[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2425 Introduced in House (IH)]

  1st Session
                                H. R. 2425

To amend title XVIII of the Social Security Act to preserve and reform 
                         the medicare program.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           September 29, 1995

  Mr. Archer (for himself, Mr. Bliley, Mr. Bilirakis, Mr. Thomas, Mr. 
Hyde, Mr. Greenwood, Mr. Hastert, Mrs. Johnson of Connecticut, and Mr. 
   McCrery) introduced the following bill; which was referred to the 
   Committee on Ways and Means, and in addition to the Committees on 
  Commerce, the Judiciary, and Rules, for a period to be subsequently 
   determined by the Speaker, in each case for consideration of such 
 provisions as fall within the jurisdiction of the committee concerned

_______________________________________________________________________

                                 A BILL


 
To amend title XVIII of the Social Security Act to preserve and reform 
                         the medicare program.

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

SECTION 1. PURPOSE.

    The purpose of this Act is to reform the medicare program, in order 
to preserve and protect the financial stability of the program.

                           TITLE XV--MEDICARE

SEC. 15000. SHORT TITLE OF TITLE; AMENDMENTS AND REFERENCES TO OBRA; 
              TABLE OF CONTENTS OF TITLE.

    (a) Short Title.--This title may be cited as the ``Medicare 
Preservation Act of 1995''.
    (b) Amendments 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.
    (c) References to OBRA.--In this title, the terms ``OBRA-1986'', 
``OBRA-1987'', ``OBRA-1989'', ``OBRA-1990'', and ``OBRA-1993'' refer to 
the Omnibus Budget Reconciliation Act of 1986 (Public Law 99-509), the 
Omnibus Budget Reconciliation Act of 1987 (Public Law 100-203), the 
Omnibus Budget Reconciliation Act of 1989 (Public Law 101-239), the 
Omnibus Budget Reconciliation Act of 1990 (Public Law 101-508), and the 
Omnibus Budget Reconciliation Act of 1993 (Public Law 103-66), 
respectively.
    (d) Table of Contents of Title.--The table of contents of this 
title is as follows:

Sec. 15000. Short title of title; amendments and references to OBRA; 
                            table of contents of title.
                    Subtitle A--MedicarePlus Program

          Part 1--Increasing Choice Under the Medicare Program

Sec. 15001. Increasing choice under medicare.
Sec. 15002. MedicarePlus program.
             ``Part C--Provisions Relating to MedicarePlus

        ``Sec. 1851. Requirements for MedicarePlus organizations; high 
                            deductible/medisave products.
        ``Sec. 1852. Requirements relating to benefits, provision of 
                            services, enrollment, and premiums.
        ``Sec. 1853. Patient protection standards.
        ``Sec. 1854. Provider-sponsored organizations.
        ``Sec. 1855. Payments to MedicarePlus organizations.
        ``Sec. 1856. Establishment of standards for MedicarePlus 
                            organizations and products.
        ``Sec. 1857. MedicarePlus certification.
        ``Sec. 1858. Contracts with MedicarePlus organizations.
Sec. 15003. Duplication and coordination of medicare-related products.
Sec. 15004. Transitional rules for current medicare HMO program.
    Part 2--Special Rules for MedicarePlus Medical Savings Accounts

Sec. 15011. MedicarePlus MSA's.
Sec. 15012. Certain rebates excluded from gross income.
      Part 3--Special Antitrust Rule for Provider Service Networks

Sec. 15021. Application of antitrust rule of reason to provider service 
                            networks.
                          Part 4--Commissions

Sec. 15031. Medicare Payment Review Commission.
Sec. 15032. Commission on the Effect of the Baby Boom Generation on the 
                            Medicare Program.
Sec. 15033. Change in appointment of Administrator of HCFA.
                 Subtitle B--Preventing Fraud and Abuse

Sec. 15101. Increasing awareness of fraud and abuse.
Sec. 15102. Beneficiary incentive programs.
Sec. 15103. Intermediate sanctions for medicare health maintenance 
                            organizations.
Sec. 15104. Voluntary disclosure program.
Sec. 15105. Revisions to current sanctions.
Sec. 15106. Consolidated funding for anti-fraud and abuse activities 
                            under Medicare Integrity Program.
Sec. 15107. Permitting carriers to carry out prior authorization for 
                            certain items of durable medical equipment.
Sec. 15108. Establishment of Health Care Anti-Fraud Task Force.
Sec. 15109. Study of adequacy of private quality assurance programs.
                     Subtitle C--Regulatory Relief

              Part 1--Physician Ownership Referral Reform

Sec. 15201. Repeal of prohibitions based on compensation arrangements.
Sec. 15202. Revision of designated health services subject to 
                            prohibition.
Sec. 15203. Delay in implementation until promulgation of regulations.
Sec. 15204. Exceptions to prohibition.
Sec. 15205. Repeal of reporting requirements.
Sec. 15206. Preemption of State law.
Sec. 15207. Effective date.
                Part 2--Other Medicare Regulatory Relief

Sec. 15211. Repeal of Medicare and Medicaid Coverage Data Bank.
Sec. 15212. Clarification of level of intent required for imposition of 
                            sanctions.
Sec. 15213. Clarification of and additions to exceptions to anti-
                            kickback penalties.
Sec. 15214. Solicitation and publication of modifications to existing 
                            safe harbors and new safe harbors.
Sec. 15215. Issuance of advisory opinions under title XI.
Sec. 15216. Prior notice of changes in billing and claims processing 
                            requirements for physicians' services.
               Part 3--Promoting Physician Self-Policing

Sec. 15221. Exemption from antitrust laws for certain activities of 
                            medical self-regulatory entities.
                  Subtitle D--Medical Liability Reform

                       Part 1--General Provisions

Sec. 15301. Federal reform of health care liability actions.
Sec. 15302. Definitions.
Sec. 15303. Effective date.
      Part 2--Uniform Standards for Health Care Liability Actions

Sec. 15311. Statute of limitations.
Sec. 15312. Calculation and payment of damages.
Sec. 15313. Alternative dispute resolution.
     Subtitle E--Teaching Hospitals and Graduate Medical Education

  Part 1--Teaching Hospital and Graduate Medical Education Trust Fund

Sec. 15401. Establishment of Fund; payments to teaching hospitals.
 ``TITLE XXII--TEACHING HOSPITAL AND GRADUATE MEDICAL EDUCATION TRUST 
                                  FUND

                    ``Part A--Establishment of Fund

        ``Sec. 2201. Establishment of Fund.
                ``Part B--Payments to Teaching Hospitals

                  ``Subpart 1--Requirement of Payments

        ``Sec. 2211. Formula payments to teaching hospitals.
  ``Subpart 2--Amount Relating to Indirect Costs of Graduate Medical 
                               Education

        ``Sec. 2221. Determination of amount relating to indirect 
                            costs.
        ``Sec. 2222. Indirect costs; special rules regarding 
                            determination of hospital-specific 
                            percentage.
        ``Sec. 2223. Indirect costs; alternative payments regarding 
                            teaching hospitals in certain States.
   ``Subpart 3--Amount Relating to Direct Costs of Graduate Medical 
                               Education

        ``Sec. 2231. Determination of amount relating to direct costs.
        ``Sec. 2232. Direct costs; special rules regarding 
                            determination of hospital-specific 
                            percentage.
        ``Sec. 2233. Direct costs; authority for payments to consortia 
                            of providers.
        ``Sec. 2234. Direct costs; alternative payments regarding 
                            teaching hospitals in certain States.
                    ``Subpart 4--General Provisions

        ``Sec. 2241. Adjustments in payment amounts.
                 Part 2--Amendments to Medicare Program

Sec. 15411. Transfers to Teaching Hospital and Graduate Medical 
                            Education Trust Fund.
Sec. 15412. Modification in payment policies regarding graduate medical 
                            education.
  Part 3--Reform of Federal Policies Regarding Teaching Hospitals and 
                       Graduate Medical Education

Sec. 15421. Establishment of advisory panel for recommending policies.
                        ``Part C--Other Matters

        ``Sec. 2251. Advisory Panel on Reform in Financing of Teaching 
                            Hospitals and Graduate Medical Education.
           Subtitle F--Provisions Relating to Medicare Part A

          subpart a--general provisions relating to hospitals
Sec. 15501. Reductions in inflation updates for PPS hospitals.
Sec. 15502. Reductions in disproportionate share payment adjustments.
Sec. 15503. Payments for capital-related costs for inpatient hospital 
                            services.
Sec. 15504. Reduction in adjustment for indirect medical education.
Sec. 15505. Treatment of PPS-exempt hospitals.
Sec. 15506. Reduction in payments to hospitals for enrollees' bad 
                            debts.
Sec. 15507. Permanent extension of hemophilia pass-through.
Sec. 15508. Conforming amendment to certification of Christian Science 
           subpart b--provisions relating to rural hospitals
Sec. 15511. Sole community hospitals.
Sec. 15512. Clarification of treatment of EAC and RPC hospitals.
Sec. 15513. Rural emergency access care hospitals.
Sec. 15514. Classification of rural referral centers.
Sec. 15515. Floor on area wage index.
             Part 2--Payments to Skilled Nursing Facilities

Sec. 15521. Payments for routine service costs.
Sec. 15522. Incentives for cost effective management of covered non-
                            routine services.
Sec. 15523. Payments for routine service costs.
Sec. 15524. Reductions in payment for capital-related costs.
Sec. 15525. Treatment of items and services paid for under part B.
Sec. 15526. Certification of facilities meeting revised nursing home 
                            reform standards.
Sec. 15527. Medical review process.
Sec. 15528. Report by Medicare Payment Review Commission.
Sec. 15529. Effective date.
           Subtitle G--Provisions Relating to Medicare Part B

                        Part 1--Payment Reforms

Sec. 15601. Payments for physicians' services.
Sec. 15602. Elimination of formula-driven overpayments for certain 
                            outpatient hospital services.
Sec. 15603. Reduction in updates to payment amounts for durable medical 
                            equipment.
Sec. 15604. Reduction in updates to payment amounts for clinical 
                            diagnostic laboratory tests.
Sec. 15605. Extension of reductions in payments for costs of hospital 
                            outpatient services.
Sec. 15606. Freeze in payments for ambulatory surgical center services.
Sec. 15607. Rural emergency access care hospitals.
                         Part 2--Part B Premium

Sec. 15611. Extension of part B premium.
Sec. 15612. Income-related reduction in medicare subsidy.
       Subtitle H--Provisions Relating to Medicare Parts A and B

                      Part 1--Home Health Services

Sec. 15701. Payment for home health services.
Sec. 15702. Maintaining savings resulting from temporary freeze on 
                            payment increases for home health services.
Sec. 15703. Extension of waiver of presumption of lack of knowledge of 
                            exclusion from coverage for home health 
                            agencies.
             Part 2--Medicare Secondary Payer Improvements

Sec. 15711. Extension and expansion of existing requirements.
Sec. 15712. Improvements in recovery of payments.
Sec. 15713. Prohibiting retroactive application of policy regarding 
                            ESRD beneficiaries enrolled in primary 
                            plans.
                            Part 3--Failsafe

Sec. 15721. Failsafe budget mechanism.
                 Part 4--Administrative Simplification

Sec. 15731. Standards for medicare information transactions and data 
                            elements.
           Part 5--Other Provisions Relating to Parts A and B

Sec. 15741. Clarification of medicare coverage of items and services 
                            associated with certain medical devices 
                            approved for investigational use.
Sec. 15742. Additional exclusion from coverage.
                   Subtitle I--Clinical Laboratories

Sec. 15801. Exemption of physician office laboratories.

                    Subtitle A--MedicarePlus Program

          PART 1--INCREASING CHOICE UNDER THE MEDICARE PROGRAM

                                                     Subtitle A, Part 1

SEC. 15001. INCREASING CHOICE UNDER MEDICARE.

    (a) In General.--Title XVIII is amended by inserting after section 
1804 the following new section:

