.--For purposes of subparagraph 
                (A)--
                            ``(i) all payments and distributions during 
                        any taxable year shall be treated as 1 
                        distribution, and
                            ``(ii) any distribution of property shall 
                        be taken into account at its fair market value 
                        on the date of the distribution.
            ``(2) Excess contributions returned before due date of 
        return.--Paragraph (1) shall not apply to the distribution of 
        any contribution paid during a taxable year to a medical 
        savings account to the extent that such contribution exceeds 
        the amount under subsection (a)(2) if--
                    ``(A) such distribution is received by the 
                individual on or before the last day prescribed by law 
                (including extensions of time) for filing such 
                individual's return for such taxable year, and
                    ``(B) such distribution is accompanied by the 
                amount of net income attributable to such excess 
                contribution.
        Any net income described in subparagraph (B) shall be included 
        in the gross income of the individual for the taxable year in 
        which it is received.
            ``(3) Penalty for distributions not used for qualified 
        medical expenses.--
                    ``(A) In general.--The tax imposed by chapter 1 on 
                the account beneficiary for any taxable year in which 
                there is a payment or distribution from a medical 
                savings account of such beneficiary which is includible 
                in gross income under paragraph (1) shall be increased 
                by 10 percent of the amount which is so includible.
                    ``(B) Exception for disability or death.--
                Subparagraph (A) shall not apply if the payment or 
                distribution is made after the account beneficiary 
                becomes disabled within the meaning of section 72(m)(7) 
                or dies.
                    ``(C) Exception for distributions after age 59\1/
                2\.--Subparagraph (A) shall not apply to any payment or 
                distribution after the date on which the account 
                beneficiary attains age 59\1/2\.
            ``(4) Rollover contribution.--An amount is described in 
        this paragraph as a rollover contribution if it meets the 
        requirements of subparagraphs (A) and (B).
                    ``(A) In general.--Paragraph (1) shall not apply to 
                any amount paid or distributed from a medical savings 
                account to the account beneficiary to the extent the 
                amount received is paid into a medical savings account 
                for the benefit of such beneficiary not later than the 
                60th day after the day on which the beneficiary 
                receives the payment or distribution.
                    ``(B) Limitation.--This paragraph shall not apply 
                to any amount described in subparagraph (A) received by 
                an individual from a medical savings account if, at any 
                time during the 1-year period ending on the day of such 
                receipt, such individual received any other amount 
                described in subparagraph (A) from a medical savings 
                account which was not includible in the individual's 
                gross income because of the application of this 
                paragraph.
            ``(5) Coordination with medical expense deduction.--For 
        purposes of section 213, any payment or distribution out of a 
        medical savings account for qualified medical expenses shall 
        not be treated as an expense paid for medical care to the 
        extent of the amount of such payment or distribution which is 
        excludable from gross income solely by reason of paragraph 
        (1)(A).
            ``(6)  Transfer of account incident to divorce.--The 
        transfer of an individual's interest in a medical savings 
        account to an individual's spouse or former spouse under a 
        divorce or separation instrument described in subparagraph (A) 
        of section 71(b)(2) shall not be considered a taxable transfer 
        made by such individual notwithstanding any other provision of 
        this subtitle, and such interest at the time of the transfer 
        shall be treated as a medical savings account of such spouse, 
        and not of such individual. Any such account or annuity shall, 
        for purposes of this subtitle, be treated as maintained for the 
        benefit of the spouse to whom the interest was transferred.
    ``(d) Definitions.--For purposes of this section--
            ``(1) Qualified medical expenses.--
                    ``(A) In general.--The term `qualified medical 
                expenses' means any expense--
                            ``(i) for medical care (as defined in 
                        section 213(d)), or
                            ``(ii) for qualified long-term care 
                        services (as defined in section 213(g)).
                    ``(B) Exception for insurance.--
                            ``(i) In general.--Such term shall not 
                        include any expense for insurance.
                            ``(ii) Exceptions.--Clause (i) shall not 
                        apply to any expense for--
                                    ``(I) coverage under a qualified 
                                long-term care contract (as defined in 
                                section 7702B(b)),
                                    ``(II) coverage under a health plan 
                                during a period of continuation 
                                coverage described in section 
                                4980B(f)(2)(B),
                                    ``(III) coverage under a medicare 
                                supplemental policy (as defined in 
                                section 1882(g)(1) of the Social 
                                Security Act), or
                                    ``(IV) payment of premiums under 
                                part A or B of title XVIII of the 
                                Social Security Act.
            ``(2) Account beneficiary.--The term `account beneficiary' 
        means the individual for whose benefit the medical savings 
        account is maintained.
    ``(e) Custodial Accounts.--For purposes of this section, a 
custodial account shall be treated as a trust if--
            ``(1) the assets of such account are held by a bank (as 
        defined in section 408(n)), insurance company (as defined in 
        section 816), or another person who demonstrates to the 
        satisfaction of the Secretary that the manner in which such 
        person will administer the account will be consistent with the 
        requirements of this section, and
            ``(2) the custodial account would, except for the fact that 
        it is not a trust, constitute a medical savings account 
        described in subsection (a).
For purposes of this title, in the case of a custodial account treated 
as a trust by reason of the preceding sentence, the custodian of such 
account shall be treated as the trustee thereof.
    ``(f) Reports.--The trustee of a medical savings account shall make 
such reports regarding such account to the Secretary and to the 
individual for whose benefit the account is maintained with respect to 
contributions, distributions, and such other matters as the Secretary 
may require under regulations. The reports required by this subsection 
shall be filed at such time and in such manner and furnished to such 
individuals at such time and in such manner as may be required by those 
regulations.''
    (b) Tax on Excess Contributions.--Section 4973 (relating to tax on 
excess contributions to individual retirement accounts, certain section 
403(b) contracts, and certain individual retirement annuities) is 
amended--
            (1) by inserting ``medical savings accounts,'' after 
        ``accounts,'' in the heading of such section,
            (2) by striking ``or'' at the end of paragraph (1) of 
        subsection (a),
            (3) by redesignating paragraph (2) of subsection (a) as 
        paragraph (3) and by inserting after paragraph (1) the 
        following:
            ``(2) a medical savings account (within the meaning of 
        section 7705(a)), or'', and
            (4) by adding at the end the following new subsection:
    ``(d) Excess Contributions to Medical Savings Accounts.--For 
purposes of this section, in the case of a medical savings account 
(within the meaning of section 7705(a)), the term `excess 
contributions' means the amount by which the amount contributed for the 
taxable year to the account exceeds the amount which may be contributed 
to the account under section 7705(a)(2) for such taxable year. For 
purposes of this subsection, any contribution which is distributed out 
of the medical savings account in a distribution to which section 
7705(c)(2) applies shall be treated as an amount not contributed.''
    (c) Tax on Prohibited Transactions.--Section 4975 (relating to 
prohibited transactions) is amended--
            (1) by adding at the end of subsection (c) the following 
        new paragraph:
            ``(4) Special rule for medical savings accounts.--An 
        individual for whose benefit a medical savings account (within 
        the meaning of section 7705(a)) is established shall be exempt 
        from the tax imposed by this section with respect to any 
        transaction concerning such account (which would otherwise be 
        taxable under this section) if, with respect to such 
        transaction, the account ceases to be a medical savings account 
        by reason of the application of section 7705(b)(2)(A) to such 
        account.'', and
            (2) by inserting ``or a medical savings account described 
        in section 7705(a)'' in subsection (e)(1) after ``described in 
        section 408(a)''.
    (d) Failure To Provide Reports on Medical Savings Accounts.--
Section 6693 (relating to failure to provide reports on individual 
retirement accounts or annuities) is amended--
            (1) by inserting ``or on medical savings accounts'' after 
        ``annuities'' in the heading of such section, and
            (2) by adding at the end of subsection (a) the following: 
        ``The person required by section 7705(f) to file a report 
        regarding a medical savings account at the time and in the 
        manner required by such section shall pay a penalty of $50 for 
        each failure unless it is shown that such failure is due to 
        reasonable cause.''
    (e) Clerical Amendments.--
            (1) The table of sections for chapter 43 is amended by 
        striking the item relating to section 4973 and inserting the 
        following:

                              ``Sec. 4973. Tax on excess contributions 
                                        to individual retirement 
                                        accounts, medical savings 
                                        accounts, certain 403(b) 
                                        contracts, and certain 
                                        individual retirement 
                                        annuities.''
            (2) The table of sections for subchapter B of chapter 68 is 
        amended by inserting ``or on medical savings accounts'' after 
        ``annuities'' in the item relating to section 6693.

                     Subtitle B--Premium Assistance

SEC. 121. PREMIUM ASSISTANCE.

    (a) Medicaid State Plan Requirement.--Section 1902(a) of the Social 
Security Act (42 U.S.C. 1396a(a)), as amended by section 201(a), is 
amended--
            (1) by striking ``and'' at the end of paragraph (62);
            (2) by striking the period at the end of paragraph (63) and 
        inserting ``; and''; and
            (3) by adding at the end the following new paragraph:
            ``(64) provide for a State program furnishing premium 
        assistance in accordance with part B.''.
    (b) State Programs for Premium Assistance.--Title XIX of the Social 
Security Act (42 U.S.C. 1396 et seq.) is amended by adding at the end 
the following new part:

            ``PART B--STATE PROGRAMS FOR PREMIUM ASSISTANCE

       ``Subpart 1--Establishment of Premium Assistance Programs

``SEC. 1951. REQUIREMENT TO OPERATE STATE PROGRAM.

    ``(a) In General.--A State with a State plan approved under part A 
shall have in effect a program for furnishing premium assistance under 
section 1952 to families with incomes below certain income thresholds 
in calendar years beginning after 1996.
    ``(b) Designation of State Agency.--A State may designate any 
appropriate State agency to administer the program under this part.

``SEC. 1952. ASSISTANCE WITH CERTIFIED HEALTH PLAN PREMIUMS.

    ``(a) Eligibility.--
            ``(1) In general.--A family (as defined in section 1957(4)) 
        which has been determined by a State under section 1953 to be a 
        premium subsidy eligible family (as defined in paragraph (2)) 
        shall be entitled to premium assistance in the amount 
        determined under subsection (b).
            ``(2) Premium subsidy eligible family.--
                    ``(A) In general.--For purposes of this part, the 
                term `premium subsidy eligible family' means a family 
                which has a family income determined under section 
                1957(2) which does not exceed 150 percent of the 
                poverty line (as defined in section 1957(5)).
                    ``(B) Reduction in eligibility percentage.--For 
                requirement that the President reduce the percentage of 
                the poverty line applicable to family income under 
                subparagraph (A), see subpart 2.
    ``(b) Amount of Assistance.--
            ``(1) In general.--Except as provided in paragraph (4), the 
        amount of premium assistance for a month for a premium subsidy 
        eligible family is the lesser of--
                    ``(A) the subsidy percentage specified in paragraph 
                (3) multiplied by \1/12\th of the annual premium for 
                coverage under the certified health plan in which the 
                family is enrolled, or
                    ``(B) the subsidy percentage specified in paragraph 
                (3) multiplied by \1/12\th of the maximum subsidy 
                amount for the year for the family (determined under 
                paragraph (2)).
            ``(2) Maximum subsidy amount.--
                    ``(A) In general.--The maximum subsidy amount 
                determined under this paragraph for a year for a family 
                is the maximum subscription charge for the family's 
                class of enrollment under all health benefits plans 
                offered under chapter 89 of title 5, United States Code 
                for the year, as adjusted under subparagraph (B).
                    ``(B) Adjustments.--The Secretary shall adjust the 
                maximum subscription charge for a family determined 
                under subparagraph (A) by the age adjustment factors 
                specified under section 21114(b)(2)(C) and for 
                geographic differences in health care costs based on 
                the community rating area in which the family resides.
            ``(3) Subsidy percentage.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `subsidy percentage' means--
                            ``(i) 100 percent if the family income does 
                        not exceed 100 percent of the poverty line;
                            ``(ii) 90 percent if the family income 
                        exceeds 100 percent of the poverty line but 
                        does not exceed 110 percent of the poverty 
                        line;
                            ``(iii) 80 percent if the family income 
                        exceeds 110 percent of the poverty line but 
                        does not exceed 115 percent of the poverty 
                        line;
                            ``(iv) 70 percent if the family income 
                        exceeds 115 percent of the poverty line but 
                        does not exceed 125 percent of the poverty 
                        line;
                            ``(v) 60 percent if the family income 
                        exceeds 120 percent of the poverty line but 
                        does not exceed 125 percent of the poverty 
                        line;
                            ``(vi) 50 percent if the family income 
                        exceeds 125 percent of the poverty line but 
                        does not exceed 130 percent of the poverty 
                        line;
                            ``(vii) 40 percent if the family income 
                        exceeds 130 percent of the poverty line but 
                        does not exceed 135 percent of the poverty 
                        line;
                            ``(viii) 30 percent if the family income 
                        exceeds 135 percent of the poverty line but 
                        does not exceed 140 percent of the poverty 
                        line;
                            ``(ix) 20 percent if the family income 
                        exceeds 140 percent of the poverty line but 
                        does not exceed 145 percent of the poverty 
                        line; and
                            ``(x) 10 percent if the family income 
                        exceeds 145 percent of the poverty line but 
                        does not exceed 150 percent of the poverty 
                        line.
                    ``(B) Special rules.--
                            ``(i) Afdc recipients.--For a family 
                        receiving aid to families with dependent 
                        children under part A or E of title IV, the 
                        subsidy percentage shall be 100 percent.
                            ``(ii) Non-cash medicaid eligibles.--For a 
                        family that would have been eligible for 
                        medical assistance under the State plan under 
                        part A under the eligibility rules in effect in 
                        the year preceding the first year the State 
                        began integrating individuals into the premium 
                        assistance program under this part in 
                        accordance with section 1932(a), the subsidy 
                        percentage shall be 100 percent.
                    ``(C) Reduction in subsidy percentage.--For 
                requirement that the President reduce the subsidy 
                percentages under subparagraph (A), see subpart 2.
    ``(c) Payments.--
            ``(1) In general.--The amount of the premium assistance 
        available to a premium subsidy eligible family under subsection 
        (b) shall be paid by the State directly to the certified health 
        plan in which the family is enrolled. Payments under the 
        preceding sentence shall commence in the first month during 
        which the family is enrolled in a certified health plan and 
        determined under section 1953 to be a premium subsidy eligible 
        family.
            ``(2) Administrative errors.--A State is financially 
        responsible for premium assistance paid based on an eligibility 
        determination error to the extent the State's error rate for 
        eligibility determinations exceeds a maximum permissible error 
        rate to be specified by the Secretary.

``SEC. 1953. ELIGIBILITY DETERMINATIONS.

    ``(a) In General.--The Secretary shall promulgate regulations 
specifying requirements for State programs under this part with respect 
to determining eligibility for premium assistance, including 
requirements with respect to--
            ``(1) application procedures;
            ``(2) information verification procedures;
            ``(3) timeliness of eligibility determinations;
            ``(4) procedures for applicants to appeal adverse 
        decisions; and
            ``(5) any other matters determined appropriate by the 
        Secretary.
    ``(b) Specifications for Regulations.--The regulations promulgated 
by the Secretary under subsection (a) shall include the following 
requirements:
            ``(1) Applications.--A State program shall provide that a 
        family may file an application for assistance with an agency 
        designated by the State at any time, in person or by mail.
            ``(2) Application form.--A State program shall provide for 
        the use of an application form developed by the Secretary under 
        subsection (c).
            ``(3) Distribution of Applications.--A State program shall 
        make available applications for assistance through employers 
        and appropriate public agencies or organizations.
            ``(4) Distribution of information on certified health 
        plans.--A State program shall provide that each family applying 
        for assistance under this part receives the information 
        determined appropriate by the Secretary on each certified 
        health plan providing the FedMed benefits package as described 
        in section 21115(b) offered in the community rating area in 
        which the family resides.
            ``(5) Requirement to submit revised application.--A State 
        program shall, in accordance with regulations promulgated by 
        the Secretary, require families to submit revised applications 
        during a year to reflect increases in estimated family incomes 
        during the year. The State shall revise the amount of any 
        premium assistance based on such a revised application.
            ``(6) AFDC applicants.--A State program shall include a 
        procedure under which families applying for benefits under 
        title IV shall have an opportunity to apply for assistance 
        under this part in connection with such application.
            ``(7) Verification.--A State program shall provide for 
        verification of the information supplied in applications under 
        this part.
    ``(c) Administration of State Programs.--
            ``(1) In general.--The Secretary shall establish standards 
        for States operating programs under this part which ensure that 
        such programs are operated in a uniform manner with respect to 
        application procedures, data processing systems, and such other 
        administrative activities as the Secretary determines to be 
        necessary.
            ``(2) Application forms.--The Secretary shall develop a 
        standard application form for assistance which shall--
                    ``(A) be simple in form and understandable to the 
                average individual;
                    ``(B) require the provision of information 
                necessary to make a determination as to whether a 
                family is a premium subsidy eligible family including a 
                declaration of estimated income by the family based, at 
                the election of the family--
                            ``(i) on multiplying by a factor of 4 the 
                        family's family income for the 3-month period 
                        immediately preceding the month in which the 
                        application is made, or
                            ``(ii) on estimated income for the entire 
                        year for which the application is submitted; 
                        and
                    ``(C) require attachment of such documentation as 
                deemed necessary by the Secretary in order to ensure 
                eligibility for assistance.
    ``(d) Effectiveness of Eligibility for Premium Subsidies.--A 
determination by a State that a family is a premium subsidy eligible 
family shall be effective for the calendar year for which such 
determination is made unless a revised application submitted under 
subsection (b)(5) indicates that a family is no longer eligible for 
premium assistance.

``SEC. 1954. END-OF-YEAR RECONCILIATION FOR PREMIUM ASSISTANCE.

    ``(a) In General.--
            ``(1) Requirement to file statement.--A family which 
        received premium assistance under this part from a State for 
        any month in a calendar year shall file with the State an 
        income reconciliation statement to verify the family's family 
        income for the year. Such a statement shall be filed at such 
        time, and contain such information, as the State may specify in 
        accordance with regulations promulgated by the Secretary.
            ``(2) Notice of requirement.--A State shall provide a 
        written notice of the requirement under paragraph (1) at the 
        time a family submits an application for premium assistance 
        under this part and at the end of the year to a family which 
        received such assistance from such State in any month during 
        the year.
    ``(b) Reconciliation of Premium Assistance Based on Actual 
Income.--
            ``(1) In general.--Based on and using the income reported 
        in the reconciliation statement filed under subsection (a) with 
        respect to a family, the State shall compute the amount of 
        premium assistance that should have been provided under this 
        part with respect to the family for the year involved.
            ``(2) Overpayment of assistance.--If the total amount of 
        the premium assistance provided was greater than the amount 
        computed under paragraph (1), the family is liable to the State 
        to pay an amount equal to the amount of the excess payment. Any 
        amount collected by a State under this paragraph shall be 
        submitted to the Secretary in a timely manner.
            ``(3) State option.--A State may, in accordance with 
        regulations promulgated by the Secretary, establish a procedure 
        under which any overpayments of premium assistance determined 
        under paragraph (2) with respect to a family for a year may be 
        collected or paid, as appropriate, through adjustments to the 
        premium assistance furnished to such family in the succeeding 
        year.
    ``(c) Verification.--Each State may use such information as it has 
available to verify income of families with applications filed under 
this part.
    ``(d) Penalties for Failure to File.--In the case of a family which 
is required to file a statement under this section in a year who fails 
to file such a statement by such date as the Secretary shall specify in 
regulations, the entire amount of the premium assistance provided in 
such year shall be considered an excess amount under subsection (b)(2) 
and such family shall not be eligible for premium assistance under this 
part until such statement is filed. A State, using rules established by 
the Secretary, shall waive the application of this subsection if the 
family establishes, to the satisfaction of the State under such rules, 
good cause for the failure to file the statement on a timely basis.

``SEC. 1955. PENALTIES FOR MATERIAL MISREPRESENTATION AND FALSE 
              INFORMATION.

    ``(a) In General.--Any individual who knowingly makes a material 
misrepresentation of information or provides false information in an 
application for assistance under this part under section 1953 or an 
income reconciliation statement under section 1954 shall be liable to 
the Federal Government for the amount any premium assistance received 
by the individual on the basis of such misrepresentation or false 
information and interest on such amount at a rate specified by the 
Secretary, and shall, in addition, be liable to the Federal Government 
for $2,000 or, if greater, 3 times the amount of any premium assistance 
received by the individual on the basis of such misrepresentation or 
false information.
    ``(b) Collection of penalty amounts.--A State which receives an 
application for assistance or an income reconciliation statement with 
respect to which a material misrepresentation has been made or false 
information has been provided shall collect the penalty amount required 
under subsection (a) and submit 50 percent of such amount to the 
Secretary in a timely manner.

``SEC. 1956. PAYMENTS TO STATES.

    ``(a) In General.--
            ``(1) Payments for premium assistance.--A State operating a 
        program for furnishing premium assistance under this part shall 
        be entitled to receive payments in an amount equal to the 
        amount of premium assistance paid on behalf of premium subsidy 
        eligible families. Such payments shall be made at such time and 
        in such form as provided in regulations promulgated by the 
        Secretary.
            ``(2) Matching payments for administrative expenses.--The 
        Secretary shall pay to each State operating a program for 
        furnishing premium assistance under this part, for each quarter 
        beginning with the quarter commencing January 1, 1997, an 
        amount equal to 50 percent of the total amount expended by the 
        State during the quarter as found necessary by the Secretary 
        for the proper and efficient administration of the program.
            ``(3) State entitlement.--This subsection constitutes 
        budget authority in advance of appropriations Acts, and 
        represents the obligation of the Federal Government to provide 
        payments to States operating programs under this part in 
        accordance with this subsection.
    ``(b) Funding.--The amount paid to States under subsection (a) 
shall be paid by the Secretary from out of any funds in the Treasury of 
the United States not otherwise appropriated.
    ``(c) Audits.--The Secretary shall conduct regular audits of the 
activities under the State programs conducted under this part.

``SEC. 1957. DEFINITIONS AND DETERMINATIONS OF INCOME.

    ``For purposes of this part:
            ``(1) Certified health plan.--The term `certified health 
        plan' means a certified health plan (within the meaning of 
        section 21003(b)) providing the FedMed benefits package as 
        described in section 21115(b).
            ``(2) Determinations of income.--
                    ``(A) In general.--The term `income' means adjusted 
                gross income (as defined in section 62(a) of the 
                Internal Revenue Code of 1986)--
                            ``(i) determined without regard to sections 
                        135, 162(l), 911, 931, and 933 of such Code; 
                        and
                            ``(ii) increased by--
                                    ``(I) the amount of interest 
                                received or accrued which is exempt 
                                from tax, plus
                                    ``(II) the amount of social 
                                security benefits (described in section 
                                86(d) of such Code) which is not 
                                includible in gross income under 
                                section 86 of such Code.
                    ``(B) Family income.--The term `family income' 
                means, with respect to a family, the sum of the income 
                for all members of the family, not including the income 
                of a dependent child with respect to which no return is 
                required under the Internal Revenue Code of 1986.
            ``(3) Eligible Individual.--
                    ``(A) In general.--The term `eligible individual' 
                means an individual who is residing in the United 
                States and who is--
                            ``(i) a citizen or national of the United 
                        States; or
                            ``(ii) a lawful alien (as defined in 
                        subparagraph (C)).
                    ``(B) Exclusions.--The term `eligible individual' 
                shall not include--
                            ``(i) an individual who is eligible for 
                        medical assistance under part A consisting of 
                        acute medical services described in section 
                        1931(b)(1);
                            ``(ii) an individual who is entitled to 
                        benefits under part A of title XVIII;
                            ``(iii) an individual with respect to whom 
                        an employer contribution toward the premium for 
                        coverage under the certified health plan in 
                        which the individual is enrolled is paid (or 
                        offered to be paid) on behalf of such 
                        individual; and
                            ``(iv) an individual who is an inmate of a 
                        public institution (except as a patient of a 
                        medical institution).
                    ``(C) Lawful alien.--The term `lawful alien' means 
                an individual who is--
                            ``(i) an alien lawfully admitted for 
                        permanent residence,
                            ``(ii) an asylee,
                            ``(iii) a refugee,
                            ``(iv) an alien whose deportation has been 
                        withheld under section 243(h) of the 
                        Immigration and Nationality Act, or
                            ``(v) a parolee who has been paroled for a 
                        period of 1 year or more.
            ``(4) Family.--The term `family'--
                    ``(A) means, with respect to an eligible individual 
                who is not a child, the individual; and
                    ``(B) includes the following persons (if any):
                            ``(i) The individual's spouse if the spouse 
                        is an eligible individual.
                            ``(ii) The individual's children (and, if 
                        applicable, the children of the individual's 
                        spouse) if they are eligible individuals.
            ``(5) Poverty line.--The term `poverty line' means the 
        income official poverty line (as defined by the Office of 
        Management and Budget, and revised annually in accordance with 
        section 673(2) of the Omnibus Budget Reconciliation Act of 
        1981) that--
                    ``(A) in the case of a family of less than five 
                individuals, is applicable to a family of the size 
                involved; and
                    ``(B) in the case of a family of more than four 
                individuals, is applicable to a family of four persons.

      ``Subpart 2--Deficit Neutral Spending on Premium Assistance

``SEC. 1960. ENSURING DEFICIT NEUTRAL SPENDING ON PREMIUM ASSISTANCE.

    ``(a) Limitation on Premium Assistance Spending.--In each fiscal 
year (beginning with 1996), spending for premium assistance shall be 
limited to the excess of--
            ``(1) the aggregate limitation described in subsection (b), 
        over
            ``(2) mandatory expenditures under title XVIII and part A 
        of XIX, including any offsetting receipts required under title 
        XVIII but excluding any discretionary expenditures under such 
        title or part A of title XIX.
    ``(b) Aggregate Limitation.--
            ``(1) In general.--For purposes of this section the 
        aggregate limitation shall be--
                    ``(A) for fiscal year 1996, $282 billion
                    ``(B) for fiscal year 1997, $311 billion
                    ``(C) for fiscal year 1998, $341 billion
                    ``(D) for fiscal year 1999, $381 billion
                    ``(E) for fiscal year 2000, $421 billion
                    ``(F) for fiscal year 2001, $466 billion
                    ``(G) for fiscal year 2002, $518 billion
                    ``(H) for fiscal year 2003, $576 billion
                    ``(I) for fiscal year 2004, $640 billion; and
                    ``(J) for fiscal year 2005 and succeeding fiscal 
                years, the amount in the preceding fiscal year 
                increased by the growth in the per capita Gross 
                Domestic Product.
            ``(2) Adjustment based on mid-session review of 
        estimates.--If it is determined under the mid-session review of 
        estimates under subsection (d) that expenditures under the 
        provisions of title XVIII, part A of title XIX, and the premium 
        assistance program under subpart 1 for the preceding fiscal 
        year exceeded the estimates for such fiscal year then the 
        amount under paragraph (1) for the upcoming fiscal year shall 
        be decreased by the amount of such excess.
    ``(c) President's Budget To Include Premium Assistance Estimates.--
            ``(1) In general.--When the President submits a budget (as 
        required by section 1105 of title 31), the President shall 
        include in such budget--
                    ``(A) estimates of expenditures under the 
                provisions of title XVIII, part A of title XIX, and the 
                premium assistance program under subpart 1 otherwise 
                provided under such provisions without regard to this 
                section; and
                    ``(B) a comparison of the total of such 
                expenditures with the aggregate limitation established 
                under subsection (b); and
                    ``(C) estimates of the income eligibility amount 
                (described in subsection (d)(1)) and subsidy 
                percentages (described in subsection (d)(3)) under the 
                premium assistance program that are necessary to comply 
                with enforcement of the limitation on premium 
                assistance spending under subsection (d).
            ``(2) Fiscal years covered.--The President shall submit 
        such estimates for the upcoming fiscal year and the following 4 
        fiscal years beginning with the budget submitted for fiscal 
        year 1996, and
                    ``(A) beginning with the budget for fiscal year 
                1997, the current fiscal year; and
                    ``(B) beginning with the budget for fiscal year 
                1998, the current fiscal year and the preceding fiscal 
                year.
    ``(d) Enforcing the Limitation on Premium Assistance Spending.--
            ``(1) Mid-session review estimates.--As part the 
        President's supplemental summary providing revised estimates of 
        the budget (commonly called the `mid-session review of the 
        budget'), the President shall issue estimates of expenditures 
        under title XVIII, part A of XIX, and the premium assistance 
        program under subpart 1 otherwise provided without regard to 
        this section for--
                    ``(A) the upcoming fiscal year;
                    ``(B) the current fiscal year (beginning with the 
                mid-session review for the fiscal year 1997 budget); 
                and
                    ``(C) the preceding fiscal year (beginning with the 
                mid-session review for the fiscal year 1998 budget).
            ``(2) Maximum income eligibility.--Based on the estimates 
        provided pursuant to paragraph (1), the Director of the Office 
        of Management and Budget (referred to in this section as the 
        ``Director'') shall, after consultation with the Secretary, 
        determine the maximum income amount (expressed as a percentage 
        of the poverty line (as defined in section 1957(5))) under 
        which families may be eligible for premium assistance in the 
        next calendar year such that spending for premium assistance in 
        the upcoming fiscal year does not exceed the limitation 
        established under subsection (b), except that the Director 
        shall not establish a maximum income amount for the next 
        calendar year that is below such amount for the current 
        calendar year.
            ``(3) Other modifications.--If maintaining the maximum 
        income amount at the level that applies in the current calendar 
        year in the next calendar year would cause spending to exceed 
        the limitation for premium assistance in the upcoming fiscal 
        year, the Director shall order a uniform percentage reduction 
        in the subsidy percentages specified under section 1952(a)(3) 
        to ensure spending does not exceed the limitation.''.
    (c) Conforming Amendments.--(1) Title XIX of the Social Security 
Act (42 U.S.C. 1396 et seq.) is amended by striking the title and 
inserting the following:

``TITLE XIX--MEDICAL ASSISTANCE PROGRAMS AND STATE PROGRAMS FOR PREMIUM 
                               ASSISTANCE

     ``PART A--GRANTS TO STATES FOR MEDICAL ASSISTANCE PROGRAMS''.

    (2) Title XIX of the Social Security Act (42 U.S.C. 1396 et seq.) 
is amended by striking each reference to ``this title'' and inserting 
``this part''.

         TITLE II--HEALTH INSURANCE AND DELIVERY SYSTEMS REFORM

     Subtitle A--Federal Standards for State Certification Programs

SEC. 201. STATE PLAN FOR CERTIFICATION OF HEALTH INSURANCE AND DELIVERY 
              SYSTEMS.

    (a) Medicaid State Plan Requirement.--Section 1902(a) of the Social 
Security Act (42 U.S.C. 1396a(a)) is amended by striking ``and'' at the 
end of paragraph (61), by striking the period at the end of paragraph 
(62) and inserting ``; and'', and by inserting after paragraph (62) the 
following new paragraph:
    ``(63) provide that the State is a participating State under title 
XXI.''
    (b) Participating State Plan for Certification of Health Insurance 
and Delivery Systems.--The Social Security Act is amended by adding at 
the end the following new title:

   ``TITLE XXI--STATE PLAN FOR CERTIFICATION OF HEALTH INSURANCE AND 
                            DELIVERY SYSTEMS

                          ``table of contents

               ``Subtitle A--Participating State Program

                   ``Part I--General Responsibilities

        ``Sec. 21001. Establishment of participating State programs.
        ``Sec. 21002. Access to standardized health care coverage.
        ``Sec. 21003. General definitions relating to health plans.
              ``Part II--Certification and Consumer Value

        ``Sec. 21011. Certification of health plans.
        ``Sec. 21012. Consumer value program.
        ``Sec. 21013. Establishment of community rating areas.
        ``Sec. 21014. Risk adjustment programs.
        ``Sec. 21015. Specification of initial general enrollment 
                            period.
              ``Part III--Treatment of Certain State Laws

        ``Sec. 21021. Preemption of certain State law restrictions on 
                            health plans.
        ``Sec. 21022. Preemption from State benefit mandates.
        ``Sec. 21023. Preemption of State law regulating utilization 
                            management and review.
        ``Sec. 21024. State laws regarding end of life treatment.
                    ``Part IV--Definitions and Rules

        ``Sec. 21100. Definitions and rules of general application.
                   ``Subtitle B--Standards for Reform

  ``Part I--Establishment and Application of Standards and Guidelines

        ``Sec. 21101. Insurance reform standards.
        ``Sec. 21102. Delivery system guidelines.
        ``Sec. 21103. Consumer value program.
        ``Sec. 21104. Risk adjustment programs.
        ``Sec. 21105. Standards and guidelines by Secretary of Labor.
        ``Sec. 21106. General rules.
    ``Part II--Insurance Reform Standards Applicable to Health Plans

        ``Sec. 21111. Guaranteed issue and renewal.
        ``Sec. 21112. Enrollment.
        ``Sec. 21113. Nondiscrimination based on health status.
        ``Sec. 21114. Rating limitations for community-rated market.
        ``Sec. 21115. Benefits offered.
        ``Sec. 21116. Risk adjustment.
        ``Sec. 21117. Prohibition of discrimination.
  ``Part III--Minimum Delivery System Guidelines Applicable to Health 
                                 Plans

        ``Sec. 21121. Minimum delivery system guidelines.
             ``Subtitle C--Expanded Access to Health Plans

   ``Part I--Access Through Health Insurance Purchasing Cooperatives

        ``Sec. 21201. Establishment and organization.
                    ``Part II--Access Through FEHBP

        ``Sec. 21211. Small business participation in FEHBP.
              ````subpart a--qualified association plansns
        ``Sec. 21221. Treatment of qualified association plans.
        ``Sec. 21222. Qualified association plan defined.
 ``subpart b--special rule for church, multiemployer, and cooperative 
                                 plans
        ``Sec. 21225. Special rule for church, multiemployer, and 
                            cooperative plans.
                  ``Part IV--Access Through Employers

        ``Sec. 21231. General employer responsibilities.
        ``Sec. 21232. Development of large employer purchasing groups.
        ``Sec. 21233. Report to employees on employer health care 
                            contributions.
        ``Sec. 21334. Employer may not discriminate against subsidy 
                            eligible individuals.
        ``Sec. 21235. Enforcement.

               ``Subtitle A--Participating State Program

                   ``PART I--GENERAL RESPONSIBILITIES

``SEC. 21001. ESTABLISHMENT OF PARTICIPATING STATE PROGRAMS.

    ``A State shall be a participating State for purposes of this title 
if such State establishes by not later than January 1, 1998, a 
certification and consumer value program (in this title referred to as 
a `State program') to carry out participating State responsibilities 
specified in this title.

``SEC. 21002. ACCESS TO STANDARDIZED HEALTH CARE COVERAGE.

    ``(a) Access to Standardized Coverage.--
            ``(1) In general.--Except as provided in paragraph (2), a 
        State program shall require that each insured health plan 
        issued, sold, offered for sale, or operated in the State shall 
        be certified by the appropriate certifying authority as a 
        certified health plan.
            ``(2) Federal certification of self-insured plans.--In the 
        case of self-insured health plans, the Secretary of Labor shall 
        carry out activities under this title in the same manner as a 
        participating State would carry out such activities with 
        respect to an insured health plan subject to this title.
    ``(b) Access to Affordable Coverage.--A State program shall require 
the following:
            ``(1) Community rating.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), all health plans shall be community-
                rated health plans which cover only community-rated 
                individuals.
                    ``(B) Experience-rated health plans.--Subparagraph 
                (A) shall not apply to any health plan which--
                            ``(i) is a self-insured health plan of an 
                        experience-rated employer, or
                            ``(ii) is an insured health plan which is 
                        experience-rated,
                but any such plan may cover only experience-rated 
                individuals.
            ``(2) Subsidized coverage.--Individuals shall be entitled 
        to such premium assistance as is provided under the program 
        described in part B of title XIX.
    ``(c) Access Through Health Plan Sponsors.--Subject to the 
requirements of part II of subtitle B--
            ``(1) a State program shall require each health plan 
        sponsor to make available to each community-rated individual 
        the opportunity to enroll, directly or through a purchasing 
        cooperative, in a certified health plan which provides the 
        FedMed benefits package established under section 21115(b); and
            ``(2) each health plan sponsor may offer any other 
        certified health plan which provides any other health benefits 
        package, including a supplemental benefit package to the FedMed 
        benefits package, but may not require an individual or group to 
        purchase supplemental coverage or link the pricing of the 
        FedMed benefits package to the purchase of a supplemental 
        benefits package.

``SEC. 21003. GENERAL DEFINITIONS RELATING TO HEALTH PLANS.

    ``(a) Health Plan.--For purposes of this title--
            ``(1) In general.--The term `health plan' means any plan or 
        arrangement which provides, or pays the cost of, health 
        benefits. Such term does not include the following, or any 
        combination thereof:
                    ``(A) Coverage only for accidental death, 
                dismemberment, dental, or vision.
                    ``(B) Coverage providing wages or payments in lieu 
                of wages for any period during which the employee is 
                absent from work on account of sickness or injury.
                    ``(C) A medicare supplemental policy (as defined in 
                section 1882(g)(1)).
                    ``(D) Coverage issued as a supplement to liability 
                insurance.
                    ``(E) Worker's compensation or similar insurance.
                    ``(F) Automobile medical-payment insurance.
                    ``(G) A long-term care insurance policy, including 
                a nursing home fixed indemnity policy (unless the 
                Secretary determines that such a policy provides 
                sufficiently comprehensive coverage of a benefit so 
                that it should be treated as a health plan).
                    ``(H) An equivalent health care program.
                    ``(I) Any plan or arrangement not described in any 
                preceding subparagraph which provides for benefit 
                payments, on a periodic basis, for a specified disease 
                or illness or period of hospitalization without regard 
                to the costs incurred or services rendered during the 
                period to which the payments relate.
                    ``(J) Such other plan or arrangement as the 
                Secretary determines is not a health plan.
            ``(2) Insured health plan.--
                    ``(A) In general.--The term `insured health plan' 
                means any health plan which is a hospital or medical 
                service policy or certificate, hospital or medical 
                service plan contract, or health maintenance 
                organization group contract offered by an insurer.
                    ``(B) Insurer.--The term `insurer' means--
                            ``(i) a licensed insurance company,
                            ``(ii) a prepaid hospital or medical 
                        service plan,
                            ``(iii) a health maintenance organization, 
                        or
                            ``(iv) any other similar entity,
                which is engaged in the business of providing a plan of 
                health insurance or health benefits or services.
            ``(3) Self-insured health plan.--The term `self-insured 
        health plan' means an employee welfare benefit plan, church 
        plan, government plan, or other arrangement which--
                    ``(A) provides health benefits funded in a manner 
                other than through the purchase of one or more insured 
                health plans, but
                    ``(B) does not include any coverage or insurance 
                described in subparagraphs (A) through (J) of paragraph 
                (1).
    ``(b) Certified Health Plan.--For purposes of this title, the term 
`certified health plan' means a health plan which is certified by the 
appropriate certifying authority as meeting the applicable requirements 
of this title.
    ``(c) Terms and Rules Relating to Community and Experience 
Rating.--For purposes of this title--
            ``(1) Community-rated health plan.--The term `community-
        rated health plan' means a health plan which meets the 
        requirements of section 21114.
            ``(2) Community-rated individual.--The term `community-
        rated individual' means an individual--
                    ``(A) who is not an experience-rated individual, or
                    ``(B) who is an experience-rated individual 
                (determined without regard to this subparagraph) and 
                whose employer does not provide an employer-subsidized 
                certified health plan.
        Such term includes the spouse and dependents of such 
        individual.
            ``(3) Experience-rated individual.--The term `experience-
        rated individual' means an individual who is an employee of an 
        experience-rated employer. Such term includes the spouse and 
        dependents of such individual.
            ``(4) Experience-rated employer.--
                    ``(A) In general.--The term `experience-rated 
                employer' means--
                            ``(i) in the case of a self-insured health 
                        plan, any employer, and
                            ``(ii) in the case of an insured health 
                        plan, with respect to any calendar year, any 
                        employer if, on each of 20 days during the 
                        preceding calendar year (each day being in a 
                        different week), such employer (or any 
                        predecessor) employed more than 50 employees 
                        for some portion of the day.
                    ``(B) Certain other plans.--Such term shall include 
                multiemployer plans, church association plans, and 
                rural electric cooperative or rural telephone 
                cooperative association plans.
            ``(5) Special rule for spouses and dependents.--If any 
        individual is offered coverage under a health plan as the 
        spouse or a dependent of a primary enrollee of such plan, such 
        individual shall have the status of such enrollee unless such 
        individual is eligible to elect other coverage and so elects.

              ``PART II--CERTIFICATION AND CONSUMER VALUE

``SEC. 21011. CERTIFICATION OF HEALTH PLANS.

    ``(a) In General.--Each State program shall provide for the 
certification of health plans as certified health plans in accordance 
with the insurance reform standards and the delivery system guidelines 
established by the Secretary under subtitle B.
    ``(b) Use of Private Entities.--
            ``(1) Experts.--A State shall consult with experts in 
        designing and implementing a State certification program under 
        this section.
            ``(2) Accreditation.--A State program may provide for the 
        use of private accreditation entities in carrying out all or 
        part of the duties under subsection (a).
    ``(c) Coordination of Activities.--In designing and implementing 
the State certification program under this section, a State shall 
coordinate activities by State public health offices with activities of 
the insurance commissioner of the State, and with other relevant State 
agencies, with respect to the duties and responsibilities of each such 
entity.
    ``(d) Certification Fees.--A State program may impose appropriate 
certification fees on health plans seeking certification.
    ``(e) Certification Enforcement.--A State program shall provide for 
the monitoring and enforcement of the certification of health plans.

``SEC. 21012. CONSUMER VALUE PROGRAM.

    ``(a) Establishment of Program.--Each State, in accordance with 
minimum guidelines established by the Secretary under section 21103, 
shall establish and operate a consumer value program to provide 
consumers in the State with comparative value information on the 
performance of all health plans in each community rating area in the 
State. State consumer value programs under this section may exceed the 
guidelines established by the Secretary.
    ``(b) Use of Private Organizations.--A State may operate the 
consumer value program through a contract with a private organization 
selected by the State.
    ``(c) Eligibility for Grants.--Each State with a consumer value 
program shall be eligible for grants under section 21103(b). To be 
eligible for such a grant, a State shall prepare and submit to the 
Secretary an application at such time, in such manner, and containing 
such information as the Secretary may require.
    ``(d) Additional Requirements.--Each State program shall meet the 
requirements specified under subtitles B and C of title XI with respect 
to certified health plans.

``SEC. 21013. ESTABLISHMENT OF COMMUNITY RATING AREAS.

    ``(a) Establishment.--Each participating State under the State 
program shall, by not later than January 1, 1998, provide for the 
inclusion of all areas of the State into 1 or more community rating 
areas. The program may revise the boundaries of such areas from time to 
time consistent with this section.
    ``(b) Multiple Areas.--With respect to a community rating area--
            ``(1) no metropolitan statistical area or primary 
        metropolitan statistical area in a State may be divided into 
        more than 1 community rating area in such State;
            ``(2) the number of individuals residing within a community 
        rating area may not be less than 250,000; and
            ``(3) no area incorporated into a community rating area may 
        be incorporated into another community rating area.
    ``(c) Boundaries.--In establishing boundaries for community rating 
areas, a participating State may not discriminate on the basis of, or 
otherwise take into account, disability, health status, or perceived 
need for health services of a particular population. Such restrictions 
shall not prohibit participating States from establishing such 
boundaries to ensure that underserved and vulnerable populations are 
better served.
    ``(d) Interstate Areas.--Two or more contiguous participating 
States may provide for the establishment of a community rating area 
that includes adjoining areas of the States so long as all areas of any 
metropolitan statistical area or primary metropolitan statistical area 
within such States are within the same community rating area.

``SEC. 21014. RISK ADJUSTMENT PROGRAMS.

    ``Each participating State under the State program shall provide a 
risk adjustment program meeting the standards developed by the 
Secretary under section 21104.

``SEC. 21015. SPECIFICATION OF INITIAL GENERAL ENROLLMENT PERIOD.

    ``Upon the date of the commencement of the State program, the 
participating State shall specify for the State (or for each community 
rating area) an initial period, of not less than 90 days, during which 
individuals in the State (or area) may enroll in certified health 
plans.

              ``PART III--TREATMENT OF CERTAIN STATE LAWS

``SEC. 21021. PREEMPTION OF CERTAIN STATE LAW RESTRICTIONS ON HEALTH 
              PLANS.

    ``Effective as of January 1, 1996--
            ``(1) a State may not prohibit or limit a health plan from 
        including incentives for enrollees to use the services of 
        participating providers;
            ``(2) a State may not prohibit or limit a health plan from 
        requiring enrollees to obtain care from participating 
        providers;
            ``(3) a State may not prohibit or limit a health plan from 
        requiring enrollees to obtain referrals for specialty 
        treatment;
            ``(4) a State may not prohibit or limit the establishment 
        of different payment rates for participating and non-
        participating providers;
            ``(5) a State may not prohibit or limit a health plan from 
        limiting the number and types of participating providers;
            ``(6) a State may not prohibit or limit a health plan from 
        using single source suppliers for pharmacy services, medical 
        equipment, and other supplies and services; and
            ``(7) a State may not prohibit or limit the corporate 
        practice of medicine.

``SEC. 21022. PREEMPTION FROM STATE BENEFIT MANDATES.

    ``Effective as of January 1, 1996, no State shall establish or 
enforce any law or regulation that requires any certified health plan 
to cover any specific item or service.

``SEC. 21023. PREEMPTION OF STATE LAW REGULATING UTILIZATION MANAGEMENT 
              AND REVIEW.

    ``Effective as of January 1, 1996, a State may not regulate 
utilization management and review programs of any health plan to the 
extent not provided by this title.

``SEC. 21024. STATE LAWS REGARDING END OF LIFE TREATMENT.

    ``Nothing in this title shall be construed to invalidate any State 
law that has the effect of preventing involuntary denial of lifesaving 
medical treatment when such denial would cause the involuntary death of 
the patient pending transfer of the patient to a health care provider 
willing to provide such treatment.

                    ``PART IV--DEFINITIONS AND RULES

``SEC. 21100. DEFINITIONS AND RULES OF GENERAL APPLICATION.

    ``Except as otherwise specifically provided, in this title the 
following definitions and rules apply:
            ``(1) Appropriate certifying authority.--The term 
        `appropriate certifying authority' means--
                    ``(A) except as provided in subparagraph (B), in 
                the case of an insured health plan, the State 
                commissioner or superintendent of insurance or other 
                State authority in the participating State; or
                    ``(B) in the case of a self-insured health plan, 
                the Secretary of Labor.
            ``(2) Church association plan.--The term `church 
        association plan' means a church plan (as defined in section 
        414(e) of the Internal Revenue Code of 1986).
            ``(3) Delivery system.--The term `delivery system' with 
        respect to a health plan includes a fee-for-service, use of 
        preferred providers, staff or group model health maintenance 
        organizations, and such other arrangements as the Secretary may 
        recognize.
            ``(4) Dependent.--The term `dependent' means, with respect 
        to any individual, any person--
                    ``(A) who is a child or stepchild of the 
                individual; and
                    ``(B) who is--
                            ``(i) under 22 years of age (under 25 years 
                        of age in the case of a fulltime student) and 
                        unmarried, or
                            ``(ii) permanently and totally disabled 
                        (within the meaning of section 151(c)(5)(C) of 
                        such Code).
            ``(5) Employer, employee, and employment defined.--
                    ``(A) In general.--Except as otherwise provided in 
                this subtitle--
                            ``(i) the term `employment' has the meaning 
                        given such term under section 3121 of the 
                        Internal Revenue Code of 1986,
                            ``(ii) the term `employee' has the meaning 
                        given such term under section 3121 of such 
                        Code, subject to the provisions of chapter 25 
                        of such Code, and
                            ``(iii) the term `employer' has the same 
                        meaning as the term ``employer'' as used in 
                        such section 3121.
                    ``(B) Exceptions.--For purposes of subparagraph 
                (A)--
                            ``(i) Employment.--
                                    ``(I) Employment included.--
                                Paragraphs (1), (2), (5), (7) (other 
                                than clauses (i) through (iv) of 
                                subparagraph (C) and clauses (i) 
                                through (v) of subparagraph (F)), (8), 
                                (9), (10), (11), (13), (15), (18), and 
                                (19) of section 3121(b) of the Internal 
                                Revenue Code of 1986 shall not apply.
                                    ``(II) Exclusion of seasonal or 
                                temporary.--Employment shall not 
                                include seasonal or temporary services 
                                performed for an employer for less than 
                                6 months in a calendar year.
                            ``(ii) Employees.--
                                    ``(I) Treatment of self-employed.--
                                The term `employee' includes a self-
                                employed individual.
                                    ``(II) Exclusion of certain foreign 
                                employment.--The term `employee' does 
                                not include an individual with respect 
                                to service, if the individual is not a 
                                citizen or resident of the United 
                                States and the service is performed 
                                outside the United States.
                    ``(C) Aggregation rules for employers.--For 
                purposes of this title--
                            ``(i) all employers treated as a single 
                        employer under subsection (a) or (b) of section 
                        52 of the Internal Revenue Code of 1986 shall 
                        be treated as a single employer, and
                            ``(ii) under regulations of the Secretary 
                        of the Treasury, all employees of organizations 
                        which are under common control with one or more 
                        organizations which are exempt from income tax 
                        under subtitle A of the Internal Revenue Code 
                        of 1986 shall be treated as employed by a 
                        single employer.
                The regulations prescribed under clause (ii) shall be 
                based on principles similar to the principles which 
                apply to taxable organizations under clause (i).
            ``(6) Equivalent health care program.--The term `equivalent 
        health care program' means--
                    ``(A) part A or part B of the medicare program 
                under title XVIII of the Social Security Act,
                    ``(B) the medicaid program under title XIX of the 
                Social Security Act,
                    ``(C) the health care program for active military 
                personnel under title 10, United States Code,
                    ``(D) the veterans health care program under 
                chapter 17 of title 38, United States Code,
                    ``(E) the Civilian Health and Medical Program of 
                the Uniformed Services (CHAMPUS), as defined in section 
                1073(4) of title 10, United States Code, and
                    ``(F) the Indian health service program under the 
                Indian Health Care Improvement Act (25 U.S.C. 1601 et 
                seq.).
            ``(7) Family.--The term `family' includes an individual, 
        the individual's spouse, and the individual's dependents (if 
        any), as defined in paragraph (4).
            ``(8) Health plan sponsor.--The term `health plan sponsor' 
        means, with respect to--
                    ``(A) an insured health plan, the insurer, and
                    ``(B) a self-insured health plan, the experience-
                rated employer sponsor.
            ``(9) Multiemployer plan.--The term `multiemployer plan' 
        has the meaning given such term in section 3(37) of the 
        Employee Retirement Income Security Act of 1974, and includes 
        any plan that is treated as such a plan under title I of such 
        Act.
            ``(10) NAIC.--The term `NAIC' means the National 
        Association of Insurance Commissioners.
            ``(11) Participating state.--The term `participating State' 
        means a State establishing a State program under this title.
            ``(12) Purchasing cooperative.--The term `purchasing 
        cooperative' means a health insurance purchasing cooperative 
        described in section 21201.
            ``(13) Rural electric cooperative.--The term `rural 
        electric cooperative' has the meaning given such term in 
        section 3(40)(A)(iv) of the Employee Retirement Income Security 
        Act of 1974.
            ``(14) Rural telephone cooperative associations.--The term 
        `rural telephone cooperative association' has the meaning given 
        such term in section 3(40)(A)(v) of the Employee Retirement 
        Income Security Act of 1974.
            ``(15) Secretary.--The term `Secretary' means the Secretary 
        of Health and Human Services or the Secretary's delegate.
            ``(16) State.--The term `State' means each of the several 
        States, the District of Columbia, the Commonwealth of Puerto 
        Rico, the United States Virgin Islands, Guam, American Samoa, 
        and the Commonwealth of the Northern Mariana Islands.

                   ``Subtitle B--Standards for Reform

  ``PART I--ESTABLISHMENT AND APPLICATION OF STANDARDS AND GUIDELINES

``SEC. 21101. INSURANCE REFORM STANDARDS.

    ``Except as provided in section 21105, the Secretary, in 
consultation with the NAIC, shall develop and publish specific 
standards and evaluation criteria to implement the insurance reform 
standards specified in part II by not later than 9 months after the 
date of the enactment of this title.

``SEC. 21102. DELIVERY SYSTEM GUIDELINES.

    ``(a) Establishment.--Except as provided in section 21105, not 
later than 9 months after the date of enactment of this title, the 
Secretary, in consultation with the NAIC and other organizations with 
expertise in the areas of quality assurance (including the Joint 
Commission on Accreditation of Health Care Organizations, the National 
Committee for Quality Assurance, and peer review organizations), shall 
establish minimum guidelines specified in part III for the 
certification of health plan delivery systems and the enforcement of 
such guidelines.
    ``(b) Minimum Guidelines.--Each participating State through the 
State program may exceed the guidelines established by the Secretary 
under this section.

``SEC. 21103. CONSUMER VALUE PROGRAM.

    ``(a) Development of Guidelines.--The Secretary shall develop and 
distribute to participating States model minimum guidelines for the 
establishment of State consumer value programs under section 21012. 
Such guidelines shall include a description of a consumer report card 
that is designed to standardize consumer information among all States 
concerning certified health plans.
    ``(b) Grant Program.--The Secretary may award demonstration grants 
to States that establish consumer value programs, with priority given 
by the Secretary to States that exceed the minimum guidelines 
established by the Secretary under this section.
    ``(c) Authorization of Appropriations.--There are authorized to be 
appropriated such sums as are necessary to carry out the purposes of 
this section.

``SEC. 21104. RISK ADJUSTMENT PROGRAMS.

    ``Except as provided in section 21105, the Secretary shall develop 
standards for participating States to provide risk adjustment programs 
for participation by community-rated insured health plans and 
reinsurers of self-insured health plans sponsored by employers which 
are not experience-rated employers as described in section 21116(b).

``SEC. 21105. STANDARDS AND GUIDELINES BY SECRETARY OF LABOR.

    ``The Secretary of Labor shall develop for self-insured health 
plans appropriate insurance reform standards and minimum delivery 
system guidelines similar to such standards and guidelines described in 
sections 21101 and 21102.

``SEC. 21106. GENERAL RULES.

    ``(a) Construction.--Whenever in this subtitle a requirement or 
standard is imposed on a health plan, the requirement or standard is 
deemed to have been imposed on the insurer or sponsor of the plan in 
relation to that plan.
    ``(b) Use of Interim, Final Regulations.--In order to permit the 
timely implementation of the provisions of this title, the Secretary 
and the Secretary of Labor are each authorized to issue regulations 
under this title on an interim basis that become final on the date of 
publication, subject to change based on subsequent public comment.
    ``(c) Reference to Reform Standards.--For purposes of this title, 
the term `reform standards' means the standards developed under this 
subtitle and applicable under part II.

    ``PART II--INSURANCE REFORM STANDARDS APPLICABLE TO HEALTH PLANS

``SEC. 21111. GUARANTEED ISSUE AND RENEWAL.

    ``(a) Issue.--
            ``(1) In general.--Except as otherwise provided in this 
        section, a health plan sponsor--
                    ``(A) offering a community-rated health plan shall 
                offer such plan to any community-rated individual 
                applying for coverage; and
                    ``(B) offering an experience-rated health plan or a 
                self-insured health plan shall offer such plan to any 
                experience-rated individual eligible for coverage under 
                the plan through the individual's experience-rated 
                employer.
            ``(2) Availability.--
                    ``(A) In general.--A community-rated health plan 
                shall be made available throughout the entire community 
                rating area in which such plan is offered, including 
                through any purchasing cooperative choosing to offer 
                such plan.
                    ``(B) Geographic limitations.--A community-rated 
                health plan may deny coverage under the plan to a 
                community-rated individual who resides outside the 
                community rating area in which such plan is offered, 
                but only if such denial is applied uniformly, without 
                regard to health status or insurability of individuals.
                    ``(C) Applicability to network plans.--
                Subparagraphs (A) and (B) shall each be applied to a 
                community-rated health plan using a staff or group 
                model health maintenance organization or other network 
                delivery system by substituting `service area 
                determined by the appropriate certifying authority' for 
                `community rating area'.
            ``(3) Application of capacity limits.--
                    ``(A) In general.--Subject to subparagraph (B), an 
                insured health plan may apply to the appropriate 
                certifying authority to cease enrolling individuals 
                under the plan if--
                            ``(i) the plan ceases to enroll any new 
                        individuals; and
                            ``(ii) the plan can demonstrate to the 
                        applicable certifying authority that its 
                        financial or provider capacity to serve 
                        previously covered groups or individuals (and 
                        additional individuals who will be expected to 
                        enroll because of affiliation with such 
                        previously covered groups or individuals) will 
                        be impaired if it is required to enroll other 
                        individuals.
                    ``(B) First-come-first-served.--An insured health 
                plan is only eligible to exercise the limitations 
                provided for in subparagraph (A) if such plan provides 
                for enrollment of individuals on a first-come-first-
                served basis (except in the case of additional 
                individuals described in subparagraph (A)(ii)).
    ``(b) Renewal.--
            ``(1) In general.--Except as provided in paragraphs (2) and 
        (3), a health plan that is issued to an individual shall be 
        renewed at the option of the individual.
            ``(2) Grounds for refusal to renew.--A health plan sponsor 
        may refuse to renew, or may terminate, a health plan under this 
        title only for--
                    ``(A) nonpayment of premiums;
                    ``(B) fraud on the part of the individual; or
                    ``(C) misrepresentation of material facts on the 
                part of the individual relating to an application for 
                coverage or claim for benefits.
            ``(3) Exit from market.--
                    ``(A) In general.--An insurer shall renew an 
                insured health plan through a particular type of 
                delivery system (as defined in section 21100) with 
                respect to a community-rated employer or community-
                rated individual, unless such insurer--
                    ``(i) elects not to renew all of its insured health 
                plans using such delivery system issued to all such 
                employers and individuals in a State; and
                    ``(ii) provides notice to the appropriate 
                certifying authority and to each such employer and 
                individual covered under the plan of such termination 
                at least 180 days before the date of expiration of the 
                plan.
                    ``(B) Prohibition on market reentry.--In the case 
                of such a termination, such insurer may not provide for 
                the issuance of any insured health plan using such a 
                delivery system to a community-rated employer or 
                community-rated individual in such State during the 5-
                year period beginning on the date of the termination of 
                the last plan not so renewed.
    ``(c) Certain Excluded Plans.--The provisions of this section, 
other than subsections (b) and (e)(2)(B), shall not apply to any 
religious fraternal benefit society in existence as of September 1993, 
which bears the risk of providing insurance to its members, and which 
is an organization described in section 501(c)(8) of the Internal 
Revenue Code of 1986 which is exempt from taxation under section 501(a) 
of such Code.

``SEC. 21112. ENROLLMENT.

    ``(a) Enrollment Process.--A health plan shall establish an 
enrollment process which consists of--
                    ``(A) a general annual enrollment period of at 
                least 30 days; and
                    ``(B) special enrollment periods for changes in 
                enrollment,
        as specified by the reform standards, which shall include the 
        circumstances under which such special enrollment periods are 
        required and the duration of such periods.
    ``(b) Commencement of Coverage.--
            ``(1) Waiting periods.--An insurer or an employer may 
        impose a waiting period of not more than 30 days for coverage 
        for a reasonable time necessary to process an enrollment.
            ``(2) Newborns.--In the event of the birth or adoption of a 
        child of an enrollee, coverage of such child under such 
        enrollee's health plan (regardless of the class of enrollment) 
        shall begin on the date of such birth or adoption and shall 
        continue, in the absence of any enrollment of such child during 
        a special enrollment period provided under subsection 
        (a)(1)(C), for at least 45 days.

``SEC. 21113. NONDISCRIMINATION BASED ON HEALTH STATUS.

    ``(a) In General.--Except as provided under subsection (b), a 
health plan may not--
            ``(1) deny, limit, or condition the coverage under (or 
        benefits of) the plan; and
            ``(2) in the case of an experience-rated health plan, vary 
        the premium,
based on the health status, medical condition, claims experience, 
receipt of health care, medical history, anticipated need for health 
care expenses, disability, or lack of evidence of insurability, of an 
individual.
    ``(b) Treatment of Preexisting Condition Exclusions for All 
Services.--
            ``(1) In general.--Subject to paragraph (4), a health plan 
        may impose a limitation or exclusion of benefits relating to 
        treatment of a condition based on the fact that the condition 
        preexisted the effective date of the plan with respect to an 
        individual enrolling as a member of a group only if--
                    ``(A) the condition was diagnosed or treated during 
                the 3-month period ending on the day before the date of 
                enrollment under the plan;
                    ``(B) the limitation or exclusion extends for a 
                period not more than 6 months after the date of 
                enrollment under the plan;
                    ``(C) the limitation or exclusion does not apply to 
                an individual who, as of the date of birth, was covered 
                under the plan; or
                    ``(D) the limitation or exclusion does not apply to 
                pregnancy.
            ``(2) Crediting of previous coverage.--A health plan shall 
        provide that if an individual under such plan is in a period of 
        continuous coverage as of the date of enrollment under such 
        plan, any period of exclusion of coverage with respect to a 
        preexisting condition shall be reduced by 1 month for each 
        month in the period of continuous coverage.
            ``(3) Definitions.--As used in this subsection:
                    ``(A) Period of continuous coverage.--The term 
                `period of continuous coverage' means the period 
                beginning on the date an individual is enrolled under a 
                certified health plan or an equivalent health care 
                program and ends on the date the individual is not so 
                enrolled for a continuous period of more than 3 months.
                    ``(B) Preexisting condition.--The term `preexisting 
                condition' means, with respect to coverage under a 
                health plan, a condition which was diagnosed, or which 
                was treated, within the 3-month period ending on the 
                day before the date of enrollment (without regard to 
                any waiting period).
            ``(4) Special rules for individuals.--In the case of an 
        individual who is not enrolling as a member of a group in a 
        health plan--
                    ``(A) any reference to 3 months in paragraph (1)(A) 
                is deemed a reference to 6 months,
                    ``(B) any reference to 6 months in paragraphs 
                (1)(B) and (2) is deemed a reference to 12 months, and
                    ``(C) any reference to 3-month period in paragraph 
                (3)(B) is deemed a reference to 6-month period.
            ``(5) Prohibition on preexisting condition exclusion during 
        amnesty period.--
                    ``(A) In general.--This subsection shall not apply 
                during an initial enrollment period described in 
                section 21015.
                    ``(B) Capacity limitation.--The participating State 
                may establish a limit on the number of new enrollees a 
                health plan must accept during the period described in 
                subparagraph (A) based on the plan's share of the 
                applicable community-rated or experience-rated 
                population.

``SEC. 21114. RATING LIMITATIONS FOR COMMUNITY-RATED MARKET.

    ``(a) Standard Premiums With Respect to Community-Rated 
Individuals.--Each community-rated health plan shall establish within 
each community rating area in which the plan is to be offered a 
standard premium for individual enrollment for each benefits package of 
the plan, including the FedMed benefits package established under 
section 21115(b).
    ``(b) Uniform Premiums Within Community Rating Areas.--
            ``(1) In general.--Subject to paragraphs (2), (3), and (4), 
        the standard premium for each package described in subsection 
        (a) for all community-rated individuals within a community 
        rating area shall be the same and shall not include the costs 
        of premium processing, enrollment, and marketing that would 
        vary depending on whether the method of enrollment is through a 
        purchasing cooperative, or directly through a health plan 
        sponsor, an employer, or a broker.
            ``(2) Application to enrollees.--
                    ``(A) In general.--The premium charged for coverage 
                in a community-rated health plan shall be the product 
                of--
                            ``(i) the standard premium (established 
                        under paragraph (1));
                            ``(ii) in the case of enrollment other than 
                        individual enrollment, the family adjustment 
                        factor specified under subparagraph (B); and
                            ``(iii) the age adjustment factor 
                        (specified under subparagraph (C)).
                    ``(B) Family adjustment factor.--The reform 
                standards shall specify family adjustment factors that 
                reflect the relative actuarial costs of benefit 
                packages based on family classes of enrollment (as 
                compared with such costs for individual enrollment).
                    ``(C) Age adjustment factor.--The reform standards 
                shall specify uniform age categories for age adjustment 
                factors that reflect the relative actuarial costs of 
                benefit packages among enrollees. For individuals who 
                have attained age 18 but not age 65, the highest age 
                adjustment factor may not exceed the lowest age 
                adjustment factor by--
                            ``(i) 4 times for the first 3 years 
                        beginning with the first year of certification 
                        by the appropriate certifying authority, and
                            (ii) 3 times for years thereafter.
            ``(3) Administrative charges.--
                    ``(A) In general.--In accordance with the reform 
                standards, a community-rated health plan may add a 
                separately-stated administrative charge not to exceed 
                15 percent of the plan's premium which is based on 
                identifiable differences in marketing and other 
                legitimate administrative costs which vary by size of 
                the enrolling group and method of enrollment, including 
                enrollment directly through a health plan, an employer, 
                or a broker (as defined in such standards).
                    ``(B) Application.--The administrative charge for 
                any plan described in subparagraph (A) shall be applied 
                uniformly with respect to group size and method of 
                enrollment.
            ``(4) Discounts.--In accordance with the reform standards, 
        an insurer may allow premium discounts based on health 
        promoting activities.

``SEC. 21115. BENEFITS OFFERED.

    ``(a) Offering of Packages Including FedMed.--Subject to the 
requirements of section 21002(c), a health plan may offer, in addition 
to a FedMed benefits package, other benefits packages in a community 
rating area, if the rates for all such packages (including the FedMed) 
are based on the plan's total enrollment in the community-rated 
population in such area and the rating variations do not exceed the 
difference in the actuarial value of the specific benefit variations 
for such population.
    ``(b) FedMed Benefits Package Described.--
            ``(1) In general.--
                    ``(A) Package described.--A FedMed benefits package 
                described in this subsection is a benefits package that 
                covers all of the items and services under the 
                categories of health care items and services specified 
                by the Secretary under paragraph (2) when medically 
                necessary or appropriate (as determined in accordance 
                with paragraph (3)) and provides for a cost-sharing 
                schedule specified by the Secretary under paragraph 
                (4).
                    ``(B) Actuarial value.--
                            ``(i) Initial package.--For 1997, the 
                        FedMed benefits package established by the 
                        Secretary under this subsection that has the 
                        lowest actuarial value of all the FedMed 
                        benefits packages established by the Secretary 
                        under this subsection, shall have an actuarial 
                        value that equals the actuarial value of the 
                        benefits package provided under the health 
                        benefits plan offered under chapter 89 of title 
                        5, United States Code, during 1994 with the 
                        highest enrollment, adjusted for a national 
                        population under 65 years of age (as determined 
                        by the Secretary).
                            ``(ii) Succeeding years.--For succeeding 
                        years, the FedMed benefits package established 
                        by the Secretary under this subsection that has 
                        the lowest actuarial value of all the FedMed 
                        benefits packages established by the Secretary 
                        under this subsection for the year, shall have 
                        an actuarial value that equals the actuarial 
                        value of the FedMed benefits package that has 
                        the lowest actuarial value of all the FedMed 
                        benefits packages that existed in the preceding 
                        year.
                            ``(iii) Determining actuarial value.--For 
                        purposes of clause (ii), the Secretary shall 
                        use the same actuarial assumptions in 
                        determining the actuarial value of the FedMed 
                        benefits packages for the current and preceding 
                        years.
            ``(2) Categories of health care items and services.--
                    ``(A) In general.--The categories of health care 
                items and services specified by the Secretary under 
                this paragraph shall include at least the categories 
                described in section 1302(1) of the Public Health 
                Service Act and section 8904(a) of title 5, United 
                States Code. The Secretary may add or delete categories 
                of health care items and services under this paragraph 
                as medical practice changes.
                    ``(B) Specifying items and services.--
                            ``(i) In general.--The Secretary shall 
                        specify the items and services under the 
                        categories specified under subparagraph (A).
                            ``(ii) Priorities for the secretary.--In 
                        specifying items and services under this 
                        subparagraph the Secretary shall take into 
                        account the following:
                                    ``(I) Mental health and substance 
                                abuse services.--With respect to mental 
                                health and substance abuse services, 
                                the Secretary shall give priority to--
                                            ``(aa) parity for such 
                                        services with other medical 
                                        services with respect to cost-
                                        sharing and duration of 
                                        treatment;
                                            ``(bb) management for such 
                                        services that ensures access to 
                                        medically appropriate 
                                        treatment; and
                                            ``(cc) encouraging the use 
                                        of outpatient treatments to the 
                                        greatest extent feasible.
                                    ``(II) Vulnerable populations and 
                                underserved areas.--The Secretary shall 
                                give priority to the needs of children 
                                and vulnerable populations, including 
                                those populations in rural, frontier, 
                                and underserved areas.
                                    ``(III) Prevention.--The Secretary 
                                shall give priority to improving the 
                                health of individuals through 
                                prevention.
            ``(3) Medical Necessity or Appropriateness.--
                    ``(A) Determinations by health plans.--
                            ``(i) In general.--The determination of 
                        medical necessity or appropriateness of 
                        specific treatments or procedures shall be made 
                        by individual health plans with reference to 
                        criteria established under subparagraph (B).
                            ``(ii) New procedures and technologies.--
                        Health plans may make coverage decisions 
                        regarding new procedures and technologies with 
                        reference to the criteria established by the 
                        Secretary under subparagraph (B).
                    ``(B) Criteria established.--The Secretary shall 
                establish general criteria for determining whether an 
                item or service specified by the Secretary under 
                paragraph (2)(B) is medically necessary or appropriate.
            ``(4) Cost-Sharing.--The Secretary shall establish cost-
        sharing schedules to be provided by a FedMed benefits package. 
        In establishing such cost-sharing schedules, the Secretary 
        shall meet the following requirements:
                    ``(A) Annual basis.--The Secretary shall review and 
                update cost-sharing schedules as determined appropriate 
                by the Secretary, but on at least an annual basis.
                    ``(B) Delivery systems.--
                            ``(i) In general.--In establishing cost-
                        sharing schedules for FedMed benefits packages, 
                        the Secretary shall ensure that the schedules 
                        permit a variety of delivery systems, including 
                        fee-for-service, preferred provider 
                        organizations, point of service, and health 
                        maintenance organizations.
                            ``(ii) Initial cost-sharing schedules.--The 
                        cost-sharing schedules initially established by 
                        the Secretary shall meet the following 
                        requirements:
                                    ``(I) Moderate cost-sharing.--A 
                                moderate cost-sharing schedule shall be 
                                similar to the cost-sharing schedule 
                                under the health benefits plan offered 
                                under chapter 89 of title 5, United 
                                States Code, with the highest 
                                enrollment that uses a fee-for-service 
                                delivery system.
                                    ``(II) Low cost-sharing.--A low 
                                cost-sharing schedule shall be similar 
                                to the cost-sharing schedule under the 
                                health benefits plan offered under 
                                chapter 89 of title 5, United States 
                                Code, with the highest enrollment that 
                                provides a health maintenance 
                                organization.
                                    ``(III) Intermediate cost-
                                sharing.--An intermediate cost-sharing 
                                schedule for a preferred provider 
                                system, point of service system, or 
                                similar system, shall encourage use of 
                                providers in the network by providing 
                                for higher cost-sharing for out-of-
                                network, non-emergency services.
                    ``(C) Cost-sharing rules.--Cost-sharing schedules 
                established by the Secretary may include copayments, 
                coinsurance, deductibles, and out-of-pocket limits. The 
                copayments, coinsurance, deductibles and out-of-pocket 
                limits on cost-sharing for a year under the schedules 
                shall be applied based upon expenses incurred for 
                covered items and services furnished in the year.
    ``(c) Lifetime Limitation Prohibited.--No health plan may impose a 
lifetime limitation on the provision of benefits.

``SEC. 21116. RISK ADJUSTMENT.

    ``(a) In General.--Each community-rated health plan shall 
participate in a risk adjustment program of the State described in 
section 21014.
    ``(b) Mandatory Stop-Loss Insurance.--Each employer which is not an 
experience-rated employer and which sponsors a self-insured health plan 
shall carry stop-loss insurance purchased from a reinsurer regulated by 
the participating State.

``SEC. 21117. PROHIBITION OF DISCRIMINATION.

    ``(a) In General.--No State, health plan, or health plan sponsor 
may discriminate in participation, reimbursement, or indemnification 
against a health care provider who is acting within the scope of the 
provider's license or certification under applicable State or Federal 
law solely on the basis of such license or certification of such 
provider.
    ``(b) Number and Type.--Nothing in this title shall--
            ``(1) prevent a health plan from matching the number and 
        type of health care providers to the needs of the plan members; 
        or
            ``(2) except as specifically provided in this title, 
        establish any other measure designed to maintain quality or to 
        control costs.

  ``PART III--MINIMUM DELIVERY SYSTEM GUIDELINES APPLICABLE TO HEALTH 
                                 PLANS

``SEC. 21121. MINIMUM DELIVERY SYSTEM GUIDELINES.

    ``(a) In General.--The minimum guidelines for the certification by 
a participating State of health plan delivery systems specified under 
this part are as follows:
            ``(1) Establishing and maintaining health plan quality 
        assurance, including--
                    ``(A) quality management;
                    ``(B) credentialing;
                    ``(C) utilization management;
                    ``(D) governance;
                    ``(E) plan and quality processes;
                    ``(F) health care provider selection and due 
                process in selection; and
                    ``(G) practice guidelines and protocols.
            ``(2) Providing consumer protection for health plan 
        enrollees, including--
                    ``(A) comparative consumer information with respect 
                to health plans in a form specified in subtitle B of 
                title XI;
                    ``(B) marketing agents and materials;
                    ``(C) nondiscrimination in plan enrollment, 
                disenrollment and service provision;
                    ``(D) continuation of treatment with respect to 
                health plans that become insolvent;
                    ``(E) grievance procedures;
                    ``(F) advanced directives; and
                    ``(G) financial practices of health plans that 
                interfere with quality of care.
            ``(3) Ensuring reasonable access to health care services, 
        including--
                    ``(A) ensuring that vulnerable populations have 
                access to health care services, in accordance with the 
                recommendations of the Prospective Payment Assessment 
                Commission under subsection (c);
                    ``(B) anti red-lining rules; and
                    ``(C) prohibition on plan discrimination against 
                health care providers (including discrimination solely 
                on the basis of the academic degree of the provider).
            ``(4) Health plan financial standards, including--
                    ``(A) plan solvency requirements;
                    ``(B) financial standards relating to liquidity, 
                accounting and reporting; and
                    ``(C) guaranty fund participation.
    ``(b) Customized Guidelines.--In establishing guidelines under 
subsection (a), the Secretary shall recommend customized guidelines for 
the certification of different types of health plans, taking into 
consideration--
            ``(1) frontier, rural, and inner city factors; and
            ``(2) commercial insurance, managed-care plans, and 
        delivery-system or provider-based plans.
    ``(c) Access to Vulnerable Populations.--Not later than 1 year 
after the date of enactment of this title, the Prospective Payment 
Assessment Commission shall submit recommendations to the Secretary 
concerning guidelines under subsection (a)(3)(A). In preparing such 
recommendations, the Commission shall consider--
            ``(1) the anticipated impact of health care reform on 
        access to health care services by individuals in vulnerable 
        populations; and
            ``(2) safeguards needed to ensure the continued access to, 
        and payment for, health care services provided to individuals 
        in vulnerable populations.