                   ``providing for choice of coverage

    ``Sec. 1805. (a) Choice of Coverage.--
            ``(1) In general.--Subject to the provisions of this 
        section, every individual who is entitled to benefits under 
        part A and enrolled under part B shall elect to receive 
        benefits under this title through one of the following:
                    ``(A) Through fee-for-service system.--Through the 
                provisions of parts A and B.
                    ``(B) Through a medicareplus product.--Through a 
                MedicarePlus product (as defined in paragraph (2)), 
                which may be--
                            ``(i) a high deductible/medisave product 
                        (and a contribution into a MedicarePlus medical 
                        savings account (MSA)),
                            ``(ii) a product offered by a provider-
                        sponsored organization,
                            ``(iii) a product offered by an 
                        organization that is a union, Taft-Hartley 
                        plan, or association, or
                            ``(iv) a product providing for benefits on 
                        a fee-for-service or other basis.
            ``(2) Medicareplus product defined.--For purposes this 
        section and part C, the term `MedicarePlus product' means 
        health benefits coverage offered under a policy, contract, or 
        plan by a MedicarePlus organization (as defined in section 
        1851(a)) pursuant to and in accordance with a contract under 
        section 1857.
            ``(3) Terminology relating to options.--For purposes of 
        this section and part C--
                    ``(A) Non-medicareplus option.--An individual who 
                has made the election described in paragraph (1)(A) is 
                considered to have elected the `Non-MedicarePlus 
                option'.
                    ``(B) Medicareplus option.--An individual who has 
                made the election described in paragraph (1)(B) to 
                obtain coverage through a MedicarePlus product is 
                considered to have elected the `MedicarePlus option' 
                for that product.
    ``(b) Special Rules.--
            ``(1) Residence requirement.--Except as the Secretary may 
        otherwise provide, an individual is eligible to elect a 
        MedicarePlus product offered by a MedicarePlus organization 
        only if the organization in relation to the product serves the 
        geographic area in which the individual resides.
            ``(2) Affiliation requirements for certain products.--
                    ``(A) In general.--Subject to subparagraph (B), an 
                individual is eligible to elect a MedicarePlus product 
                offered by a limited enrollment MedicarePlus 
                organization (as defined in section 1852(c)(4)(E)) only 
                if--
                            ``(i) the individual is eligible under 
                        section 1852(c)(4) to make such election, and
                            ``(ii) in the case of a MedicarePlus 
                        organization that is a union sponsor or a Taft-
                        Hartley sponsor (as defined in section 
                        1852(c)(4)), the individual elected under this 
                        section a MedicarePlus product offered by the 
                        sponsor during the first enrollment period in 
                        which the individual was eligible to make such 
                        election with respect to such sponsor.
                    ``(B) No reelection after disenrollment for certain 
                products.--An individual is not eligible to elect a 
                MedicarePlus product offered by a MedicarePlus 
                organization that is union sponsor or a Taft-Hartley 
                sponsor if the individual previously had elected a 
                MedicarePlus product offered by the organization and 
                had subsequently discontinued to elect such a product 
                offered by the organization.
            ``(3) Special rule for certain annuitants.--An individual 
        is not eligible to elect a high deductible/medisave product if 
        the individual is entitled to benefits under chapter 89 of 
        title 5, United States Code, as an annuitant or spouse of an 
        annuitant.
    ``(c) Process for Exercising Choice.--
            ``(1) In general.--The Secretary shall establish a process 
        through which elections described in subsection (a) are made 
        and changed, including the form and manner in which such 
        elections are made and changed. Such elections shall be made or 
        changed only during coverage election periods specified under 
        subsection (e) and shall become effective as provided in 
        subsection (f).
            ``(2) Expedited implementation.--The Secretary shall 
        establish the process of electing coverage under this section 
        during the transition period (as defined in subsection 
        (e)(1)(B)) in such an expedited manner as will permit such an 
        election for MedicarePlus products in an area as soon as such 
        products become available in that area.
            ``(3) Coordination through medicareplus organizations.--
                    ``(A) Enrollment.--Such process shall permit an 
                individual who wishes to elect a MedicarePlus product 
                offered by a MedicarePlus organization to make such 
                election through the filing of an appropriate election 
                form with the organization.
                    ``(B) Disenrollment.--Such process shall permit an 
                individual, who has elected a MedicarePlus product 
                offered by a MedicarePlus organization and who wishes 
                to terminate such election, to terminate such election 
                through the filing of an appropriate election form with 
                the organization.
            ``(4) Default.--
                    ``(A) Initial election.--
                            ``(i) In general.--Subject to clause (ii), 
                        an individual who fails to make an election 
                        during an initial election period under 
                        subsection (e)(1) is deemed to have chosen the 
                        Non-MedicarePlus option.
                            ``(ii) Seamless continuation of coverage.--
                        The Secretary shall establish procedures under 
                        which individuals who are enrolled with a 
                        MedicarePlus organization at the time of the 
                        initial election period and who fail to elect 
                        to receive coverage other than through the 
                        organization are deemed to have elected an 
                        appropriate MedicarePlus product offered by the 
                        organization.
                    ``(B) Continuing periods.--An individual who has 
                made (or deemed to have made) an election under this 
                section is considered to have continued to make such 
                election until such time as--
                            ``(i) the individual changes the election 
                        under this section, or
                            ``(ii) a MedicarePlus product is 
                        discontinued, if the individual had elected 
                        such product at the time of the 
                        discontinuation.
            ``(5) Agreements with commissioner of social security to 
        promote efficient administration.--In order to promote the 
        efficient administration of this section and the MedicarePlus 
        program under part C, the Secretary may enter into an agreement 
        with the Commissioner of Social Security under which the 
        Commissioner performs administrative responsibilities relating 
        to enrollment and disenrollment in MedicarePlus products under 
        this section.
    ``(d) Provision of Beneficiary Information to Promote Informed 
Choice.--
            ``(1) In general.--The Secretary shall provide for 
        activities under this subsection to disseminate broadly 
        information to medicare beneficiaries (and prospective medicare 
        beneficiaries) on the coverage options provided under this 
        section in order to promote an active, informed selection among 
        such options. Such information shall be made available on such 
        a timely basis (such as 6 months before the date an individual 
        would first attain eligibility for medicare on the basis of 
        age) as to permit individuals to elect the MedicarePlus option 
        during the initial election period described in subsection 
        (e)(1).
            ``(2) Use of nonfederal entities.--The Secretary shall, to 
        the maximum extent feasible, enter into contracts with 
        appropriate non-Federal entities to carry out activities under 
        this subsection.
            ``(3) Specific activities.--In carrying out this 
        subsection, the Secretary shall provide for at least the 
        following activities in all areas in which MedicarePlus 
        products are offered:
                    ``(A) Information booklet.--
                            ``(i) In general.--The Secretary shall 
                        publish an information booklet and disseminate 
                        the booklet to all individuals eligible to 
                        elect the MedicarePlus option under this 
                        section during coverage election periods.
                            ``(ii) Information included.--The booklet 
                        shall include information presented in plain 
                        English and in a standardized format 
                        regarding--
                                    ``(I) the benefits and premiums for 
                                the various MedicarePlus products in 
                                the areas involved;
                                    ``(II) the quality of such 
                                products, including consumer 
                                satisfaction information; and
                                    ``(III) rights and responsibilities 
                                of medicare beneficiaries under such 
                                products.
                            ``(iii) Periodic updating.--The booklet 
                        shall be updated on a regular basis (not less 
                        often than once every 12 months) to reflect 
                        changes in the availability of MedicarePlus 
                        products and the benefits and premiums for such 
                        products.
                    ``(B) Toll-free number.--The Secretary shall 
                maintain a toll-free number for inquiries regarding 
                MedicarePlus options and the operation of part C.
                    ``(C) General information in medicare handbook.--
                The Secretary shall include information about the 
                MedicarePlus option provided under this section in the 
                annual notice of medicare benefits under section 1804.
    ``(e) Coverage Election Periods.--
            ``(1) Initial choice upon eligibility to make election.--
                    ``(A) In general.--In the case of an individual who 
                first becomes entitled to benefits under part A and 
                enrolled under part B after the beginning of the 
                transition period (as defined in subparagraph (B)), the 
                individual shall make the election under this section 
                during a period (of a duration and beginning at a time 
                specified by the Secretary) at the first time the 
                individual both is entitled to benefits under part A 
                and enrolled under part B. Such period shall be 
                specified in a manner so that, in the case of an 
                individual who elects a MedicarePlus product during the 
                period, coverage under the product becomes effective as 
                of the first date on which the individual may receive 
                such coverage.
                    ``(B) Transition period defined.--In this 
                subsection, the term `transition period' means, with 
                respect to an individual in an area, the period 
                beginning on the first day of the first month in which 
                a MedicarePlus product is first made available to 
                individuals in the area and ending with the month 
                preceding the beginning of the first annual, 
                coordinated election period under paragraph (3).
            ``(2) During transition period.--Subject to paragraph (6)--
                    ``(A) Continuous open enrollment into a 
                medicareplus option.--During the transition period, an 
                individual who is eligible to make an election under 
                this section and who has elected the non-MedicarePlus 
                option may change such election to a MedicarePlus 
                option at any time.
                    ``(B) Open disenrollment before end of transition 
                period.--
                            ``(i) In general.--During the transition 
                        period, an individual who has elected a 
                        MedicarePlus option for a MedicarePlus product 
                        may change such election to another 
                        MedicarePlus product or to the non-MedicarePlus 
                        option.
                            ``(ii) Special rule.--During the transition 
                        period, an individual who has elected a high 
                        deductible/medisave product may not change such 
                        election to a MedicarePlus product that is not 
                        a high deductible/medisave product unless the 
                        individual has had such election in effect for 
                        12 months.
            ``(3) Annual, coordinated election period.--
                    ``(A) In general.--Subject to paragraph (5), each 
                individual who is eligible to make an election under 
                this section may change such election during annual, 
                coordinated election periods.
                    ``(B) Annual, coordinated election period.--For 
                purposes of this section, the term `annual, coordinated 
                election period' means, with respect to a calendar year 
                (beginning with 1998), the month of October before such 
                year.
                    ``(C) Medicareplus health fair during october, 
                1996.--In the month of October, 1996, the Secretary 
                shall provide for a nationally coordinated educational 
                and publicity campaign to inform individuals, who are 
                eligible to elect MedicarePlus products, about such 
                products and the election process provided under this 
                section (including the annual, coordinated election 
                periods that occur in subsequent years).
            ``(4) Special 90-day disenrollment option.--
                    ``(A) In general.--In the case of an individual who 
                first elects a MedicarePlus option (other than a high 
                deductible/medisave product) under this section, the 
                individual may discontinue such election through the 
                filing of an appropriate notice during the 90-day 
                period beginning on the first day on which the 
                individual's coverage under the MedicarePlus product 
                under such option becomes effective.
                    ``(B) Effect of discontinuation of election.--An 
                individual who discontinues an election under this 
                paragraph shall be deemed at the time of such 
                discontinuation to have elected the non-MedicarePlus 
                option.
            ``(5) Special election periods.--An individual may 
        discontinue an election of a MedicarePlus product offered by a 
        MedicarePlus organization other than during an annual, 
        coordinated election period and make a new election under this 
        section if--
                    ``(A) the organization's or product's certification 
                under part C has been terminated or the organization 
                has terminated or otherwise discontinued providing the 
                product;
                    ``(B) in the case of an individual who has elected 
                a MedicarePlus product offered by a MedicarePlus 
                organization, the individual is no longer eligible to 
                elect the product because of a change in the 
                individual's place of residence or other change in 
                circumstances (specified by the Secretary, but not 
                including termination of membership in a qualified 
                association in the case of a product offered by a 
                qualified association or termination of the 
                individual's enrollment on the basis described in 
                clause (i) or (ii), section 1852(c)(3)(B));
                    ``(C) the individual demonstrates (in accordance 
                with guidelines established by the Secretary) that--
                            ``(i) the organization offering the product 
                        substantially violated a material provision of 
                        the organization's contract under part C in 
                        relation to the individual and the product; or
                            ``(ii) the organization (or an agent or 
                        other entity acting on the organization's 
                        behalf) materially misrepresented the product's 
                        provisions in marketing the product to the 
                        individual; or
                    ``(D) the individual meets such other conditions as 
                the Secretary may provide.
            ``(6) Special rule for high deductible/medisave products.--
        Notwithstanding the previous provisions of this subsection, an 
        individual may elect a high deductible/medisave product only 
        during an annual, coordinated election period described in 
        paragraph (3)(B) or during the month of October, 1996.
    ``(f) Effectiveness of Elections.--
            ``(1) During initial coverage election period.--An election 
        of coverage made during the initial coverage election period 
        under subsection (e)(1)(A) shall take effect upon the date the 
        individual becomes entitled to benefits under part A and 
        enrolled under part B, except as the Secretary may provide 
        (consistent with section 1838) in order to prevent retroactive 
        coverage.
            ``(2) During transition; 90-day disenrollment option.--An 
        election of coverage made under subsection (e)(2) and an 
        election to discontinue a MedicarePlus option under subsection 
        (e)(4) at any time shall take effect with the first calendar 
        month following the date on which the election is made.
            ``(3) Annual, coordinated election period and medisave 
        election.--An election of coverage made during an annual, 
        coordinated election period (as defined in subsection 
        (e)(3)(B)) in a year or for a high deductible/medisave product 
        shall take effect as of the first day of the following year.
            ``(4) Other periods.--An election of coverage made during 
        any other period under subsection (e)(5) shall take effect in 
        such manner as the Secretary provides in a manner consistent 
        (to the extent practicable) with protecting continuity of 
        health benefit coverage.
    ``(g) Effect of Election of MedicarePlus Option.--Subject to the 
provisions of section 1855(f), payments under a contract with a 
MedicarePlus organization under section 1857(a) with respect to an 
individual electing a MedicarePlus product offered by the organization 
shall be instead of the amounts which (in the absence of the contract) 
would otherwise be payable under parts A and B for items and services 
furnished to the individual.
    ``(h) Administration.--
            ``(1) In general.--This part and sections 1805 and 1876 
        shall be administered through an operating division (A) that is 
        established or identified by the Secretary in the Department of 
        Health and Human Services, (B) that is separate from the Health 
        Care Financing Administration, and (C) the primary function of 
        which is the administration of this part and such sections. The 
        director of such division shall be of equal pay and rank to 
        that of the individual responsible for overall administration 
        of parts A and B.
            ``(2) Transfer authority.--The Secretary shall transfer 
        such personnel, administrative support systems, assets, 
        records, funds, and other resources in the Health Care 
        Financing Administration to the operating division referred to 
        in paragraph (1) as are used in the administration of section 
        1876 and as may be required to implement the provisions 
        referred to in such paragraph promptly and efficiently.''.

SEC. 15002. MEDICAREPLUS PROGRAM.

    (a) In General.--Title XVIII is amended by redesignating part C as 
part D and by inserting after part B the following new part:

             ``Part C--Provisions Relating to MedicarePlus

``requirements for medicareplus organizations; high deductible/medisave 
                                products

    ``Sec. 1851. (a) MedicarePlus Organization Defined.--In this part, 
subject to the succeeding provisions of this section, the term 
`MedicarePlus organization' means a public or private entity that is 
certified under section 1857 as meeting the requirements of this part 
for such an organization.
    ``(b) Organized and Licensed Under State Law.--
            ``(1) In general.--A MedicarePlus organization shall be 
        organized and licensed under State law to offer health 
        insurance or health benefits coverage in each State in which it 
        offers a MedicarePlus product.
            ``(2) Exception for union and taft-hartley sponsors.--
        Paragraph (1) shall not apply to a MedicarePlus organization 
        that is a union sponsor or a Taft-Hartley sponsor (as defined 
        in section 1852(c)(4)).
            ``(3) Exception for provider-sponsored organizations.--
        Paragraph (1) shall not apply to a MedicarePlus organization 
        that is a provider-sponsored organization (as defined in 
        section 1854(a)) except to the extent provided under section 
        1857(c).
    ``(c) Prepaid Payment.--A MedicarePlus organization shall be 
compensated (except for deductibles, coinsurance, and copayments) for 
the provision of health care services to enrolled members by a payment 
which is paid on a periodic basis without regard to the date the health 
care services are provided and which is fixed without regard to the 
frequency, extent, or kind of health care service actually provided to 
a member.
    ``(d) Assumption of Full Financial Risk.--The MedicarePlus 
organization shall assume full financial risk on a prospective basis 
for the provision of the health care services (other than hospice care) 
for which benefits are required to be provided under section 
1852(a)(1), except that the organization--
            ``(1) may obtain insurance or make other arrangements for 
        the cost of providing to any enrolled member such services the 
        aggregate value of which exceeds $5,000 in any year,
            ``(2) may obtain insurance or make other arrangements for 
        the cost of such services provided to its enrolled members 
        other than through the organization because medical necessity 
        required their provision before they could be secured through 
        the organization,
            ``(3) may obtain insurance or make other arrangements for 
        not more than 90 percent of the amount by which its costs for 
        any of its fiscal years exceed 115 percent of its income for 
        such fiscal year, and
            ``(4) may make arrangements with physicians or other health 
        professionals, health care institutions, or any combination of 
        such individuals or institutions to assume all or part of the 
        financial risk on a prospective basis for the provision of 
        basic health services by the physicians or other health 
        professionals or through the institutions.
    ``(e) Provision Against Risk of Insolvency.--
            ``(1) In general.--Each MedicarePlus organization shall 
        meet standards under section 1856 relating to the financial 
        solvency and capital adequacy of the organization. Such 
        standards shall take into account the nature and type of 
        MedicarePlus products offered by the organization.
            ``(2) Treatment of union and taft-hartley sponsors.--An 
        entity that is a union sponsor or a Taft-Hartley sponsor is 
        deemed to meet the requirement of paragraph (1).
    ``(f) High Deductible/Medisave Product Defined.--
            ``(1) In general.--In this part, the term `high deductible/
        medisave product' means a MedicarePlus product that--
                    ``(A) provides reimbursement for at least the items 
                and services described in section 1852(a)(1) in a year 
                but only after the enrollee incurs countable expenses 
                (as specified under the product) equal to the amount of 
                a deductible (described in paragraph (2));
                    ``(B) counts as such expenses (for purposes of such 
                deductible) at least all amounts that would have been 
                payable under parts A and B or by the enrollee if the 
                enrollee had elected to receive benefits through the 
                provisions of such parts; and
                    ``(C) provides, after such deductible is met for a 
                year and for all subsequent expenses for benefits 
                referred to in subparagraph (A) in the year, for a 
                level of reimbursement that is not less than--
                            ``(i) 100 percent of such expenses, or
                            ``(ii) 100 percent of the amounts that 
                        would have been paid (without regard to any 
                        deductibles or coinsurance) under parts A and B 
                        with respect to such expenses,
                whichever is less. Such term does not include the 
                MedicarePlus MSA itself or any contribution into such 
                account.
            ``(2) Deductible.--The amount of deductible under a high 
        deductible/medisave product--
                    ``(A) for contract year 1997 shall be not more than 
                $10,000; and
                    ``(B) for a subsequent contract year shall be not 
                more than the maximum amount of such deductible for the 
                previous contract year under this paragraph increased 
                by the national average per capita growth rate under 
                section 1855(c)(3) for the year.
        If the amount of the deductible under subparagraph (B) is not a 
        multiple of $50, the amount shall be rounded to the nearest 
        multiple of $50.
    ``(g) Organizations Treated as MedicarePlus Organizations During 
Transition.--Any of the following organizations shall be considered to 
qualify as a MedicarePlus organization for contract years beginning 
before January 1, 1998:
            ``(1) Health maintenance organizations.--An organization 
        that is organized under the laws of any State and that is a 
        qualified health maintenance organization (as defined in 
        section 1310(d) of the Public Health Service Act), an 
        organization recognized under State law as a health maintenance 
        organization, or a similar organization regulated under State 
        law for solvency in the same manner and to the same extent as 
        such a health maintenance organization.
            ``(2) Licensed insurers.--An organization that is organized 
        under the laws of any State and--
                    ``(A) is licensed by a State agency as an insurer 
                for the offering of health benefit coverage, or
                    ``(B) is licensed by a State agency as a service 
                benefit plan,
        but only for individuals residing in an area in which the 
        organization is licensed to offer health insurance coverage.
            ``(3) Current risk-contractors.--An organization that is an 
        eligible organization (as defined in section 1876(b)) and that 
        has a risk-sharing contract in effect under section 1876 as of 
        the date of the enactment of this section.

``requirements relating to benefits, provision of services, enrollment, 
                              and premiums

    ``Sec. 1852. (a) Benefits Covered.--
            ``(1) In general.--Except as provided in subsection (b), in 
        section 1851(f)(1) with respect to high deductible/medisave 
        products, and in section 1853(a), each MedicarePlus product 
        offered under this part shall provide benefits for at least the 
        items and services for which benefits are available under parts 
        A and B consistent with the standards for coverage of such 
        items and services applicable under this title.
            ``(2) Organization as secondary payer.--Notwithstanding any 
        other provision of law, a MedicarePlus organization may (in the 
        case of the provision of items and services to an individual 
        under this part under circumstances in which payment under this 
        title is made secondary pursuant to section 1862(b)(2)) charge 
        or authorize the provider of such services to charge, in 
        accordance with the charges allowed under such law or policy--
                    ``(A) the insurance carrier, employer, or other 
                entity which under such law, plan, or policy is to pay 
                for the provision of such services, or
                    ``(B) such individual to the extent that the 
                individual has been paid under such law, plan, or 
                policy for such services.
    ``(b) Antidiscrimination.--A MedicarePlus organization may not 
deny, limit, or condition the coverage or provision of benefits under 
this part based on the health status, claims experience, receipt of 
health care, medical history, or lack of evidence of insurability, of 
an individual.
    ``(c) Guaranteed Issue and Renewal.--
            ``(1) In general.--Except as provided in this subsection, a 
        MedicarePlus organization shall provide that at any time during 
        which elections are accepted under section 1805 with respect to 
        a MedicarePlus product offered by the organization, the 
        organization will accept without restrictions individuals who 
        are eligible to make such election.
            ``(2) Priority.--If the Secretary determines that a 
        MedicarePlus organization, in relation to a MedicarePlus 
        product it offers, has a capacity limit and the number of 
        eligible individuals who elect the product under section 1805 
        exceeds the capacity limit, the organization may limit the 
        election of individuals of the product under such section but 
        only if priority in election is provided--
                    ``(A) first to such individuals as have elected the 
                product at that time, and
                    ``(B) then to other such individuals in such a 
                manner that does not discriminate among the individuals 
                (who seek to elect the product) on a basis described in 
                paragraph (1).
            ``(3) Limitation on termination of election.--
                    ``(A) In general.--Subject to subparagraph (B), a 
                MedicarePlus organization may not for any reason 
                terminate the election of any individual under section 
                1805 for a MedicarePlus product it offers.
                    ``(B) Basis for termination of election.--A 
                MedicarePlus organization may terminate an individual's 
                election under section 1805 with respect to a 
                MedicarePlus product it offers if--
                            ``(i) any premiums required with respect to 
                        such product are not paid on a timely basis 
                        (consistent with standards under section 1856 
                        that provide for a grace period for late 
                        payment of premiums),
                            ``(ii) the individual has engaged in 
                        disruptive behavior (as specified in such 
                        standards), or
                            ``(iii) the product is terminated with 
                        respect to all individuals under this part.
                Any individual whose election is so terminated is 
                deemed to have elected the Non-MedicarePlus option (as 
                defined in section 1805(a)(3)(A)).
            ``(D) Organization obligation with respect to election 
        forms.--Pursuant to a contract under section 1858, each 
        MedicarePlus organization receiving an election form under 
        section 1805(c)(2) shall transmit to the Secretary (at such 
        time and in such manner as the Secretary may specify) a copy of 
        such form or such other information respecting the election as 
        the Secretary may specify.
            ``(4) Special rules for limited enrollment medicareplus 
        organizations.--
                    ``(A) Unions.--
                            ``(i) In general.--Subject to subparagraph 
                        (D), a union sponsor (as defined in subsection 
                        (b)(2)) shall limit eligibility of enrollees 
                        under this part for MedicarePlus products it 
                        offers to individuals who are members of the 
                        sponsor and affiliated with the sponsor through 
                        an employment relationship with any employer or 
                        are the spouses of such members.
                            ``(ii) Union sponsor.--In this part and 
                        section 1805, the term `union sponsor' means an 
                        employee organization in relation to a group 
                        health plan that is established or maintained 
                        by the organization other than pursuant to a 
                        collective bargaining agreement.
                    ``(B) Taft-hartley sponsors.--
                            ``(i) In general.--Subject to subparagraph 
                        (D), a MedicarePlus organization that is a 
                        Taft-Hartley sponsor (as defined in clause 
                        (ii)) shall limit eligibility of enrollees 
                        under this part for MedicarePlus products it 
                        offers to individuals who are entitled to 
                        obtain benefits through such products under the 
                        terms of an applicable collective bargaining 
                        agreement.
                            ``(ii) Taft-hartley sponsor.--In this part 
                        and section 1805, the term `Taft-Hartley 
                        sponsor' means, in relation to a group health 
                        plan that is established or maintained by two 
                        or more employers or jointly by one or more 
                        employers and one or more employee 
                        organizations, the association, committee, 
                        joint board of trustees, or other similar group 
                        of representatives of parties who establish or 
                        maintain the plan.
                    ``(C) Qualified associations.--
                            ``(i) In general.--Subject to subparagraph 
                        (D), a MedicarePlus organization that is a 
                        qualified association (as defined in clause 
                        (iii)) shall limit eligibility of individuals 
                        under this part for products it offers to 
                        individuals who are members of the association 
                        (or who are spouses of such individuals).
                            ``(ii) Limitation on termination of 
                        coverage.--Such a qualifying association 
                        offering a MedicarePlus product to an 
                        individual may not terminate coverage of the 
                        individual on the basis that the individual is 
                        no longer a member of the association except 
                        pursuant to a change of election during an open 
                        election period occurring on or after the date 
                        of the termination of membership.
                            ``(iii) Qualified association.--In this 
                        part and section 1805, the term `qualified 
                        association' means an association, religious 
                        fraternal organization, or other organization 
                        (which may be a trade, industry, or 
                        professional association, a chamber of 
                        commerce, or a public entity association) that 
                        the Secretary finds--
                                    ``(I) has been formed for purposes 
                                other than the sale of any health 
                                insurance and does not restrict 
                                membership based on the health status, 
                                claims experience, receipt of health 
                                care, medical history, or lack of 
                                evidence of insurability, of an 
                                individual,
                                    ``(II) does not exist solely or 
                                principally for the purpose of selling 
                                insurance, and
                                    ``(III) has at least 1,000 
                                individual members or 200 employer 
                                members.
                        Such term includes a subsidiary or corporation 
                        that is wholly owned by one or more qualified 
                        organizations.
                    ``(D) Limitation.--Rules of eligibility to carry 
                out the previous subparagraphs of this paragraph shall 
                not have the effect of denying eligibility to 
                individuals on the basis of health status, claims 
                experience, receipt of health care, medical history, or 
                lack of evidence of insurability.
                    ``(E) Limited enrollment medicareplus 
                organization.--In this part and section 1805, the term 
                `limited enrollment MedicarePlus organization' means a 
                MedicarePlus organization that is a union sponsor, 
                Taft-Hartley sponsor, or a qualified association.
                    ``(F) Employer, etc.--In this paragraph, the terms 
                `employer', `employee organization', and `group health 
                plan' have the meanings given such terms for purposes 
                of part 6 of subtitle B of title I of the Employee 
                Retirement Income Security Act of 1974.
    ``(d) Submission and Charging of Premiums.--
            ``(1) In general.--Each MedicarePlus organization shall 
        file with the Secretary each year, in a form and manner and at 
        a time specified by the Secretary--
                    ``(A) the amount of the monthly premiums for 
                coverage under each MedicarePlus product it offers 
                under this part in each payment area (as determined for 
                purposes of section 1855) in which the product is being 
                offered; and
                    ``(B) the enrollment capacity in relation to the 
                product in each such area.
            ``(2) Amounts of premiums charged.--The amount of the 
        premium charged by a MedicarePlus organization for a 
        MedicarePlus product offered in a payment area to an individual 
        under this part shall be equal to the amount (if any) by 
        which--
                    ``(A) the amount of the premium for the product for 
                the area and period involved, as submitted under 
                paragraph (1), exceeds
                    ``(B) \1/12\ of the annual MedicarePlus capitation 
                rate specified in section 1855(b)(2) for the area and 
                period involved.
            ``(3) Uniform premium.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the premiums charged by a 
                MedicarePlus organization under this part may not vary 
                among individuals who reside in the same payment area.
                    ``(B) Exception for high deductible/medisave 
                products.--A MedicarePlus organization shall establish 
                premiums for any high deductible/medisave product it 
                offers in a payment area in a manner consistent with 
                and based on each of the risk adjustment categories 
                established for purposes of determining the amount of 
                the payment to MedicarePlus organizations under section 
                1855(b)(1).
            ``(4) Terms and conditions of imposing premiums.--Each 
        MedicarePlus organization shall permit the payment of monthly 
        premiums on a monthly basis and may terminate election of 
        individuals for a MedicarePlus product for failure to make 
        premium payments only in accordance with subsection (c)(3)(B).
    ``(e) Requirement for Additional Benefits, Part B Premium Discount 
Rebates, or Both.--
            ``(1) Requirement.--
                    ``(A) In general.--Each MedicarePlus organization 
                (in relation to a MedicarePlus product it offers) shall 
                provide that if there is an excess amount (as defined 
                in subparagraph (B)) for the product for a contract 
                year, subject to the succeeding provisions of this 
                subsection, the organization shall provide to 
                individuals such additional benefits (as the 
                organization may specify), a monetary rebate (paid on a 
                monthly basis) of the part B monthly premium, or a 
                combination thereof, in a total value which is at least 
                equal to the adjusted excess amount (as defined in 
                subparagraph (C)).
                    ``(B) Excess amount.--For purposes of this 
                paragraph, the `excess amount', for an organization for 
                a product, is the amount (if any) by which--
                            ``(i) the average of the capitation 
                        payments made to the organization under this 
                        part for the product at the beginning of 
                        contract year, exceeds
                            ``(ii) the actuarial value of the minimum 
                        benefits described in subsection (a)(1) under 
                        the product for individuals under this part, as 
                        determined based upon an adjusted community 
                        rate described in paragraph (5).
                    ``(C) Adjusted excess amount.--For purposes of this 
                paragraph, the `adjusted excess amount', for an 
                organization for a product, is the excess amount 
                reduced to reflect any amount withheld and reserved for 
                the organization for the year under paragraph (3).
                    ``(D) No application to high deductible/medisave 
                product.--Subparagraph (A) shall not apply to a high 
                deductible/medisave product.
                    ``(E) Uniform application.--This paragraph shall be 
                applied uniformly for all enrollees for a product in a 
                service area.
                    ``(F) Construction.--Nothing in this subsection 
                shall be construed as preventing a MedicarePlus 
                organization from providing health care benefits that 
                are in addition to the benefits otherwise required to 
                be provided under this paragraph and from imposing a 
                premium for such additional benefits.
            ``(2) Limitation on amount of part b premium discount 
        rebate.--In no case shall the amount of a part B premium 
        discount rebate under paragraph (1)(A) exceed, with respect to 
        a month, the amount of premiums imposed under part B (not 
        taking into account section 1839(b) (relating to penalty for 
        late enrollment) or 1839(h) (relating to affluence testing)), 
        for the individual for the month. Except as provided in the 
        previous sentence, a MedicarePlus organization is not 
authorized to provide for cash or other monetary rebates as an 
inducement for enrollment or otherwise.
            ``(3) Stabilization fund.--A MedicarePlus organization may 
        provide that a part of the value of an excess actuarial amount 
        described in paragraph (1) be withheld and reserved in the 
        Federal Hospital Insurance Trust Fund and in the Federal 
        Supplementary Medical Insurance Trust Fund (in such proportions 
        as the Secretary determines to be appropriate) by the Secretary 
        for subsequent annual contract periods, to the extent required 
        to stabilize and prevent undue fluctuations in the additional 
        benefits and rebates offered in those subsequent periods by the 
        organization in accordance with such paragraph. Any of such 
        value of amount reserved which is not provided as additional 
        benefits described in paragraph (1)(A) to individuals electing 
        the MedicarePlus product in accordance with such paragraph 
        prior to the end of such periods, shall revert for the use of 
        such trust funds.
            ``(4) Determination based on insufficient data.--For 
        purposes of this subsection, if the Secretary finds that there 
        is insufficient enrollment experience (including no enrollment 
        experience in the case of a provider-sponsored organization) to 
        determine an average of the capitation payments to be made 
        under this part at the beginning of a contract period, the 
        Secretary may determine such an average based on the enrollment 
        experience of other contracts entered into under this part.
            ``(5) Adjusted community rate.--
                    ``(A) In general.--For purposes of this subsection, 
                subject to subparagraph (B), the term `adjusted 
                community rate' for a service or services means, at the 
                election of a MedicarePlus organization, either--
                            ``(i) the rate of payment for that service 
                        or services which the Secretary annually 
                        determines would apply to an individual 
                        electing a MedicarePlus product under this part 
                        if the rate of payment were determined under a 
                        `community rating system' (as defined in 
                        section 1302(8) of the Public Health Service 
                        Act, other than subparagraph (C)), or
                            ``(ii) such portion of the weighted 
                        aggregate premium, which the Secretary annually 
                        estimates would apply to such an individual, as 
                        the Secretary annually estimates is 
                        attributable to that service or services,
                but adjusted for differences between the utilization 
                characteristics of the individuals electing coverage 
                under this part and the utilization characteristics of 
                the other enrollees with the organization (or, if the 
                Secretary finds that adequate data are not available to 
                adjust for those differences, the differences between 
                the utilization characteristics of individuals 
                selecting other MedicarePlus coverage, or individuals 
                in the area, in the State, or in the United States, 
                eligible to elect MedicarePlus coverage under this part 
                and the utilization characteristics of the rest of the 
                population in the area, in the State, or in the United 
                States, respectively).
                    ``(B) Special rule for provider-sponsored 
                organizations.--In the case of a MedicarePlus 
                organization that is a provider-sponsored organization, 
                the adjusted community rate under subparagraph (A) for 
                a MedicarePlus product may be computed (in a manner 
                specified by the Secretary) using data in the general 
                commercial marketplace or (during a transition period) 
                based on the costs incurred by the organization in 
                providing such a product.
    ``(f) Rules Regarding Physician Participation.--
            ``(1) Procedures.--Each MedicarePlus organization shall 
        establish reasonable procedures relating to the participation 
        (under an agreement between a physician and the organization) 
        of physicians under MedicarePlus products offered by the 
        organization under this part. Such procedures shall include--
                    ``(A) providing notice of the rules regarding 
                participation,
                    ``(B) providing written notice of participation 
                decisions that are adverse to physicians, and
                    ``(C) providing a process within the organization 
                for appealing adverse decisions, including the 
                presentation of information and views of the physician 
                regarding such decision.
            ``(2) Consultation in medical policies.--A MedicarePlus 
        organization shall consult with physicians who have entered 
        into participation agreements with the organization regarding 
        the organization's medical policy, quality, and medical 
        management procedures.
            ``(3) Limitations on physician incentive plans.--
                    ``(A) In general.--Each MedicarePlus organization 
                may not operate any physician incentive plan (as 
                defined in subparagraph (B)) unless the following 
                requirements are met:
                            ``(i) No specific payment is made directly 
                        or indirectly under the plan to a physician or 
                        physician group as an inducement to reduce or 
                        limit medically necessary services provided 
                        with respect to a specific individual enrolled 
                        with the organization.
                            ``(ii) If the plan places a physician or 
                        physician group at substantial financial risk 
                        (as determined by the Secretary) for services 
                        not provided by the physician or physician 
                        group, the organization--
                                    ``(I) provides stop-loss protection 
                                for the physician or group that is 
                                adequate and appropriate, based on 
                                standards developed by the Secretary 
                                that take into account the number of 
                                physicians placed at such 
substantial financial risk in the group or under the plan and the 
number of individuals enrolled with the organization who receive 
services from the physician or the physician group, and
                                    ``(II) conducts periodic surveys of 
                                both individuals enrolled and 
                                individuals previously enrolled with 
                                the organization to determine the 
                                degree of access of such individuals to 
                                services provided by the organization 
                                and satisfaction with the quality of 
                                such services.
                            ``(iii) The organization provides the 
                        Secretary with descriptive information 
                        regarding the plan, sufficient to permit the 
                        Secretary to determine whether the plan is in 
                        compliance with the requirements of this 
                        subparagraph.
                    ``(B) Physician incentive plan defined.--In this 
                paragraph, the term `physician incentive plan' means 
                any compensation arrangement between a MedicarePlus 
                organization and a physician or physician group that 
                may directly or indirectly have the effect of reducing 
                or limiting services provided with respect to 
                individuals enrolled with the organization under this 
                part.
    ``(g) Provision of Information.--A MedicarePlus organization shall 
provide the Secretary with such information on the organization and 
each MedicarePlus product it offers as may be required for the 
preparation of the information booklet described in section 
1805(d)(2)(A).
    ``(h) Coordinated Acute and Long-term Care Benefits Under a 
MedicarePlus Product.--Nothing in this part shall be construed as 
preventing a State from coordinating benefits under its MediGrant 
program under title XXI with those provided under a MedicarePlus 
product in a manner that assures continuity of a full-range of acute 
care and long-term care services to poor elderly or disabled 
individuals eligible for benefits under this title and under such 
program.