             ``Subtitle C--Expanded Access to Health Plans

   ``PART I--ACCESS THROUGH HEALTH INSURANCE PURCHASING COOPERATIVES

``SEC. 21201. ESTABLISHMENT AND ORGANIZATION.

    ``(a) In General.--Individual and small group market purchasing 
cooperatives (in this title referred to as `purchasing cooperatives') 
may be established in accordance with this part. Each purchasing 
cooperative shall be chartered under State law. An insurer may not 
form, underwrite, or possess a majority vote of a purchasing 
cooperative, but may administer such a cooperative.
    ``(b) Duties of Purchasing Cooperatives.--
            ``(1) In general.--Subject to paragraph (2), each 
        purchasing cooperative shall--
                    ``(A) provide access to insured certified health 
                plans to members throughout the entire community rating 
                area served by the cooperative;
                    ``(B) enter into agreements with insured certified 
                health plans selected by the cooperative;
                    ``(C) enter into agreements with community-rated 
                employers located in the community rating area served 
                by the cooperative;
                    ``(D) enroll community-rated individuals in insured 
                certified health plans; and
                    ``(E) collect premiums from individuals enrolled in 
                insured certified health plans through the purchasing 
                cooperative and forward such premiums to the plans.
            ``(2) Limitation on activities.--A purchasing cooperative 
        shall not--
                    ``(A) perform any activity (including review, 
                approval, or enforcement) relating to payment rates for 
                providers;
                    ``(B) perform any activity (including certification 
                or enforcement) relating to compliance of insured 
                certified health plans with the requirements of part I 
                or II of subtitle B; or
                    ``(C) assume financial risk in relation to any such 
                plan.
    ``(d) Rules of Construction.--
            ``(1) Establishment not required.--Nothing in this section 
        shall be construed as requiring--
                    ``(A) that a purchasing cooperative be established 
                in each community rating area; and
                    ``(B) that there be only one purchasing cooperative 
                established with respect to a community rating area.
            ``(2) Single organization serving multiple areas.--Nothing 
        in this section shall be construed as preventing a single 
        entity from being the purchasing cooperative for more than one 
        community rating area.

                    ``PART II--ACCESS THROUGH FEHBP

``SEC. 21211. SMALL BUSINESS PARTICIPATION IN FEHBP.

    ``For access by small businesses to health benefits plans offered 
by the Federal Employee Health Benefits Program, see chapter 90 of 
title 5, United States Code.

              ``PART III--ACCESS THROUGH ASSOCIATION PLANS

                ``Subpart A--Qualified Association Plans

``SEC. 21221. TREATMENT OF QUALIFIED ASSOCIATION PLANS.

    ``(a) General Rule.--For purposes of this title, in the case of a 
qualified association plan--
            ``(1) except as otherwise provided in this subpart, the 
        plan shall meet all applicable requirements of this title for 
        certified health plans offered by experience-rated employers,
            ``(2) if such plan is certified as meeting such 
        requirements and the requirements of this subpart, such plan 
        shall be treated as a plan established and maintained by an 
        experience-rated employer which meets the requirements of this 
        title for experience-rated plans, and individuals enrolled in 
        such plan shall be treated as experience-rated individuals, and
            ``(3) any individual who is a member of the association not 
        enrolling in the plan shall not be treated as an experience-
        rated individual solely by reason of membership in such 
        association.
    ``(b) Election To Be Treated as Purchasing Cooperative.--Subsection 
(a) shall not apply to a qualified association plan if--
            ``(1) the health plan sponsor makes an irrevocable election 
        to be treated as a purchasing cooperative for purposes of this 
        title, and
            ``(2) such sponsor meets all requirements of this title 
        applicable to a purchasing cooperative.

``SEC. 21222. QUALIFIED ASSOCIATION PLAN DEFINED.

    ``(a) General Rule.--For purposes of this subpart, a plan is a 
qualified association plan if the plan is a multiple employer welfare 
arrangement or similar arrangement--
            ``(1) which is maintained by a qualified association,
            ``(2) which has at least 500 participants in the United 
        States,
            ``(3) under which the benefits provided consist solely of 
        medical care (as defined in section 213(d) of the Internal 
        Revenue Code of 1986),
            ``(4) which may not condition participation in the plan, or 
        terminate coverage under the plan, on the basis of the health 
        status or health claims experience of any employee or member or 
        dependent of either,
            ``(5) which provides for bonding, in accordance with 
        regulations providing rules similar to the rules under section 
        412 of the Employee Retirement Income Security Act of 1974, of 
        all persons operating or administering the plan or involved in 
        the financial affairs of the plan, and
            ``(6) which notifies each participant or provider that it 
        is certified as meeting the requirements of this title 
        applicable to it.
    ``(b) Self-Insured Plans.--In the case of a plan which is not fully 
insured (within the meaning of section 514(b)(6)(D) of the Employee 
Retirement Income Security Act of 1974), the plan shall be treated as a 
qualified association plan only if--
            ``(1) the plan meets minimum financial solvency and cash 
        reserve requirements for claims which are established by the 
        Secretary of Labor and which shall be in lieu of any other such 
        requirements under this title,
            ``(2) the plan provides an annual funding report (certified 
        by an independent actuary) and annual financial statements to 
        the Secretary of Labor and other interested parties, and
            ``(3) the plan appoints a plan sponsor who is responsible 
        for operating the plan and ensuring compliance with applicable 
        Federal and State laws.
    ``(c) Certification.--
            ``(1) In general.--A plan shall not be treated as a 
        qualified association plan for any period unless there is in 
        effect a certification by the Secretary of Labor that the plan 
        meets the requirements of this subpart. For purposes of this 
        title, the Secretary of Labor shall be the appropriate 
        certifying authority with respect to the plan.
            ``(2) Fee.--The Secretary of Labor shall require a $5,000 
        fee for the original certification under paragraph (1) and may 
        charge a reasonable annual fee to cover the costs of processing 
        and reviewing the annual statements of the plan.
            ``(3) Expedited procedures.--The Secretary of Labor may by 
        regulation provide for expedited registration, certification, 
        and comment procedures.
            ``(4) Agreements.--The Secretary of Labor may enter into 
        agreements with the States to carry out the Secretary's 
        responsibilities under this subpart.
    ``(d) Availability.--Notwithstanding any other provision of this 
title, a qualified association plan may limit coverage to individuals 
who are members of the qualified association establishing or 
maintaining the plan, an employee of such member, or a spouse or 
dependent of either.
    ``(e) Special Rules for Existing Plans.--In the case of a plan in 
existence on January 1, 1994--
            ``(1) the requirements of subsection (a) (other than 
        paragraph (4), (5), and (6) thereof) shall not apply,
            ``(2) no original certification shall be required under 
        this subpart, and
            ``(3) no annual report or funding statement shall be 
        required before January 1, 1996, but the plan shall file with 
        the Secretary of Labor a description of the plan and the name 
        of the plan sponsor.

``SEC. 21223. DEFINITIONS AND SPECIAL RULES.

    ``(a) Qualified Association.--For purposes of this subpart, the 
term `qualified association' means any organization which--
            ``(1) is organized and maintained in good faith by a trade 
        association, an industry association, a professional 
        association, a chamber of commerce, a religious organization, a 
        public entity association, or other business association 
        serving a common or similar industry,
            ``(2) is organized and maintained for substantial purposes 
        other than to provide a health plan,
            ``(3) has a constitution, bylaws, or other similar 
        governing document which states its purpose, and
            ``(4) receives a substantial portion of its financial 
        support from its active, affiliated, or federation members.
    ``(b) Multiple Employer Welfare Arrangement.--For purposes of this 
subchapter, the term `multiple employer welfare arrangement' has the 
meaning given such term by section 3(40) of the Employee Retirement 
Income Security Act of 1974.
    ``(c) Coordination With Subpart B.--The term `qualified association 
plan' shall not include a plan to which subpart B applies.

 ``Subpart B--Special Rule for Church, Multiemployer, and Cooperative 
                                 Plans

``SEC. 21225. SPECIAL RULE FOR CHURCH, MULTIEMPLOYER, AND COOPERATIVE 
              PLANS.

    ``(a) General Rule.--For purposes of this title, in the case of a 
health plan to which this section applies--
            ``(1) except as otherwise provided in this subpart, the 
        plan shall be required to meet all applicable requirements of 
        this title for certified health plans offered by experience-
        rated employers,
            ``(3) if such plan is certified as meeting such 
        requirements, such plan shall be treated as a plan established 
        and maintained by an experience-rated employer which meets the 
        requirements of this title for experience-rated plans, and 
        individuals enrolled in such plan shall be treated as 
        experience-rated individuals, and
            ``(3) any individual eligible to enroll in the plan who 
        does not enroll in the plan shall not be treated as an 
        experience-rated individual solely by reason of being eligible 
        to enroll in the plan.
    ``(b) Modified Standards.--
            ``(1) Certifying authority.--For purposes of this title, 
        the Secretary of Labor shall be the appropriate certifying 
        authority with respect to a plan to which this section applies.
            ``(2) Availability.--Rules similar to the rules of 
        subsection (d) of section 21222 shall apply to a plan to which 
        this section applies.
            ``(3) Access.--An employer which, pursuant to a collective 
        bargaining agreement, offers an employee the opportunity to 
        enroll in a plan described in subsection (c)(2) shall not be 
        required to make any other plan available to the employee.
            ``(4) Treatment under state laws.--A church plan described 
        in subsection (c)(1) which is certified as meeting the 
        requirements of this section shall not be deemed to be a 
        multiple employer welfare arrangement or an insurance company 
        or other insurer, or to be engaged in the business of 
        insurance, for purposes of any State law purporting to regulate 
        insurance companies or insurance contracts.
    ``(c) Plans to Which Section Applies.--This section shall apply to 
a health plan which--
            ``(1) is a church plan (as defined in section 414(e) of the 
        Internal Revenue Code of 1986) which has at least 100 
        participants in the United States,
            ``(2) is a multiemployer plan (as defined in section 3(37) 
        of the Employee Retirement Income Security Act of 1974) which 
        is maintained by a health plan sponsor described in section 
        3(16)(B)(iii) of such Act and which has at least 500 
        participants in the United States, or
            ``(3) is a plan which is maintained by a rural electric 
        cooperative or a rural telephone cooperative association 
        (within the meaning of section 3(40) of such Act and which has 
        at least 500 participants in the United States.

                  ``PART IV--ACCESS THROUGH EMPLOYERS

``SEC. 21231. GENERAL EMPLOYER RESPONSIBILITIES.

    ``(a) Payroll Deduction.--
            ``(1) In general.--If--
                    ``(A) a certified health plan, or purchasing 
                cooperative on behalf of such a plan, requests an 
                employer under this section to withhold premiums with 
                respect to any employee enrolled in the plan, or
                    ``(B) an employee requests an employer to withhold 
                premiums to a certified health plan in which the 
                employee is enrolled or enrolling,
        the employer shall deduct and withhold such premiums (less any 
        employer contribution) through payroll deduction and pay the 
        amounts deducted and withheld to the plan or to the purchasing 
        cooperative.
            ``(2) Payroll deductions.--
                    ``(A) Frequency.--In the case of an employee who is 
                paid wages or other compensation--
                            ``(i) on a monthly or more frequent basis, 
                        the employer shall deduct and withhold, and 
                        pay, such premiums at the same time as the 
                        payment of such wages or other compensation, or
                            ``(ii) less frequently than monthly, the 
                        employer shall pay such premiums on a monthly 
                        basis.
                    ``(B) Employee protections.--
                            ``(i) Withholding constitutes satisfaction 
                        of obligation.--If an employee notifies the 
                        health plan sponsor that the employee has 
                        requested the employer withholding of a certain 
                        amount, the withholding of such an amount by 
                        the employer under subparagraph (A) shall 
                        constitute satisfaction of the employee's 
                        obligation to pay the health plan with respect 
                        to such amount.
                            ``(ii) Direct payment allowed in case of 
                        nonpayment.--In the case of the nonpayment to a 
                        health plan of any amount withheld by an 
                        employer, the plan shall notify such employee 
                        of such nonpayment and shall allow the employee 
                        to make direct payments to the plan effective 
                        with the next succeeding payment period.
    ``(b) Time Period for Employers.--An employer shall meet the 
requirements of this section with respect to any new employee within 
the 30-day period beginning on the date of hire.

``SEC. 21232. DEVELOPMENT OF LARGE EMPLOYER PURCHASING GROUPS.

    ``Nothing in this title shall be construed as prohibiting 2 or more 
experience-rated employers from joining together to purchase insurance 
for their employees, except that each such employer shall be 
responsible for meeting the employer's requirements under this title 
with respect to its employees.

``SEC. 21233. REPORT TO EMPLOYEES ON EMPLOYER HEALTH CARE 
              CONTRIBUTIONS.

    ``Each employer with more than 25 full-time employees shall report 
each year to each full-time employee the amount of the employer 
contributions made on behalf of the employee for health insurance 
coverage. An employer may use any reasonable means to carry out its 
responsibilities under this section (including the calculation of the 
amount of the employer contribution).

``SEC. 21234. EMPLOYER MAY NOT DISCRIMINATE AGAINST SUBSIDY ELIGIBLE 
              INDIVIDUALS.

    ``(a) General Rule.--Any employer which elects to make employer 
contributions on behalf of its employees for health insurance coverage 
shall not condition, or vary, such contributions with respect to any 
employee by reason of such employee's status as an individual eligible 
for premium assistance under subtitle B of title I of the America's 
Health Care Option Act.
    ``(b) Elimination of Contributions.--An employer shall not be 
treated as failing to meet the requirements of subsection (a) if the 
employer ceases to make employer contributions for health insurance 
coverage for all its employees.

``SEC. 21235. ENFORCEMENT.

    ``A State program shall provide for the monitoring and enforcement 
of the requirements of this part.''.

             Subtitle B--Consolidation of Federal Research

SEC. 211. CONSOLIDATION OF FEDERAL RESEARCH.

    (a) Agency for Quality Assurance and Consumer Information.--
            (1) In general.--There is established within the Department 
        of Health and Human Services an agency to be known as the 
        Agency for Quality Assurance and Consumer Information 
        (hereafter referred to in this section as the ``Agency'').
            (2) Purpose.--The purpose of the Agency is to act as the 
        center for all Federal research activities relating to quality 
        and consumer information in health care.
            (3) Administrator.--There shall be at the head of the 
        Agency an official to be known as the Administrator for Quality 
        Assurance and Consumer Information (hereafter referred to in 
        this section as the ``Administrator''). The Administrator shall 
        be appointed by the Secretary of Health and Human Services 
        (hereafter referred to in this section as the ``Secretary'').
    (b) Consolidation.--
            (1) Action by secretary.-- The Secretary, acting through 
        the Administrator, shall consolidate Federal research 
        activities relating to quality and consumer information in 
        health care through the Agency to enable States to gain access 
        to the results of such research from a central source.
            (2) Action by administrator.--The Administrator shall 
        assume the following responsibilities:
                    (A) Responsibilities of the Administrator for 
                Health Care Policy and Research under title IX of the 
                Public Health Service Act and under section 1142 of the 
                Social Security Act.
                    (B) Responsibilities of the Director of the 
                National Center for Health Statistics under section 306 
                of the Public Health Service Act.
                    (C) Responsibilities of the Director of the Office 
                of Medical Applications of Research at the National 
                Institutes of Health.
                    (D) Responsibilities of the Director of the Office 
                of Research and Demonstrations of the Health Care 
                Financing Administration, to the extent such 
                responsibilities relate to clinical evaluations.
    (c) Duties.--
            (1) In general.--In carrying out subsection (b)(1), the 
        Secretary, acting through the Administrator, shall conduct and 
        support research, demonstration projects, evaluations, 
        training, guideline development, and the dissemination of 
        information, on measures and standards of quality and consumer 
        information relating to health care services and on systems for 
        the delivery of such services. Activities under this section 
        shall include--
                    (A) research with respect to the effectiveness and 
                appropriateness of health care services and procedures;
                    (B) research with respect to quality management and 
                improvement efforts of health care systems;
                    (C) the conduct of consumer information and surveys 
                concerning--
                            (i) access to care;
                            (ii) use of health services;
                            (iii) health outcomes; and
                            (iv) patient satisfaction;
                    (D) the development, dissemination, application, 
                and evaluation of practice guidelines;
                    (E) the conduct, in partnership with experts, of 
                information effectiveness trials in the private sector; 
                and
                    (F) the systematic evaluation of existing and new 
                treatments and diagnostic technologies in an effort to 
                improve the knowledge base to assist in clinical 
                decision-making and policy choices.
            (2) Experts.--The Secretary, acting through the 
        Administrator, shall carry out the activities described in 
        paragraph (1) in consultation with private and public experts 
        in quality and consumer information.
            (3) Guidelines.--The Administrator shall develop and 
        recommend to the Secretary minimum guidelines for health care 
        quality measures, consumer information categories, and access 
        to health services. Such guidelines shall be utilized by the 
        Secretary in establishing guidelines for certification under 
        part III of subtitle B of title XXI of the Social Security Act.
            (4) Data.--The Administrator shall recommend to the 
        Secretary standards and procedures for the administration of 
        data and transactions relating to health care quality, consumer 
        information, access, and effectiveness under subtitle B of 
        title XI of the Social Security Act.
            (5) Research.--The Agency shall be responsible for 
        oversight with respect to basic and applied research concerning 
        the matters described in paragraph (1).
    (d) Transfers.--There are hereby transferred to the Agency the 
staff, funds, and other assets of the agencies for which the Agency is 
assuming responsibilities under subsection (b)(2).
    (e) Authorization of Appropriations.--For the purpose of carrying 
out this section, there are authorized to be appropriated $100,000,000 
for fiscal year 1996, $150,000,000 for fiscal year 1997, $200,000,000 
for each of the fiscal years 1998 and 1999, and $250,000,000 for fiscal 
year 2000. Beginning with fiscal year 1997, at least one-third of the 
funds for each year shall be used for implementing the results of 
quality and consumer information research, such as grants to entities 
to test the use of practice guidelines in the health care delivery 
system.

 Subtitle C--Self-Employed Individual and Small Employer Participation 
               in Federal Employees Health Benefits Plans

SEC. 221. SELF-EMPLOYED INDIVIDUAL AND SMALL EMPLOYER PARTICIPATION IN 
              FEDERAL EMPLOYEES HEALTH BENEFITS PLANS.

    Part III of title 5, United States Code, is amended by inserting 
after chapter 89 the following new chapter:

 ``CHAPTER 90--SMALL BUSINESS PARTICIPATION IN FEDERAL EMPLOYEE HEALTH 
                             BENEFITS PLANS

``Sec.
``9001. Definition.
``9002. Application to small business participants.
``9003. Small business participation.
``9004. Contributions.
``9005. Continued coverage.
``9006. Schedule of small business participation.
``9007. Cost comparison reports and reductions.
``Sec. 9001. Definition
    ``(a) For purposes of this chapter, the term `small business' means 
any business entity which employs 50 or less employees (including 
businesses with one self-employed individual).
    ``(b) For purposes of subsection (a), the rules under section 52 of 
the Internal Revenue Code of 1986 shall apply.
    ``(c) No entity, the sole purpose of which is to provide health 
care coverage for its members, shall be considered a small business for 
purposes of this chapter.
``Sec. 9002. Application to small business participants
    ``(a) The Office of Personnel Management shall promulgate 
regulations to apply the provisions of chapter 89, relating to health 
benefits plans, to the greatest extent practicable to small businesses 
and individuals covered under the provisions of this chapter.
    ``(b) Notwithstanding the provisions of subsection (a), carriers 
shall offer the same health benefits plans for the same premiums as are 
offered under chapter 89.
    ``(c) Notwithstanding the provisions of subsection (a), the 
provisions of section 8907 shall not apply to individuals covered under 
this chapter, except the Office of Personnel Management shall establish 
a method to disseminate information relating to health benefits plans 
(including information concerning periods of open enrollment and a 
summary of the information described in section 8908) to such 
individuals through small business participants and carriers.
    ``(d)(1) A carrier offering a health benefits plan under this 
chapter may charge a fee to participating small businesses for the 
administrative expenses related to the enrollment of such businesses in 
such plan, not to exceed the lesser of--
            ``(A) 15 percent of the premiums charged each such 
        business, or
            ``(B) the amount charged each such business of the same 
        size.
    ``(2) A carrier shall consult with the Office of Personnel 
Management before setting or adjusting any fee under this subsection.
    ``(e) A carrier offering a health benefits plan under this chapter 
may impose group participation requirements if such requirements are 
standard for all groups.
``Sec. 9003. Small business participation
    ``Any small business which desires to participate in a health 
benefits plan under this chapter may enter into a contract with a 
carrier in accordance with this chapter. Such contract shall provide 
for--
            ``(1) a term of no less than 1 year, and
            ``(2) early termination for nonpayment of premiums.
``Sec. 9004. Contributions
    ``(a) Subject to the provisions of subsection (b), an individual 
enrolled in a health benefits plan under this chapter shall make 
contributions equal to the amount of contributions made by--
            ``(1) a Federal enrollee in such plan under individual, or 
        self and family coverage, as the case may be, as determined 
        under section 8906;
            ``(2) the Federal agency making Government contributions 
        determined under section 8906 for such Federal enrollee; and
            ``(3) the administrative charge applied by the carrier 
        under section 9002(d).
    ``(b)(1) A small business may by contract agree to make any amount 
of the contribution required under subsection (a) on behalf of an 
enrollee under such subsection.
    ``(2) An agency of a State government may provide any amount of the 
contribution required under subsection (a) on behalf of an enrollee 
under such subsection.
    ``(c) A small business participating under this chapter shall--
            ``(1) collect contributions from employees by withholdings 
        from pay or by another method or schedule;
            ``(2) make payments of such contributions to the contracted 
        carrier;
            ``(3) maintain and make available such records as the 
        Office, applicable State insurance authority, or carrier may 
        require; and
            ``(4) provide any other related administrative service in 
        carrying out the provisions of this chapter.
``Sec. 9005. Continued coverage
    ``(a) Subject to subsection (b), the provisions of section 8905a 
shall be made applicable to enrollees and individuals covered by such 
enrollments under this chapter through section 9002 and the carrier 
contract entered into under section 9003, except the enrollee shall pay 
all contributions for continued coverage and the applicable amount for 
administrative expenses unless the applicable small business by 
contract agrees to pay any part of such contributions or expenses.
    ``(b) An individual may be covered under continued coverage as 
provided under subsection (a), only if such individual--
            ``(1) was covered by a health benefits plan under this 
        chapter for the 2-year period immediately preceding the date on 
        which continued coverage under this section begins; and
            ``(2) remains in the same plan during the period of 
        continued coverage as such individual was enrolled in 
        immediately before such period of continued coverage.''.
``Sec. 9006. Schedule of small business participation
    ``(a) Subject to the succeeding subsections of this section, each 
carrier enrolling individuals of small business participants under this 
chapter shall ensure that--
            ``(1) in the first contract year in which such carrier 
        covers individuals of small business participants, the number 
        of enrollees from small businesses as provided under this 
        chapter shall be no less than 5 percent of the number of 
        Federal enrollees enrolled by such carrier under chapter 89; 
        and
            ``(2) in the second such year, the number of small business 
        enrollees shall be no less than 10 percent of the number of 
        such Federal enrollees;
            ``(3) in the third such year, the number of small business 
        enrollees shall be no less than 10 percent of the number of 
        such Federal enrollees; and
            ``(4) in the fourth such year, the number of small business 
        enrollees shall be no less than 10 percent of the number of 
        such Federal enrollees.
    ``(b)(1) In the contract year described under subsection (a)(1), a 
small business may participate if such business has between 5 and 50 
employees.
    ``(2) In the contract year described under subsection (a)(2) small 
businesses with between 2 and 50 employees may additionally 
participate.
    ``(3) In the contract year described under subsection (a)(3) and 
each year thereafter, all small businesses may participate.
    ``(c) If during any contract year described under subsection (a) 
(1) through (4), more small businesses apply for participation than are 
required to participate under such subsection, the carrier shall ensure 
that a small business shall have a priority for selection for 
participation if such business is not offering any type of health 
insurance benefits to its employees.
    ``(d)(1) If a carrier that enrolls individuals of small business 
participants under this chapter, ceases to offer enrollment to 
individuals under this chapter in any contract year, such carrier may 
not offer enrollment under this chapter for the following 2 contract 
years.
    ``(2) The provisions of paragraph (1) shall not be construed to 
require any carrier to terminate health coverage of any individual who 
is enrolled under this chapter at the time such carrier ceases to offer 
new enrollments under this chapter.
    ``(e) A small business may participate in a health benefits plan as 
provided under this section if such business meets all such 
requirements otherwise provided under this chapter.
    ``(f) The Office may waive the requirements under subsection (a), 
in whole or in part, after making a determination that--
            ``(1) there is insufficient interest in small businesses 
        within the region in participating under this chapter; or
            ``(2) a requirement is beyond the capacity of a carrier to 
        enroll individuals under this chapter.
``Sec. 9007. Cost comparison reports and reductions
    ``(a) No later than July 1 of the first contract year implementing 
health care coverage under this chapter, and on July 1 of each year 
thereafter, each carrier contracting under chapter 89 or this chapter 
shall submit a report to the Office of Personnel Management that 
compares the aggregate cost experiences with respect to coverage 
between--
            ``(1) Federal employees and other individuals covered under 
        chapter 89; and
            ``(2) individuals covered under this chapter.
    ``(b) Based on the reports submitted under subsection (a), the 
Office may reduce the percentage requirements under section 9006(a) for 
any contract year (but not below the percentage of the preceding 
contract year).''.

SEC. 222. PROHIBITION OF HEALTH BENEFITS PLANS EXCLUSIVELY FOR MEMBERS 
              AND EMPLOYEES OF CONGRESS.

    No health benefits plan under chapter 89 or 90 of title 5, United 
States Code, may be offered exclusively to--
            (1) Members of Congress (including members of family);
            (2) congressional employees as defined under section 2107 
        of such title (including members of family); or
            (3) individuals described under paragraphs (1) and (2).

SEC. 223. STUDY REGARDING NONWORKER AND NONCOVERED EMPLOYEE BUY-INS.

    The Secretary of Health and Human Services shall study by what 
method nonworkers and employees of employers not covered under chapter 
90 of title 5, United States Code (as added by section 221 of this 
Act), may be incorporated into the buy-in for coverage under the 
Federal Employees Health Benefits Plan. The Secretary shall report the 
results of such study and any appropriate legislative recommendations 
to the Congress not later than 2 years after the date of the enactment 
of this Act.

SEC. 224. EFFECTIVE DATE.

    (a) In General.--Except as provided under subsection (b), the 
provisions of this subtitle and the amendments made by this subtitle 
shall be effective on and after the first January 1 occurring after the 
date of the enactment of this Act.
    (b) Exception.--The provisions of chapters 89 and 90 of title 5, 
United States Code, as amended and effected by this subtitle, relating 
to the establishment of or exercise of authority (including the 
promulgation of regulations) by the Office of Personnel Management, the 
Secretary of Health and Human Services, the President, or any other 
applicable Federal officer shall take effect on the date of the 
enactment of this Act in order to establish health benefits plans and 
fully implement the provisions and amendments made by this Act no later 
than the first January 1 occurring after the date of the enactment of 
this Act.

                Subtitle D--Report on Health Care System

SEC. 231. REPORT ON HEALTH CARE SYSTEM.

    (a) Report.--Not later than July 1, 1998, the President shall 
submit to the Congress findings and recommendations (if any) on each of 
the items described in subsection (b).
    (b) Items To Be Studied.--The items referred to in subsection (a) 
are as follows:
            (1) The characteristics of the insured and uninsured, 
        including demographic characteristics, working status, health 
        status, and geographic distribution.
            (2) Methods to improve access to health care and to 
        increase health insurance coverage of the chronically 
        uninsured.
            (3) The effectiveness of the insurance reforms under 
        subtitle A on access to health care and the costs of health 
        care.
            (4) The effectiveness of Federal efforts to assess the 
        impact of new technology on the cost and availability of new 
        products.
            (5) The effectiveness of Federal, State, and private cost 
        containment strategies.
            (6) The effectiveness of Federal, State, and private 
        efforts to measure and improve health care outcomes.
            (7) The effectiveness of the new Federal subsidy programs, 
        including recommendations to restrain future growth.
            (8) The effectiveness of initiatives targeted to 
        underserved urban and rural populations.

TITLE III--SPECIAL ASSISTANCE FOR RURAL, FRONTIER AND UNDERSERVED URBAN 
                                 AREAS

SEC. 301. PURPOSE.

    It is the purpose of this title to--
            (1) establish safeguards to assist vulnerable populations 
        in accessing local health services and practitioners;
            (2) provide funding to certain areas to assist health care 
        providers and health plans in such areas in reconfiguring 
        services and establishing networks and health plans to 
        effectively compete in the changing market;
            (3) provide funding to increase primary care capacity in 
        underserved areas; and
            (4) provide more flexibility in Medicare rules for health 
        care providers in underserved areas.

SEC. 302. DESIGNATED UNDERSERVED AREAS.

    (a) State Designation.--A State may designate certain rural, 
frontier or urban areas within the State as underserved areas based 
on--
            (1) the lack of access to health plans in such areas; and
            (2) the lack of access to quality health care providers and 
        health care facilities in such areas.
    (b) Establishment of Procedure.--
            (1) In general.--The Secretary shall establish a procedure 
        under which the Secretary, upon the request of a State, may 
        certify areas designated by the State under subsection (a) as 
        underserved areas.
            (2) Nonapplicability of other requirements.--The Secretary 
        may certify a designated area under paragraph (1) whether or 
        not such area meets the requirements for being considered a 
        medically underserved area or a health professional shortage 
        area.
    (c) Effect of Certification.--Except with respect to provisions in 
this title that explicitly direct assistance to those areas currently 
designated as underserved, in awarding grants, contracts, loans, 
waivers, or any other assistance under this title (or an amendment made 
by this title) the Secretary shall give priority to applicants that 
serve areas certified as underserved areas under subsection (b).
    (d) Limitation and Revocation.--A certification provided under 
subsection (b) shall be valid for not more than 3 years. Such a 
certification may be revoked by the Secretary if the Secretary 
determines that the criteria described in paragraphs (1) and (2) of 
subsection (a) no longer support a certification under this section.

            Subtitle A--Planning, Demonstrations, and Grants

SEC. 311. DEMONSTRATION WAIVERS FOR THE DEVELOPMENT OF HEALTH NETWORKS.

    (a) Waivers.--
            (1) Establishment.--
                    (A) In general.--The Secretary may conduct a 
                demonstration project under which public or private 
                entities may apply for waivers of any of the provisions 
                of title XVIII and XIX of the Social Security Act in 
                order to operate health networks (as defined in 
                subsection (c)(1)) which--
                            (i) improve the access of medicare 
                        beneficiaries (as defined in subsection (c)(2)) 
                        and medicaid beneficiaries (as defined in 
                        subsection (c)(3)) to health care services;
                            (ii) improve the quality of health care 
                        services furnished to such beneficiaries;
                            (iii) improve the outcomes of health care 
                        services furnished to such beneficiaries; and
                            (iv) provide an incentive to private 
                        entities to establish networks in areas 
                        certified as underserved areas under section 
                        302.
                    (B) Number of waivers.--The Secretary may grant 
                waivers to operate health networks under the 
                demonstration project conducted under this section to a 
                number of public or private entities determined 
                appropriate by the Secretary.
            (2) Applications.--
                    (A) In general.--In order to participate in the 
                demonstration project conducted under this subsection, 
                a public or private entity desiring to operate a health 
                network shall submit an application to the Secretary 
                which meets the requirements of subparagraph (B). Such 
                application shall be submitted in such manner and at 
                such time as the Secretary shall require.
                    (B) Requirements.--An application submitted by a 
                public or private entity under this subsection must 
                provide--
                            (i) a description of the health care 
                        providers participating in the health network;
                            (ii) a description of the geographic area 
                        served by the health networks;
                            (iii) information demonstrating that the 
                        private entity has consulted with interested 
                        parties with respect to the operation of the 
                        health network, including local government 
                        entities and community groups;
                            (iv) a description of the operational 
                        structure of the health network, including 
                        whether the network is a managed care entity or 
                        a fee-for-service provider;
                            (v) a proposal for how payments should be 
                        made to the health network under titles XVIII 
                        and XIX of the Social Security Act, including a 
                        statement as to whether such payments should be 
                        made pursuant to the provisions of such titles 
                        or pursuant to an alternative payment 
                        methodology described in the application;
                            (vi) assurances that medicare beneficiaries 
                        served by the health network will receive care 
                        and services of the same quality as the care 
                        and services received by other beneficiaries 
                        under title XVIII of the Social Security Act;
                            (vii) assurances that medicaid 
                        beneficiaries served by the health network will 
                        receive care and services of the same quality 
                        as the care and services received by other 
                        beneficiaries under title XIX of the Social 
                        Security Act;
                            (viii) a description of how the health 
                        network plans to handle any situation in which 
                        a medicare beneficiary or medicaid beneficiary 
                        served by the network receives health care 
                        services from providers outside the network;
                            (ix) assurances that the health network is 
                        furnishing health care services to a 
                        significant number of individuals who are not 
                        receiving benefits under titles XVIII and XIX 
                        of the Social Security Act;
                            (x) assurances that through sharing of 
                        facilities, land, and equipment, the health 
                        network will result in a reduction of total 
                        capital costs for the area served by the 
                        network;
                            (xi) a plan for cooperation in service 
                        delivery by health care providers participating 
                        in the health network that demonstrates the 
                        elimination of unnecessary duplication and, 
                        when appropriate, the consolidation of 
                        specialized services within the area served by 
                        the network;
                            (xii) evidence that the health network 
                        furnishes services which address the special 
                        access needs of the medicare beneficiaries and 
                        medicaid beneficiaries served by the network;
                            (xiii) evidence of capability and expertise 
                        in network planning and management; and
                            (xiv) such additional information as the 
                        Secretary determines appropriate.
                    (C) Approval of application.--
                            (i) Initial review.--Within 60 days after 
                        an application is submitted by an entity under 
                        this subsection, the Secretary shall review and 
                        approve such application or provide the entity 
                        with a list of the modifications that are 
                        necessary for such application to be approved.
                            (ii) Additional review.--Within 60 days 
                        after an entity resubmits any application under 
                        this subsection, the Secretary shall review and 
                        approve such application or provide the entity 
                        with a summary of which items included on the 
                        list provided to the State under clause (i) 
                        remain unsatisfied. An entity may resubmit an 
                        application under this subparagraph as many 
                        times as necessary to gain approval.
            (3) Coordination with other programs.--The Secretary shall 
        coordinate the demonstration project conducted under this 
        subsection with any other relevant Federal or State programs in 
        order to prevent duplication and improve the quality and 
        delivery of health care services to medicare beneficiaries and 
        medicaid beneficiaries.
            (4) Payments to networks.--
                    (A) In general.--The Secretary shall determine the 
                amount of payments to be made under titles XVIII and 
                XIX to a health network participating in a 
                demonstration project under this subsection based on 
                historic costs adjusted based on population and 
                geographic area as the Secretary determines appropriate 
                to take into account the costs of furnishing health 
                care services in the area served by the network.
                    (B) Budget neutrality.--The Secretary shall provide 
                that in carrying out the demonstration project under 
                this section, the aggregate payments under titles XVIII 
                and XIX of the Social Security Act to providers 
                participating in a health network shall be no greater 
                or lesser than what such payments would have been if 
                such providers were not participating in such network.
            (5) Duration of waivers.--Any waiver granted under the 
        demonstration project conducted under this subsection shall be 
        granted for a period determined appropriate by the Secretary. 
        The Secretary may terminate such a waiver at any time if the 
        Secretary determines that the health network has failed to 
        furnish health care services in accordance with the terms of 
        the waiver.
            (6) Reports.--
                    (A) In general.--Each entity receiving a wavier to 
                operate a health network under the demonstration 
                project conducted under this subsection shall, through 
                an independent entity, evaluate the network and submit 
                interim and final reports to the Secretary at such 
                times and containing such information as the Secretary 
                shall require.
                    (B) Report to congress.--Not later than 60 days 
                after the receipt of a final report by a health network 
                under subparagraph (A) the Secretary shall submit a 
                report to Congress.
    (b) Developmental Grants.--
            (1) In general.--The Secretary shall award grants to 
        entities which have received a wavier under the demonstration 
        project conducted under subsection (a) for the purpose of 
        planning and developing health networks.
            (2) Application process.--
                    (A) Submission of application.--Each entity 
                desiring to receive a grant under this subsection shall 
                submit an application to the Secretary at such time and 
                containing such information as the Secretary determines 
                appropriate.
                    (B) Consideration of applications.--The Secretary 
                shall develop a system for determining the priority for 
                distributing grants under this subsection and such 
                grants shall be distributed in accordance with such 
                system.
            (3) Authorization of appropriations.--There are authorized 
        to be appropriated such sums as may be necessary for the 
        purposes of awarding grants under this subsection.
    (c) Definitions.--For purposes of this section:
            (1) Frontier area.--The term ``frontier area'' means an 
        area in which 6 or fewer individuals reside per square mile.
            (2) Health network.--The term ``health network'' means a 
        formal cooperative arrangement between participating hospitals, 
        physicians, and other health care providers which--
                    (A) furnishes health care services to members of 
                the community, including medicare beneficiaries and 
                medicaid beneficiaries;
                    (B) is located in a rural, frontier or underserved 
                urban area; and
                    (C) is governed by a board of directors selected by 
                participating health care providers.
            (3) Medicaid beneficiary.--The term ``medicaid 
        beneficiary'' means an individual receiving benefits under this 
        XIX of the Social Security Act who resides in a rural, frontier 
        or underserved urban area or who receives health care services 
        from a health care provider located in a rural, frontier or 
        underserved urban area.
            (4) Medicare beneficiary.--The term ``medicare 
        beneficiary'' means an individual receiving benefits under 
        title XVIII of the Social Security Act who resides in a rural, 
        frontier or underserved urban area or who receives health care 
        services from a health care provider located in a rural, 
        frontier or underserved urban area.
            (5) Rural area.--The term ``rural area'' means a rural area 
        as described in section 1886(d)(2)(D) of the Social Security 
        Act.
            (6) Underserved urban area.--The term ``underserved urban 
        area'' means an area (other than a rural area) determined to be 
        underserved by the Secretary.

SEC. 312. GRANTS FOR THE PLANNING OF HEALTH NETWORKS OR HEALTH PLANS.

    Title XX of the Social Security Act (42 U.S.C. 1397 et seq.) is 
amended--
            (1) in the title heading, by adding at the end thereof the 
        following: ``AND MISCELLANEOUS PROVISIONS'';
            (2) by inserting after the title heading the following:

                   ``Subtitle A--Block Grants''; and

            (3) by adding at the end thereof the following:

 ``Subtitle B--Health Plans and Networks Initiated by Private Entities

     ``grants for the planning of health networks and health plans

    ``Sec. 2011. (a) In General.--The Secretary shall award grants to 
private entities submitting applications that are approved under 
subsection (b) for the purpose of planning and developing health 
networks or health plans to serve underserved areas certified under 
section 302 of the America's Health Care Option Act.
    ``(b) Application Process.--
            ``(1) Submission of application.--Each private entity 
        desiring to receive a grant under this section shall submit an 
        application to the Secretary at such time and containing such 
        information as the Secretary determines appropriate, 
        including--
                    ``(A) a description of the health care providers 
                that will participate in the health network or serve 
                through the health plan;
                    ``(B) a description of the geographic area to be 
                served by the health network or plan;
                    ``(C) information demonstrating that the private 
                entity has consulted with interested parties with 
                respect to the operation of the health network or plan, 
                including local government entities and community 
                groups;
                    ``(D) a description of the operational structure of 
                the health network or plan, including whether the 
                network is a managed care entity or a fee-for-service 
                provider;
                    ``(E) assurances that through sharing of 
                facilities, land, and equipment, the health network 
                will result in a reduction of total capital costs for 
                the area served by the network;
                    ``(F) a plan for cooperation in service delivery by 
                health care providers participating in the health 
                network or plan that demonstrates the elimination of 
                unnecessary duplication and, when appropriate, the 
                consolidation of specialized services within the area 
                served by the network or plan;
                    ``(G) evidence that the health network will furnish 
                services which address the special access needs of the 
                individuals served by the network;
                    ``(H) a demonstration that the health plan 
                developed will improve access to services for the 
                community served; and
                    ``(I) evidence of capability and expertise in 
                network planning, health plans and management.
            ``(2) Consideration of applications.--The Secretary shall 
        develop a system for determining the priority for distributing 
        grants under this section and such grants shall be distributed 
        in accordance with such system.
    ``(c) Authorization of Appropriations.--There are authorized to be 
appropriated such sums as may be necessary for the purposes of awarding 
grants under this section.
    ``(d) Definitions.--For purposes of this section, the term ``health 
network'' has the same meaning given such term in section 311(c)(1) of 
the America's Health Care Option Act.''.

SEC. 313. COMMUNITY-BASED PRIMARY HEALTH CARE GRANT PROGRAM.

    Subpart I of part D of title III of the Public Health Service Act 
(42 U.S.C. 254b et seq.) is amended by adding at the end the following 
new section:

``SEC. 330A. COMMUNITY-BASED PRIMARY HEALTH CARE GRANT PROGRAM.

    ``(a) Establishment.--The Secretary shall establish and administer 
a program to provide allotments to States to enable such States to 
provide grants for the creation or enhancement of community-based 
primary health care entities that provide services to low-income or 
medically underserved populations.
    ``(b) Allotments to States.--
            ``(1) In general.--From the amount available for allotment 
        under subsection (h) for a fiscal year, the Secretary shall 
        allot to each State an amount equal to the product of the grant 
        share of the State (as determined under paragraph (2)) 
        multiplied by such amount available.
            ``(2) Grant share.--
                    ``(A) In general.--For purposes of paragraph (1), 
                the grant share of a State shall be the product of the 
                need-adjusted population of the State (as determined 
                under subparagraph (B)) multiplied by the Federal 
                matching percentage of the State (as determined under 
                subparagraph (C)), expressed as a percentage of the sum 
                of the products of such factors for all States.
                    ``(B) Need-adjusted population.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A), the need-adjusted population 
                        of a State shall be the product of the total 
                        population of the State (as estimated by the 
                        Secretary of Commerce) multiplied by the need 
                        index of the State (as determined under clause 
                        (ii)).
                            ``(ii) Need index.--For purposes of clause 
                        (i), the need index of a State shall be the 
                        ratio of--
                                    ``(I) the weighted sum of the 
                                geographic percentage of the State (as 
                                determined under clause (iii)), the 
                                poverty percentage of the State (as 
                                determined under clause (iv)), and the 
                                multiple grant percentage of the State 
                                (as determined under clause (v)); to
                                    ``(II) the general population 
                                percentage of the State (as determined 
                                under clause (vi)).
                            ``(iii) Geographic percentage.--
                                    ``(I) In general.--For purposes of 
                                clause (ii)(I), the geographic 
                                percentage of the State shall be the 
                                estimated population of the State that 
                                is residing in nonurbanized areas (as 
                                determined under subclause (II)) 
                                expressed as a percentage of the total 
                                nonurbanized population of all States.
                                    ``(II) Nonurbanized population.--
                                For purposes of subclause (I), the 
                                estimated population of the State that 
                                is residing in nonurbanized areas shall 
                                be one minus the urbanized population 
                                of the State (as determined using the 
                                most recent decennial census), 
                                expressed as a percentage of the total 
                                population of the State (as determined 
                                using the most recent decennial 
                                census), multiplied by the current 
                                estimated population of the State.
                                    ``(III) State of alaska.--
                                Notwithstanding subclause (I), the 
                                geographic percentage for the State of 
                                Alaska shall be the relative population 
                                density of the State expressed as the 
                                ratio of--
                                            ``(aa) the average number 
                                        of individuals residing in 
                                        Alaska per square mile; to
                                            ``(bb) the average number 
                                        of individuals residing in the 
                                        United States per square mile.
                            ``(iv) Poverty percentage.--For purposes of 
                        clause (ii)(I), the poverty percentage of the 
                        State shall be the estimated number of people 
                        residing in the State with incomes below 200 
                        percent of the income official poverty line (as 
                        adjusted for actual costs and incomes in each 
                        State and as determined by the Office of 
                        Management and Budget) expressed as a 
                        percentage of the total number of such people 
                        residing in all States.
                            ``(v) Multiple grant percentage.--For 
                        purposes of clause (ii)(I), the multiple grant 
                        percentage of the State shall be the amount of 
                        Federal funding received by the State under 
                        grants awarded under sections 329, 330, and 
                        340, expressed as a percentage of the total 
                        amounts received under such grants by all 
                        States. With respect to a State, such 
                        percentage shall not exceed twice the general 
                        population percentage of the State under clause 
                        (vi) or be less than one-half of the States 
                        general population percentage.
                            ``(vi) General population percentage.--For 
                        purposes of clause (ii)(II), the general 
                        population percentage of the State shall be the 
                        total population of the State (as determined by 
                        the Secretary of Commerce) expressed as a 
                        percentage of the total population of all 
                        States.
                    ``(C) Federal matching percentage.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A), the Federal matching 
                        percentage of the State shall be equal to one, 
                        less the State matching percentage (as 
                        determined under clause (ii)).
                            ``(ii) State matching percentage.--For 
                        purposes of clause (i), the State matching 
                        percentage of the State shall be 0.25 
                        multiplied by the ratio of the total taxable 
                        resource percentage (as determined under clause 
                        (iii)) to the need-adjusted population of the 
                        State (as determined under subparagraph (B)).
                            ``(iii) Total taxable resource 
                        percentage.--For purposes of clause (ii), the 
                        total taxable resources percentage of the State 
                        shall be the total taxable resources of a State 
                        (as determined by the Secretary of the 
                        Treasury) expressed as a percentage of the sum 
                        of the total taxable resources of all States.
            ``(3) Annual estimates.--
                    ``(A) In general.--If the Secretary of Commerce 
                does not produce the annual estimates required under 
                paragraph (2)(B)(iv), such estimates shall be 
                determined by multiplying the percentage of the 
                population of the State that is below 200 percent of 
                the income official poverty line as determined using 
                the most recent decennial census by the most recent 
                estimate of the total population of the State. Except 
                as provided in subparagraph (B), the calculations 
                required under this subparagraph shall be made based on 
                the most recent 3-year average of the total taxable 
                resources of individuals within the State.
                    ``(B) District of columbia.--Notwithstanding 
                subparagraph (A), the calculations required under such 
                subparagraph with respect to the District of Columbia 
                shall be based on the most recent 3-year average of the 
                personal income of individuals residing within the 
                District as a percentage of the personal income for all 
                individuals residing within the District, as determined 
                by the Secretary of Commerce.
                    ``(C) State of alaska.--Notwithstanding 
                subparagraph (A), the calculations required under such 
                subparagraph with respect to the State of Alaska shall 
                be based on the quotient of--
                            ``(i) the most recent 3-year average of the 
                        per capita income of individuals residing in 
                        the State; divided by
                            ``(ii) 1.25.
            ``(4) Matching requirement.--A State that receives an 
        allotment under this section shall make available State 
        resources (either directly or indirectly) to carry out this 
        section in an amount that shall equal the State matching 
        percentage for the State (as determined under paragraph 
        (2)(C)(ii)) divided by the Federal matching percentage (as 
        determined under paragraph (2)(C)).
    ``(c) Application.--
            ``(1) In general.--To be eligible to receive an allotment 
        under this section, a State shall prepare and submit an 
        application to the Secretary at such time, in such manner, and 
        containing such information as the Secretary may by regulation 
        require.
            ``(2) Assurances.--A State application submitted under 
        paragraph (1) shall contain an assurance that--
                    ``(A) the State will use amounts received under its 
                allotment consistent with the requirements of this 
                section; and
                    ``(B) the State will provide, from non-Federal 
                sources, the amounts required under subsection (b)(4).
    ``(d) Use of Funds.--
            ``(1) In general.--The State shall use amounts received 
        under this section to award grants to eligible public and 
        nonprofit private entities, or consortia of such entities, 
        within the State to enable such entities or consortia to 
        provide services of the type described in paragraph (2) of 
        section 329(h) to low-income or medically underserved 
        populations.
            ``(2) Eligibility.--To be eligible to receive a grant under 
        paragraph (1), an entity or consortium shall--
                    ``(A) prepare and submit to the administering 
                entity of the State, an application at such time, in 
                such manner, and containing such information as such 
                administering entity may require, including a plan for 
                the provision of services of the type described in 
                paragraph (3);
                    ``(B) provide assurances that services will be 
                provided under the grant at fee rates established or 
                determined in accordance with section 330(e)(3)(F); and
                    ``(C) provide assurances that in the case of 
                services provided to individuals with health insurance, 
                such insurance shall be used as the primary source of 
                payment for such services.
            ``(3) Services.--The services to be provided under a grant 
        awarded under paragraph (1) shall include--
                    ``(A) one or more of the types of primary health 
                services described in section 330(b)(1);
                    ``(B) one or more of the types of supplemental 
                health services described in section 330(b)(2); and
                    ``(C) any other services determined appropriate by 
                the administering entity of the State.
            ``(4) Target populations.--Entities or consortia receiving 
        grants under paragraph (1) shall, in providing the services 
        described in paragraph (3), substantially target populations of 
        low-income or medically underserved populations within the 
        State who reside in medically underserved or health 
        professional shortage areas, areas certified as underserved 
        under the rural health clinic program, or other areas 
        determined appropriate by the administering entity of the 
        State, within the State.
            ``(5) Priority.--In awarding grants under paragraph (1), 
        the State shall--
                    ``(A) give priority to entities or consortia that 
                can demonstrate through the plan submitted under 
                paragraph (2) that--
                            ``(i) the services provided under the grant 
                        will expand the availability of primary care 
                        services to the maximum number of low-income or 
                        medically underserved populations who have no 
                        access to such care on the date of the grant 
                        award; and
                            ``(ii) the delivery of services under the 
                        grant will be cost-effective; and
                    ``(B) ensure that an equitable distribution of 
                funds is achieved among urban and rural entities or 
                consortia.
    ``(e) Reports and Audits.--Each State shall prepare and submit to 
the Secretary annual reports concerning the State's activities under 
this section which shall be in such form and contain such information 
as the Secretary determines appropriate. Each such State shall 
establish fiscal control and fund accounting procedures as may be 
necessary to assure that amounts received under this section are being 
disbursed properly and are accounted for, and include the results of 
audits conducted under such procedures in the reports submitted under 
this subsection.
    ``(f) Payments.--
            ``(1) Entitlement.--Each State for which an application has 
        been approved by the Secretary under this section shall be 
        entitled to payments under this section for each fiscal year in 
        an amount not to exceed the State's allotment under subsection 
        (b) to be expended by the State in accordance with the terms of 
        the application for the fiscal year for which the allotment is 
        to be made.
            ``(2) Method of payments.--The Secretary may make payments 
        to a State in installments, and in advance or by way of 
        reimbursement, with necessary adjustments on account of 
        overpayments or underpayments, as the Secretary may determine.
            ``(3) State spending of payments.--Payments to a State from 
        the allotment under subsection (b) for any fiscal year must be 
        expended by the State in that fiscal year or in the succeeding 
        fiscal year.
    ``(g) Definition.--As used in this section, the term `administering 
entity of the State' means the agency or official designated by the 
chief executive officer of the State to administer the amounts provided 
to the State under this section.
    ``(h) Funding.--Notwithstanding any other provision of law, the 
Secretary shall use 50 percent of the amounts that the Secretary is 
required to utilize under section 330B(h) in each fiscal year to carry 
out this section.''.

                Subtitle B--Technical Assistance Grants

SEC. 321. TECHNICAL ASSISTANCE GRANTS.

    (a) In General.--The Secretary shall award grants to public and 
private entities submitting applications that are approved under 
subsection (b) for the purpose of providing technical assistance in the 
establishment of the infrastructure for health networks and plans in 
underserved areas certified under section 302.
    (b) Application Process.--
            (1) Submission of application.--Each entity desiring to 
        receive a grant under this section shall submit an application 
        to the Secretary at such time and containing such information 
        as the Secretary determines appropriate, including--
                    (A) a description of the infrastructure uses to 
                which amounts awarded under a grant will be allocated;
                    (B) a description of the area to be served by the 
                entity; and
                    (C) information demonstrating that the entity has 
                consulted with interested parties with respect to the 
                activities that the entity intends to carry out with 
                amounts received under the grant, including local 
                government entities and community groups.
            (2) Consideration of applications.--The Secretary shall 
        develop a system for determining the priority for distributing 
        grants under this section and such grants shall be distributed 
        in accordance with such system. The Secretary shall give 
        priority to applications that demonstrate partnerships among 
        health care providers and services (both public and private) 
        and effective coordination of all sources of grants and other 
        funding sources under this Act.
    (c) Authorized Uses.--Amounts received under a grant awarded under 
this section may be used--
            (1) for the design and establishment of the infrastructure 
        necessary for the operation of a health network or health plan 
        in a rural, frontier or urban underserved area;
            (2) to assist health plans operating in rural, frontier or 
        urban underserved areas in meeting the requirements of any 
        subsidy program;
            (3) to carry out activities to assist health care providers 
        in forming partnerships or health plans to serve rural, 
        frontier or urban underserved areas, including assistance with 
        the establishment of financial systems, computer systems, and 
        telecommunications systems; and
            (4) to carry out any other activity determined appropriate 
        by the Secretary.
    (d) Authorization of Appropriations.--There are authorized to be 
appropriated such sums as may be necessary for the purposes of awarding 
grants under this section.
    (e) Definitions.--For purposes of this section, the terms ``health 
network'', ``rural area'', ``frontier area'', and ``urban underserved 
area'' have the same meanings given such terms in section 311(c).

        Subtitle C--Capital Assistance Loans and Loan Guarantees

SEC. 331. RURAL, FRONTIER AND URBAN UNDERSERVED AREA HEALTH LOAN 
              PROGRAM.

    (a) In General.--The Secretary shall make loans to--
            (1) health networks (as defined in section 311(c));
            (2) health plans (as defined in section 21003(a) of the 
        Social Security Act) that cover individuals residing in rural, 
        frontier or urban underserved areas; or
            (3) health care providers that serve rural, frontier or 
        underserved urban areas;
for the capital costs of developing health delivery systems and 
expanding existing health delivery sites to make health care services 
available to individuals residing in underserved areas certified under 
section 302.
    (b) Use of Assistance.--
            (1) In general.--The capital costs for which loans made 
        pursuant to subsection (a) may be expended are, subject to 
        paragraphs (2) and (3), the following:
                    (A) The modernization or expansion of facilities to 
                reduce the inpatient characteristics of such facilities 
                while expanding the ambulatory capabilities of such 
                facilities, to enhance the provision and accessibility 
                of health care services and practitioners to 
                underserved populations.
                    (B) The conversion of unneeded facilities to 
                facilities that will assure or enhance the provision 
                and accessibility of health care services and 
                practitioners to underserved populations, or the 
                closure of such facilities in an effort to consolidate 
                clinical and administrative activities for network 
                purposes.
                    (C) The acquisition or modernization of facilities 
                or purchase of land to facilitate the service of rural, 
                frontier and urban underserved populations through 
                health care networks or health plans.
                    (D) The purchase of major equipment, including 
                equipment necessary for the support of information 
                systems, for the operation of a health care network or 
                a health care plan serving residents of rural, frontier 
                and urban underserved areas.
                    (E) The development and implementation of systems 
                (financial, quality assurance and other systems) 
                necessary to establish health care networks.
                    (F) The development of appropriate primary care 
                services and practitioners.
                    (G) The implementation of measures necessary to 
                enable a health care network, health plan, or health 
                care provider that serves rural, frontier or urban 
                underserved areas to comply with applicable quality, 
                safety or environmental requirements.
                    (H) Such other capital costs as the Secretary may 
                determine are necessary to achieve the objectives of 
                this section, including start-up expenses, reserve 
                funds, and other financial requirements applicable to 
                networks, plans or providers.
            (2) Priorities regarding use of funds.--In providing loans 
        under subsection (a) for an entity, the Secretary shall give 
        priority to authorizing the use of amounts for projects for the 
        renovation and modernization of medical facilities necessary to 
        prevent or eliminate safety hazards, avoid noncompliance with 
        licensure or accreditation standards, or projects to replace 
        obsolete facilities.
            (3) Limitation.--The Secretary may authorize the use of 
        loans under subsection (a) for the construction of new 
        buildings only if the Secretary determines that appropriate 
        facilities are not available through acquiring, modernizing, 
        expanding or converting existing buildings, or that 
        construction new buildings will cost less.
    (c) Amount of Assistance.--The principal amount of loans under 
subsection (a) may cover up to 100 percent of the costs involved.

SEC. 332. CERTAIN REQUIREMENTS.

    (a) In General.--The Secretary may approve a loan under section 331 
only if--
            (1) an application for such assistance is submitted to the 
        Secretary in such form, is made in such manner, and contains 
        such agreements, assurances, and information as the Secretary 
        determines to be necessary to carry out this subtitle;
            (2) the Secretary is reasonably satisfied that the 
        applicant for the project for which the loan would be made will 
        be able to make payments of principal and interest thereon when 
        due; and
            (3) the applicant provides the Secretary with reasonable 
        assurances that there will be available to it such additional 
        funds as may be necessary to complete the project or 
        undertaking with respect to which such loan is requested.
    (b) Terms and Conditions.--Any loan made under section 331 shall, 
subject to the Federal Credit Reform Act of 1990, meet such terms and 
conditions (including provisions for recovery in case of default) as 
the Secretary, in consultation with the Secretary of the Treasury, 
determines to be necessary to carry out the purposes of such section 
while adequately protecting the financial interests of the United 
States. Terms and conditions for such loans shall include provisions 
regarding the following:
            (1) Security.
            (2) Maturity date.
            (3) Amount and frequency of installments.
            (4) Rate of interest, which shall be at a rate comparable 
        to the rate of interest prevailing on the date the loan is 
        made.

SEC. 333. DEFAULTS.

    (a) In General.--The Secretary may take such action as may be 
necessary to prevent a default on loans under section 331, including 
the waiver of regulatory conditions, deferral of loan payments, 
renegotiation of loans, and the expenditure of funds for technical and 
consultative assistance, for the temporary payment of the interest and 
principal on such a loan, and for other purposes.
    (b) Foreclosure.--The Secretary may take such action, consistent 
with State law respecting foreclosure procedures, as the Secretary 
deems appropriate to protect the interest of the United States in the 
event of a default on a loan made pursuant to section 331, including 
selling real property pledged as security for such a loan and for a 
reasonable period of time taking possession of, holding, and using real 
property pledged as security for such a loan.
    (c) Waivers.--The Secretary may, for good cause, but with due 
regard to the financial interests of the United States, waive any right 
of recovery which the Secretary has by reasons of the failure of a 
borrower to make payments of principal of and interest on a loan made 
pursuant to section 331, except that if such loan is sold and 
guaranteed, any such waiver shall have no effect upon the Secretary's 
guarantee of timely payment of principal and interest.

             Subtitle D--Increasing Primary Care Providers

SEC. 341. NONREFUNDABLE CREDIT FOR CERTAIN PRIMARY HEALTH SERVICES 
              PROVIDERS.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to nonrefundable 
personal credits) is amended by inserting after section 22 the 
following new section:

``SEC. 23. PRIMARY HEALTH SERVICES PROVIDERS.

    ``(a) Allowance of Credit.--There shall be allowed as a credit 
against the tax imposed by this chapter for the taxable year an amount 
equal to the product of--
            ``(1) the number of months during such taxable year--
                    ``(A) during which the taxpayer is a qualified 
                primary health services provider, and
                    ``(B) which are within the taxpayer's mandatory 
                service period, and
            ``(2) $1,000 ($500 in the case of a qualified practitioner 
        who is not a physician).
    ``(b) Qualified Primary Health Services Provider.--For purposes of 
this section, the term `qualified primary health services provider' 
means, with respect to any month, any qualified practitioner who--
            ``(1) has in effect a certification by the Bureau as a 
        provider of primary health services and such certification is, 
        when issued, for a health professional shortage area in which 
        the qualified practitioner is commencing the providing of 
        primary health services,
            ``(2) is providing primary health services full time in the 
        health professional shortage area identified in such 
        certification, and
            ``(3) has not received a scholarship under the National 
        Health Service Corps Scholarship Program or any loan repayments 
        under the National Health Service Corps Loan Repayment Program.
For purposes of paragraph (2) and subsection (e)(3), a provider shall 
be treated as providing services in a health professional shortage area 
when such area ceases to be such an area if it was such an area when 
the provider commenced providing services in the area.
    ``(c) Mandatory Service Period.--For purposes of this section, the 
term `mandatory service period' means the period of 60 consecutive 
calendar months beginning with the first month the taxpayer is a 
qualified primary health services provider. A taxpayer shall not have 
more than 1 mandatory service period.
    ``(d) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Bureau.--The term `Bureau' means the Bureau of 
        Primary Health Care, Health Resources and Services 
        Administration of the United States Public Health Service.
            ``(2) Qualified practitioner.--The term `qualified 
        practitioner' means a physician, a physician assistant, a nurse 
        practitioner, or a certified nurse-midwife.
            ``(3) Physician.--The term `physician' has the meaning 
        given to such term by section 1861(r) of the Social Security 
        Act.
            ``(4) Physician assistant; nurse practitioner.--The terms 
        `physician assistant' and `nurse practitioner' have the 
        meanings given to such terms by section 1861(aa)(5) of the 
        Social Security Act.
            ``(5) Certified nurse-midwife.--The term `certified nurse-
        midwife' has the meaning given to such term by section 
        1861(gg)(2) of the Social Security Act.
            ``(6) Primary health services.--The term `primary health 
        services' has the meaning given such term by section 330(b)(1) 
        of the Public Health Service Act.
            ``(7) Health professional shortage area.--The term `health 
        professional shortage area' has the meaning given such term by 
        section 332(a)(1)(A) of the Public Health Service Act.
    ``(e) Recapture of Credit.--
            ``(1) In general.--If there is a recapture event during any 
        taxable year, then--
                    ``(A) no credit shall be allowed under subsection 
                (a) for such taxable year and any succeeding taxable 
                year, and
                    ``(B) the tax of the taxpayer under this chapter 
                for such taxable year shall be increased by an amount 
                equal to the product of--
                            ``(i) the applicable percentage, and
                            ``(ii) the aggregate unrecaptured credits 
                        allowed to such taxpayer under this section for 
                        all prior taxable years.
            ``(2) Applicable recapture percentage.--
                    ``(A) In general.--For purposes of this subsection, 
                the applicable recapture percentage shall be determined 
                from the following table:

                    ``If the recapture
                                                  The applicable recap-
                      event occurs during:
                                                    true percentage is:
                            Months 1-24..............           100    
                            Months 25-36.............            75    
                            Months 37-48.............            50    
                            Months 49-60.............            25    
                            Month 61 or thereafter...            0.    
                    ``(B) Timing.--For purposes of subparagraph (A), 
                month 1 shall begin on the first day of the mandatory 
                service period.
            ``(3) Recapture event defined.--
                    ``(A) In general.--For purposes of this subsection, 
                the term `recapture event' means the failure of the 
                taxpayer to be a qualified primary health services 
                provider for any month during the taxpayer's mandatory 
                service period.
                    ``(B) Secretarial waiver.--The Secretary, in 
                consultation with the Secretary of Health and Human 
                Services, may waive any recapture event caused by 
                extraordinary circumstances.
            ``(4) No credits against tax; minimum tax.--Any increase in 
        tax under this subsection shall not be treated as a tax imposed 
        by this chapter for purposes of determining the amount of any 
        credit under subpart A, B, or D of this part or for purposes of 
        section 55.''
    (b) Clerical Amendment.--The table of sections for subpart A of 
part IV of subchapter A of chapter 1 of such Code is amended by 
inserting after the item relating to section 22 the following new item:

                              ``Sec. 23. Primary health services 
                                        providers.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1994.

SEC. 342. EXPENSING OF MEDICAL EQUIPMENT.

    (a) In General.--Paragraph (1) of section 179(b) of the Internal 
Revenue Code of 1986 (relating to dollar limitation on expensing of 
certain depreciable business assets) is amended to read as follows:
            ``(1) Dollar limitation.--
                    ``(A) General rule.--The aggregate cost which may 
                be taken into account under subsection (a) for any 
                taxable year shall not exceed $17,500.
                    ``(B) Health care property.--The aggregate cost 
                which may be taken into account under subsection (a) 
                shall be increased by the lesser of--
                            ``(i) the cost of section 179 property 
                        which is health care property placed in service 
                        during the taxable year, or
                            ``(ii) $10,000.''
    (b)  Definition.--Section 179(d) of such Code (relating to 
definitions) is amended by adding at the end the following new 
paragraph:
            ``(11) Health care property.--For purposes of this section, 
        the term `health care property' means section 179 property--
                    ``(A) which is medical equipment used in the 
                screening, monitoring, observation, diagnosis, or 
                treatment of patients in a laboratory, medical, or 
                hospital environment,
                    ``(B) which is owned (directly or indirectly) and 
                used by a physician (as defined in section 1861(r) of 
                the Social Security Act) in the active conduct of such 
                physician's full-time trade or business of providing 
                primary health services (as defined in section 
                330(b)(1) of the Public Health Service Act) in a health 
                professional shortage area (as defined in section 
                332(a)(1)(A) of the Public Health Service Act), and
                    ``(C) substantially all the use of which is in such 
                area.''
    (c) Recapture.--Paragraph (10) of section 179(d) of such Code is 
amended by inserting before the period ``and with respect to any health 
care property which ceases (other than by an area failing to be treated 
as a health professional shortage area) to be health care property at 
any time''.
    (d) Effective Date.--The amendments made by this section shall 
apply to property placed in service in taxable years beginning after 
December 31, 1994.

SEC. 343. EXPANDED SERVICES FOR MEDICALLY UNDERSERVED INDIVIDUALS.

    (a) In General.--Subpart I of part D of title III of the Public 
Health Service Act (42 U.S.C. 254b et seq.) (as amended by section 313) 
is amended by adding at the end the following new section:

``SEC. 330B. EXPANDED SERVICES FOR MEDICALLY UNDERSERVED INDIVIDUALS.

    ``(a) Establishment of Health Services Access Program.--From 
amounts appropriated under this section, the Secretary shall, acting 
through the Bureau of Health Care Delivery Assistance, award grants 
under this section to federally qualified health centers (hereinafter 
referred to in this section as `FQHC's') and other entities and 
organizations submitting applications under this section (as described 
in subsection (c)) for the purpose of providing access to services for 
medically underserved populations (as defined in section 330(b)(3)) or 
in high impact areas (as defined in section 329(a)(5)) not currently 
being served by a FQHC.
    ``(b) Eligibility for Grants.--
            ``(1) In general.--The Secretary shall award grants under 
        this section to entities or organizations described in this 
        paragraph and paragraph (2) which have submitted a proposal to 
        the Secretary to expand such entities or organizations 
        operations (including expansions to new sites (as determined 
        necessary by the Secretary)) to serve medically underserved 
        populations or high impact areas not currently served by a FQHC 
        and which--
                    ``(A) have as of January 1, 1991, been certified by 
                the Secretary as a FQHC under section 1905(l)(2)(B) of 
                the Social Security Act; or
                    ``(B) have submitted applications to the Secretary 
                to qualify as FQHC's under such section 1905(l)(2)(B); 
                or
                    ``(C) have submitted a plan to the Secretary which 
                provides that the entity will meet the requirements to 
                qualify as a FQHC when operational.
            ``(2) Non fqhc entities.--
                    ``(A) Eligibility.--The Secretary shall also make 
                grants under this section to public or private 
                nonprofit agencies, health care entities or 
                organizations which meet the requirements necessary to 
                qualify as a FQHC except, the requirement that such 
                entity have a consumer majority governing board and 
                which have submitted a proposal to the Secretary to 
                provide those services provided by a FQHC as defined in 
                section 1905(l)(2)(B) of the Social Security Act and 
                which are designed to promote access to primary care 
                services or to reduce reliance on hospital emergency 
                rooms or other high cost providers of primary health 
                care services, provided such proposal is developed by 
                the entity or organizations (or such entities or 
                organizations acting in a consortium in a community) 
                with the review and approval of the Governor of the 
                State in which such entity or organization is located.
                    ``(B) Limitation.--The Secretary shall provide in 
                making grants to entities or organizations described in 
                this paragraph that no more than 10 percent of the 
                funds provided for grants under this section shall be 
                made available for grants to such entities or 
                organizations.
    ``(c) Application Requirements.--
            ``(1) In general.--In order to be eligible to receive a 
        grant under this section, a FQHC or other entity or 
        organization must submit an application in such form and at 
        such time as the Secretary shall prescribe and which meets the 
        requirements of this subsection.
            ``(2) Requirements.--An application submitted under this 
        section must provide--
                    ``(A)(i) for a schedule of fees or payments for the 
                provision of the services provided by the entity 
                designed to cover its reasonable costs of operations; 
                and
                    ``(ii) for a corresponding schedule of discounts to 
                be applied to such fees or payments, based upon the 
                patient's ability to pay (determined by using a sliding 
                scale formula based on the income of the patient);
                    ``(B) assurances that the entity or organization 
                provides services to persons who are eligible for 
                benefits under title XVIII of the Social Security Act, 
                for medical assistance under title XIX of such Act or 
                for assistance for medical expenses under any other 
                public assistance program or private health insurance 
                program; and
                    ``(C) assurances that the entity or organization 
                has made and will continue to make every reasonable 
                effort to collect reimbursement for services--
                            ``(i) from persons eligible for assistance 
                        under any of the programs described in 
                        subparagraph (B); and
                            ``(ii) from patients not entitled to 
                        benefits under any such programs.
    ``(d) Limitations on Use of Funds.--
            ``(1) In general.--From the amounts awarded to an entity or 
        organization under this section, funds may be used for purposes 
        of planning but may only be expended for the costs of--
                    ``(A) assessing the needs of the populations or 
                proposed areas to be served;
                    ``(B) preparing a description of how the needs 
                identified will be met; and
                    ``(C) development of an implementation plan that 
                addresses--
                            ``(i) recruitment and training of 
                        personnel; and
                            ``(ii) activities necessary to achieve 
                        operational status in order to meet FQHC 
                        requirements under 1905(l)(2)(B) of the Social 
                        Security Act.
            ``(2) Recruiting, training and compensation of staff.--From 
        the amounts awarded to an entity or organization under this 
        section, funds may be used for the purposes of paying for the 
        costs of recruiting, training and compensating staff (clinical 
        and associated administrative personnel (to the extent such 
        costs are not already reimbursed under title XIX of the Social 
        Security Act or any other State or Federal program)) to the 
        extent necessary to allow the entity to operate at new or 
        expended existing sites.
            ``(3) Facilities and equipment.--From the amounts awarded 
        to an entity or organization under this section, funds may be 
        expended for the purposes of acquiring facilities and equipment 
        but only for the cost of--
                    ``(A) construction of new buildings (to the extent 
                that new construction is found to be the most cost-
                efficient approach by the Secretary);
                    ``(B) acquiring, expanding, and modernizing of 
                existing facilities;
                    ``(C) purchasing essential (as determined by the 
                Secretary) equipment; and
                    ``(D) amortization of principal and payment of 
                interest on loans obtained for purposes of site 
                construction, acquisition, modernization, or expansion, 
                as well as necessary equipment.
            ``(4) Services.--From the amounts awarded to an entity or 
        organization under this section, funds may be expanded for the 
        payment of services but only for the costs of--
                    ``(A) providing or arranging for the provision of 
                all services through the entity necessary to qualify 
                such entity as a FQHC under section 1905(l)(2)(B) of 
                the Social Security Act;
                    ``(B) providing or arranging for any other service 
                that a FQHC may provide and be reimbursed for under 
                title XIX of such Act; and
                    ``(C) providing any unreimbursed costs of providing 
                services as described in section 330(a) to patients.
    ``(e) Priorities in the Awarding of Grants.--
            ``(1) Certified fqhc's.--The Secretary shall give priority 
        in awarding grants under this section to entities which have, 
        as of January 1, 1991, been certified as a FQHC under section 
        1905(l)(2)(B) of the Social Security Act and which have 
        submitted a proposal to the Secretary to expand their 
        operations (including expansion to new sites) to serve 
        medically underserved populations for high impact areas not 
        currently served by a FQHC. The Secretary shall give first 
        priority in awarding grants under this section to those FQHCs 
        or other entities which propose to serve populations with the 
        highest degree of unmet need, and which can demonstrate the 
        ability to expand their operations in the most efficient 
        manner.
            ``(2) Qualified fqhc's.--The Secretary shall give second 
        priority in awarding grants to entities which have submitted 
        applications to the Secretary which demonstrate that the entity 
        will qualify as a FQHC under section 1905(l)(2)(B) of the 
        Social Security Act before it provides or arranges for the 
        provision of services supported by funds awarded under this 
        section, and which are serving or proposing to serve medically 
        underserved populations or high impact areas which are not 
        currently served (or proposed to be served) by a FQHC.
            ``(3) Expanded services and projects.--The Secretary shall 
        give third priority in awarding grants in subsequent years to 
        those FQHCs or other entities which have provided for expanded 
        services and project and are able to demonstrate that such 
        entity will incur significant unreimbursed costs in providing 
        such expanded services.
    ``(f) Return of Funds to Secretary for Costs Reimbursed From Other 
Sources.--To the extent that an entity or organization receiving funds 
under this section is reimbursed from another source for the provision 
of services to an individual, and does not use such increased 
reimbursement to expand services furnished, areas served, to compensate 
for costs of unreimbursed services provided to patients, or to promote 
recruitment, training, or retention of personnel, such excess revenues 
shall be returned to the Secretary.
    ``(g) Termination of Grants.--
            ``(1) Failure to meet fqhc requirements.--
                    ``(A) In general.--With respect to any entity that 
                is receiving funds awarded under this section and which 
                subsequently fails to meet the requirements to qualify 
                as a FQHC under section 1905(l)(2)(B) or is an entity 
                that is not required to meet the requirements to 
                qualify as a FQHC under section 1905(l)(2)(B) of the 
                Social Security Act but fails to meet the requirements 
                of this section, the Secretary shall terminate the 
                award of funds under this section to such entity.
                    ``(B) Notice.--Prior to any termination of funds 
                under this section to an entity, the entities shall be 
                entitled to 60 days prior notice of termination and, as 
                provided by the Secretary in regulations, an 
                opportunity to correct any deficiencies in order to 
                allow the entity to continue to receive funds under 
                this section.
            ``(2) Requirements.--Upon any termination of funding under 
        this section, the Secretary may (to the extent practicable)--
                    ``(A) sell any property (including equipment) 
                acquired or constructed by the entity using funds made 
                available under this section or transfer such property 
                to another FQHC, provided, that the Secretary shall 
                reimburse any costs which were incurred by the entity 
                in acquiring or constructing such property (including 
                equipment) which were not supported by grants under 
                this section; and
                    ``(B) recoup any funds provided to an entity 
                terminated under this section.
    ``(h) Authorization of Appropriations.--There are authorized to be 
appropriated to carry out this section, $100,000,000 for each of the 
fiscal years 1996 through 1999.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
become effective with respect to services furnished by a federally 
qualified health center or other qualifying entity described in this 
section beginning on or after October 1, 1995.