                     ``patient protection standards

    ``Sec. 1853. (a) Disclosure to Enrollees.--A MedicarePlus 
organization shall disclose in clear, accurate, and standardized form, 
information regarding all of the following for each MedicarePlus 
product it offers:
            ``(1) Benefits under the MedicarePlus product offered, 
        including exclusions from coverage and, if it is a high 
        deductible/medisave product, a comparison of benefits under 
        such a product with benefits under other MedicarePlus products.
            ``(2) Rules regarding prior authorization or other review 
        requirements that could result in nonpayment.
            ``(3) Potential liability for cost-sharing for out-of-
        network services.
            ``(4) The number, mix, and distribution of participating 
        providers.
            ``(5) The financial obligations of the enrollee, including 
        premiums, deductibles, co-payments, and maximum limits on out-
        of-pocket losses for items and services (both in and out of 
        network).
            ``(6) Statistics on enrollee satisfaction with the product 
        and organization, including rates of reenrollment.
            ``(7) Enrollee rights and responsibilities, including the 
        grievance process provided under subsection (f).
            ``(8) A statement that the use of the 911 emergency 
        telephone number is appropriate in emergency situations and an 
        explanation of what constitutes an emergency situation.
Such information shall be disclosed to each enrollee under this part at 
the time of enrollment and at least annually thereafter.
    ``(b) Access to Services.--
            ``(1) In general.--A MedicarePlus organization offering a 
        MedicarePlus product may restrict the providers from whom the 
        benefits under the product are provided so long as--
                    ``(A) the organization makes such benefits 
                available and accessible to each individual electing 
                the product within the product service area with 
                reasonable promptness and in a manner which assures 
                continuity in the provision of benefits;
                    ``(B) when medically necessary the organization 
                makes such benefits available and accessible 24 hours a 
                day and 7 days a week;
                    ``(C) the product provides for reimbursement with 
                respect to services which are covered under 
                subparagraphs (A) and (B) and which are provided to 
                such an individual other than through the organization, 
                if--
                            ``(i) the services were medically necessary 
                        and immediately required because of an 
                        unforeseen illness, injury, or condition, and
                            ``(ii) it was not reasonable given the 
                        circumstances to obtain the services through 
                        the organization; and
                    ``(D) coverage is provided for emergency services 
                (as defined in paragraph (4)) without regard to prior 
                authorization or the emergency care provider's 
                contractual relationship with the organization.
            ``(2) Minimum payment levels where providing point-of-
        service coverage.--If a MedicarePlus product provides benefits 
        for items and services (not described in paragraph (1)(C)) 
        through a network of providers and also permits payment to be 
        made under the product for such items and services not provided 
        through such a network, the payment level under the product 
        with respect to such items and services furnished outside the 
        network shall be at least 70 percent (or, if the effective 
        cost-sharing rate is 50 percent, at least 35 percent) of the 
        lesser of--
                    ``(A) the payment basis (determined without regard 
                to deductibles and cost-sharing) that would have 
applied for such items and services under parts A and B, or
                    ``(B) the amount charged by the entity furnishing 
                such items and services.
            ``(3) Protection of enrollees for certain out-of-network 
        services.--
                    ``(A) Participating providers.--In the case of 
                physicians' services or renal dialysis services 
                described in subparagraph (C) which are furnished by a 
                participating physician or provider of services or 
                renal dialysis facility to an individual enrolled with 
                a MedicarePlus organization under this section, the 
                applicable participation agreement is deemed to provide 
                that the physician or provider of services or renal 
                dialysis facility will accept as payment in full from 
                the organization the amount that would be payable to 
                the physician or provider of services or renal dialysis 
                facility under part B and from the individual under 
                such part, if the individual were not enrolled with 
                such an organization under this part.
                    ``(B) Nonparticipating providers.--In the case of 
                physicians' services described in subparagraph (C) 
                which are furnished by a nonparticipating physician, 
                the limitations on actual charges for such services 
                otherwise applicable under part B (to services 
                furnished by individuals not enrolled with a 
                MedicarePlus organization under this section) shall 
                apply in the same manner as such limitations apply to 
                services furnished to individuals not enrolled with 
                such an organization.
                    ``(C) Services described.--The physicians' services 
                or renal dialysis services described in this 
                subparagraph are physicians' services or renal dialysis 
                services which are furnished to an enrollee of a 
                MedicarePlus organization under this part by a 
                physician, provider of services, or renal dialysis 
                facility who is not under a contract with the 
                organization.
            ``(4) Definition of emergency services.--In this 
        subsection, the term `emergency services' means, with respect 
        to an individual enrolled with an organization, covered 
        inpatient and outpatient services that--
                    ``(A) are furnished by an appropriate source other 
                than the organization,
                    ``(B) are needed immediately because of an injury 
                or sudden illness, and
                    ``(C) are needed because the time required to reach 
                the organization's providers or suppliers would have 
                meant risk of permanent damage to the patient's health.
    ``(c) Confidentiality and Accuracy of Enrollee Records.--Each 
MedicarePlus organization shall establish procedures--
            ``(1) to safeguard the privacy of individually identifiable 
        enrollee information, and
            ``(2) to maintain accurate and timely medical records for 
        enrollees.
    ``(d) Quality Assurance Program.--
            ``(1) In general.--Each MedicarePlus organization must have 
        arrangements, established in accordance with regulations of the 
        Secretary, for an ongoing quality assurance program for health 
        care services it provides to such individuals.
            ``(2) Elements of program.--The quality assurance program 
        shall--
                    ``(A) stress health outcomes;
                    ``(B) provide for the establishment of written 
                protocols for utilization review, based on current 
                standards of medical practice;
                    ``(C) provide review by physicians and other health 
                care professionals of the process followed in the 
                provision of such health care services;
                    ``(D) monitors and evaluates high volume and high 
                risk services and the care of acute and chronic 
                conditions;
                    ``(E) evaluates the continuity and coordination of 
                care that enrollees receive,
                    ``(F) has mechanisms to detect both 
                underutilization and overutilization of services,
                    ``(G) after identifying areas for improvement, 
                establishes or alters practice parameters,
                    ``(H) takes action to improve quality and assesses 
                the effectiveness of such action through systematic 
                follow-up,
                    ``(I) makes available information on quality and 
                outcomes measures to facilitate beneficiary comparison 
                and choice of health coverage options (in such form and 
                on such quality and outcomes measures as the Secretary 
                determines to be appropriate), and
                    ``(J) is evaluated on an ongoing basis as to its 
                effectiveness.
    ``(e) Coverage Determinations.--
            ``(1) Decisions on nonemergency care.--A MedicarePlus 
        organization shall make determinations regarding authorization 
        requests for nonemergency care on a timely basis, depending on 
        the urgency of the situation.
            ``(2) Appeals.--
                    ``(A) In general.--Appeals from a determination of 
                an organization denying coverage shall be decided 
                within 30 days of the date of receipt of medical 
                information, but not later than 60 days after the date 
                of the decision.
                    ``(B) Physician decision on certain appeals.--
                Appeal decisions relating to a determination to deny 
                coverage based on a lack of medical necessity shall be 
                made only by a physician.
                    ``(C) Emergency cases.--Appeals from such a 
                determination involving a life-threatening or emergency 
                situation shall be decided on an expedited basis.
    ``(f) Grievances and Appeals.--
            ``(1) Grievance mechanism.--Each MedicarePlus organization 
        must provide meaningful procedures for hearing and resolving 
        grievances between the organization (including any entity or 
        individual through which the organization provides health care 
        services) and enrollees under this part.
            ``(2) Appeals.--An enrollee with an organization under this 
        part who is dissatisfied by reason of the enrollee's failure to 
        receive any health service to which the enrollee believes is 
        entitled and at no greater charge than the enrollee believes is 
        required to pay is entitled, if the amount in controversy is 
        $100 or more, to a hearing before the Secretary to the same 
        extent as is provided in section 205(b), and in any such 
        hearing the Secretary shall make the organization a party. If 
        the amount in controversy is $1,000 or more, the individual or 
        organization shall, upon notifying the other party, be entitled 
        to judicial review of the Secretary's final decision as 
        provided in section 205(g), and both the individual and the 
        organization shall be entitled to be parties to that judicial 
        review. In applying sections 205(b) and 205(g) as provided in 
        this subparagraph, and in applying section 205(l) thereto, any 
        reference therein to the Commissioner of Social Security or the 
        Social Security Administration shall be considered a reference 
        to the Secretary or the Department of Health and Human 
        Services, respectively.
    ``(g) Information on Advance Directives.--Each MedicarePlus 
organization shall meet the requirement of section 1866(f) (relating to 
maintaining written policies and procedures respecting advance 
directives).
    ``(h) Approval of Marketing Materials.--
            ``(1) Submission.--Each MedicarePlus organization may not 
        distribute marketing materials unless--
                    ``(A) at least 45 days before the date of 
                distribution the organization has submitted the 
                material to the Secretary for review, and
                    ``(B) the Secretary has not disapproved the 
                distribution of such material.
            ``(2) Review.--The standards established under section 1856 
        shall include guidelines for the review of all such material 
        submitted and under such guidelines the Secretary shall 
        disapprove such material if the material is materially 
        inaccurate or misleading or otherwise makes a material 
        misrepresentation.
            ``(3) Deemed approval (1-stop shopping).--In the case of 
        material that is submitted under subparagraph (A)(i) to the 
        Secretary or a regional office of the Department of Health and 
        Human Services and the Secretary or the office has not 
        disapproved the distribution of marketing materials under 
        subparagraph (A)(ii) with respect to a MedicarePlus product in 
        an area, the Secretary is deemed not to have disapproved such 
        distribution in all other areas covered by the product and 
        organization.
            ``(4) Prohibition of certain marketing practices.--Each 
        MedicarePlus organization shall conform to fair marketing 
        standards in relation to MedicarePlus products offered under 
        this part, included in the standards established under section 
        1856. Such standards shall include a prohibition against an 
        organization (or agent of such an organization) completing any 
        portion of any election form under section 1805 on behalf of 
        any individual.

                   ``provider-sponsored organizations

    ``Sec. 1854. (a) Provider-Sponsored Organization Defined.--
            ``(1) In general.--In this part, the term `provider-
        sponsored organization' means a public or private entity that 
        (in accordance with standards established under subsection (b)) 
        is a provider, or group of affiliated providers, that provides 
        a substantial proportion (as defined by the Secretary under 
        such standards) of the health care items and services under the 
        contract under this part directly through the provider or 
        affiliated group of providers.
            ``(2) Substantial proportion.--In defining what is a 
        `substantial proportion' for purposes of paragraph (1), the 
        Secretary--
                    ``(A) shall take into account the need for such an 
                organization to assume responsibility for a substantial 
                proportion of services in order to assure financial 
                stability and the practical difficulties in such an 
                organization integrating a very wide range of service 
                providers; and
                    ``(B) may vary such proportion based upon relevant 
                differences among organizations, such as their location 
                in an urban or rural area.
            ``(3) Affiliation.--For purposes of this subsection, a 
        provider is `affiliated' with another provider if, through 
        contract, ownership, or otherwise--
                    ``(A) one provider, directly or indirectly, 
                controls, is controlled by, or is under common control 
                with the other,
                    ``(B) each provider is a participant in a lawful 
                combination under which each provider shares, directly 
                or indirectly, substantial financial risk in connection 
                with their operations,
                    ``(C) both providers are part of a controlled group 
                of corporations under section 1563 of the Internal 
                Revenue Code of 1986, or
                    ``(D) both providers are part of an affiliated 
                service group under section 414 of such Code.
            ``(4) Control.--For purposes of paragraph (3), control is 
        presumed to exist if one party, directly or indirectly, owns, 
        controls, or holds the power to vote, or proxies for, not less 
        than 51 percent of the voting rights or governance rights of 
        another.
    ``(b) Process for Establishing Standards for Provider-Sponsored 
Organizations.--For process of establishing of standards for provider-
sponsored organizations, see section 1856(c).
    ``(c) Process for State Certification of Provider-Sponsored 
Organizations.--For process of State certification of provider-
sponsored organizations, see section 1857(c).
    ``(d) Conditions for Preemption From State Insurance Licensing 
Requirements.--
            ``(1) In general.--Except as provided in paragraph (3), 
        notwithstanding any other provision of law, in the case of a 
        provider-sponsored organization with respect to a State that--
                    ``(A) only enrolls in the State individuals who are 
                entitled to benefits under this title, and
                    ``(B) cannot do business as a MedicarePlus 
                organization in the State because that State by law, 
                regulation, or otherwise--
                            ``(i) requires that the organization meet 
                        requirements for insurers of health services or 
                        health maintenance organizations doing business 
                        in the State with respect to initial 
                        capitalization and establishment of financial 
                        reserves against insolvency, or
                            ``(ii) imposes requirements that would 
                        prohibit the entity from complying with the 
                        applicable requirements of this part,
        such requirements shall not apply to the organization so as to 
        prevent it from operating as a MedicarePlus organization under 
        this part.
            ``(2) Not treating certain individuals as enrollees.--For 
        purposes of paragraph (1)(A), an individual who--
                    ``(A) is a participant or beneficiary of an 
                employee welfare benefit plan to which section 514(a) 
                of the Employee Retirement Income Security Act of 1974 
                applies, and
                    ``(B) receives health services from a provider-
                sponsored organization under an arrangement with the 
                plan,
        shall be considered to be enrolled with the employee welfare 
        benefit plan and shall not be considered to be enrolled with 
        the organization.
            ``(3) Treatment of states with approved certification 
        programs.--
                    ``(A) In general.--In the case of an organization 
                that is operating in an approved State (as defined in 
                subparagraph (C)), the provisions of paragraph (1) and 
                section 1851(b) shall not apply.
                    ``(B) Effective date.--Subparagraph (A) shall 
                apply--
                            ``(i) in the case of an entity that has a 
                        contract under this part in effect as of the 
                        date the State becomes an approved State, at 
                        the end of the first contract year that begins 
                        after such date, or
                            ``(ii) in the case of any other entity, for 
                        contract years that begin after such date.
                    ``(C) Approved state defined.--In this paragraph, 
                the term `approved State' means a State with a 
                certification program approved under section 1857(c) 
                with respect to provider-sponsored organizations in the 
                State.