SEC. 344. ACCUMULATION OF RESERVES BY CERTAIN ENTITIES.

    Any organization referred to in section 329, 330, or 340 of the 
Public Health Service Act may accumulate reserves.

SEC. 345. MATERNAL AND INFANT CARE COORDINATION.

    (a) Purpose.--It is the purpose of this section to assist States in 
the development and implementation of coordinated, multidisciplinary, 
and comprehensive primary health care and social services, and health 
and nutrition education programs, designed to improve maternal and 
child health.
    (b) Grants for Implementation of Programs.--
            (1) Authority.--The Secretary of Health and Human Services 
        (hereafter referred to in this section as the ``Secretary'') is 
        authorized to award grants to States to enable such States to 
        plan and implement coordinated, multidisciplinary, and 
        comprehensive primary health care and social service programs 
        targeted to pregnant women and infants.
            (2) Eligibility.--To be eligible to receive a grant under 
        this section, a State shall--
                    (A) prepare and submit to the Secretary an 
                application at such time, in such manner, and 
                containing such information as the Secretary may 
                require;
                    (B) as part of the State application, provide 
                assurances that under the program established with 
                amounts received under a grant, individuals will have 
                access to a broad range of primary health care 
                services, social services, and health and nutrition 
                programs designed to improve maternal and child health 
                and a description of how coordination of such services 
                will improve maternal and child health based upon the 
                goals of ``Healthy People 2000: National Health 
                Promotion and Disease Prevention Objectives'';
                    (C) as part of the State application, submit a plan 
                for the coordination of existing and proposed Federal 
                and State resources, as appropriate, including amounts 
                provided under the medicaid program under title XIX of 
                the Social Security Act, the special supplemental food 
                program under section 17 of the Child Nutrition Act of 
                1966, family planning programs, substance abuse 
                programs, State maternal and child health programs 
                funded under title V of the Social Security Act, 
                community and migrant health center programs under the 
                Public Health Service Act, and other publicly, or where 
                practicable, privately supported programs;
                    (D) demonstrate that the major service providers to 
                be involved, including private nonprofit entities 
                committed to improving maternal and infant health, are 
                committed to and involved in the program to be funded 
                with amounts received under the grant;
                    (E) with respect to States with high infant 
                mortality rates among minority populations, demonstrate 
                the involvement of major health, multiservice, 
                professional, or civic group representatives of such 
                minority groups in the planning and implementation of 
                the State program; and
                    (F) demonstrate that activities under the State 
                program are targeted to women of child-bearing age, 
                particularly those at risk for having low birth weight 
                babies.
            (3) Term of grant.--A grant awarded under this subsection 
        shall be for a period of 5 years.
            (4) Use of amounts.--Amounts received by a State under a 
        grant awarded under this subsection shall be used to establish 
        a State program to provide coordinated, multidisciplinary, and 
        comprehensive primary health care and social services, and 
        health and nutrition education program services, that are 
        designed to improve maternal and child health. Such amounts 
        shall not be used for the construction of buildings or the 
        purchase of medical equipment.
            (5) Maintenance of effort.--Any funds received by a State 
        under this subsection shall supplement, and shall not supplant, 
        funds that are expended for similar purposes by the State.
            (6) Authorization of appropriations.--There are authorized 
        to be appropriated such sums as may be necessary to carry out 
        the purposes of this subsection for fiscal years 1995 through 
        1998.

SEC. 346. PRE-SCHOOL AND ELEMENTARY SCHOOL HEALTH EDUCATION PROGRAMS.

    Section 4605 of the Elementary and Secondary Education Act of 1965 
(20 U.S.C. 3155) is amended to read as follows:

``SEC. 4605. PRE-SCHOOL AND ELEMENTARY SCHOOL HEALTH EDUCATION 
              PROGRAMS.

    ``(a) Purpose.--It is the purpose of this section to establish a 
comprehensive school health education and prevention program for pre-
school and elementary school students.
    ``(b) Program Authorized.--The Secretary shall award grants to 
States to enable such States to--
            ``(1) award grants to local or intermediate educational 
        agencies, and consortia thereof, to enable such agencies or 
        consortia to establish, operate and improve local programs of 
        comprehensive health education and prevention, early health 
        intervention, and health education, in pre-school and 
        elementary schools; and
            ``(2) develop training, technical assistance and 
        coordination activities for the programs assisted pursuant to 
        paragraph (1).
    ``(c) Use of Funds.--Grant funds under this section may be used to 
improve pre-school and elementary school education in the areas of--
            ``(1) personal health and fitness;
            ``(2) prevention of chronic diseases;
            ``(3) prevention and control of communicable diseases;
            ``(4) nutrition;
            ``(5) substance use and abuse;
            ``(6) accident prevention and safety;
            ``(7) community and environmental health;
            ``(8) mental and emotional health; and
            ``(9) the effective use of the health services delivery 
        system.
    ``(d) Authorization of Appropriations.--
            ``(1) In general.--There are authorized to be appropriated 
        such sums as may be necessary to carry out the purposes of this 
        section for fiscal years 1996 through 2000.
            ``(2) Availability.--Funds appropriated pursuant to the 
        authority of paragraph (1) in any fiscal year shall remain 
        available for obligation and expenditure until the end of the 
        fiscal year succeeding the fiscal year for which such funds 
        were appropriated.''.

SEC. 347. FRONTIER STATES.

    (a) In General.--Frontier States (including Alaska, Wyoming and 
Montana) may implement proposals to offer preventive services, 
including mobile preventive health centers which may include centers 
equipped with various preventive health services, such as mammography, 
eye care, X-ray, and other advanced equipment, and which may be located 
on aircraft, watercraft, or other forms of transportation.
    (b) Demonstration Projects.--Frontier States may participate in 
demonstration projects under this or any other Act to improve 
recruitment, retention, and training of rural providers, including 
nurse practitioners and physician assistants. Such demonstration 
projects shall give special consideration to the diverse needs of 
Frontier States, and shall involve cooperative agreements with a range 
of service delivery systems and teaching hospitals.

SEC. 348. INCREASE IN NATIONAL HEALTH SERVICE CORPS AND AREA HEALTH 
              EDUCATION CENTER FUNDING.

    (a) National Health Service Corps.--Section 338H(b)(1) of the 
Public Health Service Act (42 U.S.C. 254q(b)(1)) is amended--
            (1) by striking ``1991, and'' and inserting ``1991,''; and
            (2) by striking ``through 2000'' and inserting ``, 1993, 
        and 1994, and $20,000,000 for each of the fiscal years 1995 
        through 2000''.
    (b) Area Health Education Centers.--Section 746(i)(1) of such Act 
(42 U.S.C. 293j(i)(1)) is amended--
            (1) in subparagraph (A), by striking ``1995'' and inserting 
        ``1995, and $20,000,000 for each of the fiscal years 1996 
        through 2000''; and
            (2) in subparagraph (C), by striking ``and 1995'' and 
        inserting ``1995, and $20,000,000 for each of the fiscal years 
        1996 through 2000''.

SEC. 349. TELEMEDICINE FEDERAL INTERAGENCY TASK FORCE.

    (a) Establishment.--Not later than 90 days after the date of the 
enactment of this section, the Secretary of Health and Human Services 
shall establish a Federal interagency task force to be known as the 
`Interagency Task Force on Rural Telemedicine' (hereafter in this 
section referred to as the ``Task Force'').
    (b) Duties.--
            (1) In general.--The Task Force shall--
                    (A) identify specific uses for telemedicine that 
                have been proven to be effective to be used in the 
                evaluation of applications for federally funded 
                telemedicine demonstration projects, including any 
                application submitted under this part;
                    (B) review and coordinate evaluations of all 
                federally funded telemedicine and telecommunications 
                infrastructure demonstration projects, including any 
                demonstration project established under this subtitle;
                    (C) establish mechanisms to facilitate a local area 
                needs assessment and consortium development process to 
                assist entities conducting federally funded 
                telemedicine demonstration projects, including 
                demonstration projects under this part; and
                    (D) review the provision of telemedicine services 
                under the demonstration projects established under 
                section 350.
            (2) Publication of results.--Not later than 2 years after 
        the Task Force is established, and annually thereafter, the 
        Task Force shall analyze and publish a report of its findings 
        under subparagraphs (A) through (D) of paragraph (1) and shall 
        make such publications available to the Congress and the 
        general public.
    (c) Membership.--
            (1) In general.--The Task Force shall consist of 
        representatives of--
                    (A) the Department of Health and Human Services;
                    (B) the Rural Electrification Administration;
                    (C) the National Telecommunications Information 
                Agency;
                    (D) the National Institutes of Health; and
                    (E) other agencies and departments that have 
                responsibility for overseeing telemedicine projects.
            (2) Chairperson.--A representative of the Department of 
        Health and Human Services shall serve as the chairperson of the 
        Task Force.
    (d) Basic Pay.--Each member of the Task Force shall serve without 
pay.
    (e) Meetings.--The Task Force shall meet at the call of the 
chairperson.
    (f) Quorum.--A majority of the members shall constitute a quorum 
for the transaction of business.

SEC. 350. DEMONSTRATION PROJECTS TO PROMOTE TELEMEDICINE.

    (a) Definitions.--For purposes of this section:
            (1) Rural health care provider.--The term ``rural health 
        care provider'' means any public or private health care 
        provider located in a rural area.
            (2) Nonhealth care entity.--The term ``nonhealth care 
        entity'' means any entity that is not involved in the provision 
        of health care, including a business, educational institution, 
        library, and prison.
    (b) Establishment.--The Secretary, acting through the Office of 
Rural Health, shall award grants to eligible entities to establish 
demonstration projects under which an eligible entity establishes a 
rural-based consortium that enables members of the consortium to 
utilize the telecommunications network--
            (1) to strengthen the delivery of health care services in 
        the rural area through the use of telemedicine;
            (2) to provide for consultations involving transmissions of 
        detailed data about the patient that serves as a reasonable 
        substitute for face-to-face interaction between the patient and 
        consultant; and
            (3) to make outside resources or business interaction more 
        available to the rural area.
    (c) Eligible Entity.--To be eligible to receive a grant under this 
section an applicant entity shall propose a consortium that includes as 
members at least--
            (1) one rural health care provider; and
            (2) one nonhealth care entity located in the same rural 
        area as the rural health care provider described in paragraph 
        (1).
The Secretary may waive the membership requirement under paragraph (2) 
if the members described in paragraph (1) are unable to locate a 
nonhealth care entity located in the same rural area to participate in 
the demonstration project.
    (d) Application.--To be eligible to receive a grant under this 
section, an eligible entity described in subsection (c) shall prepare 
and submit to the Secretary an application at such time, in such 
manner, and containing such information as the Secretary may require, 
including a description of the use to which the eligible entity would 
apply any amounts received under such grant, the source and amount of 
non-Federal funds the entity would pledge for the project, and a 
showing of the long-term sustainability of the project.
    (e) Grants.--Grants under this section shall be distributed in 
accordance with the following requirements:
            (1) Grant limit.--The Secretary may not make a grant to an 
        eligible entity under this section in excess of $500,000 for 
        each fiscal year in which an eligible entity conducts a project 
        under this section.
            (2) Matching funds.--
                    (A) In general.--The Secretary may not make a grant 
                to an eligible entity under this section unless the 
                eligible entity agrees to provide non-Federal funds in 
                an amount equal to not less than 20 percent of the 
                total amount to be expended by the eligible entity in 
                any fiscal year for the purpose of conducting the 
                project under this section.
                    (B) Adjustments.--The Secretary shall make 
                necessary adjustments to the amount that an eligible 
                entity may receive in a subsequent fiscal year if the 
                eligible entity does not meet the requirements of 
                subparagraph (A) in the preceding fiscal year.
    (f) Use of Grant Amounts.--
            (1) In general.--Amounts received under a grant awarded 
        under this section shall be utilized for the development and 
        operation of telemedicine systems that serve rural areas. All 
        such grant funds must be used to further the provision of 
        health services to rural areas.
            (2) Rules of use.--
                    (A) Permissible usages.--Grant funds awarded under 
                this section--
                            (i) shall primarily be used to support the 
                        costs of establishing and operating a 
                        telemedicine system that provides specialty 
                        consultations to rural communities;
                            (ii) may be used to demonstrate the 
                        application of telemedicine for preceptorship 
                        of medical students, residents, and other 
                        health professions students in rural training 
                        sites;
                            (iii) may be used for transmission costs, 
                        salaries, maintenance of equipment, and 
                        compensation of specialists and referring 
                        practitioners;
                            (iv) may be used to pay the fees of 
                        consultants, but only to the extent that the 
                        total of such fees do not exceed 5 percent of 
                        the amount of the grant;
                            (v) may be used to demonstrate the use of 
                        telemedicine to facilitate collaboration 
                        between non-physician primary care 
                        practitioners (including physician assistants, 
                        nurse practitioners, certified nurse-midwives, 
                        and clinical nurse specialists) and physicians; 
                        and
                            (vi) may be used to test reimbursement 
                        methodologies under the medicare program under 
                        title XVIII of the Social Security Act and the 
                        medicaid program under title XIX of such Act 
                        for practitioners participating in telemedicine 
                        activities.
                    (B) Prohibited use of funds.--Grant funds shall not 
                be used by members of a rural-based consortium for any 
                of the following:
                            (i) Expenditures to purchase or lease 
                        equipment.
                            (ii) In the case of a member of a 
                        consortium that is an isolated rural facility, 
                        purchase of high-cost telecommunications 
                        technologies for the furnishing of telemedicine 
                        services that--
                                    (I) incur high cost per minute of 
                                usage charges; or
                                    (II) require consultants to be 
                                available at the same time as the 
                                patient and the referring physician.
                            (iii) Purchase or installation of 
                        transmission equipment or establishment or 
                        operation of a telecommunications common 
                        carrier network.
                            (iv) Expenditures for indirect costs (as 
                        determined by the Secretary) to the extent the 
                        expenditures would exceed more than 20 percent 
                        of the total grant funds.
                            (v) Construction (except for minor 
                        renovations related to the installation of 
                        equipment), or the acquisition or building of 
                        real property.
    (g) Maintenance of Effort.--Any funds available for the activities 
covered by a demonstration project conducted under this section shall 
supplement, and shall not supplant, funds that are expended for similar 
purposes under any State, regional, or local program.
    (h) Evaluations.--Each eligible entity that conducts a 
demonstration project under this section shall submit to the Secretary 
such information and interim evaluations as the Secretary may require. 
The Secretary shall provide the Interagency Task Force on Rural 
Telemedicine with such evaluations and information submitted under the 
previous sentence as the Task Force may required to carry out its 
duties under section 345(b).
    (i) Authorization of Appropriations.--There are authorized to be 
appropriated to carry out this section, $10,000,000 for each of the 
fiscal years 1995 through 1997.

                    Subtitle E--Payment Flexibility

SEC. 351. ESSENTIAL ACCESS COMMUNITY HOSPITAL (EACH) AMENDMENTS.

    (a) Unlimited Participating States; Elimination of Grant Tie-In.--
            (1) In general.--Section 1820(a) of the Social Security Act 
        (42 U.S.C. 1395i-4(a)) is amended to read as follows:
    ``(a) In General.--
            ``(1) Program described.--There is hereby established a 
        program under which the Secretary--
                    ``(A) shall permit States that have submitted an 
                application in accordance with subsection (b) to carry 
                out the activities described in subsections (e) and 
                (f); and
                    ``(B) shall designate (under subsection (i)) 
                hospitals and facilities located in States 
                participating in a program under this section as 
                essential access community hospitals or rural primary 
                care hospitals.
            ``(2) Availability of grants.--
                    ``(A) States.--The Secretary shall make grants 
                available to selected States described in paragraph 
                (1)(A) to carry out the activities described in 
                subsection (d)(1).
                    ``(B) Eligible hospitals and facilities.--The 
                Secretary shall make grants available to selected 
                eligible hospitals and facilities (or consortia of 
                hospitals and facilities) to carry out the activities 
                described in subsection (d)(2).''.
            (2) Conforming amendments.--
                    (A) Section 1820(b) of such Act (42 U.S.C. 1395i-
                4(b)) is amended by striking ``Eligibility of States 
                for Grants.--'' through ``subsection (a)(1)'' and 
                inserting ``Application.--A State is eligible to 
                participate in the program described in this section''.
                    (B) Section 1820(c) of such Act (42 U.S.C. 1395i-
                4(c)) is amended--
                            (i) in paragraph (1)--
                                    (I) in the matter preceding 
                                subparagraph (A), by striking 
                                ``(a)(2)'' and inserting ``(a)(2)(B)'', 
                                and
                                    (II) in subparagraph (A), by 
                                striking ``receiving a grant under 
                                subsection (a)(1)'' and inserting 
                                ``participating in the program under 
                                this section''; and
                            (ii) in paragraph (3)--
                                    (I) by striking ``state receiving 
                                grant.--'' and inserting ``state 
                                participating in the program.--'', and
                                    (II) by striking ``(a)(2)'' and 
                                inserting ``(a)(2)(B)''.
                    (C) Section 1820(d) of such Act (42 U.S.C. 1395i-
                4(d)) is amended--
                            (i) in paragraph (1), by striking 
                        ``(a)(1)'' and inserting ``(a)(2)(A)''; and
                            (ii) in paragraph (2), by striking 
                        ``(a)(2)'' each place it appears and and 
                        inserting ``(a)(2)(B)''.
                    (C) Section 1820(i) of such Act (42 U.S.C. 1395i-
                4(i)) is amended--
                            (i) in paragraph (1)(A)(i), by striking 
                        ``receiving a grant under subsection (a)(1)'' 
                        and inserting ``participating in the program 
                        under this section''; and
                            (ii) in paragraph (2)(A)(i), by striking 
                        ``receiving a grant under subsection (a)(1)'' 
                        and inserting ``participating in the program 
                        under this section''.
    (b) Treatment of Inpatient Hospital Services Provided in Rural 
Primary Care Hospitals.--
            (1) In general.--Section 1820(f)(1)(F) of the Social 
        Security Act (42 U.S.C. 1395i-4(f)(1)(F)) is amended to read as 
        follows:
                    ``(F) subject to paragraph (4), provides not more 
                than 6 inpatient beds (meeting such conditions as the 
                Secretary may establish) for providing inpatient care 
                to patients requiring stabilization before discharge or 
                transfer to a hospital, except that the facility may 
                not provide any inpatient hospital services consisting 
                of surgery or any other service requiring the use of 
                general anesthesia (other than surgical procedures 
                specified by the Secretary under section 1833(i)(1)(A)) 
                unless the attending physician certifies that the risk 
                associated with transferring the patient to a hospital 
                for such services outweighs the benefits of 
                transferring the patient to a hospital for such 
                services.''.
            (2) Limitation on average length of stay.--Section 1820(f) 
        of such Act (42 U.S.C. 1395i-4(f)) is amended by adding at the 
        end the following new paragraph:
            ``(4) Limitation on average length of inpatient stays.--The 
        Secretary may terminate a designation of a rural primary care 
        hospital under paragraph (1) if the Secretary finds that the 
        average length of stay for inpatients at the facility during 
        the previous year in which the designation was in effect 
        exceeded 72 hours. In determining the compliance of a facility 
        with the requirement of the previous sentence, there shall not 
        be taken into account periods of stay of inpatients in excess 
        of 72 hours to the extent such periods exceed 72 hours because 
        transfer to a hospital is precluded because of inclement 
        weather or other emergency conditions.''.
            (3) Conforming amendment.--Section 1814(a)(8) of such Act 
        (42 U.S.C. 1395f(a)(8)) is amended by striking ``such 
        services'' and all that follows and inserting ``the individual 
        may reasonably be expected to be discharged or transferred to a 
        hospital within 72 hours after admission to the rural primary 
        care hospital.''.
            (4) GAO reports.--Not later than 2 years after the date of 
        the enactment of this Act, the Comptroller General shall submit 
        reports to Congress on--
                    (A) the application of the requirement under 
                section 1820(f) of the Social Security Act (as amended 
                by this subsection) that rural primary care hospitals 
                maintain an average length of inpatient stay during a 
                year that does not exceed 72 hours; and
                    (B) the extent to which such requirement has 
                resulted in such hospitals providing inpatient care 
                beyond their capabilities or have limited the ability 
                of such hospitals to provide needed services.
    (c) Designation of Hospitals.--
            (1) Permitting designation of hospitals located in urban 
        areas.--
                    (A) In general.--Section 1820 of the Social 
                Security Act (42 U.S.C. 1395i-4) is amended--
                            (i) by striking paragraph (1) of subsection 
                        (e) and redesignating paragraphs (2) through 
                        (6) as paragraphs (1) through (5);
                            (ii) in subsection (e)(1)(A) (as 
                        redesignated by subparagraph (A))--
                                    (I) by striking ``is located'' and 
                                inserting ``except in the case of a 
                                hospital located in an urban area, is 
                                located'',
                                    (II) by striking ``, (ii)'' and 
                                inserting ``or (ii)'', and
                                    (III) by striking ``or (iii)'' and 
                                all that follows through ``section,''; 
                                and
                            (iii) in subsection (i)(1)(B), by striking 
                        ``paragraph (3)'' and inserting ``paragraph 
                        (2)''.
                    (B) No change in medicare prospective payment.--
                Section 1886(d)(5)(D) of such Act (42 U.S.C. 
                1395ww(d)(5)(D)) is amended--
                            (i) in clause (iii)(III), by inserting 
                        ``located in a rural area and'' after ``that 
                        is'', and
                            (ii) in clause (v), by inserting ``located 
                        in a rural area and'' after ``in the case of a 
                        hospital''.
            (2) Permitting hospitals located in adjoining states to 
        participate in state program.--
                    (A) In general.--Section 1820 of such Act (42 
                U.S.C. 1395i-4) is amended--
                            (i) by redesignating subsection (k) as 
                        subsection (l); and
                            (ii) by inserting after subsection (j) the 
                        following new subsection:
    ``(k) Eligibility of Hospitals Not Located in Participating 
States.--Notwithstanding any other provision of this section--
            ``(1) for purposes of including a hospital or facility as a 
        member institution of a rural health network, a State may 
        designate a hospital or facility that is not located in the 
        State as an essential access community hospital or a rural 
        primary care hospital if the hospital or facility is located in 
        an adjoining State and is otherwise eligible for designation as 
        such a hospital;
            ``(2) the Secretary may designate a hospital or facility 
        that is not located in a State receiving a grant under 
        subsection (a)(1) as an essential access community hospital or 
        a rural primary care hospital if the hospital or facility is a 
        member institution of a rural health network of a State 
        receiving a grant under such subsection; and
            ``(3) a hospital or facility designated pursuant to this 
        subsection shall be eligible to receive a grant under 
        subsection (a)(2).''.
                    (B) Conforming amendments.--(i) Section 1820(c)(1) 
                of such Act (42 U.S.C. 1395i-4(c)(1)) is amended by 
                striking ``paragraph (3)'' and inserting ``paragraph 
                (3) or subsection (k)''.
                    (ii) Paragraphs (1)(A) and (2)(A) of section 
                1820(i) of such Act (42 U.S.C. 1395i-4(i)) are each 
                amended--
                            (I) in clause (i), by striking ``(a)(1)'' 
                        and inserting ``(a)(1) (except as provided in 
                        subsection (k))'', and
                            (II) in clause (ii), by striking 
                        ``subparagraph (B)'' and inserting 
                        ``subparagraph (B) or subsection (k)''.
    (d) Skilled Nursing Services in Rural Primary Care Hospitals.--
Section 1820(f)(3) of the Social Security Act (42 U.S.C. 1395i-4(f)(3)) 
is amended by striking ``because the facility'' and all that follows 
and inserting the following: ``because, at the time the facility 
applies to the State for designation as a rural primary care hospital, 
there is in effect an agreement between the facility and the Secretary 
under section 1883 under which the facility's inpatient hospital 
facilities are used for the furnishing of extended care services, 
except that the number of beds used for the furnishing of such services 
may not exceed the total number of licensed inpatient beds at the time 
the facility applies to the State for such designation (minus the 
number of inpatient beds used for providing inpatient care pursuant to 
paragraph (1)(F)). For purposes of the previous sentence, the number of 
beds of the facility used for the furnishing of extended care services 
shall not include any beds of a unit of the facility that is licensed 
as a distinct-part skilled nursing facility at the time the facility 
applies to the State for designation as a rural primary care 
hospital.''.
    (e) Deadline for Development of Prospective Payment System for 
Inpatient Rural Primary Care Hospital Services.--Section 1814(l)(2) of 
the Social Security Act (42 U.S.C. 1395f(l)(2)) is amended by striking 
``January 1, 1993'' and inserting ``January 1, 1996''.
    (f) Payment for Outpatient Rural Primary Care Hospital Services.--
            (1) Implementation of prospective payment system.--Section 
        1834(g) of the Social Security Act (42 U.S.C. 1395m(g)) is 
        amended--
                    (A) in paragraph (1), by striking ``during a year 
                before 1993'' and inserting ``during a year before the 
                prospective payment system described in paragraph (2) 
                is in effect''; and
                    (B) in paragraph (2), by striking ``January 1, 
                1993,'' and inserting ``January 1, 1996,''.
            (2) No use of customary charge in determining payment.--
        Section 1834(g)(1) of such Act (42 U.S.C. 1395m(g)(1)) is 
        amended by adding at the end the following new flush sentence:
        ``The amount of payment shall be determined under either method 
        without regard to the amount of the customary or other 
        charge.''.
    (g) Clarification of Physician Staffing Requirement for Rural 
Primary Care Hospitals.--Section 1820(f)(1)(H) of the Social Security 
Act (42 U.S.C. 1395i-4(f)(1)(H)) is amended by striking the period and 
inserting the following: ``, except that in determining whether a 
facility meets the requirements of this subparagraph, subparagraphs (E) 
and (F) of that paragraph shall be applied as if any reference to a 
`physician' is a reference to a physician as defined in section 
1861(r)(1).''.
    (h) Technical Amendments Relating to Part A Deductible, 
Coinsurance, and Spell of Illness.--(1) Section 1812(a)(1) of the 
Social Security Act (42 U.S.C. 1395d(a)(1)) is amended--
            (A) by striking ``inpatient hospital services'' the first 
        place it appears and inserting ``inpatient hospital services or 
        inpatient rural primary care hospital services'';
            (B) by striking ``inpatient hospital services'' the second 
        place it appears and inserting ``such services''; and
            (C) by striking ``and inpatient rural primary care hospital 
        services''.
    (2) Sections 1813(a) and 1813(b)(3)(A) of such Act (42 U.S.C. 
1395e(a), 1395e(b)(3)(A)) are each amended by striking ``inpatient 
hospital services'' each place it appears and inserting ``inpatient 
hospital services or inpatient rural primary care hospital services''.
    (3) Section 1813(b)(3)(B) of such Act (42 U.S.C. 1395e(b)(3)(B)) is 
amended by striking ``inpatient hospital services'' and inserting 
``inpatient hospital services, inpatient rural primary care hospital 
services''.
    (4) Section 1861(a) of such Act (42 U.S.C. 1395x(a)) is amended--
            (A) in paragraph (1), by striking ``inpatient hospital 
        services'' and inserting ``inpatient hospital services, 
        inpatient rural primary care hospital services''; and
            (B) in paragraph (2), by striking ``hospital'' and 
        inserting ``hospital or rural primary care hospital''.
    (i) Authorization of Appropriations.--Section 1820(e) of the Social 
Security Act (42 U.S.C. 1395i-4(e)), as redesignated by subsection 
(c)(2)(A), is amended--
            (1) in the matter preceding paragraph (1), by striking 
        ``1990, 1991, and 1992'' and inserting ``1990 through 1998'';
            (2) in paragraph (1), by striking ``$10,000,000'' and 
        ``(a)(1)'' and inserting ``$30,000,000'' and ``(a)(2)(A)'', 
        respectively; and
            (3) in paragraph (2), by striking ``$15,000,000'' and 
        ``(a)(2)'' and inserting ``$45,000,000'' and ``(a)(2)(B)'', 
        respectively.
    (j) No limitation on number of rural primary care hospitals in non-
each states.--Section 1820(i)(2)(C) of the Social Security Act (42 
U.S.C. 1395i-4(i)(2)(C)) is amended--
            (1) by striking ``15''; and
            (2) by striking ``(f)(1), except that nothing'' and 
        inserting ``(f)(1) and establishes a relationship with a full-
        service rural hospital that meets the requirements described in 
        paragraph (1) through (6) of subsection (e), except that such 
        hospital need not meet the 75 bed requirement described in 
        paragraph (3) of such subsection. Nothing''.
    (k) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 352. DEMONSTRATION PROJECTS TO IMPROVE ACCESS IN RURAL AREAS.

    (a) In General.--Part A of title XVIII of the Social Security Act 
(42 U.S.C. 1395 et seq.) is amended by adding at the end the following 
new section:

       ``demonstration projects to improve access in rural areas

    ``Sec. 1821. (a) Medical Assistance Facility Demonstration 
Project.--
            (1) Establishment.--The Secretary shall provide for the 
        establishment of demonstration projects in States providing 
        that medical assistance facilities located in such States may 
        receive payment in accordance with paragraph (4).
            ``(2) Applications.--
                    ``(A) In general.--Each State desiring to conduct a 
                demonstrationproject under this subsection shall 
                prepare and submit to the Secretary an application, at 
                such time, in such manner, and containing such 
                information as the Secretary may require, including an 
                explanation of a plan for evaluating the project.
                    ``(B) Approval of applications.--A State that 
                submits an application under subparagraph (A) may begin 
                a demonstration project under this subsection--
                            ``(i) upon approval of such application by 
                        the Secretary; or
                            ``(ii) at the end of the 60-day period 
                        beginning on the date such application is 
                        submitted, unless the Secretary denies the 
                        application during such period.
            ``(3) Medical assistance facility.--The term `medical 
        assistance facility' means for a fiscal year, a facility with 
        respect to which the Secretary finds the following:
                    ``(A) The facility is located in a county (or 
                equivalent unit of local government) with fewer than 6 
                residents per square mile or is located more than a 35 
                mile drive from a hospital, a rural primary care 
                hospital, or another facility described in this 
                subsection.
                    ``(B) The facility furnishes services to ill or 
                injured individuals prior to the transportation of such 
                individuals to a hospital or furnishes inpatient care 
                to individuals needing such care for a period not 
                longer than 96 hours.
                    ``(C) The facility permits a physician assistant or 
                nurse practitioner to admit and treat patients under 
                the supervision of a physician not present in such 
                facility.
                    ``(D) The facility meets the requirements of 
                section 1861(e) that are applicable to a hospital 
                located in a rural area except that--
                            ``(i) with respect to any requirements 
                        relating to the number of hours that the 
                        facility must be open on a daily or weekly 
                        basis, the facility is only required to meet 
                        the requirement to provide emergency care on a 
                        24-hour basis;
                            ``(ii) with respect to any services 
                        required under such section to be furnished by 
                        a dietician, pharmacist, laboratory technician, 
                        medical technologist, and radiological 
                        technologist, the facility may furnish such 
                        services on a part-time, off-site basis; and
                            ``(iii) the inpatient care described in 
                        subparagraph (B) may be furnished by a 
                        physician assistant or nurse practitioner as 
                        provided in subparagraph (C).
                    ``(E) The facility receives a certification of 
                medical necessity and appropriateness by a peer review 
                organization (or the equivalent of a peer review 
                organization) upon admitting each patient on an 
                inpatient basis or, in the case of admissions that do 
                not occur during regular business hours, receives such 
                a certification at the earliest possible time.
                    ``(F) The facility may enter into an agreement with 
                the Secretary under section 1883 under which the 
                facility's inpatient hospital facilities may be used 
                for the furnishing of services of the type which, if 
                furnished by a skilled nursing facility, would 
                constitute extended care services.
            ``(4) Payment for services.--Each medical assistance 
        facility located in a State participating in a demonstration 
        project under this subsection shall receive payment for 
        inpatient medical assistance facility services (as defined in 
        section 1861(oo)(2)) in accordance with section 1814(m) and 
        outpatient medical assistance facility services (as defined in 
        section 1861(oo)(3)) in accordance with section 1834(i).
            ``(5) Grants.--The Secretary shall award grants to--
                    ``(A) selected States participating in a 
                demonstration project under this subsection for the 
                purpose of assisting such States in promoting the 
                establishment of medical assistance facilities; and
                    ``(B) selected facilities in States participating 
                in a demonstration project under this section for the 
                purpose of financing the costs a facility incurs in 
                converting itself to a medical assistance facility.
            ``(6) Maintenance of effort.--Any funds available for the 
        activities covered by a demonstration project conducted under 
        this subsection shall supplement, and shall not supplant, funds 
        that are expended for similar purposes under any State, 
        regional, or local program.
            ``(7) Duration.--A demonstration project under this 
        subsection shall be conducted for a period not to exceed 8 
        years.
            ``(8) Evaluations and reports.--
                    ``(A) Evaluations.--Each State that conducts a 
                demonstration project under this subsection shall 
                submit to the Secretary a final evaluation of such 
                project within 360 days of the termination of such 
                project and such interim evaluations as the Secretary 
                may require.
                    ``(B) Reports to congress.--Not later than 360 days 
                after the first demonstration project under this 
                subsection begins, and annually thereafter for each 
                year in which a project is conducted under this 
                subsection, the Secretary shall submit a report to the 
                appropriate committees of the Congress which evaluates 
                the effectiveness of the demonstration projects 
                conducted under this subsection and includes any 
                legislative recommendations determined appropriate by 
                the Secretary.
            ``(9) Authorization of Appropriations.--There are 
        authorized to be appropriated for each of the fiscal years 1995 
        through 2000 from the Federal Hospital Insurance Trust Fund--
                    ``(A) $20,000,000 for grants to States under 
                paragraph (5)(A); and
                    ``(B) $20,000,000 for grants to facilities under 
                paragraph (5)(B).
    ``(b) Rural Emergency Access Care Hospital Demonstration Project.--
            ``(1) In General.--
                    ``(A) Establishment.--The Secretary shall provide 
                for the establishment of demonstration projects in 
                States providing that rural emergency access care 
                hospitals located in such States may receive payment in 
                accordance with paragraph (5) for rural emergency 
                access care hospital services provided to medicare 
                beneficiaries.
            ``(2) Applications.--
                    ``(A) In general.--Each State desiring to conduct a 
                demonstration project under this subsection shall 
                prepare and submit to the Secretary an application, at 
                such time, in such manner, and containing such 
                information as the Secretary may require, including an 
                explanation of a plan for evaluating the project.
                    ``(B) Approval of applications.--A State that 
                submits an application under subparagraph (A) may begin 
                a demonstration project under this subsection--
                            ``(i) upon approval of such application by 
                        the Secretary; or
                            ``(ii) at the end of the 60-day period 
                        beginning on the date such application is 
                        submitted, unless the Secretary denies the 
                        application during such period.
            ``(3) Rural emergency access care hospital.--For purposes 
        of this subsection, the term `rural emergency access care 
        hospital' means, for a fiscal year, a facility with respect to 
        which the Secretary finds the following:
                    ``(A) The facility is located in a rural area (as 
                defined in section 1886(d)(2)(D)).
                    ``(B) The facility was a hospital under this title 
                at any time during the 5-year period that ends on the 
                date of the enactment of this subsection.
                    ``(C) The facility is in danger of closing due to 
                low inpatient utilization rates and negative operating 
                losses, and the closure of the facility would limit the 
                access of individuals residing in the facility's 
                service area to emergency services.
                    ``(D) The facility has entered into (or plans to 
                enter into) an agreement with a hospital with a 
                participation agreement in effect under section 
                1866(a), and under such agreement the hospital shall 
                accept patients transferred to the hospital from the 
                facility and receive data from and transmit data to the 
                facility.
                    ``(E) There is a practitioner who is qualified to 
                provide advanced cardiac life support services (as 
                determined by the State in which the facility is 
                located) on-site at the facility on a 24-hour basis.
                    ``(F) A physician is available on-call to provide 
                emergency medical services on a 24-hour basis.
                    ``(G) The facility meets such staffing requirements 
                as would apply under section 1861(e) to a hospital 
                located in a rural area, except that--
                            ``(i) the facility need not meet hospital 
                        standards relating to the number of hours 
                        during a day, or days during a week, in which 
                        the facility must be open, except insofar as 
                        the facility is required to provide emergency 
                        care on a 24-hour basis under subparagraphs (E) 
                        and (F); and
                            ``(ii) the facility may provide any 
                        services otherwise required to be provided by a 
                        full-time, on-site dietician, pharmacist, 
                        laboratory technician, medical technologist, or 
                        radiological technologist on a part-time, off-
                        site basis.
                    ``(H) The facility meets the requirements 
                applicable to clinics and facilities under 
                subparagraphs (C) through (J) of paragraph (2) of 
                section 1861(aa) and of clauses (ii) and (iv) of the 
                second sentence of such paragraph (or, in the case of 
                the requirements of subparagraph (E), (F), or (J) of 
                such paragraph, would meet the requirements if any 
                reference in such subparagraph to a `nurse 
                practitioner' or to `nurse practitioners' was deemed to 
                be a reference to a `nurse practitioner or nurse' or to 
                `nurse practitioners or nurses'), except that in 
                determining whether a facility meets the requirements 
                of this subparagraph, subparagraphs (E) and (F) of that 
                paragraph shall be applied as if any reference to a 
                `physician' is a reference to a physician as defined in 
                section 1861(r)(1).
            ``(4) Rural emergency access care hospital services.--For 
        purposes of this subsection, the term `rural emergency access 
        care hospital services' means the following services provided 
        by a rural emergency access care hospital:
                    ``(A) An appropriate medical screening examination 
                (as described in section 1867(a)).
                    ``(B) Necessary stabilizing examination and 
                treatment services for an emergency medical condition 
                and labor (as described in section 1867(b)).''.
            ``(5) Payment for services.--Each rural emergency access 
        care hospital located in a State participating in a 
        demonstration project under this subsection shall receive 
        payment for rural emergency access care hospital services in 
        accordance with section 1833(a)(6).
            ``(6) Grants.--The Secretary shall award grants to--
                    ``(A) selected States participating in a 
                demonstration project under this subsection for the 
                purpose of assisting such States in promoting the 
                establishment of rural emergency access care hospitals; 
                and
                    ``(B) selected facilities in States participating 
                in a demonstration project under this section for the 
                purpose of financing the costs a facility incurs in 
                converting itself to a rural emergency access care 
                hospitals.
            ``(7) Maintenance of effort.--Any funds available for the 
        activities covered by a demonstration project conducted under 
        this subsection shall supplement, and shall not supplant, funds 
        that are expended for similar purposes under any State, 
        regional, or local program.
            ``(8) Duration.--A demonstration project under this 
        subsection shall be conducted for a period not to exceed 8 
        years.
            ``(9) Evaluations and reports.--
                    ``(A) Evaluations.--Each State that conducts a 
                demonstration project under this subsection shall 
                submit to the Secretary a final evaluation of such 
                project within 360 days of the termination of such 
                project and such interim evaluations as the Secretary 
                may require.
                    ``(B) Reports to congress.--Not later than 360 days 
                after the first demonstration project under this 
                subsection begins, and annually thereafter for each 
                year in which a project is conducted under this 
                subsection, the Secretary shall submit a report to the 
                appropriate committees of the Congress which evaluates 
                the effectiveness of the demonstration projects 
                conducted under this subsection and includes any 
                legislative recommendations determined appropriate by 
                the Secretary.
            ``(10) Authorization of Appropriations.--There are 
        authorized to be appropriated for each of the fiscal years 1995 
        through 2000 from the Federal Hospital Insurance Trust Fund--
                    ``(A) $20,000,000 for grants to States under 
                paragraph (6)(A); and
                    ``(B) $20,000,000 for grants to facilities under 
                paragraph (6)(B).
    (b) Coverage of, and Payment for, Medical Assistance Facility 
Services.
            (1) Amendments to part a.--
                    (A) Definitions.--Section 1861 of the Social 
                Security Act (42 U.S.C. 1395x) is amended by adding at 
                the end the following new subsection:

  ``Medical Assistance Facility; Medical Assistance Facility Services

    ``(oo)(1) The term `medical assistance facility' means a facility 
which is located in a State that is participating in a demonstration 
project under section 1820(a) and for which the Secretary finds that 
the criteria described in subparagraphs (A) through (F) of section 
1820(a) are met with respect to the facility.
            (2) The term `inpatient medical assistance facility 
        services' means items and services furnished to an inpatient of 
        a medical assistance facility by such facility that would be 
        inpatient hospital services if furnished to an inpatient of a 
        hospital by a hospital.''.
                    (B) Coverage and payment.--(i) Section 1812(a)(1) 
                of such Act (42 U.S.C. 1395d(a)(1)) is amended by 
                striking ``and inpatient rural primary care hospital 
                services'' and inserting ``, inpatient rural primary 
                care hospital services, and inpatient medical 
                assistance facility services''.
                    (ii) Section 1814 of such Act (42 U.S.C. 1395f) is 
                amended--
                            (I) in subsection (a)--
                                    (aa) by striking ``and'' at the end 
                                of paragraph (7),
                                    (bb) by striking the period at the 
                                end of paragraph (8) and inserting ``; 
                                and'', and
                                    (cc) by inserting after paragraph 
                                (8) the following new paragraph:
            ``(9) in the case of inpatient medical assistance facility 
        services, a physician certifies that such services were 
        required to be immediately furnished on a temporary, inpatient 
        basis.'';
                    (ii) in subsection (b), by striking ``inpatient 
                rural primary care hospital services,'' and inserting 
                ``inpatient rural primary care hospital services, other 
                than a medical assistance facility providing inpatient 
                medical assistance facility services,''; and
                            (III) by adding at the end the following 
                        new subsection:

      ``Payment for Inpatient Medical Assistance Facility Services

    ``(m) The amount of payment under this part for inpatient medical 
assistance facility services is the reasonable costs of the medical 
assistance facility in providing such services.''.
                    (C) Treatment of medical assistance facilities as 
                providers of services.--(i) Section 1861(u) of such Act 
                (42 U.S.C. 1395x(u)) is amended by inserting ``medical 
                assistance facility,'' after ``rural primary care 
                hospital,''.
                    (ii) The first sentence of section 1864(a) of such 
                Act (42 U.S.C. 1395aa(a)) is amended by inserting ``a 
                medical assistance facility, as defined in section 
                1861(oo)(1),'' after ``1861(mm)(1),''.
                    (iii) The third sentence of section 1865(a) of such 
                Act (42 U.S.C. 1395bb(a)) is amended by striking ``or 
                1861(mm)(1)'' and inserting ``1861(mm)(1), or 
                1861(oo)(1),''.
                    (D) Conforming amendments.--(i) Section 1128A(b)(1) 
                of such Act (42 U.S.C. 1320a-7a(b)(1)) is amended--
                            (I) by striking ``or a rural primary care 
                        hospital'' the first place it appears and 
                        inserting ``, a rural primary care hospital, or 
                        a medical assistance facility''; and
                            (II) by striking ``or a rural primary care 
                        hospital'' the second place it appears and 
                        inserting ``, the rural primary care hospital, 
                        or the medical assistance facility''.
                    (ii) Section 1128B(c) of such Act (42 U.S.C. 1320a-
                7b(c)) is amended by inserting ``medical assistance 
                facility,'' after ``rural primary care hospital,''.
                    (iii) Section 1134 of such Act (42 U.S.C. 1320b-4) 
                is amended by striking ``or rural primary care 
                hospitals'' each place it appears and inserting ``, 
                rural primary care hospitals, or medical assistance 
                facilities''.
                    (iv) Section 1138(a)(1) of such Act (42 U.S.C. 
                1320b-8(a)(1)) is amended--
                            (I) in the matter preceding subparagraph 
                        (A), by striking ``or rural primary care 
                        hospital'' and inserting ``, rural primary care 
                        hospital, or medical assistance facility'', and
                            (II) in the matter preceding clause (i) of 
                        subparagraph (A), by striking ``or rural 
                        primary care hospital'' and inserting ``, rural 
                        primary care hospital, or medical assistance 
                        facility''.
                    (v) Section 1164(e) of such Act (42 U.S.C. 1320c-
                13(e)) is amended by inserting ``medical assistance 
                facilities,'' after ``rural primary care hospitals,''.
                    (vi) Section 1816(c)(2)(C) of such Act (42 U.S.C. 
                1395h(c)(2)(C)) is amended by inserting ``medical 
                assistance facility,'' after ``rural primary care 
                hospital,''.
                    (vii) Section 1833 of such Act (42 U.S.C. 1395l) is 
                amended--
                            (I) in subsection (h)(5)(A)(iii)--
                                    (aa) by striking ``or rural primary 
                                care hospital'' and inserting ``rural 
                                primary care hospital, or medical 
                                assistance facility''; and
                                    (bb) by striking ``to the 
                                hospital'' and inserting ``to the 
                                hospital or the facility'';
                            (II) in subsection (i)(1)(A), by inserting 
                        ``medical assistance facility,'' after ``rural 
                        primary care hospital,'';
                            (III) in subsection (i)(3)(A), by striking 
                        ``or rural primary care hospital services'' and 
                        inserting ``rural primary care hospital 
                        services, or medical assistance facility 
                        services'';
                            (IV) in subsection (l)(5)(A), by inserting 
                        ``medical assistance facility,'' after ``rural 
                        primary care hospital,'' each place it appears; 
                        and
                            (V) in subsection (l)(5)(C), by striking 
                        ``or rural primary care hospital'' each place 
                        it appears and inserting ``, rural primary care 
                        hospital, or medical assistance facility''.
                    (viii) Section 1835(c) of such Act (42 U.S.C. 
                1395n(c)) is amended by adding at the end the 
                following: ``A medical assistance facility shall be 
                considered a hospital for purposes of this 
                subsection.''.
                    (ix) Section 1842(b)(6)(A)(ii) of such Act (42 
                U.S.C. 1395u(b)(6)(A)(ii)) is amended by inserting 
                ``medical assistance facility,'' after ``rural primary 
                care hospital,''.
                    (x) Section 1861 of such Act (42 U.S.C. 1395x) is 
                amended--
                            (I) in the last sentence of subsection (e), 
                        by striking ``1861(mm)(1))'' and inserting 
                        ``1861(mm)(1)) or a medical assistance facility 
                        (as defined in section 1861(oo)(1)).'',
                            (II) in subsection (w)(1) by inserting 
                        ``medical assistance facility,'' after ``rural 
                        primary care hospital,'', and
                            (III) in subsection (w)(2), by striking 
                        ``or rural primary care hospital'' each place 
                        it appears and inserting ``, rural primary care 
                        hospital, or medical assistance facility''.
                    (xi) Section 1862(a)(14) of such Act (42 U.S.C. 
                1395y(a)(14)) is amended by striking ``or rural primary 
                care hospital'' each place it appears and inserting ``, 
                rural primary care hospital, or medical assistance 
                facility''.
                    (xii) Section 1866(a)(1) of such Act (42 U.S.C 
                1395cc(a)(1)) is amended--
                            (I) in subparagraph (F)(ii), by inserting 
                        ``medical assistance facilities,'' after 
                        ``rural primary care hospitals,'';
                            (II) in subparagraph (H)--
                                    (aa) in the matter preceding clause 
                                (i), by inserting ``and in the case of 
                                medical assistance facilities which 
                                provide inpatient medical assistance 
                                facility services'' after ``rural 
                                primary care hospital services''; and
                                    (bb) in clauses (i) and (ii), by 
                                striking ``hospital'' each place it 
                                appears and inserting ``hospital or 
                                facility'';
                            (III) in subparagraph (I)--
                                    (aa) in the matter preceding clause 
                                (i), by striking ``or rural primary 
                                care hospital'' and inserting ``, a 
                                rural primary care hospital, or a 
                                medical assistance facility''; and
                                    (bb) in clause (ii), by striking 
                                ``the hospital'' and inserting ``the 
                                hospital or the facility''; and
                            (IV) in subparagraph (N)--
                                    (aa) in the matter preceding clause 
                                (i), by striking ``and rural primary 
                                hospitals'' and inserting ``, rural 
                                primary care hospitals, and medical 
                                assistance facilities'';
                                    (bb) in clause (i), by striking 
                                ``or rural primary care hospital,'' and 
                                inserting ``, rural primary care 
                                hospital, or medical assistance 
                                facility,''; and
                                    (cc) in clause (ii), by striking 
                                ``hospital'' and inserting ``hospital 
                                or facility''.
                    (xiii) Section 1866(a)(3) of such Act (42 U.S.C 
                1395cc(a)(3)) is amended--
                            (I) by striking ``rural primary care 
                        hospital,'' each place it appears in 
                        subparagraphs (A) and (B) and inserting ``rural 
                        primary care hospital, medical assistance 
                        facility,'', and
                            (II) in subparagraph (C)(ii)(II), by 
                        striking ``rural primary care hospitals,'' each 
                        place it appears and inserting ``rural primary 
                        care hospitals, medical assistance 
                        facilities''.
                    (xiv) Section 1867(e)(5) of such Act (42 U.S.C. 
                1395dd(e)(5)) is amended by striking ``1861(mm)(1))'' 
                and inserting ``1861(mm)(1)) or a medical assistance 
                facility (as defined in section 1861(oo)(1)).''.
            (2) Amendments to part b.--
                    (A) Coverage.--(i) Section 1861(oo) of the Social 
                Security Act (42 U.S.C. 1395x(oo)), as added by 
                paragraph (1)(A), is amended by adding at the end the 
                following new paragraph:
    ``(3) The term `outpatient medical assistance facility services' 
means medical and other health services furnished by a medical 
assistance facility on an outpatient basis.''.
                    (ii) Section 1832(a)(2) of such Act (42 U.S.C. 
                1395k(a)(2)) is amended--
                            (I) in subparagraph (I), by striking 
                        ``and'' at the end;
                            (II) in subparagraph (J), by striking the 
                        period at the end and inserting ``; and''; and
                            (III) by adding at the end the following 
                        new subparagraph:
                    ``(K) outpatient medical assistance facility 
                services (as defined in section 1861(oo)(3)).''.
                    (B) Payment.--(i) Section 1833(a) of such Act (42 
                U.S.C. 1395l(a)) is amended--
                            (I) in paragraph (2), in the matter 
                        preceding subparagraph (A), by striking ``and 
                        (I)'' and inserting ``(I), and (K)'';
                            (II) in paragraph (6), by striking ``and'' 
                        at the end;
                            (III) in paragraph (7), by striking the 
                        period at the end and inserting ``; and''; and
                            (IV) by adding at the end the following new 
                        paragraph:
            ``(8) in the case of outpatient medical assistance facility 
        services, the amounts described in section 1834(i).''.
                    (ii) Section 1834 of such Act (42 U.S.C. 1395m) is 
                amended by adding at the end the following new 
                subsection:
    ``(i) Payment for Outpatient Medical Assistance Facility 
Services.--The amount of payment for outpatient medical assistance 
facility services provided in a medical assistance facility under this 
part shall be determined by one of the two following methods, as 
elected by the medical assistance facility:
            ``(1) Cost-based facility fee plus professional charges.--
                    ``(A) Facility fee.--With respect to facility 
                services, not including any services for which payment 
                may be made under subparagraph (B), there shall be paid 
                amounts equal to the amounts described in section 
                1833(a)(2)(B) (describing amounts paid for hospital 
                outpatient services).
                    ``(B) Reasonable charges for professional 
                services.--In electing treatment under this paragraph, 
                payment for professional medical services otherwise 
                included within outpatient medical assistance facility 
                services shall be made under such other provisions of 
                this part as would apply to payment for such services 
                if they were not included in outpatient medical 
                assistance facility services.
            ``(2) All-inclusive rate.--
                    ``(A) In general.--With respect to both facility 
                services and professional medical services, there shall 
                be paid amounts equal to the excess of--
                            ``(i) the costs which are reasonable and 
                        related to the cost of furnishing such services 
                        or which are based on such other tests of 
                        reasonableness as the Secretary may prescribe 
                        in regulations, over
                            ``(ii) the amount the facility may charge 
                        as described in clause (i) of section 
                        1866(a)(2)(A).
                    ``(B) Limitation.--
                            ``(i) In general.--The payment amount 
                        determined under subparagraph (A) with respect 
                        to items and services shall not exceed 80 
                        percent of the amount determined under clause 
                        (i) of such subparagraph with respect to such 
                        items and services.
                            ``(ii) Certain items and services.--Clause 
                        (i) shall not apply to--
                                    ``(I) items and services described 
                                in section 1861(s)(10)(A), and
                                    ``(II) items and services furnished 
                                in connection with obtaining a second 
                                opinion required under section 
                                1164(c)(2), or third opinion, if the 
                                second opinion was in disagreement with 
                                the first opinion.''.
            (3) Effective date.--The amendments made by this subsection 
        shall be effective for services provided on or after the 
        October 1, 1995.
    (c) Rural Emergency Access Care Hospitals.--
            (1) Rural Emergency Access Care Hospitals Described.--
        Section 1861 of the Social Security Act (42 U.S.C. 1395x) is 
        amended by adding at the end the following new subsection:

  ``Rural Emergency Access Care Hospital; Rural Emergency Access Care 
                           Hospital Services

    ``(pp)(1) The term `rural emergency access care hospital' means, 
for a fiscal year, a facility in a State participating in a 
demonstration project under section 1820(b) and that meets the criteria 
described in subparagraphs (A) through (H) of section 1820(b)(3).
    ``(2) The term `rural emergency access care hospital services' 
means the following services provided by a rural emergency access care 
hospital:
            ``(A) An appropriate medical screening examination (as 
        described in section 1867(a)).
            ``(B) Necessary stabilizing examination and treatment 
        services for an emergency medical condition and labor (as 
        described in section 1867(b)).''.
            (2) Requiring rural emergency access care hospitals to meet 
        hospital anti-dumping requirements.--Section 1867(e)(5) of such 
        Act (42 U.S.C. 1395(e)(5)) is amended by striking 
        ``1861(mm)(1)'' and inserting ``1861(mm)(1)) and a rural 
        emergency access care hospital (as defined in section 
        1861(pp)(1))''.
            (3) Coverage of and payment for services.--Section 
        1832(a)(2) of the Social Security Act (42 U.S.C. 1395k(a)(2)), 
        as amended in subsection (b)(2)(A)(ii), is amended--
                    (A) by striking ``and'' at the end of subparagraph 
                (J);
                    (B) by striking the period at the end of 
                subparagraph (K) and inserting ``; and''; and
                    (C) by adding at the end the following new 
                subparagraph:
                    ``(L) rural emergency access care hospital services 
                (as defined in section 1861(pp)(2)).''
            (4) Payment based on payment for outpatient rural primary 
        care hospital services.--
                    (A) In general.--Section 1833(a)(6) of the Social 
                Security Act (42 U.S.C. 1395l(a)(6)) is amended by 
                striking ``services,'' and inserting ``services and 
                rural emergency access care hospital services,''.
                    (B) Payment methodology described.--Section 1834(g) 
                of such Act (42 U.S.C. 1395m(g)) is amended--
                            (i) in the heading, by striking 
                        ``Services'' and inserting ``Services and Rural 
                        Emergency Access Care Hospital Services''; and
                            (ii) by adding at the end the following new 
                        paragraph:
            ``(3) Application of methods to payment for rural emergency 
        access care hospital services.--The amount of payment for rural 
        emergency access care hospital services provided during a year 
        shall be determined using the applicable method provided under 
        this subsection for determining payment for outpatient rural 
        primary care hospital services during the year.''.
            (5) Effective Date.--The amendments made by this subsection 
        shall be effective for services provided on or after the 
        October 1, 1995.

SEC. 353. MEDICARE-DEPENDENT, SMALL RURAL HOSPITALS.

    (a) Clarification of Additional Payment.--Section 
1886(d)(5)(G)(ii)(I) of the Social Security Act (42 U.S.C. 
1395ww(d)(5)(G)(ii)(I)) is amended by striking ``the first 3 12-month 
cost reporting periods that begin'' and inserting ``the 36-month period 
beginning with the first day of the cost reporting period that 
begins''.
    (b) Special Treatment Extended.--Section 1886(d)(5)(G) of such Act 
(42 U.S.C. 1395ww(d)(5)(G)) is amended--
            (1) in clause (i), by striking ``October 1, 1994'' and 
        inserting ``October 1, 1999''; and
            (2) in clause (ii)(II), by striking ``October 1, 1994'' and 
        inserting ``October 1, 1999''.
    (c) Extension of Target Amount.--Section 1886(b)(3)(D) of such Act 
(42 U.S.C. 1395ww(b)(3)(D)) is amended--
            (1) in the matter preceding clause (i), by striking ``March 
        31, 1993'' and inserting ``September 30, 1999''; and
            (2) by amending clause (iii) to read as follows:
            ``(iii) with respect to discharges occurring in fiscal 
        years 1994 through 1999, the target amount for the cost 
        reporting period beginning in the previous fiscal year 
        increased by the applicable percentage increase under 
        subparagraph (B)(iv).''.

SEC. 354. EXPANDED COVERAGE FOR PHYSICIAN ASSISTANTS AND NURSE 
              PRACTITIONERS.

    (a) Coverage in Outpatient Settings.--(1) Section 1861(s)(2)(K) of 
the Social Security Act (42 U.S.C. 1395x(s)(2)(K)) is amended--
                    (A) in clause (i)--
                            (i) by striking ``or'' at the end of 
                        subclause (II); and
                            (ii) by inserting ``or (IV) in an 
                        outpatient setting as defined by the 
                        Secretary'' following ``shortage area,''; and
                    (B) in clause (ii), by striking ``in a skilled 
                nursing facility or nursing facility (as defined in 
                section 1919(a)'' and inserting ``(I) in a skilled 
                nursing facility or nursing facility (as defined in 
                section 1919(a)), or (II) in an outpatient setting as 
                defined by the Secretary''.
            (2) Section 1833(r)(1) of such Act (42 U.S.C. 1395l(r)(1)) 
        is amended by striking ``rural area)'' and inserting ``rural 
        area), or for services described in section 
        1861(s)(2)(K)(ii)(II) (relating to nurse practitioner services 
        in an outpatient settings)''.
            (3) Section 1842(b)(6)(C) (42 U.S.C. 1395u(b)(6)(C)) is 
        amended by striking ``(ii)'' and inserting ``(ii)(II)''.
    (b) Payment Based on Physician Fee Schedule.--
            (1) Section 1833(a)(1)(O) of such Act (42 U.S.C. 
        1395l(a)(1)(O)) is amended--
                    (A) by striking ``section 1861(s)(2)(K)(iii) 
                (relating to nurse practitioner and clinical nurse 
                specialist services provided in a rural area)'' and 
                inserting ``section 1861(s)(2)(K)'';
                    (B) by striking ``for services furnished on or 
                after January 1, 1992,'' and inserting ``for services 
                described in section 1861(s)(2)(K)(iii) furnished on or 
                after January 1, 1992, and for services described in 
                clauses (i), (ii), and (iv) of section 1861(s)(2)(K) 
                furnished on or after January 1, 1997,''; and
                    (C) by striking ``subsection (r)(2)'' and inserting 
                ``subsection (r)(2) or subparagraph (A) or (B) of 
                section 1842(b)(12)''.
            (2) Section 1842(b)(12)(A) of such Act (42 U.S.C. 
        1395u(b)(12)(A)) is amended--
                    (A) by striking ``and'' at the end of clause (i);
                    (B) in clause (ii) in the matter preceding 
                subclause (I), by striking ``the prevailing'' and 
                inserting ``for services furnished before January 1, 
                1997, the prevailing'';
                    (C) by striking the period at the end of clause 
                (ii)(II) and inserting ``; and''; and
                    (D) by inserting at the end the following clause:
                            ``(iii) in the case of services furnished 
                        on or after January 1, 1997, the fee schedule 
                        amount shall be equal to--
                                    ``(I) in the case of services 
                                performed as an assistant at surgery, 
                                65 percent of the amount that would 
                                otherwise be recognized if performed by 
                                a physician who is serving as an 
                                assistance at surgery,
                                    ``(II) in the case of services 
                                performed (other than as an assistant 
                                at surgery) in a hospital, 75 percent 
                                of the fee schedule amount specified 
                                under section 1848, and
                                    ``(III) in the case of other 
                                services, 85 percent of the fee 
                                schedule amount specified under section 
                                1848.
    (c) Rural Nurse Practitioners as Assistants at Surgery in Urban 
Areas.--Section 1861(s)(2)(K)(ii) of such Act (42 U.S.C. 
1395x(s)(2)(K)(ii)), as amended by subsection (a)(2), is further 
amended by adding ``or services as an assistant at surgery furnished by 
a nurse practitioner whose primary practice location (as defined by the 
Secretary) is in a rural area (as defined in section 1886(d)(2)(D)) to 
an individual who resides in a rural area when the service is furnished 
to such individual in an urban area by such practitioner when such 
practitioner refers such individual to an urban area for the furnishing 
of services'' after ``as defined by the Secretary''.
    (d) Conforming Amendments.--
            (1) Section 1861(b)(4) of such Act (42 U.S.C. 1395x(b)(4)) 
        is amended by striking ``subsection (s)(2)(K)(i)'' and 
        inserting ``subsection (s)(2)(K)''.
            (2) Section 1862(a)(14) of such Act (42 U.S.C. 
        1395y(a)(14)), as amended by section 620(b)(4)(K), is amended 
        by striking ``section 1861(s)(2)(K)(i)'' and inserting 
        ``section 1861(s)(2)(K)''.
            (3) Section 1866(a)(1)(H) of such Act (42 U.S.C. 
        1395cc(a)(1)(H)), is amended by striking ``section 
        1861(s)(2)(K)(i)'' and inserting ``section 1861(s)(2)(K)''.
    (e) Effective Date.--The amendments made by this section shall 
apply to services furnished on or after January 1, 1997.

                 Subtitle F--Emergency Medical Systems

SEC. 361. GRANTS TO STATES REGARDING AIRCRAFT FOR TRANSPORTING RURAL 
              VICTIMS OF MEDICAL EMERGENCIES.

    Part E of title XII of the Public Health Service Act (42 U.S.C. 
300d-51 et seq.) is amended by adding at the end thereof the following 
new section:

``SEC. 1252. GRANTS FOR SYSTEMS TO TRANSPORT RURAL VICTIMS OF MEDICAL 
              EMERGENCIES.

    ``(a) In General.--The Secretary shall make grants to States to 
assist such States in the creation or enhancement of air medical 
transport systems that provide victims of medical emergencies in rural 
areas with access to treatments for the injuries or other conditions 
resulting from such emergencies.
    ``(b) Application and Plan.--
            ``(1) Application.--To be eligible to receive a grant under 
        subsection (a), a State shall prepare and submit to the 
        Secretary an application in such form, made in such manner, and 
        containing such agreements, assurances, and information, 
        including a State plan as required in paragraph (2), as the 
        Secretary determines to be necessary to carry out this section.
            ``(2) State plan.--An application submitted under paragraph 
        (1) shall contain a State plan that shall--
                    ``(A) describe the intended uses of the grant 
                proceeds and the geographic areas to be served;
                    ``(B) demonstrate that the geographic areas to be 
                served, as described under subparagraph (A), are rural 
                in nature;
                    ``(C) demonstrate that there is a lack of 
                facilities available and equipped to deliver advanced 
                levels of medical care in the geographic areas to be 
                served;
                    ``(D) demonstrate that in utilizing the grant 
                proceeds for the establishment or enhancement of air 
                medical services the State would be making a cost-
                effective improvement to existing ground-based or air 
                emergency medical service systems;
                    ``(E) demonstrate that the State will not utilize 
                the grant proceeds to duplicate the capabilities of 
                existing air medical systems that are effectively 
                meeting the emergency medical needs of the populations 
                they serve;
                    ``(F) demonstrate that in utilizing the grant 
                proceeds the State is likely to achieve a reduction in 
                the morbidity and mortality rates of the areas to be 
                served, as determined by the Secretary;
                    ``(G) demonstrate that the State, in utilizing the 
                grant proceeds, will--
                            ``(i) maintain the expenditures of the 
                        State for air and ground medical transport 
                        systems at a level equal to not less than the 
                        level of such expenditures maintained by the 
                        State for the fiscal year preceding the fiscal 
                        year for which the grant is received; and
                            ``(ii) ensure that recipients of direct 
                        financial assistance from the State under such 
                        grant will maintain expenditures of such 
                        recipients for such systems at a level at least 
                        equal to the level of such expenditures 
                        maintained by such recipients for the fiscal 
                        year preceding the fiscal year for which the 
                        financial assistance is received;
                    ``(H) demonstrate that persons experienced in the 
                field of air medical service delivery were consulted in 
                the preparation of the State plan; and
                    ``(I) contain such other information as the 
                Secretary may determine appropriate.
    ``(c) Considerations in Awarding Grants.--In determining whether to 
award a grant to a State under this section, the Secretary shall--
            ``(1) consider the rural nature of the areas to be served 
        with the grant proceeds and the services to be provided with 
        such proceeds, as identified in the State plan submitted under 
        subsection (b); and
            ``(2) give preference to States with State plans that 
        demonstrate an effective integration of the proposed air 
        medical transport systems into a comprehensive network or plan 
        for regional or statewide emergency medical service delivery.
    ``(d) State Administration and Use of Grant.--
            ``(1) In general.--The Secretary may not make a grant to a 
        State under subsection (a) unless the State agrees that such 
        grant will be administered by the State agency with principal 
        responsibility for carrying out programs regarding the 
        provision of medical services to victims of medical emergencies 
        or trauma.
            ``(2) Permitted uses.--A State may use amounts received 
        under a grant awarded under this section to award subgrants to 
        public and private entities operating within the State.
            ``(3) Opportunity for public comment.--The Secretary may 
        not make a grant to a State under subsection (a) unless that 
        State agrees that, in developing and carrying out the State 
        plan under subsection (b)(2), the State will provide public 
        notice with respect to the plan (including any revisions 
        thereto) and facilitate comments from interested persons.
    ``(e) Number of Grants.--The Secretary shall award grants under 
this section to not less than 7 States.
    ``(f) Reports.--
            ``(1) Requirement.--A State that receives a grant under 
        this section shall annually (during each year in which the 
        grant proceeds are used) prepare and submit to the Secretary a 
        report that shall contain--
                    ``(A) a description of the manner in which the 
                grant proceeds were utilized;
                    ``(B) a description of the effectiveness of the air 
                medical transport programs assisted with grant 
                proceeds; and
                    ``(C) such other information as the Secretary may 
                require.
            ``(2) Termination of fundings.--In reviewing reports 
        submitted under paragraph (1), if the Secretary determines that 
        a State is not using amounts provided under a grant awarded 
        under this section in accordance with the State plan submitted 
        by the State under subsection (b), the Secretary may terminate 
        the payment of amounts under such grant to the State until such 
        time as the Secretary determines that the State comes into 
        compliance with such plan.
    ``(g) Definition.--As used in this section, the term `rural areas' 
means geographic areas that are located outside of standard 
metropolitan statistical areas, as identified by the Secretary.
    ``(h) Authorization of Appropriations.--There are authorized to be 
appropriated to make grants under this section, $15,000,000 for fiscal 
year 1995, and such sums as may be necessary for each for fiscal years 
1996 and 1997.''.

                    Subtitle G--Studies and Reports

SEC. 371. ASSISTANT SECRETARY FOR RURAL HEALTH.

    (a) Appointment of Assistant Secretary.--
            (1) In general.--Section 711(a) of the Social Security Act 
        (42 U.S.C. 912(a)) is amended--
                    (A) by striking ``by a Director, who shall advise 
                the Secretary'' and inserting ``by an Assistant 
                Secretary for Rural Health (in this section referred to 
                as the `Assistant Secretary'), who shall report 
                directly to the Secretary''; and
                    (B) by adding at the end the following new 
                sentence: ``The Office shall not be a component of any 
                other office, service, or component of the 
                Department.''.
            (2) Conforming amendments.--(A) Section 711(b) of the 
        Social Security Act (42 U.S.C. 912(b)) is amended by striking 
        ``the Director'' and inserting ``the Assistant Secretary''.
            (B) Section 338J(a) of the Public Health Service Act (42 
        U.S.C. 254r(a)) is amended by striking ``Director of the Office 
        of Rural Health Policy'' and inserting ``Assistant Secretary 
        for Rural Health''.
            (C) Section 464T(b) of the Public Health Service Act (42 
        U.S.C. 285p-2(b)) is amended in the matter preceding paragraph 
        (1) by striking ``Director of the Office of Rural Health 
        Policy'' and inserting ``Assistant Secretary for Rural 
        Health''.
            (D) Section 6213 of the Omnibus Budget Reconciliation Act 
        of 1989 (42 U.S.C. 1395x note) is amended in subsection (e)(1) 
        by striking ``Director of the Office of Rural Health Policy'' 
        and inserting ``Assistant Secretary for Rural Health''.
            (E) Section 403 of the Ryan White Comprehensive AIDS 
        Resources Emergency Act of 1990 (42 U.S.C. 300ff-11 note) is 
        amended in the matter preceding paragraph (1) of subsection (a) 
        by striking ``Director of the Office of Rural Health Policy'' 
        and inserting ``Assistant Secretary for Rural Health''.
            (3) Amendment to the executive schedule.--Section 5315 of 
        title 5, United States Code, is amended by striking ``Assistant 
        Secretaries of Health and Human Services (5)'' and inserting 
        ``Assistant Secretaries of Health and Human Services (6)''.
    (b) Expansion of Duties.--Section 711(a) of the Social Security Act 
(42 U.S.C. 912(a)) is amended by striking ``and access to (and the 
quality of) health care in rural areas'' and inserting ``access to, and 
quality of, health care in rural areas, and reforms to the health care 
system and the implications of such reforms for rural areas''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on January 1, 1996.

SEC. 372. STUDY ON TRANSITIONAL MEASURES TO ENSURE ACCESS.

    (a) In General.--The Prospective Payment Assessment Commission 
shall conduct a study concerning the need for legislation or 
regulations to ensure that vulnerable populations have adequate access 
to health plans and health care providers and services.
    (b) Report.--Not later than 1 year after the date of enactment of 
this Act, the Prospective Payment Assessment Commission shall prepare 
and submit to Congress a report concerning the findings and 
recommendations of the Commission based on the study conducted under 
subsection (a).

SEC. 373. STUDY ON EXPANDING BENEFITS UNDER HEALTH PLANS FOR 
              INDIVIDUALS RESIDING IN RURAL AREAS.

    (a) Study.--
            (1) In general.--The Secretary shall conduct a study on the 
        possible benefits of a program under which issuers of health 
        plans covering individuals who reside in rural areas may--
                    (A) develop a package of benefits targeted at 
                improving access to health care services which would 
                supplement the benefits included under such plan; and
                    (B) receive premium payments for such package of 
                benefits from the Secretary under the Medicare or 
                Medicaid programs.
            (2) Consultation with certain entities.--In conducting the 
        study under paragraph (1), the Secretary shall consult with the 
        Office of Rural Health Policy and private and public entities 
        with expertise in rural health issues.
    (b) Report.--Not later than 1 year after the date of the enactment 
of this Act the Secretary shall submit a report to Congress containing 
the results of the study conducted under subsection (a) and any 
legislative recommendations determined appropriate by the Secretary.

                  TITLE IV--LONG-TERM CARE PROVISIONS

SEC. 400. AMENDMENT OF INTERNAL REVENUE CODE OF 1986.

    Except as otherwise expressly provided, whenever in this title an 
amendment or repeal is expressed in terms of an amendment to, or repeal 
of, a section or other provision, the reference shall be considered to 
be made to a section or other provision of the Internal Revenue Code of 
1986.

           Subtitle A--Long-Term Care Services and Contracts

                       PART I--GENERAL PROVISIONS

SEC. 401. QUALIFIED LONG-TERM CARE SERVICES TREATED AS MEDICAL CARE.