                ``payments to medicareplus organizations

    ``Sec. 1855. (a) Payments.--
            ``(1) In general.--Under a contract under section 1858 the 
        Secretary shall pay to each MedicarePlus organization, with 
        respect to coverage of an individual under this part in a 
        payment area for a month, an amount equal to the monthly 
        adjusted MedicarePlus capitation rate (as provided under 
        subsection (b)) with respect to that individual for that area.
            ``(2) Annual announcement.--The Secretary shall annually 
        determine, and shall announce (in a manner intended to provide 
        notice to interested parties) not later than September 7 before 
        the calendar year concerned--
                    ``(A) the annual MedicarePlus capitation rate for 
                each payment area for the year, and
                    ``(B) the factors to be used in adjusting such 
                rates under subsection (b) for payments for months in 
                that year.
            ``(3) Advance notice of methodological changes.--At least 
        45 days before making the announcement under paragraph (2) for 
        a year, the Secretary shall provide for notice to MedicarePlus 
organizations of proposed changes to be made in the methodology or 
benefit coverage assumptions from the methodology and assumptions used 
in the previous announcement and shall provide such organizations an 
opportunity to comment on such proposed changes.
            ``(4) Explanation of assumptions.--In each announcement 
        made under paragraph (2) for a year, the Secretary shall 
        include an explanation of the assumptions (including any 
        benefit coverage assumptions) and changes in methodology used 
        in the announcement in sufficient detail so that MedicarePlus 
        organizations can compute monthly adjusted MedicarePlus 
        capitation rates for classes of individuals located in each 
        payment area which is in whole or in part within the service 
        area of such an organization.
    ``(b) Monthly Adjusted MedicarePlus Capitation Rate.--
            ``(1) In general.--For purposes of this section, the 
        `monthly adjusted MedicarePlus capitation rate' under this 
        subsection, for a month in a year for an individual in a 
        payment area (specified under paragraph (3)) and in a class 
        (established under paragraph (4)), is \1/12\ of the annual 
        MedicarePlus capitation rate specified in paragraph (2) for 
        that area for the year, adjusted to reflect the actuarial value 
        of benefits under this title with respect to individuals in 
        such class compared to the national average for individuals in 
        all classes.
            ``(2) Annual medicareplus capitation rates.--For purposes 
        of this section, the annual MedicarePlus capitation rate for a 
        payment area for a year is equal to the annual MedicarePlus 
        capitation rate for the area for the previous year (or, in the 
        case of 1996, the average annual per capita rate of payment 
        described in section 1876(a)(1)(C) for the area for 1995) 
        increased by the per capita growth rate for that area and year 
        (as determined under subsection (c)).
            ``(3) Payment area defined.--In this section, the term 
        `payment area' means a county (or equivalent area specified by 
        the Secretary), except that in the case of the population group 
        described in paragraph (5)(C), the payment area shall be each 
        State.
            ``(4) Classes.--
                    ``(A) In general.--For purposes of this section, 
                the Secretary shall define appropriate classes of 
                enrollees, consistent with paragraph (5), based on age, 
                gender, welfare status, institutionalization, and such 
                other factors as the Secretary determines to be 
                appropriate, so as to ensure actuarial equivalence. The 
                Secretary may add to, modify, or substitute for such 
                classes, if such changes will improve the determination 
                of actuarial equivalence.
                    ``(B) Research.--The Secretary shall conduct such 
                research as may be necessary to provide for greater 
                accuracy in the adjustment of capitation rates under 
                this subsection. Such research may include research 
                into the addition or modification of classes under 
                subparagraph (A). The Secretary shall submit to 
                Congress a report on such research by not later than 
                January 1, 1997.
            ``(5) Division of medicare population.--In carrying out 
        paragraph (4) and this section, the Secretary shall recognize 
        the following separate population groups:
                    ``(A) Aged.--Individuals 65 years of age or older 
                who are not described in subparagraph (C).
                    ``(B) Disabled.--Disabled individuals who are under 
                65 years of age and not described in subparagraph (C).
                    ``(C) Individuals with end stage renal disease.--
                Individuals who are determined to have end stage renal 
                disease.
    ``(c) Per Capita Growth Rates.--
            ``(1) For 1996.--
                    ``(A) In general.--For purposes of this section and 
                subject to subparagraph (B), the per capita growth 
                rates for 1996, for a payment area assigned to a 
                service utilization cohort under subsection (d), shall 
                be the following:
                            ``(i) Lowest service utilization cohort.--
                        For areas assigned to the lowest service 
                        utilization cohort, 9.7 percent.
                            ``(ii) Lower service utilization cohort.--
                        For areas assigned to the lower service 
                        utilization cohort, 8.0 percent.
                            ``(iii) Median service utilization 
                        cohort.--For areas assigned to the median 
                        service utilization cohort, 5.3 percent.
                            ``(iv) Higher service utilization cohort.--
                        For areas assigned to the higher service 
                        utilization cohort, 4.7 percent.
                            ``(v) Highest service utilization cohort.--
                        For areas assigned to the highest service 
                        utilization cohort, 4.0 percent.
                    ``(B) Budget neutral adjustment.--The Secretary 
                shall adjust the per capita growth rates specified in 
                subparagraph (A) for all the areas by such uniform 
                factor as may be necessary to assure that the total 
                capitation payments under this section during 1996 are 
                the same as the amount such payments would have been if 
                the per capita growth rate for all such areas for 1996 
                were equal to the national average per capita growth 
                rate, specified in paragraph (3) for 1996.
            ``(2) For subsequent years.--
                    ``(A) In general.--For purposes of this section and 
                subject to subparagraph (B), the Secretary shall 
                compute a per capita growth rate for each year after 
                1996, for each payment area as assigned to a service 
                utilization cohort under subsection (d), consistent 
                with the following rules:
                            ``(i) Median service utilization cohort set 
                        at national average per capita growth rate.--
                        The per capita growth rate for areas assigned 
                        to the median service utilization cohort for 
                        the year shall be the national average per 
                        capita growth rate for the year (as specified 
                        under paragraph (3)).
                            ``(ii) Highest service utilization cohort 
                        set at 75 percent of national average per 
                        capita growth rate.--The per capita growth rate 
                        for areas assigned to the highest service 
                        utilization cohort for the year shall be 75 
                        percent of the national average per capita 
                        growth rate for the year.
                            ``(iii) Lowest service utilization cohort 
                        set at 187.5 percent of national average per 
                        capita growth rate.--The per capita growth rate 
                        for areas assigned to the lowest service 
                        utilization cohort for the year shall be 187.5 
                        percent of the national average per capita 
                        growth rate for the year.
                            ``(iv) Lower service utilization cohort set 
                        at 150 percent of national average per capita 
                        growth rate.--
                                    ``(I) In general.--Subject to 
                                subclause (II), the per capita growth 
                                rate for areas assigned to the lower 
                                service utilization cohort for the year 
                                shall be 150 percent of the national 
                                average per capita growth rate for the 
                                year.
                                    ``(II) Adjustment.--If the 
                                Secretary has established under clause 
                                (v) the per capita growth rate for 
                                areas assigned to the higher service 
                                utilization cohort for the year at 75 
                                percent of the national average per 
                                capita growth rate, the Secretary may 
                                provide for a reduced per capita growth 
                                rate under subclause (I) to the extent 
                                necessary to comply with subparagraph 
                                (B).
                            ``(v) Higher service utilization cohort.--
                        The per capita growth rate for areas assigned 
                        to the higher service utilization cohort for 
                        set year shall be such percent (not less than 
                        75 percent) of the national average per capita 
                        growth rate, as the Secretary may determine 
                        consistent with subparagraph (B).
                    ``(B) Average per capita growth rate at national 
                average to assure budget neutrality.--The Secretary 
                shall compute per capita growth rates for a year under 
                subparagraph (A) in a manner so that the weighted 
                average per capita growth rate for all areas for the 
                year (weighted to reflect the number of medicare 
                beneficiaries in each area) is equal to the national 
                average per capita growth rate under paragraph (3) for 
                the year.
            ``(3) National average per capita growth rates.--In this 
        subsection, the `national average per capita growth rate' for--
                    ``(A) 1996 is 5.3 percent,
                    ``(B) 1997 is 3.8 percent,
                    ``(C) 1998 is 4.6 percent,
                    ``(D) 1999 is 4.3 percent,
                    ``(E) 2000 is 3.8 percent,
                    ``(F) 2001 is 5.5 percent,
                    ``(G) 2002 is 5.6 percent, and
                    ``(H) each subsequent year is 5.0 percent.
    ``(d) Assignment of Payment Areas to Service Utilization Cohorts.--
            ``(1) In general.--For purposes of determining per capita 
        growth rates under subsection (c) for areas for a year, the 
        Secretary shall assign each payment area to a service 
        utilization cohort (based on the service utilization index 
        value for that area determined under paragraph (2)) as follows:
                    ``(A) Lowest service utilization cohort.--Areas 
                with a service utilization index value of less than .80 
                shall be assigned to the lowest service utilization 
                cohort.
                    ``(B) Lower service utilization cohort.--Areas with 
                a service utilization index value of at least .80 but 
                less than .90 shall be assigned to the lower service 
                utilization cohort.
                    ``(C) Median service utilization cohort.--Areas 
                with a service utilization index value of at least .90 
                but less than 1.10 shall be assigned to the median 
                service utilization cohort.
                    ``(D) Higher service utilization cohort.--Areas 
                with a service utilization index value of at least 1.10 
                but less than 1.20 shall be assigned to the higher 
                service utilization cohort.
                    ``(E) Highest service utilization cohort.--Areas 
                with a service utilization index value of at least 1.20 
                shall be assigned to the highest service utilization 
                cohort.
            ``(2) Determination of service utilization index values.--
        In order to determine the per capita growth rate for a payment 
        area for each year (beginning with 1996), the Secretary shall 
        determine for such area and year a service utilization index 
        value, which is equal to--
                    ``(A) the annual MedicarePlus capitation rate under 
                this section for the area for the year in which the 
                determination is made (or, in the case of 1996, the 
                average annual per capita rate of payment (described in 
                section 1876(a)(1)(C)) for the area for 1995); divided 
                by
                    ``(B) the input-price-adjusted annual national 
                MedicarePlus capitation rate (as determined under 
                paragraph (3)) for that area for the year in which the 
                determination is made.
            ``(3) Determination of input-price-adjusted rates.--
                    ``(A) In general.--For purposes of paragraph (2), 
                the `input-price-adjusted annual national MedicarePlus 
                capitation rate' for a payment area for a year is equal 
                to the sum, for all the types of medicare services (as 
                classified by the Secretary), of the product (for each 
                such type) of--
                            ``(i) the national standardized 
                        MedicarePlus capitation rate (determined under 
                        subparagraph (B)) for the year,
                            ``(ii) the proportion of such rate for the 
                        year which is attributable to such type of 
                        services, and
                            ``(iii) an index that reflects (for that 
                        year and that type of services) the relative 
                        input price of such services in the area 
                        compared to the national average input price of 
                        such services.
                In applying clause (iii), the Secretary shall, subject 
                to subparagraph (C), apply those indices under this 
                title that are used in applying (or updating) national 
                payment rates for specific areas and localities.
                    ``(B) National standardized medicareplus capitation 
                rate.--In this paragraph, the `national standardized 
                MedicarePlus capitation rate' for a year is equal to--
                            ``(i) the sum (for all payment areas) of 
                        the product of (I) the annual MedicarePlus 
                        capitation rate for that year for the area 
                        under subsection (b)(2), and (II) the average 
                        number of medicare beneficiaries residing in 
                        that area in the year; divided by
                            ``(ii) the total average number of medicare 
                        beneficiaries residing in all the payment areas 
                        for that year.
                    ``(C) Special rules for 1996.--In applying this 
                paragraph for 1996--
                            ``(i) medicare services shall be divided 
                        into 2 types of services: part A services and 
                        part B services;
                            ``(ii) the proportions described in 
                        subparagraph (A)(ii) for such types of services 
                        shall be 66 percent and 34 percent 
                        respectively;
                            ``(iii) for the part A services, 70 percent 
                        of payments attributable to such services shall 
                        be adjusted by the index used under section 
                        1886(d)(3)(E) to adjust payment rates for 
                        relative hospital wage levels for hospitals 
                        located in the payment area involved;
                            ``(iv) for part B services--
                                    ``(I) 66 percent of payments 
                                attributable to such services shall be 
                                adjusted by the index of the geographic 
                                area factors under section 1848(e) used 
                                to adjust payment rates for physicians' 
                                services furnished in the payment area, 
                                and
                                    ``(II) of the remaining 34 percent 
                                of the amount of such payments, 70 
                                percent shall be adjusted by the index 
                                described in clause (iii);
                            ``(v) the index values shall be computed 
                        based only on the beneficiary population 
                        described in subsection (b)(5)(A).
                The Secretary may continue to apply the rules described 
                in this subparagraph (or similar rules) for 1997.
    ``(e) Payment Process.--
            ``(1) In general.--Subject to subsection (f), the Secretary 
        shall make monthly payments under this section in advance and 
        in accordance with the rate determined under subsection (a) to 
the plan for each individual enrolled with a MedicarePlus organization 
under this part.
            ``(2) Adjustment to reflect number of enrollees.--
                    ``(A) In general.--The amount of payment under this 
                subsection may be retroactively adjusted to take into 
                account any difference between the actual number of 
                individuals enrolled with an organization under this 
                part and the number of such individuals estimated to be 
                so enrolled in determining the amount of the advance 
                payment.
                    ``(B) Special rule for certain enrollees.--
                            ``(i) In general.--Subject to clause (ii), 
                        the Secretary may make retroactive adjustments 
                        under subparagraph (A) to take into account 
                        individuals enrolled during the period 
                        beginning on the date on which the individual 
                        enrolls with a MedicarePlus organization under 
                        a product operated, sponsored, or contributed 
                        to by the individual's employer or former 
                        employer (or the employer or former employer of 
                        the individual's spouse) and ending on the date 
                        on which the individual is enrolled in the 
                        organization under this part, except that for 
                        purposes of making such retroactive adjustments 
                        under this subparagraph, such period may not 
                        exceed 90 days.
                            ``(ii) Exception.--No adjustment may be 
                        made under clause (i) with respect to any 
                        individual who does not certify that the 
                        organization provided the individual with the 
                        disclosure statement described in section 
                        1853(a) at the time the individual enrolled 
                        with the organization.
    ``(f) Special Rules for Individuals Electing High Deductible/
Medisave Product.--
            ``(1) In general.--In the case of an individual who has 
        elected a high deductible/medisave product, notwithstanding the 
        preceding provisions of this section--
                    ``(A) the amount of the payment to the MedicarePlus 
                organization offering the high deductible/medisave 
                product shall not exceed the premium for the product, 
                and
                    ``(B) subject to paragraph (2), the difference 
                between the amount of payment that would otherwise be 
                made and the amount of payment to such organization 
                shall be made directly into a MedicarePlus MSA 
                established (and, if applicable, designated) by the 
                individual under paragraph (2).
            ``(2) Establishment and designation of medicareplus medical 
        savings account as requirement for payment of contribution.--In 
        the case of an individual who has elected coverage under a high 
        deductible/medisave product, no payment shall be made under 
        paragraph (1)(B) on behalf of an individual for a month unless 
        the individual--
                    ``(A) has established before the beginning of the 
                month (or by such other deadline as the Secretary may 
                specify) a MedicarePlus MSA (as defined in section 
                137(b) of the Internal Revenue Code of 1986), and
                    ``(B) if the individual has established more than 
                one MedicarePlus MSA, has designated one of such 
                accounts as the individual's MedicarePlus MSA for 
                purposes of this part.
        Under rules under this section, such an individual may change 
        the designation of such account under subparagraph (B) for 
        purposes of this part.
            ``(3) Lump sum deposit of medical savings account 
        contribution.--In the case of an individual electing a high 
        deductible/medisave product effective beginning with a month in 
        a year, the amount of the contribution to the MedicarePlus MSA 
        on behalf of the individual for that month and all successive 
        months in the year shall be deposited during that first month. 
        In the case of a termination of such an election as of a month 
        before the end of a year, the Secretary shall provide for a 
        procedure for the recovery of deposits attributable to the 
        remaining months in the year.
    ``(g) Payments From Trust Fund.--The payment to a MedicarePlus 
organization under this section for individuals enrolled under this 
part with the organization, and payments to a MedicarePlus MSA under 
subsection (f)(1)(B), shall be made from the Federal Hospital Insurance 
Trust Fund and the Federal Supplementary Medical Insurance Trust Fund 
in such proportion as the Secretary determines reflects the relative 
weight that benefits under part A and under part B represents of the 
actuarial value of the total benefits under this title.
    ``(h) Special Rule for Certain Inpatient Hospital Stays.--In the 
case of an individual who is receiving inpatient hospital services from 
a subsection (d) hospital (as defined in section 1886(d)(1)(B)) as of 
the effective date of the individual's--
            ``(1) election under this part of a MedicarePlus product 
        offered by a MedicarePlus organization--
                    ``(A) payment for such services until the date of 
                the individual's discharge shall be made under this 
                title through the MedicarePlus product or Non-
                MedicarePlus option (as the case may be) elected before 
                the election with such organization,
                    ``(B) the elected organization shall not be 
                financially responsible for payment for such services 
                until the date after the date of the individual's 
                discharge, and
                    ``(C) the organization shall nonetheless be paid 
                the full amount otherwise payable to the organization 
                under this part; or
            ``(2) termination of election with respect to a 
        MedicarePlus organization under this part--
                    ``(A) the organization shall be financially 
                responsible for payment for such services after such 
                date and until the date of the individual's discharge,
                    ``(B) payment for such services during the stay 
                shall not be made under section 1886(d) or by 
                succeeding the MedicarePlus organization, and
                    ``(C) the terminated organization shall not receive 
                any payment with respect to the individual under this 
                part during the period the individual is not enrolled.

    ``establishment of standards for medicareplus organizations and 
                                products

    ``Sec. 1856. (a) Standards Applicable to State-Regulated 
Organizations and Products.--
            ``(1) Recommendations of naic.--The Secretary shall request 
        the National Association of Insurance Commissioners to develop 
        and submit to the Secretary, not later than 12 months after the 
        date of the enactment of the Medicare Preservation Act of 1995, 
        proposed standards consistent with the requirements of this 
        part for MedicarePlus organizations (other than a union 
        sponsors, Taft-Hartley sponsors, and provider-sponsored 
        organizations) and MedicarePlus products offered by such 
        organizations.
            ``(2) Review.--If the Association submits such standards on 
        a timely basis, the Secretary shall review such standards to 
        determine if the standards meet the requirements of the part. 
        The Secretary shall complete the review of the standards not 
        later than 90 days after the date of their submission. The 
        Secretary shall promulgate such proposed standards to apply to 
        organizations and products described in paragraph (1) except to 
        the extent that the Secretary modifies such proposed standards 
        because they do not meet such requirements.
            ``(3) Failure to submit.--If the Association does not 
        submit such standards on a timely basis, the Secretary shall 
        promulgate such standards by not later than the date the 
        Secretary would otherwise have been required to promulgate 
        standards under paragraph (2).
            ``(4) Use of interim rules.--For the period in which this 
        part is in effect and standards are being developed and 
        established under the preceding provisions of this subsection, 
        the Secretary shall provide for the application of such interim 
        standards (without regard to any requirements for notice and 
        public comment) as may be appropriate to provide for the 
        expedited implementation of this part. Such interim standards 
        shall not apply after the date standards are established under 
        the preceding provisions of this subsection.
    ``(b) Union and Taft-Hartley Sponsors and Products.--
            ``(1) In general.--The Secretary shall develop and 
        promulgate by regulation standards consistent with the 
        requirements of this part for union and Taft-Hartley sponsors 
        and for MedicarePlus products offered by such sponsors.
            ``(2) Consultation with labor.--The Secretary shall consult 
        with the Secretary of Labor with respect to such standards for 
        such sponsors and products.
            ``(3) Timing.--Standards under this subsection shall be 
        promulgated at or about the time standards are promulgated 
        under subsection (a).
    ``(c) Establishment of Standards for Provider-Sponsored 
Organizations.--
            ``(1) In general.--The Secretary shall establish, on an 
        expedited basis and using a negotiated rulemaking process under 
        subchapter 3 of chapter 5 of title 5, United States Code, 
        standards that entities must meet to qualify as provider-
        sponsored organizations under this part.
            ``(2) Publication of notice.--In carrying out the 
        rulemaking process under this subsection, the Secretary, after 
        consultation with the National Association of Insurance 
        Commissioners, the American Academy of Actuaries, organizations 
        representative of medicare beneficiaries, and other interested 
        parties, shall publish the notice provided for under section 
        564(a) of title 5, United States Code, by not later than 45 
        days after the date of the enactment of Medicare Preservation 
        Act of 1995.
            ``(3) Target date for publication of rule.--As part of the 
        notice under paragraph (2), and for purposes of this 
        subsection, the `target date for publication' (referred to in 
        section 564(a)(5) of such title) shall be September 1, 1996.
            ``(4) Abbreviated period for submission of comments.--In 
        applying section 564(c) of such title under this subsection, 
        `15 days' shall be substituted for `30 days'.
            ``(5) Appointment of negotiated rulemaking committee and 
        facilitator.--The Secretary shall provide for--
                    ``(A) the appointment of a negotiated rulemaking 
                committee under section 565(a) of such title by not 
                later than 30 days after the end of the comment period 
                provided for under section 564(c) of such title (as 
                shortened under paragraph (4)), and
                    ``(B) the nomination of a facilitator under section 
                566(c) of such title by not later than 10 days after 
                the date of appointment of the committee.
            ``(6) Preliminary committee report.--The negotiated 
        rulemaking committee appointed under paragraph (5) shall report 
        to the Secretary, by not later than June 1, 1996, regarding the 
        committee's progress on achieving a concensus with regard to 
        the rulemaking proceeding and whether such consensus is likely 
        to occur before one month before the target date for 
        publication of the rule. If the committee reports that the 
        committee has failed to make significant progress towards such 
        consensus or is unlikely to reach such consensus by the target 
        date, the Secretary may terminate such process and provide for 
        the publication of a rule under this subsection through such 
        other methods as the Secretary may provide.
            ``(7) Final committee report.--If the committee is not 
        terminated under paragraph (6), the rulemaking committee shall 
        submit a report containing a proposed rule by not later than 
        one month before the target publication date.
            ``(8) Interim, final effect.--The Secretary shall publish a 
        rule under this subsection in the Federal Register by not later 
        than the target publication date. Such rule shall be effective 
        and final immediately on an interim basis, but is subject to 
        change and revision after public notice and opportunity for a 
        period (of not less than 60 days) for public comment. In 
        connection with such rule, the Secretary shall specify the 
        process for the timely review and approval of applications of 
        entities to be certified as provider-sponsored organizations 
        pursuant to such rules and consistent with this subsection.
            ``(9) Publication of rule after public comment.--The 
        Secretary shall provide for consideration of such comments and 
        republication of such rule by not later than 1 year after the 
        target publication date.
            ``(10) Process for approval of applications for 
        certification.--
                    ``(A) In general.--The Secretary shall establish a 
                process for the receipt and approval of applications of 
                entities for certification as provider-sponsored 
                organizations under this part. Under such process, the 
                Secretary shall act upon a complete application 
                submitted within 60 days after the date it is received.
                    ``(B) Circulation of proposed application form.--By 
                March 1, 1996, the Secretary, after consultation with 
                the negotiated rulemaking committee, shall circulate a 
                proposed application form that could be used by 
                entities considering becoming certified as a provider-
                sponsored organization under this part.
    ``(d) Coordination Among Final Standards.--In establishing 
standards (other than on an interim basis) under the previous 
provisions of this section, the Secretary shall seek to provide for 
consistency (as appropriate) across the different types of MedicarePlus 
organizations, in order to promote equitable treatment of different 
types of organizations and consistent protection for individuals who 
elect products offered by the different types of MedicarePlus 
organizations.
    ``(e) Use of Current Standards for Interim Standards.--To the 
extent practicable and consistent with the requirements of this part, 
standards established on an interim basis to carry out requirements of 
this part may be based on currently applicable standards, such as the 
rules established under section 1876 (as in effect as of the date of 
the enactment of this section) to carry out analogous provisions of 
such section or standards established or developed for application in 
the private health insurance market.
    ``(f) Application of New Standards to Entities with a Contract.--In 
the case of a MedicarePlus organization with a contract in effect under 
this part at the time standards applicable to the organization under 
this section are changed, the organization may elect not to have such 
changes apply to the organization until the end of the current contract 
year (or, if there is less than 6 months remaining in the contract 
year, until 1 year after the end of the current contract year).
    ``(g) Relation to State Laws.--The standards established under this 
section shall supersede any State law or regulation with respect to 
MedicarePlus products offered under this part to the extent such law or 
regulation is inconsistent with such standards.

                      ``medicareplus certification

    ``Sec. 1857. (a) State Certification Process for State-Regulated 
Organizations.--
            ``(1) Approval of state process.--The Secretary shall 
        approve a MedicarePlus certification and enforcement program 
        established by a State for applying the standards established 
        under section 1856 to MedicarePlus organizations (other than 
        union sponsors, Taft-Hartley sponsors, and provider-sponsored 
        organizations) and MedicarePlus products offered by such 
        organizations if the Secretary determines that the program 
        effectively provides for the application and enforcement of 
        such standards in the State with respect to such organizations 
        and products. Such program shall provide for certification of 
        compliance of MedicarePlus organizations and products with the 
        applicable requirements of this part not less often than once 
        every 3 years.
            ``(2) Effect of certification under state process.--A 
        MedicarePlus organization and MedicarePlus product offered by 
        such an organization that is certified under such program is 
        considered to have been certified under this subsection with 
        respect to the offering of the product to individuals residing 
        in the State.
            ``(3) User fees.--The State may impose user fees on 
        organizations seeking certification under this subsection in 
        such amounts as the State deems sufficient to finance the costs 
        of such certification. Nothing in this paragraph shall be 
        construed as restricting a State's authority to impose premium 
        taxes, other taxes, or other levies.
            ``(4) Review.--The Secretary periodically shall review 
        State programs approved under paragraph (1) to determine if 
        they continue to provide for certification and enforcement 
        described in such paragraph. If the Secretary finds that a 
        State program no longer so provides, before making a final 
        determination, the Secretary shall provide the State an 
        opportunity to adopt such a plan of correction as would permit 
        the State program to meet the requirements of paragraph (1). If 
        the Secretary makes a final determination that the State 
        program, after such an opportunity, fails to meet such 
        requirements, the provisions of subsection (b) shall apply to 
        MedicarePlus organizations and products in the State.
            ``(5) Effect of no state program.--Beginning on the date 
        standards are established under section 1856, in the case of 
        organizations and products in States in which a certification 
        program has not been approved and in operation under paragraph 
        (1), the Secretary shall establish a process for the 
        certification of MedicarePlus organizations (other than union 
        sponsors, Taft-Hartley sponsors, and provider-sponsored 
        organizations) and products of such organizations as meeting 
        such standards.
            ``(6) Publication of list of approved state programs.--The 
        Secretary shall publish (and periodically update) a list of 
        those State programs which are approved for purposes of this 
        subsection.
    ``(b) Federal Certification Process for Union and Taft-Hartley 
Sponsors and Provider-Sponsored Organizations.--
            ``(1) Establishment.--The Secretary shall establish a 
        process for the certification of union sponsors, Taft-Hartley 
        sponsors, and provider-sponsored organizations and MedicarePlus 
        products offered by such sponsors and organizations as meeting 
        the applicable standards established under section 1856.
            ``(2) Involvement of secretary of labor.--Such process 
        shall be established and operated in cooperation with the 
        Secretary of Labor with respect to union sponsors or Taft-
        Hartley sponsors.
            ``(3) Use of state licensing and private accreditation 
        processes.--
                    ``(A) In general.--The process under this 
                subsection shall, to the maximum extent practicable, 
                provide that MedicarePlus organizations and products 
                that are licensed or certified through a qualified 
                private accreditation process that the Secretary finds 
                applies standards that are no less stringent than the 
                requirements of this part are deemed to meet the 
                corresponding requirements of this part for such an 
                organization or product.
                    ``(B) Periodic accreditation.--The use of an 
                accreditation under subparagraph (A) shall be valid 
                only for such period as the Secretary specifies.
            ``(4) User fees.--The Secretary may impose user fees on 
        entities seeking certification under this subsection in such 
        amounts as the Secretary deems sufficient to finance the costs 
        of such certification.
    ``(c) Certification of Provider-Sponsored Organizations by 
States.--
            ``(1) In general.--The Secretary shall establish a process 
        under which a State may propose to provide for certification of 
        entities as meeting the requirements of this part to be 
        provider-sponsored organizations.
            ``(2) Conditions for approval.--The Secretary may not 
        approve such a process unless the Secretary determines that the 
        certification process applies standards that are consistent 
        with the standards and requirements provided under this part 
        and does not impose requirements more restrictive than those 
        that would apply if this subsection were not in effect.
    ``(d) Notice to Enrollees in Case of Decertification.--If a 
MedicarePlus organization or product is decertified under this section, 
the organization shall notify each enrollee with the organization and 
product under this part of such decertification.
    ``(e) Qualified Associations.--In the case of products offered by a 
MedicarePlus organization that is a qualified association, nothing in 
this section shall be construed as limiting the authority of States to 
regulate such products.

              ``contracts with medicareplus organizations

    ``Sec. 1858. (a) In General.--The Secretary shall not permit the 
election under section 1805 of a MedicarePlus product offered by a 
MedicarePlus organization under this part, and no payment shall be made 
under section 1856 to an organization, unless the Secretary has entered 
into a contract under this section with an organization with respect to 
the offering of such product. Such a contract with an organization may 
cover more than one MedicarePlus product. Such contract shall provide 
that the organization agrees to comply with the requirements of this 
part and the terms and conditions of payment as provided for in this 
part.
    ``(b) Enrollment Requirements.--
            ``(1) Minimum enrollment.--
                    ``(A) In general.--Subject to subparagraphs (B) and 
                (C), the Secretary may not enter into a contract under 
                this section with a MedicarePlus organization (other 
                than a union sponsor or a Taft-Hartley sponsor) unless 
                the organization has at least 5,000 individuals (or 
                1,500 individuals in the case of an organization that 
                is a provider-sponsored organization) who are receiving 
                health benefits through the organization, except that 
                the standards under section 1856 may permit the 
                organization to have a lesser number of beneficiaries 
                (but not less than 500 in the case of an organization 
                that is a provider-sponsored organization) if the 
                organization primarily serves individuals residing 
                outside of urbanized areas.
                    ``(B) Exception for high deductible/medisave 
                product.--Subparagraph (A) shall not apply with respect 
                to a contract that relates only to a high deductible/
                medisave product.
                    ``(C) Allowing transition.--The Secretary may waive 
                the requirement of subparagraph (A) during the first 3 
                contract years with respect to an organization.
    ``(c) Contract Period and Effectiveness.--
            ``(1) Period.--Each contract under this section shall be 
        for a term of at least one year, as determined by the 
        Secretary, and may be made automatically renewable from term to 
        term in the absence of notice by either party of intention to 
        terminate at the end of the current term.
            ``(2) Termination authority.--In accordance with procedures 
        established under subsection (h), the Secretary may at any time 
        terminate any such contract or may impose the intermediate 
        sanctions described in an applicable paragraph of subsection 
        (g) on the MedicarePlus 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 part;
                    ``(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 this part.
            ``(3) Effective date of contracts.--The effective date of 
        any contract executed pursuant to this section shall be 
        specified in the contract, except that in no case shall a 
        contract under this section which provides for coverage under a 
        high deductible/medisave account be effective before January 
        1997 with respect to such coverage.
            ``(4) Previous terminations.--The Secretary may not enter 
        into a contract with a MedicarePlus organization if a previous 
        contract with that organization under this section was 
        terminated at the request of the organization within the 
        preceding five-year period, except in circumstances which 
        warrant special consideration, as determined by the Secretary.
            ``(5) No contracting authority.--The authority vested in 
        the Secretary by this part may be performed without regard to 
        such provisions of law or regulations relating to the making, 
        performance, amendment, or modification of contracts of the 
        United States as the Secretary may determine to be inconsistent 
        with the furtherance of the purpose of this title.
    ``(d) Protections Against Fraud and Beneficiary Protections.--
            ``(1) Inspection and audit.--Each contract under this 
        section shall provide that the Secretary, or any person or 
        organization designated by the Secretary--
                    ``(A) shall have the right to inspect or otherwise 
                evaluate (i) the quality, appropriateness, and 
                timeliness of services performed under the contract and 
                (ii) the facilities of the organization when there is 
                reasonable evidence of some need for such inspection, 
                and
                    ``(B) shall have the right to audit and inspect any 
                books and records of the MedicarePlus organization that 
                pertain (i) to the ability of the organization to bear 
                the risk of potential financial losses, or (ii) to 
                services performed or determinations of amounts payable 
                under the contract.
            ``(2) Enrollee notice at time of termination.--Each 
        contract under this section shall require the organization to 
        provide (and pay for) written notice in advance of the 
        contract's termination, as well as a description of 
        alternatives for obtaining benefits under this title, to each 
individual enrolled with the organization under this part.
            ``(3) Disclosure.--
                    ``(A) In general.--Each MedicarePlus organization 
                shall, in accordance with regulations of the Secretary, 
                report to the Secretary financial information which 
                shall include the following:
                            ``(i) Such information as the Secretary may 
                        require demonstrating that the organization has 
                        a fiscally sound operation.
                            ``(ii) A copy of the report, if any, filed 
                        with the Health Care Financing Administration 
                        containing the information required to be 
                        reported under section 1124 by disclosing 
                        entities.
                            ``(iii) A description of transactions, as 
                        specified by the Secretary, between the 
                        organization and a party in interest. Such 
                        transactions shall include--
                                    ``(I) any sale or exchange, or 
                                leasing of any property between the 
                                organization and a party in interest;
                                    ``(II) any furnishing for 
                                consideration of goods, services 
                                (including management services), or 
                                facilities between the organization and 
                                a party in interest, but not including 
                                salaries paid to employees for services 
                                provided in the normal course of their 
                                employment and health services provided 
                                to members by hospitals and other 
                                providers and by staff, medical group 
                                (or groups), individual practice 
                                association (or associations), or any 
                                combination thereof; and
                                    ``(III) any lending of money or 
                                other extension of credit between an 
                                organization and a party in interest.
                The Secretary may require that information reported 
                respecting an organization which controls, is 
                controlled by, or is under common control with, another 
                entity be in the form of a consolidated financial 
                statement for the organization and such entity.
                    ``(B) Party in interest defined.--For the purposes 
                of this paragraph, the term `party in interest' means--
                            ``(i) any director, officer, partner, or 
                        employee responsible for management or 
                        administration of a MedicarePlus organization, 
                        any person who is directly or indirectly the 
                        beneficial owner of more than 5 percent of the 
                        equity of the organization, any person who is 
                        the beneficial owner of a mortgage, deed of 
                        trust, note, or other interest secured by, and 
                        valuing more than 5 percent of the 
                        organization, and, in the case of a 
                        MedicarePlus organization organized as a 
                        nonprofit corporation, an incorporator or 
                        member of such corporation under applicable 
                        State corporation law;
                            ``(ii) any entity in which a person 
                        described in clause (i)--
                                    ``(I) is an officer or director;
                                    ``(II) is a partner (if such entity 
                                is organized as a partnership);
                                    ``(III) has directly or indirectly 
                                a beneficial interest of more than 5 
                                percent of the equity; or
                                    ``(IV) has a mortgage, deed of 
                                trust, note, or other interest valuing 
                                more than 5 percent of the assets of 
                                such entity;
                            ``(iii) any person directly or indirectly 
                        controlling, controlled by, or under common 
                        control with an organization; and
                            ``(iv) any spouse, child, or parent of an 
                        individual described in clause (i).
                    ``(C) Access to information.--Each MedicarePlus 
                organization shall make the information reported 
                pursuant to subparagraph (A) available to its enrollees 
                upon reasonable request.
            ``(5) Loan information.--The contract shall require the 
        organization to notify the Secretary of loans and other special 
        financial arrangements which are made between the organization 
        and subcontractors, affiliates, and related parties.
    ``(f) Additional Contract Terms.--The contract shall contain such 
other terms and conditions not inconsistent with this part (including 
requiring the organization to provide the Secretary with such 
information) as the Secretary may find necessary and appropriate.
    ``(g) Intermediate Sanctions.--
            ``(1) In general.--If the Secretary determines that a 
        MedicarePlus organization with a contract under this section--
                    ``(A) fails substantially to provide medically 
                necessary items and services that are required (under 
                law or under the contract) to be provided to an 
                individual covered under the contract, if the failure 
                has adversely affected (or has substantial likelihood 
                of adversely affecting) the individual;
                    ``(B) imposes premiums on individuals enrolled 
                under this part in excess of the premiums permitted;
                    ``(C) acts to expel or to refuse to re-enroll an 
                individual in violation of the provisions of this part;
                    ``(D) engages in any practice that would reasonably 
                be expected to have the effect of denying or 
                discouraging enrollment (except as permitted by this 
                part) by eligible individuals with the organization 
                whose medical condition or history indicates a need for 
                substantial future medical services;
                    ``(E) misrepresents or falsifies information that 
                is furnished--
                            ``(i) to the Secretary under this part, or
                            ``(ii) to an individual or to any other 
                        entity under this part;
                    ``(F) fails to comply with the requirements of 
                section 1852(f)(3); or
                    ``(G) employs or contracts with any individual or 
                entity that is excluded from participation under this 
                title under section 1128 or 1128A for the provision of 
                health care, utilization review, medical social work, 
                or administrative services or employs or contracts with 
                any entity for the provision (directly or indirectly) 
                through such an excluded individual or entity of such 
                services;
        the Secretary may provide, in addition to any other remedies 
        authorized by law, for any of the remedies described in 
        paragraph (2).
            ``(2) 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 (D) 
                or (E)(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)(D), $15,000 for each individual not enrolled as a 
                result of the practice involved,
                    ``(B) suspension of enrollment of individuals under 
                this part after the date the Secretary notifies the 
                organization 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, or
                    ``(C) suspension of payment to the organization 
                under this part for individuals enrolled after the date 
                the Secretary notifies the organization 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.
            ``(3) Other intermediate sanctions.--In the case of a 
        MedicarePlus organization for which the Secretary makes a 
        determination under subsection (c)(2) the basis of which is not 
        described in paragraph (1), the Secretary may apply the 
        following intermediate sanctions:
                    ``(A) civil money penalties of not more than 
                $25,000 for each determination under subsection (c)(2) 
                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;
                    ``(B) civil money penalties of not more than 
                $10,000 for each week beginning after the initiation of 
                procedures by the Secretary under subsection (h) during 
                which the deficiency that is the basis of a 
                determination under subsection (c)(2) exists; and
                    ``(C) suspension of enrollment of individuals under 
                this part after the date the Secretary notifies the 
                organization of a determination under subsection (c)(2) 
                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.
            ``(4) Procedures for imposing sanctions.--The provisions of 
        section 1128A (other than subsections (a) and (b)) shall apply 
        to a civil money penalty under paragraph (1) or (2) in the same 
manner as they apply to a civil money penalty or proceeding under 
section 1128A(a).
    ``(h) Procedures for Imposing Sanctions.--The Secretary may 
terminate a contract with a MedicarePlus organization under this 
section or may impose the intermediate sanctions described in 
subsection (g) on the organization in accordance with formal 
investigation and compliance procedures established by the Secretary 
under which--
            ``(1) 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 subsection (c)(2);
            ``(2) the Secretary shall impose more severe sanctions on 
        organizations that have a history of deficiencies or that have 
        not taken steps to correct deficiencies the Secretary has 
        brought to their attention;
            ``(3) there are no unreasonable or unnecessary delays 
        between the finding of a deficiency and the imposition of 
        sanctions; and
            ``(4) 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.''.
    (b) Conforming References to Previous Part C.--Any reference in law 
(in effect before the date of the enactment of this Act) to part C of 
title XVIII of the Social Security Act is deemed a reference to part D 
of such title (as in effect after such date).
    (c) Use of Interim, Final Regulations.--In order to carry out the 
amendment made by subsection (a) in a timely manner, the Secretary of 
Health and Human Services may promulgate regulations that take effect 
on an interim basis, after notice and pending opportunity for public 
comment.
    (d) Advance Directives.--Section 1866(f)(1) (42 U.S.C. 
1395cc(f)(1)) is amended--
            (1) in paragraph (1)--
                    (A) by inserting ``1853(g),'' after ``1833(s),'', 
                and
                    (B) by inserting ``, MedicarePlus organization,'' 
                after ``provider of services'', and
            (2) by adding at the end the following new paragraph:
    ``(4) Nothing in this subsection shall be construed to require the 
provision of information regarding assisted suicide, euthanasia, or 
mercy killing.''.