    (a) General Rule.--Paragraph (1) of section 213(d) (defining 
medical care) is amended by striking ``or'' at the end of subparagraph 
(B), by redesignating subparagraph (C) as subparagraph (D), and by 
inserting after subparagraph (B) the following new subparagraph:
                    ``(C) for qualified long-term care services (as 
                defined in subsection (g)), or''.
    (b) Qualified Long-Term Care Services Defined.--Section 213 
(relating to deduction for medical, dental, etc. expenses), as amended 
by section 101, is amended by adding at the end the following new 
subsection:
    ``(g) Qualified Long-Term Care Services.--For purposes of this 
section--
            ``(1) In general.--The term `qualified long-term care 
        services' means necessary diagnostic, preventive, therapeutic, 
        rehabilitative, and maintenance (including personal care) 
        services--
                    ``(A) which are required by an individual during 
                any period during which such individual is a 
                functionally impaired individual,
                    ``(B) which have as their primary purpose the 
                provision of needed assistance with 1 or more 
                activities of daily living which a functionally 
                impaired individual is certified as being unable to 
                perform under paragraph (2)(A), and
                    ``(C) which are provided pursuant to a continuing 
                plan of care prescribed by a licensed health care 
                practitioner (other than a relative of such 
                individual).
            ``(2) Functionally impaired individual.--
                    ``(A) In general.--The term `functionally impaired 
                individual' means any individual who is certified by a 
                licensed health care practitioner (other than a 
                relative of such individual) as being unable to 
                perform, without substantial assistance from another 
                individual (including assistance involving verbal 
                reminding, physical cueing, or substantial 
                supervision), at least 3 activities of daily living 
                described in paragraph (3).
                    ``(B) Special rule for home health care services.--
                In the case of services which are provided during any 
                period during which an individual is residing within 
                the individual's home (whether or not the services are 
                provided within the home), subparagraph (A) shall be 
                applied by substituting `2' for `3'. For purposes of 
                this subparagraph, a nursing home or similar facility 
                shall not be treated as a home.
            ``(3) Activities of daily living.--Each of the following is 
        an activity of daily living:
                    ``(A) Eating.
                    ``(B) Transferring.
                    ``(C) Toileting.
                    ``(D) Dressing.
                    ``(E) Bathing.
            ``(4) Licensed health care practitioner.--
                    ``(A) In general.--The term `licensed health care 
                practitioner' means--
                            ``(i) a physician or registered 
                        professional nurse,
                            ``(ii) a qualified community care case 
                        manager (as defined in subparagraph (B)), or
                            ``(iii) any other individual who meets such 
                        requirements as may be prescribed by the 
                        Secretary after consultation with the Secretary 
                        of Health and Human Services.
                    ``(B) Qualified community care case manager.--The 
                term `qualified community care case manager' means an 
                individual or entity which--
                            ``(i) has experience or has been trained in 
                        providing case management services and in 
                        preparing individual care plans;
                            ``(ii) has experience in assessing 
                        individuals to determine their functional and 
                        cognitive impairment;
                            ``(iii) is not a relative of the individual 
                        receiving case management services; and
                            ``(iv) meets such requirements as may be 
                        prescribed by the Secretary after consultation 
                        with the Secretary of Health and Human 
                        Services.
            ``(5) Relative.--The term `relative' means an individual 
        bearing a relationship to another individual which is described 
        in paragraphs (1) through (8) of section 152(a).''
    (c) Technical Amendments.--
            (1) Subparagraph (D) of section 213(d)(1) (as redesignated 
        by subsection (a)) is amended to read as follows:
                    ``(D) for insurance (including amounts paid as 
                premiums under part B of title XVIII of the Social 
                Security Act, relating to supplementary medical 
                insurance for the aged)--
                            ``(i) covering medical care referred to in 
                        subparagraphs (A) and (B), or
                            ``(ii) covering medical care referred to in 
                        subparagraph (C), but only if such coverage is 
                        provided under a qualified long-term care 
                        insurance contract (as defined in section 
                        7702B(b)).''
            (2) Paragraph (6) of section 213(d) is amended--
                    (A) by striking ``subparagraphs (A) and (B)'' in 
                the matter preceding subparagraph (A) and inserting 
                ``subparagraphs (A), (B), and (C)'', and
                    (B) by striking ``paragraph (1)(C)'' in 
                subparagraph (A) and inserting ``paragraph (1)(D)''.
            (3) Paragraph (7) of section 213(d) is amended by striking 
        ``subparagraphs (A) and (B)'' and inserting ``subparagraphs 
        (A), (B), and (C)''.

SEC. 402. TREATMENT OF LONG-TERM CARE INSURANCE OR PLANS.

    (a) General Rule.--Chapter 79 (relating to definitions) is amended 
by inserting after section 7702A the following new section:

``SEC. 7702B. TREATMENT OF LONG-TERM CARE INSURANCE OR PLANS.

    ``(a) General Rule.--For purposes of this title--
            ``(1) a qualified long-term care insurance contract shall 
        be treated as an accident or health insurance contract,
            ``(2) any plan of an employer providing coverage of 
        qualified long-term care services shall be treated as an 
        accident or health plan with respect to such services,
            ``(3) amounts received under such a contract or plan with 
        respect to qualified long-term care services shall be treated 
        as amounts received for personal injuries or sickness, and
            ``(4) payments described in subsection (b)(5) shall be 
        treated as payments made with respect to qualified long-term 
        care services.
    ``(b) Qualified Long-Term Care Insurance Contract.--
            ``(1) In general.--For purposes of this title, the term 
        `qualified long-term care insurance contract' means any 
        insurance contract if--
                    ``(A) the only insurance protection provided under 
                such contract is coverage of qualified long-term care 
                services,
                    ``(B) such contract meets the requirements of 
                paragraphs (2), (3), and (4), and
                    ``(C) such contract is issued by a qualified 
                issuer.
            ``(2) Premium requirements.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to a contract if such 
                contract provides that--
                            ``(i) premium payments may not be made 
                        earlier than the date such payments would have 
                        been made if the contract provided for level 
                        annual payments over the life of the contract 
                        (or, if shorter, 20 years), and
                            ``(ii) all refunds of premiums, and all 
                        policyholder dividends or similar amounts, 
                        under such contract are to be applied as a 
                        reduction in future premiums or to increase 
                        future benefits.
                A contract shall not be treated as failing to meet the 
                requirements of clause (i) solely by reason of a 
                provision providing for a waiver of premiums if the 
                policyholder becomes a functionally impaired 
                individual.
                    ``(B) Refunds upon death or complete surrender or 
                cancellation.--Subparagraph (A)(ii) shall not apply to 
                any refund on the death of the policyholder, or on any 
                complete surrender or cancellation of the contract, if, 
                under the contract, the amount refunded may not exceed 
                the amount of the premiums paid under the contract. For 
                purposes of this title, any refund described in the 
                preceding sentence shall be includible in gross income 
                to the extent that any deduction or exclusion was 
                allowed with respect to the refund.
            ``(3) Borrowing, pledging, or assigning prohibited.--The 
        requirements of this paragraph are met with respect to a 
        contract if such contract provides that no money may be 
        borrowed under such contract and that such contract (or any 
        portion thereof) may not be assigned or pledged as collateral 
        for a loan.
            ``(4) Prohibition of duplicate payment.--The requirements 
        of this paragraph are met with respect to a contract if such 
        contract does not cover expenses incurred to the extent that 
        such expenses are reimbursable under title XVIII of the Social 
        Security Act.
            ``(5) Per diem and other periodic payments permitted.--
                    ``(A) In general.--For purposes of subsection 
                (a)(4), and except as provided in subparagraph (B), 
                payments are described in this paragraph for any 
                calendar year if, under the contract, such payments are 
                made to (or on behalf of) a functionally impaired 
                individual on a per diem or other periodic basis 
                without regard to the expenses incurred or services 
                rendered during the period to which the payments 
                relate.
                    ``(B) Exception where aggregate payments exceed 
                limit.--If the aggregate payments under the contract 
                for any period (whether on a periodic basis or 
                otherwise) exceed the dollar amount in effect for such 
                period--
                            ``(i) subparagraph (A) shall not apply for 
                        such period, and
                            ``(ii) the requirements of paragraph (1)(A) 
                        shall be met only if such payments are made 
                        with respect to qualified long-term care 
                        services provided during such period.
                    ``(C) Dollar amount.--The dollar amount in effect 
                under this paragraph shall be $150 per day (or the 
                equivalent amount in the case of payments on another 
                periodic basis).
                    ``(D) Adjustments for increased costs.--
                            ``(i) In general.--In the case of any 
                        calendar year after 1995, the dollar amount in 
                        effect under subparagraph (C) for any period 
                        occurring during such calendar year shall be 
                        equal to the sum of--
                                    ``(I) the amount in effect under 
                                subparagraph (C) for the preceding 
                                calendar year (after application of 
                                this subparagraph), plus
                                    ``(II) the applicable percentage of 
                                the amount under subclause (I).
                            ``(ii) Applicable percentage.--For purposes 
                        of clause (i), the term `applicable percentage' 
                        means, with respect to any calendar year, the 
                        greater of--
                                    ``(I) 5 percent, or
                                    ``(II) the cost-of-living 
                                adjustment for such calendar year.
                            ``(iii) Cost-of-living adjustment.--For 
                        purposes of clause (ii), the cost-of-living 
                        adjustment for any calendar year is the 
                        percentage (if any) by which the cost index 
                        under clause (iv) for the preceding calendar 
                        year exceeds such index for the second 
                        preceding calendar year. In the case of any 
                        calendar year beginning before 1997, this 
                        clause shall be applied by substituting the 
                        Consumer Price Index (as defined in section 
                        1(f)(5)) for the cost index under clause (iv).
                            ``(iv)  Cost index.--The Secretary, in 
                        consultation with the Secretary of Health and 
                        Human Services, shall before January 1, 1997, 
                        establish a cost index to measure increases in 
                        costs of nursing home and similar facilities. 
                        The Secretary may from time to time revise such 
                        index to the extent necessary to accurately 
                        measure increases or decreases in such costs.
                    ``(E) Aggregation rule.--For purposes of this 
                paragraph, all contracts issued with respect to the 
                same policyholder by the same company shall be treated 
                as 1 contract.
    ``(c) Qualified Issuer.--For purposes of this section, the term 
`qualified issuer' means any person which at the time of the issuance 
of a long-term care insurance contract--
            ``(1) uses a one year preliminary term method for setting 
        up reserves, and
            ``(2) maintains a capital ratio equal to not less than 25 
        percent of long-term care insurance premium receivables.
    ``(d) Special Rules for Tax Treatment of Policyholders.--For 
purposes of this title, solely with respect to the policyholder under 
any qualified long-term care insurance contract--
            ``(1) Aggregate payments in excess of limits.--If the 
        aggregate payments under all qualified long-term care insurance 
        contracts with respect to an policyholder for any period 
        (whether on a periodic basis or otherwise) exceed the dollar 
        amount in effect for such period under subsection (b)(5)--
                    ``(A) subsection (b)(5) shall not apply for such 
                period, and
                    ``(B) such payments shall be treated as made for 
                qualified long-term care services only if made with 
                respect to such services provided during such period.
            ``(2) Assignment or pledge.--Such contract shall not be 
        treated as a qualified long-term care insurance contract during 
        any period on or after the date on which the contract (or any 
        portion thereof) is assigned or pledged as collateral for a 
        loan.
    ``(e) Treatment of Coverage as Part of a Life Insurance Contract.--
Except as provided in regulations, in the case of coverage of qualified 
long-term care services provided as part of a life insurance contract, 
the requirements of this section shall apply as if the portion of the 
contract providing such coverage was a separate contract.
    ``(f) Qualified Long-Term Care Services.--For purposes of this 
section--
            ``(1) In general.--The term `qualified long-term care 
        services' has the meaning given such term by section 213(g).
            ``(2) Recertification.--If an individual has been certified 
        as a functionally impaired individual under section 
        213(g)(2)(A), services shall not be treated as qualified long-
        term care services with respect to the individual unless such 
        individual is recertified no less frequently than annually as a 
        functionally impaired individual in the same manner as under 
        such section, except that such recertification may be made by 
        any licensed health care practitioner (as defined in section 
        213(g)(4)), other than a relative (as defined by section 
        213(g)(5)) of such individual.
    ``(g) Continuation Coverage Excise Tax Not To Apply.--Section 4980B 
shall not apply to--
            ``(1) qualified long-term care insurance contracts, or
            ``(2) plans described in subsection (a)(2).
    ``(h) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the requirements of this section, 
including regulations to prevent the avoidance of this section by 
providing qualified long-term care services under a life insurance 
contract.''
    (b) Cafeteria Plans.--Section 125(f) is amended by adding at the 
end the following new sentence: ``Such term does not include any 
coverage or benefits under a qualified long-term care insurance 
contract (as defined in section 7702B).''
    (c) Reserves.--Clause (iii) of section 807(d)(3)(A) is amended by 
inserting ``(other than a qualified long-term care insurance contract 
within the meaning of section 7702B)'' after ``contract''.
    (d) Clerical Amendment.--The table of sections for chapter 79 is 
amended by inserting after the item relating to section 7702A the 
following new item:

                              ``Sec. 7702B. Treatment of long-term care 
                                        insurance or plans.''

SEC. 403. EFFECTIVE DATES.

    (a) Section 401.--The amendments made by section 401 shall apply to 
taxable years beginning after December 31, 1994.
    (b) Section 402.--The amendments made by section 402 shall apply to 
contracts issued after December 31, 1994.
    (c) Transition Rule.--If, after the date of the enactment of this 
Act and before January 1, 1995, a contract providing coverage for 
services which are similar to qualified long-term care services (as 
defined in section 213(g) of the Internal Revenue Code of 1986) and 
issued on or before January 1, 1994, is exchanged for a qualified long-
term care insurance contract (as defined in section 7702B(b) of such 
Code), such exchange shall be treated as an exchange to which section 
1035 of such Code applies.

                PART II--CONSUMER PROTECTION PROVISIONS

SEC. 406. POLICY REQUIREMENTS.

    (a) In General.--Section 7702B (as added by section 402) is amended 
by redesignating subsection (h) as subsection (i) and by inserting 
after subsection (g) the following new subsection:
    ``(h) Consumer Protection Provisions.--
            ``(1) In general.--The requirements of this subsection are 
        met with respect to any contract if any long-term care 
        insurance policy issued under the contract meets--
                    ``(A) the requirements of the model regulation and 
                model Act described in paragraph (2),
                    ``(B) the disclosure requirement of paragraph (3),
                    ``(C) the requirements relating to 
                nonforfeitability under paragraph (4), and
                    ``(D) the requirements relating to rate 
                stabilization under paragraph (5).
            ``(2) Requirements of model regulation and act.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to any policy if such 
                policy meets--
                            ``(i) Model regulation.--The following 
                        requirements of the model regulation:
                                    ``(I) Section 7A (relating to 
                                guaranteed renewal or 
                                noncancellability), and the 
                                requirements of section 6B of the model 
                                Act relating to such section 7A.
                                    ``(II) Section 7B (relating to 
                                prohibitions on limitations and 
                                exclusions).
                                    ``(III) Section 7C (relating to 
                                extension of benefits).
                                    ``(IV) Section 7D (relating to 
                                continuation or conversion of 
                                coverage).
                                    ``(V) Section 7E (relating to 
                                discontinuance and replacement of 
                                policies).
                                    ``(VI) Section 8 (relating to 
                                unintentional lapse).
                                    ``(VII) Section 9 (relating to 
                                disclosure), other than section 9F 
                                thereof.
                                    ``(VIII) Section 10 (relating to 
                                prohibitions against post-claims 
                                underwriting).
                                    ``(IX) Section 11 (relating to 
                                minimum standards).
                                    ``(X) Section 12 (relating to 
                                requirement to offer inflation 
                                protection), except that any 
                                requirement for a signature on a 
                                rejection of inflation protection shall 
                                permit the signature to be on an 
                                application or on a separate form.
                                    ``(XI) Section 23 (relating to 
                                prohibition against preexisting 
                                conditions and probationary periods in 
                                replacement policies or certificates).
                            ``(ii) Model act.--The following 
                        requirements of the model Act:
                                    ``(I) Section 6C (relating to 
                                preexisting conditions).
                                    ``(II) Section 6D (relating to 
                                prior hospitalization).
                    ``(B) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Model provisions.--The terms `model 
                        regulation' and `model Act' mean the long-term 
                        care insurance model regulation, and the long-
                        term care insurance model Act, respectively, 
                        promulgated by the National Association of 
                        Insurance Commissioners (as adopted in January 
                        of 1993).
                            ``(ii) Coordination.--Any provision of the 
                        model regulation or model Act listed under 
                        clause (i) or (ii) of subparagraph (A) shall be 
                        treated as including any other provision of 
                        such regulation or Act necessary to implement 
                        the provision.
            ``(3) Tax disclosure requirement.--The requirement of this 
        paragraph is met with respect to any policy if such policy 
        meets the requirements of section 4980C(d)(1).
            ``(4) Nonforfeiture requirements.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to any level premium 
                long-term care insurance policy, if the issuer of such 
                policy offers to the policyholder, including any group 
                policyholder, a nonforfeiture provision meeting the 
                requirements of subparagraph (B).
                    ``(B) Requirements of provision.--The nonforfeiture 
                provision required under subparagraph (A) shall meet 
                the following requirements:
                            ``(i) The nonforfeiture provision shall be 
                        appropriately captioned.
                            ``(ii) The nonforfeiture provision shall 
                        provide for a benefit available in the event of 
                        a default in the payment of any premiums and 
                        the amount of the benefit may be adjusted 
                        subsequent to being initially granted only as 
                        necessary to reflect changes in claims, 
                        persistency, and interest as reflected in 
                        changes in rates for premium paying policies 
                        approved by the Secretary for the same policy 
                        form.
                            ``(iii) The nonforfeiture provision shall 
                        provide at least one of the following:
                                    ``(I) Reduced paid-up insurance.
                                    ``(II) Extended term insurance.
                                    ``(III) Shortened benefit period.
                                    ``(IV) Other similar offerings 
                                approved by the Secretary.
            ``(5) Rate stabilization.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to any long-term care 
                insurance policy, including any group master policy, 
                if--
                            ``(i) such policy contains the minimum rate 
                        guarantees specified in subparagraph (B), and
                            ``(ii) the issuer of such policy meets the 
                        requirements specified in subparagraph (C).
                    ``(B) Minimum rate guarantees.--The minimum rate 
                guarantees specified in this subparagraph are as 
                follows:
                            ``(i) Rates under the policy shall be 
                        guaranteed for a period of at least 3 years 
                        from the date of issue of the policy.
                            ``(ii) After the expiration of the 3-year 
                        period required under clause (i), any rate 
                        increase shall be guaranteed for a period of at 
                        least 2 years from the effective date of such 
                        rate increase.
                            ``(iii) In the case of any individual age 
                        75 or older who has maintained coverage under a 
                        long-term care insurance policy for 10 years, 
                        rate increases under such policy shall not 
                        exceed 10 percent in any 12-month period.
                    ``(C) Increases in premiums.--The requirements 
                specified in this subparagraph are as follows:
                            ``(i) In general.--If an issuer of any 
                        long-term care insurance policy, including any 
                        group master policy, plans to increase the 
                        premium rates for a policy, such issuer shall, 
                        at least 90 days before the effective date of 
                        the rate increase, offer to each individual 
                        policyholder under such policy the option to 
                        remain insured under the policy at a reduced 
                        level of benefits which maintains the premium 
                        rate at the rate in effect on the day before 
                        the effective date of the rate increase.
                            ``(ii) Increases of more than 50 percent.--
                                    ``(I) In general.--If an issuer of 
                                any long-term care insurance policy, 
                                including any group master policy, 
                                increases premium rates for a policy by 
                                more than 50 percent in any 3-year 
                                period--
                                            ``(aa) in the case of a 
                                        group master long-term care 
                                        insurance policy, the issuer 
                                        shall discontinue issuing all 
                                        group master long-term care 
                                        insurance policies in any State 
                                        in which the issuer issues such 
                                        policy for a period of 2 years 
                                        from the effective date of such 
                                        premium increase; and
                                            ``(bb) in the case of an 
                                        individual long-term care 
                                        insurance policy, the issuer 
                                        shall discontinue issuing all 
                                        individual long-term care 
                                        policies in any State in which 
                                        the issuer issues such policy 
                                        for a period of 2 years from 
                                        the effective date of such 
                                        premium increase.
                                    ``(II) Applicability.--Subclause 
                                (I) shall apply to any issuer of long-
                                term care insurance policies or any 
                                other person that purchases or 
                                otherwise acquires any long-term care 
                                insurance policies from another issuer 
                                or person.
                    ``(D) Modifications or waivers of requirements.--
                The Secretary may modify or waive any of the 
                requirements under this paragraph if--
                            ``(i) such requirements will adversely 
                        affect an issuer's solvency;
                            ``(ii) such modification or waiver is 
                        required for the issuer to meet other State or 
                        Federal requirements;
                            ``(iii) medical developments, new disabling 
                        diseases, changes in long-term care delivery, 
                        or a new method of financing long-term care 
                        will result in changes to mortality and 
                        morbidity patterns or assumptions;
                            ``(iv) judicial interpretation of a 
                        policy's benefit features results in unintended 
                        claim liabilities; or
                            ``(v) in the case of a purchase or other 
                        acquisition of long-term care insurance 
                        policies of an issuer or other person, the 
                        continued sale of other long-term care 
                        insurance policies by the purchasing issuer or 
                        person is in the best interests of individual 
                        consumers.
            ``(6) Long-term care insurance policy defined.--For 
        purposes of this subsection, the term `long-term care insurance 
        policy' has the meaning given such term by section 4980C(e).''
    (b) Conforming Amendment.--Section 7702B(b)(1)(B) (as added by 
section 402) is amended by inserting ``and of subsection (h)'' after 
``and (4)''.

SEC. 407. ADDITIONAL REQUIREMENTS FOR ISSUERS OF LONG-TERM CARE 
              INSURANCE POLICIES.

    (a) In General.--Chapter 43 is amended by adding at the end the 
following new section:

``SEC. 4980C. FAILURE TO MEET REQUIREMENTS FOR LONG-TERM CARE INSURANCE 
              POLICIES.

    ``(a) General Rule.--There is hereby imposed on any person failing 
to meet the requirements of subsection (c) or (d) a tax in the amount 
determined under subsection (b).
    ``(b) Amount of Tax.--
            ``(1) In general.--The amount of the tax imposed by 
        subsection (a) shall be $100 per policy for each day any 
        requirements of subsection (c), (d), or (e) are not met with 
        respect to each long-term care insurance policy.
            ``(2) Waiver.--In the case of a failure which is due to 
        reasonable cause and not to willful neglect, the Secretary may 
        waive part or all of the tax imposed by subsection (a) to the 
        extent that payment of the tax would be excessive relative to 
        the failure involved.
    ``(c) Additional Responsibilities.--The requirements of this 
subsection are as follows:
            ``(1) Requirements of model provisions.--
                    ``(A) Model regulation.--The following requirements 
                of the model regulation must be met:
                            ``(i) Section 13 (relating to application 
                        forms and replacement coverage).
                            ``(ii) Section 14 (relating to reporting 
                        requirements), except that the issuer shall 
                        also report at least annually the number of 
                        claims denied during the reporting period for 
                        each class of business (expressed as a 
                        percentage of claims denied), other than claims 
                        denied for failure to meet the waiting period 
                        or because of any applicable pre-existing 
                        condition.
                            ``(iii) Section 20 (relating to filing 
                        requirements for marketing).
                            ``(iv) Section 21 (relating to standards 
                        for marketing), including inaccurate completion 
                        of medical histories, other than sections 
                        21C(1) and 21C(6) thereof, except that--
                                    ``(I) in addition to such 
                                requirements, no person shall, in 
                                selling or offering to sell a long-term 
                                care insurance policy, misrepresent a 
                                material fact; and
                                    ``(II) no such requirements shall 
                                include a requirement to inquire or 
                                identify whether a prospective 
                                applicant or enrollee for long-term 
                                care insurance has accident and 
                                sickness insurance.
                            ``(v) Section 22 (relating to 
                        appropriateness of recommended purchase).
                            ``(vi) Section 24 (relating to standard 
                        format outline of coverage).
                            ``(vii) Section 25 (relating to requirement 
                        to deliver shopper's guide).
                    ``(B) Model act.--The following requirements of the 
                model Act must be met:
                            ``(i) Section 6F (relating to right to 
                        return), except that such section shall also 
                        apply to denials of applications and any refund 
                        shall be made within 30 days of the return or 
                        denial.
                            ``(ii) Section 6G (relating to outline of 
                        coverage).
                            ``(iii) Section 6H (relating to 
                        requirements for certificates under group 
                        plans).
                            ``(iv) Section 6I (relating to policy 
                        summary).
                            ``(v) Section 6J (relating to monthly 
                        reports on accelerated death benefits).
                            ``(vi) Section 7 (relating to 
                        incontestability period).
                    ``(C) Definitions.--For purposes of this paragraph, 
                the terms `model regulation' and `model Act' have the 
                meanings given such terms by section 7702B(h)(2)(B).
            ``(2) Delivery of policy.--If an application for a long-
        term care insurance policy (or for a certificate under a group 
        long-term care insurance policy) is approved, the issuer shall 
        deliver to the applicant (or policyholder or certificate-
        holder) the policy (or certificate) of insurance not later than 
        30 days after the date of the approval.
            ``(3) Information on denials of claims.--If a claim under a 
        long-term care insurance policy is denied, the issuer shall, 
        within 60 days of the date of a written request by the 
        policyholder or certificate-holder (or representative)--
                    ``(A) provide a written explanation of the reasons 
                for the denial, and
                    ``(B) make available all information directly 
                relating to such denial.
    ``(d) Disclosure.--The requirements of this subsection are met if 
either of the following statements, whichever is applicable, is 
prominently displayed on the front page of any long-term care insurance 
policy and in the outline of coverage required under subsection 
(c)(1)(B)(ii):
            ``(1) A statement that: `This policy is intended to be a 
        qualified long-term care insurance contract under section 
        7702B(b) of the Internal Revenue Code of 1986.'.
            ``(2) A statement that: `This policy is not intended to be 
        a qualified long-term care insurance contract under section 
        7702B(b) of the Internal Revenue Code of 1986.'.
    ``(e) Long-Term Care Insurance Policy Defined.--For purposes of 
this section, the term `long-term care insurance policy' means any 
product which is advertised, marketed, or offered as long-term care 
insurance.''
    (b) Conforming Amendment.--The table of sections for chapter 43 is 
amended by adding at the end the following new item:

                              ``Sec. 4980C. Failure to meet 
                                        requirements for long-term care 
                                        insurance policies.''

SEC. 408. COORDINATION WITH STATE REQUIREMENTS.

    Nothing in this part shall be construed as preventing a State from 
applying standards that provide greater protection of policyholders of 
long-term care insurance policies (as defined in section 4980C(e) of 
the Internal Revenue Code of 1986).

SEC. 409. UNIFORM LANGUAGE AND DEFINITIONS.

    (a) In General.--The National Association of Insurance 
Commissioners shall not later than January 1, 1996, promulgate 
standards for the use of uniform language and definitions in long-term 
care insurance policies (as defined in section 4980C(e) of the Internal 
Revenue Code 1986).
    (b) Variations.--Standards under subsection (a) may permit the use 
of nonuniform language to the extent required to take into account 
differences among States in the licensing of nursing facilities and 
other providers of long-term care.

SEC. 410. EFFECTIVE DATES.

    (a) In General.--The provisions of, and amendments made by, this 
part shall apply to contracts issued after December 31, 1994. The 
provisions of section 403(c) of this Act shall apply to such contracts.
    (b) Issuers.--The amendments made by section 407 shall apply to 
actions taken after December 31, 1994.

        Subtitle B--Tax Treatment of Accelerated Death Benefits

SEC. 411. TAX TREATMENT OF ACCELERATED DEATH BENEFITS UNDER LIFE 
              INSURANCE CONTRACTS.

    (a) General Rule.--Section 101 (relating to certain death benefits) 
is amended by adding at the end the following new subsection:
    ``(g) Treatment of Certain Accelerated Death Benefits.--
            ``(1) In general.--For purposes of this section, any amount 
        received under a life insurance contract on the life of an 
        insured who is a terminally ill individual shall be treated as 
        an amount paid by reason of the death of such insured.
            ``(2) Necessary conditions.--
                    ``(A) In general.--Paragraph (1) shall not apply to 
                any amount received unless--
                            ``(i) the total amount received is not less 
                        than the present value (determined under 
                        subparagraph (B)) of the reduction in the death 
                        benefit otherwise payable in the event of the 
                        death of the insured, and
                            ``(ii) the percentage reduction in the cash 
                        surrender value of the contract by reason of 
                        the distribution does not exceed the percentage 
                        reduction in the death benefit payable under 
                        the contract by reason of such distribution.
                    ``(B) Present value.--The present value of the 
                reduction in the death benefit shall be determined by--
                            ``(i) using a discount rate which is based 
                        on an interest rate which does not exceed the 
                        highest interest rate set forth in subparagraph 
                        (C), and
                            ``(ii) assuming that the death benefit (or 
                        the portion thereof) would have been paid on 
                        the date which is 12 months after the date of 
                        the certification referred to in paragraph (3).
                    ``(C) Rates.--The interest rates set forth in this 
                subparagraph are the following:
                            ``(i) the 90-day Treasury bill yield,
                            ``(ii) the rate described as Moody's 
                        Corporate Bond Yield Average-Monthly Average 
                        Corporates as published by Moody's Investors 
                        Service, Inc., or any successor thereto, for 
                        the calendar month ending 2 months before the 
                        date on which the rate is determined, and
                            ``(iii) the rate used to compute the cash 
                        surrender values under the contract during the 
                        applicable period plus 1 percent per annum.
                    ``(D) Special rules relating to liens.--If a lien 
                is imposed against a life insurance contract with 
                respect to any amount referred to in paragraph (1)--
                            ``(i) for purposes of subparagraph (A), the 
                        amount of such lien shall be treated as a 
                        reduction (at the time of receipt) in the death 
                        benefit or cash surrender value to the extent 
                        that such benefit or value, as the case may be, 
                        is (or may become) subject to the lien, and
                            ``(ii) paragraph (1) shall not apply to the 
                        amount received unless any rate of interest 
                        with respect to any amount in connection with 
                        which such lien is imposed does not exceed the 
                        highest rate set forth in subparagraph (C).
            ``(3) Terminally ill individual.--For purposes of this 
        subsection, the term `terminally ill individual' means an 
        individual who the insurer has determined, after receipt of an 
        acceptable certification by a licensed physician, has an 
        illness or physical condition which can reasonably be expected 
        to result in death within 12 months after the date of 
        certification.
            ``(4) Exception for business-related policies.--This 
        subsection shall not apply in the case of any amount paid to 
        any taxpayer other than the insured if such taxpayer has an 
        insurable interest with respect to the life of the insured by 
        reason of the insured being a director, officer, or employee of 
        the taxpayer or by reason of the insured having a financial 
        interest in any trade or business carried on by the taxpayer.''
    (b) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendment made by this section shall apply to amounts received 
        after the date of the enactment of this Act.
            (2) Delay in application of discount rules.--Clause (i) of 
        section 101(g)(2)(A) of the Internal Revenue Code of 1986 shall 
        not apply to any amount received before January 1, 1995.
            (3) Issuance of rider not treated as material change.--For 
        purposes of applying section 101(f), 7702, or 7702A of the 
        Internal Revenue Code of 1986 to any contract, the issuance of 
        a qualified accelerated death benefit rider (as defined in 
        section 818(g) of such Code (as added by this Act)) shall not 
        be treated as a modification or material change of such 
        contract.

SEC. 412. TAX TREATMENT OF COMPANIES ISSUING QUALIFIED ACCELERATED 
              DEATH BENEFIT RIDERS.

    (a) Qualified Accelerated Death Benefit Riders Treated as Life 
Insurance.--Section 818 (relating to other definitions and special 
rules) is amended by adding at the end the following new subsection:
    ``(g) Qualified Accelerated Death Benefit Riders Treated as Life 
Insurance.--For purposes of this part--
            ``(1) In general.--Any reference to a life insurance 
        contract shall be treated as including a reference to a 
        qualified accelerated death benefit rider on such contract.
            ``(2) Qualified accelerated death benefit riders.--For 
        purposes of this subsection, the term `qualified accelerated 
        death benefit rider' means any rider on a life insurance 
        contract which provides for a distribution to an individual 
        upon the insured becoming a terminally ill individual (as 
        defined in section 101(g)(3)).''
    (b) Effective Date.--The amendments made by this section shall take 
effect on January 1, 1995.

               Subtitle C--Credit for Personal Assistance

SEC. 421. CREDIT FOR COST OF PERSONAL ASSISTANCE SERVICES REQUIRED BY 
              EMPLOYED INDIVIDUALS.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
(relating to nonrefundable personal credits) is amended by inserting 
after section 23 the following new section:

``SEC. 24. COST OF PERSONAL ASSISTANCE SERVICES REQUIRED BY EMPLOYED 
              INDIVIDUALS.

    ``(a) Allowance of Credit.--
            ``(1) In general.--In the case of an eligible individual, 
        there shall be allowed as a credit against the tax imposed by 
        this chapter for the taxable year an amount equal to the 
        applicable percentage of the personal assistance expenses paid 
        or incurred by the taxpayer during such taxable year.
            ``(2) Applicable percentage.--For purposes of paragraph 
        (1), the term `applicable percentage' means 50 percent reduced 
        (but not below zero) by 10 percentage points for each $5,000 by 
        which the modified adjusted gross income (as defined in section 
        59B(d)(2)) of the taxpayer for the taxable year exceeds 
        $45,000. In the case of a married individual filing a separate 
        return, the preceding sentence shall be applied by substituting 
        `$2,500' for `$5,000' and `$22,500' for `$45,000'.
    ``(b) Limitation.--The amount of personal assistance expenses for 
the benefit of an individual which may be taken into account under 
subsection (a) for the taxable year shall not exceed the lesser of--
            ``(1) $15,000, or
            ``(2) such individual's earned income (as defined in 
        section 32(c)(2)) for the taxable year.
In the case of a joint return, the amount under the preceding sentence 
shall be determined separately for each spouse.
    ``(c) Eligible Individual.--For purposes of this section, the term 
`eligible individual' means any individual (other than a nonresident 
alien) who, by reason of any medically determinable physical impairment 
which can be expected to result in death or which has lasted or can be 
expected to last for a continuous period of not less than 12 months, is 
unable to engage in any substantial gainful employment activity without 
personal assistance services appropriate to carry out activities of 
daily living. An individual shall not be treated as an eligible 
individual unless such individual furnishes such proof thereof (in such 
form and manner, and at such times) as the Secretary may require.
    ``(d) Other Definitions.--For purposes of this section--
            ``(1) Personal assistance expenses.--The term `personal 
        assistance expenses' means expenses for--
                    ``(A) personal assistance services appropriate to 
                carry out activities of daily living in or outside the 
                home,
                    ``(B) homemaker/chore services incidental to the 
                provision of such personal assistance services,
                    ``(C) communication services,
                    ``(D) work-related support services,
                    ``(E) coordination of services described in this 
                paragraph,
                    ``(F) technology and devices necessary to assist an 
                individual in carrying out the activities of daily 
                living or gainful employment activities, including 
                assessment of the need for particular technology and 
                devices and training of family members, and
                    ``(G) modifications to the principal place of abode 
                of the individual to the extent the expenses for such 
                modifications would (but for subsection (e)(2)) be 
                expenses for medical care (as defined by section 213) 
                of such individual.
            ``(2) Activities of daily living.--The term `activities of 
        daily living' means eating, toileting, transferring, bathing, 
        and dressing.
    ``(e) Special Rules.--
            ``(1) Payments to related persons.--No credit shall be 
        allowed under this section for any amount paid by the taxpayer 
        to any person who is related (within the meaning of section 267 
        or 707(b)) to the taxpayer.
            ``(2) Coordination with medical expense deduction.--Any 
        amount taken into account in determining the credit under this 
        section shall not be taken into account in determining the 
        amount of the deduction under section 213.
            ``(3) Basis reduction.--For purposes of this subtitle, if a 
        credit is allowed under this section for any expense with 
        respect to any property, the increase in the basis of such 
        property which would (but for this paragraph) result from such 
        expense shall be reduced by the amount of the credit so 
        allowed.
    ``(f) Cost-of-Living Adjustment.--In the case of any taxable year 
beginning after 1996, the $45,000 and $22,500 amounts in subsection 
(a)(2) and the $15,000 amount in subsection (b) shall be increased by 
an amount equal to--
            ``(1) such dollar amount, multiplied by
            ``(2) the cost-of-living adjustment determined under 
        section 1(f)(3) for the calendar year in which the taxable year 
        begins by substituting `calendar year 1995' for `calendar year 
        1992' in subparagraph (B) thereof.
If any increase determined under the preceding sentence is not a 
multiple of $1,000, such increase shall be rounded to the nearest 
multiple of $1,000.''
    (b) Technical Amendment.--Subsection (a) of section 1016 is amended 
by striking ``and'' at the end of paragraph (24), by striking the 
period at the end of paragraph (25) and inserting ``, and'', and by 
adding at the end thereof the following new paragraph:
            ``(26) in the case of any property with respect to which a 
        credit has been allowed under section 24, to the extent 
        provided in section 24(e)(3).''
    (c) Clerical Amendment.--The table of sections for subpart A of 
part IV of subchapter A of chapter 1 is amended by inserting after the 
item relating to section 23 the following new item:

                              ``Sec. 24. Cost of personal assistance 
                                        services required by employed 
                                        individuals.''
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

                     TITLE V--HEALTH CARE PROVIDERS

                   Subtitle A--Education and Research

SEC. 501. ADVISORY COMMISSION ON WORKFORCE.

    (a) In General.--Section 1886 of the Social Security Act (42 U.S.C. 
1395ww) is amended by adding at the end the following new subsection:
    ``(j) Advisory Commission on Work Force.--
            ``(1) Establishment.--The Director of the Congressional 
        Office of Technology Assessment (in this subsection referred to 
        as the `Director' and the `Office', respectively) shall provide 
        for the appointment of an Advisory Commission on Workforce (in 
        this subsection referred to as the `Advisory Commission') 
        without regard to the provisions of title 5, United States 
        Code, governing appointments in the competitive service.
            ``(2) Membership.--
                    ``(A) Composition.--The Commission shall consist of 
                17 individuals with expertise in medical education, the 
                operation of teaching hospitals, the operation of 
                health plans, and other interested individuals.
                    ``(B) Terms.--Members of the Commission shall first 
                be appointed by no later than October 1, 1995, for a 
                term of 3 years, except that the Director may provide 
                initially for such shorter terms as will ensure that 
                (on a continuing basis) the terms of no more than 4 
                members expire in any 1 year.
                    ``(C) Chair and vice chair.--The Commission shall 
                select a Chair and Vice Chair from among its members.
            ``(3) Meetings.--
                    ``(A) In general.--The Commission shall meet at the 
                call of the Chair.
                    ``(B)  Initial meeting.--No later than 30 days 
                after the date on which all members of the Commission 
                have been appointed, the Commission shall hold its 
                first meeting.
                    ``(C) Quorum.--A majority of the members of the 
                Commission shall constitute a quorum, but a lesser 
                number of members may hold hearings.
            ``(4) Duties of the Commission.--
                    ``(A) In general.--The Commission shall not later 
                than October 1, 1996, submit to the Committee on 
                Finance and the Committee on Labor and Human Resources 
                of the Senate and the Committee on Ways and Means, the 
                Committee on Education and Labor, and the Committee on 
                Energy and Commerce of the House of Representatives a 
                report on national health care workforce policy and 
                payment that includes--
                            ``(i) assessments and recommendations, as 
                        appropriate, in the following areas:
                                    ``(I) The composition of the 
                                physician and non-physician national 
                                health care workforce and how such 
                                composition addresses the needs of the 
                                health care market.
                                    ``(II) Sources and uses of funds 
                                related to graduate medical education 
                                and options for future payment policy.
                                    (III) Current payment distribution 
                                methods related to graduate medical 
                                education and options for future 
                                distribution policy.
                                    ``(IV) Current incentives to 
                                encourage health care practitioners to 
                                enter primary health care specialty 
                                areas and to provide services in 
                                underserved areas and options for 
                                future policies.
                                    ``(V) Current role, composition, 
                                distribution, and costs related to 
                                foreign medical graduates in the 
                                national health care workforce and 
                                options for future policies;
                            ``(ii) recommendations for a coordinated 
                        policy for the future direction and 
                        distribution of grants, demonstration projects, 
                        and other funding affecting the health care 
                        workforce; and
                            (iii) recommendations and a schedule for 
                        topics to be addressed in subsequent quarterly 
                        reports, based on the findings and 
                        recommendations of the Commission described in 
                        the previous clauses.
            ``(5) Consultation.--The Commission shall develop its 
        recommendations and assessments under this subsection in 
        consultation with the Physician Payment Review Commission, the 
        Prospective Payment Assessment Commission, and private expert 
        entities as appropriate.
            ``(6) Certain provisions applicable.--Section 1845(c)(1) 
        shall apply to the Commission in the same manner as it applies 
        to the Physician Payment Review Commission.
            ``(7) Authorization of appropriations.--In addition to any 
        amounts made available by the amendment made by subsection (b) 
        of section 501 of the America's Health Care Option Act, there 
        are authorized to be appropriated such sums as may be necessary 
        to carry out the provisions of this subsection.''.
    (b) Conforming Amendment Repealing the Council on Graduate Medical 
Education.--Effective October 1, 1995, section 30 of the Health 
Professions Extension Amendments of 1992 (Public Law 102-408) is 
repealed.

SEC. 502. GRADUATE MEDICAL EDUCATION CONSORTIUM DEMONSTRATION PROJECTS.

    (a) In General.--Section 1886 of the Social Security Act (42 U.S.C. 
1395ww), as amended by section 501, is amended by adding at the end the 
following new subsection:
    ``(k) Consortium Demonstration Program.--
            ``(1) In general.--The Secretary, in consultation with the 
        Advisory Commission on Workforce (established under subsection 
        (j)), shall provide for the establishment of demonstration 
        projects for no more than 10 health care training consortia 
        which are located in a State or are multi-State consortia for 
        the purpose of testing and evaluating mechanisms to increase 
        the number and percentage of medical students entering primary 
        care practice relative to those entering nonprimary care 
        practice through the use of funds otherwise available for 
        direct graduate medical education costs under subsection (h).
            ``(2) Applications.--
                    ``(A) In general.--Each health care training 
                consortium desiring to conduct a demonstration project 
                under this subsection shall prepare and submit to the 
                Secretary an application, at such time, in such manner, 
                and containing such information as the Secretary may 
                require, including an explanation of a plan for 
                evaluating the project.
                    ``(B) Approval of applications.--A consortium that 
                submits an application under subparagraph (A) may begin 
                a demonstration project under this subsection--
                            ``(i) upon approval of such application by 
                        the Secretary; or
                            ``(ii) at the end of the 60-day period 
                        beginning on the date such application is 
                        submitted, unless the Secretary denies the 
                        application during such period.
            ``(3) Funding for demonstration projects.--
                    ``(A) Allocation of gme funds.--
                            ``(i) In general.--For each year a 
                        consortium conducts a demonstration project 
                        under this subsection the Secretary shall pay 
                        to such consortium an amount equal to the total 
                        amount available to hospitals that are members 
                        of the consortium under subsection (h). The 
                        consortium shall designate a teaching hospital 
                        for each resident assigned to the consortium 
                        which the Secretary shall use to calculate the 
                        consortium's payment amount under such section. 
                        Such teaching hospital shall be the hospital 
                        where the resident receives the majority of the 
                        resident's hospital-based, nonambulatory 
                        training experience.
                            ``(ii) Additional incentive payment.--For 
                        each year a consortium conducts a demonstration 
                        project under this subsection the Secretary 
                        shall also pay to selected consortium an amount 
                        equal to an incentive amount according to a 
                        formula to be determined by the Secretary that 
                        would allocate the amount made available 
                        pursuant to subsection (d)(5)(B)(v) in such 
                        year among the consortia conducting a 
                        demonstration project under this subsection.
                            ``(iii) Use of funds.--
                                    ``(I) Testing and evaluation.--Each 
                                consortium that receives a payment 
                                under clause (i) shall use such funds 
                                to conduct activities which test and 
                                evaluate mechanisms to increase the 
                                number and percentage of medical 
                                students entering primary care practice 
                                relative to those entering nonprimary 
                                care practice.
                                    ``(II) Establishment and 
                                operation.--Each consortium that 
                                receives a payment under clause (i) may 
                                also use such funds for the 
                                establishment and operation of the 
                                consortium. The Secretary shall make 
                                payments to the consortium through an 
                                entity identified by the consortium as 
                                appropriate for receiving payment on 
                                behalf of the consortium. The 
                                consortium shall have discretion in 
                                determining the purposes for which such 
                                payments may be used.
                    ``(B) Grants for planning and evaluations.--
                            ``(i) In general.--The Secretary may award 
                        grants to consortia conducting demonstration 
                        projects under this subsection for the purpose 
                        of developing and evaluating such projects. 
                        Each consortium desiring to receive a grant 
                        under this subparagraph shall prepare and 
                        submit to the Secretary an application, at such 
                        time, in such manner, and containing such 
                        information as the Secretary may require.
                            ``(ii) Authorization of appropriations.--
                        There are authorized to be appropriated such 
                        sums as may be necessary to carry out the 
                        purposes of this subparagraph for fiscal years 
                        1995 through 2003.
            ``(4) Maintenance of effort.--Any funds available for the 
        activities covered by a demonstration project conducted under 
        this subsection shall supplement, and shall not supplant, funds 
        that are expended for similar purposes under any State, 
        regional, or local program.
            ``(5) Duration.--A demonstration project under this 
        subsection shall be conducted for a period not to exceed 8 
        years. The Secretary may terminate a project if the Secretary 
        determines that the consortium conducting the project is not in 
        substantial compliance with the terms of the application 
        approved by the Secretary under this subsection.
            ``(6) Evaluations and reports.--
                    ``(A) Evaluations.--Each consortium that conducts a 
                demonstration project under this subsection shall 
                submit to the Secretary and the Advisory Commission on 
                Workforce a final evaluation of such project within 360 
                days of the termination of such project and such 
                interim evaluations as the Secretary may require.
                    ``(B) Reports to congress.--Not later than 360 days 
                after the first demonstration project under this 
                subsection begins, and annually thereafter for each 
                year in which a project is conducted under this 
                subsection, the Secretary shall submit a report to the 
                appropriate committees of the Congress which evaluates 
                the effectiveness of the demonstration projects 
                conducted under this subsection and includes any 
                legislative recommendations determined appropriate by 
                the Secretary.
            ``(7) Definitions.--For purposes of this subsection:
                    ``(A) Ambulatory training sites.--The term 
                `ambulatory training sites' includes, but is not 
                limited to, health maintenance organizations, federally 
                qualified health centers, community health centers, 
                migrant health centers, rural health clinics, nursing 
                homes, hospice, and other community-based providers, 
                including private practices.
                    ``(B) Health care training consortium.--The term 
                `health care training consortium' includes a State, 
                regional, or local entity which--
                            ``(i) includes, but is not limited to 
                        partnerships of teaching hospitals, ambulatory 
                        training sites, and one or more schools of 
                        medicine; and
                            ``(ii) is operated in a manner intended to 
                        ensure that by the end of the 8-year 
                        demonstration project there will be an increase 
                        in the number and percentage of medical school 
                        students entering primary care practice 
                        relative to those entering nonprimary care 
                        practice.
                    ``(C) Primary care.--The term `primary care' means 
                family practice, general internal medicine, and general 
                pediatrics, and obstetrics and gynecology.''.
    (b) Source of incentive payments.--Section 1886(d)(5)(B) (42 U.S.C. 
1395ww(d)(5)(B)) is amended by adding at the end the following new 
clause:
            ``(v) For the purpose of making payments pursuant to 
        subsection (k)(3)(A)(ii) for fiscal years 1996, 1997, 1998, 
        1999, and 2000, there shall be available from the Federal 
        Hospital Insurance Trust Fund $200,000,000 of the amount that 
        would have been expended under this subparagraph if the 
        amendments made by section 816 of the America's Health Care 
        Option Act had not been in effect.''.

SEC. 503. FUNDING UNDER MEDICARE FOR TRAINING IN NONHOSPITAL-OWNED 
              FACILITIES.

    (a) Residency Training Time in Nonhospital-Owned Facilities Counted 
in Determining Full-Time-Equivalent Residents for Direct Graduate 
Medical Education Payments.--Section 1886(h)(4)(E) of the Social 
Security Act (42 U.S.C. 1395ww(h)(4)(E)) is amended by striking ``, if 
the hospital incurs all, or substantially all, of the costs for the 
training program in that setting''.
    (b) Residency Training Time in Nonhospital-Owned Facilities Counted 
in Determining Full-Time-Equivalent Residents for Indirect Medical 
Education Payments.--
            (1) In general.--Section 1886(d)(5)(B)(iv) of the Social 
        Security Act (42 U.S.C. 1395ww(d)(5)(B)(iv)) is amended to read 
        as follows:
                            ``(iv) In determining such adjustment, the 
                        Secretary shall--
                                    ``(I) count interns and residents 
                                assigned to any patient service 
                                environment which is part of the 
                                hospital's approved medical residency 
                                training program (as defined in 
                                subsection (h)(5)(A)); and
                                    ``(II) count interns and residents 
                                providing services at any entity 
                                receiving a grant under section 330 of 
                                the Public Health Service Act that is 
                                under the ownership or control of a 
                                hospital (if the hospital incurs all, 
                                or substantially all, of the costs of 
                                the services furnished by such interns 
                                and residents),
                        as part of the calculation of the full-time-
                        equivalent number of interns and residents.''.
            (2) Adjustment of indirect teaching adjustment factor to 
        achieve budget neutrality.--Section 1886(d)(5)(B) of the Social 
        Security Act (42 U.S.C. 1395ww(d)(5)(B)) is amended by adding 
        at the end the following new clause:
            ``(vi) The Secretary shall reduce all payments under this 
        subparagraph by such percentage as the Secretary determines 
        necessary so that, beginning on the date of the enactment of 
        the America's Health Care Option Act, the amendments made by 
        section 503(b)(1) of such Act would not result in expenditures 
        under this subparagraph that exceed the amount of such 
        expenditures that would have been made if such amendments had 
        not been made.''.

SEC. 504. NATIONAL FUND FOR MEDICAL RESEARCH.

    (a) Designation of Overpayments and Contributions for the National 
Fund for Medical Research.--
            (1) In general.--Subchapter A of chapter 61 of the Internal 
        Revenue Code of 1986 (relating to returns and records) is 
        amended by adding at the end the following new part:

   ``PART IX--DESIGNATION OF OVERPAYMENTS AND CONTRIBUTIONS FOR THE 
                   NATIONAL FUND FOR MEDICAL RESEARCH

``Sec. 6097. Amounts for the National Fund for Medical Research.

``SEC. 6097. AMOUNTS FOR THE NATIONAL FUND FOR MEDICAL RESEARCH.

    ``(a) In General.--Every individual (other than a nonresident 
alien) may designate that--
            ``(1) a portion (not less than $1) of any overpayment of 
        the tax imposed by chapter 1 for the taxable year, and
            ``(2) a cash contribution (not less than $1),
be paid over to the National Fund for Medical Research. In the case of 
a joint return of a husband and wife, each spouse may designate one-
half of any such overpayment of tax (not less than $2).
    ``(b) Manner and Time of Designation.--Any designation under 
subsection (a) may be made with respect to any taxable year only at the 
time of filing the original return of the tax imposed by chapter 1 for 
such taxable year. Such designation shall be made either on the 1st 
page of the return or on the page bearing the taxpayer's signature.
    ``(c) Overpayments Treated as Refunded.--For purposes of this 
section, any overpayment of tax designated under subsection (a) shall 
be treated as being refunded to the taxpayer as of the last day 
prescribed for filing the return of tax imposed by chapter 1 
(determined with regard to extensions) or, if later, the date the 
return is filed.
    ``(d) Designated Amounts Not Deductible.--No deduction shall be 
allowed under subtitle A with respect to any amount designated pursuant 
to subsection (a) for any taxable year.
    ``(e) Termination.--This section shall not apply to taxable years 
beginning in a calendar year after a determination by the Secretary 
that the sum of all designations under subsection (a) for taxable years 
beginning in the second and third calendar years preceding the calendar 
year is less than $5,000,000.''.
            (2) Clerical amendment.--The table of parts for subchapter 
        A of chapter 61 of such Code is amended by adding at the end 
        the following new item:

                              ``Part IX. Designation of overpayments 
                                        and contributions for the 
                                        National Fund for Medical 
                                        Research.''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to taxable years beginning after December 31, 1994.
    (b) Establishment of the National Fund for Medical Research.--
            (1) In general.--Subchapter A of chapter 98 of the Internal 
        Revenue Code of 1986 (relating to the trust fund code) is 
        amended by adding at the end the following new section:

``SEC. 9512. NATIONAL FUND FOR MEDICAL RESEARCH.

    ``(a) Creation of Fund.--There is established in the Treasury of 
the United States a fund to be known as the ``National Fund for Medical 
Research'', consisting of such amounts as may be credited or paid to 
such Fund as provided in this section or section 9602(b).
    ``(b) Transfers to Fund.--There is hereby transferred to the 
National Fund for Medical Research amounts equivalent to the amounts 
designated under section 6097 (relating to designation of overpayments 
and contributions to the Fund).
    ``(c) Expenditures From Fund.--
            ``(1) In general.--The Secretary shall pay annually, within 
        30 days after the President signs an appropriations Act for the 
        Departments of labor, Health and Human Services, and Education, 
        and related agencies, or by the end of the first quarter of the 
        fiscal year, to the Secretary of Health and Human Services on 
        behalf of the National Institutes of Health, an amount equal to 
        the amount in the National Fund for Medical Research at the 
        time of such payment, to carry out the purposes of section 404F 
        of the Public Health Service Act, less any administrative 
        expenses which may be paid under paragraph (2).
            ``(2) Administrative expenses.--Amounts in the National 
        Fund for Medical Research shall be available to pay the 
        administrative expenses of the Department of the Treasury 
        directly allocable to--
                    ``(A) modifying the individual income tax return 
                forms to carry out section 6097,
                    ``(B) carrying out this chapter with respect to 
                such Fund, and
                    ``(C) processing amounts received under section 
                6097 and transferring such amounts to such Fund.
    ``(d) Budget Treatment of Amounts in Fund.--The amounts in the 
National Fund for Medical Research shall be excluded from, and shall 
not be taken into account, for purposes of any budget enforcement 
procedure under the Congressional Budget Act of 1974 or the Balanced 
Budget and Emergency Deficit Control Act of 1985.''.
            (2) Clerical amendment.--The table of sections for 
        subchapter A of chapter 98 of the Internal Revenue Code of 1986 
        is amended by adding at the end the following new item:

                              ``Sec. 9512. National Fund for Medical 
                                        Research.''.
    (c) Purposes for Expenditures From Fund.--Part A of title IV of the 
Public Health Service Act is amended by adding at the end the following 
new section:

``SEC. 404F. EXPENDITURES FROM THE NATIONAL FUND FOR MEDICAL RESEARCH.

    ``(a) Distribution of Amounts.--From amounts received for any 
fiscal year from the National Fund for Medical Research, the Secretary 
shall distribute--
            ``(1) 3 percent of such amounts to the Director of NIH to 
        be allocated at the Director's discretion for--
                    ``(A) carrying out the responsibilities of the 
                Director of NIH, including the Office of Research on 
                Women's Health, the Office of Research on Minority 
                Health, the Office on Alternative Medicine, and the 
                Office of Rare Disease Research;
                    ``(B) construction of, and acquisition of equipment 
                for, facilities of or used by the National Institutes 
                of Health; and
                    ``(C) transfer to the National Center for Research 
                Resources to carry out section 481A concerning 
                biomedical and behavioral research facilities;
            ``(2) 1 percent of such amounts for carrying out section 
        301 and part D of this title with respect to health information 
        communications; and
            ``(3) the remainder of such amounts to member institutes 
        and centers of the National Institutes of Health in the same 
        proportion to the total amount received under this subsection, 
        as the amount of annual appropriations under appropriations 
        Acts for each member institute or center for the fiscal year 
        bears to the total amount of appropriations under 
        appropriations Acts for all member institutes and centers of 
        the National Institutes of Health for the fiscal year.
    ``(b) Plans of Allocation.--The amounts transferred under 
subsection (a) shall be allocated by the Director of NIH or the various 
directors of the institutes and centers, as the case may be, pursuant 
to allocation plans developed by the various advisory councils to such 
directors, after consultation with such directors.
    ``(c) Grants and Contracts Fully Funded in First Year.--With 
respect to any grant or contract funded by amounts distributed under 
subsection (a), the full amount of the total obligation of such grant 
or contract shall be funded in the first year of such grant or 
contract, and shall remain available until expended.
    ``(d) Maintenance of Effort.--No amounts transferred under 
subsection (a) shall replace or reduce the amount of appropriations for 
the National Institutes of Health under appropriations Acts.''.

                Subtitle B--Health Care Liability Reform

SEC. 511. HEALTH CARE LIABILITY REFORM.

    (a) In General.--Part A of subtitle A of title XI of the Social 
Security Act (42 U.S.C. 1301 et seq.) is amended by inserting after 
section 1128B the following new section:

``SEC. 1129. HEALTH CARE LIABILITY REFORM.

    ``(a) Definitions.--As used in this section:
            ``(1) Claimant.--The term `claimant' means any person who 
        commences a health care liability action, and any person on 
        whose behalf such an action is commenced, including the 
        decedent in the case of an action brought through or on behalf 
        of an estate.
            ``(2) Clear and convincing evidence.--The term `clear and 
        convincing evidence' is that measure or degree of proof that 
        will produce in the mind of the trier of fact a firm belief or 
        conviction as to the truth of the allegations sought to be 
        established, except that such measure or degree of proof is 
        more than that required under preponderance of the evidence, 
        but less than that required for proof beyond a reasonable 
        doubt.
            ``(3) Health care liability action.--The term ``health care 
        liability action'' means a civil action in a State or Federal 
        court--
                    ``(A) against a health care provider, health care 
                professional, or other defendant joined in the action 
                (regardless of the theory of liability on which the 
                action is based) in which the claimant alleges injury 
                related to the provision of, or the failure to provide, 
                health care services; or
                    ``(B) against a health care payor, a health 
                maintenance organization, insurance company, or any 
                other individual, organization, or entity that provides 
                payment for health care benefits in which the claimant 
                alleges that injury was caused by the payment for, or 
                the failure to make payment for, health care benefits, 
                except to the extent such actions are subject to the 
                Employee Retirement Income Security Act of 1974.
            ``(3) Health care professional.--The term `health care 
        professional' means any individual who provides health care 
        services in a State and who is required by Federal or State 
        laws or regulations to be licensed, registered or certified to 
        provide such services or who is certified to provide health 
        care services pursuant to a program of education, training and 
        examination by an accredited institution, professional board, 
        or professional organization.
            ``(4) Health care provider.--The term `health care 
        provider' means any organization or institution that is engaged 
        in the delivery of health care services in a State and that is 
        required by Federal or State laws or regulations to be 
        licensed, registered or certified to engage in the delivery of 
        such services.
            ``(5) Health care services.--The term `health care 
        services' means any services provided by a health care 
        professional or health care provider, or any individual working 
        under the supervision of a health care professional, that 
        relate to the diagnosis, prevention, or treatment of any 
        disease or impairment, or the assessment of the health of human 
        beings.
            ``(6) Injury.--The term `injury' means any illness, 
        disease, or other harm that is the subject of a health care 
        liability action.
            ``(7) Noneconomic losses.--The term `noneconomic losses' 
        means losses for physical and emotional pain, suffering, 
        inconvenience, physical impairment, mental anguish, 
        disfigurement, loss of enjoyment of life, loss of consortium, 
        and other nonpecuniary losses incurred by an individual with 
        respect to which a health care liability action is brought.
            ``(8) Punitive damages.--The term `punitive damages' means 
        damages awarded, for the purpose of punishment or deterrence, 
        and not for compensatory purposes, against a health care 
        provider, health care organization, or other defendant in a 
        health care liability action. Punitive damages are neither 
        economic nor noneconomic damages.
    ``(b) Applicability.--
            ``(1) In general.--Except as provided in paragraph (3), 
        this section shall apply with respect to any health care 
        liability action brought in any Federal or State court, except 
        that this section shall not apply to an action for damages 
        arising from a vaccine-related injury or death to the extent 
        that title XXI of the Public Health Service Act applies to the 
        action.
            ``(2) Preemption.--The provisions of this section shall 
        preempt any State law to the extent such law is inconsistent 
        with the limitations contained in such provisions. The 
        provisions of this section shall not preempt any State law 
        that--
                    ``(A) provides for defenses in addition to those 
                contained in this section, places greater limitations 
                on the amount of attorneys' fees that can be collected, 
                or otherwise imposes greater restrictions on non-
                economic or punitive damages than those provided in 
                this section;
                    ``(B) permits State officials to commence health 
                care liability actions as a representative of an 
                individual; or
                    ``(C) permits provider-based dispute resolution.
            ``(3) Effect on sovereign immunity and choice of law or 
        venue.--Nothing in this section shall be construed to--
                    ``(A) waive or affect any defense of sovereign 
                immunity asserted by any State under any provision of 
                law;
                    ``(B) waive or affect any defense of sovereign 
                immunity asserted by the United States;
                    ``(C) affect the applicability of any provision of 
                the Foreign Sovereign Immunities Act of 1976;
                    ``(D) preempt State choice-of-law rules with 
                respect to actions brought by a foreign nation or a 
                citizen of a foreign nation; or
                    ``(E) affect the right of any court to transfer 
                venue or to apply the law of a foreign nation or to 
                dismiss an action of a foreign nation or of a citizen 
                of a foreign nation on the ground of inconvenient 
                forum.
            ``(4) Federal court jurisdiction not established on federal 
        question grounds.--Nothing in this section shall be construed 
        to establish any jurisdiction in the district courts of the 
        United States over health care liability actions on the basis 
        of sections 1331 or 1337 of title 28, United States Code.
    ``(c) Statute of Limitations.--
            ``(1) In general.--Except as provided in paragraph (2), no 
        health care liability action may be initiated after the 
        expiration of the 2-year period that begins on the date on 
        which the alleged injury and its cause should reasonably have 
        been discovered, but in no event later than 5 years after the 
        date of the alleged occurrence of the injury.
            ``(2) Exception for minors.--In the case of an alleged 
        injury suffered by a minor who has not attained 6 years of age, 
        no health care liability action may be initiated after the 
        expiration of the 2-year period that begins on the date on 
        which the alleged injury and its cause should reasonably have 
        been discovered, but in no event later than 6 years after the 
        date of the alleged occurrence of the injury and its cause or 
        the date on which the minor attains 11 years of age, whichever 
        is later.
    ``(d) Reform of Noneconomic Damages.--
            ``(1) In general.--With respect to a health care liability 
        action brought in any forum, the total amount of damages that 
        may be awarded to an individual and the family members of such 
        individual for noneconomic losses resulting from an injury 
        alleged under such action may not exceed $250,000, regardless 
        of the number of health care professionals, health care 
        providers, and other defendants against whom the action is 
        brought or the number of actions brought with respect to the 
        injury. If the jury's damage award exceeds such limitation, a 
        reduction in such award shall be made by the court.
            ``(2) Study.--The Secretary, in consultation with the 
        Attorney General, shall conduct a study to determine an 
        appropriate schedule with respect to an increase in the 
        limitation described in paragraph (1) in years subsequent to 
        the calendar year in which this section is enacted. Not later 
        than January 1, 1997, the Secretary shall submit such a 
        schedule to Congress.
            ``(3) Joint resolution and consideration by congress.--
                    ``(A) In general.--The schedule under paragraph (2) 
                shall be implemented unless a joint resolution 
                (described in subparagraph (B)) disapproving such 
                recommendations is enacted in accordance with the 
                provisions of subparagraph (C), before the end of the 
                45-day period beginning on the date on which such 
                schedule was submitted. For purposes of applying the 
                preceding sentence and subparagraphs (B) and (C), the 
                days on which either House of Congress is not in 
                session because of an adjournment of more than three 
                days to a day certain shall be excluded in the 
                computation of a period.
                    ``(B) Joint resolution of disapproval.--A joint 
                resolution described in this subparagraph means only a 
                joint resolution which is introduced within the 10-day 
                period beginning on the date on which the Secretary 
                submits the schedule under paragraph (2) and--
                            ``(i) which does not have a preamble;
                            ``(ii) the matter after the resolving 
                        clause of which is as follows: ``That Congress 
                        disapproves the schedule of the Secretary of 
                        Health and Human Services concerning 
                        adjustments in limitations on noneconomic 
                        damages with respect to health care liability 
                        actions, as submitted by the Secretary on 
                        ______________.'', the blank space being filled 
                        in with the appropriate date; and
                            ``(iii) the title of which is as follows: 
                        ``Joint resolution disapproving the schedule of 
                        the Secretary of Health and Human Services 
                        concerning adjustments in limitations on 
                        noneconomic damages with respect to health care 
                        liability actions, as submitted by the 
                        Secretary on ______________.'', the blank space 
                        being filled in with the appropriate date.
                    ``(C) Procedures for consideration of resolution of 
                disapproval.--Subject to subparagraph (D), the 
                provisions of section 2908 (other than subsection (a)) 
                of the Defense Base Closure and Realignment Act of 1990 
                shall apply to the consideration of a joint resolution 
                described in subparagraph (B) in the same manner as 
                such provisions apply to a joint resolution described 
                in section 2908(a) of such Act.
                    ``(D) Special rules.--For purposes of applying 
                subparagraph (C) with respect to such provisions--
                            ``(i) any reference to the Committee on 
                        Armed Services of the House of Representatives 
                        shall be deemed a reference to an appropriate 
                        Committee of the House of Representatives 
                        (specified by the Speaker of the House of 
                        Representatives at the time of submission of 
                        recommendations under paragraph (1)) and any 
                        reference to the Committee on Armed Services of 
                        the Senate shall be deemed a reference to an 
                        appropriate Committee of the Senate (specified 
                        by the Majority Leader of the Senate at the 
                        time of submission of recommendations under 
                        paragraph (1)); and
                            ``(ii) any reference to the date on which 
                        the President transmits a report shall be 
                        deemed a reference to the date on which the 
                        Secretary submits a recommendation under 
                        paragraph (1).
    ``(e) Reform of Punitive Damages.--
            ``(1) Limitation.--With respect to a health care liability 
        action, an award for punitive damages may only be made, if 
        otherwise permitted by applicable law, if it is proven by clear 
        and convincing evidence--
                    ``(A) that the defendant intended to injure the 
                claimant for a reason unrelated to the provision of 
                health care services;
                    ``(B) that the defendant understood the claimant 
                was substantially certain to suffer unnecessary injury, 
                yet the defendant in providing or failing to provide 
                health care services, deliberately failed to avoid such 
                injury; or
                    ``(C) that the defendant acted with a conscious 
                disregard of a substantial and unjustifiable risk of 
                unnecessary injury which the defendant failed to avoid 
                in a manner which constitutes a gross deviation from 
                the normal standard of conduct in such circumstances.
            ``(2) Punitive damages not permitted.--Notwithstanding the 
        provisions of paragraph (1), punitive damages may not be 
        awarded against a defendant with respect to any health care 
        liability action if--
                    ``(A) no judgment for compensatory damages, 
                including nominal damages (under $500), is rendered 
                against the defendant; or
                    ``(B) the underlying health care liability action 
                arises out of the same act or course of conduct by the 
                defendant that resulted in a prior award of punitive 
                damages to any individual.
            ``(3) Requirements for pleading of punitive damages.--
                    ``(A) In general.--The claimant's complaint or 
                initial pleading in any health care liability action 
                may not include a demand for punitive damages.
                    ``(B) Amended pleading.--A court may allow a 
                claimant to file an amended complaint or pleading for 
                punitive damages if--
                            ``(i) the claimant submits a motion to 
                        amend the complaint or pleading within the 
                        earlier of--
                                    ``(I) 2 years after the complaint 
                                or initial pleading is filed, or
                                    ``(II) 9 months before the date the 
                                matter is first set for trial; and
                            ``(ii) after a finding by a court upon 
                        review of supporting and opposing affidavits or 
                        after a hearing, that after weighing the 
                        evidence the claimant has established by a 
                        substantial probability that the claimant will 
                        prevail on the claim for punitive damages.
            ``(4) Separate proceeding.--
                    ``(A) In general.--At the request of any defendant 
                in a health care liability action, the trier of fact 
                shall consider in a separate proceeding--
                            ``(i) whether punitive damages are to be 
                        awarded and the amount of such award, or
                            ``(ii) the amount of punitive damages 
                        following a determination of punitive 
                        liability.
                    ``(B) Only relevant evidence admissible.--If a 
                defendant requests a separate proceeding under 
                subparagraph (A), evidence relevant only to the claim 
                of punitive damages, as determined by applicable State 
                law, shall be inadmissible in any proceeding to 
                determine whether compensatory damages are to be 
                awarded.
            ``(5) Determining amount of punitive damages.--
                    ``(A) In general.--In determining the amount of 
                punitive damages, the trier of fact shall consider only 
                the following:
                            ``(i) The severity of the harm caused by 
                        the conduct of the defendant.
                            ``(ii) The duration of the conduct or any 
                        concealment of it by the defendant.
                            ``(iii) The profitability of the conduct of 
                        the defendant.
                            ``(iv) The number of products sold or 
                        medical procedures rendered for compensation, 
                        as the case may be, by the defendant of the 
                        kind causing the harm complained of by the 
                        claimant.
                            ``(v) Awards of punitive or exemplary 
                        damages to persons similarly situated to the 
                        claimant, when offered by the defendant.
                            ``(vi) Prospective awards of compensatory 
                        damages to persons similarly situated to the 
                        claimant.
                            ``(vii) Any criminal penalties imposed on 
                        the defendant as a result of the conduct 
                        complained of by the claimant, when offered by 
                        the defendant.
                            ``(viii) The amount of any civil fines 
                        assessed against the defendant as a result of 
                        the conduct complained of by the claimant, when 
                        offered by the defendant.
                    ``(B) Limitation on amount of punitive damages.--In 
                no event shall the amount of punitive damages awarded 
                exceed the lesser of 2 times the amount of compensatory 
                damages awarded or $500,000. The jury shall not be 
                informed of this limitation.
            ``(6) Restrictions Permitted.--Nothing in this section 
        shall be construed to imply a right to seek punitive damages 
        where none exists under Federal or State law.
            ``(7) Health care quality assurance program.--
                    ``(A) Fund.--Each participating State shall 
                establish a health care quality assurance program, to 
                be approved by the Secretary, and a fund consisting of 
                such amounts as are transferred to the fund under 
                subparagraph (B).
                    ``(B) Transfer of amounts.--Each participating 
                State shall require that 50 percent of all awards of 
                punitive damages resulting from all health care 
                liability actions in that State be transferred to the 
                fund established under subparagraph (B) in the State.
                    ``(C) Obligations from fund.--The chief executive 
                officer of a participating State shall obligate such 
                sums as are available in the fund established in that 
                State under subparagraph (A) to--
                    ``(A) license and certify health care professionals 
                in the State;
                    ``(B) implement health care quality assurance 
                programs; and
                    ``(C) carry out programs to reduce malpractice-
                related costs for health care providers volunteering to 
                provide health care services in medically underserved 
                areas.
    ``(f) Periodic Payments.--With respect to a health care liability 
action, no person may be required to pay more than $100,000 for future 
damages in a single payment of a damages award, but a person shall be 
permitted to make such payments of the award on a periodic basis. The 
periods for such payments shall be determined by the adjudicating body, 
based upon projections of future losses and shall be reduced to present 
value. The adjudicating body may waive the requirements of this 
subsection if such body determines that such a waiver is in the 
interests of justice.
    ``(g) Scope of Liability.--
            ``(1) In general.--With respect to punitive and noneconomic 
        damages, the liability of each defendant in a health care 
        liability action shall be several only and may not be joint. 
        Such a defendant shall be liable only for the amount of 
        punitive or noneconomic damages allocated to the defendant in 
        direct proportion to such defendant's percentage of fault or 
        responsibility for the injury suffered by the claimant.
            ``(2) Determination of percentage of liability.--The trier 
        of fact in a health care liability action shall determine the 
        extent of each defendant's fault or responsibility for injury 
        suffered by the claimant, and shall assign a percentage of 
        responsibility for such injury to each such defendant.
            ``(3) Prohibition on vicarious liability.--A defendant in a 
        health care liability action may not be held vicariously liable 
        for the direct actions or omissions of other individuals.
    ``(h) Mandatory Offsets for Damages Paid by a Collateral Source.--
            ``(1) In general.--With respect to a health care liability 
        action, the total amount of damages received by an individual 
        under such action shall be reduced, in accordance with 
        paragraph (2), by any other payment that has been, or will be, 
        made to an individual to compensate such individual for the 
        injury that was the subject of such action.
            ``(2) Amount of reduction.--The amount by which an award of 
        damages to an individual for an injury shall be reduced under 
        paragraph (1) shall be--
                    ``(A) the total amount of any payments (other than 
                such award) that have been made or that will be made to 
                such individual to pay costs of or compensate such 
                individual for the injury that was the subject of the 
                action; minus
                    ``(B) the amount paid by such individual (or by the 
                spouse, parent, or legal guardian of such individual) 
                to secure the payments described in subparagraph (A) 
                and any portion of the award subject to a subrogation 
                lien or claim.
    ``(i) Treatment of Attorneys' Fees and Other Costs.--
            ``(1) Limitation on amount of contingency fees.--
                    ``(A) In general.--An attorney who represents, on a 
                contingency fee basis, a claimant in a health care 
                liability action may not charge, demand, receive, or 
                collect for services rendered in connection with such 
                action in excess of the following amount recovered by 
                judgment or settlement under such action:
                            ``(i) 33\1/3\ percent of the first $150,000 
                        (or portion thereof) recovered, based on after-
                        tax recovery, plus
                            ``(ii) 25 percent of any amount in excess 
                        of $150,000 recovered, based on after-tax 
                        recovery.
                    ``(B) Calculation of periodic payments.--In the 
                event that a judgment or settlement includes periodic 
                or future payments of damages, the amount recovered for 
                purposes of computing the limitation on the contingency 
                fee under subparagraph (A) shall be based on the cost 
                of the annuity or trust established to make the 
                payments. In any case in which an annuity or trust is 
                not established to make such payments, such amount 
                shall be based on the present value of the payments.
            ``(3) Contingency fee defined.--As used in this subsection, 
        the term `contingency fee' means any fee for professional legal 
        services which is, in whole or in part, contingent upon the 
        recovery of any amount of damages, whether through judgment or 
        settlement.
    ``(j) Obstetric Cases.--With respect to a health care liability 
action relating to services provided during labor or the delivery of a 
baby, if the health care professional against whom the action is 
brought did not previously treat the pregnant woman for the pregnancy, 
the trier of fact may not find that the defendant committed malpractice 
and may not assess damages against the health care professional unless 
the malpractice is proven by clear and convincing evidence.
    ``(k) Requirements for Risk Management Programs.--
            ``(1) Requirements for providers.--Each State shall require 
        each health care professional and health care provider 
        providing services in the State to participate in a risk 
        management program to prevent and provide early warning of 
        practices which may result in injuries to patients or which 
        otherwise may endanger patient safety.
            ``(2) Requirements for insurers.--Each State shall require 
        each entity which provides health care professional or provider 
        liability insurance to health care professionals and health 
        care providers in the State to--
                    ``(A) establish risk management programs based on 
                data available to such entity or sanction programs of 
                risk management for health care professionals and 
                health care providers provided by other entities; and
                    ``(B) require each such professional or provider, 
                as a condition of maintaining insurance, to participate 
                in one program described in subparagraph (A) at least 
                once in each 3-year period.
    ``(l) Permitting State Professional Societies to Participate in 
Disciplinary Activities.--
            ``(1) Role of professional societies.--Notwithstanding any 
        other provision of State or Federal law, a State agency 
        responsible for the conduct of disciplinary actions for a type 
        of health care provider may enter into agreements with State or 
        county professional societies of such type of health care 
        professional to permit such societies to participate in the 
        licensing of such health care professional, and to review any 
        health care liability action, health care liability allegation, 
        or other information concerning the practice patterns of any 
        such health care professional. Any such agreement shall comply 
        with paragraph (2).
            ``(2) Requirements of agreements.--Any agreement entered 
        into under paragraph (1) for licensing activities or the review 
        of any health care liability action, health care liability 
        allegation, or other information concerning the practice 
        patterns of a health care professional shall provide that--
                    ``(A) the health care professional society conducts 
                such activities or review as expeditiously as possible;
                    ``(B) after the completion of such review, such 
                society shall report its findings to the State agency 
                with which it entered into such agreement;
                    ``(C) the conduct of such activities or review and 
                the reporting of such findings be conducted in a manner 
                which assures the preservation of confidentiality of 
                health care information and of the review process; and
                    ``(D) no individual affiliated with such society is 
                liable for any damages or injury directly caused by the 
                individual's actions in conducting such activities or 
                review.
            ``(3) Agreements not mandatory.--Nothing in this subsection 
        may be construed to require a State to enter into agreements 
        with societies described in paragraph (1) to conduct the 
        activities described in such paragraph.
            ``(4) Effect of agreement.--
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to health care liability actions arising on or after January 1, 
1995.

             Subtitle C--Health Care Antitrust Improvements

SEC. 521. PROTECTION FROM ANTITRUST LAWS FOR CERTAIN COMPETITIVE AND 
              COLLABORATIVE ACTIVITIES.

    (a) Protections Described.--An activity relating to the provision 
of health care services shall receive the following protection from the 
antitrust laws:
            (1) If the activity is within a safe harbor designated by 
        the Attorney General under section 522, the safe harbor shall 
        be a defense to all antitrust claims, except for claims for 
        injunctive relief asserted by the Attorney General or the Chair 
        in extraordinary circumstances.
            (2) If the activity is specified in and in compliance with 
        the terms of a certificate of review issued by the Attorney 
        General under section 523 and the activity occurs while the 
        certificate is in effect, the certificate shall be a defense to 
        antitrust claims, other than claims for injunctive relief.
    (b) Award of Attorney's Fees and Costs of Suit.--
            (1) In general.--If any person brings an action alleging a 
        claim under the antitrust laws and the activity on which the 
        claim is based is found by the court to be protected from such 
        laws under subsection (a), the court shall, at the conclusion 
        of the action--
                    (A) award to a substantially prevailing claimant 
                the cost of suit attributable to such claim, including 
                a reasonable attorney's fee, or
                    (B) award to a substantially prevailing party 
                defending against such claim the cost of such suit 
                attributable to such claim, including reasonable 
                attorney's fee, if the claim, or the claimant's conduct 
                during litigation of the claim, was frivolous, 
                unreasonable, without foundation, or in bad faith.
            (2) Offset in cases of bad faith.--The court may reduce an 
        award made pursuant to paragraph (1) in whole or in part by an 
        award in favor of another party for any part of the cost of 
        suit (including a reasonable attorney's fee) attributable to 
        conduct during the litigation by any prevailing party that the 
        court finds to be frivolous, unreasonable, without foundation, 
        or in bad faith.

SEC. 522. DESIGNATION OF SAFE HARBORS.

    (a) In General.--
            (1) Designation by attorney general.--The Attorney General, 
        in consultation with the Secretary and the Chair, shall develop 
        and designate pursuant to paragraph (C) safe harbors for 
        purposes of section 521(a)(1) relating to--
                    (A) each category of activities referred to in 
                paragraph (2); and
                    (B) such other categories of activities as the 
                Attorney General may designate in accordance with the 
                process described in this section.
            (2) Required categories of activities subject to safe 
        harbors.--The categories of activities referred to in this 
        paragraph are as follows:
                    (A) Joint purchasing of health care services.--
                Providing the terms under which consumers of health 
                care services (patients or others acting on their 
                behalf) may jointly negotiate and purchase health care 
                services.
                    (B) Small hospital mergers.--Providing for small 
                hospitals lawfully to merge under the antitrust laws 
                without undue delay or review, taking into account the 
                special needs and circumstances of rural health care 
                markets.
                    (C) Network formation and operation.--Permitting 
                activities related to the startup and operation of 
                collaborations between State-licensed providers through 
                partial or full integration, including multi-provider 
                networks, hospital networks, physician-hospital 
                organizations, and other efforts to provide health care 
                services more efficiently.
                    (D) Activities of medical self-regulatory 
                entities.--Permitting standard setting and enforcement 
                activities by medical self-regulatory entities (such as 
                hospital boards and medical societies) to promote 
                health care quality, except that a safe harbor under 
                this paragraph may not provide protection for any 
                activity undertaken for financial gain or for 
                anticompetitive reasons.
                    (E) Provision of information to buyers and 
                consumers.--Permitting health care providers 
                collectively to supply non-price medical information to 
                buyers and consumers relating to the type, quality and 
                efficiency of treatment, including joint views on 
                procedures that should be covered by purchasers and 
                medical protocols, except that a safe harbor under this 
                subparagraph may not provide protection for any 
                collective refusals to deal or collective attempts at 
                coercion.
                    (F) Participation in surveys.--Providing the terms 
                under which health care providers may lawfully 
                participate in written surveys of prices of services, 
                reimbursements received, employee compensation, and 
                other relevant areas.
                    (G) High-technology and tertiary care joint 
                ventures.--Permitting activities of health care joint 
                ventures to purchase or use new or existing high 
                technology or costly equipment, or to provide advanced 
                tertiary care services.
                    (H) Market power screens.--Providing market power 
                screens at appropriate levels below which combinations 
                of health care providers are too small to pose a 
                realistic antitrust threat. There may be different 
                levels for different activities and markets, taking 
                into account the special needs of rural health care 
                markets.
                    (I) Joint purchasing arrangements.--Providing the 
                terms under which health care providers may make joint 
                purchases of products and services.
                    (J) Good faith negotiations.--Providing the terms 
                under which health care providers may engage in 
                discussions relating to legitimate collaborative 
                activities contemplated by the safe harbors.
    (b) Process for Designation of Additional Categories of 
Activities.--
            (1) Solicitation of proposals.--Not later than 30 days 
        after the date of the enactment of this Act, the Attorney 
        General shall publish a notice in the Federal Register 
        soliciting proposals for safe harbors.
            (2) Review of proposed safe harbors.--Not later than 180 
        days after the date of the enactment of this Act, the Attorney 
        General (in consultation with the Secretary and the Chair) 
        shall review the proposed safe harbors submitted under 
        paragraph (1) and include a description of the safe harbors in 
        the report under subsection (d).
            (3) Additional safe harbors.--After submitting the report 
        under subsection (d), the Attorney General (in consultation 
        with the Secretary and the Chair) may from time to time add 
        additional safe harbors in accordance with the procedures 
        described in this subsection.
    (c) Effective Date of Safe Harbors.--
            (1) Publication.--Not later than 180 days after the date of 
        the enactment of this Act, the Attorney General shall publish 
        in the Federal Register for public comment the safe harbors 
        proposed for designation under this section. Not later than 180 
        days after publishing such proposed safe harbors in the Federal 
        Register, the Attorney General shall issue final rules 
        establishing such safe harbors.
            (2) Effective date.--The safe harbors established under the 
        final rules issued under paragraph (1) shall take effect 90 
        days after issuance, unless disapproved by the Congress.
    (d) Report on Proposed Safe Harbors.--Not later than 180 days after 
the date of the enactment of this Act, the Attorney General (in 
consultation with the Secretary and the Chair) shall submit a report to 
Congress describing the proposals from subsections (a) and (b)(1) to be 
included in the publication of safe harbors described in subsection 
(c)(1) and the proposals from subsection (b)(1) that are not to be so 
included, together with explanations therefor.
    (e) Modification or Removal of Safe Harbors.--The Attorney General 
(in consultation with the Secretary and the Chair) may modify or remove 
a safe harbor following notice and comment upon a determination that 
the safe harbor does not meet the criteria of subsection (f).
    (f) Criteria for Safe Harbors.--In establishing safe harbors under 
this section, the Attorney General shall take into account the 
following:
            (1) The extent to which a competitive or collaborative 
        activity will accomplish any of the following:
                    (A) An increase in access to health care services.
                    (B) The enhancement of the quality of health care 
                services.
                    (C) The establishment of cost efficiencies that 
                will be passed on to consumers, including economies of 
                scale and reduced transaction and administrative costs.
                    (D) An increase in the ability of health care 
                facilities to provide services in medically underserved 
                areas or to medically underserved populations.
                    (E) An improvement in the utilization of health 
                care resources or the reduction in the inefficient 
                duplication of the use of such resources.
            (2) Whether the designation of an activity as a safe harbor 
        will result in the following outcomes:
                    (A) Health plans and other health care insurers, 
                consumers of health care services, and health care 
                providers will be better able to negotiate payment and 
                service arrangements which will reduce costs to 
                consumers.
                    (B) Taking into consideration the characteristics 
                of the particular purchasers and providers involved, 
                competition will not be unduly restricted.
                    (C) Equally efficient and less restrictive 
                alternatives do not exist to meet the criteria 
                described in paragraph (1).
                    (D) The activity will not unreasonably foreclose 
                competition by denying competitors a necessary element 
                of competition.

SEC. 523. CERTIFICATES OF REVIEW.

    (a) Establishment of Program.--In consultation with the Secretary 
and the Chair, the Attorney General shall (not later than 180 days 
after the date of the enactment of this Act) issue certificates of 
review in accordance with this section for providers of health care 
services and advise and assist any person with respect to applying for 
such a certificate of review.
    (b) Procedures for Application for Certificate.--
            (1) Submission of application.--
                    (A) Form; content.--To apply for a certificate of 
                review, a person shall submit to the Attorney General a 
                written application which--
                            (i) specifies the activities relating to 
                        the provision of health care services which 
                        satisfy the criteria described in section 
                        522(f) and which will be included in the 
                        certificate; and
                            (ii) is in a form and contains any 
                        information, including information pertaining 
                        to the overall market in which the applicant 
                        operates, required by rule or regulation 
                        promulgated under section 526.
                    (B) Filing fee.--The Attorney General may require a 
                filing fee to be submitted with the application to 
                cover the cost of publication and the cost of review 
                required by this section. The amount of the filing fee 
                shall be determined on a sliding scale established by 
                the Attorney General in consultation with the Chair 
                (based on the monetary size of the transaction 
                involved), except that such fee may not exceed $5,000.
            (2) Publication of notice in federal register.--Within 10 
        days after an application submitted under paragraph (1) is 
        received by the Attorney General, the Attorney General shall 
        publish in the Federal Register a notice that announces that an 
        application for a certificate of review has been submitted, 
        identifies each person submitting the application, and 
        describes the conduct for which the application is submitted.
            (3) Establishment of procedures for issuance of 
        certificate.--In consultation with the Chair and the Secretary, 
        the Attorney General shall establish procedures to be used in 
        applying for and in determining whether to approve an 
        application for a certificate of review under this subtitle. 
        Under such procedures the Attorney General, in consultation 
        with the Secretary, shall approve an application if the 
        Attorney General determines that the activities to be covered 
        under the certificate will satisfy the criteria described in 
        section 522(f) for safe harbors designated under such section 
        and that the benefits of the issuance of the certificate will 
        outweigh any disadvantages that may result from reduced 
        competition. If the Attorney General, with the concurrence of 
        the Secretary, determines that the requirements for a 
        certificate are met, the Attorney General shall issue to the 
        applicant a certificate of review. The certificate of review 
        shall specify--
                            (i) the health care market activities to 
                        which the certificate applies,
                            (ii) the person to whom the certificate of 
                        review is issued, and
                            (iii) any terms and conditions the Attorney 
                        General or the Secretary deems necessary to 
                        assure compliance with the applicable 
                        procedures described in paragraph (3).
            (4) Timing for decision on application.--Within 90 days 
        after the Attorney General receives an application for a 
        certificate of review, the Attorney General shall determine 
        whether to grant or deny the certificate.
            (5) Notification of decision.--The Attorney General shall 
        notify the applicant of the Attorney General's determination 
        and, if the application is denied, the reasons for the denial.
            (6) Fraudulent procurement.--A certificate of review shall 
        be void ab initio with respect to any health care market 
        activities for which the certificate was procured by fraud.
    (c) Amendment and Revocation of Certificates.--
            (1) Notification of changes.--Any applicant who receives a 
        certificate of review--
                    (A) shall promptly report to the Attorney General 
                any change relevant to the matters specified in the 
                certificate; and
                    (B) may submit to the Attorney General an 
                application to amend the certificate to reflect the 
                effect of the change on the conduct specified in the 
                certificate.
            (2) Amendment to certificate.--An application for an 
        amendment to a certificate of review shall be treated as an 
        application for the issuance of a certificate. The effective 
        date of an amendment shall be the date on which the application 
        for the amendment is received by the Attorney General.
            (3) Revocation.--
                    (A) Grounds for revocation.--In accordance with 
                this paragraph, the Attorney General, in consultation 
                with the Secretary, may revoke in whole or in part a 
                certificate of review issued under this section based 
                on one or more of the following grounds:
                            (i) After the expiration of the 2-year 
                        period beginning on the date a person's 
                        certificate is issued, the activities of the 
                        person have not substantially accomplished the 
                        purposes for the issuance of the certificate.
                            (ii) The person has failed to comply with 
                        any of the terms or conditions imposed under 
                        the certificate by the Attorney General or the 
                        Secretary under subsection (b)(4).
                            (iii) The activities covered under the 
                        certificate no longer satisfy the criteria set 
                        forth in section 522(f).
                    (B) Request for compliance information.--If the 
                Attorney General or the Secretary has reason to believe 
                that any of the grounds for revocation of a certificate 
                of review described in subparagraph (A) may apply to a 
                person holding the certificate, the Attorney General 
                shall request such information from such person as the 
                Attorney General or the Secretary deems necessary to 
                resolve the matter of compliance. Failure to comply 
                with such request shall be grounds for revocation of 
                the certificate under this paragraph.
                    (C) Procedures for revocation.--If the Attorney 
                General or the Secretary determines that any of the 
                grounds for revocation of a certificate of review 
                described in subparagraph (A) apply to a person holding 
                the certificate, or that such person has failed to 
                comply with a request made under subparagraph (B), the 
                Attorney General shall give written notice of the 
                determination to such person. The notice shall include 
                a statement of the circumstances underlying, and the 
                reasons in support of, the determination. In the 60-day 
                period beginning 30 days after the notice is given, the 
                Attorney General shall revoke the certificate or modify 
                it as the Attorney General or the Secretary deems 
                necessary to cause the certificate to apply only to 
                activities that meet the criteria set forth in section 
                522(f).
                    (D) Investigation authority.--For purposes of 
                carrying out this paragraph, the Attorney General may 
                conduct investigations in the same manner as the 
                Attorney General conducts investigations under section 
                3 of the Antitrust Civil Process Act, except that no 
                civil investigative demand may be issued to a person to 
                whom a certificate of review is issued if such person 
                is the target of such investigation.
    (d) Review of Determinations.--
            (1) Availability of review for certain actions.--If the 
        Attorney General denies, in whole or in part, an application 
        for a certificate of review or for an amendment to a 
        certificate, or revokes or modifies a certificate pursuant to 
        paragraph (3), the applicant or certificate holder (as the case 
        may be) may, within 30 days of the denial or revocation, bring 
        an action in the United States District Court for the District 
        of Columbia to set aside the determination on the ground that 
        such determination is clearly erroneous.
            (2) No other review permitted.--Except as provided in 
        paragraph (1), no action by the Attorney General, the Chair, or 
        the Secretary pursuant to this subtitle shall be subject to 
        judicial review.
            (3) Effect of rejected application.--If the Attorney 
        General denies, in whole or in part, an application for a 
        certificate of review or for an amendment to a certificate, or 
        revokes or amends a certificate, neither the negative 
        determination nor the statement of reasons therefore shall be 
        admissible in evidence, in any administrative or judicial 
        proceeding, concerning any claim under the antitrust laws.
    (e) Publication of Decisions.--The Attorney General shall publish a 
notice in the Federal Register on a timely basis of each decision made 
with respect to an application for a certificate of review under this 
section or the amendment or revocation of such a certificate, in a 
manner that protects the confidentiality of any proprietary information 
relating to the application.
    (f) Annual Reports.--Every person to whom a certificate of review 
is issued shall submit to the Attorney General an annual report, in 
such form and at such time as the Attorney General may require, that 
contains any necessary updates to the information required under 
subsection (b) and a description of the activities of the holder under 
the certificate during the preceding year.
    (g) Restrictions on Disclosure of Information.--
            (1) Waiver of disclosure requirements under administrative 
        procedure act.--Information submitted by any person in 
        connection with the issuance, amendment, or revocation of a 
        certificate of review shall be exempt from disclosure under 
        section 552 of title 5, United States Code.
            (2) Restrictions on disclosure of commercial or financial 
        information.--
                    (A) In general.--Except as provided in subparagraph 
                (B), no officer or employee of the United States shall 
                disclose commercial or financial information submitted 
                in connection with the issuance, amendment, or 
                revocation of a certificate of review if the 
                information is privileged or confidential or if 
                disclosure of the information would cause harm to the 
                person who submitted the information.
                    (B) Exceptions.--Subparagraph (A) shall not apply 
                with respect to information disclosed--
                            (i) upon a request made by the Congress or 
                        any committee of the Congress,
                            (ii) in a judicial or administrative 
                        proceeding, subject to appropriate protective 
                        orders,
                            (iii) with the consent of the person who 
                        submitted the information,
                            (iv) in the course of making a 
                        determination with respect to the issuance, 
                        amendment, or revocation of a certificate of 
                        review, if the Attorney General deems 
                        disclosure of the information to be necessary 
                        in connection with making the determination,
                            (v) in accordance with any requirement 
                        imposed by a statute of the United States, or
                            (vi) in accordance with any rule or 
                        regulation promulgated under subsection (i) 
                        permitting the disclosure of the information to 
                        an agency of the United States or of a State on 
                        the condition that the agency will disclose the 
                        information only under the circumstances 
                        specified in clauses (i) through (v).
            (3) Prohibition against use of information to support or 
        answer claims under antitrust laws.--Any information disclosed 
        in an application for a certificate of review under this 
        section shall only be admissible into evidence in a judicial or 
        administrative proceeding for the sole purpose of establishing 
        whether a person is entitled to the protections provided by 
        such a certificate.

SEC. 524. NOTIFICATIONS PROVIDING REDUCTION IN CERTAIN PENALTIES UNDER 
              ANTITRUST LAW FOR HEALTH CARE JOINT VENTURES.

    (a) Notifications Described.--
            (1) Submission of notification by venture.--Any party to a 
        health care joint venture, acting on such venture's behalf, 
        may, not later than 90 days after entering into a written 
        agreement to form such venture or not later than 90 days after 
        the date of the enactment of this Act, whichever is later, file 
        with the Attorney General a written notification disclosing--
                    (A) the identities of the parties to such venture,
                    (B) the nature and objectives of such venture, and
                    (C) such additional information as the Attorney 
                General may require by regulation.
            (2) Filing fee.--The Attorney General may require a filing 
        fee to be submitted with the notification to cover the cost of 
        publication and the cost of administering this section, except 
        that the amount of such fee shall not exceed $250.
            (3) Submission of additional information.--
                    (A) Request of attorney general.--At any time after 
                receiving a notification filed under paragraph (1), the 
                Attorney General may require the submission of 
                additional information or documentary material relevant 
                to the proposed health care joint venture.
                    (B) Parties to venture.--Any party to a health care 
                joint venture may submit such additional information on 
                the venture's behalf as may be appropriate to ensure 
                that the venture will receive the protections provided 
                under subsection (b).
                    (C) Required submission of information on changes 
                to venture.--A health care joint venture for which a 
                notification is in effect under this section shall 
                submit information on any change in the membership of 
                the venture not later than 90 days after such change 
                occurs.
            (4) Publication of notification.--
                    (A) Information made publicly available.--Not later 
                than 30 days after receiving a notification with 
                respect to a venture under paragraph (1), the Attorney 
                General shall publish in the Federal Register a notice 
                with respect to the venture that identifies the parties 
                to the venture and generally describes the purpose and 
                planned activity of the venture. Prior to its 
                publication, the contents of the notice shall be made 
                available to the parties to the venture.
                    (B) Restriction on disclosure of other 
                information.--All information and documentary material 
                submitted pursuant to this section and all information 
                obtained by the Attorney General in the course of any 
                investigation or case with respect to a potential 
                violation of the antitrust laws by the health care 
                joint venture (other than information and material 
                described in subparagraph (A)) shall be exempt from 
                disclosure under section 552 of title 5, United States 
                Code, and shall not be made publicly available by any 
                agency of the United States to which such section 
                applies except in a judicial proceeding in which such 
                information and material is subject to any protective 
                order.
            (5) Withdrawal of notification.--Any person who files a 
        notification pursuant to this section may withdraw such 
        notification before a publication by the Attorney General 
        pursuant to paragraph (4).
            (6) No judicial review permitted.--Any action taken or not 
        taken by the Attorney General with respect to notifications 
        filed pursuant to this subsection shall not be subject to 
        judicial review.
    (b) Protections for Ventures Subject to Notification.--
            (1) In general.--
                    (A) Protections described.--Except as provided in 
                subsection (c), the provisions of paragraphs (2), (3), 
                (4), and (5) shall apply with respect to any action 
                under the antitrust laws challenging conduct within the 
                scope of a notification which is in effect pursuant to 
                subsection (a)(1).
                    (B) Timing of protections.--The protections 
                described in this subsection shall apply to the venture 
                that is the subject of a notification under subsection 
                (a)(1) as of the earlier of--
                            (i) the date of the publication in the 
                        Federal Register of the notice published with 
                        respect to the notification; or
                            (ii) if such notice is not published during 
                        the period required under subsection (a)(4), 
                        the expiration of the 30-day period that begins 
                        on the date the Attorney General receives any 
                        necessary information required to be submitted 
                        under subsection (a)(1) or any additional 
                        information required by the Attorney General 
                        under subsection (a)(3)(A).
            (2) Applicability of rule of reason standard.--In any 
        action under the antitrust laws, the conduct of any person 
        which is within the scope of a notification filed under 
        subsection (a) shall not be deemed illegal per se, but shall be 
        judged on the basis of its reasonableness, taking into account 
        all relevant factors affecting competition, including, but not 
        limited to, effects on competition in relevant markets.
            (3) Limitation on recovery to actual damages and 
        interest.--Notwithstanding section 4 of the Clayton Act, any 
        person who is entitled to recovery under the antitrust laws for 
        conduct that is within the scope of a notification filed under 
        subsection (a) shall recover the actual damages sustained by 
        such person and interest calculated at the rate specified in 
        section 1961 of title 28, United States Code, for the period 
        beginning on the earliest date for which injury can be 
        established and ending on the date of judgment, unless the 
        court finds that the award of all or part of such interest is 
        unjust under the circumstances.
            (4) Award of attorney's fees and costs of suit.--
                    (A) In general.--In any action under the antitrust 
                laws brought against a health care joint venture for 
                conduct that is within the scope of a notification 
                filed under subsection (a), the court shall, at the 
                conclusion of the action--
                            (i) award to a substantially prevailing 
                        claimant the cost of suit attributable to such 
                        claim, including a reasonable attorney's fee, 
                        or
                            (ii) award to a substantially prevailing 
                        party defending against such claim the cost of 
                        such suit attributable to such claim, including 
                        reasonable attorney's fee, if the claim, or the 
                        claimant's conduct during litigation of the 
                        claim, was frivolous, unreasonable, without 
                        foundation, or in bad faith.
                    (B) Offset in cases of bad faith.--The court may 
                reduce an award made pursuant to subparagraph (A) in 
                whole or in part by an award in favor of another party 
                for any part of the cost of suit (including a 
                reasonable attorney's fee) attributable to conduct 
                during the litigation by any prevailing party that the 
                court finds to be frivolous, unreasonable, without 
                foundation, or in bad faith.
            (5) Restrictions on admissibility of information.--
                    (A) In general.--Any information disclosed in a 
                notification submitted under subsection (a)(1) and the 
                fact of the publication of a notification by the 
                Attorney General under subsection (a)(4) shall only be 
                admissible into evidence in a judicial or 
                administrative proceeding for the sole purpose of 
                establishing whether a party to a health care joint 
                venture is entitled to the protections described in 
                this subsection.
                    (B) Actions of attorney general.--No action taken 
                by the Attorney General pursuant to this section shall 
                be admissible into evidence in any judicial or 
                administrative proceeding for the purpose of supporting 
                or answering any claim under the antitrust laws.
    (c) Exception for Certain Activities.--In the event the parties 
cannot show procompetitive aspects necessary to the success of the 
joint venture, the protections described in subsection (b) should not 
be construed to apply to conduct which constitutes per se price-fixing, 
bid-rigging, or market allocation.

SEC. 525. REVIEW AND REPORTS ON SAFE HARBORS, CERTIFICATES OF REVIEW, 
              AND NOTIFICATIONS.

    (a) In General.--The Attorney General, in consultation with the 
Secretary and the Chair, shall periodically review the safe harbors 
designated under section 522, the certificates of review issued under 
section 523, and notification received under section 524, and--
            (1) with respect to the safe harbors, issue modifications 
        to such safe harbors in such manner as the Attorney General 
        considers appropriate in accordance with the requirements of 
        section 522(f), which modifications shall take effect 90 days 
        after issuance, unless disapproved by the Congress; and
            (2) with respect to the certificates of review and 
        notifications, submit a report to Congress on the issuance of 
        such certificates and receipt of notifications, including a 
        description of the effect of such certificates and 
        notifications on increasing access to high quality health care 
        services at reduced costs.
    (b) Recommendations for Legislation.--The Attorney General shall 
include in the reports submitted under subsection (a)(2) any 
recommendations of the Attorney General for legislation to improve the 
programs for the issuance of certificates of review and receipt of 
notifications established under this subtitle.

SEC. 526. RULES, REGULATIONS, AND GUIDELINES.

    (a) Safe Harbors, Certificates, and Notifications.--The Attorney 
General, in consultation with the Secretary and the Chair, shall 
promulgate such rules, regulations, and guidelines as are necessary to 
carry out sections 522, 523, and 524.
    (b) Guidance for Providers.--
            (1) In general.--To promote greater certainty regarding the 
        application of the antitrust laws to activities in the health 
        care market, the Attorney General, in consultation with the 
        Secretary and the Chair, shall (not later than 1 year after the 
        date of the enactment of this Act), taking into account the 
        criteria used to designate safe harbors under section 522 and 
        to grant certificates of review under section 523, publish 
        guidelines--
                    (A) to define or provide assistance in determining 
                relevant geographic and product markets for health care 
                services and providers of health care services;
                    (B) to further collaborative activities which may 
                be helpful to enhance services in underserved and 
                geographically disadvantaged areas such as rural 
                markets and inner cities;
                    (C) to assist collaboration between providers (such 
                as hospital networks, physician-hospital organizations, 
                and other groups of providers) which will help provide 
                health care services more efficiently;
                    (D) to further activities by which public health 
                clinics (including community health centers and migrant 
                health centers under title III of the Public Health 
                Service Act) may participate in networks and other 
                collaborative activities in order to enhance services 
                in underserved areas;
                    (E) to assist providers of health care services in 
                analyzing whether the activities of such providers may 
                be subject to a safe harbor under section 522;
                    (F) to provide clarification for activities in the 
                general subject matter areas described in the safe 
                harbors in section 522, but which fall outside the safe 
                harbors; and
                    (G) to describe specific types of activities which 
                would meet the requirements for issuance of a 
                certificate of review under section 523, and 
                summarizing the factual and legal bases on which the 
                activities would meet the requirements.
            (2) Periodic update.--The Attorney General shall 
        periodically update the guidelines published under paragraph 
        (1) as the Attorney General considers appropriate.
            (3) Waiver of administrative procedure act.--Section 553 of 
        title 5, United States Code, shall not apply to the issuance of 
        guidelines under paragraph (1).

SEC. 527. DEFINITIONS.

    In this subtitle, the following definitions shall apply:
            (1) The term ``antitrust laws''--
                    (A) has the meaning given it in subsection (a) of 
                the first section of the Clayton Act (15 U.S.C. 12(a)), 
                except that such term includes section 5 of the Federal 
                Trade Commission Act (15 U.S.C. 45) to the extent such 
                section applies to unfair methods of competition; and
                    (B) includes any State law similar to the laws 
                referred to in subparagraph (A).
            (2) The term ``Chair'' means the Chair of the Federal Trade 
        Commission.
            (3) The term ``health benefit plan'' means any hospital or 
        medical expense incurred policy or certificate, hospital or 
        medical service plan contract, or health maintenance subscriber 
        contract, or a multiple employer welfare arrangement or 
        employee benefit plan (as defined under the Employee Retirement 
        Income Security Act of 1974) which provides benefits with 
        respect to health care services.
            (4) The term ``health care joint venture'' means a joint 
        venture of 2 or more persons formed for the purpose of 
        providing health care services, including attempts to enter 
        into or perform a contract or agreement to provide such 
        services.
            (5) The term ``health care services'' means any services 
        for which payment may be made under a health benefit plan, 
        including services related to the delivery or administration of 
        such services.
            (6) The term ``medical self-regulatory entity'' means a 
        medical society or association, a specialty board, a recognized 
        accrediting agency, or a hospital medical staff, and includes 
        the members, officers, employees, consultants, and volunteers 
        or committees of such an entity.
            (7) The term ``person'' includes a State or unit of local 
        government.
            (8) The term ``provider of health care services'' means any 
        individual or entity that is engaged in the delivery of health 
        care services in a State and that is required by State law or 
        regulation to be licensed or certified by the State to engage 
        in the delivery of such services in the State.
            (9) The term ``Secretary'' means the Secretary of Health 
        and Human Services.
            (10) The term ``specialty group'' means a medical specialty 
        or subspecialty in which a provider of health care services may 
        be licensed to practice by a State (as determined by the 
        Secretary in consultation with the certification boards for 
        such specialties and subspecialties).
            (11) The term ``standard setting and enforcement 
        activities'' means--
                    (A) accreditation of health care practitioners, 
                health care providers, medical education institutions, 
                or medical education programs,
                    (B) technology assessment and risk management 
                activities,
                    (C) the development and implementation of practice 
                guidelines or practice parameters, or
                    (D) official peer review proceedings undertaken by 
                a hospital medical staff (or committee thereof) or a 
                medical society or association for purposes of 
                evaluating the professional conduct or quality of 
                health care provided by a medical professional.

          TITLE VI--ADMINISTRATIVE SIMPLIFICATION AND PRIVACY

SEC. 601. ADMINISTRATIVE SIMPLIFICATION.

    (a) Health Information Network.--
            (1) In general.--Title XI of the Social Security Act (42 
        U.S.C. 1301 et seq.) is amended by adding at the end the 
        following new subtitle:

              ``Subtitle B--Administrative Simplification

                    ``table of contents of subtitle

              ``Subtitle B--Administrative Simplification

                   ``Part I--Purpose and Definitions

        ``Sec. 11701. Purpose.
        ``Sec. 11702. Definitions.
  ``Part II--Standards for Data Elements and Information Transactions

        ``Sec. 11711. General requirements on Secretary.
        ``Sec. 11712. Standards for data elements of health 
                            information.
        ``Sec. 11713. Information transaction standards.
        ``Sec. 11714. Timetables for adoption of standards.
   ``Part III--Requirements With Respect to Certain Transactions and 
                              Information

        ``Sec. 11721. Requirements with respect to certain transactions 
                            and information.
        ``Sec. 11722. Timetables for compliance with requirements.
                ``Part IV--Accessing Health Information

        ``Sec. 11731. Accessing health information for authorized 
                            purposes.
        ``Sec. 11732. Responding to access requests.
        ``Sec. 11733. Length of time information should be accessible.
        ``Sec. 11734. Timetables for adoption of standards and 
                            compliance.
  ``Part V--Standards and Certification for Health Information Network

        ``Sec. 11741. Standards and certification for health 
                            information network services.
        ``Sec. 11742. Ensuring availability of information.
                          ``Part VI--Penalties

        ``Sec. 11751. General penalty for failure to comply with 
                            requirements and standards.
                  ``Part VII--Miscellaneous Provisions

        ``Sec. 11761. Imposition of additional requirements.
        ``Sec. 11762. Effect on State law.
        ``Sec. 11764. Health information continuity.
        ``Sec. 11765. Protection of commercial information.
        ``Sec. 11766. Payment for health care services or health plan 
                            premiums.
        ``Sec. 11767. Health security cards.
        ``Sec. 11768. Authorization of appropriations.
                ``Part VIII--Assistance to the Secretary

        ``Sec. 11771. General requirement on Secretary.
        ``Sec. 11772. Health Information Advisory Committee.
    ``Part IX--Demonstration Projects for Community-based Clinical 
                          Information Systems

        ``Sec. 11781. Grants for demonstration projects.

                   ``PART I--PURPOSE AND DEFINITIONS

``SEC. 11701. PURPOSE.

    ``It is the purpose of this subtitle to improve the efficiency and 
effectiveness of the health care system, including the medicare program 
under title XVIII and the medicaid program under title XIX, by 
encouraging the development of a health information network through the 
establishment of standards and requirements for the electronic 
transmission of certain health information.

``SEC. 11702. DEFINITIONS.

    ``For purposes of this subtitle:
            ``(1) Code set.--The term `code set' means any set of codes 
        used for encoding data elements, such as tables of terms, 
        medical concepts, medical diagnostic codes, or medical 
        procedure codes.
            ``(2) Coordination of benefits.--The term `coordination of 
        benefits' means determining and coordinating the financial 
        obligations of health plans when health care benefits are 
        payable under 2 or more health plans.
            ``(3) Health care provider.--The term `health care 
        provider' includes a provider of services (as defined in 
        section 1861(u)), a provider of medical or other health 
        services (as defined in section 1861(s)), and any other person 
        furnishing health care services or supplies.
            ``(4) Health information.--The term `health information' 
        means any information, whether oral or recorded in any form or 
        medium that--
                    ``(A) is created or received by a health care 
                provider, health plan, health oversight agency (as 
                defined in section 11802), health researcher, public 
                health authority (as defined in section 11802), 
                employer, life insurer, school or university, or health 
                information network service certified under section 
                11741; and
                    ``(B) relates to the past, present, or future 
                physical or mental health or condition of an 
                individual, the provision of health care to an 
                individual, or the past, present, or future payment for 
                the provision of health care to an individual.
            ``(5) Health information network.--The term `health 
        information network' means the health information system that 
        is formed through the application of the requirements and 
        standards established under this subtitle.
            ``(6) Health information protection organization.--The term 
        `health information protection organization' means a private 
        entity or an entity operated by a State that accesses standard 
        data elements of health information through the health 
        information network, processes such information into non-
        identifiable health information, and may store such 
        information.
            ``(7) Health information network service.--The term `health 
        information network service'--
                    ``(A) means a private entity or an entity operated 
                by a State that enters into contracts to--
                            ``(i) process or facilitate the processing 
                        of nonstandard data elements of health 
                        information into standard data elements;
                            ``(ii) provide the means by which persons 
                        are connected to the health information network 
                        for purposes of meeting the requirements of 
                        this subtitle, including the holding of 
                        standard data elements of health information;
                            ``(iii) provide authorized access to health 
                        information through the health information 
                        network; or
                            ``(iv) provide specific information 
                        processing services, such as automated 
                        coordination of benefits and claims transaction 
                        routing; and
                    ``(B) includes a health information protection 
                organization.
            ``(8) Health plan.--The term `health plan' has the meaning 
        given such term in section 21003(a)(1) except that such term 
        shall include subparagraphs (C), (D), (E), (F), and (H) of such 
        section.
            ``(9) Non-identifiable health information.--The term `non-
        identifiable health information' means health information that 
        is not protected health information as defined in section 
        11802.
            ``(10) Health researcher.--The term `health researcher' 
        shall have the meaning given such term under section 11802.
            ``(11) Patient medical record information.--The term 
        `patient medical record information' means health information 
        derived from a clinical encounter that relates to the physical 
        or mental condition of an individual.
            ``(12) Standard.--The term `standard' when referring to an 
        information transaction or to data elements of health 
        information means the transaction or data elements meet any 
        standard adopted by the Secretary under part II that applies to 
        such information transaction or data elements.

  ``PART II--STANDARDS FOR DATA ELEMENTS AND INFORMATION TRANSACTIONS

``SEC. 11711. GENERAL REQUIREMENTS ON SECRETARY.

    ``(a) In General.--The Secretary shall adopt standards and 
modifications to standards under this subtitle that are--
            ``(1) consistent with the objective of reducing the costs 
        of providing and paying for health care; and
            ``(2) in use and generally accepted or developed or 
        modified by the standards setting organizations accredited by 
        the American National Standard Institute (ANSI).
    ``(b) Initial Standards.--The Secretary may develop an expedited 
process for the adoption of initial standards under this subtitle.
    ``(c) Paper formats.--The Secretary may develop methods by which a 
person may use the standards adopted by the Secretary under this 
subtitle with respect to health information that is in written rather 
than electronic form.

``SEC. 11712. STANDARDS FOR DATA ELEMENTS OF HEALTH INFORMATION.

    ``(a) In General.--The Secretary shall adopt standards necessary to 
make data elements of the following health information uniform and 
compatible for electronic transmission through the health information 
network:
            ``(1) the health information that is appropriate for 
        transmission in connection with transactions described in 
        subsections (a) and (b) of section 11721;
            ``(2) any quality information required to be submitted by a 
        health plan to a State under title XXI; and
            ``(3) patient medical record information.
    ``(b) Additions.--The Secretary may make additions to the sets of 
data elements adopted under subsection (a) as the Secretary determines 
appropriate in a manner that minimizes the disruption and cost of 
compliance with such additions.
    ``(c) Certain Data Elements.--
            ``(1) Unique health identifiers.--The Secretary shall adopt 
        standards for a standard unique health identifier for each 
        individual, employer, health plan, and health care provider for 
        use in the health care system.
            ``(2) Code sets.--
                    ``(A) In general.--The Secretary, in consultation 
                with experts from the private sector and Federal 
                agencies, shall--
                            ``(i) select code sets for appropriate data 
                        elements from among the code sets that have 
                        been developed by private and public entities; 
                        or
                            ``(ii) establish code sets for such data 
                        elements if no code sets for the data elements 
                        have been developed.
                    ``(B) Distribution.--The Secretary shall establish 
                efficient and low-cost procedures for distribution of 
                code sets and modifications to such code sets under 
                section 11714(c).

``SEC. 11713. INFORMATION TRANSACTION STANDARDS.

    ``(a) In General.--The Secretary shall adopt technical standards 
relating to the method by which data elements of health information 
that have been standardized under section 11712 may be transmitted 
electronically, including standards with respect to the format in which 
such data elements shall be transmitted.
    ``(b) Special Rule for Coordination of Benefits.--Any standards 
adopted by the Secretary under paragraph (1) that relate to 
coordination of benefits shall provide that a claim for reimbursement 
for medical services furnished is tested by an algorithm specified by 
the Secretary against all records of enrollment and eligibility for the 
individual who received such services to determine any primary and 
secondary obligors for payment.
    ``(c) Electronic Signature.--The Secretary, in coordination with 
the Secretary of Commerce, shall promulgate regulations specifying 
procedures for the electronic transmission and authentication of 
signatures, compliance with which will be deemed to satisfy State and 
Federal statutory requirements for written signatures with respect to 
information transactions required by this Act and written signatures on 
medical records and prescriptions.

``SEC. 11714. TIMETABLES FOR ADOPTION OF STANDARDS.

    ``(a) Initial Standards for Data Elements.--The Secretary shall 
adopt standards relating to--
            ``(1) the data elements for the information described in 
        section 11712(a)(1) not later than 9 months after the date of 
        the enactment of this subtitle (except in the case of standards 
        with respect to data elements for claims attachments which 
        shall be adopted not later than 24 months after the date of the 
        enactment of this subtitle);
            ``(2) the data elements for the information described in 
        section 11712(a)(2) not later than 9 months after the date of 
        the enactment of this subtitle;
            ``(3) data elements for patient medical record information 
        not earlier than 5 years and not later than 10 years after the 
        date of the enactment of this subtitle; and
            ``(4) any addition to a set of data elements, in 
        conjunction with making such an addition.
    ``(b) Initial Standards for Information Transactions.--The 
Secretary shall adopt standards relating to information transactions 
under section 11713 not later than 9 months after the date of the 
enactment of this subtitle (except in the case of standards for claims 
attachments which shall be adopted not later than 24 months after the 
date of the enactment of this subtitle).
    ``(c) Modifications to Standards.--
            ``(1) In general.--Except as provided in paragraph (2), the 
        Secretary shall review the standards adopted under this 
        subtitle and shall adopt modified standards as determined 
        appropriate, but no more frequently than once every 6 months. 
        Any modification to standards shall be completed in a manner 
        which minimizes the disruption and cost of compliance.
            ``(2) Special rules.--
                    ``(A) Modifications during first 12-month period.--
                Except with respect to additions and modifications to 
                code sets under subparagraph (B), the Secretary shall 
                not adopt any modifications to standards adopted under 
                this subtitle during the 12-month period beginning on 
                the date such standards are adopted unless the 
                Secretary determines that a modification is necessary 
                in order to permit compliance with requirements 
                relating to the standards.
                    ``(B) Additions and modifications to code sets.--
                            ``(i) In general.--The Secretary shall 
                        ensure that procedures exist for the routine 
                        maintenance, testing, enhancement, and 
                        expansion of code sets to accommodate changes 
                        in biomedical science and health care delivery.
                            ``(ii) Additional Rules.--If a code set is 
                        modified under this subsection, the modified 
                        code set shall include instructions on how data 
                        elements that were encoded prior to the 
                        modification are to be converted or translated 
                        so as to preserve the value of the data 
                        elements. Any modification to a code set under 
                        this subsection shall be implemented in a 
                        manner that minimizes the disruption and cost 
                        of complying with such modification.
    ``(d) Evaluation of Standards.--The Secretary may establish a 
process to measure or verify the consistency of standards adopted or 
modified under this subtitle. Such process may include demonstration 
projects and analysis of the cost of implementing such standards and 
modifications.

   ``PART III--REQUIREMENTS WITH RESPECT TO CERTAIN TRANSACTIONS AND 
                              INFORMATION

``SEC. 11721. REQUIREMENTS WITH RESPECT TO CERTAIN TRANSACTIONS AND 
              INFORMATION.

    ``(a) Requirements on Plans and Providers Relating to Financial and 
Administrative Transactions.--If a health care provider or a health 
plan conducts any of the following transactions, such transactions 
shall be standard transactions and the information transmitted or 
received in connection with such transaction shall be in the form of 
standard data elements:
            ``(1) Claims (including coordination of benefits).
            ``(2) Claims attachments.
            ``(3) Responses to research inquiries by a health 
        researcher.
            ``(3) Other transactions determined appropriate by the 
        Secretary consistent with the goal of reducing administrative 
        costs.
    ``(b) Requirement Only on Plans Relating to Financial and 
Administrative Transactions.--If a person desires to conduct any of the 
following transactions with a health plan as a standard transaction, 
the health plan shall conduct such standard transaction and the 
information transmitted or received in connection with such transaction 
shall be in the form of standard data elements:
            ``(1) Enrollment and disenrollment.
            ``(2) Eligibility.
            ``(3) Payment and remittance advice.
            ``(4) Premium payments.
            ``(5) First report of injury.
            ``(6) Claims status.
            ``(7) Referral certification and authorization.
            ``(8) Other transactions determined appropriate by the 
        Secretary consistent with the goal of reducing administrative 
        costs.
    ``(c) Requirement on Plans Relating to Quality Information.--Any 
quality information required to be submitted by a health plan to a 
State under title XXI shall be in the form of standard data elements 
and the transmission of such data shall be in the form of a standard 
transaction.
    ``(d) Requirement with Respect to Disclosure of Information.--
            ``(1) In general.--A health plan or health care provider 
        shall make the standard data elements transmitted or received 
        by such plan or provider in connection with the transactions 
        described in subsections (a), (b), and (c) or acquired under 
        section 11764(a) available for disclosure as authorized by this 
        subtitle.
            ``(2) Special rule.--In the case of a health care provider 
        that does not file claims, such provider shall be responsible 
        for making standard data elements for encounter information 
        available for disclosure as authorized by this subtitle.
    ``(e) Satisfaction of Requirements.--A health care provider or 
health plan may satisfy the requirement imposed on such provider or 
plan under subsection (a), (b), (c), or (d) by--
            ``(1) directly transmitting standard data elements;
            ``(2) submitting nonstandard data elements to a health 
        information network service certified under section 11741 for 
        processing into standard data elements and transmission; or
            ``(3) in the case of a provider, submitting data elements 
        to a plan which satisfies the requirements imposed on such 
        provider on the provider's behalf.
    ``(f) Timeliness.--A health care provider or health plan shall be 
determined to have satisfied a requirement imposed under this section 
only if the action required is completed in a timely manner, as 
determined by the Secretary. In setting standards for timeliness, the 
Secretary shall take into consideration the age and the amount of 
information being requested.

``SEC. 11722. TIMETABLES FOR COMPLIANCE WITH REQUIREMENTS.

    ``(a) Initial Compliance.--
            ``(1) In general.--Not later than 12 months after the date 
        on which standards are adopted under part II with respect to a 
        type of transaction or data elements for a type of health 
        information, a health plan or health care provider shall comply 
        with the requirements of this subtitle with respect to such 
        transaction or information.
            ``(2) Additional data elements.--Not later than 12 months 
        after the date on which the Secretary adopts an addition to a 
        set of data elements for health information under part II, a 
        health plan or health care provider shall comply with the 
        requirements of this subtitle using such data elements.
    ``(b) Compliance with Modified Standards.--
            ``(1) In general.--If the Secretary adopts a modified 
        standard under part II, a health plan or health care provider 
        shall be required to comply with the modified standard at such 
        time as the Secretary determines appropriate taking into 
        account the time needed to comply due to the nature and extent 
        of the modification.
            ``(2) Special rule.--In the case of modifications to 
        standards that do not occur within the 12-month period 
        beginning on the date such standards are adopted, the time 
        determined appropriate by the Secretary under paragraph (1) 
        shall be no sooner than the last day of the 90-day period 
        beginning on the date such modified standard is adopted and no 
        later than the last day of the 12 month period beginning on the 
        date such modified standard is adopted.

                ``PART IV--ACCESSING HEALTH INFORMATION

``SEC. 11731. ACCESSING HEALTH INFORMATION FOR AUTHORIZED PURPOSES.

    ``(a) In General.--The Secretary shall adopt technical standards 
for appropriate persons, including health plans, health care providers, 
health information network services certified under section 11741, 
health researchers, and Federal and State agencies, to locate and 
access the health information that is available through the health 
information network due to the requirements of this subtitle. Such 
technical standards shall ensure that any request to locate or access 
information shall be authorized under subtitle C.
    ``(b) Procurement Rule for Government Agencies.--
            ``(1) In general.--Health information protection 
        organizations certified under section 11741 shall make 
        available to a Federal or State agency pursuant to a Federal 
        Acquisition Regulation (or an equivalent State system), any 
        non-identifiable health information that is requested by such 
        agency.
            ``(2) Certain information available at low cost.--If a 
        health information protection organization described in 
        paragraph (1) needs information from a health plan or health 
        care provider in order to comply with a request of a Federal or 
        State agency that is necessary to comply with a requirement 
        under this Act, such plan or provider shall make such 
        information available to such organization for a charge that 
        does not exceed the reasonable cost of transmitting the 
        information. If requested, a health information protection 
        organization that receives information under the preceding 
        sentence must make such information available to any other such 
        organization that is certified under section 11741 for a charge 
        that does not exceed the reasonable cost of transmitting the 
        information.
    ``(c) Functional Separation.--The standards adopted by the 
Secretary under subsection (a) shall ensure that any health information 
disclosed under such subsection shall not, after such disclosure, be 
used or released for an administrative, regulatory, or law enforcement 
purpose unless such disclosure was made for such purpose.
    ``(d) Public Use Functions.--Nothing in this subtitle shall be 
construed to limit the authority of a Federal or State agency to make 
non-identifiable health information available for public use functions.

``SEC. 11732. RESPONDING TO ACCESS REQUESTS.

    ``(a) In General.--The Secretary may adopt, and modify as 
appropriate, standards under which a health care provider or health 
plan shall respond to requests for access to health information 
consistent with this subtitle and subtitle C.
    ``(b) Standards Described.--The standards under subsection (a) 
shall provide--
            ``(1) for a standard format under which a provider or plan 
        will respond to each request either by satisfying the request 
        or responding with an explanation of the specific restriction 
        which results in a failure to satisfy the request; and
            ``(2) that any restrictions will not prevent a plan or 
        provider from responding to a request in a timely manner taking 
        into account the age and amount of the information being 
        requested.
    ``(c) Construction.--Nothing in this section shall be construed as 
permitting a health care provider or health plan to refuse to disclose 
any health information that is required to be disclosed by law.

``SEC. 11733. LENGTH OF TIME INFORMATION SHOULD BE ACCESSIBLE.

    ``The Secretary shall adopt standards with respect to the length of 
time any standard data elements for a type of health information should 
be accessible through the health information network.

``SEC. 11734. TIMETABLES FOR ADOPTION OF STANDARDS AND COMPLIANCE.

    ``(a) Initial Standards.--The Secretary shall adopt standards under 
this part not later than 9 months after the date of the enactment of 
this subtitle and such standards shall be effective upon adoption.
    ``(b) Modifications to Standards.--
            ``(1) In general.--Except as provided in paragraph (2), the 
        Secretary shall review the standards adopted under this part 
        and shall adopt modified standards as determined appropriate, 
        but no more frequently than once every 6 months. Any 
        modification to standards shall be completed in a manner which 
        minimizes the disruption and cost of compliance. Any 
        modifications to standards adopted under this part shall be 
        effective upon adoption.
            ``(2) Special rule.--The Secretary shall not adopt 
        modifications to any standards adopted under this part during 
        the 12-month period beginning on the date such standards are 
        adopted unless the Secretary determines that a modification is 
        necessary in order to permit compliance with the requirements 
        of this part.

  ``PART V--STANDARDS AND CERTIFICATION FOR HEALTH INFORMATION NETWORK

``SEC. 11741. STANDARDS AND CERTIFICATION FOR HEALTH INFORMATION 
              NETWORK SERVICES.

    ``(a) Standards for Operation.--The Secretary shall adopt standards 
with respect to the operation of health information network services to 
ensure that--
            ``(1) such services cooperate with one another to form the 
        health information network;
            ``(2) such services meet all of the requirements under 
        subtitle C that are applicable to such services;
            ``(3) such services make public information concerning 
        their performance, as measured by uniform indicators such as 
        accessibility, transaction responsiveness, administrative 
        efficiency, reliability, dependability, and any other indicator 
        determined appropriate by the Secretary;
            ``(4) such services have security procedures that are 
        consistent with the privacy requirements under subtitle C, 
        including secure methods of access to and transmission of data;
            ``(5) such services, if they are part of a larger 
        organization, have policies and procedures in place which 
        isolate their activities with respect to processing information 
        in a manner that prevents unauthorized access to such 
        information by such larger organization.
    ``(b) Certification by the Secretary.--
            ``(1) Establishment.--Not later than 12 months after the 
        date of the enactment of this subtitle, the Secretary shall 
        establish a certification procedure for health information 
        network services which ensures that certified services are 
        qualified to meet the requirements of this subtitle and the 
        standards established by the Secretary under this section. Such 
        certification procedure shall be implemented in a manner that 
        minimizes the costs and delays of operations for such services.
            ``(2) Application.--Each entity desiring to be certified as 
        a health information network service shall apply to the 
        Secretary for certification in a form and manner determined 
        appropriate by the Secretary.
            ``(3) Audits and reports.--The procedure established under 
        paragraph (1) shall provide for audits by the Secretary and 
        reports by an entity certified under this section as the 
        Secretary determines appropriate in order to monitor such 
        entity's compliance with the requirements of this subtitle, 
        subtitle C, and the standards established by the Secretary 
        under this section.
    ``(c) Loss of certification.--
            ``(1) Mandatory termination.--Except as provided in 
        paragraph (3), if a health information network service violates 
        a requirement imposed on such service under subtitle C, its 
        certification under this section shall be terminated unless the 
        Secretary determines that appropriate corrective action has 
        been taken.
            ``(2) Discretionary termination.--If a health information 
        network service violates a requirement or standard imposed 
        under this subtitle and a penalty has been imposed under 
        section 11751, the Secretary shall review the certification of 
        such service and may terminate such certification.
            ``(3) Conditional certification--The Secretary may 
        establish a procedure under which a health information network 
        service may remain certified on a conditional basis if the 
        service is operating consistently with a plan intended to 
        correct any violations described in paragraphs (1) or (2). Such 
        procedure may provide for the appointment of a trustee to 
        continue operation of the service until the requirements for 
        full certification are met.
    ``(d) Certification by Private Entities.--The Secretary shall 
designate private entities to conduct the certification procedures 
established by the Secretary under this section. A health information 
network service certified by such an entity in accordance with such 
designation shall be considered to be certified by the Secretary.

``SEC. 11742. ENSURING AVAILABILITY OF INFORMATION.

    ``The Secretary shall establish a procedure under which a health 
plan or health care provider which does not have the ability to 
transmit standard data elements directly or does not have access to a 
health information network service certified under section 11741 shall 
be able to make health information available for disclosure as 
authorized by this subtitle.

                          ``PART VI--PENALTIES

``SEC. 11751. GENERAL PENALTY FOR FAILURE TO COMPLY WITH REQUIREMENTS 
              AND STANDARDS.

    ``(a) In General.--Except as provided in subsection (b), the 
Secretary shall impose on any person that violates a requirement or 
standard imposed under this subtitle a penalty of not more than $1,000 
for each violation. The provisions of section 1128A (other than 
subsections (a) and (b) and the second sentence of subsection (f)) 
shall apply to the imposition of a civil money penalty under this 
subsection in the same manner as such provisions apply to the 
imposition of a penalty under section 1128A.
    ``(b) Limitations.--
            ``(1) Noncompliance not discovered exercising reasonable 
        diligence.--A penalty may not be imposed under subsection (a) 
        if it is established to the satisfaction of the Secretary that 
        the person liable for the penalty did not know, and by 
        exercising reasonable diligence would not have known, that such 
        person failed to comply with the requirement or standard 
        described in subsection (a).
            ``(2) Failures due to reasonable cause.--
                    ``(A) In general.--Except as provided in 
                subparagraphs (B) and (C), a penalty may not be imposed 
                under subsection (a) if--
                            ``(i) the failure to comply was due to 
                        reasonable cause and not to willful neglect; 
                        and
                            ``(ii) the failure to comply is corrected 
                        during the 30-day period beginning on the 1st 
                        date the person liable for the penalty knew, or 
                        by exercising reasonable diligence would have 
                        known, that the failure to comply occurred.
                    ``(B) Extension of period.--
                            ``(i) No penalty.--The period referred to 
                        in subparagraph (A)(ii) may be extended as 
                        determined appropriate by the Secretary based 
                        on the nature and extent of the failure to 
                        comply.
                            ``(ii) Assistance.--If the Secretary 
                        determines that a health plan or health care 
                        provider failed to comply because such person 
                        was unable to comply, the Secretary may provide 
                        technical assistance to such person. Such 
                        assistance shall be provided in any manner 
                        determined appropriate by the Secretary.
            ``(3) Reduction.--In the case of a failure to comply which 
        is due to reasonable cause and not to willful neglect, any 
        penalty under subsection (a) that is not entirely waived under 
        paragraph (2) may be waived to the extent that the payment of 
        such penalty would be excessive relative to the compliance 
        failure involved.

                  ``PART VII--MISCELLANEOUS PROVISIONS

``SEC. 11761. IMPOSITION OF ADDITIONAL REQUIREMENTS.

    ``(a) Data Element Standards.--A person may not impose a standard 
on another person that is in addition to the standards adopted by the 
Secretary under section 11712 unless--
            ``(1) such person voluntarily agrees to such standard; or
            ``(2) a waiver is granted under subsection (c) to impose 
        such standard.
    ``(b) Transactions and Access Standards.--A person may not impose a 
standard on another person that is in addition to the standards adopted 
by the Secretary under section 11713 or 11731 unless such person 
voluntarily agrees to such standard.
    ``(c) Conditions for Waivers.--
            ``(1) In general.--A person may request a waiver from the 
        Secretary in order to require another person to comply with a 
        standard that is in addition to the standards adopted by the 
        Secretary under section 11712.
            ``(2) Consideration of waiver requests.--No waiver may be 
        granted unless the Secretary determines that the value of the 
        data to be exchanged for research or other purposes 
        significantly outweighs the administrative cost of the 
        additional standard taking into consideration the burden of the 
        timing of the imposition of the additional standard.
            ``(3) Anonymous reporting.--If a person attempts to impose 
        a standard in addition to the standards adopted by the 
        Secretary under section 11712, the person on whom such 
        additional standard is being imposed may contact the Secretary. 
        The Secretary shall develop a procedure under which the 
        contacting person shall remain anonymous. The Secretary shall 
        notify the person imposing the additional standard that the 
        additional standard may not be imposed unless the other person 
        voluntarily agrees to such standard or a waiver is obtained 
        under this subsection.

``SEC. 11762. EFFECT ON STATE LAW.

    ``(a) In General.--A provision, requirement, or standard under this 
subtitle shall supersede any contrary provision of State law, 
including--
            ``(1) a provision of State law that requires medical or 
        health plan records (including billing information) to be 
        maintained or transmitted in written rather than electronic 
        form, and
            ``(2) a provision of State law which provides for 
        requirements or standards that are more stringent than the 
        requirements or standards under this subtitle;
except where the Secretary determines that the provision is necessary 
to prevent fraud and abuse, with respect to controlled substances, or 
for other purposes.
    ``(b) Public Health Reporting.--Nothing in this subtitle shall be 
construed to invalidate or limit the authority, power, or procedures 
established under any law providing for the reporting of disease or 
injury, child abuse, birth, or death, public health surveillance, or 
public health investigation or intervention.

``SEC. 11764. HEALTH INFORMATION CONTINUITY.

    ``(a) Information Held by Health Plans and Providers.--If a health 
plan or health care provider takes any action that would threaten the 
continued availability of the standard data elements of health 
information held by such plan or provider, such data elements shall be 
obtained by the State in which such plan or provider is located. The 
State shall ensure that such data elements are transferred to a health 
plan or health care provider in accordance with procedures established 
by the Secretary.
    ``(b) Information Held by Health Information Network Services.--If 
a health information network service certified under section 11741 
loses its certified status or takes any action that would threaten the 
continued availability of the standard data elements of health 
information held by such service, such data elements shall be 
transferred to another health information network service certified 
under section 11741, as designated by the Secretary.

``SEC. 11765. PROTECTION OF COMMERCIAL INFORMATION.

    ``In adopting standards under this subtitle, the Secretary shall 
not require disclosure of trade secrets and confidential commercial 
information by entities operating in the health information network 
except as required by law.

``SEC. 11766. PAYMENT FOR HEALTH CARE SERVICES OR HEALTH PLAN PREMIUMS.

    ``Nothing in this subtitle shall be construed to prohibit payments 
for health care services or health plan premiums from being made by 
debit, credit, or other payment cards or numbers or other electronic 
payment means.

``SEC. 11767. HEALTH SECURITY CARDS.

    ``The Secretary shall adopt standards relating to the form of any 
health security cards that a health plan may issue and the information 
to be encoded electronically on such cards.

``SEC. 11768. AUTHORIZATION OF APPROPRIATIONS.

    ``There are authorized to be appropriated such sums as may be 
necessary to carry out the purposes of this subtitle.

                ``PART VIII--ASSISTANCE TO THE SECRETARY

``SEC. 11771. GENERAL REQUIREMENT ON SECRETARY.

    ``In complying with any requirements imposed under this subtitle, 
the Secretary shall rely on recommendations of the Health Information 
Advisory Committee established under section 11772 and shall consult 
with appropriate Federal agencies.

``SEC. 11772. HEALTH INFORMATION ADVISORY COMMITTEE.

    ``(a) Establishment.--There is established a committee to be known 
as the Health Care Information Advisory Committee.
    ``(b) Duty.--
            ``(1) In general.--The committee shall--
                    ``(A) provide assistance to the Secretary in 
                complying with the requirements imposed on the 
                Secretary under this subtitle and subtitle C;
                    ``(B) be generally responsible for advising the 
                Secretary and the Congress on the status of the health 
                information network; and
                    ``(C) make recommendations to correct any problems 
                that may occur in the network's implementation and 
                ongoing operations and to refine and improve the 
                network.
            ``(2) Technical assistance.--In performing its duties under 
        this subsection, the committee shall receive technical 
        assistance from appropriate Federal agencies.
    ``(c) Membership.--
            ``(1) In general.--The committee shall consist of 15 
        members to be appointed by the President not later than 60 days 
        after the date of the enactment of this subtitle. The President 
        shall designate 1 member as the Chair.
            ``(2) Expertise.--The membership of the committee shall 
        consist of individuals who are of recognized standing and 
        distinction and who possess the demonstrated capacity to 
        discharge the duties imposed on the committee.
            ``(3) Terms.--Each member of the committee shall be 
        appointed for a term of 5 years, except that the members first 
        appointed shall serve staggered terms such that the terms of no 
        more than 3 members expire at one time.
            ``(4) Vacancies.--
                    ``(A) In general.--A vacancy on the committee shall 
                be filled in the manner in which the original 
                appointment was made and shall be subject to any 
                conditions which applied with respect to the original 
                appointment.
                    ``(B) Filling unexpired term.--An individual chosen 
                to fill a vacancy shall be appointed for the unexpired 
                term of the member replaced.
                    ``(C) Expiration of terms.--The term of any member 
                shall not expire before the date on which the member's 
                successor takes office.
            ``(5) Conflicts of interest.--Members of the committee 
        shall disclose upon appointment to the committee or at any 
        subsequent time that it may occur, conflicts of interest.
    ``(d) Meetings.--
            ``(1) In general.--Except as provided in paragraph (2), the 
        committee shall meet at the call of the Chair.
            ``(2) Initial meeting.--Not later than 30 days after the 
        date on which all members of the committee have been appointed, 
        the committee shall hold its first meeting.
            ``(3) Quorum.--A majority of the members of the committee 
        shall constitute a quorum, but a lesser number of members may 
        hold hearings.
    ``(e) Power to Hold Hearings.--The committee may hold such 
hearings, sit and act at such times and places, take such testimony, 
and receive such evidence as the committee considers advisable to carry 
out the purposes of this section.
    ``(f) Other Administrative Provisions.--Subparagraphs (C), (D), and 
(H) of section 1886(e)(6) shall apply to the committee in the same 
manner as they apply to the Prospective Payment Assessment Commission.
    ``(g) Reports.--
            ``(1) In general.--The committee shall annually prepare and 
        submit to Congress and the Secretary a report including at 
        least an analysis of--
                    ``(A) the status of the health information network 
                established under this subtitle, including whether the 
                network is fulfilling the purpose described in section 
                11701;
                    ``(B) the savings and costs of the network;
                    ``(C) the activities of health information network 
                services certified under section 11741, health care 
                providers, health plans, and other entities using the 
                network to exchange health information;
                    ``(D) the extent to which entities described in 
                subparagraph (C) are meeting the standards adopted 
                under this subtitle and working together to form an 
                integrated network that meets the needs of its users;
                    ``(E) the extent to which entities described in 
                subparagraph (C) are meeting the privacy and security 
                protections of subtitle C;
                    ``(F) the number and types of penalties assessed 
                for noncompliance with the standards adopted under this 
                subtitle;
                    ``(G) whether the Federal Government and State 
                Governments are receiving information of sufficient 
                quality to meet their responsibilities under the 
                America's Health Care Option Act;
                    ``(H) any problems with respect to implementation 
                of the network;
                    ``(I) the extent to which timetables under this 
                subtitle for the adoption and implementation of 
                standards are being met; and
                    ``(J) any legislative recommendations related to 
                the health information network.
            ``(2) Availability to the public.--Any information in the 
        report submitted to Congress under paragraph (1) shall be made 
        available to the public unless such information may not be 
        disclosed by law.
    ``(h) Duration.--Notwithstanding section 14(a) of the Federal 
Advisory Committee Act, the committee shall continue in existence until 
otherwise provided by law.
    ``(i) Authorization of Appropriations.--
            ``(1) In general.--There are authorized to be appropriated 
        such sums as may be necessary to carry out the purposes of this 
        section.
            ``(2) Availability.--Any sums appropriated under the 
        authorization contained in this subsection shall remain 
        available, without fiscal year limitation, until expended.

    ``PART IX--DEMONSTRATION PROJECTS FOR COMMUNITY-BASED CLINICAL 
                          INFORMATION SYSTEMS

``SEC. 11781. GRANTS FOR DEMONSTRATION PROJECTS.

    ``(a) In General.--The Secretary may make grants for demonstration 
projects to promote the development and use of electronically 
integrated community-based clinical information systems and 
computerized patient medical records.
    ``(b) Applications.--
            ``(1) Submission.--To apply for a grant under this part for 
        any fiscal year, an applicant shall submit an application to 
        the Secretary in accordance with the procedures established by 
        the Secretary.
            ``(2) Criteria for approval.--The Secretary may not approve 
        an application submitted under paragraph (1) unless the 
        application includes assurances satisfactory to the Secretary 
        regarding the following:
                    ``(A) Use of existing technology.--Funds received 
                under this part will be used to apply 
                telecommunications and information systems technology 
                that is in existence on the date the application is 
                submitted in a manner that improves the quality of 
                health care, reduces the costs of such care, and 
                protects the privacy and confidentiality of information 
                relating to the physical or mental condition of an 
                individual.
                    ``(B) Use of existing information systems.--Funds 
                received under this part will be used--
                            ``(i) to enhance telecommunications or 
                        information systems that are operating on the 
                        date the application is submitted;
                            ``(ii) to integrate telecommunications or 
                        information systems that are operating on the 
                        date the application is submitted; or
                            ``(iii) to connect additional users to 
                        telecommunications or information networks or 
                        systems that are operating on the date the 
                        application is submitted.
                    ``(C) Matching funds.--The applicant shall make 
                available funds for the demonstration project in an 
                amount that equals at least 20 percent of the cost of 
                the project.
    ``(c) Geographic Diversity.--In making any grants under this part, 
the Secretary shall, to the extent practicable, make grants to persons 
representing different geographic areas of the United States, including 
urban and rural areas.
    ``(d) Review and Sanctions.--The Secretary shall review at least 
annually the compliance of a person receiving a grant under this part 
with the provisions of this part. The Secretary shall establish a 
procedure for determining whether such a person has failed to comply 
substantially within the provisions of this part and the sanctions to 
be imposed for any such noncompliance.
    ``(e) Annual Report.--The Secretary shall submit an annual report 
to the President for transmittal to Congress containing a description 
of the activities carried out under this part.
    ``(g) Authorization of Appropriations.--There are authorized to be 
appropriated such sums as may be necessary to carry out the purposes of 
this section.''.
            (2) Conforming amendments.--(A) Title XI of the Social 
        Security Act (42 U.S.C. 1301 et seq.) is amended by striking 
        the title and inserting the following:

    ``TITLE XI--GENERAL PROVISIONS, PEER REVIEW, AND ADMINISTRATIVE 
                             SIMPLIFICATION

           ``Subtitle A--General Provisions and Peer Review''

            (B) Title XI of the Social Security Act (42 U.S.C. 1301 et 
        seq.) is amended by striking each reference to ``this title'' 
        and inserting ``this subtitle''.
    (b) Medicare and Medicaid Coverage Data Bank and Related 
Identification Processes.--
            (1) Delay of employer reporting requirement.--
                    (A) In general.--Section 1144(c)(1)(A) of the 
                Social Security Act (42 U.S.C. 1320-14(c)(1)(A)) is 
                amended by striking ``January 1, 1994'' and inserting 
                ``January 1, 1996''.
                    (B) Effective date.--The amendment made by this 
                paragraph shall be effective on the date of the 
                enactment of this Act.
            (2) Repeal of data bank.--
                    (A) In general.--Section 1144 of the Social 
                Security Act (42 U.S.C. 1320b-14) and section 101(f) of 
                the Employee Retirement Income Security Act of 1974 (29 
                U.S.C. 1021(f)) are repealed.
                    (B) Internal revenue code provision.--Section 
                6103(l) of the Internal Revenue Code of 1986 is amended 
                by striking paragraph (12).
                    (C) Identification of medicare secondary payer 
                situations.--Section 1862(b) of the Social Security Act 
                (42 U.S.C. 1395y(b)) is amended by striking paragraph 
                (5).
                    (D) Conforming amendments.--(i) Section 
                1902(a)(25)(A)(i) of the Social Security Act (42 U.S.C. 
                1396a(a)(25)(A)(i)) is amended by striking ``including 
                the use of information collected by the Medicare and 
                Medicaid Coverage Data Bank under section 1144 and any 
                additional measures''.
                    (ii) Subsection (a)(8)(B) of section 552a of title 
                5, United States Code, is amended--
                            (I) in clause (v), by inserting ``; or'' at 
                        the end;
                            (II) in clause (vi), by striking ``or'' at 
                        the end; and
                            (III) by striking clause (vii).
                    (E) Effective date.--The amendments made by this 
                paragraph apply after the date on which the health 
                information network established under subsection (a) is 
                capable of replacing the activities performed under the 
                provisions affected by such amendments, as certified by 
                the Secretary of Health and Human Services.

SEC. 602. PRIVACY OF HEALTH INFORMATION UNDER THE SOCIAL SECURITY ACT.

    (a) In General.--Title XI of the Social Security Act (42 U.S.C. 
1301 et seq.), as amended by section 601, is amended by adding at the 
end the following new subtitle:

              ``Subtitle C--Privacy of Health Information

                    ``table of contents of subtitle

              ``Subtitle C--Privacy of Health Information

                   ``Part I--Findings and Definitions

        ``Sec. 11801. Findings and purposes.
        ``Sec. 11802. Definitions.
                   ```subpart a--general provisionss
        ``Sec. 11811. General rules regarding disclosure.
        ``Sec. 11812. Authorizations for disclosure of protected health 
                            information.
        ```subpart b--specific disclosures relating to patientvices.
        ``Sec. 11821. Disclosures for treatment and financial and 
                            administrative transactions.
        ``Sec. 11822. Next of kin and directory information.
  ``subpart c--disclosure for oversight, public health, and research 
                                purposes
        ``Sec. 11831. Oversight.
        ``Sec. 11832. Public health.
     ``subpart d--disclosure for judicial, administrative, and law 
                          enforcement purposes
        ``Sec. 11841. Judicial and administrative purposes.
   ``subpart e--disclosure pursuant to government subpoena or warrant
        ``Sec. 11851. Government subpoenas and warrants.
        ``Sec. 11852. Access procedures for law enforcement subpoenas 
                            and warrants.
        ``Sec. 11853. Challenge procedures for law enforcement warrants 
       ``subpart f--disclosure pursuant to private party subpoena
        ``Sec. 11854. Private party subpoenas.
        ``Sec. 11855. Access procedures for private party subpoenas.
        ``Sec. 11856. Challenge procedures for private party subpoenas.
   ``Part III--Procedures for Ensuring Security of Protected Health 
                ``subpart a--establishment of safeguards
        ``Sec. 11861. Establishment of safeguards.
``subpart b--review of protected health information by subjects of the 
                              information
        ``Sec. 11871. Inspection of protected health information.
        ``Sec. 11872. Amendment of protected health information.
        ``S``subpart c--standards for electronic disclosures
        ``Sec. 11882. Standards for electronic disclosures.
           ``subpart a--no sanctions for permissible actions
        ``Sec. 11891. No liability for permissible disclosures.
        ``Sec. 11892. No liability for institutional review board 
                            determinations.
        ``Sec. 11893. ``subpart b--civil sanctions.
        ``Sec. 11901. Civil penalty.
        ``Sec. 11902``subpart c--criminal sanctions
        ``Sec. 11911. Wrongful disclosure of protected health 
                            information.
                  ``Part V--Administrative Provisions

        ``Sec. 11921. Relationship to other laws.
        ``Sec. 11922. Rights of incompetents.
        ``Sec. 11923. Exercise of rights.

                   ``PART I--FINDINGS AND DEFINITIONS

``SEC. 11801. FINDINGS AND PURPOSES.

    ``(a) Findings.--The Congress finds as follows:
            ``(1) The improper disclosure of individually identifiable 
        health care information may cause significant harm to an 
        individual's interests in privacy, health care, and reputation 
        and may unfairly affect the ability of an individual to obtain 
        employment, education, insurance, and credit.
            ``(2) The movement of people and health care related 
        information across State lines, the availability of, access to, 
        and exchange of health care related information with Federally 
        funded health care systems, the medicare program under title 
        XVIII, and the medicaid program under title XIX, through 
        automated data banks and networks, and the emergence of other 
        multistate health care providers and payors create a need for a 
        uniform Federal law governing the disclosure of health care 
        information.
    ``(b) Purpose.--The purpose of this subtitle is to establish 
effective mechanisms to protect the privacy of individuals with respect 
to individually identifiable health care information that is created or 
maintained as part of health treatment, enrollment, payment, testing, 
or research processes.

``SEC. 11802. DEFINITIONS.