SEC. 15003. DUPLICATION AND COORDINATION OF MEDICARE-RELATED PRODUCTS.

    (a) Treatment of Certain Health Insurance Policies as 
Nonduplicative.--
            (1) In general.--Effective as if included in the enactment 
        of section 4354 of the Omnibus Budget Reconciliation Act of 
        1990, section 1882(d)(3)(A) (42 U.S.C. 1395ss(d)(3)(A)) is 
        amended--
                    (A) by amending clause (i) to read as follows:
    ``(i) It is unlawful for a person to sell or issue to an individual 
entitled to benefits under part A or enrolled under part B of this 
title or electing a MedicarePlus product under section 1805--
            ``(I) a health insurance policy (other than a medicare 
        supplemental policy) with knowledge that the policy duplicates 
        health benefits to which the individual is otherwise entitled 
        under this title or title XIX,
            ``(II) in the case of an individual not electing a 
        MedicarePlus product, a medicare supplemental policy with 
        knowledge that the individual is entitled to benefits under 
        another medicare supplemental policy, or
            ``(III) in the case of an individual electing a 
        MedicarePlus product, a medicare supplemental policy with 
        knowledge that the policy duplicates health benefits to which 
        the individual is otherwise entitled under this title or under 
        another medicare supplemental policy.'';
                    (B) in clause (iii), by striking ``clause (i)'' and 
                inserting ``clause (i)(II)''; and
                    (C) by adding at the end the following new clauses:
    ``(iv) For purposes of this subparagraph a health insurance policy 
shall be considered to `duplicate' benefits under this title only when, 
under its terms, the policy provides specific reimbursement for 
identical items and services to the extent paid for under this title, 
and a health insurance policy providing for benefits which are payable 
to or on behalf of an individual without regard to other health benefit 
coverage of such individual is not considered to `duplicate' any health 
benefits under this title.
    ``(v) For purposes of this subparagraph, a health insurance policy 
(or a rider to an insurance contract which is not a health insurance 
policy), including a policy (such as a long-term care insurance 
contract described in section 7702B(b) of the Internal Revenue Code of 
1986, as added by the Contract with America Tax Relief Act of 1995 
(H.R. 1215)) providing benefits for long-term care, nursing home care, 
home health care, or community-based care, that coordinates against or 
excludes items and services available or paid for under this title and 
(for policies sold or issued after January 1, 1996) that discloses such 
coordination or exclusion in the policy's outline of coverage, is not 
considered to `duplicate' health benefits under this title. For 
purposes of this clause, the terms `coordinates' and `coordination' 
mean, with respect to a policy in relation to health benefits under 
this title, that the policy under its terms is secondary to, or 
excludes from payment, items and services to the extent available or 
paid for under this title.
    ``(vi) Notwithstanding any other provision of law, no criminal or 
civil penalty may be imposed at any time under this subparagraph and no 
legal action may be brought or continued at any time in any Federal or 
State court if the penalty or action is based on an act or omission 
that occurred after November 5, 1991, and before the date of the 
enactment of this clause, and relates to the sale, issuance, or renewal 
of any health insurance policy during such period, if such policy is 
not meets the requirements of clause (iv) or (v).
    ``(vii) A State may not impose, with respect to the sale or 
issuance of a policy (or rider) that meets the requirements of this 
title pursuant to clause (iv) or (v) to an individual entitled to 
benefits under part A or enrolled under part B or enrolled under a 
MedicarePlus product under part C, any requirement based on the premise 
that such a policy or rider duplicates health benefits to which the 
individual is otherwise entitled under this title.''.
            (2) Conforming amendments.--Section 1882(d)(3) (42 U.S.C. 
        1395ss(d)(3)) is amended--
                    (A) in subparagraph (B), by inserting ``(including 
                any MedicarePlus product)'' after ``health insurance 
                policies'';
                    (B) in subparagraph (C)--
                            (i) by striking ``with respect to (i)'' and 
                        inserting ``with respect to'', and
                            (ii) by striking ``, (ii) the sale'' and 
                        all that follows up to the period at the end; 
                        and
                    (C) by striking subparagraph (D).
            (3) Medicareplus products not treated as medicare 
        supplementary policies.--Section 1882(g) (42 U.S.C. 1395ss(g)) 
        is amended by inserting ``a MedicarePlus product or'' after 
        ``and does not include''
            (4) Report on duplication and coordination of health 
        insurance policies that are not medicare supplemental 
        policies.--Not later than 3 years after the date of the 
        enactment of this Act, the Secretary of Health and Human 
        Services shall prepare and submit to Congress a report on the 
        advisability and feasibility of restricting the sale to 
        medicare beneficiaries of health insurance policies that 
        duplicate (within the meaning of section 1882(d)(3)(A) of the 
        Social Security Act) other health insurance policies that such 
        a beneficiary may have. In preparing such report, the Secretary 
        shall seek the advice of the National Association of Insurance 
        Commissioners and shall take into account the standards 
        established under section 1807 of the Social Security Act for 
        the electronic coordination of benefits.
    (b) Additional Rules Relating to Individuals Enrolled in 
MedicarePlus Products.--Section 1882 (42 U.S.C. 1395ss) is further 
amended by adding at the end the following new subsection:
    ``(u)(1) Notwithstanding the previous provisions of this section, 
the following provisions shall not apply to a health insurance policy 
(other than a medicare supplemental policy) provided to an individual 
who has elected the MedicarePlus option under section 1805:
            ``(A) Subsections (o)(1), (o)(2), (p)(1)(A)(i), (p)(2), 
        (p)(3), (p)(8), and (p)(9) (insofar as they relate to 
        limitations on benefits or groups of benefits that may be 
        offered).
            ``(B) Subsection (r) (relating to loss-ratios).
    ``(2)(A) It is unlawful for a person to sell or issue a policy 
described in subparagraph (B) to an individual with knowledge that the 
individual has in effect under section 1805 an election of a high 
deductible/medisave product.
    ``(B) A policy described in this subparagraph is a health insurance 
policy that provides for coverage of expenses that are otherwise 
required to be counted toward meeting the annual deductible amount 
provided under the high deductible/medisave product.''.

SEC. 15004. TRANSITIONAL RULES FOR CURRENT MEDICARE HMO PROGRAM.

    (a) Transition from Current Contracts.--
            (1) Limitation on new contracts.--
                    (A) No new risk-sharing contracts after new 
                standards established.--The Secretary of Health and 
                Human Services (in this section referred to as the 
``Secretary'') shall not enter into any risk-sharing contract under 
section 1876 of the Social Security Act with an eligible organization 
for any contract year beginning on or after the date standards for 
MedicarePlus organizations and products are first established under 
section 1856(a) of such Act with respect to MedicarePlus organizations 
that are insurer or health maintenance organizations unless such a 
contract had been in effect under section 1876 of such Act for the 
organization for the previous contract year.
                    (B) No new cost reimbursement contracts.--The 
                Secretary shall not enter into any cost reimbursement 
                contract under section 1876 of the Social Security Act 
                beginning for any contract year beginning on or after 
                the date of the enactment of this Act.
            (2) Termination of current contracts.--
                    (A) Risk-sharing contracts.--Notwithstanding any 
                other provision of law, the Secretary shall not extend 
                or continue any risk-sharing contract with an eligible 
                organization under section 1876 of the Social Security 
                Act (for which a contract was entered into consistent 
                with paragraph (1)(A)) for any contract year beginning 
                on or after 1 year after the date standards described 
                in paragraph (1)(A) are established.
                    (B) Cost reimbursement contracts.--The Secretary 
                shall not extend or continue any reasonable cost 
                reimbursement contract with an eligible organization 
                under section 1876 of the Social Security Act for any 
                contract year beginning on or after January 1, 1998.
    (b) Conforming Payment Rates.--
            (1) Risk-sharing contracts.--Notwithstanding any other 
        provision of law, the Secretary shall provide that payment 
        amounts under risk-sharing contracts under section 1876(a) of 
        the Social Security Act for months in a year (beginning with 
        January 1996) shall be computed--
                    (A) with respect to individuals both entitled to 
                benefits under both parts A and B of title XVIII of 
                such Act, by substituting payment rates under section 
                1855(a) of such Act for the payment rates otherwise 
                established under section 1876(a) of such Act, and
                    (B) with respect to individuals only entitled to 
                benefits under part B of such title, by substituting an 
                appropriate proportion of such rates (reflecting the 
                relative proportion of payments under such title 
                attributable to such part) for the payment rates 
                otherwise established under section 1876(a) of such 
                Act.
        For purposes of carrying out this paragraph for payment for 
        months in 1996, the Secretary shall compute, announce, and 
        apply the payment rates under section 1855(a) of such Act 
        (notwithstanding any deadlines specified in such section) in as 
        timely a manner as possible and may (to the extent necessary) 
        provide for retroactive adjustment in payments made not in 
        accordance with such rates.
            (2) Cost contracts.--Notwithstanding any other provision of 
        law, the Secretary shall provide that payment amounts under 
        cost reimbursement contracts under section 1876(a) of the 
        Social Security Act shall take into account adjustments in 
        payment amounts made in parts A and B of title XVIII of such 
        Act pursuant to the amendments made by this title.
    (c) Elimination of 50:50 Rule.--
            (1) In general.--Section 1876 (42 U.S.C. 1395mm) is amended 
        by striking subsection (f).
            (2) Conforming amendments.--Section 1876 is further 
        amended--
                    (A) in subsection (c)(3)(A)(i), by striking ``would 
                result in failure to meet the requirements of 
                subsection (f)'', and
                    (B) in subsection (i)(1)(C), by striking ``(e), and 
                (f)'' and inserting ``and (e)''.
            (3) Effective date.--The amendments made by this section 
        shall apply to contract years beginning on or after January 1, 
        1996.

    PART 2--SPECIAL RULES FOR MEDICAREPLUS MEDICAL SAVINGS ACCOUNTS

                                                     Subtitle A, Part 2

SEC. 15011. MEDICAREPLUS MSA'S.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to amounts specifically 
excluded from gross income) is amended by redesignating section 137 as 
section 138 and by inserting after section 136 the following new 
section:

``SEC. 137. MEDICAREPLUS MSA'S.