    ``(a) Terms Relating to Protected Health Information.--In this 
subtitle:
            ``(1) Protected health information.--The term `protected 
        health information' means any information, including 
        demographic information collected from an individual, whether 
        oral or recorded in any form or medium, that--
                    ``(A) is created or received by a health care 
                provider, health plan, health oversight agency, health 
                researcher, public health authority, employer, life 
                insurer, school or university, or certified health 
                information network service; and
                    ``(B) relates to the past, present, or future 
                physical or mental health or condition of an 
                individual, the provision of health care to an 
                individual, or the past, present, or future payment for 
                the provision of health care to an individual, and--
                            ``(i) identifies an individual; or
                            ``(ii) with respect to which there is a 
                        reasonable basis to believe that the 
                        information can be used to identify an 
                        individual.
            ``(2) Disclose.--The term `disclose', when used with 
        respect to protected health information, means to provide 
        access to the information, but only if such access is provided 
        to a person other than the individual who is the subject of the 
        information.
    ``(b) Terms Relating to Health Care System Participants.--In this 
subtitle:
            ``(1) Health information trustee.--The term `health 
        information trustee' means--
                    ``(A) a health care provider, health plan, health 
                oversight agency, certified health information network 
                service, employer, life insurer, or school or 
                university insofar as it creates, receives, maintains, 
                uses, or transmits protected health information;
                    ``(B) any person who obtains protected health 
                information under section 11823, 11832, 11833, 11841, 
                11842, 11851, or 11854; and
                    ``(C) any employee or agent of a person covered 
                under subparagraphs (A) or (B).
            ``(2) Health care.--The term `health care'--
                    ``(A) means--
                            ``(i) a preventative, diagnostic, 
                        therapeutic, rehabilitative, maintenance, or 
                        palliative care, counseling, service, or 
                        procedure--
                                    ``(I) with respect to the physical 
                                or mental condition of an individual; 
                                or
                                    ``(II) affecting the structure or 
                                function of the human body or any part 
                                of the human body; or
                            ``(ii) any sale or dispensing of a drug, 
                        device, equipment, or other item to an 
                        individual, or for the use of an individual, 
                        pursuant to a prescription; but
                    ``(B) does not include any item or service that is 
                not furnished for the purpose of examining, 
                maintaining, or improving the health of an individual.
            ``(3) Health care provider.--The term `health care 
        provider' means a person who is licensed, certified, 
        registered, or otherwise authorized by law to provide an item 
        or service that constitutes health care in the ordinary course 
        of business or practice of a profession.
            ``(4) Health oversight agency.--The term `health oversight 
        agency' means a person who--
                    ``(A) performs or oversees the performance of an 
                assessment, evaluation, determination, or investigation 
                relating to the licensing, accreditation, or 
                certification of health care providers; or
                    ``(B)(i) performs or oversees the performance of an 
                assessment, evaluation, determination, or investigation 
                relating to the effectiveness of, compliance with, or 
                applicability of legal, fiscal, medical, or scientific 
                standards or aspects of performance related to the 
                delivery of, or payment for, health care or relating to 
                health care fraud or fraudulent claims for payment 
                regarding health; and
                    ``(ii) is a public agency, acting on behalf of a 
                public agency, acting pursuant to a requirement of a 
                public agency, or carrying out activities under a 
                Federal or State law governing the assessment, 
                evaluation, determination, or investigation described 
                in clause (i).
            ``(5) Health plan.--The term `health plan' shall have the 
        meaning given such term under section 11702.
            ``(6) Health researcher.--The term `health researcher' 
        means a person who conducts a biomedical, public health, 
        epidemiological, health services, or health statistics research 
        project or a research project on social and behavioral factors 
        relating to health.
            ``(7) Institutional review board.--The term `institutional 
        review board' means--
                    ``(A) a board established in accordance with 
                regulations of the Secretary under section 491(a) of 
                the Public Health Service Act;
                    ``(B) a similar board established by the Secretary 
                for the protection of human subjects in research 
                conducted by the Secretary; or
                    ``(C) a similar board established under regulations 
                of a Federal Government authority other than the 
                Secretary.
            ``(8) Public health authority.--The term `public health 
        authority' means an authority or instrumentality of the United 
        States, a State, or a political subdivision of a State that is 
        (A) responsible for public health matters; and (B) engaged in 
        such activities as injury reporting, public health 
        surveillance, and public health investigation or intervention.
    ``(c) References to Certified Entities.--In this subtitle:
            ``(1) Certified health information network service.--The 
        term `certified health information network service' means a 
        health information service (as defined under section 11702) 
        that is certified under section 11741.
            ``(2) Certified health information protection 
        organization.--The term `certified health information 
        protection organization' means a health information protection 
        organization (as defined in section 11702) that is certified 
        under section 11741.
    ``(d) Other Terms.--In this subtitle:
            ``(1) Individual representative.--The term `individual 
        representative' means any individual legally empowered to make 
        decisions concerning the provision of health care to an 
        individual (where the individual lacks the legal capacity under 
        State law to make such decisions) or the administrator or 
        executor of the estate of a deceased individual.
            ``(2) Law enforcement inquiry.--The term `law enforcement 
        inquiry' means an investigation or official proceeding 
        inquiring into whether there is a violation of, or failure to 
        comply with, any criminal or civil statute or any regulation, 
        rule, or order issued pursuant to such a statute.
            ``(3) Person.--The term `person' includes an authority of 
        the United States, a State, or a political subdivision of a 
        State.

                   ``PART II--AUTHORIZED DISCLOSURES

                    ``Subpart A--General Provisions

``SEC. 11811. GENERAL RULES REGARDING DISCLOSURE.

    ``(a) General Rule.--A health information trustee may disclose 
protected health information only for a purpose that is authorized 
under this subtitle.
    ``(b) Disclosure within a trustee.--A health information trustee 
may disclose protected health information to an officer, employee, or 
agent of the trustee, but only for a purpose that is compatible with 
and related to the purpose for which the information was collected or 
received by that trustee.
    ``(c) Scope of disclosure.--
            ``(1) In general.--Every disclosure of protected health 
        information by a health information trustee shall be limited to 
        the minimum amount of information necessary to accomplish the 
        purpose for which the information is disclosed.
            ``(2) Regulations.--The Secretary, after notice and 
        opportunity for public comment, may issue regulations under 
        paragraph (1), which shall take into account the technical 
        capabilities of the record systems used to maintain protected 
        health information and the costs of limiting disclosure.
    ``(d) No General Requirement to Disclose.--Nothing in this subtitle 
that permits a disclosure of health information shall be construed to 
require such disclosure.
    ``(e) Use and Redisclosure of Information.--The protected health 
information received under a disclosure permitted by the subtitle may 
not be used or disclosed unless the use or disclosure is necessary to 
fulfill the purpose for which the information was obtained and is not 
otherwise prohibited by law. Protected health information about an 
individual that is disclosed under this subtitle may not be used in, or 
disclosed to any person for use in, any administrative, civil, or 
criminal action or investigation directed against the individual unless 
specifically permitted by this subtitle.
    ``(f) Identification of Disclosed Information as Protected 
Information.--
            ``(1) In general.--Except with respect to protected health 
        information that is disclosed under section 11823 and except as 
        provided in paragraph (2), a health information trustee may not 
        disclose protected health information unless such information 
        is clearly identified as protected health information that is 
        subject to this subtitle.
            ``(2) Routine disclosures subject to written agreement.--A 
        health information trustee who routinely discloses protected 
        health information to a person may satisfy the identification 
        requirement in paragraph (1) through a written agreement 
        between the trustee and the person with respect to the 
        protected health information.
    ``(g) Construction.--Nothing in this subtitle shall be construed to 
limit the ability of a health information trustee to charge a 
reasonable fee for the disclosure or reproduction of health 
information.
    ``(h) Information in Which Providers are Identified.--The 
Secretary, after notice and opportunity for public comment, may issue 
regulations protecting information identifying providers in order to 
promote the availability of health care services.

``SEC. 11812. AUTHORIZATIONS FOR DISCLOSURE OF PROTECTED HEALTH 
              INFORMATION.

    ``(a) Written Authorizations.--A health information trustee may 
disclose protected health information pursuant to an authorization 
executed by the individual who is the subject of the information, if 
each of the following requirements is met:
            ``(1) Writing.--The authorization is in writing, signed by 
        the individual who is the subject of the information, and dated 
        on the date of such signature.
            ``(2) Separate form.--The authorization is not on a form 
        used to authorize or facilitate the provision of, or payment 
        for, health care.
            ``(3) Trustee described.--The trustee is specifically named 
        or generically described in the authorization as authorized to 
        disclose such information.
            ``(4) Recipient described.--The person to whom the 
        information is to be disclosed is specifically named or 
        generically described in the authorization as a person to whom 
        such information may be disclosed.
            ``(5) Statement of intended disclosures.--The authorization 
        contains an acknowledgment that the individual who is the 
        subject of the information has read a statement of the 
        disclosures that the person to receive the protected health 
        information intends to make, which statement shall be in 
        writing, on a form that is distinct from the authorization for 
        disclosure, and which statement must be received by the 
        individual authorizing the disclosure on or before such 
        authorization is executed.
            ``(6) Information described.--The information to be 
        disclosed is described in the authorization.
            ``(7) Expiration date specified.--The authorization 
        specifies a date or event upon which the authorization expires, 
        which shall not exceed 2 years from the date of the execution 
        of the authorization.
            ``(8) Authorization timely received.--The authorization is 
        received by the trustee during a period described in subsection 
        (b)(1).
            ``(9) Disclosure timely made.--The disclosure occurs during 
        a period described in subsection (b)(2).
    ``(b) Time Limitations on Authorizations.--
            ``(1) Receipt by trustee.--For purposes of subsection 
        (a)(8), an authorization is timely received if it is received 
        by the trustee during--
                    ``(A) the 1-year period beginning on the date on 
                which the authorization is signed under subsection 
                (a)(1), if the authorization permits the disclosure of 
                protected health information to a person who provides 
                health counseling or social services to individuals; or
                    ``(B) the 30-day period beginning on the date on 
                which the authorization is signed under subsection 
                (a)(1), if the authorization permits the disclosure of 
                protected health information to a person other than a 
                person described in subparagraph (A).
            ``(2) Disclosure by trustee.--For purposes of subsection 
        (a)(9), a disclosure is timely made if it occurs before the 
        date or event specified in the authorization upon which the 
        authorization expires.
    ``(c) Revocation or Amendment of Authorization.--
            ``(1) In general.--An individual may in writing revoke or 
        amend an authorization described in subsection (a), in whole or 
        in part, at any time, except when--
                    ``(A) disclosure of protected health information 
                has been authorized to permit validation of 
                expenditures for health care; or
                    ``(B) action has been taken in reliance on the 
                authorization.
            ``(2) Notice of revocation.--A health information trustee 
        who discloses protected health information pursuant to an 
        authorization that has been revoked shall not be subject to any 
        liability or penalty under this subtitle if--
                    ``(A) the reliance was in good faith;
                    ``(B) the trustee had no notice of the revocation; 
                and
                    ``(C) the disclosure was otherwise in accordance 
                with the requirements of this subtitle.
    ``(d) Deceased Individual.--The Secretary shall develop and 
establish through regulation a procedure for obtaining protected health 
information relating to a deceased individual when there is no 
individual representative for such individual.
    ``(e) Model Authorizations.--The Secretary, after notice and 
opportunity for public comment, shall develop and disseminate model 
written authorizations of the type described in subsection (a) and 
model statements of intended disclosures of the type described in 
subsection (a)(5).
    ``(f) Copy.--A health information trustee who discloses protected 
health information pursuant to an authorization under this section 
shall maintain a copy of the authorization.

``SEC. 11813. CERTIFIED HEALTH INFORMATION NETWORK SERVICES.

    ``(a) In General.--A health information trustee may disclose 
protected health information to a certified health information network 
service acting as an agent of the trustee for any purpose permitted by 
this subtitle. Such a service, acting as an agent of a trustee, may 
disclose protected health information to another person as permitted 
under this subtitle to facilitate the completion of the purpose for 
which such information was disclosed to the service.
    ``(b) Certified Health Information Protection Organizations.--A 
health information trustee may disclose protected health information to 
a certified health information protection organization for the purpose 
of creating non-identifiable health information (as defined in section 
11702).

         ``Subpart B--Specific Disclosures Relating to Patient

``SEC. 11821. DISCLOSURES FOR TREATMENT AND FINANCIAL AND 
              ADMINISTRATIVE TRANSACTIONS.

    ``(a) Health Care Treatment.--A health care provider, health plan, 
employer, or person who receives protected health information under 
section 11823, may disclose protected health information to a health 
care provider for the purpose of providing health care to an individual 
if the individual who is the subject of the information has not 
previously objected in writing to the disclosure.
    ``(b) Disclosure to Health Plans for Financial and Administrative 
Purposes.--A health care provider or employer may disclose protected 
health information to a health plan for the purpose of providing for 
the payment for, or reviewing the payment of, health care furnished to 
an individual.
    ``(c) Disclosure by Health Plans for Financial and Administrative 
Purposes.--A health plan may disclose protected health information to a 
health care provider or a health plan for the purpose of providing for 
the payment for, or reviewing the payment of, health care furnished to 
an individual.

``SEC. 11822. NEXT OF KIN AND DIRECTORY INFORMATION.

    ``(a) Next of Kin.--A health care provider or person who receives 
protected health information under section 11823 may disclose protected 
health information to the next of kin, an individual representative of 
the individual who is the subject of the information, or an individual 
with whom that individual has a close personal relationship if--
            ``(1) the individual who is the subject of the 
        information--
                    ``(A) has been notified of the individual's right 
                to object and has not objected to the disclosure;
                    ``(B) is not competent to be notified about the 
                right to object; or
                    ``(C) exigent circumstances exist such that it 
                would not be practicable to notify the individual of 
                the right to object; and
            ``(2) the information disclosed relates to health care 
        currently being provided to that individual.
    ``(b) Directory Information.--A health care provider and a person 
receiving protected health information under section 11823 may disclose 
protected health information to any person if--
            ``(1) the information does not reveal specific information 
        about the physical or mental condition of the individual who is 
        the subject of the information or health care provided to that 
        person;
            ``(2) the individual who is the subject of the 
        information--
                    ``(A) has been notified of the individual's right 
                to object and has not objected to the disclosure;
                    ``(B) is not competent to be notified about the 
                right to object; or
                    ``(C) exigent circumstances exist such that it 
                would not be practicable to notify the individual of 
                the right to object; and
            ``(3) the information consists only of 1 or more of the 
        following items:
                    ``(A) The name of the individual who is the subject 
                of the information.
                    ``(B) If the individual who is the subject of the 
                information is receiving health care from a health care 
                provider on a premises controlled by the provider--
                            ``(i) the location of the individual on the 
                        premises; and
                            ``(ii) the general health status of the 
                        individual, described as critical, poor, fair, 
                        stable, or satisfactory or in terms denoting 
                        similar conditions.
    ``(d) Identification of Deceased Individual.--A health care 
provider, health plan, employer, or life insurer, may disclose 
protected health information if necessary to assist in the 
identification of a deceased individual.

``SEC. 11823. EMERGENCY CIRCUMSTANCES.

    ``(a) In General.--A health care provider, health plan, employer, 
or person who receives protected health information under this section 
may disclose protected health information in emergency circumstances 
when necessary to protect the health or safety of an individual from 
imminent harm.
    ``(b) Scope of Disclosure.--The disclosure of protected health 
information under this section shall be limited to persons who need the 
information to take action to protect the health or safety of the 
individual.

  ``Subpart C--Disclosure for Oversight, Public Health, and Research 
                                Purposes

``SEC. 11831. OVERSIGHT.

    ``(a) In General.--A health information trustee may disclose 
protected health information to a health oversight agency for an 
oversight function authorized by law.
    ``(b) Use in Action Against Individuals.--Notwithstanding section 
11811(e), protected health information about an individual that is 
disclosed under this section may be used in, or disclosed to any person 
for use in, any administrative, civil, or criminal action or 
investigation directed against the individual who is the subject of the 
information if the action or investigation arises out of and is 
directly related to receipt of health care or payment for health care 
or an action involving a fraudulent claim related to health.

``SEC. 11832. PUBLIC HEALTH.

    ``A health care provider, health plan, public health authority, 
employer, or person who receives protected health information under 
section 11823 may disclose protected health information to a public 
health authority or other person authorized by law for use in a legally 
authorized--
            ``(1) disease or injury reporting;
            ``(2) public health surveillance; or
            ``(3) public health investigation or intervention.

``SEC. 11833. HEALTH RESEARCH.

    ``(a) In General.--A health information trustee may disclose 
protected health information to a health researcher if an institutional 
review board determines that the research project engaged in by the 
health researcher--
            ``(1) requires use of the protected health information for 
        the effectiveness of the project; and
            ``(2) is of sufficient importance to outweigh the intrusion 
        into the privacy of the individual who is the subject of the 
        information that would result from the disclosure.
    ``(b) Research Requiring Direct Contact.--A health information 
trustee may disclose protected health information to a health 
researcher for a research project that includes direct contact with an 
individual who is the subject of protected health information if an 
institutional review board determines that--
            ``(1) the research project meets the requirements of 
        paragraphs (1) and (2) of subsection (a);
            ``(2) direct contact is necessary to accomplish the 
        research purpose; and
            ``(3) the direct contact will be made in a manner that 
        minimizes the risk of harm, embarrassment, or other adverse 
        consequences to the individual.
    ``(c) Use of Health Information Network.--
            ``(1) In general.--A health information trustee may 
        disclose protected health information to a health researcher 
        using the health information network (as defined in section 
        11702) only if an institutional review board certified by the 
        Secretary under paragraph (2) determines that the research 
        project engaged in by the health researcher meets the 
        requirements of this section.
            ``(2) Certification of institutional review boards.--
                    ``(A) Regulations.--The Secretary, after notice and 
                opportunity for public comment, shall issue regulations 
                establishing certification requirements for 
                institutional review boards under this subtitle. Such 
                regulations shall be based on regulations issued under 
                section 491(a) of the Public Health Service Act and 
                shall ensure that institutional review boards certified 
                under this paragraph have the qualifications to access 
                and protect the confidentiality of research subjects.
                    ``(B) Certification.--The Secretary shall certify 
                an institutional review board that meets the 
                certification requirements established by the Secretary 
                under subparagraph (A).
    ``(d) Obligations of Recipient.--A person who receives protected 
health information pursuant to subsection (a)--
            ``(1) shall remove or destroy, at the earliest opportunity 
        consistent with the purposes of the project, information that 
        would enable an individual to be identified, unless--
                    ``(A) an institutional review board has determined 
                that there is a health or research justification for 
                retention of such identifiers; and
                    ``(B) there is an adequate plan to protect the 
                identifiers from disclosure that is inconsistent with 
                this section; and
            ``(2) shall use protected health information solely for 
        purposes of the health research project for which disclosure 
        was authorized under this section.

     ``Subpart D--Disclosure For Judicial, Administrative, and Law 
                          Enforcement Purposes

``SEC. 11841. JUDICIAL AND ADMINISTRATIVE PURPOSES.

    A health care provider, health plan, health oversight agency, or 
employer may disclose protected health information--
            ``(1) pursuant to the Federal Rules of Civil Procedure, the 
        Federal Rules of Criminal Procedure, or comparable rules of 
        other courts or administrative agencies in connection with 
        litigation or proceedings to which the individual who is the 
        subject of the information is a party and in which the 
        individual has placed the individual's physical or mental 
        condition in issue;
            ``(2) to a court, and to others ordered by a court, if the 
        protected health information is developed in response to a 
        court-ordered physical or mental examination; or
            ``(3) pursuant to a law requiring the reporting of specific 
        medical information to law enforcement authorities.

``SEC. 11842. LAW ENFORCEMENT.

    ``(a) In General.--A health care provider, health plan, health 
oversight agency, employer, or person who receives protected health 
information under section 11823 may disclose protected health 
information to a law enforcement agency (other than a health oversight 
agency governed by section 11831) if the information is requested for 
use--
            ``(1) in an investigation or prosecution of a health 
        information trustee;
            ``(2) in the identification of a victim or witness in a law 
        enforcement inquiry; or
            ``(3) in connection with the investigation of criminal 
        activity committed against the trustee or on premises 
        controlled by the trustee.
    ``(b) Certification.--When a law enforcement agency (other than a 
health oversight agency) requests that a health information trustee 
disclose protected health information under this section, the law 
enforcement agency shall provide the trustee with a written 
certification that--
            ``(1) specifies the information requested;
            ``(2) states that the information is needed for a lawful 
        purpose under this section; and
            ``(3) is signed by a supervisory official of a rank 
        designated by the head of the agency.
  ``(c) Restrictions on Additional Disclosure.--Notwithstanding section 
11811(e), protected health information about an individual that is 
disclosed to a law enforcement agency under this section may be used 
in, or disclosed for, an administrative, civil, or criminal action or 
investigation against the individual if the action or investigation 
arises out of and is directly related to the action or investigation 
for which the information was obtained.

   ``Subpart E--Disclosure Pursuant to Government Subpoena or Warrant

``SEC. 11851. GOVERNMENT SUBPOENAS AND WARRANTS.

    ``(a) In General.--A health care provider, health plan, health 
oversight agency, employer, or person who receives protected health 
information under section 11823 may disclose protected health 
information under this section if the disclosure is pursuant to--
            ``(1) a subpoena issued under the authority of a grand 
        jury, and the trustee is provided a written certification by 
        the grand jury seeking the information that the grand jury has 
        complied with the applicable access provisions of section 
        11852;
            ``(2) an administrative subpoena or a judicial subpoena or 
        warrant, and the trustee is provided a written certification by 
        the person seeking the information that the person has complied 
        with the applicable access provisions of section 11852; or
            ``(3) an administrative subpoena or a judicial subpoena or 
        warrant, and the disclosure otherwise meets the conditions of 
        section 11831, 11832, 11841, or 11842.
    ``(b) Restrictions on Additional Disclosure.--
            ``(1) Actions or investigations.--Notwithstanding section 
        11811(c), protected health information about an individual that 
        is received under subsection (a) may be disclosed for, or used 
        in, any administrative, civil, or criminal action or 
        investigation against the individual if the action or 
        investigation arises out of and is directly related to the 
        inquiry for which the information was obtained.
            ``(2) Special rule.--Protected health information about an 
        individual that is received under subsection (a)(3) may not be 
        disclosed by the recipient unless the recipient complies with 
        the conditions and restrictions on disclosure with which the 
        recipient would have been required to comply if the disclosure 
        had been made under section 11831, 11832, 11841, or 11842.

``SEC. 11852. ACCESS PROCEDURES FOR LAW ENFORCEMENT SUBPOENAS AND 
              WARRANTS.

    ``(a) Probable Cause Requirement.--A government authority may not 
obtain protected health information about an individual under paragraph 
(1) or (2) of section 11851(a) for use in a law enforcement inquiry 
unless there is probable cause to believe that the information is 
relevant to a legitimate law enforcement inquiry being conducted by the 
government authority.
    ``(b) Warrants.--A government authority that obtains protected 
health information about an individual under circumstances described in 
subsection (a) and pursuant to a warrant shall, not later than 30 days 
after the date the warrant was executed, serve the individual with, or 
mail to the last known address of the individual, a notice that 
protected health information about the individual was so obtained, 
together with a notice of the individual's right to challenge the 
warrant in accordance with section 11853.
    ``(c) Subpoenas.--Except as provided in subsection (d), a 
government authority may not obtain protected health information about 
an individual under circumstances described in subsection (a) and 
pursuant to a subpoena unless a copy of the subpoena has been served on 
the individual on or before the date of return of the subpoena, 
together with a notice of the individual's right to challenge the 
subpoena in accordance with section 11853, and--
            ``(1) 30 days have passed since the date of service on the 
        individual and within that time period the individual has not 
        initiated a challenge in accordance with section 11853; or
            ``(2) disclosure is ordered by a court after challenge 
        under section 11853.
    ``(d) Application for Delay.--
            ``(1) In general.--A government authority may apply ex 
        parte and under seal to an appropriate court to delay (for an 
        initial period of not longer than 90 days) serving a notice or 
        copy of a subpoena required under subsection (b) or (c) with 
        respect to a law enforcement inquiry. The government authority 
        may apply to the court for extensions of the delay.
            ``(2) Reasons for delay.--An application for a delay, or 
        extension of a delay, under this subsection shall state, with 
        reasonable specificity, the reasons why the delay or extension 
        is being sought.
            ``(3) Ex parte order.--The court shall enter an ex parte 
        order delaying or extending the delay of notice, an order 
        prohibiting the disclosure of the request for, or disclosure 
        of, the protected health information, and an order requiring 
        the disclosure of the protected health information if the court 
        finds that--
                    ``(A) the inquiry being conducted is within the 
                lawful jurisdiction of the government authority seeking 
                the protected health information;
                    ``(B) there is probable cause to believe that the 
                protected health information being sought is relevant 
                to a legitimate law enforcement inquiry;
                    ``(C) the government authority's need for the 
                information outweighs the privacy interest of the 
                individual who is the subject of the information; and
                    ``(D) there is reasonable ground to believe that 
                receipt of notice by the individual will result in--
                            ``(i) endangering the life or physical 
                        safety of any individual;
                            ``(ii) flight from prosecution;
                            ``(iii) destruction of or tampering with 
                        evidence or the information being sought; or
                            ``(iv) intimidation of potential witnesses.

``SEC. 11853. CHALLENGE PROCEDURES FOR LAW ENFORCEMENT WARRANTS AND 
              SUBPOENAS.

    ``(a) Motion To Quash.--Within 30 days after the date of service of 
a notice of execution or a copy of a subpoena of a government authority 
seeking protected health information about an individual under 
paragraph (1) or (2) of section 11851(a), the individual may file a 
motion to quash--
            ``(1) in the case of a State judicial warrant or subpoena, 
        in the court which issued the warrant or subpoena;
            ``(2) in the case of a warrant or subpoena issued under the 
        authority of a State that is not a State judicial warrant or 
        subpoena, in a court of competent jurisdiction; or
            ``(3) in the case of any other warrant or subpoena issued 
        under the authority of a Federal court or the United States, in 
        the United States district court for the district in which the 
        individual resides or in which the warrant or subpoena was 
        issued.
    ``(b) Copy.--A copy of the motion shall be served by the individual 
upon the government authority by registered or certified mail.
    ``(c) Proceedings.--The government authority may file with the 
court such papers, including affidavits and other sworn documents, as 
sustain the validity of the warrant or subpoena. The individual may 
file with the court reply papers in response to the government 
authority's filing. The court, upon the request of the individual or 
the government authority or both, may proceed in camera. The court may 
conduct such proceedings as it deems appropriate to rule on the motion, 
but shall endeavor to expedite its determination.
    ``(d) Standard for Decision.--A court may deny a motion under 
subsection (a) if it finds there is probable cause to believe the 
protected health information is relevant to a legitimate law 
enforcement inquiry being conducted by the government authority, unless 
the court finds the individual's privacy interest outweighs the 
government authority's need for the information. The individual shall 
have the burden of demonstrating that the individual's privacy interest 
outweighs the need by the government authority for the information.
    ``(e) Specific Considerations With Respect to Privacy Interest.--In 
reaching its determination, the court shall consider--
            ``(1) the particular purpose for which the information was 
        collected;
            ``(2) the degree to which disclosure of the information 
        will embarrass, injure, or invade the privacy of the 
        individual;
            ``(3) the effect of the disclosure on the individual's 
        future health care;
            ``(4) the importance of the inquiry being conducted by the 
        government authority, and the importance of the information to 
        that inquiry; and
            ``(5) any other factor deemed relevant by the court.
    ``(f) Attorney's Fees.--In the case of a motion brought under 
subsection (a) in which the individual has substantially prevailed, the 
court may assess against the government authority a reasonable 
attorney's fee and other litigation costs (including expert's fees) 
reasonably incurred.
    ``(g) No Interlocutory Appeal.--A ruling denying a motion to quash 
under this section shall not be deemed to be a final order, and no 
interlocutory appeal may be taken therefrom by the individual. An 
appeal of such a ruling may be taken by the individual within such 
period of time as is provided by law as part of any appeal from a final 
order in any legal proceeding initiated against the individual arising 
out of or based upon the protected health information disclosed.

       ``Subpart F--Disclosure Pursuant to Private Party Subpoena

``SEC. 11854. PRIVATE PARTY SUBPOENAS.

    ``A health care provider, health plan, employer, or person who 
receives protected health information under section 11823 may disclose 
protected health information under this section if the disclosure is 
pursuant to a subpoena issued on behalf of a private party who has 
complied with the access provisions of section 11855.

``SEC. 11855. ACCESS PROCEDURES FOR PRIVATE PARTY SUBPOENAS.

    ``A private party may not obtain protected health information about 
an individual pursuant to a subpoena unless a copy of the subpoena 
together with a notice of the individual's right to challenge the 
subpoena in accordance with section 11856 has been served upon the 
individual on or before the date of return of the subpoena, and--
            ``(1) 30 days have passed since the date of service on the 
        individual, and within that time period the individual has not 
        initiated a challenge in accordance with section 11856; or
            ``(2) disclosure is ordered by a court under section 11856.

``SEC. 11856. CHALLENGE PROCEDURES FOR PRIVATE PARTY SUBPOENAS.

    ``(a) Motion To Quash Subpoena.--Within 30 days after service of a 
copy of the subpoena seeking protected health information under section 
11854, the individual who is the subject of the protected health 
information may file in any court of competent jurisdiction a motion to 
quash the subpoena and serve a copy of the motion on the person seeking 
the information.
    ``(b) Standard for Decision.--The court shall grant a motion under 
subsection (a) unless the respondent demonstrates that--
            ``(1) there is reasonable ground to believe the information 
        is relevant to a lawsuit or other judicial or administrative 
        proceeding; and
            ``(2) the need of the respondent for the information 
        outweighs the privacy interest of the individual.
    ``(c) Specific Considerations With Respect to Privacy Interest.--In 
determining under subsection (b) whether the need of the respondent for 
the information outweighs the privacy interest of the individual, the 
court shall consider--
            ``(1) the particular purpose for which the information was 
        collected;
            ``(2) the degree to which disclosure of the information 
        would embarrass, injure, or invade the privacy of the 
        individual;
            ``(3) the effect of the disclosure on the individual's 
        future health care;
            ``(4) the importance of the information to the lawsuit or 
        proceeding; and
            ``(5) any other relevant factor.
    ``(d) Attorney's Fees.--In the case of a motion brought under 
subsection (a) in which the individual has substantially prevailed, the 
court may assess against the respondent a reasonable attorney's fee and 
other litigation costs and expenses (including expert's fees) 
reasonably incurred.

   ``PART III--PROCEDURES FOR ENSURING SECURITY OF PROTECTED HEALTH 
                              INFORMATION

                ``Subpart A--Establishment of Safeguards

``SEC. 11861. ESTABLISHMENT OF SAFEGUARDS.

    ``(a) In General.--A health information trustee shall establish and 
maintain appropriate administrative, technical, and physical 
safeguards--
            ``(1) to ensure the integrity and confidentiality of 
        protected health information created or received by the 
        trustee; and
            ``(2) to protect against any anticipated threats or hazards 
        to the security or integrity of such information.
    ``(b) Regulations.--The Secretary shall promulgate regulations 
regarding security measures for protected health information. In 
developing such regulations, the Secretary shall consult with 
appropriate private parties with expertise in safeguarding health 
information.

``SEC. 11862. ACCOUNTING FOR DISCLOSURES.

    ``(a) In general.--
            ``(1) Requirement to create or maintain record.--A health 
        information trustee shall create and maintain, with respect to 
        any protected health information disclosed in exceptional 
        circumstances (as described in paragraph (2)), a record of--
                    ``(A) the date and purpose of the disclosure;
                    ``(B) the name of the person to whom or to which 
                the disclosure was made;
                    ``(C) the address of the person to whom or to which 
                the disclosure was made or the location to which the 
                disclosure was made; and
                    ``(D) the information disclosed, if the recording 
                of the information disclosed is practicable, taking 
                into account the technical capabilities of the system 
                used to maintain the record and the costs of such 
                maintenance.
            ``(2) Exceptional circumstances described.--For purposes of 
        paragraph (1) protected health information is disclosed in 
        exceptional circumstances if the disclosure--
                    ``(A) is not a routine part of doing business, as 
                determined in accordance with guidelines promulgated by 
                the Secretary; or
                    ``(B) is permitted under sections 11823 and 11832.
    ``(b) Disclosure record part of information.--A record created and 
maintained under paragraph (a) shall be maintained as part of the 
protected health information to which the record pertains.

``Subpart B--Review of Protected Health Information By Subjects of the 
                              Information

``SEC. 11871. INSPECTION OF PROTECTED HEALTH INFORMATION.

    ``(a) In General.--Except as provided in subsection (c), a health 
care provider or health plan--
            ``(1) shall permit an individual who is the subject of 
        protected health information to inspect any such information 
        that the provider or plan maintains;
            ``(2) shall permit the individual to have a copy of the 
        information;
            ``(3) shall permit a person who has been designated in 
        writing by the individual who is the subject of the information 
        to inspect the information on behalf of the individual or to 
        accompany the individual during the inspection; and
            ``(4) may offer to explain or interpret information that is 
        inspected or copied under this subsection.
    ``(b) Additional Requests.--Except as provided in subsection (c), a 
health plan or health care provider shall, upon written request of an 
individual--
            ``(1) determine the identity of previous providers to the 
        individual; and
            ``(2) obtain protected health information regarding the 
        individual.
    ``(c) Exceptions.--A health care provider or health plan is not 
required by this section to permit inspection or copying of protected 
health information if any of the following conditions apply:
            ``(1) Mental health treatment notes.--The information 
        consists of psychiatric, psychological, or mental health 
        treatment notes, and the provider or plan determines, based on 
        reasonable medical judgment, that inspection or copying of the 
        notes would cause sufficient harm to the individual who is the 
        subject of the notes so as to outweigh the desirability of 
        permitting access, and the provider or plan has not disclosed 
        the notes to any person not directly engaged in treating the 
        individual, except with the authorization of the individual or 
        under compulsion of law.
            ``(2) Information about others.--The information relates to 
        an individual other than the individual seeking to inspect or 
        have a copy of the information and the provider or plan 
        determines, based on reasonable medical judgment, that 
        inspection or copying of the information would cause sufficient 
        harm to 1 or both of the individuals so as to outweigh the 
        desirability of permitting access.
            ``(3) Endangerment to life or safety.--The provider or plan 
        determines that disclosure of the information could reasonably 
        be expected to endanger the life or physical safety of any 
        individual.
            ``(4) Confidential source.--The information identifies or 
        could reasonably lead to the identification of a person (other 
        than a health care provider) who provided information under a 
        promise of confidentiality to a health care provider concerning 
        the individual who is the subject of the information.
            ``(5) Administrative purposes.--The information--
                    ``(A) is used by the provider or plan solely for 
                administrative purposes and not in the provision of 
                health care to the individual who is the subject of the 
                information; and
                    ``(B) has not been disclosed by the provider or 
                plan to any other person.
    ``(d) Inspection and Copying of Segregable Portion.--A health care 
provider or health plan shall permit inspection and copying under 
subsection (a) of any reasonably segregable portion of a record after 
deletion of any portion that is exempt under subsection (c).
    ``(e) Conditions.--A health care provider or health plan may 
require a written request for the inspection and copying of protected 
health information under this subsection. The health care provider or 
health plan may require a reasonable cost reimbursement for such 
inspection and copying.
    ``(f) Statement of reasons for denial.--If a health care provider 
or health plan denies a request for inspection or copying under this 
section, the provider or plan shall provide the individual who made the 
request (or the individual's designated representative) with a written 
statement of the reasons for the denial.
    ``(g) Deadline.--A health care provider or health plan shall comply 
with or deny a request for inspection or copying of protected health 
information under this section within the 30-day period beginning on 
the date on which the provider or plan receives the request.

``SEC. 11872. AMENDMENT OF PROTECTED HEALTH INFORMATION.

    ``(a) In general.--A health care provider or health plan shall, 
within the 45-day period beginning on the date on which the provider or 
plan receives from an individual a written request that the provider or 
plan correct or amend the information--
            ``(1) make the correction or amendment requested;
            ``(2) inform the individual of the correction or amendment 
        that has been made; and
            ``(3) inform any person who is identified by the 
        individual, who is not an officer, employee or agent of the 
        provider or plan, and to whom the uncorrected or unamended 
        portion of the information was previously disclosed, of the 
        correction or amendment that has been made.
    ``(b) Refusal to correct.--If the provider or plan refuses to make 
the corrections, the provider or plan shall inform the individual of--
            ``(1) the reasons for the refusal of the provider or plan 
        to make the correction or amendment;
            ``(2) any procedures for further review of the refusal; and
            ``(3) the individual's right to file with the provider or 
        plan a concise statement setting forth the requested correction 
        or amendment and the individual's reasons for disagreeing with 
        the refusal of the provider or plan.
    ``(c) Bases for request to correct or amend.--An individual may 
request correction or amendment of protected health information about 
the individual under paragraph (a) if the information is not timely, 
accurate, relevant to the system of records, or complete.
    ``(d) Statement of disagreement.--After an individual has filed a 
statement of disagreement under paragraph (b)(3), the provider or plan, 
in any subsequent disclosure of the disputed portion of the 
information--
            ``(1) shall include a copy of the individual's statement; 
        and
            ``(2) may include a concise statement of the reasons of the 
        provider or plan for not making the requested correction or 
        amendment.
    ``(e) Rule of construction.--This section shall not be construed to 
require a health care provider or health plan to conduct a formal, 
informal, or other hearing or proceeding concerning a request for a 
correction or amendment to protected health information the provider or 
plan maintains.
    ``(f) Correction.--For purposes of paragraph (a), a correction is 
deemed to have been made to protected health information when 
information that is not timely, accurate, relevant to the system of 
records, or complete is clearly marked as incorrect or when 
supplementary correct information is made part of the information.

``SEC. 11873. NOTICE OF INFORMATION PRACTICES.

    ``(a) Preparation of Written Notice.--A health care provider or 
health plan shall prepare a written notice of information practices 
describing the following:
            ``(1) Personal rights of an individual.--The rights under 
        this subpart of an individual who is the subject of protected 
        health information, including the right to inspect and copy 
        such information and the right to seek amendments to such 
        information, and the procedures for authorizing disclosures of 
        protected health information and for revoking such 
        authorizations.
            ``(2) Procedures of provider or plan.--The procedures 
        established by the provider or plan for the exercise of the 
        rights of individuals about whom protected health information 
        is maintained.
            ``(3) Authorized disclosures.--The disclosures of protected 
        health information that are authorized.
    ``(b) Dissemination of Notice.--A health care provider or health 
plan--
            ``(1) shall, upon request, provide any individual with a 
        copy of the notice of information practices described in 
        subsection (a); and
            ``(2) shall make reasonable efforts to inform individuals 
        in a clear and conspicuous manner of the existence and 
        availability of the notice.
    ``(c) Model Notice.--The Secretary, after notice and opportunity 
for public comment, shall develop and disseminate a model notice of 
information practices for use by health care providers and health plans 
under this section.

           ``Subpart C--Standards for Electronic Disclosures

``SEC. 11882. STANDARDS FOR ELECTRONIC DISCLOSURES.

    ``The Secretary shall promulgate standards for disclosing protected 
health information in accordance with this subtitle in electronic form. 
Such standards shall include standards relating to the creation, 
transmission, receipt, and maintenance, of any written document 
required or authorized under this subtitle.

                          ``PART IV--SANCTIONS

           ``Subpart A--No Sanctions for Permissible Actions

``SEC. 11891. NO LIABILITY FOR PERMISSIBLE DISCLOSURES.

    ``A health information trustee who makes a disclosure of protected 
health information about an individual that is permitted by this 
subtitle shall not be liable to the individual for the disclosure under 
common law.

``SEC. 11892. NO LIABILITY FOR INSTITUTIONAL REVIEW BOARD 
              DETERMINATIONS.

    ``If the members of an institutional review board make a 
determination in good faith that--
            ``(1) a health research project is of sufficient importance 
        to outweigh the intrusion into the privacy of an individual; 
        and
            ``(2) the effectiveness of the project requires use of 
        protected health information,
the members, the board, and the parent institution of the board shall 
not be liable to the individual as a result of the determination.

``SEC. 11893. RELIANCE ON CERTIFIED ENTITY.

    ``If a health information trustee contracts with a certified health 
information network service to make a disclosure of any protected 
health information on behalf of such trustee in accordance with this 
subtitle and such service makes a disclosure of such information that 
is in violation of this subtitle, the trustee shall not be liable for 
to the individual who is the subject of the information for such 
unlawful disclosure.

                      ``Subpart B--Civil Sanctions

``SEC. 11901. CIVIL PENALTY.

    ``(a) Violation.--Any health information trustee who the Secretary 
determines has substantially failed to comply with this subtitle shall 
be subject, in addition to any other penalties that may be prescribed 
by law, to a civil penalty of not more than $10,000 for each such 
violation.
    ``(b) Procedures for Imposition of Penalties.--Section 1128A, other 
than subsections (a) and (b) and the second sentence of subsection (f) 
of that section, shall apply to the imposition of a civil monetary 
penalty under this section in the same manner as such provisions apply 
with respect to the imposition of a penalty under section 1128A.

``SEC. 11902. CIVIL ACTION.

    ``(a) In General.--An individual who is aggrieved by conduct in 
violation of this subtitle may bring a civil action to recover--
            ``(1) the greater of actual damages or liquidated damages 
        of $5,000;
            ``(2) punitive damages;
            ``(3) a reasonable attorney's fee and expenses of 
        litigation;
            ``(4) costs of litigation; and
            ``(5) such preliminary and equitable relief as the court 
        determines to be appropriate.
    ``(b) Limitation.--No action may be commenced under this section 
more than 3 years after the date on which the violation was or should 
reasonably have been discovered.

                    ``Subpart C--Criminal Sanctions

``SEC. 11911. WRONGFUL DISCLOSURE OF PROTECTED HEALTH INFORMATION.

    ``(a) Offense.--A person who knowingly--
            ``(1) obtains protected health information relating to an 
        individual in violation of this subtitle; or
            ``(2) discloses protected health information to another 
        person in violation of this subtitle,
shall be punished as provided in subsection (b).
    ``(b) Penalties.--A person described in subsection (a) shall--
            ``(1) be fined not more than $50,000, imprisoned not more 
        than 1 year, or both;
            ``(2) if the offense is committed under false pretenses, be 
        fined not more than $100,000, imprisoned not more than 5 years, 
        or both; and
            ``(3) if the offense is committed with intent to sell, 
        transfer, or use protected health information for commercial 
        advantage, personal gain, or malicious harm, fined not more 
        than $250,000, imprisoned not more than 10 years, or both.

                  ``PART V--ADMINISTRATIVE PROVISIONS

``SEC. 11921. RELATIONSHIP TO OTHER LAWS.

    ``(a) State Law.--Except as provided in subsections (b), (c), and 
(d), this subtitle preempts State law.
    ``(b) Laws Relating to Public or Mental Health.--Nothing in this 
subtitle shall be construed to preempt or operate to the exclusion of 
any State law relating to public health or mental health that prevents 
or regulates disclosure of protected health information otherwise 
allowed under this subtitle.
    ``(c) Privileges.--Nothing in this subtitle is intended to preempt 
or modify State common or statutory law to the extent such law concerns 
a privilege of a witness or person in a court of the State. This 
subtitle does not supersede or modify Federal common or statutory law 
to the extent such law concerns a privilege of a witness or person in a 
court of the United States. Authorizations pursuant to section 11812 
shall not be construed as a waiver of any such privilege.
    ``(d) Certain Duties Under State or Federal Law.--This subtitle 
shall not be construed to preempt, supersede, or modify the operation 
of--
            ``(1) any law that provides for the reporting of vital 
        statistics such as birth or death information;
            ``(2) any law requiring the reporting of abuse or neglect 
        information about any individual;
            ``(3) subpart II of part E of title XXVI of the Public 
        Health Service Act (relating to notifications of emergency 
        response employees of possible exposure to infectious 
        diseases); or
            ``(4) any Federal law or regulation governing 
        confidentiality of alcohol and drug patient records.

``SEC. 11922. RIGHTS OF INCOMPETENTS.

    ``(a) Effect of Declaration of Incompetence.--Except as provided in 
section 11923, if an individual has been declared to be incompetent by 
a court of competent jurisdiction, the rights of the individual under 
this subtitle shall be exercised and discharged in the best interests 
of the individual through the individual's representative.
    ``(b) No Court Declaration.--Except as provided in section 11923, 
if a health care provider determines that an individual, who has not 
been declared to be incompetent by a court of competent jurisdiction, 
suffers from a medical condition that prevents the individual from 
acting knowingly or effectively on the individual's own behalf, the 
right of the individual to authorize disclosure may be exercised and 
discharged in the best interest of the individual by the individual's 
representative.

``SEC. 11923. EXERCISE OF RIGHTS.

    ``(a) Individuals Who Are 18 or Legally Capable.--In the case of an 
individual--
            ``(1) who is 18 years of age or older, all rights of the 
        individual shall be exercised by the individual; or
            ``(2) who, acting alone, has the legal right, as determined 
        by State law, to apply for and obtain a type of medical 
        examination, care, or treatment and who has sought such 
        examination, care, or treatment, the individual shall exercise 
        all rights of an individual under this subtitle with respect to 
        protected health information relating to such examination, 
        care, or treatment.
    ``(b) Individuals Under 18.--Except as provided in subsection 
(a)(2), in the case of an individual who is--
            ``(1) under 14 years of age, all the individual's rights 
        under this subtitle shall be exercised through the parent or 
        legal guardian of the individual; or
            ``(2) 14, 15, 16, or 17 years of age, the rights of 
        inspection and amendment, and the right to authorize disclosure 
        of protected health information of the individual may be 
        exercised either by the individual or by the parent or legal 
        guardian of the individual.''.
    (b) Conforming Amendment.--Title XI of the Social Security Act (42 
U.S.C. 1301 et seq.), as amended by section 601, is amended by striking 
the title and inserting the following:

      ``TITLE XI--GENERAL PROVISIONS, PEER REVIEW, ADMINISTRATIVE 
                     SIMPLIFICATION, AND PRIVACY''.

          TITLE VII--ENHANCED PENALTIES FOR HEALTH CARE FRAUD

         Subtitle A--All-Payer Fraud and Abuse Control Program

SEC. 701. ALL-PAYER FRAUD AND ABUSE CONTROL PROGRAM.

    (a) Establishment of Program.--
            (1) In general.--Not later than January 1, 1995, the 
        Secretary of Health and Human Services (in this title referred 
        to as the ``Secretary''), acting through the Office of the 
        Inspector General of the Department of Health and Human 
        Services, and the Attorney General shall establish a program--
                    (A) to coordinate Federal, State, and local law 
                enforcement programs to control fraud and abuse with 
                respect to the delivery of and payment for health care 
                in the United States,
                    (B) to conduct investigations, audits, evaluations, 
                and inspections relating to the delivery of and payment 
                for health care in the United States,
                    (C) to facilitate the enforcement of the provisions 
                of sections 1128, 1128A, and 1128B of the Social 
                Security Act and other statutes applicable to health 
                care fraud and abuse, and
                    (D) to provide for the modification and 
                establishment of safe harbors and to issue 
                interpretative rulings and special fraud alerts 
                pursuant to section 703.
            (2) Coordination with health care plans.--In carrying out 
        the program established under paragraph (1), the Secretary and 
        the Attorney General shall consult with, and arrange for the 
        sharing of data with representatives of health care plans.
            (3) Regulations.--
                    (A) In general.--The Secretary and the Attorney 
                General shall by regulation establish standards to 
                carry out the program under paragraph (1).
                    (B) Information standards.--
                            (i) In general.--Such standards shall 
                        include standards relating to the furnishing of 
                        information by health care plans, providers, 
                        and others to enable the Secretary and the 
                        Attorney General to carry out the program 
                        (including coordination with health care plans 
                        under paragraph (2)).
                            (ii) Confidentiality.--Such standards shall 
                        include procedures to assure that such 
                        information is provided and utilized in a 
                        manner that appropriately protects the 
                        confidentiality of the information and the 
                        privacy of individuals receiving health care 
                        services and items.
                            (iii) Qualified immunity for providing 
                        information.--The provisions of section 1157(a) 
                        of the Social Security Act (relating to 
                        limitation on liability) shall apply to a 
                        person providing information to the Secretary 
                        or the Attorney General in conjunction with 
                        their performance of duties under this section, 
                        in the same manner as such section applies to 
                        information provided to organizations with a 
                        contract under part B of title XI of such Act, 
                        with respect to the performance of such a 
                        contract.
                    (C) Disclosure of ownership information.--
                            (i) In general.--Such standards shall 
                        include standards relating to the disclosure of 
                        ownership information described in clause (ii) 
                        by any entity providing health care services 
                        and items.
                            (ii) Ownership information described.--The 
                        ownership information described in this clause 
                        includes--
                                    (I) a description of such items and 
                                services provided by such entity;
                                    (II) the names and unique physician 
                                identification numbers of all 
                                physicians with a financial 
                                relationship (as defined in section 
                                1877(a)(2) of the Social Security Act) 
                                with such entity;
                                    (III) the names of all other 
                                individuals with such an ownership or 
                                investment interest in such entity; and
                                    (IV) any other ownership and 
                                related information required to be 
                                disclosed by such entity under section 
                                1124 or section 1124A of the Social 
                                Security Act.
            (4) Authorization of appropriations for investigators and 
        other personnel.--In addition to any other amounts authorized 
        to be appropriated to the Secretary and the Attorney General 
        for health care anti-fraud and abuse activities for a fiscal 
        year, there are authorized to be appropriated additional 
        amounts as may be necessary to enable the Secretary and the 
        Attorney General to conduct investigations and audits of 
        allegations of health care fraud and abuse and otherwise carry 
        out the program established under paragraph (1) in a fiscal 
        year.
            (5) Ensuring access to documentation.--The Inspector 
        General of the Department of Health and Human Services is 
        authorized to exercise the authority described in paragraphs 
        (4) and (5) of section 6 of the Inspector General Act of 1978 
        (relating to subpoenas and administration of oaths) with 
        respect to the activities under the all-payer fraud and abuse 
        control program established under this subsection to the same 
        extent as such Inspector General may exercise such authorities 
        to perform the functions assigned by such Act.
            (6) Health care plan defined.--For the purposes of this 
        subsection, the term ``health care plan'' shall have the 
        meaning given such term in section 1128(i) of the Social 
        Security Act.
    (b) Establishment of Anti-Fraud and Abuse Trust Fund.--
            (1) Establishment.--
                    (A) In general.--There is hereby created on the 
                books of the Treasury of the United States a trust fund 
                to be known as the ``Anti-Fraud and Abuse Trust Fund'' 
                (in this section referred to as the ``Trust Fund''). 
                The Trust Fund shall consist of such gifts and bequests 
                as may be made as provided in subparagraph (B) and such 
                amounts as may be deposited in, or appropriated to, 
                such Trust Fund as provided in subsection (a)(4), 
                sections 731(b), 732(b), and 741(b) of this Act, and 
                title XI of the Social Security Act.
                    (B) Authorization to accept gifts.--The Managing 
                Trustee of the Trust Fund is authorized to accept on 
                behalf of the United States money gifts and bequests 
                made unconditionally to the Trust Fund, for the benefit 
                of the Trust Fund, or any activity financed through the 
                Trust Fund.
            (2) Management.--
                    (A) In general.--The Trust Fund shall be managed by 
                the Secretary and the Attorney General through a 
                Managing Trustee designated by the Secretary and the 
                Attorney General.
                    (B) Investment of funds.--
                            (i) In general.--It shall be the duty of 
                        the Managing Trustee to invest such portion of 
                        the Trust Fund as is not, in the Managing 
                        Trustee's judgment, required to meet current 
                        withdrawals.
                            (ii) General form of investment.--
                        Investments described in clause (i) may be made 
                        only in interest-bearing obligations of the 
                        United States or in obligations guaranteed as 
                        to both principal and interest by the United 
                        States. For such purpose such obligations may 
                        be acquired--
                                    (I) on original issue at the issue 
                                price, or
                                    (II) by purchase of outstanding 
                                obligations at market price.
                            (iii) Issuance of public-debt 
                        obligations.--The purposes for which 
                        obligations of the United States may be issued 
                        under chapter 31 of title 31, United States 
                        Code, are hereby extended to authorize the 
                        issuance at par of public-debt obligations for 
                        purchase by the Trust Fund. Such obligations 
                        issued for purchase by the Trust Fund shall 
                        have maturities fixed with due regard for the 
                        needs of the Trust Fund and shall bear interest 
                        at a rate equal to the average market yield 
                        (computed by the Managing Trustee on the basis 
                        of market quotations as of the end of the 
                        calendar month next preceding the date of such 
                        issue) on all marketable interest-bearing 
                        obligations of the United States then forming a 
                        part of the public debt which are not due or 
                        callable until after the expiration of 4 years 
                        from the end of such calendar month, except 
                        that where such average is not a multiple of 
                        \1/8\ of 1 percent, the rate of interest on 
                        such obligations shall be the multiple of \1/8\ 
                        of 1 percent nearest such market yield.
                            (iv) Purchases of other obligations.--The 
                        Managing Trustee may purchase other interest-
                        bearing obligations of the United States or 
                        obligations guaranteed as to both principal and 
                        interest by the United States, on original 
                        issue or at the market price, only where the 
                        Managing Trustee determines that the purchase 
                        of such other obligations is in the public 
                        interest.
                    (C) Sale of obligations.--Any obligations acquired 
                by the Trust Fund (except public-debt obligations 
                issued exclusively to the Trust Fund) may be sold by 
                the Managing Trustee at the market price, and such 
                public-debt obligations may be redeemed at par plus 
                accrued interest.
                    (D) Interest on obligations and proceeds from sale 
                or redemption of obligations.--The interest on, and the 
                proceeds from the sale or redemption of, any 
                obligations held in the Trust Fund shall be credited to 
                and form a part of the Trust Fund.
                    (E) Receipts and disbursements not included in 
                united states government budget totals.--The receipts 
                and disbursements of the Secretary and the Attorney 
                General in the discharge of the functions of the 
                Secretary and the Attorney General under the all-payer 
                fraud and abuse control program established under 
                subsection (a) shall not be included in the totals of 
                the budget of the United States Government. For 
                purposes of part C of the Balanced Budget and Emergency 
                Deficit Control Act of 1985, the Secretary, the 
                Attorney General, and the Trust Fund shall be treated 
                in the same manner as the Federal Retirement Thrift 
                Investment Board and the Thrift Savings Fund, 
                respectively. The United States is not liable for any 
                obligation or liability incurred by the Trust Fund.
            (3) Use of funds.--
                    (A) In general.--Amounts in the Trust Fund shall be 
                used without regard to fiscal year limitation to assist 
                the Inspector General of the Department of Health and 
                Human Services and the Attorney General in carrying out 
                the all-payer fraud and abuse control program 
                established under subsection (a).
                    (B) Overall administration.--The Managing Trustee 
                shall also pay from time to time from the Trust Fund 
                such amounts as the Secretary and the Attorney General 
                certify are necessary to carry out the all-payer fraud 
                and abuse control program established under subsection 
                (a).
            (4) Annual report.--The Managing Trustee shall be required 
        to submit an annual report to Congress on the amount of revenue 
        which is generated and disbursed by the Trust Fund in each 
        fiscal year. Such report shall include an estimate of the 
        amount of additional appropriations authorized under subsection 
        (a)(4) necessary for the Secretary and the Attorney General to 
        conduct the all-payer fraud and abuse program established under 
        subsection (a) in the next fiscal year.

SEC. 702. APPLICATION OF FEDERAL HEALTH ANTI-FRAUD AND ABUSE SANCTIONS 
              TO ALL FRAUD AND ABUSE AGAINST ANY HEALTH CARE PLAN.

    (a) Civil Monetary Penalties.--Section 1128A of the Social Security 
Act (42 U.S.C. 1320a-7a) is amended as follows:
            (1) In subsection (a)(1), by inserting ``or of any health 
        care plan (as defined in section 1128(i)),'' after ``subsection 
        (i)(1)),''.
            (2) In subsection (b)(1)(A), by inserting ``or under a 
        health care plan'' after ``title XIX''.
            (3) In subsection (f)--
                    (A) by redesignating paragraph (3) as paragraph 
                (4); and
                    (B) by inserting after paragraph (2) the following 
                new paragraphs:
            ``(3) With respect to amounts recovered arising out of a 
        claim under a health care plan, the portion of such amounts as 
        is determined to have been paid by the plan shall be repaid to 
        the plan, and the portion of such amounts attributable to the 
        amounts recovered under this section by reason of the 
        amendments made by title VII of the America's Health Care 
        Option Act (as estimated by the Secretary) shall be deposited 
        into the Anti-Fraud and Abuse Trust Fund established under 
        section 701(b) of such Act.''.
            (4) In subsection (i)--
                    (A) in paragraph (2), by inserting ``or under a 
                health care plan'' before the period at the end, and
                    (B) in paragraph (5), by inserting ``or under a 
                health care plan'' after ``or XX''.
    (b) Crimes.--
            (1) Social security act.--Section 1128B of such Act (42 
        U.S.C. 1320a-7b) is amended as follows:
                    (A) In the heading, by adding at the end the 
                following: ``or health care plans''.
                    (B) In subsection (a)(1)--
                            (i) by striking ``title XVIII or'' and 
                        inserting ``title XVIII,'', and
                            (ii) by adding at the end the following: 
                        ``or a health care plan (as defined in section 
                        1128(i)),''.
                    (C) In subsection (a)(5), by striking ``title XVIII 
                or a State health care program'' and inserting ``title 
                XVIII, a State health care program, or a health care 
                plan''.
                    (D) In the second sentence of subsection (a)--
                            (i) by inserting after ``title XIX'' the 
                        following: ``or a health care plan'', and
                            (ii) by inserting after ``the State'' the 
                        following: ``or the plan''.
                    (E) In subsection (b)(1), by striking ``title XVIII 
                or a State health care program'' each place it appears 
                and inserting ``title XVIII, a State health care 
                program, or a health care plan''.
                    (F) In subsection (b)(2), by striking ``title XVIII 
                or a State health care program'' each place it appears 
                and inserting ``title XVIII, a State health care 
                program, or a health care plan''.
                    (G) In subsection (b)(3), by striking ``title XVIII 
                or a State health care program'' each place it appears 
                in subparagraphs (A) and (C) and inserting ``title 
                XVIII, a State health care program, or a health care 
                plan''.
                    (H) In subsection (d)(2)--
                            (i) by striking ``title XIX,'' and 
                        inserting ``title XIX or under a health care 
                        plan,'', and
                            (ii) by striking ``State plan,'' and 
                        inserting ``State plan or the health care 
                        plan,''.
            (2) Identification of community service opportunities.--
        Section 1128B of such Act (42 U.S.C. 1320a-7b) is further 
        amended by adding at the end the following new subsection:
    ``(f) The Secretary may--
            ``(1) in consultation with State and local health care 
        officials, identify opportunities for the satisfaction of 
        community service obligations that a court may impose upon the 
        conviction of an offense under this section, and
            ``(2) make information concerning such opportunities 
        available to Federal and State law enforcement officers and 
        State and local health care officials.''.
    (c) Health Care Plan Defined.--Section 1128 of such Act (42 U.S.C. 
1320a-7) is amended by redesignating subsection (i) as subsection (j) 
and by inserting after subsection (h) the following new subsection:
    ``(i) Health Care Plan Defined.--For purposes of sections 1128A and 
1128B, the term `health care plan' means a public or private program 
for the delivery of or payment for health care items or services other 
than the medicare program, the medicaid program, or a State health care 
program.''.
    (d) Effective Date.--The amendments made by this section shall take 
effect on January 1, 1995.

SEC. 703. HEALTH CARE FRAUD AND ABUSE GUIDANCE.

    (a) Solicitation and Publication of Modifications to Existing Safe 
Harbors and New Safe Harbors.--
            (1) In general.--
                    (A) Solicitation of proposals for safe harbors.--
                Not later than January 1, 1995, and not less than 
                annually thereafter, the Secretary shall publish a 
                notice in the Federal Register soliciting proposals, 
                which will be accepted during a 60-day period, for--
                            (i) modifications to existing safe harbors 
                        issued pursuant to section 14(a) of the 
                        Medicare and Medicaid Patient and Program 
                        Protection Act of 1987 (42 U.S.C. 1320a-7b 
                        note);
                            (ii) additional safe harbors specifying 
                        payment practices that shall not be treated as 
                        a criminal offense under section 1128B(b) of 
                        the Social Security Act the (42 U.S.C. 1320a-
                        7b(b)) and shall not serve as the basis for an 
                        exclusion under section 1128(b)(7) of such Act 
                        (42 U.S.C. 1320a-7(b)(7));
                            (iii) interpretive rulings to be issued 
                        pursuant to subsection (b); and
                            (iv) special fraud alerts to be issued 
                        pursuant to subsection (c).
                    (B) Publication of proposed modifications and 
                proposed additional state harbors.--After considering 
                the proposals described in clauses (i) and (ii) of 
                subparagraph (A), the Secretary, in consultation with 
                the Attorney General, shall publish in the Federal 
                Register proposed modifications to existing safe 
                harbors and proposed additional safe harbors, if 
                appropriate, with a 60-day comment period. After 
                considering any public comments received during this 
                period, the Secretary shall issue final rules modifying 
                the existing safe harbors and establishing new safe 
                harbors, as appropriate.
                    (C) Report.--The Inspector General of the 
                Department of Health and Human Services (hereafter in 
                this section referred to as the ``Inspector General'') 
                shall, in an annual report to Congress or as part of 
                the year-end semiannual report required by section 5 of 
                the Inspector General Act of 1978 (5 U.S.C. App.), 
                describe the proposals received under clauses (i) and 
                (ii) of subparagraph (A) and explain which proposals 
                were included in the publication described in 
                subparagraph (B), which proposals were not included in 
                that publication, and the reasons for the rejection of 
                the proposals that were not included.
            (2) Criteria for modifying and establishing safe harbors.--
        In modifying and establishing safe harbors under paragraph 
        (1)(B), the Secretary may consider the extent to which 
        providing a safe harbor for the specified payment practice may 
        result in any of the following:
                    (A) An increase or decrease in access to health 
                care services.
                    (B) An increase or decrease in the quality of 
                health care services.
                    (C) An increase or decrease in patient freedom of 
                choice among health care providers.
                    (D) An increase or decrease in competition among 
                health care providers.
                    (E) An increase or decrease in the ability of 
                health care facilities to provide services in medically 
                underserved areas or to medically underserved 
                populations.
                    (F) An increase or decrease in the cost to 
                Government health care programs.
                    (G) An increase or decrease in the potential 
                overutilization of health care services.
                    (H) The existence or nonexistence of any potential 
                financial benefit to a health care professional or 
                provider which may vary based on their decisions of--
                            (i) whether to order a health care item or 
                        service; or
                            (ii) whether to arrange for a referral of 
                        health care items or services to a particular 
                        practitioner or provider.
                    (I) Any other factors the Secretary deems 
                appropriate in the interest of preventing fraud and 
                abuse in Government health care programs.
    (b)  Interpretive Rulings.--
            (1) In general.--
                    (A) Request for interpretive ruling.--Any person 
                may present, at any time, a request to the Inspector 
                General for a statement of the Inspector General's 
                current interpretation of the meaning of a specific 
                aspect of the application of sections 1128A and 1128B 
                of the Social Security Act (hereafter in this section 
                referred to as an ``interpretive ruling'').
                    (B) Issuance and effect of interpretive ruling.--
                            (i) In general.--If appropriate, the 
                        Inspector General shall in consultation with 
                        the Attorney General, issue an interpretive 
                        ruling in response to a request described in 
                        subparagraph (A). Interpretive rulings shall 
                        not have the force of law and shall be treated 
                        as an interpretive rule within the meaning of 
                        section 553(b) of title 5, United States Code. 
                        All interpretive rulings issued pursuant to 
                        this provision shall be published in the 
                        Federal Register or otherwise made available 
                        for public inspection.
                            (ii) Reasons for denial.--If the Inspector 
                        General does not issue an interpretive ruling 
                        in response to a request described in 
                        subparagraph (A), the Inspector General shall 
                        notify the requesting party of such decision 
                        and shall identify the reasons for such 
                        decision.
            (2) Criteria for interpretive rulings.--
                    (A) In general.--In determining whether to issue an 
                interpretive ruling under paragraph (1)(B), the 
                Inspector General may consider--
                            (i) whether and to what extent the request 
                        identifies an ambiguity within the language of 
                        the statute, the existing safe harbors, or 
                        previous interpretive rulings; and
                            (ii) whether the subject of the requested 
                        interpretive ruling can be adequately addressed 
                        by interpretation of the language of the 
                        statute, the existing safe harbor rules, or 
                        previous interpretive rulings, or whether the 
                        request would require a substantive ruling not 
                        authorized under this subsection.
                    (B) No rulings on factual issues.--The Inspector 
                General shall not give an interpretive ruling on any 
                factual issue, including the intent of the parties or 
                the fair market value of particular leased space or 
                equipment.
    (c) Special Fraud Alerts.--
            (1) In general.--
                    (A) Request for special fraud alerts.--Any person 
                may present, at any time, a request to the Inspector 
                General for a notice which informs the public of 
                practices which the Inspector General considers to be 
                suspect or of particular concern under section 1128B(b) 
                of the Social Security Act (42 U.S.C. 1320a-7b(b)) 
                (hereafter in this subsection referred to as a 
                ``special fraud alert'').
                    (B) Issuance and publication of special fraud 
                alerts.--Upon receipt of a request described in 
                subparagraph (A), the Inspector General shall 
                investigate the subject matter of the request to 
                determine whether a special fraud alert should be 
                issued. If appropriate, the Inspector General shall in 
                consultation with the Attorney General, issue a special 
                fraud alert in response to the request. All special 
                fraud alerts issued pursuant to this subparagraph shall 
                be published in the Federal Register.
            (2) Criteria for special fraud alerts.--In determining 
        whether to issue a special fraud alert upon a request described 
        in paragraph (1), the Inspector General may consider--
                    (A) whether and to what extent the practices that 
                would be identified in the special fraud alert may 
                result in any of the consequences described in 
                subsection (a)(2); and
                    (B) the volume and frequency of the conduct that 
                would be identified in the special fraud alert.

SEC. 704. REPORTING OF FRAUDULENT ACTIONS UNDER MEDICARE.

    Not later than 1 year after the date of the enactment of this Act, 
the Secretary shall establish a program through which individuals 
entitled to benefits under the medicare program may report to the 
Secretary on a confidential basis (at the individual's request) 
instances of suspected fraudulent actions arising under the program by 
providers of items and services under the program.

     Subtitle B--Revisions to Current Sanctions for Fraud and Abuse

SEC. 711. MANDATORY EXCLUSION FROM PARTICIPATION IN MEDICARE AND STATE 
              HEALTH CARE PROGRAMS.

    (a) Individual Convicted of Felony Relating to Fraud.--
            (1) In general.--Section 1128(a) of the Social Security Act 
        (42 U.S.C. 1320a-7(a)) is amended by adding at the end the 
        following new paragraph:
            ``(3) Felony conviction relating to fraud.--Any individual 
        or entity that has been convicted, under Federal or State law, 
        in connection with the delivery of a health care item or 
        service or with respect to any act or omission in a program 
        (other than those specifically described in paragraph (1)) 
        operated by or financed in whole or in part by any Federal, 
        State, or local government agency, of a criminal offense 
        consisting of a felony relating to fraud, theft, embezzlement, 
        breach of fiduciary responsibility, or other financial 
        misconduct.''.
            (2) Conforming amendment.--Section 1128(b)(1) of such Act 
        (42 U.S.C. 1320a-7(b)(1)) is amended--
                    (A) in the heading, by striking ``Conviction'' and 
                inserting ``Misdemeanor conviction''; and
                    (B) by striking ``criminal offense'' and inserting 
                ``criminal offense consisting of a misdemeanor''.
    (b) Individual Convicted of Felony Relating to Controlled 
Substance.--
            (1) In general.--Section 1128(a) of the Social Security Act 
        (42 U.S.C. 1320a-7(a)), as amended by subsection (a), is 
        amended by adding at the end the following new paragraph:
            ``(4) Felony conviction relating to controlled substance.--
        Any individual or entity that has been convicted, under Federal 
        or State law, of a criminal offense consisting of a felony 
        relating to the unlawful manufacture, distribution, 
        prescription, or dispensing of a controlled substance.''.
            (2) Conforming amendment.--Section 1128(b)(3) of such Act 
        (42 U.S.C. 1320a-7(b)(3)) is amended--
                    (A) in the heading, by striking ``Conviction'' and 
                inserting ``Misdemeanor conviction''; and
                    (B) by striking ``criminal offense'' and inserting 
                ``criminal offense consisting of a misdemeanor''.

SEC. 712. ESTABLISHMENT OF MINIMUM PERIOD OF EXCLUSION FOR CERTAIN 
              INDIVIDUALS AND ENTITIES SUBJECT TO PERMISSIVE EXCLUSION 
              FROM MEDICARE AND STATE HEALTH CARE PROGRAMS.

    Section 1128(c)(3) of the Social Security Act (42 U.S.C. 1320a-
7(c)(3)) is amended by adding at the end the following new 
subparagraphs:
    ``(D) In the case of an exclusion of an individual or entity under 
paragraph (1), (2), or (3) of subsection (b), the period of the 
exclusion shall be 3 years, unless the Secretary determines in 
accordance with published regulations that a shorter period is 
appropriate because of mitigating circumstances or that a longer period 
is appropriate because of aggravating circumstances.
    ``(E) In the case of an exclusion of an individual or entity under 
subsection (b)(4) or (b)(5), the period of the exclusion shall not be 
less than the period during which the individual's or entity's license 
to provide health care is revoked, suspended, or surrendered, or the 
individual or the entity is excluded or suspended from a Federal or 
State health care program.
    ``(F) In the case of an exclusion of an individual or entity under 
subsection (b)(6)(B), the period of the exclusion shall be not less 
than 1 year.''.

SEC. 713. PERMISSIVE EXCLUSION OF INDIVIDUALS WITH OWNERSHIP OR CONTROL 
              INTEREST IN SANCTIONED ENTITIES.

    Section 1128(b) of the Social Security Act (42 U.S.C. 1320a-7(b)) 
is amended by adding at the end the following new paragraph:
            ``(15) Individuals controlling a sanctioned entity.--Any 
        individual who has a direct or indirect ownership or control 
        interest of 5 percent or more, or an ownership or control 
        interest (as defined in section 1124(a)(3)) in, or who is an 
        officer, director, agent, or managing employee (as defined in 
        section 1126(b)) of, an entity--
                    ``(A) that has been convicted of any offense 
                described in subsection (a) or in paragraph (1), (2), 
                or (3) of this subsection;
                    ``(B) against which a civil monetary penalty has 
                been assessed under section 1128A; or
                    ``(C) that has been excluded from participation 
                under a program under title XVIII or under a State 
                health care program.''.

SEC. 714. CIVIL MONETARY PENALTIES.

    (a) Prohibition Against Offering Inducements to Individuals 
Enrolled Under or Employed by Programs or Plans.--
            (1) Inducements to individuals enrolled under medicare.--
                    (A) Offer of remuneration.--Section 1128A(a) of the 
                Social Security Act (42 U.S.C. 1320a-7a(a)) is 
                amended--
                            (i) by striking ``or'' at the end of 
                        paragraph (1)(D);
                            (ii) by striking ``, or'' at the end of 
                        paragraph (2) and inserting a semicolon;
                            (iii) by striking the semicolon at the end 
                        of paragraph (3) and inserting ``; or''; and
                            (iv) by inserting after paragraph (3) the 
                        following new paragraph:
            ``(4) offers to or transfers remuneration to any individual 
        eligible for benefits under title XVIII of this Act, or under a 
        State health care program (as defined in section 1128(h)) that 
        such person knows or should know is likely to influence such 
        individual to order or receive from a particular provider, 
        practitioner, or supplier any item or service for which payment 
        may be made, in whole or in part, under title XVIII, or a State 
        health care program;''.
                    (B) Remuneration defined.--Section 1128A(i) is 
                amended by adding the following new paragraph:
            ``(6) The term `remuneration' includes the waiver of 
        coinsurance and deductible amounts (or any part thereof), and 
        transfers of items or services for free or for other than fair 
        market value. The term `remuneration' does not include the 
        waiver of coinsurance and deductible amounts by a person, if--
                    ``(A) the waiver is not offered as part of any 
                advertisement or solicitation;
                    ``(B) the person does not routinely waive 
                coinsurance or deductible amounts; and
                    ``(C) the person--
                            ``(i) waives the coinsurance and deductible 
                        amounts after determining in good faith that 
                        the individual is in financial need;
                            ``(ii) fails to collect coinsurance or 
                        deductible amounts after making reasonable 
                        collection efforts; or
                            ``(iii) provides for any permissible waiver 
                        as specified in section 1128B(b)(3) or in 
                        regulations issued by the Secretary.''.
            (2) Inducements to employees.--Section 1128A(a) of such Act 
        (42 U.S.C. 1320a-7a(a)), as amended by paragraph (1), is 
        further amended--
                    (A) by striking ``or'' at the end of paragraph (3);
                    (B) by striking the semicolon at the end of 
                paragraph (4) and inserting ``; or''; and
                    (C) by inserting after paragraph (4) the following 
                new paragraph:
            ``(5) pays a bonus, reward, or any other remuneration, 
        directly or indirectly, to an employee to induce the employee 
        to encourage individuals to seek or obtain covered items or 
        services for which payment may be made under the medicare 
        program, or a State health care program where the amount of the 
        remuneration is determined in a manner that takes into account 
        (directly or indirectly) the value or volume of any referrals 
        by the employee to the employer for covered items or 
        services;''.
    (b) Excluded Individual Retaining Ownership or Control Interest in 
Participating Entity.--Section 1128A(a) of such Act, as amended by 
subsection (a), is further amended--
            (1) by striking ``or'' at the end of paragraph (4);
            (2) by striking the semicolon at the end of paragraph (5) 
        and inserting ``; or''; and
            (3) by inserting after paragraph (5) the following new 
        paragraph:
            ``(6) in the case of a person who is not an organization, 
        agency, or other entity, is excluded from participating in a 
        program under title XVIII or a State health care program in 
        accordance with this subsection or under section 1128 and who, 
        at the time of a violation of this subsection, retains a direct 
        or indirect ownership or control interest of 5 percent or more, 
        or an ownership or control interest (as defined in section 
        1124(a)(3)) in, or who is an officer, director, agent, or 
        managing employee (as defined in section 1126(b)) of, an entity 
        that is participating in a program under title XVIII or a State 
        health care program;''.
    (c) Misuse of Health Security Card or Unique Health Identifier.--
Section 1128A(a) of such Act, as amended by subsection (b), is further 
amended--
            (1) by striking ``or'' at the end of paragraph (5);
            (2) by striking the semicolon at the end of paragraph (6) 
        and inserting ``; or''; and
            (3) by inserting after paragraph (6) the following new 
        paragraphs:
            ``(7) requires the display of, requires the use of, or uses 
        a health security card that is issued under subtitle B of this 
        title for any purpose other than a purpose described in such 
        subtitle;
            ``(8) requires the disclosure of, requires the use of, or 
        uses an individual's unique health identifier established under 
        subtitle B of this title for any purpose that is not authorized 
        by the Secretary;''.
    (d) Modifications of Amounts of Penalties and Assessments.--Section 
1128A(a) of such Act (42 U.S.C. 1320a-7a(a)), as amended by subsections 
(a) and (b), is amended in the matter following paragraph (6)--
            (1) by striking ``$2,000'' and inserting ``$10,000'';
            (2) by inserting ``; in cases under paragraph (4), $10,000 
        for each such offer or transfer; in cases under paragraph (5), 
        $10,000 for each such payment; in cases under paragraph (6), 
        $10,000 for each day the prohibited relationship occurs; in 
        cases under paragraph (7) or (8), $10,000 per violation'' after 
        ``false or misleading information was given'';
            (3) by striking ``twice the amount'' and inserting ``3 
        times the amount''; and
            (4) by inserting ``(or, in cases under paragraphs (4) and 
        (5), 3 times the amount of the illegal remuneration)'' after 
        ``for each such item or service''.
    (e) Claim for Item or Service Based on Incorrect Coding or 
Medically Unnecessary Services.--Section 1128A(a)(1) of such Act (42 
U.S.C. 1320a-7a(a)(1)) is amended--
            (1) in subparagraph (A) by striking ``claimed,'' and 
        inserting the following: ``claimed, including any person who 
        presents or causes to be presented a claim for an item or 
        service that is based on a code that the person knows or should 
        know will result in a greater payment to the person than the 
        code the person knows or should know is applicable to the item 
        or service actually provided,'';
            (2) in subparagraph (C), by striking ``or'' at the end;
            (3) in subparagraph (D), by striking ``; or'' and inserting 
        ``, or''; and
            (4) by inserting after subparagraph (D) the following new 
        subparagraph:
                    ``(E) is for a medical or other item or service 
                that a person knows or should know is not medically 
                necessary; or''.

SEC. 715. ACTIONS SUBJECT TO CRIMINAL PENALTIES.

    (a) Permitting Secretary To Impose Civil Monetary Penalty.--Section 
1128A(b) of the Social Security Act (42 U.S.C. 1320a-7a(a)) is amended 
by adding the following new paragraph:
            ``(3) Any person (including any organization, agency, or 
        other entity, but excluding a beneficiary as defined in 
        subsection (i)(5)) who the Secretary determines has violated 
        section 1128B(b) of this title shall be subject to a civil 
        monetary penalty of not more than $10,000 for each such 
        violation. In addition, such person shall be subject to an 
        assessment of not more than twice the total amount of the 
        remuneration offered, paid, solicited, or received in violation 
        of section 1128B(b). The total amount of remuneration subject 
        to an assessment shall be calculated without regard to whether 
        some portion thereof also may have been intended to serve a 
        purpose other than one proscribed by section 1128B(b).''.
    (b) Restriction on Application of Exception for Amounts Paid to 
Employees.--Section 1128B(b)(3)(B) of such Act (42 U.S.C. 1320a-
7b(b)(3)(B)) is amended by striking ``services;'' and inserting the 
following: ``services, but only if the amount of remuneration under the 
arrangement is (i) consistent with fair market value; (ii) not 
determined in a manner that takes into account (directly or indirectly) 
the volume or value of any referrals by the employee to the employer 
for the furnishing (or arranging for the furnishing) of such items or 
services; and (iii) provided pursuant to an arrangement that would be 
commercially reasonable even if no referrals were made;''.

SEC. 716. SANCTIONS AGAINST PRACTITIONERS AND PERSONS FOR FAILURE TO 
              COMPLY WITH STATUTORY OBLIGATIONS.

    (a) Minimum Period of Exclusion for Practitioners and Persons 
Failing To Meet Statutory Obligations.--
            (1) In general.--The second sentence of section 1156(b)(1) 
        of the Social Security Act (42 U.S.C. 1320c-5(b)(1)) is amended 
        by striking ``may prescribe)'' and inserting ``may prescribe, 
        except that such period may not be less than 1 year)''.
            (2) Conforming amendment.--Section 1156(b)(2) of such Act 
        (42 U.S.C. 1320c-5(b)(2)) is amended by striking ``shall 
        remain'' and inserting ``shall (subject to the minimum period 
        specified in the second sentence of paragraph (1)) remain''.
    (b) Repeal of ``Unwilling or Unable'' Condition for Imposition of 
Sanction.--Section 1156(b)(1) of such Act (42 U.S.C. 1320c-5(b)(1)) is 
amended--
            (1) in the second sentence, by striking ``and determines'' 
        and all that follows through ``such obligations,''; and
            (2) by striking the third sentence.
    (c) Amount of Civil Money Penalty.--Section 1156(b)(3) of such Act 
(42 U.S.C. 1320c-5(b)(3)) is amended by striking ``the actual or 
estimated cost'' and inserting the following: ``up to $10,000 for each 
instance''.

SEC. 717. INTERMEDIATE SANCTIONS FOR MEDICARE HEALTH MAINTENANCE 
              ORGANIZATIONS.

    (a) Application of Intermediate Sanctions for Any Program 
Violations.--
            (1) In general.--Section 1876(i)(1) of the Social Security 
        Act (42 U.S.C. 1395mm(i)(1)) is amended by striking ``the 
        Secretary may terminate'' and all that follows and inserting 
        the following: ``in accordance with procedures established 
        under paragraph (9), the Secretary may at any time terminate 
        any such contract or may impose the intermediate sanctions 
        described in paragraph (6)(B) or (6)(C) (whichever is 
        applicable) on the eligible organization if the Secretary 
        determines that the organization--
                    ``(A) has failed substantially to carry out the 
                contract;
                    ``(B) is carrying out the contract in a manner 
                inconsistent with the efficient and effective 
                administration of this section;
                    ``(C) is operating in a manner that is not in the 
                best interests of the individuals covered under the 
                contract; or
                    ``(D) no longer substantially meets the applicable 
                conditions of subsections (b), (c), (e), and (f).''.
            (2) Other intermediate sanctions for miscellaneous program 
        violations.--Section 1876(i)(6) of such Act (42 U.S.C. 
        1395mm(i)(6)) is amended by adding at the end the following new 
        subparagraph:
    ``(C) In the case of an eligible organization for which the 
Secretary makes a determination under paragraph (1) the basis of which 
is not described in subparagraph (A), the Secretary may apply the 
following intermediate sanctions:
            ``(i) Civil money penalties of not more than $25,000 for 
        each determination under paragraph (1) if the deficiency that 
        is the basis of the determination has directly adversely 
        affected (or has the substantial likelihood of adversely 
        affecting) an individual covered under the organization's 
        contract.
            ``(ii) Civil money penalties of not more than $10,000 for 
        each week beginning after the initiation of procedures by the 
        Secretary under paragraph (9) during which the deficiency that 
        is the basis of a determination under paragraph (1) exists.
            ``(iii) Suspension of enrollment of individuals under this 
        section after the date the Secretary notifies the organization 
        of a determination under paragraph (1) and until the Secretary 
        is satisfied that the deficiency that is the basis for the 
        determination has been corrected and is not likely to recur.''.
            (3) Procedures for imposing sanctions.--Section 1876(i) of 
        such Act (42 U.S.C. 1395mm(i)) is amended by adding at the end 
        the following new paragraph:
    ``(9) The Secretary may terminate a contract with an eligible 
organization under this section or may impose the intermediate 
sanctions described in paragraph (6) on the organization in accordance 
with formal investigation and compliance procedures established by the 
Secretary under which--
            ``(A) the Secretary provides the organization with the 
        opportunity to develop and implement a corrective action plan 
        to correct the deficiencies that were the basis of the 
        Secretary's determination under paragraph (1);
            ``(B) in deciding whether to impose sanctions, the 
        Secretary considers aggravating factors such as whether an 
        entity has a history of deficiencies or has not taken action to 
        correct deficiencies the Secretary has brought to their 
        attention;
            ``(C) there are no unreasonable or unnecessary delays 
        between the finding of a deficiency and the imposition of 
        sanctions; and
            ``(D) the Secretary provides the organization with 
        reasonable notice and opportunity for hearing (including the 
        right to appeal an initial decision) before imposing any 
        sanction or terminating the contract.''.
            (4) Conforming amendments.--
                    (A) In general.--Section 1876(i)(6)(B) of such Act 
                (42 U.S.C. 1395mm(i)(6)(B)) is amended by striking the 
                second sentence.
                    (B) Procedural provisions.--Section 1876(i)(6) of 
                such Act (42 U.S.C. 1395mm(i)(6)) is further amended by 
                adding at the end the following new subparagraph:
    ``(D) The provisions of section 1128A (other than subsections (a) 
and (b)) shall apply to a civil money penalty under subparagraph (A) or 
(B) in the same manner as they apply to a civil money penalty or 
proceeding under section 1128A(a).''.
    (b) Agreements With Peer Review Organizations.--
            (1) Requirement for written agreement.--Section 
        1876(i)(7)(A) of the Social Security Act (42 U.S.C. 
        1395mm(i)(7)(A)) is amended by striking ``an agreement'' and 
        inserting ``a written agreement''.
            (2) Development of model agreement.--Not later than July 1, 
        1995, the Secretary shall develop a model of the agreement that 
        an eligible organization with a risk-sharing contract under 
        section 1876 of the Social Security Act must enter into with an 
        entity providing peer review services with respect to services 
        provided by the organization under section 1876(i)(7)(A) of 
        such Act.
            (3) Report by gao.--
                    (A) Study.--The Comptroller General of the United 
                States shall conduct a study of the costs incurred by 
                eligible organizations with risk-sharing contracts 
                under section 1876(b) of such Act of complying with the 
                requirement of entering into a written agreement with 
                an entity providing peer review services with respect 
                to services provided by the organization, together with 
                an analysis of how information generated by such 
                entities is used by the Secretary to assess the quality 
                of services provided by such eligible organizations.
                    (B) Report to congress.--Not later than July 1, 
                1997, the Comptroller General shall submit a report to 
                the Committee on Ways and Means and the Committee on 
                Energy and Commerce of the House of Representatives and 
                the Committee on Finance and the Special Committee on 
                Aging of the Senate on the study conducted under 
                subparagraph (A).
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to contract years beginning on or after January 1, 
1995.

SEC. 718. EFFECTIVE DATE.

    The amendments made by this subtitle shall take effect January 1, 
1995.

        Subtitle C--Administrative and Miscellaneous Provisions

SEC. 721. ESTABLISHMENT OF THE HEALTH CARE FRAUD AND ABUSE DATA 
              COLLECTION PROGRAM.

    (a) Findings.--The Congress finds the following:
            (1) Fraud and abuse with respect to the delivery of and 
        payment for health care services is a significant contributor 
        to the growing costs of the Nation's health care.
            (2) Control of fraud and abuse in health care services 
        warrants greater efforts of coordination than those that can be 
        undertaken by individual States or the various Federal, State, 
        and local law enforcement programs.
            (3) There is a national need to coordinate information 
        about health care providers and entities that have engaged in 
        fraud and abuse in the delivery of and payment for health care 
        services.
            (4) There is no comprehensive national data collection 
        program for the reporting of public information about final 
        adverse actions against health care providers, suppliers, or 
        licensed health care practitioners that have engaged in fraud 
        and abuse in the delivery of and payment for health care 
        services.
            (5) A comprehensive national data collection program for 
        the reporting of public information about final adverse actions 
        will facilitate the enforcement of the provisions of the Social 
        Security Act and other statutes applicable to health care fraud 
        and abuse.
    (b) General Purpose.--Not later than January 1, 1995, the Secretary 
shall establish a national health care fraud and abuse data collection 
program for the reporting of final adverse actions (not including 
settlements in which no findings of liability have been made) against 
health care providers, suppliers, or practitioners as required by 
subsection (c), with access as set forth in subsection (d).
    (c) Reporting of Information.--
            (1) In general.--Each government agency and health care 
        plan shall report any final adverse action (not including 
        settlements in which no findings of liability have been made) 
        taken against a health care provider, supplier, or 
        practitioner.
            (2) Information to be reported.--The information to be 
        reported under paragraph (1) includes:
                    (A) The name of any health care provider, supplier, 
                or practitioner who is the subject of a final adverse 
                action.
                    (B) The name (if known) of any health care entity 
                with which a health care provider, supplier, or 
                practitioner is affiliated or associated.
                    (C) The nature of the final adverse action.
                    (D) A description of the acts or omissions and 
                injuries upon which the final adverse action was based, 
                and such other information as the Secretary determines 
                by regulation is required for appropriate 
                interpretation of information reported under this 
                section.
            (3) Confidentiality.--In determining what information is 
        required, the Secretary shall include procedures to assure that 
        the privacy of individuals receiving health care services is 
        appropriately protected.
            (4) Timing and form of reporting.--The information required 
        to be reported under this subsection shall be reported 
        regularly (but not less often than monthly) and in such form 
        and manner as the Secretary prescribes. Such information shall 
        first be required to be reported on a date specified by the 
        Secretary.
            (5) To whom reported.--The information required to be 
        reported under this subsection shall be reported to the 
        Secretary.
    (d) Disclosure and Correction of Information.--
            (1) Disclosure.--With respect to the information about 
        final adverse actions (not including settlements in which no 
        findings of liability have been made) reported to the Secretary 
        under this section respecting a health care provider, supplier, 
        or practitioner, the Secretary shall, by regulation, provide 
        for--
                    (A) disclosure of the information, upon request, to 
                the health care provider, supplier, or licensed 
                practitioner, and
                    (B) procedures in the case of disputed accuracy of 
                the information.
            (2) Corrections.--Each Government agency and health care 
        plan shall report corrections of information already reported 
        about any final adverse action taken against a health care 
        provider, supplier, or practitioner, in such form and manner 
        that the Secretary prescribes by regulation.
    (e) Access to Reported Information.--
            (1) Availability.--The information in this database shall 
        be available to Federal and State government agencies and 
        health care plans pursuant to procedures that the Secretary 
        shall provide by regulation.
            (2) Fees for disclosure.--The Secretary may establish or 
        approve reasonable fees for the disclosure of information in 
        this database. The amount of such a fee may not exceed the 
        costs of processing the requests for disclosure and of 
        providing such information. Such fees shall be available to the 
        Secretary or, in the Secretary's discretion to the agency 
        designated under this section to cover such costs.
    (f) Protection From Liability for Reporting.--No person or entity, 
including the agency designated by the Secretary in subsection (c)(5) 
shall be held liable in any civil action with respect to any report 
made as required by this section, without knowledge of the falsity of 
the information contained in the report.
    (g) Definitions and Special Rules.--For purposes of this section:
            (1) The term ``final adverse action'' includes:
                    (A) Civil judgments against a health care provider 
                in Federal or State court related to the delivery of a 
                health care item or service.
                    (B) Federal or State criminal convictions related 
                to the delivery of a health care item or service.
                    (C) Actions by Federal or State agencies 
                responsible for the licensing and certification of 
                health care providers, suppliers, and licensed health 
                care practitioners, including--
                            (i) formal or official actions, such as 
                        revocation or suspension of a license (and the 
                        length of any such suspension), reprimand, 
                        censure or probation,
                            (ii) any other loss of license of the 
                        provider, supplier, or practitioner, by 
                        operation of law, or
                            (iii) any other negative action or finding 
                        by such Federal or State agency that is 
                        publicly available information.
                    (D) Exclusion from participation in Federal or 
                State health care programs.
                    (E) Any other adjudicated actions or decisions that 
                the Secretary shall establish by regulation.
            (2) The terms ``licensed health care practitioner'', 
        ``licensed practitioner'', and ``practitioner'' mean, with 
        respect to a State, an individual who is licensed or otherwise 
        authorized by the State to provide health care services (or any 
        individual who, without authority holds himself or herself out 
        to be so licensed or authorized).
            (3) The term ``health care provider'' means a provider of 
        services as defined in section 1861(u) of the Social Security 
        Act, and any entity, including a health maintenance 
        organization, group medical practice, or any other entity 
        listed by the Secretary in regulation, that provides health 
        care services.
            (4) The term ``supplier'' means a supplier of health care 
        items and services described in section 1819 (a) and (b), and 
        section 1861 of the Social Security Act.
            (5) The term ``Government agency'' shall include:
                    (A) The Department of Justice.
                    (B) The Department of Health and Human Services.
                    (C) Any other Federal agency that either 
                administers or provides payment for the delivery of 
                health care services, including, but not limited to the 
                Department of Defense and the Veterans' Administration.
                    (D) State law enforcement agencies.
                    (E) State medicaid fraud and abuse units.
                    (F) Federal or State agencies responsible for the 
                licensing and certification of health care providers 
                and licensed health care practitioners.
            (6) The term ``health care plan'' has the meaning given to 
        such term by section 1128(i) of the Social Security Act.
            (7) For purposes of paragraph (2), the existence of a 
        conviction shall be determined under paragraph (4) of section 
        1128(j) of the Social Security Act.
    (h) Conforming Amendment.--Section 1921(d) of the Social Security 
Act is amended by inserting ``and section 721 of the America's Health 
Care Option Act'' after ``section 422 of the Health Care Quality 
Improvement Act of 1986''.

                 Subtitle D--Amendments to Criminal Law

SEC. 731. HEALTH CARE FRAUD.

    (a) In General.--
            (1)  Fines and imprisonment for health care fraud 
        violations.--Chapter 63 of title 18, United States Code, is 
        amended by adding at the end the following new section:
``Sec. 1347. Health care fraud
    ``(a) Whoever knowingly executes, or attempts to execute, a scheme 
or artifice--
            ``(1) to defraud any health care plan or other person, in 
        connection with the delivery of or payment for health care 
        benefits, items, or services; or
            ``(2) to obtain, by means of false or fraudulent pretenses, 
        representations, or promises, any of the money or property 
        owned by, or under the custody or control of, any health care 
        plan, or person in connection with the delivery of or payment 
        for health care benefits, items, or services;
shall be fined under this title or imprisoned not more than 10 years, 
or both. If the violation results in serious bodily injury (as defined 
in section 1365(g)(3) of this title), such person shall be imprisoned 
for any term of years.
    ``(b) For purposes of this section, the term `health care plan' 
means a federally funded public program, or a private plan or other 
arrangement for the delivery of or payment for health care items or 
services.''.
            (2) Clerical amendment.--The table of sections at the 
        beginning of chapter 63 of title 18, United States Code, is 
        amended by adding at the end the following:

``1347. Health care fraud.''.
    (b) Criminal Fines Deposited in the Anti-Fraud and Abuse Trust 
Fund.--The Secretary of the Treasury shall deposit into the Anti-Fraud 
and Abuse Trust Fund established under section 701(b) an amount equal 
to the criminal fines imposed under section 1347 of title 18, United 
States Code (relating to health care fraud).

SEC. 732. FORFEITURES FOR FEDERAL HEALTH CARE OFFENSES.

    (a) In General.--Section 982(a) of title 18, United States Code, is 
amended by adding after paragraph (5) the following new paragraph:
    ``(6)(A) The court, in imposing sentence on a person convicted of a 
Federal health care offense, shall order the person to forfeit 
property, real or personal, that--
            ``(i) is used in the commission of the offense if the 
        offense results in a financial loss or gain of $50,000 or more; 
        or
            ``(ii) constitutes or is derived from proceeds traceable to 
        the commission of the offense.
    ``(B) For purposes of this paragraph, the term `Federal health care 
offense' means a violation of, or a criminal conspiracy to violate--
            ``(i) section 1347 of this title;
            ``(ii) section 1128B of the Social Security Act;
            ``(iii) sections 287, 371, 664, 666, 1001, 1027, 1341, 
        1343, or 1954 of this title if the violation or conspiracy 
        relates to health care fraud; and
            ``(iv) section 501 or 511 of the Employee Retirement Income 
        Security Act of 1974, if the violation or conspiracy relates to 
        health care fraud.''.
    (b) Property Forfeited Deposited in Anti-Fraud and Abuse Trust 
Fund.--The Secretary of the Treasury shall deposit into the Anti-Fraud 
and Abuse Trust Fund established under section 701(b) an amount equal 
to amounts resulting from forfeiture of property by reason of a Federal 
health care offense pursuant to section 982(a)(6) of title 18, United 
States Code.

SEC. 733. INJUNCTIVE RELIEF RELATING TO FEDERAL HEALTH CARE OFFENSES.

    Section 1345(a)(1) of title 18, United States Code, is amended--
            (1) by striking ``or'' at the end of subparagraph (A);
            (2) by inserting ``or'' at the end of subparagraph (B); and
            (3) by adding at the end the following:
                    ``(C) committing or about to commit a Federal 
                health care offense (as defined in section 982(a)(6)(B) 
                of this title);''.

            Subtitle E--Amendments to Civil False Claims Act

SEC. 741. AMENDMENTS TO CIVIL FALSE CLAIMS ACT.

    (a) In General.--Section 3729 of title 31, United States Code, is 
amended--
            (1) in subsection (a)(7), by inserting ``or to a health 
        care plan,'' after ``property to the Government,'';
            (2) in the matter following subsection (a)(7), by inserting 
        ``or health care plan'' before ``sustains because of the act of 
        that person,'';
            (3) at the end of the first sentence of subsection (a), by 
        inserting ``or health care plan'' before ``sustains because of 
        the act of the person.'';
            (4) in subsection (c)--
                    (A) by inserting ``the term'' after ``section,''; 
                and
                    (B) by adding at the end the following: ``The term 
                also includes any request or demand, whether under 
                contract or otherwise, for money or property which is 
                made or presented to a health care plan.''; and
            (5) by adding at the end the following:
    ``(f) Health Care Plan Defined.--For purposes of this section, the 
term `health care plan' means a federally funded public program for the 
delivery of or payment for health care items or services.''.
    (b) Penalties and Damages Deposited Into the Anti-Fraud and Abuse 
Trust Fund.--The Secretary of the Treasury shall deposit into the Anti-
Fraud and Abuse Trust Fund established under section 701(b) an amount 
equal to penalties and damages imposed under section 3729 of title 31, 
United States Code, in cases involving claims related to the provision 
of health care items and services (other than funds awarded to a 
relator or for restitution).

                   TITLE VIII--MEDICARE AND MEDICAID

SEC. 800. REFERENCES TO SOCIAL SECURITY ACT.

    Except as otherwise specifically provided, whenever in this title 
an amendment is expressed in terms of an amendment to or repeal of a 
section or other provision, the reference shall be considered to be 
made to that section or other provision of the Social Security Act.

                          Subtitle A--Medicare

 PART I--INTEGRATION OF MEDICARE BENEFICIARIES INTO THE PRIVATE MARKET

SEC. 801. STUDY ON INTEGRATION OF MEDICARE BENEFICIARIES.

    (a) In General.--The Secretary of Health and Human Services 
(hereafter in this section referred to as the ``Secretary'') shall 
study--
            (1) allowing payment under title XVIII of the Social 
        Security Act on behalf of medicare beneficiaries that opt--
                    (A) to enroll in certified health plans (as defined 
                in section 21003(b) of the Social Security Act); and
                    (B) to establish medical savings accounts (in 
                accordance with section 213 of the America's Health 
                Care Option Act); and
            (2) allowing payment under title XVIII of the Social 
        Security Act on behalf of medicare beneficiaries who are 
        military retirees that opt to enroll in health plans sponsored 
        by the Department of Defense or other appropriate Federal 
        health care programs.
    (b) Recommendations.--Not later than 1 year after the date of the 
enactment of this Act, the Secretary shall submit recommendations to 
Congress on each of the matters studied under subsection (a).

SEC. 802. IMPROVEMENTS TO RISK CONTRACTS.

    (a) Rating Areas.--Section 1876(a)(1)(F)(ii) (42 U.S.C. 
1395mm(a)(1)(F)(ii)) is amended by striking ``county (or equivalent 
area)'' and inserting ``Metropolitan Statistical Area (as defined by 
the Office of Management and Budget), New England County Metropolitan 
Area, or other appropriate geographic area outside a Metropolitan 
Statistical Area or a New England County Metropolitan Area (hereafter 
in this section referred to as a `rating area')''.
    (b) Period of Enrollment.--Section 1876(c)(3) (42 U.S.C. 
1395mm(c)(3)) is amended--
            (1) in subparagraph (A)(i), after ``of at least 30 days 
        duration every year'', by inserting ``(which may be specified 
        by the Secretary)'';
            (2) in subparagraph (B), by striking ``as of'' and 
        inserting ``, at the option of the organization, (i) during an 
        annual period as approved by the Secretary, or (ii) as of'';
            (3) in subparagraph (E)--
                    (A) by striking ``and'' in clause (iv),
                    (B) by striking the period in clause (v) and 
                inserting ``, and'', and
                    (C) by adding at the end the following new clause:
                            ``(vi) the option chosen by the plan under 
                        clause (i) or (ii) of subparagraph (B) with 
                        respect to termination of enrollment by an 
                        individual.''.
    (c) Marketing Materials.--Section 1876(c)(3)(C) (42 U.S.C. 
1395mm(c)(3)(C)) is amended by adding at the end the following: ``The 
Secretary shall develop comparative materials with respect to all 
eligible organizations in an area (and with respect to the program 
established under this title for individuals not enrolled with such an 
organization) for distribution by such organizations or the Secretary 
to individuals eligible to enroll under this section.''.
    (d) Fifty-Fifty Rule.--Section 1876(f) (42 U.S.C. 1395mm(f)) is 
amended--
            (1) by amending paragraph (2) to read as follows:
            ``(2) The Secretary may modify or waive the requirement 
        imposed by paragraph (1) if an eligible organization 
        demonstrates that it provides for adequate quality of care for 
        individuals enrolled under this section by--
                    ``(A) meeting the quality standards for 
                organizations with contracts under this section;
                    ``(B) meeting the fiscal soundness requirements 
                under this section;
                    ``(C) demonstrating successful operational 
                experience as an eligible organization under this 
                section for at least the 3 years immediately preceding 
                an application for a waiver under this paragraph; and
                    ``(D) demonstrating that the number of individuals 
                enrolled in the plan or its parent organization is at 
                least 50,000 at the time of application for a waiver 
                under this paragraph.
        In making a determination under subparagraph (A) with respect 
        to an eligible organization, the Secretary may accept quality 
        performance standards as measured by private organizations 
        acceptable to the Secretary or organizations designated by the 
        Secretary, including peer review organizations.''; and
            (2) by adding at the end the following new paragraph:
            ``(4) The Secretary may terminate the requirement under 
        paragraph (1) when the Secretary determines that health plans 
        have established alternative quality assurance mechanisms that 
        effectively provide sufficient quality safeguards.''.
    (e) Rebates.--Section 1876(g)(2) (42 U.S.C. 1395mm(g)(2)) is 
amended in the matter following subparagraph (B) by striking 
``community rate (as so reduced); except'' and inserting ``community 
rate (as so reduced) or, at the election of the plan, a cash rebate 
equal to such difference; except''.
    (f) Direct Calculation of AAPCC.--Section 1876(a)(4) (42 U.S.C. 
1395mm(a)(4)) is amended by striking ``actual experience'' and all that 
follows through ``actuarial equivalence)'' and inserting ``actual 
experience in a rating area''.
    (g) Demonstration Project.--
            (1) In general.--Not later than 18 months after the date of 
        the enactment of this Act, the Secretary of Health and Human 
        Services shall establish a demonstration project under which 
        any eligible organization that--
                    (A) has a risk contract under section 1876 of the 
                Social Security Act (42 U.S.C. 1395mm), and
                    (B) serves individuals enrolled under such section 
                in a rating area (as defined under section 
                1876(a)(1)(F)(ii) of such Act),
        is paid, with respect to such individuals, on the basis of a 
        payment methodology that blends market-based premiums and the 
        average per capita fee-for-service costs for individuals 
        eligible to enroll under such section for the area and gives 
        greater weight to market-based premiums in areas in which a 
        greater proportion of such individuals are enrolled with such 
        organizations.
            (2) Designation of areas.--The Secretary may designate a 
        rating area (as defined by the Secretary under section 
        1876(a)(1)(F)(ii) of the Social Security Act (42 U.S.C. 
        1395mm(a)(1)(F)(ii))) for participation in the demonstration 
        established under paragraph (1) only if--
                    (A) the eligible organizations with a contract 
                under section 1876 of the Social Security Act serving 
                such area submit an application to participate in the 
                demonstration project in such form and manner, and at 
                such time, as the Secretary may designate, and
                    (B)(i) the rating area has more than one eligible 
                organization with a contract serving such area,
                    (ii) the rating area has adequate enrollment of 
                individuals who are entitled to benefits under part A 
                of title XVIII of such Act in eligible organizations 
                with a contract under section 1876 of such Act (as 
                determined by the Secretary), and
                    (iii) the adjusted average per capita cost for such 
                rating area for part B services under title XVIII of 
                such Act as determined in accordance with such section 
                is less than the United States per capita cost for part 
                B services under such title.
    (h) Extension of Social Health Maintenance Organizations.--Section 
4018(b) of the Omnibus Budget Reconciliation Act of 1987, as amended by 
section 4207(b)(4)(B) of the Omnibus Budget Reconciliation Act of 1990 
and section 13567(a) of the Omnibus Budget Reconciliation Act of 1993, 
is amended--
            (1) in paragraph (1), by striking ``December 31, 1997'' and 
        inserting ``December 31, 1999''; and
            (2) in paragraph (4), by striking ``March 31, 1998'' and 
        inserting ``March 31, 2000''.
    (i) Military Adjustment.--Section 1876(a)(1)(B) (42 U.S.C. 
1395mm(a)(1)(B)) is amended by inserting ``use or nonuse of Veteran's 
Administration, military treatment and uniformed services treatment 
facilities, and associated physicians, providers, and suppliers,'' 
after ``disability status,''.
    (j) Effective Date.--The amendments made by subsections (a), (b), 
(c), (d), (e), (f), and (i) shall apply to contracts entered into or 
renewed on or after January 1, 1996.

SEC. 803. MEDICARE SELECT.

    (a) Amendments to Provisions Relating to Medicare Select 
Policies.--
            (1) Permitting medicare select policies in all states.--
        Subsection (c) of section 4358 of the Omnibus Budget 
        Reconciliation Act of 1990 is hereby repealed.
            (2) Requirements of medicare select policies.--Section 
        1882(t)(1) (42 U.S.C. 1395ss(t)(1)) is amended to read as 
        follows:
    ``(1)(A) If a medicare supplemental policy meets the requirements 
of the 1991 NAIC Model Regulation or 1991 Federal Regulation and 
otherwise complies with the requirements of this section except that--
            ``(i) the benefits under such policy are restricted to 
        items and services furnished by certain entities (or reduced 
        benefits are provided when items or services are furnished by 
        other entities), and
            ``(ii) in the case of a policy described in subparagraph 
        (C)(i)--
                    ``(I) the benefits under such policy are not one of 
                the groups or packages of benefits described in 
                subsection (p)(2)(A),
                    ``(II) except for nominal copayments imposed for 
                services covered under part B of this title, such 
                benefits include at least the core group of basic 
                benefits described in subsection (p)(2)(B), and
                    ``(III) an enrollee's liability under such policy 
                for physician's services covered under part B of this 
                title is limited to the nominal copayments described in 
                subclause (II),
        the policy shall nevertheless be treated as meeting those 
        requirements if the policy meets the requirements of 
        subparagraph (B).
    ``(B) A policy meets the requirements of this subparagraph if--
            ``(i) full benefits are provided for items and services 
        furnished through a network of entities which have entered into 
        contracts or agreements with the issuer of the policy,
            ``(ii) full benefits are provided for items and services 
        furnished by other entities if the services are medically 
        necessary and immediately required because of an unforeseen 
        illness, injury, or condition and it is not reasonable given 
        the circumstances to obtain the services through the network,
            ``(iii) the network offers sufficient access,
            ``(iv) the issuer of the policy has arrangements for an 
        ongoing quality assurance program for items and services 
        furnished through the network,
            ``(v)(I) the issuer of the policy provides to each enrollee 
        at the time of enrollment an explanation of--
                    ``(aa) the restrictions on payment under the policy 
                for services furnished other than by or through the 
                network,
                    ``(bb) out of area coverage under the policy,
                    ``(cc) the policy's coverage of emergency services 
                and urgently needed care, and
                    ``(dd) the availability of a policy through the 
                entity that meets the 1991 Model NAIC Regulation or 
                1991 Federal Regulation without regard to this 
                subsection and the premium charged for such policy, and
            ``(II) each enrollee prior to enrollment acknowledges 
        receipt of the explanation provided under subclause (I), and
            ``(vi) the issuer of the policy makes available to 
        individuals, in addition to the policy described in this 
        subsection, any policy (otherwise offered by the issuer to 
        individuals in the State) that meets the 1991 Model NAIC 
        Regulation or 1991 Federal Regulation and other requirements of 
        this section without regard to this subsection.
    ``(C)(i) A policy described in this subparagraph--
            ``(I) is offered by an eligible organization (as defined in 
        section 1876(b)),
            ``(II) is not a policy or plan providing benefits pursuant 
        to a contract under section 1876 or an approved demonstration 
        project described in section 603(c) of the Social Security 
        Amendments of 1983, section 2355 of the Deficit Reduction Act 
        of 1984, or section 9412(b) of the Omnibus Budget 
        Reconciliation Act of 1986, and
            ``(III) provides benefits which, when combined with 
        benefits which are available under this title, are 
        substantially similar to benefits under policies offered to 
        individuals who are not entitled to benefits under this title.
    ``(ii) In making a determination under subclause (III) of clause 
(i) as to whether certain benefits are substantially similar, there 
shall not be taken into account, except in the case of preventive 
services, benefits provided under policies offered to individuals who 
are not entitled to benefits under this title which are in addition to 
the benefits covered by this title and which are benefits an entity 
must provide in order to meet the definition of an eligible 
organization under section 1876(b)(1).''.
    (b) Renewability of Medicare Select Policies.--Section 1882(q)(1) 
(42 U.S.C. 1395ss(q)(1)) is amended--
            (1) by striking ``(1) Each'' and inserting ``(1)(A) Except 
        as provided in subparagraph (B), each'';
            (2) by redesignating subparagraphs (A) and (B) as clauses 
        (i) and (ii), respectively; and
            (3) by adding at the end the following new subparagraph:
            ``(B)(i) In the case of a policy that meets the 
        requirements of subsection (t), an issuer may cancel or 
        nonrenew such policy with respect to an individual who leaves 
        the service area of such policy; except that, if such 
        individual moves to a geographic area where such issuer, or 
        where an affiliate of such issuer, is issuing medicare 
        supplemental policies, such individual must be permitted to 
        enroll in any medicare supplemental policy offered by such 
        issuer or affiliate that provides benefits comparable to or 
        less than the benefits provided in the policy being canceled or 
        nonrenewed. An individual whose coverage is canceled or 
        nonrenewed under this subparagraph shall, as part of the notice 
        of termination or nonrenewal, be notified of the right to 
        enroll in other medicare supplemental policies offered by the 
        issuer or its affiliates.
            ``(ii) For purposes of this subparagraph, the term 
        `affiliate' shall have the meaning given such term by the 1991 
        NAIC Model Regulation.''.
    (c) Civil Penalty.--Section 1882(t)(2) (42 U.S.C. 1395ss(t)(2)) is 
amended--
            (1) by striking ``(2)'' and inserting ``(2)(A)'';
            (2) by redesignating subparagraphs (A), (B), (C), and (D) 
        as clauses (i), (ii), (iii), and (iv), respectively;
            (3) in clause (iv), as redesignated--
                    (A) by striking ``paragraph (1)(E)(i)'' and 
                inserting ``paragraph (1)(B)(v)(I); and
                    (B) by striking ``paragraph (1)(E)(ii)'' and 
                inserting ``paragraph (1)(B)(v)(II)'';
            (4) by striking ``the previous sentence'' and inserting 
        ``this subparagraph''; and
            (5) by adding at the end the following new subparagraph:
    ``(B) If the Secretary determines that an issuer of a policy 
approved under paragraph (1) has made a misrepresentation to the 
Secretary or has provided the Secretary with false information 
regarding such policy, the issuer is subject to a civil money penalty 
in an amount not to exceed $100,000 for each such determination. The 
provisions of section 1128A (other than the first sentence of 
subsection (a) and other than subsection (b)) shall apply to a civil 
money penalty under this subparagraph in the same manner as such 
provisions apply to a penalty or proceeding under section 1128A(a).''.
    (d) Effective Dates.--
            (1) NAIC standards.--If, within 9 months after the date of 
        the enactment of this Act, the National Association of 
        Insurance Commissioners (hereafter in this subsection referred 
        to as the ``NAIC'') makes changes in the 1991 NAIC Model 
        Regulation (as defined in section 1882(p)(1)(A) of the Social 
        Security Act) to incorporate the additional requirements 
        imposed by the amendments made by this section, section 
        1882(g)(2)(A) of such Act shall be applied in each State, 
        effective for policies issued to policyholders on and after the 
        date specified in paragraph (3), as if the reference to the 
        Model Regulation adopted on June 6, 1979, were a reference to 
        the 1991 NAIC Model Regulation (as so defined) as changed under 
        this paragraph (such changed Regulation referred to in this 
        subsection as the ``1995 NAIC Model Regulation'').
            (2) Secretary standards.--If the NAIC does not make changes 
        in the 1991 NAIC Model Regulation (as so defined) within the 9-
        month period specified in paragraph (1), the Secretary of 
        Health and Human Services (hereafter in this subsection 
        referred to as the ``Secretary'') shall promulgate a regulation 
        and section 1882(g)(2)(A) of the Social Security Act shall be 
        applied in each State, effective for policies issued to 
        policyholders on and after the date specified in paragraph (3), 
        as if the reference to the Model Regulation adopted on June 6, 
        1979, were a reference to the 1991 NAIC Model Regulation (as so 
        defined) as changed by the Secretary under this paragraph (such 
        changed Regulation referred to in this subsection as the ``1995 
        Federal Regulation'').
            (3) Date specified.--
                    (A) In general.--Subject to subparagraph (B), the 
                date specified in this paragraph for a State is the 
                earlier of--
                            (i) the date the State adopts the 1995 NAIC 
                        Model Regulation or the 1995 Federal 
                        Regulation, or
                            (ii) 1 year after the date the NAIC or the 
                        Secretary first adopts such regulations.
                    (B) Additional legislative action required.--In the 
                case of a State which the Secretary identifies, in 
                consultation with the NAIC, as--
                            (i) requiring State legislation (other than 
                        legislation appropriating funds) in order for 
                        medicare supplemental policies to meet the 1995 
                        NAIC Model Regulation or the 1995 Federal 
                        Regulation, but
                            (ii) having a legislature which is not 
                        scheduled to meet in 1995 in a legislative 
                        session in which such legislation may be 
                        considered,
                the date specified in this paragraph is the first day 
                of the first calendar quarter beginning after the close 
                of the first legislative session of the State 
                legislature that begins on or after January 1, 1996. 
                For purposes of the previous sentence, in the case of a 
                State that has a 2-year legislative session, each year 
                of such session shall be deemed to be a separate 
                regular session of the State legislature.

                 PART II--PROVISIONS RELATED TO PART A

SEC. 811. INPATIENT HOSPITAL SERVICES UPDATE FOR PPS HOSPITALS.

    Section 1886(b)(3)(B)(i) (42 U.S.C. 1395ww(b)(3)(B)(i)) is 
amended--
            (1) by amending subclause (XII) to read as follows:
            ``(XII) for fiscal years 1997 through 2000, the market 
        basket percentage minus 1.0 percentage points for hospitals in 
        all areas, and''; and
            (2) in subclause (XIII), by striking ``1998'' and inserting 
        ``2001''.

SEC. 812. REDUCTION IN PAYMENTS FOR CAPITAL-RELATED COSTS FOR INPATIENT 
              HOSPITAL SERVICES.

    (a) Reduction in Base Payment Rates for PPS Hospitals.--Section 
1886(g)(1)(A) (42 U.S.C. 1395ww(g)(1)(A)) is amended by adding at the 
end the following new sentence: ``In addition to the reduction 
described in the preceding sentence, for discharges occurring after 
September 30, 1995, the Secretary shall reduce by 7.31 percent the 
unadjusted standard Federal capital payment rate (as described in 42 
CFR 412.308(c), as in effect on the date of the enactment of the 
America's Health Care Option Act) and shall reduce by 10.41 percent the 
unadjusted hospital-specific rate (as described in 42 CFR 
412.328(e)(1), as in effect on the date of the enactment of the 
America's Health Care Option Act).''.
    (b) Reduction in Payments for PPS-Exempt Hospitals.--Section 
1861(v)(1) (42 U.S.C. 1395x(v)(1)) is amended by adding at the end the 
following new subparagraph:
    ``(T) Such regulations shall provide that, in determining the 
amount of the payments that may be made under this title with respect 
to the capital-related costs of inpatient hospital services furnished 
by a hospital that is not a subsection (d) hospital (as defined in 
section 1886(d)(1)(B)) or a subsection (d) Puerto Rico hospital (as 
defined in section 1886(d)(9)(A)), the Secretary shall reduce the 
amounts of such payments otherwise established under this title by 15 
percent for payments attributable to portions of cost reporting periods 
occurring during each of the fiscal years 1996 through 2003.''.

SEC. 813. REVISIONS TO PAYMENT ADJUSTMENTS FOR DISPROPORTIONATE SHARE 
              HOSPITALS IN PARTICIPATING STATES.

    (a) Application of Alternative Adjustments.--Section 1886(d)(5) (42 
U.S.C. 1395ww(d)(5)) is amended--
            (1) by redesignating subparagraphs (H) and (I) as 
        subparagraphs (I) and (J); and
            (2) by inserting after subparagraph (G) the following new 
        subparagraph:
    ``(H)(i) In accordance with this subparagraph, the Secretary shall 
provide for an additional payment for each subsection (d) hospital that 
is located in a participating State under the America's Health Care 
Option Act during a cost reporting period and that meets the 
eligibility requirements described in clause (iii).
    ``(ii) The amount of the additional payment made under clause (i) 
for each discharge shall be determined by multiplying--
            ``(I) the sum of the amount determined under paragraph 
        (1)(A)(ii)(II) (or, if applicable, the amount determined under 
        paragraph (1)(A)(iii)) and the amount paid to the hospital 
        under subparagraph (A) for the discharge, by
            ``(II) the SSI adjustment percentage for the cost reporting 
        period in which the discharge occurs (as defined in clause 
        (iv)).
    ``(iii) A hospital meets the eligibility requirements described in 
this clause with respect to a cost reporting period if--
            ``(I) in the case of a hospital that is located in an urban 
        area and that has more than 100 beds, the hospital's SSI 
        patient percentage (as defined in clause (v)) for the cost 
        reporting period is not less than 5.5 percent;
            ``(II) in the case of a hospital that is located in an 
        urban area and that has less than 100 beds, the hospital's SSI 
        patient percentage is not less than 17 percent;
            ``(III) in the case of a hospital that is classified as a 
        rural referral center under subparagraph (C) or a sole 
        community hospital under subparagraph (D), the hospital's SSI 
        patient percentage for the cost reporting period is not less 
        than 23 percent; and
            ``(IV) in the case of any other hospital, the hospital's 
        SSI patient percentage is not less than 23 percent.
    ``(iv) For purposes of clause (ii), the `SSI adjustment percentage' 
applicable to a hospital for a cost reporting period is equal to--
            ``(I) in the case of a hospital described in clause 
        (iii)(I), the percentage determined in accordance with the 
        following formula: e to the nth power - 1, where `e' is the 
        natural antilog of 1 and where `n' is equal to (1.37 * (the 
        hospital's SSI patient percentage for the cost reporting period 
        - .055));
            ``(II) in the case of a hospital described in clause 
        (iii)(II) or clause (iii)(IV), 2 percent; and
            ``(III) in the case of a hospital described in clause 
        (iii)(III), the sum of 2 percent and .30 percent of the 
        difference between the hospital's SSI patient percentage for 
        the cost reporting period and 23 percent.
    ``(v) In this subparagraph, a hospital's `SSI patient percentage' 
with respect to a cost reporting period is equal to the fraction 
(expressed as a percentage)--
            ``(I) the numerator of which is the number of the 
        hospital's patient days for such period which were made up of 
        patients who (for such days) were entitled to benefits under 
        part A and were entitled to supplementary security income 
        benefits (excluding State supplementation) under title XVI; and
            ``(II) the denominator of which is the number of the 
        hospital's patient days for such period which were made up of 
        patients who (for such days) were entitled to benefits under 
        part A.''.
    (b) No Standardization Resulting From Reduction.--Section 
1886(d)(2)(C)(iv) (42 U.S.C. 1395ww(d)(2)(C)(iv)) is amended--
            (1) by striking ``exclude additional payments'' and 
        inserting ``adjust such estimate for changes in payments'';
            (2) by striking ``1989 or'' and inserting ``1989,''; and
            (3) by striking the period at the end and inserting the 
        following: ``, or the enactment of section 813 of the America's 
        Health Care Option Act.''.
    (c) Conforming Amendment.--Section 1886(d)(5)(F)(i) (42 U.S.C. 
1395ww(d)(5)(F)(i)) is amended in the matter preceding subclause (I) by 
inserting after ``hospital'' the following: ``that is not located in a 
State that is a participating State under the America's Health Care 
Option Act''.

SEC. 814. MORATORIUM ON DESIGNATION OF NEW LONG-TERM HOSPITALS.

    Effective October 1, 1994, notwithstanding clause (iv) of section 
1886(d)(1)(B) of the Social Security Act (42 U.S.C. 1395ww(d)(1)(B)), a 
hospital which has an average inpatient length of stay (as determined 
by the Secretary of Health and Human Services) of greater than 25 days 
shall not be treated as a hospital described in such clause for 
purposes of such title unless such hospital was treated as a hospital 
described in such clause for purposes of such title as of the date of 
the enactment of this Act.

SEC. 815. REDUCTION IN ADJUSTMENT FOR INDIRECT MEDICAL EDUCATION.

    (a) In General.--Section 1886(d)(5)(B)(ii) (42 U.S.C. 
1395ww(d)(5)(B)(ii)) is amended to read as follows:
            ``(ii) For purposes of clause (i)(II), the indirect 
        teaching adjustment factor is equal to c * (((1+r) to the nth 
        power) - 1), where `r' is the ratio of the hospital's full-time 
        equivalent interns and residents to beds and `n' equals .405. 
        For discharges occurring on or after--
                    ``(I) May 1, 1986, and before October 1, 1995, `c' 
                is equal to 1.89, and
                    ``(II) October 1, 1995, `c' is equal to 1.65.''.
    (b) No Restandardization of Payment Amounts Required.--Section 
1886(d)(2)(C)(i) (42 U.S.C. 1395ww(d)(2)(C)(i)) is amended by striking 
``of 1985'' and inserting ``of 1985, but not taking into account the 
amendments made by section 816(a) of the America's Health Care Option 
Act''.

SEC. 816. REDUCTION IN ROUTINE SERVICE COST LIMITS FOR SKILLED NURSING 
              FACILITIES.

    (a) Payments Based on Cost Limits.--Section 1888(a) (42 U.S.C. 
1395yy(a)) is amended by striking ``112 percent'' each place it appears 
and inserting ``106 percent (adjusted by such amount as the Secretary 
determines to be necessary to preserve the savings resulting from the 
enactment of section 13503(a)(1) of the Omnibus Budget Reconciliation 
Act of 1993)''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to cost reporting periods beginning on or after October 1, 1995.

                PART III--PROVISIONS RELATING TO PART B

SEC. 821. UPDATES FOR PHYSICIANS' SERVICES.

    Section 1848(d)(1) (42 U.S.C. 1395w-4(d)(1)) is amended--
            (1) in subparagraph (A), by inserting after ``subparagraph 
        (B)'' the following: ``and, in the case of 1995, specified in 
        subparagraph (C)'';
            (2) by redesignating subparagraph (C) as subparagraph (D); 
        and
            (3) by inserting after subparagraph (B) the following new 
        subparagraph:
                    ``(C) Special provision for 1995.--For purposes of 
                subparagraph (A), the conversion factor specified in 
                this subparagraph for 1995 is in the case of 
                physicians' services (not included in the category of 
                primary care services (as defined for purposes of 
                subsection (j)(1))), the conversion factor established 
                under this subsection for 1994 reduced by 3 percent and 
                adjusted by the update established under paragraph (3) 
                for 1995.''.

SEC. 822. SUBSTITUTION OF REAL GDP TO ADJUST FOR VOLUME AND INTENSITY; 
              REPEAL OF RESTRICTION ON MAXIMUM REDUCTION PERMITTED IN 
              DEFAULT UPDATE.

    (a) Use of Real GDP To Adjust for Volume and Intensity.--Section 
1848(f)(2)(A)(iii) (42 U.S.C. 1395w-4(f)(2)(A)(iii)) is amended to read 
as follows:
                            ``(iii) 1 plus the average per capita 
                        growth in the real gross domestic product 
                        (divided by 100) for the 5-fiscal-year period 
                        ending with the previous fiscal year (increased 
                        by 1.5 percentage points for the category of 
                        services consisting of primary care services), 
                        and''.
    (b) Repeal of Restriction on Maximum Reduction.--Section 
1848(d)(3)(B)(ii) (42 U.S.C. 1395w-4(d)(3)(B)(ii)) is amended--
            (1) in the heading, by inserting ``in certain years'' after 
        ``adjustment'';
            (2) in the matter preceding subclause (I), by striking 
        ``for a year'';
            (3) in subclause (I), by adding ``and'' at the end;
            (4) in subclause (II), by striking ``, and'' and inserting 
        a period; and
            (5) by striking subclause (III).
    (c) Repeal of Performance Standard Factor.--
            (1) In general.--Section 1848(f)(2) is amended by striking 
        subparagraph (B) and redesignating subparagraph (C) as 
        subparagraph (B).
            (2) Conforming amendment.--Section 1848(f)(2)(A) is amended 
        in the matter following clause (iv) by striking ``1, multiplied 
        by 100'' and all that follows through ``subparagraph (B))'' and 
        inserting ``1 and multiplied by 100''.
    (d) Effective Date.--
            (1) Volume performance standards.--The amendments made by 
        subsections (a) and (c) shall apply with respect to volume 
        performance standards established beginning with fiscal year 
        1995.
            (2) Repeal of restriction on maximum reduction.--The 
        amendments made by subsection (b) shall apply to services 
        furnished on or after January 1, 1997.

SEC. 823. ESTABLISHMENT OF CUMULATIVE EXPENDITURE GOALS FOR PHYSICIAN 
              SERVICES.

    (a) Use of Cumulative Performance Standard.--Section 1848(f)(2) (42 
U.S.C. 1395w-4(f)(2)) is amended--
            (1) in subparagraph (A)--
                    (A) in the heading, by striking ``In general'' and 
                inserting ``Fiscal years 1991 through 1994.--'',
                    (B) in the matter preceding clause (i), by striking 
                ``a fiscal year (beginning with fiscal year 1991)'' and 
                inserting ``fiscal years 1991, 1992, 1993, and 1994'', 
                and
                    (C) in the matter following clause (iv), by 
                striking ``subparagraph (B)'' and inserting 
                ``subparagraph (C)'';
            (2) in subparagraph (B), by striking ``subparagraph (A)'' 
        and inserting ``subparagraphs (A) and (B)'';
            (3) by redesignating subparagraphs (B) and (C) as 
        subparagraphs (C) and (D); and
            (4) by inserting after subparagraph (A) the following new 
        subparagraph:
                    ``(B) Fiscal years beginning with fiscal year 
                1995.--Unless Congress otherwise provides, the 
                performance standard rate of increase, for all 
                physicians' services and for each category of 
                physicians' services, for a fiscal year beginning with 
                fiscal year 1995 shall be equal to the performance 
                standard rate of increase determined under this 
                paragraph for the previous fiscal year, increased by 
                the product of--
                            ``(i) 1 plus the Secretary's estimate of 
                        the weighted average percentage increase 
                        (divided by 100) in the fees for all 
                        physicians' services or for the category of 
                        physicians' services, respectively, under this 
                        part for portions of calendar years included in 
                        the fiscal year involved,
                            ``(ii) 1 plus the Secretary's estimate of 
                        the percentage increase or decrease (divided by 
                        100) in the average number of individuals 
                        enrolled under this part (other than HMO 
                        enrollees) from the previous fiscal year to the 
                        fiscal year involved,
                            ``(iii) 1 plus the Secretary's estimate of 
                        the average annual percentage growth (divided 
                        by 100) in volume and intensity of all 
                        physicians' services or of the category of 
                        physicians' services, respectively, under this 
                        part for the 5-fiscal-year period ending with 
                        the preceding fiscal year (based upon 
                        information contained in the most recent annual 
                        report made pursuant to section 1841(b)(2)), 
                        and
                            ``(iv) 1 plus the Secretary's estimate of 
                        the percentage increase or decrease (divided by 
                        100) in expenditures for all physicians' 
                        services or of the category of physicians' 
                        services, respectively, in the fiscal year 
                        (compared with the previous fiscal year) which 
                        are estimated to result from changes in law or 
                        regulations affecting the percentage increase 
                        described in clause (i) and which is not taken 
                        into account in the percentage increase 
                        described in clause (i),
                minus 1, multiplied by 100, and reduced by the 
                performance standard factor (specified in subparagraph 
                (C)).''.
    (b) Treatment of Default Update.--
            (1) In general.--Section 1848(d)(3)(B) (42 U.S.C. 1395w-
        4(d)(3)(B)) is amended--
                    (A) in clause (i)--
                            (i) in the heading, by striking ``In 
                        general'' and inserting ``1992 through 1996'', 
                        and
                            (ii) by striking ``for a year'' and 
                        inserting ``for 1992, 1993, 1994, 1995, and 
                        1996''; and
                    (B) by adding after clause (ii) the following new 
                clause:
                            ``(iii) Years beginning with 1997.--
                                    ``(I) In general.--The update for a 
                                category of physicians' services for a 
                                year beginning with 1997 provided under 
                                subparagraph (A) shall be increased or 
                                decreased by the same percentage by 
                                which the cumulative percentage 
                                increase in actual expenditures for 
                                such category of physicians' services 
                                for such year was less or greater, 
                                respectively, than the performance 
                                standard rate of increase (established 
                                under subsection (f)) for such category 
                                of services for such year.
                                    ``(II) Cumulative percentage 
                                increase defined.--In subclause (I), 
                                the `cumulative percentage increase in 
                                actual expenditures' for a year shall 
                                be equal to the product of the adjusted 
                                increases for each year beginning with 
                                1995 up to and including the year 
                                involved, minus 1 and multiplied by 
                                100. In the previous sentence, the 
                                `adjusted increase' for a year is equal 
                                to 1 plus the percentage increase in 
                                actual expenditures for the year.''.
            (2) Conforming amendment.--Section 1848(d)(3)(A)(i) (42 
        U.S.C. 1395w-4(d)(3)(A)(i)) is amended by striking 
        ``subparagraph (B)'' and inserting ``subparagraphs (B) and 
        (C)''.

SEC. 824. ESTABLISHMENT OF HOSPITAL OUTPATIENT PROSPECTIVE PAYMENT 
              SYSTEM FOR HOSPITAL OUTPATIENT DEPARTMENTS.

    (a) In General.--Section 1833(a)(2)(B) of the Social Security Act 
(42 U.S.C. 1395l(a)(2)(B)) is amended by striking ``section 1886)--'' 
and all that follows and inserting the following: ``section 1886), an 
amount equal to a prospectively determined payment rate established by 
the Secretary that provides for payments for such items and services to 
be based upon a national rate adjusted to take into account the 
relative costs of furnishing such items and services in various 
geographic areas, except that for items and services furnished during 
cost reporting periods (or portions thereof) beginning on or after 
January 1, 1995, such amount shall not exceed 90 percent of the amount 
that would otherwise have been determined under this subparagraph had 
the amendment made by section 824(a) of the America's Health Care 
Option Act had not taken effect;''.
    (b) Establishment of Prospective Payment System.--Not later than 
January 1, 1995, the Secretary of Health and Human Services shall 
establish the prospective payment system for hospital outpatient 
services necessary to carry out section 1833(a)(2)(B) of the Social 
Security Act (as amended by subsection (a)). Such prospective payment 
system shall provide that an individual have a cost-sharing requirement 
of 20 percent of the allowable amount on which the prospectively 
determined rate for such service is based.
    (c) Effective Date.--The amendment made by subsection (a) shall 
apply to items and services furnished on or after January 1, 1995.

SEC. 825. GENERAL PART B PREMIUM.

    Section 1839(e) (42 U.S.C. 1395r(e)) is amended--
            (1) in paragraph (1)(A), by striking ``and prior to January 
        1999''; and
            (2) in paragraph (2), by striking ``prior to January 
        1998''.

              PART IV--PROVISIONS RELATED TO PARTS A AND B

SEC. 831. MEDICARE SECONDARY PAYER CHANGES.

    (a) Extension of Data Match.--
            (1) Section 1862(b)(5)(C) (42 U.S.C. 1395y(b)(5)(C)) is 
        amended by striking clause (iii).
            (2) Section 6103(l)(12) of the Internal Revenue Code of 
        1986 is amended by striking subparagraph (F).
    (b) Repeal of Sunset on Application to Disabled Employees of 
Employers With More Than 100 Employees.--Section 1862(b)(1)(B)(iii) (42 
U.S.C. 1395y(b)(1)(B)(iii)) is amended--
            (1) in the heading, by striking ``Sunset'' and inserting 
        ``Effective date''; and
            (2) by striking ``, and before October 1, 1998''.
    (c) Extension of Period for End Stage Renal Disease 
Beneficiaries.--Section 1862(b)(1)(C) (42 U.S.C. 1395y(b)(1)(C)) is 
amended in the second sentence by striking ``and on or before October 
1, 1998,''.

SEC. 832. INCREASE IN MEDICARE SECONDARY PAYER COVERAGE FOR END STAGE 
              RENAL DISEASE SERVICES TO 24 MONTHS.

    (a) In General.--Section 1862(b)(1)(C) (42 U.S.C. 1395y(b)(1)(C)), 
as amended by section 831(c), is amended by striking the last sentence 
and inserting: ``Effective for items and services furnished on or after 
January 1, 1996 (with respect to periods beginning on or after July 1, 
1994), this subparagraph shall be applied by substituting `24-month' 
for `12-month' each place it appears.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to items and services provided on or after January 1, 1996.

SEC. 833. REDUCTION IN ROUTINE COST LIMITS FOR HOME HEALTH SERVICES.

    Section 1861(v)(1)(L)(i) (42 U.S.C. 1395x(v)(1)(L)(i)) is amended--
            (1) in subclause (II), by striking ``or'' at the end;
            (2) in subclause (III), by striking ``112 percent,'' and 
        inserting ``and before July 1, 1996, 112 percent, or''; and
            (3) by inserting after subclause (III) the following new 
        subclause:
            ``(IV) July 1, 1996, 106 percent (adjusted by such amount 
        as the Secretary determines to be necessary to preserve the 
        savings resulting from the enactment of section 13564(a)(1) of 
        the Omnibus Budget Reconciliation Act of 1993),''.

                      Subtitle B--Medicaid Program

PART I--COORDINATION OF THE MEDICAID PROGRAM WITH REFORMED HEALTH CARE 
                                 SYSTEM

SEC. 851. STATE PLAN REQUIREMENT REGARDING ELIGIBILITY FOR MEDICAL 
              ASSISTANCE.

    (a) In General.--Section 1902(a) (42 U.S.C. 1369a(a)), as amended 
by sections 121 and 201(a), is amended--
            (1) by striking ``and'' at the end of paragraph (63);
            (2) by striking the period at the end of paragraph (64) and 
        inserting ``; and ''; and
            (3) by adding at the end the following new paragraph:
            ``(65) provide that the State will continue to make 
        eligible for medical assistance under section 1902(a)(10) any 
        class or category of individuals eligible for medical 
        assistance under such section as of the date of the enactment 
        of the America's Health Care Option Act.''.
    (b) Effective Date.--The amendment made by subsection (a) shall be 
effective with respect to calendar quarters beginning on or after the 
date of the enactment of this Act.

SEC. 852. CAP ON PAYMENTS MADE FOR CERTAIN ACUTE MEDICAL SERVICES 
              FURNISHED UNDER THE MEDICAID PROGRAM.

    (a) In General.--Title XIX (42 U.S.C. 1396 et seq.) is amended by 
redesignating section 1931 as section 1932 and by inserting after 
section 1930 the following new section:

       ``cap on payments made for certain acute medical services

    ``Sec. 1931. (a) Federal Cap.--
            ``(1) In general.--Notwithstanding any provision of this 
        part, the amount of any payment to a State under section 
        1903(a)(1) with respect to expenditures made by a State for 
        furnishing acute medical services (as defined in subsection 
        (c)(1)) of the type included in the FedMed benefits package (as 
        described in section 21115(b)) to integration eligible 
        individuals (as defined in subsection (c)(2)) in any calendar 
        quarter shall not be in excess of the amount determined under 
        paragraph (2) for the quarter.
            ``(2) Amount determined.--The amount determined under this 
        paragraph for a quarter is an amount equal to \1/4\ of the 
        product of--
                    ``(A) the State's Federal medical assistance 
                percentage (as defined in section 1905(b)) of the 
                weighted average maximum premium subsidy amount (as 
                defined in subsection (c)(4)) for the State for the 
                year; multiplied by
                    ``(B) the average number of integration eligible 
                individuals receiving medical assistance under the 
                State plan consisting of acute medical services of the 
                type included in the FedMed benefits package in any 
                month in the quarter.
    ``(b) State cap.--
            ``(1) In general.--Notwithstanding any provision of this 
        part, a State shall not be obligated to expend an amount in 
        excess of the amount determined under paragraph (2) in any 
        calendar quarter for furnishing acute medical services of the 
        type included in the FedMed benefits package to integration 
        eligible individuals.
            ``(2) Amount determined.--The amount determined under this 
        paragraph for a quarter is an amount equal to \1/4\ of the 
        product of--
                    ``(A) the State matching percentage (as defined in 
                subsection (a)(3)) of weighted average maximum premium 
                subsidy amount for the State for the year; multiplied 
                by
                    ``(B) the average number of integration eligible 
                individuals receiving medical assistance under the 
                State plan consisting of acute medical services of the 
                type included in the FedMed benefits package in any 
                month in the quarter.
    ``(c) Definitions.--
            ``(1) Acute medical services.--The term `acute medical 
        services' means items and services described in section 1905(a) 
        other than the following:
                    ``(A) Nursing facility services (as defined in 
                section 1905(f)).
                    ``(B) Intermediate care facility for the mentally 
                retarded services (as defined in section 1905(d)).
                    ``(C) Personal care services (as described in 
                section 1905(a)(24)).
                    ``(D) Private duty nursing services (as referred to 
                in section 1905(a)(8)).
                    ``(E) Home or community-based services furnished 
                under a waiver granted under subsection (c), (d), or 
                (e) of section 1915.
                    ``(F) Home and community care furnished to 
                functionally disabled elderly individuals under section 
                1929.
                    ``(G) Community supported living arrangements 
                services under section 1930.
                    ``(H) Case-management services (as described in 
                section 1915(g)(2)).
                    ``(I) Home health care services (as referred to in 
                section 1905(a)(7)), clinic services, and 
                rehabilitation services that are furnished to an 
                individual who has a condition or disability that 
                qualifies the individual to receive any of the services 
                described in a previous subparagraph.
                    ``(J) Services furnished in an institution for 
                mental diseases (as defined in section 1905(i)).
            ``(2) Integration eligible individual.--The term 
        `integration eligible individual' means, with respect to any 
        calendar quarter, an individual who would not be eligible for 
        medical assistance consisting of acute medical services of the 
        type included in the FedMed benefits package if the provisions 
        of section 1932(a) were in effect during such quarter.
            ``(3) State matching percentage.--The term `State matching 
        percentage' means, with respect to a State, the amount 
        (expressed as a percentage) equal to 1 minus the State's 
        Federal medical assistance percentage.
            ``(4) Weighted average maximum premium subsidy amount.--
                    ``(A) In general.--The term `weighted average 
                maximum premium subsidy amount' for a State for a year 
                means an amount equal to--
                            ``(i) the sum of--
                                    ``(I) the amount determined under 
                                subparagraph (B) for each community-
                                rating area in the State; multiplied by
                                    ``(II) the number of individuals in 
                                such community rating area; divided by
                            ``(ii) the total number of individuals in 
                        the State.
                    ``(B) Weighted average maximum subsidy amount in a 
                community-rating area.--The weighted average maximum 
                subsidy amount in a community-rating area is an amount 
                equal to--
                            ``(i) the sum of--
                                    ``(I) the weighted average age 
                                adjusted maximum subsidy amount for an 
                                enrollment class (as determined under 
                                subparagraph (C)) in the community-
                                rating area; multiplied by
                                    ``(II) the number of individuals in 
                                the enrollment class in the community-
                                rating area; divided by
                            ``(ii) the total number of individuals in 
                        the community-rating area.
                    ``(C) Weighted average age adjusted maximum subsidy 
                amount for an enrollment class.--The weighted average 
                age adjusted maximum subsidy amount for an enrollment 
                class is an amount equal to--
                            ``(i) the sum of--
                                    ``(I) the age adjusted maximum 
                                subsidy amount determined under section 
                                1952(b)(2)) for each category of 
                                primary insurer in the enrollment 
                                class; multiplied by
                                    ``(II) the number of individuals in 
                                each category; divided by
                            ``(ii) the total number of individuals in 
                        all such categories.''.
    (b) Effective Date.--The amendment made by subsection (a) shall be 
effective with respect to calendar quarters beginning on or after 
January 1, 1997.

SEC. 853. INTEGRATION OF CERTAIN MEDICAID ELIGIBLES INTO REFORMED 
              HEALTH CARE SYSTEM THROUGH STATE PREMIUM ASSISTANCE 
              PROGRAM.

    (a) In General.--Title XIX (42 U.S.C. 1396 et seq.), as amended by 
section 852, is amended by redesignating section 1932 as section 1933 
and by inserting after section 1931 the following new section:

 ``integration of certain medicaid eligibles into reformed health care 
                                 system

    ``Sec. 1932. (a) In General.--
            ``(1) Requirement on states.--With respect to calendar 
        quarters beginning on or after January 1, 2000, a State with a 
        State plan under this part--
                    ``(A) shall not furnish medical assistance 
                consisting of acute medical services described in 
                section 1931(b)(1) to any individuals not described in 
                subsection (b) who are otherwise eligible for medical 
                assistance under the plan; and
                    ``(B) shall integrate such individuals into the 
                State's premium assistance program under part B.
            ``(2) State option.--
                    ``(A) In general.--For 1997, 1998, and 1999, a 
                State may elect to integrate individuals into the 
                State's premium assistance program under part B as 
                described in paragraph (1) if the State notifies the 
                Secretary of such election not later than October 1 of 
                the year preceding the year the State intends to begin 
                such integration.
                    ``(B) States furnishing services under a waiver.--
                If a State making an election under subparagraph (A) is 
                furnishing medical assistance consisting of acute 
                medical services described in section 1931(b)(1) under 
                a waiver under section 1115 granted on or before 
                December 31, 1996, to individuals who would otherwise 
                be integrated into the State's premium assistance 
                program, such State may continue to furnish such 
                services to such individuals until the earlier of the 
                termination of the waiver by the State or the Secretary 
                or January 1, 2000.
    ``(b) Individuals Described.--The individuals described in this 
subsection are--
            ``(1) SSI-eligible individuals (as defined in section 
        1933(d)(2));
            ``(2) individuals who are eligible for benefits under part 
        A of title XVIII; and
            ``(3) certain aliens with respect to whom emergency 
        services are furnished under section 1903(v)(2).
    ``(c) State Maintenance of Effort.--
            ``(1) In general.--
                    ``(A) Reduction in quarterly payments.--For any 
                calendar quarter in an integration year (as defined in 
                subparagraph (B)), the amount otherwise payable to a 
                State under section 1903 for the quarter shall be 
                reduced by the State maintenance of effort amount for 
                the quarter determined under paragraph (2).
                    ``(B) Integration year.--For purposes of this 
                paragraph, the term `integration year' means the first 
                year that the State integrates individuals into the 
                State's premium assistance program under part B and any 
                succeeding year.
            ``(2) Maintenance of effort amount.--
                    ``(A) In general.--The maintenance of effort amount 
                for a State for a calendar quarter in an integration 
                year shall be equal to 25 percent of the State's base 
                payment amount (determined under subparagraph (B)) 
                updated by the percentage change in the inflation index 
                described in subparagraph (C)(i) and the State 
                population index described in subparagraph (C)(ii) 
                during the period beginning on January 1 of the first 
                integration year and ending on December 31 of the 
                applicable integration year (as determined by the 
                Secretary).
                    ``(B) State base payment amount.--The base payment 
                amount for a State for an integration year shall be an 
                amount, as determined by the Secretary, equal to the 
                total expenditures from State funds made under the 
                State plan during the year preceding the first 
                integration year with respect to medical assistance 
                consisting of acute medical services of the type 
                included in the FedMed benefits package (as described 
                in section 21115(b)) furnished to individuals who would 
                not have received such assistance if the provisions of 
                subsection (a) were in effect during such year.
                    ``(C) Indexes described.--
                            ``(i) Inflation index.--The Secretary shall 
                        establish an index which measures the 
                        percentage change in the weighted average 
                        maximum premium subsidy amount (as defined in 
                        section 1931(c)(4)) for the State from year to 
                        year.
                            ``(ii) State population index.--The 
                        Secretary shall establish a State population 
                        index which measures the change in the number 
                        of individuals residing in a State from year to 
                        year.''
    (b) No Federal Financial Participation.--Section 1903(i) (42 U.S.C. 
1396b(i)) is amended--
            (1) by striking ``or'' at the end of paragraph (14),
            (2) by striking the period at the end of paragraph (15) and 
        inserting ``; or'', and
            (3) by inserting after paragraph (15) the following new 
        paragraph:
            ``(16) with respect any medical assistance consisting of 
        acute medical services described in section 1931(b) furnished 
        to individuals who are not described in section 1932(b).''.
    (c) Effective Date.--The amendments made by this section shall be 
effective with respect calendar quarters beginning on or after January 
1, 1997.

SEC. 854. STATE PROGRAMS FOR PROVIDING SUPPLEMENTAL BENEFITS.

    (a) Medicaid State Plan Requirement.--Section 1902(a) of the Social 
Security Act (42 U.S.C. 1396a(a)), as amended by sections 121, 201(a), 
and 851, is amended--
            (1) by striking ``and'' at the end of paragraph (64);
            (2) by striking the period at the end of paragraph (65) and 
        inserting ``; and''; and
            (3) by adding at the end the following new paragraph:
            ``(66) provide for a State program furnishing supplemental 
        benefits in accordance with part C.''.
    (b) State Programs for Supplemental Benefits.--Title XIX (42 U.S.C. 
1396 et seq.), as amended by section 121, is amended by adding at the 
end the following new part:

           ``PART C--STATE PROGRAMS FOR SUPPLEMENTAL BENEFITS

``SEC. 1961. REQUIREMENT TO OPERATE STATE PROGRAM.

    ``(a) In General.--A State with a State plan approved under part A 
shall have in effect a program for furnishing supplemental benefits (as 
defined in section 1962(c)) in accordance with this part in calendar 
years beginning after 1996.
    ``(b) Designation of State Agency.--A State may designate any 
appropriate State agency to administer the program under this part.

``SEC. 1962. PROGRAM DESCRIBED.

    ``(a) In General.--A State program under this part shall furnish 
supplemental benefits to such classes and categories of the individuals 
eligible for premium assistance under part B as determined appropriate 
by the State.
    ``(b) Priorities.--A State may give priority to children, pregnant 
women, and individuals residing in medically underserved areas in 
furnishing services under this part.
    ``(c) Supplemental Benefits Defined.--The term `supplemental 
benefits' means the acute medical services described in section 1931(b) 
that--
            ``(1) were furnished under the State plan in the year 
        preceding the first year that the State integrates individuals 
        into the State's premium assistance program under part B in 
        accordance with section 1932(a); and
            ``(2) are not included in the items and services provided 
        under the FedMed benefits package (as described in 21115(b)).

``SEC. 1963. PAYMENTS TO STATES.

    ``From its allotment under section 1964(b), the Secretary shall pay 
to each State for each quarter beginning with the quarter commencing 
January 1, 1997, an amount equal to--
            ``(1) an amount equal to the State's Federal medical 
        assistance percentage (as defined in section 1905(b)) of the 
        amount demonstrated by State claims to have been expended 
        during the quarter for furnishing services to eligible 
        individuals under this part; plus
            ``(2) an amount equal to 50 percent of the remainder of the 
        amounts expended during the quarter as found necessary by the 
        Secretary for the proper and efficient administration of the 
        State program.

``SEC. 1964. FUNDING.

    ``(a) In General.--The total amount of Federal funds available for 
State programs under this part for each fiscal year is--
            ``(1) for fiscal year 1997, $12,000,000,000; and
            ``(2) for succeeding fiscal years, the amount determined 
        under this subsection for the preceding fiscal year updated by 
        the estimated percentage change in the inflation index 
        described in section 1932(c)(2)(C)(i) and the State population 
        index described in secton 1932(c)(2)(C)(ii).
    ``(b) Allotments to States.--
            ``(1) In general.--The Secretary shall allot the amounts 
        available under subsection (a) for the fiscal year to the 
        States in accordance with an allocation formula developed by 
        the Secretary which takes into account--
                    ``(A) the percentage of all individuals with 
                incomes at or below 150 percent of the official poverty 
                line (as defined in section 1957(6)) in all States that 
                reside in a particular State; and
                    ``(B) a State's matching percentage (as defined in 
                section 1932(c)(4)(B)).
            ``(2) Reallocations.--Any amounts allotted to States under 
        this subsection for a year that are not expended in such year 
        shall remain available for State programs under this part and 
        may be reallocated to States as the Secretary determines 
        appropriate.
    ``(c) State Entitlement.--This part constitutes budget authority in 
advance of appropriations Acts, and represents the obligation of the 
Federal Government to provide for the payment to States of amounts 
described in subsection (a).''.
    (c) Conforming Amendments.--Title XIX (42 U.S.C. 1396 et seq.), as 
amended by section 121, is amended by striking the title and inserting 
the following:

 ``TITLE XIX--MEDICAL ASSISTANCE PROGRAMS, STATE PROGRAMS FOR PREMIUM 
      ASSISTANCE, AND STATE PROGRAMS FOR SUPPLEMENTAL BENEFITS''.

SEC. 855. OPTIONAL COVERAGE UNDER CERTIFIED HEALTH PLANS OF SSI-
              ELIGIBLE INDIVIDUALS.

    (a) State Option.--Section 1902(a) (42 U.S.C. 1396a(a)), as amended 
by sections 121, 201(a), 851, and 854, is amended--
            (1) by striking ``and'' at the end of paragraph (65);
            (2) by striking the period at the end of paragraph (66) and 
        inserting ``; and''; and
            (3) by adding at the end the following new paragraph:
            ``(67) at the option of the State, provide that a SSI-
        eligible individual (as defined in section 1933(d)) has the 
        option to receive medical assistance consisting of the items or 
        services covered under the FedMed benefits package (as 
        described in section 21115(b)) through enrollment with a 
        certified health plan (as defined in 21003(b)) providing such 
        package instead of through enrollment in the State plan, in 
        accordance with the requirements of section 1933.''.
    (b) Requirements Described.--Title XIX (42 U.S.C. 1396 et seq.) is 
amended by redesignating section 1933 as section 1934 and by inserting 
after section 1932 the following new section:

 ``requirements for states providing optional coverage under certified 
                health plans to ssi-eligible individuals

    ``Sec. 1933. (a) In General.--For purposes of section 1902(a)(67), 
a State meets the requirements of this section with respect to SSI-
eligible individuals if the State meets the following requirements:
            ``(1) Choice of plans.--The State must offer individuals a 
        choice of a certified health plans under such section, except 
        that nothing in this paragraph may be construed to waive any 
        limits on the capacity of a certified health plan applicable 
        under title XXI.
            ``(2) Informed choice.--The State shall ensure that each 
        SSI-eligible individual is provided sufficient information to 
        make an informed choice about enrolling in a certified health 
        plan under such section and selecting such a plan.
            ``(3) Payments to certified health plans by states.--The 
        State shall make all necessary payments of premiums, 
        copayments, and deductibles applicable under a certified health 
        plan on behalf of a SSI-eligible individual who enrolls in a 
        certified health plan under such section.
    ``(b) Treatment of Payments as Medical Assistance.--For purposes of 
determining the amount of Federal financial participation for a State 
under section 1903 in a quarter, any payments made by a State under 
subsection (a)(3) shall be treated as expenditures for medical 
assistance under the State plan for such quarter.
    ``(c) Limitation on Number of Individuals Permitted to Make 
Election.--
            ``(1) In general.--
                    ``(A) Limitation.--The number of SSI-eligible 
                individuals electing to enroll in a certified health 
                plan under section 1902(a)(67) in a State during a year 
                may not exceed the applicable percentage determined 
                under subparagraph (B) of the Secretary's estimate of 
                the number of such individuals in the State who are 
                eligible to enroll in certified health plans under such 
                section during the year.
                    ``(B) Applicable percentage described.--The 
                `applicable percentage' determined under this 
                subparagraph with respect to a State for a year--
                            ``(i) for each of the first 3 years for 
                        which the State exercises the option described 
                        in such section, 15 percent; and
                            ``(ii) for each succeeding year for which 
                        the State exercises such option, the applicable 
                        percentage under this subparagraph for the 
                        preceding year, increased by 10 percent.
            ``(2) Waiver of limitation.--The limit on the number of 
        individuals provided in paragraph (1) may be waived by the 
        Secretary with respect to a State if the Secretary determines 
        that such a waiver is appropriate.
    ``(d) Definitions.--
            ``(1) Certified health plan.--The term `certified health 
        plan' means a certified health plan (as defined in section 
        21003(b)) that provides a FedMed benefits package (as described 
        in section 21115(b)).
            ``(2) SSI-eligible individual.--The term `SSI-eligible 
        individual' means an individual who is eligible for medical 
        assistance under the State plan and--
                    ``(A) with respect to whom supplemental security 
                income benefits are being paid under title XVI,
                    ``(B) who is receiving a supplementary payment 
                under section 1616 or under section 212 of Public Law 
                93-66, or
                    ``(C) who is receiving monthly benefits under 
                section 1619(a) (whether or not pursuant to section 
                1616(c)(3)).''.
    (c) Effective Date.--The amendments made by this section shall be 
effective with respect to calendar quarters beginning on or after 
January 1, 1997.

  PART II--STATE ELIGIBILITY TO CONTRACT FOR COORDINATED CARE SERVICES

SEC. 861. MODIFICATION OF FEDERAL REQUIREMENTS TO ALLOW STATES MORE 
              FLEXIBILITY IN CONTRACTING FOR COORDINATED CARE SERVICES 
              UNDER MEDICAID.

    (a) In General.--
            (1) Payment provisions.--Section 1903(m) (42 U.S.C. 
        1396b(m)) is amended to read as follows:
    ``(m)(1) No payment shall be made under this title to a State with 
respect to expenditures incurred by such State for payment to an entity 
which is at risk (as defined in section 1931(a)(4)) for services 
provided by such entity to individuals eligible for medical assistance 
under the State plan under this title, unless the entity is a risk 
contracting entity (as defined in section 1931(a)(3)) and the State and 
such entity comply with the applicable provisions of section 1931.
    ``(2) No payment shall be made under this title to a State with 
respect to expenditures incurred by such State for payment for services 
provided to an individual eligible for medical assistance under the 
State plan under this title if such payment by the State is contingent 
upon the individual receiving such services from a specified health 
care provider or subject to the approval of a specified health care 
provider, unless the entity receiving payment is a primary care case 
management entity (as defined in section 1931(a)(2)) and the State and 
such entity comply with the applicable provisions of section 1931.''.
            (2) Requirements for coordinated care services.--Title XIX 
        (42 U.S.C. 1396 et seq.) is amended by adding at the end the 
        following new section:

              ``requirements for coordinated care services

    ``Sec. 1931. (a) Definitions.--For purposes of this title--
            ``(1) Primary care case management program.--The term 
        `primary care case management program' means a program operated 
        by a State agency under which such State agency enters into 
        contracts with primary care case management entities for the 
        provision of health care items and services which are specified 
        in such contracts and the provision of case management services 
        to individuals who are--
                    ``(A) eligible for medical assistance under the 
                State plan,
                    ``(B) enrolled with such primary care case 
                management entities, and
                    ``(C) entitled to receive such specified health 
                care items and services and case management services 
                only as approved and arranged for, or provided, by such 
                entities.
            ``(2) Primary care case management entity.--The term 
        `primary care case management entity' means a health care 
        provider which--
                    ``(A) must be a physician, group of physicians, a 
                Federally qualified health center, a rural health 
                clinic, or an entity employing or having other 
                arrangements with physicians operating under a contract 
                with a State to provide services under a primary care 
                case management program,
                    ``(B) receives payment on a fee for service basis 
                (or, in the case of a Federally qualified health center 
                or a rural health clinic, on a reasonable cost per 
                encounter basis) for the provision of health care items 
                and services specified in such contract to enrolled 
                individuals,
                    ``(C) receives an additional fixed fee per enrollee 
                for a period specified in such contract for providing 
                case management services (including approving and 
                arranging for the provision of health care items and 
                services specified in such contract on a referral 
                basis) to enrolled individuals, and
                    ``(D) is not an entity that is at risk (as defined 
                in paragraph (4)) for such case management services.
            ``(3) Risk contracting entity.--The term `risk contracting 
        entity' means an entity, including a certified health plan (as 
        defined in section 21003(b)) that provides a FedMed benefits 
        package (as described in section 21115(b)), which has a 
        contract with the State agency (or a health insuring 
        organization described in subsection (l)(2)) under which the 
        entity--
                    ``(A) provides or arranges for the provision of 
                health care items or services which are specified in 
                such contract to individuals eligible for medical 
                assistance under the State plan, and
                    ``(B) is at risk (as defined in paragraph (4)) for 
                part or all of the cost of such items or services 
                furnished to individuals eligible for medical 
                assistance under such plan.
            ``(4) At risk.--The term `at risk' means an entity which--
                    ``(A) has a contract with the State agency under 
                which such entity is paid a fixed amount for providing 
                or arranging for the provision of health care items or 
                services specified in such contract to an individual 
                eligible for medical assistance under the State plan 
                and enrolled with such entity, regardless of whether 
                such items or services are furnished to such 
                individual, and
                    ``(B) is liable for all or part of the cost of 
                furnishing such items or services, regardless of 
                whether such cost exceeds such fixed payment.
            ``(5) Federally qualified health center.--The term 
        `Federally qualified health center' means a Federally qualified 
        health center as defined in section 1905(l)(2)(B).
            ``(6) Rural health clinic.--The term `rural health clinic' 
        means a rural health clinic as defined in section 1905(l)(1).
    ``(b) General Requirements for Risk Contracting Entities.--
            ``(1) Organization.--A risk contracting entity meets the 
        requirements of this section only if such entity--
                    ``(A)(i) is a qualified health maintenance 
                organization as defined in section 1310(d) of the 
                Public Health Service Act, as determined by the 
                Secretary pursuant to section 1312 of such Act; or
                    ``(ii) is described in subparagraph (C), (D), (E), 
                (F), or (G) of subsection (e)(4);
                    ``(B) is a Federally qualified health center or a 
                rural health clinic which has made adequate provision 
                against the risk of insolvency (pursuant to the 
                guidelines and regulations issued by the Secretary 
                under this section), and ensures that individuals 
                eligible for medical assistance under the State plan 
                are not held liable for such entity's debts in case of 
                such entity's insolvency; or
                    ``(C) is an entity which meets all applicable State 
                licensing requirements and has made adequate provision 
                against the risk of insolvency (pursuant to the 
                guidelines and regulations issued by the Secretary 
                under this section), and ensures that individuals 
                eligible for medical assistance under the State plan 
                are not held liable for such entity's debts in case of 
                such entity's insolvency.
            ``(2) Guarantees of enrollee access.--A risk contracting 
        entity meets the requirements of this section only if--
                    ``(A) the geographic locations, hours of operation, 
                patient to staff ratios, and other relevant 
                characteristics of such entity are sufficient to afford 
                individuals eligible for medical assistance under the 
                State plan access to such entities that is at least 
                equivalent to the access to health care providers that 
                would be available to such individuals if such 
                individuals were not enrolled with such entity;
                    ``(B) such entity has reasonable and adequate hours 
                of operation, including 24-hour availability of--
                            ``(i)(I) treatment for an unforeseen 
                        illness, injury, or condition of an individual 
                        eligible for medical assistance under the State 
                        plan and enrolled with such entity; or
                            ``(II) referral to other health care 
                        providers for such treatment; and
                            ``(ii) other information, as determined by 
                        the Secretary or the State; and
                    ``(C) such entity complies with such other 
                requirements relating to access to care as the 
                Secretary or the State may impose.
            ``(3) Contract with state agency.--A risk contracting 
        entity meets the requirements of this section only if such 
        entity has a written contract with the State agency which 
        provides--
                    ``(A) that the entity will comply with all 
                applicable provisions of this section, that the State 
                has the right to penalize the entity for failure to 
                comply with such requirements and to terminate the 
                contract in accordance with subsection (i), and that 
                the entity will be subject to penalties imposed by the 
                Secretary under subsection (h) for failure to comply 
                with such requirements;
                    ``(B) for a payment methodology based on experience 
                rating or another actuarially sound methodology 
                approved by the Secretary, which guarantees (as 
                demonstrated by such models or formulas as the 
                Secretary may approve) that--
                            ``(i) payments to the entity under the 
                        contract shall not exceed an amount equal to 
                        100 percent of the costs (which shall include 
                        administrative costs and which may include 
                        costs for inpatient hospital services that 
                        would have been incurred in the absence of such 
                        contract) that would have been incurred by the 
                        State agency in the absence of the contract; 
                        and
                            ``(ii) the financial risk for inpatient 
                        hospital services is limited to an extent 
                        established by the State;
                    ``(C) that the Secretary and the State (or any 
                person or organization designated by either) shall have 
                the right to audit and inspect any books and records of 
                the entity (and of any subcontractor) that pertain--
                            ``(i) to the ability of the entity (or a 
                        subcontractor) to bear the risk of potential 
                        financial losses; or
                            ``(ii) to services performed or 
                        determinations of amounts payable under the 
                        contract;
                    ``(D) that in the entity's enrollment, 
                reenrollment, or disenrollment of individuals eligible 
                for medical assistance under the State plan and 
                eligible to enroll, reenroll, or disenroll with the 
                entity pursuant to the contract, the entity will not 
                discriminate among such individuals on the basis of 
                such individuals' health status or requirements for 
                health care services;
                    ``(E)(i) individuals eligible for medical 
                assistance under the State plan who have enrolled with 
                the entity are permitted to terminate such enrollment 
                without cause as of the beginning of the first calendar 
                month (or in the case of an entity described in 
                subsection (e)(4), as of the beginning of the first 
                enrollment period) following a full calendar month 
                after a request is made for such termination;
                    ``(ii) that when an individual has relocated 
                outside the entity's service area, and the entity has 
                been notified of the relocation, services (within 
                reasonable limits) furnished by a health care provider 
                outside the service area will be reimbursed either by 
                the entity or by the State agency; and
                    ``(iii) for written notification of each such 
                individual's right to terminate enrollment, which shall 
                be provided at the time of such individual's 
                enrollment;
                    ``(F) in the case of services immediately required 
                to treat an unforeseen illness, injury, or condition, 
                of an individual eligible for medical assistance under 
                the State plan and enrolled with the entity--
                            ``(i) that such services shall not be 
                        subject to a preapproval requirement; and
                            ``(ii) where such services are furnished by 
                        a health care provider other than the entity, 
                        for reimbursement of such provider either by 
                        the entity or by the State agency;
                    ``(G) for disclosure of information in accordance 
                with subsection (g) and section 1124;
                    ``(H) that any physician incentive plan operated by 
                the entity meets the requirements of section 
                1876(i)(8);
                    ``(I) for maintenance of sufficient patient 
                encounter data to identify the physician who delivers 
                services to patients;
                    ``(J) that the entity will comply with the 
                requirement of section 1902(w) with respect to each 
                enrollee;
                    ``(K) that the entity will implement a grievance 
                system, inform enrollees in writing about how to use 
                such grievance system, ensure that grievances are 
                addressed in a timely manner, and report grievances to 
                the State at intervals to be determined by the State;
                    ``(L) that contracts between the entity and each 
                subcontractor of such entity will require each 
                subcontractor--
                            ``(i) to cooperate with the entity in the 
                        implementation of its internal quality 
                        assurance program under paragraph (4) and 
                        adhere to the standards set forth in the 
                        quality assurance program, including standards 
                        with respect to access to care, facilities in 
                        which patients receive care, and availability, 
                        maintenance, and review of medical records;
                            ``(ii) to cooperate with the Secretary, the 
                        State agency and any contractor to the State in 
                        monitoring and evaluating the quality and 
                        appropriateness of care provided to enrollees 
                        as required by Federal or State laws and 
                        regulations; and
                            ``(iii) where applicable, to adhere to 
                        regulations and program guidance with respect 
                        to reporting requirements under section 
                        1905(r);
                    ``(M) that, where the State deems it necessary to 
                ensure the timely provision to enrollees of the 
                services listed in subsection (f)(2)(C)(ii), the State 
                may arrange for the provision of such services by 
                health care providers other than the entity and may 
                adjust its payments to the entity accordingly;
                    ``(N) that the entity and the State will comply 
                with guidelines and regulations issued by the Secretary 
                with respect to procedures for marketing and 
                information that must be provided to individuals 
                eligible for medical assistance under the State plan;
                    ``(O) that the entity shall report to the State, at 
                such time and in such manner as the State shall 
                require, on the rates paid for hospital services (by 
                type of hospital and type of service) furnished to 
                individuals enrolled with the entity;
                    ``(P) detailed information regarding the relative 
                responsibilities of the entity and the State, for 
                providing (or arranging for the provision of), and 
                making payment for, the following items and services:
                            ``(i) immunizations;
                            ``(ii) the purchase of vaccines;
                            ``(iii) lead screening and treatment 
                        services;
                            ``(iv) screening and treatment for 
                        tuberculosis;
                            ``(v) screening and treatment for, and 
                        preventive services related to, sexually 
                        transmitted diseases, including HIV infection;
                            ``(vi) screening, diagnostic, and treatment 
                        services required under section 1905(r);
                            ``(vii) family planning services;
                            ``(viii) services prescribed under--
                                    ``(I) an Individual Education Plan 
                                or Individualized Family Service Plan 
                                under part B or part H of the 
                                Individuals with Disabilities Education 
                                Act; and
                                    ``(II) any other individual plan of 
                                care or treatment developed under this 
                                title or title V;
                            ``(ix) transportation needed to obtain 
                        services to which the enrollee is entitled 
                        under the State plan or pursuant to an 
                        individual plan of care or treatment described 
                        in subclauses (I) and (II) of clause (viii); 
                        and
                            ``(x) such other services as the Secretary 
                        may specify;
                    ``(Q) detailed information regarding the procedures 
                for coordinating the relative responsibilities of the 
                entity and the State to ensure prompt delivery of, 
                compliance with any applicable reporting requirements 
                related to, and appropriate recordkeeping with respect 
                to, the items and services described in subparagraph 
                (P); and
                    ``(R) such other provisions as the Secretary may 
                require.
            ``(4) Internal quality assurance.--A risk contracting 
        entity meets the requirements of this section only if such 
        entity has in effect a written internal quality assurance 
        program which includes a systematic process to achieve 
        specified and measurable goals and objectives for access to, 
        and quality of, care, which--
                    ``(A) identifies the organizational units 
                responsible for performing specific quality assurance 
                functions, and ensures that such units are accountable 
                to the governing body of the entity and that such units 
                have adequate supervision, staff, and other necessary 
                resources to perform these functions effectively,
                    ``(B) if any quality assurance functions are 
                delegated to other entities, ensures that the risk 
                contracting entity remains accountable for all quality 
                assurance functions and has mechanisms to ensure that 
                all quality assurance activities are carried out,
                    ``(C) includes methods to ensure that physicians 
                and other health care professionals under contract with 
                the entity are licensed or certified as required by 
                State law, or are otherwise qualified to perform the 
                services such physicians and other professionals 
                provide, and that these qualifications are ensured 
                through appropriate credentialing and recredentialing 
                procedures,
                    ``(D) provides for continuous monitoring of the 
                delivery of health care, through--
                            ``(i) identification of clinical areas to 
                        be monitored, including immunizations, prenatal 
                        care, services required under section 1905(r), 
                        and other appropriate clinical areas, to 
                        reflect care provided to enrollees eligible for 
                        medical assistance under the State plan,
                            ``(ii) use of quality indicators and 
                        standards for assessing the quality and 
                        appropriateness of care delivered, and the 
                        availability and accessibility of all services 
                        for which the entity is responsible under such 
                        entity's contract with the State,
                            ``(iii) use of epidemiological data or 
                        chart review, as appropriate, and patterns of 
                        care overall,
                            ``(iv) patient surveys, spot checks, or 
                        other appropriate methods to determine 
                        whether--
                                    ``(I) enrollees are able to obtain 
                                timely appointments with primary care 
                                providers and specialists, and
                                    ``(II) enrollees are otherwise 
                                guaranteed access and care as provided 
                                under paragraph (2),
                            ``(v) provision of written information to 
                        health care providers and other personnel on 
                        the outcomes, quality, availability, 
                        accessibility, and appropriateness of care, and
                            ``(vi) implementation of corrective 
                        actions,
                    ``(E) includes standards for timely enrollee access 
                to information and care which at a minimum shall 
                incorporate standards used by the State or professional 
                or accreditation bodies for facilities furnishing 
                perinatal and neonatology care and other forms of 
                specialized medical and surgical care,
                    ``(F) includes standards for the facilities in 
                which patients receive care,
                    ``(G) includes standards for managing and treating 
                medical conditions prevalent among such entity's 
                enrollees eligible for medical assistance under the 
                State plan,
                    ``(H) includes mechanisms to ensure that enrollees 
                eligible for medical assistance under the State plan 
                receive services for which the entity is responsible 
                under the contract which are consistent with standards 
                established by the applicable professional societies or 
                government agencies,
                    ``(I) includes standards for the availability, 
                maintenance, and review of medical records consistent 
                with generally accepted medical practice,
                    ``(J) provides for dissemination of quality 
                assurance procedures to health care providers under 
                contract with the entity, and
                    ``(K) meets any other requirements prescribed by 
                the Secretary or the State.
    ``(c) General Requirements for Primary Care Case Management 
Programs.--A primary care case management program implemented by a 
State under this section shall--
            ``(1) provide that each primary care case management entity 
        participating in such program has a written contract with the 
        State agency,
            ``(2) include methods for selection and monitoring of 
        participating primary care case management entities to ensure--
                    ``(A) that the geographic locations, hours of 
                operation, patient to staff ratio, and other relevant 
                characteristics of such entities are sufficient to 
                afford individuals eligible for medical assistance 
                under the State plan access to such entities that is at 
                least equivalent to the access to health care providers 
                that would be available to such individuals if such 
                individuals were not enrolled with such entity,
                    ``(B) that such entities and their professional 
                personnel are licensed as required by State law and 
                qualified to provide case management services, through 
                methods such as ongoing monitoring of compliance with 
                applicable requirements and providing information and 
                technical assistance, and
                    ``(C) that such entities--
                            ``(i) provide timely and appropriate 
                        primary care to such enrollees consistent with 
                        standards established by applicable 
                        professional societies or governmental 
                        agencies, or such other standards prescribed by 
                        the Secretary or the State, and
                            ``(ii) where other items and services are 
                        determined to be medically necessary, give 
                        timely approval of such items and services and 
                        referral to appropriate health care providers,
            ``(3) provide that no preapproval shall be required for 
        emergency health care items or services, and
            ``(4) permit individuals eligible for medical assistance 
        under the State plan who have enrolled with a primary care case 
        management entity to terminate such enrollment without cause 
        not later than the beginning of the first calendar month 
        following a full calendar month after the request is made for 
        such termination.
    ``(d) Exemptions From State Plan Requirements.--A State plan may 
permit or require an individual eligible for medical assistance under 
such plan to enroll with a risk contracting entity or a primary care 
case management entity without regard to the requirements set forth in 
the following paragraphs of section 1902(a):
            ``(1) Paragraph (1) (concerning statewideness).
            ``(2) Paragraph (10)(B) (concerning comparability of 
        benefits), to the extent benefits not included in the State 
        plan are provided.
            ``(3) Paragraph (23) (concerning freedom of choice of 
        provider), except with respect to services described in section 
        1905(a)(4)(C) and except as required under subsection (e).
    ``(e) State Options With Respect to Enrollment and Disenrollment.--
            ``(1) Mandatory enrollment.--A State plan may require an 
        individual eligible for medical assistance under such plan to 
        enroll with a risk contracting entity or a primary care case 
        management entity only if the individual is permitted a choice 
        within a reasonable service area (as defined by the State)--
                    ``(A) between or among 2 or more risk contracting 
                entities,
                    ``(B) among a risk contracting entity and a primary 
                care case management program, or
                    ``(C) among primary care case management entities.
            ``(2) Reenrollment of individuals who regain eligibility.--
        In the case of an individual who--
                    ``(A) in a month is eligible for medical assistance 
                under the State plan and enrolled with a risk 
                contracting entity with a contract under this section,
                    ``(B) in the next month (or next 2 months) is not 
                eligible for such medical assistance, but
                    ``(C) in the succeeding month is again eligible for 
                such benefits,
        the State agency (subject to subsection (b)(3)(E)) may enroll 
        the individual for that succeeding month with such entity, if 
        the entity continues to have a contract with the State agency 
        under this subsection.
            ``(3) Disenrollment.--
                    ``(A) Restrictions on disenrollment without 
                cause.--Except as provided in subparagraph (C), a State 
                plan may restrict the period in which individuals 
                enrolled with risk contracting entities described in 
                paragraph (4) may terminate such enrollment without 
                cause to the first month of each period of enrollment 
                (as defined in subparagraph (B)), but only if the State 
                provides notification, at least once during each such 
                enrollment period, to individuals enrolled with such 
                entity of the right to terminate such enrollment and 
                the restriction on the exercise of this right. Such 
                restriction shall not apply to requests for termination 
                of enrollment for cause.
                    ``(B) Period of enrollment.--For purposes of this 
                paragraph, the term `period of enrollment' means--
                            ``(i) a period not to exceed 6 months in 
                        duration, or
                            ``(ii) a period not to exceed 1 year in 
                        duration, in the case of a State that, on the 
                        effective date of this paragraph, had in effect 
                        a waiver under section 1115 of requirements 
                        under this title under which the State could 
                        establish a 1-year minimum period of enrollment 
                        with risk contracting entities.
            ``(4) Entities eligible for disenrollment restrictions.--A 
        risk contracting entity described in this paragraph is--
                    ``(A) a qualified health maintenance organization 
                as defined in section 1310(d) of the Public Health 
                Service Act,
                    ``(B) an eligible organization with a contract 
                under section 1876,
                    ``(C) an entity that is receiving (and has received 
                during the previous 2 years) a grant of at least 
                $100,000 under section 329(d)(1)(A) or 330(d)(1) of the 
                Public Health Service Act,
                    ``(D) an entity that--
                            ``(i) received a grant of at least $100,000 
                        under section 329(d)(1)(A) or section 330(d)(1) 
                        of the Public Health Service Act in the fiscal 
                        year ending June 30, 1976, and has been a 
                        grantee under either such section for all 
                        periods after that date, and
                            ``(ii) provides to its enrollees, on a 
                        prepaid capitation or other risk basis, all of 
                        the services described in paragraphs (1), (2), 
                        (3), (4)(C), and (5) of section 1905(a) (and 
                        the services described in section 1905(a)(7), 
                        to the extent required by section 
                        1902(a)(10)(D)),
                    ``(E) an entity that is receiving (and has received 
                during the previous 2 years) at least $100,000 (by 
                grant, subgrant, or subcontract) under the Appalachian 
                Regional Development Act of 1965,
                    ``(F) a nonprofit primary health care entity 
                located in a rural area (as defined by the Appalachian 
                Regional Commission)--
                            ``(i) which received in the fiscal year 
                        ending June 30, 1976, at least $100,000 (by 
                        grant, subgrant, or subcontract) under the 
                        Appalachian Regional Development Act of 1965, 
                        and
                            ``(ii) which, for all periods after such 
                        date, either has been the recipient of a grant, 
                        subgrant, or subcontract under such Act or has 
                        provided services on a prepaid capitation or 
                        other risk basis under a contract with the 
                        State agency initially entered into during a 
                        year in which the entity was the recipient of 
                        such a grant, subgrant, or subcontract,
                    ``(G) an entity that had contracted with the State 
                agency prior to 1970 for the provision, on a prepaid 
                risk basis, of services (which did not include 
                inpatient hospital services) to individuals eligible 
                for medical assistance under the State plan,
                    ``(H) a program pursuant to an undertaking 
                described in subsection (l)(3) in which at least 25 
                percent of the membership enrolled on a prepaid basis 
                are individuals who--
                            ``(i) are not insured for benefits under 
                        part B of title XVIII or eligible for medical 
                        assistance under the State plan, and
                            ``(ii) (in the case of such individuals 
                        whose prepayments are made in whole or in part 
                        by any government entity) had the opportunity 
                        at the time of enrollment in the program to 
                        elect other coverage of health care costs that 
                        would have been paid in whole or in part by any 
                        governmental entity,
                    ``(I) an entity that, on the date of enactment of 
                this provision, had a contract with the State agency 
                under a waiver under section 1115 or 1915(b) and was 
                not subject to a requirement under this title to permit 
                disenrollment without cause, or
                    ``(J) an entity that has a contract with the State 
                agency under a waiver under section 1915(b)(5).
    ``(f) State Monitoring and External Review.--
            ``(1) State grievance procedure.--A State contracting with 
        a risk contracting entity or a primary care case management 
        entity under this section shall provide for a grievance 
        procedure for enrollees of such entity with at least the 
        following elements:
                    ``(A) a toll-free telephone number for enrollee 
                questions and grievances,
                    ``(B) periodic notification of enrollees of their 
                rights with respect to such entity or program,
                    ``(C) periodic sample reviews of grievances 
                registered with such entity or program or with the 
                State, and
                    ``(D) periodic survey and analysis of enrollee 
                satisfaction with such entity or program, including 
                interviews with individuals who disenroll from the 
                entity or program.
            ``(2) State monitoring of quality and access.--
                    ``(A) Risk contracting entities.--A State 
                contracting with a risk contracting entity under this 
                section shall provide for ongoing monitoring of such 
                entity's compliance with the requirements of subsection 
                (b), including compliance with the requirements of such 
                entity's contract under subsection (b)(3), and shall 
                undertake appropriate followup activities to ensure 
                that any problems identified are rectified and that 
                compliance with the requirements of subsection (b) and 
                the requirements of the contract under subsection 
                (b)(3) is maintained.
                    ``(B) Primary care case management entities.--A 
                State electing to implement a primary care case 
                management program shall provide for ongoing monitoring 
                of the program's compliance with the requirements of 
                subsection (c) and shall undertake appropriate followup 
                activities to ensure that any problems identified are 
                rectified and that compliance with subsection (c) is 
                maintained.
                    ``(C) Services.--
                            ``(i) In general.--The State shall 
                        establish procedures (in addition to those 
                        required under subparagraphs (A) and (B)) to 
                        ensure that the services listed in clause (ii) 
                        are available in a timely manner to an 
                        individual enrolled with a risk contracting 
                        entity or a primary care case management 
                        entity. Where necessary to ensure the timely 
                        provision of such services, the State shall 
                        arrange for the provision of such services by 
                        health care providers other than the risk 
                        contracting entity or the primary care case 
                        management entity in which an individual is 
                        enrolled.
                            ``(ii) Services listed.--The services 
                        listed in this clause are:
                                    ``(I) prenatal care;
                                    ``(II) immunizations;
                                    ``(III) lead screening and 
                                treatment;
                                    ``(IV) prevention, diagnosis and 
                                treatment of tuberculosis, sexually 
                                transmitted diseases (including HIV 
                                infection), and other communicable 
                                diseases; and
                                    ``(V) such other services as the 
                                Secretary may specify.
                            ``(iii) Report.--The procedures referred to 
                        in clause (i) shall be described in an annual 
                        report to the Secretary provided by the State.
            ``(3) External independent review.--
                    ``(A) In general.--Except as provided in paragraph 
                (4), a State contracting with a risk contracting entity 
                under this section shall provide for an annual external 
                independent review of the quality and timeliness of, 
                and access to, the items and services specified in such 
                entity's contract with the State agency. Such review 
                shall be conducted by a utilization control and peer 
                review organization with a contract under section 1153 
                or another organization unaffiliated with the State 
                government or with any risk contracting entity and 
                approved by the Secretary.
                    ``(B) Contents of review.--An external independent 
                review conducted under this paragraph shall include the 
                following:
                            ``(i) a review of the entity's medical 
                        care, through sampling of medical records or 
                        other appropriate methods, for indications of 
                        quality of care and inappropriate utilization 
                        (including overutilization) and treatment,
                            ``(ii) a review of enrollee inpatient and 
                        ambulatory data, through sampling of medical 
                        records or other appropriate methods, to 
                        determine trends in quality and appropriateness 
                        of care,
                            ``(iii) notification of the entity and the 
                        State when the review under this paragraph 
                        indicates inappropriate care, treatment, or 
                        utilization of services (including 
                        overutilization), and
                            ``(iv) other activities as prescribed by 
                        the Secretary or the State.
                    ``(C) Availability.--The results of each external 
                independent review conducted under this paragraph shall 
                be available to the public consistent with the 
                requirements for disclosure of information contained in 
                section 1160.
            ``(4) Deemed compliance with external independent quality 
        of care review requirements.--
                    ``(A) In general.--The Secretary may deem the State 
                to have fulfilled the requirement for independent 
                external review of quality of care with respect to an 
                entity which has been accredited by an organization 
                described in subparagraph (B) and approved by the 
                Secretary.
                    ``(B) Accrediting organization.--An accrediting 
                organization described in this subparagraph must--
                            ``(i) exist for the primary purpose of 
                        accrediting coordinated care organizations;
                            ``(ii) be governed by a group of 
                        individuals representing health care providers, 
                        purchasers, regulators, and consumers (a 
                        minority of which shall be representatives of 
                        health care providers);
                            ``(iii) have substantial experience in 
                        accrediting coordinated care organizations, 
                        including an organization's internal quality 
                        assurance program;
                            ``(iv) be independent of health care 
                        providers or associations of health care 
                        providers;
                            ``(v) be a nonprofit organization; and
                            ``(vi) have an accreditation process which 
                        meets requirements specified by the Secretary.
            ``(5) Federal monitoring responsibilities.--The Secretary 
        shall review the external independent reviews conducted 
        pursuant to paragraph (3) and shall monitor the effectiveness 
        of the State's monitoring and followup activities required 
        under subparagraph (A) of paragraph (2). If the Secretary 
        determines that a State's monitoring and followup activities 
        are not adequate to ensure that the requirements of paragraph 
        (2) are met, the Secretary shall undertake appropriate followup 
        activities to ensure that the State improves its monitoring and 
        followup activities.
    ``(g) Transactions With Parties in Interest.--
            ``(1) In general.--Each risk contracting entity which is 
        not a qualified health maintenance organization (as defined in 
        section 1310(d) of the Public Health Service Act) must report 
        to the State and, upon request, to the Secretary, the Inspector 
        General of the Department of Health and Human Services, and the 
        Comptroller General of the United States a description of 
        transactions between the entity and a party in interest (as 
        defined in section 1318(b) of such Act), including the 
        following transactions:
                    ``(A) Any sale or exchange, or leasing of any 
                property between the entity and such a party.
                    ``(B) Any furnishing for consideration of goods, 
                services (including management services), or facilities 
                between the entity and such a party, but not including 
                salaries paid to employees for services provided in the 
                normal course of their employment.
                    ``(C) Any lending of money or other extension of 
                credit between the entity and such a party.
        The State or the Secretary may require that information 
        reported with respect to a risk contracting entity which 
        controls, or is controlled by, or is under common control with, 
        another entity be in the form of a consolidated financial 
        statement for the risk contracting entity and such entity.
            ``(2) Availability of information.--Each risk contracting 
        entity shall make the information reported pursuant to 
        paragraph (1) available to its enrollees upon reasonable 
        request.
    ``(h) Remedies for Failure To Comply.--
            ``(1) In general.--If the Secretary determines that a risk 
        contracting entity or a primary care case management entity--
                    ``(A) fails substantially to provide services 
                required under section 1905(r), when such an entity is 
                required to do so, or provide medically necessary items 
                and services that are required to be provided to an 
                individual enrolled with such an entity, if the failure 
                has adversely affected (or has substantial likelihood 
                of adversely affecting) the individual;
                    ``(B) imposes premiums on individuals enrolled with 
                such an entity in excess of the premiums permitted 
                under this title;
                    ``(C) acts to discriminate among individuals in 
                violation of the provision of subsection (b)(3)(D), 
                including expulsion or refusal to reenroll an 
                individual or engaging in any practice that would 
                reasonably be expected to have the effect of denying or 
                discouraging enrollment (except as permitted by this 
                section) by eligible individuals with the entity whose 
                medical condition or history indicates a need for 
                substantial future medical services;
                    ``(D) misrepresents or falsifies information that 
                is furnished--
                            ``(i) to the Secretary or the State under 
                        this section; or
                            ``(ii) to an individual or to any other 
                        entity under this section; or
                    ``(E) fails to comply with the requirements of 
                section 1876(i)(8),
        the Secretary may provide, in addition to any other remedies 
        available under law, for any of the remedies described in 
        paragraph (2).
            ``(2) Additional remedies.--The remedies described in this 
        paragraph are--
                    ``(A) civil money penalties of not more than 
                $25,000 for each determination under paragraph (1), or, 
                with respect to a determination under subparagraph (C) 
                or (D)(i) of such paragraph, of not more than $100,000 
                for each such determination, plus, with respect to a 
                determination under paragraph (1)(B), double the excess 
                amount charged in violation of such paragraph (and the 
                excess amount charged shall be deducted from the 
                penalty and returned to the individual concerned), and 
                plus, with respect to a determination under paragraph 
                (1)(C), $15,000 for each individual not enrolled as a 
                result of a practice described in such paragraph, or
                    ``(B) denial of payment to the State for medical 
                assistance furnished by a risk contracting entity or a 
                primary care case management entity under this section 
                for individuals enrolled after the date the Secretary 
                notifies the entity of a determination under paragraph 
                (1) and until the Secretary is satisfied that the basis 
                for such determination has been corrected and is not 
                likely to recur.
        The provisions of section 1128A (other than subsections (a) and 
        (b)) shall apply to a civil money penalty under subparagraph 
        (A) in the same manner as such provisions apply to a penalty or 
        proceeding under section 1128A(a).
    ``(i) Termination of Contract by State.--Any State which has a 
contract with a risk contracting entity or a primary care case 
management entity may terminate such contract if such entity fails to 
comply with the terms of such contract or any applicable provision of 
this section.
    ``(j) Fair Hearing.--Nothing in this section shall affect the 
rights of an individual eligible to receive medical assistance under 
the State plan to obtain a fair hearing under section 1902(a)(3) or 
under applicable State law.
    ``(k) Referral Payments.--For 1 year following the date on which 
individuals eligible for medical assistance under the State plan in a 
service area are required to enroll with a risk contracting entity or a 
primary care case management entity, Federally qualified health centers 
and rural health centers located in such service area or providing care 
to such enrollees, shall receive a fee for educating such enrollees 
about the availability of services from the risk contracting entity or 
primary care case management entity with which such enrollees are 
enrolled.
    ``(l) Special Rules.--
            ``(1) Nonapplicability of certain provisions to certain 
        risk contracting entities.--In the case of any risk contracting 
        entity which--
                    ``(A)(i) is an individual physician or a physician 
                group practice of less than 50 physicians, and
                    ``(ii) is not described in paragraphs (A) and (B) 
                of subsection (b)(1), and
                    ``(B) is at risk only for the health care items and 
                services directly provided by such entity,
        paragraphs (3)(K), (3)(L), (3)(O), (3)(P), and (4) of 
        subsection (b), and paragraph (3) of subsection (f), shall not 
        apply to such entity.
            ``(2) Exception from definition of risk contracting 
        entity.--For purposes of this section, the term `risk 
        contracting entity' shall not include a health insuring 
        organization which was used by a State before April 1, 1986, to 
        administer a portion of the State plan of such State on a 
        statewide basis.
            ``(3) New jersey.--The rules under section 1903(m)(6) as in 
        effect on the day before the effective date of this section 
        shall apply in the case of an undertaking by the State of New 
        Jersey (as described in such section 1903(m)(6)).
    ``(m) Continuation of Certain Coordinated Care Programs.--The 
Secretary may provide for the continuation of any coordinated care 
program operating under section 1115 or 1915 without requiring 
compliance with any provision of this section which conflicts with the 
continuation of such program and without requiring any additional 
waivers under such sections 1115 and 1915 if the program has been 
successful in assuring quality and containing costs (as determined by 
the Secretary) and is likely to continue to be successful in the 
future.
    ``(n) Guidelines and Model Contract.--
            ``(1) Guidelines on solvency.--At the earliest practicable 
        time after the date of enactment of this section, the Secretary 
        shall issue guidelines concerning solvency standards for risk 
        contracting entities and subcontractors of such risk 
        contracting entities. Such guidelines shall take into account 
        characteristics that may differ among risk contracting entities 
        including whether such an entity is at risk for inpatient 
        hospital services.
            ``(2) Guidelines on marketing.--At the earliest practicable 
        time after the date of enactment of this section, the Secretary 
        shall issue guidelines concerning--
                    ``(A) marketing undertaken by any risk contracting 
                entity or any primary care case management program to 
                individuals eligible for medical assistance under the 
                State plan, and
                    ``(B) information that must be provided by States 
                or any such entity to individuals eligible for medical 
                assistance under the State plan with respect to--
                            ``(i) the options and rights of such 
                        individuals to enroll with, and disenroll from, 
                        any such entity, as provided in this section, 
                        and
                            ``(ii) the availability of services from 
                        any such entity (including a list of services 
                        for which such entity is responsible or must 
                        approve and information on how to obtain 
                        services for which such entity is not 
                        responsible).
        In developing the guidelines under this paragraph, the 
        Secretary shall address the special circumstances of children 
        with special health care needs (as defined in subsection 
        (e)(1)(B)(ii)) and other individuals with special health care 
        needs.
            ``(3) Model contract.--The Secretary shall develop a model 
        contract to reflect the requirements of subsection (b)(3) and 
        such other requirements as the Secretary determines 
        appropriate.''
    (b) Waivers from Requirements on Coordinated Care Programs.--
Section 1915(b) (42 U.S.C. 1396n) is amended--
            (1) in the matter preceding paragraph (1), by striking ``as 
        may be necessary'' and inserting ``, and section 1931 as may be 
        necessary'';
            (2) in paragraph (1), by striking ``a primary care case 
        management system or'';
            (3) by striking ``and'' at the end of paragraph (3);
            (4) by striking the period at the end of paragraph (4) and 
        inserting ``, and''; and
            (5) by inserting after paragraph (4) the following new 
        paragraph:
            ``(5) to permit a risk contracting entity (as defined in 
        section 1931(a)(3)) to restrict the period in which individuals 
        enrolled with such entity may terminate such enrollment without 
        cause in accordance with section 1931(e)(3)(A).''.
    (c) State Option To Guarantee Medicaid Eligibility.--Section 
1902(e)(2) (42 U.S.C. 1396a(e)(2)) is amended--
            (1) in subparagraph (A), by striking all that precedes 
        ``(but for this paragraph)'' and inserting ``In the case of an 
        individual who is enrolled--
                    ``(i) with a qualified health maintenance 
                organization (as defined in title XIII of the Public 
                Health Service Act) or with a risk contracting entity 
                (as defined in section 1931(a)(3)), or
                    ``(ii) with any risk contracting entity (as defined 
                in section 1931(a)(3)) in a State that, on the 
                effective date of this provision, had in effect a 
                waiver under section 1115 of requirements under this 
                title under which the State could extend eligibility 
                for medical assistance for enrollees of such entity, or
                    ``(iii) with an eligible organization with a 
                contract under section 1876,
        and who would'',
            (2) in subparagraph (B), by striking ``organization or'' 
        each place it appears, and
            (3) by adding at the end the following new subparagraph:
                    ``(C) The State plan may provide, notwithstanding 
                any other provision of this title, that an individual 
                shall be deemed to continue to be eligible for benefits 
                under this title until the end of the month following 
                the month in which such individual would (but for this 
                paragraph) lose such eligibility because of excess 
                income and resources, if the individual is enrolled 
                with a risk contracting entity or primary care case 
                management entity (as those terms are defined in 
                section 1931(a)).''.
    (d) Enhanced Match Related to Quality Review.--Section 
1903(a)(3)(C) (42 U.S.C. 1396b(a)(3)(C)) is amended--
            (1) by striking ``organization or by'' and inserting 
        ``organization, by''; and
            (2) by striking ``section 1152, as determined by the 
        Secretary,'' and inserting ``section 1152, as determined by the 
        Secretary, or by another organization approved by the Secretary 
        which is unaffiliated with the State government or with any 
        risk contracting entity (as defined in section 1931(a)(3)),''.
    (e) Conforming Amendments.--
            (1) Section 1128(b)(6)(C)(i) (42 U.S.C. 1320a-
        7(b)(6)(C)(i)) is amended by striking ``health maintenance 
        organization'' and inserting ``risk contracting entity''.
            (2) Section 1902(a)(23) (42 U.S.C. 1396a(a)(23)) is amended 
        by striking ``primary care-case management system (described in 
        section 1915(b)(1)), a health maintenance organization,'' and 
        inserting ``primary care case management program (as defined in 
        section 1931(a)(1)), a risk contracting entity (as defined in 
        section 1931(a)(3)),''.
            (3) Section 1902(a)(30)(C) (42 U.S.C. 1396a(a)(30)(C)) is 
        amended by striking ``use a utilization'' and all that follows 
        through ``with the results'' and inserting ``provide for 
        independent review and quality assurance of entities with 
        contracts under section 1931, in accordance with subsection (f) 
        of such section 1931, with the results''.
            (4) Section 1902(a)(57) (42 U.S.C. 1396a(a)(57)) is amended 
        by striking ``or health maintenance organization (as defined in 
        section 1903(m)(1)(A))'' and inserting ``risk contracting 
        entity, or primary care case management entity (as defined in 
        section 1931(a))''.
            (5) Section 1902(a) (42 U.S.C. 1396a), as amended by 
        sections 121, 201(a), 851, 854, and 855, is amended--
                    (A) by striking ``and'' at the end of paragraph 
                (66);
                    (B) by striking the period at the end of paragraph 
                (67) and inserting ``; and''; and
                    (C) by adding at the end the following new 
                paragraphs:
            ``(68) at State option, provide for a primary care case 
        management program in accordance with section 1931; and
            ``(69) at State option, provide for a program under which 
        the State contracts with risk contracting entities in 
        accordance with section 1931.''.
            (6) Section 1902(p)(2) (42 U.S.C. 1396a(p)(2)) is amended 
        by striking ``health maintenance organization (as defined in 
        section 1903(m))'' and inserting ``risk contracting entity (as 
        defined in section 1931(a)(3))''.
            (7) Section 1902(w) (42 U.S.C. 1396a(w)) is amended--
                    (A) in paragraph (1), by striking ``section 
                1903(m)(1)(A)'' and inserting ``section 1931(a)(3)'', 
                and
                    (B) in paragraph (2)(E)--
                            (i) by striking ``health maintenance 
                        organization'' and inserting ``risk contracting 
                        entity'', and
                            (ii) by striking ``organization'' and 
                        inserting ``entity''.
            (8) Section 1903(k) (42 U.S.C. 1396b(k)) is amended by 
        striking ``health maintenance organization which meets the 
        requirements of subsection (m) of this section'' and inserting 
        ``risk contracting entity which meets the requirements of 
        section 1931''.
            (9) Section 1903(w)(7)(A)(viii) (42 U.S.C. 
        1396b(w)(7)(A)(viii)) is amended by striking ``health 
        maintenance organizations (and other organizations with 
        contracts under section 1903(m))'' and inserting ``risk 
        contracting entities with contracts under section 1931''.
            (10) Section 1905(a) (42 U.S.C. 1396d(a)) is amended, in 
        the matter preceding clause (i), by inserting ``(which may be 
        on a prepaid capitation or other risk basis)'' after 
        ``payment''.
            (11) Section 1916(b)(2)(D) (42 U.S.C. 1396o(b)(2)(D)) is 
        amended by striking ``health maintenance organization (as 
        defined in section 1903(m))'' and inserting ``risk contracting 
        entity (as defined in section 1931(a)(3))''.
            (12) Section 1925(b)(4)(D)(iv) (42 U.S.C. 1396r-
        6(b)(4)(D)(iv)) is amended--
                    (A) in the heading, by striking ``hmo'' and 
                inserting ``risk contracting entity'',
                    (B) by striking ``health maintenance organization 
                (as defined in section 1903(m)(1)(A))'' and inserting 
                ``risk contracting entity (as defined in section 
                1931(a)(3)'', and
                    (C) by striking ``health maintenance organization 
                in accordance with section 1903(m)'' and inserting 
                ``risk contracting entity in accordance with section 
                1931''.
            (13) Paragraphs (1) and (2) of section 1926(a) (42 U.S.C. 
        1396r-7(a)) are each amended by striking ``health maintenance 
        organizations under section 1903(m)'' and inserting ``risk 
        contracting entities under section 1931''.
            (13) Section 1927(j)(1) is amended by striking ``* * * 
        Health Maintenance Organizations, including those organizations 
        that contract under section 1903(m)'' and inserting ``risk 
        contracting entities (as defined in section 1931(a)(3))''.
    (f) Effective Date.--The amendments made by this section shall 
become effective with respect to calendar quarters beginning on or 
after January 1, 1995.

                  PART III--LONG-TERM CARE PROVISIONS

SEC. 871. STATE OPTION TO PROVIDE HOME OR COMMUNITY BASED CARE 
              SERVICES.

    (a) Provision as Optional Service.--Section 1905(a) (42 U.S.C. 
1396d(a)) is amended--
            (1) by striking ``and'' at the end of paragraph (24);
            (2) by redesignating paragraph (25) as paragraph (26); and
            (3) by inserting after paragraph (24) the following new 
        paragraph:
            ``(25) home or community based services (as defined in 
        section 1905(t)).''.
    (b) Definition.--Section 1905 (42 U.S.C. 1396d) is amended by 
adding at the end the following new subsection:
    ``(t) The term `home or community based services' means services 
(other than room and board) approved by the Secretary which are 
provided pursuant to a written plan of care to individuals who require 
the level of care provided in a hospital, nursing facility, or 
intermediate care facility for the mentally retarded, the cost of which 
could be reimbursed under the State plan. For purposes of this 
subsection, the term `room and board' shall not include an amount 
established under a method determined by the State to reflect the 
portion of costs of rent and food attributable to an unrelated personal 
caregiver who is residing in the same household with an individual who, 
but for assistance of such caregiver, would require admission to a 
hospital, nursing facility, or intermediate care facility for the 
mentally retarded.''.
    (c) Conforming Amendments.--(1) Section 1902(a)(10)(C)(iv) (42 
U.S.C. 1396a(a)(10)(C)(iv)) is amended by striking ``through (24)'' and 
inserting ``through (25)''.
    (2) Section 1902(j) (42 U.S.C. 1396a(j)) is amended by striking 
``through (25)'' and inserting ``through (26)''.

SEC. 872. ELIMINATION OF RULE REGARDING AVAILABILITY OF BEDS IN CERTAIN 
              INSTITUTIONS.

    (a) In General.--The first sentence of section 1915(c)(1) (42 
U.S.C. 1396n(c)(1)) is amended by inserting the following before the 
end period: ``(at the option of the State, such determination may be 
made without regard to the availability of beds in such a hospital, 
nursing facility, or intermediate care facility for the mentally 
retarded located in the State)''.
    (b) Effective Date.--The amendment made by subsection (a) shall be 
effective with respect to waivers granted or renewed on or after 
January 1, 1995.

SEC. 873. CERTAIN DEMONSTRATION PROJECTS PERMITTED UNDER THE MEDICAID 
              PROGRAM.

    (a) In General.--Section 1917(b) of the Social Security Act (42 
U.S.C. 1396p(b)) is amended--
            (1) in paragraph (1), by striking subparagraph (C);
            (2) in paragraph (3), by striking ``(other than paragraph 
        (1)(C))''; and
            (3) in paragraph (4)(B), by striking ``(and shall include, 
        in the case of an individual to whom paragraph (1)(C)(i) 
        applies)''.
    (b) Effective Date.--Section 1917(b) of the Social Security Act (42 
U.S.C. 1396p(b)) shall be applied and administered as if the provisions 
stricken by paragraph (1) had not been enacted.

SEC. 874. ELIMINATION OF REQUIREMENT OF PRIOR INSTITUTIONALIZATION WITH 
              RESPECT TO HABILITATION SERVICES FURNISHED UNDER A WAIVER 
              FOR HOME OR COMMUNITY-BASED SERVICES.

    (a) In General.--Section 1915(c)(5) (42 U.S.C. 1396n(c)(5)) is 
amended in the matter preceding subparagraph (A) by striking ``, with 
respect to individuals who receive such services after discharge from a 
nursing facility or intermediate care facility for the mentally 
retarded''.
    (b) Effective Date.--The amendments made by this section shall 
apply to services furnished on or after January 1, 1995.

SEC. 875. RELIEF FROM THIRD PARTY LIABILITY REQUIREMENTS WHEN COST-
              EFFECTIVE.

    (a) In General.--Section 1902(a)(25)(B) (42 U.S.C. 1396a(a)(25)(B)) 
is amended to read as follows--
            ``(B) that in any case where such a legal liability is 
        found to exist after medical assistance has been made 
        available, the State or local agency will seek reimbursement 
        for such assistance to the extent of such legal liability, 
        unless--
                    ``(i) the amount of reimbursement the State can 
                reasonably expect to recover for medical assistance 
                furnished to an individual does not exceed the costs of 
                such recovery, or
                    ``(ii) with respect to case management services (as 
                defined in section 1915(g)(2)), the State demonstrates 
                to the satisfaction of the Secretary that it is not 
                cost-effective in the aggregate to seek such recovery 
                with respect to such services furnished to individuals 
                covered under the State plan, using methods specified 
                by the Secretary which may include a demonstration that 
                such services are not generally covered by health 
                insurers in the State;''.
    (b) Effective Date.--The amendments made by this section shall 
become effective on January 1, 1995.

SEC. 876. STATE EXPENDITURES FOR MEDICAL ASSISTANCE WITH RESPECT TO 
              HOME AND COMMUNITY-BASED SERVICES PROVIDED UNDER A 
              WAIVER.

    (a) In General.--Section 1915(d)(5)(B) (42 U.S.C. 1396n(d)(5)(B)) 
is amended--
            (1) in clause (i), by striking ``times the number of 
        years'' and inserting ``compounded annually for years'';
            (2) in clause (ii), by striking ``times the number of 
        years'' and inserting ``compounded annually for years''; and
            (3) in clause (iv), by striking ``December 22, 1987'' and 
        inserting ``the date of the enactment of the Omnibus Budget 
        Reconciliation Act of 1986''.
    (b) Effective Date.--The amendments made by subsection (a) shall be 
effective as if included in the enactment of the Omnibus Budget 
Reconciliation Act of 1987.

SEC. 877. EXTENSION AND CONSOLIDATION OF FRAIL ELDERLY DEMONSTRATION 
              PROJECT WAIVERS.

    (a) Elimination of Limit on Number of Waivers.--
            (1) In general.--Section 9412(b)(1) of the Omnibus Budget 
        Reconciliation Act of 1986 is amended by striking ``not more 
        than 15''.
            (2) Transition.--The Secretary of Health and Human Services 
        shall grant waivers under section 9412(b) of the Omnibus Budget 
        Reconciliation Act of 1986 to not more than--
                    (A) 50 organizations before July 1, 1995, or
                    (B) 75 organizations before July 1, 1996.
    (b) Indefinite Extension of Participation and Status as 
Providers.--Section 9412(b)(2) of the Omnibus Budget Reconciliation Act 
of 1986 is amended--
            (1) in subparagraph (A), by striking ``subparagraph (B)'' 
        and inserting ``this paragraph'',
            (2) in subparagraph (A), by adding at the end the 
        following: ``Except as otherwise provided by law or regulation, 
        such terms and conditions, with respect to an organization, 
        shall be substantially equivalent to the terms and conditions 
        provided under the Protocol for the Program of All-inclusive 
        Care for the Elderly (PACE), as published by On Lok, Inc. (and 
        as recognized by the Health Care Financing Administration) as 
        of June 30, 1994, and made generally available.'';
            (2) in subparagraph (C), by striking ``may extend'' and 
        inserting ``shall extend for an indefinite period''; and
            (3) by adding at the end the following:
    ``(D) Upon successful completion of the initial period of the 
waiver under this subsection, an organization shall be afforded regular 
provider status under titles XVIII and XIX of the Social Security Act 
in accordance with appropriate regulations to be promulgated by the 
Secretary. This subparagraph shall apply to organizations operating 
under a waiver on or after July 1, 1997.
    ``(E) The provisions of this paragraph also shall apply to the 
organization under the On Lok waiver described in subparagraph (A).
    ``(F) Organizations under this paragraph shall ordinarily be 
reimbursed on a capitation basis. The organizations may provide 
additional services as may be deemed appropriate by the organizations 
without regard to whether such services are specifically reimbursable 
through capitation payments.''.
    (c) Treatment of Applications.--Section 9412(b)(1) of such Act is 
amended by adding at the end the following: ``An appropriately 
completed application for a waiver under this subsection is deemed 
approved unless the Secretary specifically disapproves it in writing 
within 90 days of the date of its filing (or, if the Secretary requests 
reasonable and substantial additional information within such 90 day 
period, within 90 days of the date of providing such additional 
information). The Secretary shall have sole authority to approve or 
disapprove the initial and subsequent eligibility of an organization 
for a waiver and shall make such determinations in a timely manner.''.
    (d) Promotion of Additional Applications.--Section 9412(b) of such 
Act is amended by adding at the end the following:
            ``(5) The Secretary shall institute an organized effort to 
        promote the development of organizations under this 
        subsection.''.
    (e) Provision of Additional Services.--Section 9412(b) of such Act, 
as amended by subsection (d), is further amended by adding at the end 
the following:
            ``(6) Nothing in this subsection shall prevent an 
        organization with a waiver under this subsection from 
        developing and providing appropriate services to frail 
        populations that may not be elderly, except where the Secretary 
        finds that such an extension impair the ability of the 
        organization to provide services required under the waiver.''.

SEC. 878. CERTAIN IMPROVEMENTS IN MEDICAID CASE MANAGEMENT SERVICES AND 
              HOME AND COMMUNITY-BASED WAIVERS.

    (a) In General.--Section 1902(a) (42 U.S.C. 1396a) is amended--
            (1) in paragraph (23), by inserting ``(including case 
        management services under subsections (c), (d), and (g) of such 
        section)'' after ``in section 1915''; and
            (2) in paragraph (32)--
                    (A) by striking the period at the end of 
                subparagraph (C) and inserting ``; and''; and
                    (B) by adding at the end the following new 
                subparagraph:
                    ``(D) in the case of services arranged through the 
                case management agency under subsections (c), (d), or 
                (g) of section 1915, payments made by the case 
                management agency to providers of services shall be 
                permitted provided that--
                            ``(i) the case management entity is a 
                        nonprofit entity;
                            ``(ii) the case management entity maintains 
                        a clear system of records demonstrating 
                        conformity between payments made and services 
                        required under the individual's plan of care; 
                        and
                            ``(iii) the entity makes assurances 
                        satisfactory to the State that providers paid 
                        by the entity, for covered services to 
                        individuals eligible under this title, are 
                        eligible for payments under the provisions of 
                        this title;''.
    (b) Effective Date.--The amendments made by this section shall 
apply to payments for medical assistance for calendar quarters 
beginning on or after January 1, 1995.

                       PART IV--OTHER PROVISIONS

SEC. 881. AMENDMENTS TO PROVISIONS REQUIRING STATES TO MAKE DSH PAYMENT 
              ADJUSTMENTS.

    (a) In General.--
            (1) Adjustment to national dsh payment limit.--Section 
        1923(f)(1)(B) (42 U.S.C. 1396r-4(f)(1)(B)) is amended by 
        striking ``12 percent'' and inserting ``9 percent''.
            (2) Adjustments to state allotment limits.--Section 
        1923(f)(2)(B)(i) (42 U.S.C. 1396r-4(f)(2)(B)(i)) is amended by 
        striking ``12 percent'' and inserting ``9 percent''.
            (3) Adjustment relating to high dsh states.--
                    (A) In general.--Section 1923(f)(2)(B)(i) (42 
                U.S.C. 1396r-4(f)(2)(B)(i)) is amended by striking 
                ``the State DSH allotment shall equal the State based 
                allotment'' and inserting ``the State DSH allotment 
                shall be an amount equal to the State based allotment 
                less 25 percent of such allotment''.
            (4) Effective date.--The amendments made by this section 
        shall be effective for calendar quarters beginning on or after 
        January 1, 1997.

SEC. 882. RECOMMENDATIONS BY THE SECRETARY ON A PHASED-IN ELIMINATION 
              OF MEDICAID HOSPITAL DISPROPORTIONATE SHARE ADJUSTMENT 
              PAYMENTS.

    Not later than January 1, 2000, the Secretary shall submit 
recommendations to Congress on a phased-in elimination of the hospital 
disproportionate share adjustment payments under section 1923 of the 
Social Security Act.

SEC. 883. REVISION OF FEDERAL MEDICAL ASSISTANCE PERCENTAGE FOR CERTAIN 
              STATES.

    (a) In General.--Section 1905(b) (42 U.S.C. 1396d(b)) is amended--
            (1) by redesignating clauses (1) and (2) as clauses (2) and 
        (3) and by inserting after ``except that'' the following: ``(1) 
        for Alaska, the State percentage shall be that percentage which 
        bears the same ratio to 45 per centum as the square of the 
        adjusted per capita income of such State bears to the square of 
        the per capita income of the United States;''; and
            (2) by inserting after the first sentence the following: 
        ``The `adjusted per capita income' for Alaska shall be 
        determined by dividing the State 3-year average per capita 
        income by 1.25.''.
    (b) Effective Date.--The amendments made by this section shall 
become effective on October 1, 1995.

SEC. 884. CRITERIA FOR DETERMINING THE AMOUNT OF DISALLOWANCES.

    (a) In General.--
            (1) Criteria for initial determinations.--Section 1903 (42 
        U.S.C. 1396b) is amended by adding at the end the following new 
        subsection:
    ``(x) If the Secretary determines that a disallowance of Federal 
financial participation should be made under this title with respect to 
any item or class of items, the Secretary shall, in making a 
determination with respect to the amount of such disallowance, take 
into account (to the extent the State makes a showing) factors which 
shall include--
            ``(1) whether the amount of the disallowance is reasonably 
        related to the act or omission by the State which is the basis 
        for the disallowance; and
            ``(2) whether the act or omission by the State which is the 
        basis for the disallowance was based on a reasonable 
        interpretation of Federal statutes, Federal regulations, or any 
        written guidance provided by the Secretary.''.
            (2) Criteria for redeterminations.--Section 1116(d) (42 
        U.S.C. 1316(d)) is amended--
                    (A) by striking ``(d)'' and inserting ``(d)(1)''; 
                and
                    (B) by adding at the end the following new 
                paragraph:
    ``(2) In conducting any reconsideration of a disallowance of 
Federal financial participation by the Secretary under title XIX, the 
Departmental Appeals Board of the Department of Health and Human 
Services (or another entity designated by the Secretary), shall, if 
such Board or entity upholds the basis for the disallowance, determine 
whether the amount of the disallowance properly takes into account the 
factors listed in section 1903(x). If the amount of the disallowance 
does not properly take into account such factors, the Board shall 
adjust such amount in accordance with such factors.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to disallowances made after the date of the enactment of this Act 
and shall take effect without regard to the promulgation of 
implementing regulations.

SEC. 885. TECHNICAL CORRECTIONS RELATING TO SECTION 4752 OF OBRA-1990 
              (PHYSICIANS' SERVICES).

    (a) Paragraph (59) of section 1902(a) (42 U.S.C. 1396a(a)), as 
added by section 4752(c)(1)(C) of the Omnibus Budget Reconciliation Act 
of 1990 and as redesignated by section 13623(a)(6) of the Omnibus 
Budget Reconciliation Act of 1993, is amended by striking ``subsection 
(v)'' and inserting ``subsection (x)''.
    (b) Section 1903(i)(12) (42 U.S.C. 1396b(i)(12)), as inserted by 
section 4752(e) of the Omnibus Budget Reconciliation Act of 1990 and as 
redesignated by section 13631(c)(3) of the Omnibus Budget 
Reconciliation Act of 1993, is amended--
            (1) by amending clause (i) of subparagraph (A) to read as 
        follows:
                            ``(i) is certified in family practice or 
                        pediatrics by the medical specialty board 
                        recognized by the American Board of Medical 
                        Specialties for family practice or pediatrics 
                        or is certified in general practice or 
                        pediatrics by the medical specialty board 
                        recognized by the American Osteopathic 
                        Association,'';
            (2) by amending clause (i) of subparagraph (B) to read as 
        follows:
                            ``(i) is certified in family practice or 
                        obstetrics by the medical specialty board 
                        recognized by the American Board of Medical 
                        Specialties for family practice or obstetrics 
                        or is certified in general practice or 
                        obstetrics by the Medical Specialty Board 
                        recognized by the American Osteopathic 
                        Association,''; and
            (3) in subparagraphs (A) and (B)--
                    (A) by striking ``or'' at the end of clause (v);
                    (B) by redesignating clause (vi) as clause (vii); 
                and
                    (C) by inserting after clause (v) the following new 
                clause:
                            ``(vi) delivers such services in the 
                        emergency department of a hospital 
                        participating in the State plan approved under 
                        this title, or''.

                TITLE IX--DEPARTMENT OF VETERANS AFFAIRS

SEC. 901. SHORT TITLE.

    This title may be cited as the ``Veterans Health Care 
Administrative Flexibility Act of 1994''.

SEC. 902. PURPOSE.

    The purpose of this title is to facilitate the provision of health 
care services by the Department of Veterans Affairs by--
            (1) granting the Department sufficient flexibility to 
        respond rapidly and effectively to local marketing and 
        regulatory conditions (including health care reform legislation 
        that might be enacted by the States); and
            (2) granting the Department the authority and resources to 
        facilitate the timely acquisition of necessary facilities and 
        services at a local level.

SEC. 903. HEALTH CARE REFORM BY THE STATES.

    (a) Intent of Congress.--It is the intent of Congress that the 
Department of Veterans Affairs health care facilities shall participate 
as health care providers recognized under health care reform 
legislation enacted by the several States. To the extent practicable, 
the Secretary of Veterans Affairs shall provide health care services in 
a State enacting such reform legislation as if such facilities were 
providers under such legislation of that State.
    (b) Prohibition.--Notwithstanding any other provision of law, a 
State that enacts health care reform legislation may not prohibit the 
participation of the Department as a health care provider under such 
legislation unless the chief executive officer of the State certifies 
to the Secretary that--
            (1) the benefits to be provided by the Department do not 
        meet the requirements for quality of benefits established by 
        the reform legislation; or
            (2) the location of Department facilities (including 
        facilities providing services by contract or agreement with the 
        Secretary) in the State is such that the proximity of eligible 
        persons to such facilities does not meet the requirements so 
        established for such proximity.

SEC. 904. AUTHORITY TO EXEMPT DEPARTMENT OF VETERANS AFFAIRS HEALTH 
              CARE FACILITIES FROM CERTAIN PROVISIONS OF LAW.

    (a) In General.--Chapter 73 of title 38, United States Code, is 
amended--
            (1) by redesignating subchapter IV as subchapter V; and
            (2) by inserting after subchapter III the following new 
        subchapter IV:

                      ``SUBCHAPTER IV--EXEMPTIONS

``Sec. 7341. Designation of exempt facilities
    ``In order to facilitate the provision of health care services by 
the Department in a manner that is responsive to local market and 
regulatory conditions, the Secretary may designate health care 
facilities of the Department which shall be exempt from provisions of 
law as specified in this subchapter.
``Sec. 7342. Contracts and agreements
    ``(a) If designated by the Secretary under section 7341 of this 
title to be exempt from provisions of law as specified in this 
subchapter, a health care facility of the Department may enter into 
contracts and agreements for the provision of health care services and 
contracts and agreements for other services (including procurement of 
equipment, maintenance and repair services, and other services related 
to the provision of health care services) as specified in this section.
    ``(b) Contracts and agreements (including leases) under subsection 
(a) shall not be subject to the following provisions of law:
            ``(1) Section 8110(c) of this title, relating to 
        contracting of services at Department health care facilities.
            ``(2) Section 8122(a)(1) of this title, relating to the 
        lease of Department property.
            ``(3) Section 8125 of this title, relating to local 
        contracts for the procurement of health care items.
            ``(4) Section 702 of title 5, relating to the right of 
        review of agency wrongs by the courts of the United States.
            ``(5) Sections 1346(a)(2) and 1491 of title 28, relating to 
        the jurisdiction of the district courts of the United States 
        and the United States Court of Federal Claims, respectively, 
        for the actions enumerated in such sections.
            ``(6) Subchapter V of chapter 35 of title 31, relating to 
        the adjudication of protests of violations of procurement 
        statutes and regulations.
            ``(7) Sections 3526 and 3702 of such title, relating to the 
        settlement of accounts and claims, respectively, of the United 
        States.
            ``(8) Subsection (b)(7), (e), (f), (g), and (h) of section 
        8 of the Small Business Act (15 U.S.C. 637(b)(7), (e), (f), 
        (g), and (h)), relating to requirements with respect to small 
        businesses for contracts for property and services.
            ``(9) The provisions of law assembled for purposes of 
        codification of the United States Code as section 471 through 
        544 of title 40 that relate to the authority of the 
        Administrator of General Services over the lease and disposal 
        of Federal Government property.
            ``(10) The provisions of the Office of Federal Procurement 
        Policy Act (41 U.S.C. 401 et seq.), relating to the procurement 
        of property and services by the Federal Government.
            ``(11) Chapter 3 of the Federal Property and Administrative 
        Services Act of 1949 (41 U.S.C. 251 et seq.), relating to the 
        procurement of property and services by the Federal Government.
            ``(12) Office of Management and Budget Circular A-76.
    ``(c)(1) Notwithstanding any other provision of law, contracts and 
agreements for the provision of health care services under this section 
may include contracts and agreements with insurers, health care 
providers, or other individuals or entities that provide health care 
services.
    ``(2) Contracts and agreements under this subsection may be entered 
into without prior review by the Central Office of the Department.
    ``(d)(1) A contract or agreement under this section for services 
other than the services referred to in subsection (c) (including a 
contract or agreement for procurement of equipment, maintenance and 
repair services, and other services related to the provision of health 
care services) shall not be subject to prior review by the Central 
Office of the Department if the amount of the contract or agreement is 
less than $250,000.
    ``(2) The Central Office may conduct a prior review of a contract 
or agreement referred to in paragraph (1) if the amount of the contract 
or agreement is $250,000 or greater.
``Sec. 7343. Department personnel
    ``Notwithstanding any other provision of law, with respect to 
facilities designated by the Secretary under section 7341 of this title 
to be exempt from provisions of law as specified in this subchapter, 
the Secretary may--
            ``(1) appoint health care personnel to positions in that 
        facility in accordance with such qualifications for such 
        positions as the Secretary may establish; and
            ``(2) promote and advance personnel serving in such 
        positions in accordance with such qualifications as the 
        Secretary may establish.
``Sec. 7344. Funding
    ``(a) To the extent authorized by current law, the Secretary may 
continue to collect funds from third party payers to defray the costs 
of providing health care services to veterans.
    ``(b) As a repository for funds referred to in subsection (a), 
there is established in the Treasury a fund to be known as the 
Department of Veterans Affairs Health Care Reform Fund (hereafter 
referred to in this section as the `Fund').
    ``(c)(1) Notwithstanding any other provision of law, amounts shall 
be deposited in the Fund as follows:
            ``(A) Amounts collected as referred to in subsection (a).
            ``(B) Amounts made available based on a determination under 
        subsection (d).
            ``(C) Amounts transferred to the Fund under subsection (e).
            ``(D) Such other amounts as the Secretary determines to be 
        necessary.
            ``(E) Such other amounts as may be appropriated to the 
        Fund.
    ``(2) The Secretary shall make available amounts under 
subparagraphs (B) and (D) of paragraph (1) from amounts appropriated to 
the Department of Veterans Affairs for the provision of health care 
services.
    ``(3) The Secretary shall establish and maintain a separate account 
under the Fund for each health care facility designated under section 
7341 of this title as exempt from the provisions of law as specified in 
this subchapter. Any deposits and expenditures with respect to a 
designated facility shall be made to or from the account established 
and maintained with respect to that facility.
    ``(d)(1) For each year of the operation of a designated facility, 
the Secretary shall deposit in the account of the Fund for the facility 
an amount (as determined by the Secretary) equal to the amount that 
would otherwise be made available to the facility for the payment of 
the cost of health care services by the facility in that year. The 
Secretary shall deposit such amount at the beginning of such year.
    ``(2) The costs referred to in paragraph (1) shall not include 
costs relating to the provision by the Secretary of the following 
services:
            ``(A) Services relating to post-traumatic stress disorder.
            ``(B) Services relating to spinal-cord injuries.
            ``(C) Services relating to substance abuse.
            ``(D) Services relating to the rehabilitation of blind 
        veterans.
    ``(e) Funds deposited in the Medical-Care Cost Recovery Fund 
established under section 1729(g) of this title during any fiscal year 
in an amount in excess of the Congressional Budget Office baseline (as 
of the date of the enactment of the Veterans Health Care Administrative 
Flexibility Act of 1994) for deposits in that fund for that fiscal year 
shall not be subject to paragraph (4) of section 1710(f), 1712(f), or 
1729(g) of this title, as the case may be, but shall be transferred to 
the Fund. Such transfer for any fiscal year shall be made at any time 
that the total of amounts so received less amounts estimated to cover 
the expenses, payments, and costs described in paragraph (3) of section 
1729(g) of this title is in excess of the applicable Congressional 
Budget Office baseline.
    ``(f) Notwithstanding any other provision of law, the facility 
director for each facility designated under section 7341 of this title 
as exempt from the provisions of law as specified in this subchapter 
shall determine the costs for which amounts in the Fund may be expended 
in providing health care services at that facility.
``Sec. 7345. Expenditure authority
    ``(a)(1) Except as provided in paragraph (2), if designated by the 
Secretary under section 7341 of this title to be exempt from provisions 
of law as specified in this subchapter, a health care facility of the 
Department may expend funds under this section in order to cover the 
following costs:
            ``(A) Costs of marketing and advertising health care 
        services.
            ``(B) Costs of legal services provided to the facility by 
        the General Counsel of the Department relating to this 
        subchapter.
            ``(C) Costs relating to acquisition (including acquisition 
        of land), construction, repair, or renovation of facilities.
    ``(2) Costs under this section shall not include costs relating to 
a major medical facility project or a major medical facility lease as 
such terms are defined in subparagraphs (A) and (B) of section 
8104(a)(3) of this title, respectively.''.
    (b) Clerical Amendment.--The table of sections at the beginning of 
chapter 73 is amended by striking out the item relating to the heading 
for subchapter IV and inserting in lieu thereof the following:

                      ``SUBCHAPTER IV--EXEMPTIONS

``7341. Designation of exempt facilities.
``7342. Contracts and agreements.
``7343. Department personnel.
``7344. Funding.
``7345. Expenditure authority.
                ``SUBCHAPTER V--RESEARCH CORPORATIONS''.

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