    ``(a) Exclusion.--Gross income shall not include any payment to the 
MedicarePlus MSA of an individual by the Secretary of Health and Human 
Services under section 1855(f)(1)(B) of the Social Security Act.
    ``(b) MedicarePlus MSA.--For purposes of this section--
            ``(1) Medicareplus msa.--The term `MedicarePlus MSA' means 
        a trust created or organized in the United States exclusively 
        for the purpose of paying the qualified medical expenses of the 
        account holder, but only if the written governing instrument 
        creating the trust meets the following requirements:
                    ``(A) Except in the case of a trustee-to-trustee 
                transfer described in subsection (d)(4), no 
                contribution will be accepted unless it is made by the 
                Secretary of Health and Human Services under section 
                1855(f)(1)(B) of the Social Security Act.
                    ``(B) The trustee is a bank (as defined in section 
                408(n)), an 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.
                    ``(C) No part of the trust assets will be invested 
                in life insurance contracts.
                    ``(D) The assets of the trust will not be 
                commingled with other property except in a common trust 
                fund or common investment fund.
                    ``(E) The interest of an individual in the balance 
                in his account is nonforfeitable.
                    ``(F) Trustee-to-trustee transfers described in 
                subsection (d)(4) may be made to and from the trust.
            ``(2) Qualified medical expenses.--
                    ``(A) In general.--The term `qualified medical 
                expenses' means, with respect to an account holder, 
                amounts paid by such holder--
                            ``(i) for medical care (as defined in 
                        section 213(d)) for the account holder, but 
                        only to the extent such amounts are not 
                        compensated for by insurance or otherwise, or
                            ``(ii) for long-term care insurance for the 
                        account holder.
                    ``(B) Health insurance may not be purchased from 
                account.--Subparagraph (A)(i) shall not apply to any 
                payment for insurance.
            ``(3) Account holder.--The term `account holder' means the 
        individual on whose behalf the MedicarePlus MSA is maintained.
            ``(4) Certain rules to apply.--Rules similar to the rules 
        of subsections (g) and (h) of section 408 shall apply for 
        purposes of this section.
    ``(c) Tax Treatment of Accounts.--
            ``(1) In general.--A MedicarePlus MSA is exempt from 
        taxation under this subtitle unless such MSA has ceased to be a 
        MedicarePlus MSA by reason of paragraph (2). Notwithstanding 
        the preceding sentence, any such MSA is subject to the taxes 
        imposed by section 511 (relating to imposition of tax on 
        unrelated business income of charitable, etc. organizations).
            ``(2) Account assets treated as distributed in the case of 
        prohibited transactions or account pledged as security for 
        loan.--Rules similar to the rules of paragraphs (2) and (4) of 
        section 408(e) shall apply to MedicarePlus MSA's, and any 
        amount treated as distributed under such rules shall be treated 
        as not used to pay qualified medical expenses.
    ``(d) Tax Treatment of Distributions.--
            ``(1) Inclusion of amounts not used for qualified medical 
        expenses.--No amount shall be included in the gross income of 
        the account holder by reason of a payment or distribution from 
        a MedicarePlus MSA which is used exclusively to pay the 
        qualified medical expenses of the account holder. Any amount 
        paid or distributed from a MedicarePlus MSA which is not so 
        used shall be included in the gross income of such holder.
            ``(2) Penalty for distributions not used for qualified 
        medical expenses if minimum balance not maintained.--
                    ``(A) In general.--The tax imposed by this chapter 
                for any taxable year in which there is a payment or 
                distribution from a MedicarePlus MSA which is not used 
                exclusively to pay the qualified medical expenses of 
                the account holder shall be increased by 50 percent of 
                the excess (if any) of--
                            ``(i) the amount of such payment or 
                        distribution, over
                            ``(ii) the excess (if any) of--
                                    ``(I) the fair market value of the 
                                assets in the MedicarePlus MSA as of 
                                the close of the calendar year 
                                preceding the calendar year in which 
                                the taxable year begins, over
                                    ``(II) an amount equal to 60 
                                percent of the deductible under the 
                                catastrophic health plan covering the 
                                account holder as of January 1 of the 
                                calendar year in which the taxable year 
                                begins.
                    ``(B) Exceptions.--Subparagraph (A) shall not apply 
                if the payment or distribution is made on or after the 
                date the account holder--
                            ``(i) becomes disabled within the meaning 
                        of section 72(m)(7), or
                            ``(ii) dies.
                    ``(C) Special rules.--For purposes of subparagraph 
                (A)--
                            ``(i) all MedicarePlus MSA's of the account 
                        holder shall be treated as 1 account,
                            ``(ii) all payments and distributions not 
                        used exclusively to pay the qualified medical 
                        expenses of the account holder during any 
                        taxable year shall be treated as 1 
                        distribution, and
                            ``(iii) any distribution of property shall 
                        be taken into account at its fair market value 
                        on the date of the distribution.
            ``(3) Withdrawal of erroneous contributions.--Paragraphs 
        (1) and (2) shall not apply to any payment or distribution from 
        a MedicarePlus MSA to the Secretary of Health and Human 
Services of an erroneous contribution to such MSA and of the net income 
attributable to such contribution.
            ``(4) Trustee-to-trustee transfers.--Paragraphs (1) and (2) 
        shall not apply to any trustee-to-trustee transfer from a 
        MedicarePlus MSA of an account holder to another MedicarePlus 
        MSA of such account holder.
            ``(5) Coordination with medical expense deduction.--For 
        purposes of section 213, any payment or distribution out of a 
        MedicarePlus MSA for qualified medical expenses shall not be 
        treated as an expense paid for medical care.
    ``(e) Treatment of Account After Death of Account Holder.--
            ``(1) Treatment if designated beneficiary is spouse.--
                    ``(A) In general.--In the case of an account 
                holder's interest in a MedicarePlus MSA which is 
                payable to (or for the benefit of) such holder's spouse 
                upon the death of such holder, such MedicarePlus MSA 
                shall be treated as a MedicarePlus MSA of such spouse 
                as of the date of such death.
                    ``(B) Special rules if spouse not medicare 
                eligible.--If, as of the date of such death, such 
                spouse is not entitled to benefits under title XVIII of 
                the Social Security Act, then after the date of such 
                death--
                            ``(i) the Secretary of Health and Human 
                        Services may not make any payments to such 
                        MedicarePlus MSA, other than payments 
                        attributable to periods before such date,
                            ``(ii) in applying subsection (b)(2) with 
                        respect to such MedicarePlus MSA, references to 
                        the account holder shall be treated as 
                        including references to any dependent (as 
                        defined in section 152) of such spouse and any 
                        subsequent spouse of such spouse, and
                            ``(iii) in lieu of applying subsection 
                        (d)(2), the rules of section 220(f)(2) shall 
                        apply.
            ``(2) Treatment if designated beneficiary is not spouse.--
        In the case of an account holder's interest in a MedicarePlus 
        MSA which is payable to (or for the benefit of) any person 
        other than such holder's spouse upon the death of such holder--
                    ``(A) such account shall cease to be a MedicarePlus 
                MSA as of the date of death, and
                    ``(B) an amount equal to the fair market value of 
                the assets in such account on such date shall be 
                includible--
                            ``(i) if such person is not the estate of 
                        such holder, in such person's gross income for 
                        the taxable year which includes such date, or
                            ``(ii) if such person is the estate of such 
                        holder, in such holder's gross income for last 
                        taxable year of such holder.
    ``(f) Reports.--
            ``(1) In general.--The trustee of a MedicarePlus MSA shall 
        make such reports regarding such account to the Secretary and 
        to the account holder with respect to--
                    ``(A) the fair market value of the assets in such 
                MedicarePlus MSA as of the close of each calendar year, 
                and
                    ``(B) contributions, distributions, and other 
                matters,
        as the Secretary may require by regulations.
            ``(2) Time and manner of reports.--The reports required by 
        this subsection--
                    ``(A) shall be filed at such time and in such 
                manner as the Secretary prescribes in such regulations, 
                and
                    ``(B) shall be furnished to the account holder--
                            ``(i) not later than January 31 of the 
                        calendar year following the calendar year to 
                        which such reports relate, and
                            ``(ii) in such manner as the Secretary 
                        prescribes in such regulations.''
    (b) Exclusion of MedicarePlus MSA's From Estate Tax.--Part IV of 
subchapter A of chapter 11 of such Code is amended by adding at the end 
the following new section:

``SEC. 2057. MEDICAREPLUS MSA'S.

    ``For purposes of the tax imposed by section 2001, the value of the 
taxable estate shall be determined by deducting from the value of the 
gross estate an amount equal to the value of any MedicarePlus MSA (as 
defined in section 137(b)) included in the gross estate.''
    (c) Tax on Prohibited Transactions.--
            (1) Section 4975 of such Code (relating to tax on 
        prohibited transactions) is amended by adding at the end of 
        subsection (c) the following new paragraph:
            ``(5) Special rule for medicareplus msa's.--An individual 
        for whose benefit a MedicarePlus MSA (within the meaning of 
        section 137(b)) 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 MedicarePlus MSA by reason of the application of 
        section 137(c)(2) to such account.''
            (2) Paragraph (1) of section 4975(e) of such Code is 
        amended to read as follows:
            ``(1) Plan.--For purposes of this section, the term `plan' 
        means--
                    ``(A) a trust described in section 401(a) which 
                forms a part of a plan, or a plan described in section 
                403(a), which trust or plan is exempt from tax under 
                section 501(a),
                    ``(B) an individual retirement account described in 
                section 408(a),
                    ``(C) an individual retirement annuity described in 
                section 408(b),
                    ``(D) a medical savings account described in 
                section 220(d),
                    ``(E) a MedicarePlus MSA described in section 
                137(b), or
                    ``(F) a trust, plan, account, or annuity which, at 
                any time, has been determined by the Secretary to be 
                described in any preceding subparagraph of this 
                paragraph.''
    (d) Failure To Provide Reports on MedicarePlus MSA's.--
            (1) Subsection (a) of section 6693 of such Code (relating 
        to failure to provide reports on individual retirement accounts 
        or annuities) is amended to read as follows:
    ``(a) Reports.--
            ``(1) In general.--If a person required to file a report 
        under a provision referred to in paragraph (2) fails to file 
        such report at the time and in the manner required by such 
        provision, such person shall pay a penalty of $50 for each 
        failure unless it is shown that such failure is due to 
        reasonable cause.
            ``(2) Provisions.--The provisions referred to in this 
        paragraph are--
                    ``(A) subsections (i) and (l) of section 408 
                (relating to individual retirement plans),
                    ``(B) section 220(h) (relating to medical savings 
                accounts), and
                    ``(C) section 137(f) (relating to MedicarePlus 
                MSA's).''
            (2) The section heading for section 6693 of such Code is 
        amended to read as follows:

``SEC. 6693. FAILURE TO FILE REPORTS ON INDIVIDUAL RETIREMENT PLANS AND 
              CERTAIN OTHER TAX-FAVORED ACCOUNTS; PENALTIES RELATING TO 
              DESIGNATED NONDEDUCTIBLE CONTRIBUTIONS.''

    (e) Clerical Amendments.--
            (1) The table of sections for part III of subchapter B of 
        chapter 1 of such Code is amended by striking the last item and 
        inserting the following:

                              ``Sec. 137. MedicarePlus MSA's.
                              ``Sec. 138. Cross references to other 
                                        Acts.''
            (2) The table of sections for subchapter B of chapter 68 of 
        such Code is amended by striking the item relating to section 
        6693 and inserting the following new item:

                              ``Sec. 6693. Failure to file reports on 
                                        individual retirement plans and 
                                        certain other tax-favored 
                                        accounts; penalties relating to 
                                        designated nondeductible 
                                        contributions.''
            (3) The table of sections for part IV of subchapter A of 
        chapter 11 of such Code is amended by adding at the end the 
        following new item:

                              ``Sec. 2057. MedicarePlus MSA's.''
    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

SEC. 15012. CERTAIN REBATES EXCLUDED FROM GROSS INCOME.

    (a) In General.--Section 105 of the Internal Revenue Code of 1986 
(relating to amounts received under accident and health plans) is 
amended by adding at the end the following new subsection:
    ``(j) Certain Rebates Under Social Security Act.--Gross income does 
not include any rebate received under section 1852(e)(1)(A) of the 
Social Security Act during the taxable year.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to amounts received after the date of the enactment of this Act.

      PART 3--SPECIAL ANTITRUST RULE FOR PROVIDER SERVICE NETWORKS

                                                     Subtitle A, Part 3

SEC. 15021. APPLICATION OF ANTITRUST RULE OF REASON TO PROVIDER SERVICE 
              NETWORKS.

    (a) Rule of Reason Standard.--In any action under the antitrust 
laws, or under any State law similar to the antitrust laws--
            (1) the conduct of a provider service network in 
        negotiating, making, or performing a contract (including the 
        establishment and modification of a fee schedule and the 
        development of a panel of physicians), to the extent such 
        contract is for the purpose of providing health care services 
        to individuals under the terms of a MedicarePlus PSO product, 
        and
            (2) the conduct of any member of such network for the 
        purpose of providing such health care services under such 
        contract to such extent,
shall not be deemed illegal per se. Such conduct shall be judged on the 
basis of its reasonableness, taking into account all relevant factors 
affecting competition, including the effects on competition in properly 
defined markets.
    (b) Definitions.--For purposes of subsection (a):
            (1) Antitrust laws.--The term ``antitrust laws'' has the 
        meaning given it in subsection (a) of the first section of the 
        Clayton Act (15 U.S.C. 12), except that such term includes 
        section 5 of the Federal Trade Commission Act (15 U.S.C. 45) to 
        the extent that such section 5 applies to unfair methods of 
        competition.
            (2) Health care provider.--The term ``health care 
        provider'' 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.
            (3) Health care service.--The term ``health care service'' 
        means any service for which payment may be made under a 
        MedicarePlus PSO product including services related to the 
        delivery or administration of such service.
            (4) MedicarePlus program.--The term ``MedicarePlus 
        program'' means the program under part C of title XVIII of the 
        Social Security Act.
            (5) MedicarePlus PSO product.--The term ``MedicarePlus PSO 
        product'' means a MedicarePlus product offered by a provider-
        sponsored organization under part C of title XVIII of the 
        Social Security Act.
            (6) Provider service network.--The term ``provider service 
        network'' means an organization that--
                    (A) is organized by, operated by, and composed of 
                members who are health care providers and for purposes 
                that include providing health care services,
                    (B) is funded in part by capital contributions made 
                by the members of such organization,
                    (C) with respect to each contract made by such 
                organization for the purpose of providing a type of 
                health care service to individuals under the terms of a 
                MedicarePlus PSO product--
                            (i) requires all members of such 
                        organization who engage in providing such type 
                        of health care service to agree to provide 
                        health care services of such type under such 
                        contract,
                            (ii) receives the compensation paid for the 
                        health care services of such type provided 
                        under such contract by such members, and
                            (iii) provides for the distribution of such 
                        compensation,
                    (D) has established, consistent with the 
                requirements of the MedicarePlus program for provider-
                sponsored organizations, a program to review, pursuant 
                to written guidelines, the quality, efficiency, and 
                appropriateness of treatment methods and setting of 
                services for all health care providers and all patients 
                participating in such product, along with internal 
                procedures to correct identified deficiencies relating 
                to such methods and such services,
                    (E) has established, consistent with the 
                requirements of the MedicarePlus program for provider-
                sponsored organizations, a program to monitor and 
                control utilization of health care services provided 
                under such product, for the purpose of improving 
                efficient, appropriate care and eliminating the 
                provision of unnecessary health care services,
                    (F) has established a management program to 
                coordinate the delivery of health care services for all 
                health care providers and all patients participating in 
                such product, for the purpose of achieving efficiencies 
                and enhancing the quality of health care services 
                provided, and
                    (G) has established, consistent with the 
                requirements of the MedicarePlus program for provider-
                sponsored organizations, a grievance and appeal process 
                for such organization designed to review and promptly 
                resolve beneficiary or patient grievances and 
                complaints.
        Such term may include a provider-sponsored organization.
            (7) Provider-sponsored organization.--The term ``provider-
        sponsored organization'' means a MedicarePlus organization 
        under the MedicarePlus program that is a provider-sponsored 
        organization (as defined in section ____ of the Social Security 
        Act).
            (8) State.--The term ``State'' has the meaning given it in 
        section 4G(2) of the Clayton Act (15 U.S.C. 15g(2)).
    (c) Issuance of Guidelines.--Not later than 120 days after the date 
of the enactment of this Act, the Attorney General and the Federal 
Trade Commission shall issue jointly guidelines specifying the 
enforcement policies and analytical principles that will be applied by 
the Department of Justice and the Commission with respect to the 
operation of subsection (a).

                          PART 4--COMMISSIONS

                                                     Subtitle A, Part 4

SEC. 15031. MEDICARE PAYMENT REVIEW COMMISSION.

    (a) In General.--Title XVIII, as amended by section 15001(a), is 
amended by inserting after section 1805 the following new section:

                  ``medicare payment review commission

    ``Sec. 1806. (a) Establishment.--There is hereby established the 
Medicare Payment Review Commission (in this section referred to as the 
`Commission').
    ``(b) Duties.--
            ``(1) General duties and reports.--The Commission shall 
        review, and make recommendations to Congress concerning, 
        payment policies under this title. By not later than June 1 of 
        each year, the Commission shall submit a report to Congress 
        containing an examination of issues affecting the medicare 
        program, including the implications of changes in health care 
        delivery in the United States and in the market for health care 
        services on the medicare program. The Commission may submit to 
        Congress from time to time such other reports as the Commission 
        deems appropriate. The Secretary shall respond to 
        recommendations of the Commission in notices of rulemaking 
        proceedings under this title.
            ``(2) Specific duties relating to medicareplus program.--
        Specifically, the Commission shall review, with respect to the 
        MedicarePlus program under part C--
                    ``(A) the appropriateness of the methodology for 
                making payment to plans under such program, including 
                the making of differential payments and the 
                distribution of differential updates among different 
                payment areas,
                    ``(B) the appropriateness of the mechanisms used to 
                adjust payments for risk and the need to adjust such 
                mechanisms to take into account health status of 
                beneficiaries,
                    ``(C) the implications of risk selection both among 
                MedicarePlus organizations and between the MedicarePlus 
                option and the non-MedicarePlus option,
                    ``(D) in relation to payment under part C, the 
                development and implementation of mechanisms to assure 
                the quality of care for those enrolled with 
                MedicarePlus organizations,
                    ``(E) the impact of the MedicarePlus program on 
                access to care for medicare beneficiaries, and
                    ``(F) other major issues in implementation and 
                further development of the MedicarePlus program.
            ``(3) Specific duties relating to the failsafe budget 
        mechanism.--Specifically, the Commission shall review, with 
        respect to the failsafe budget mechanism described in section 
        1895--
                    ``(A) the appropriateness of the expenditure 
                projections by the Secretary under section 1895(c) for 
                each medicare sector;
                    ``(B) the appropriateness of the growth factors for 
                each sector and the ability to take into account 
                substitution across sectors;
                    ``(C) the appropriateness of the mechanisms for 
                implementing reductions in payment amounts for 
                different sectors, including any adjustments to reflect 
                changes in volume or intensity resulting for any 
                payment reductions;
                    ``(D) the impact of the mechanism on provider 
                participation in parts A and B and in the MedicarePlus 
                program; and
                    ``(E) the appropriateness of the medicare benefit 
                budget (under section 1895(c)(2)(C) of the Social 
                Security Act), particularly for fiscal years after 
                fiscal year 2002.
            ``(4) Specific duties relating to the fee-for-service 
        system.--Specifically, the Commission shall review payment 
        policies under parts A and B, including--
                    ``(A) the factors affecting expenditures for 
                services in different sectors, including the process 
                for updating hospital, physician, and other fees,
                    ``(B) payment methodologies; and
                    ``(C) the impact of payment policies on access and 
                quality of care for medicare beneficiaries.
            ``(5) Specific duties relating to interaction of payment 
        policies with health care delivery generally.--Specifically the 
        Commission shall review the effect of payment policies under 
        this title on the delivery of health care services under this 
        title and assess the implications of changes in the health 
        services market on the medicare program.
    ``(c) Membership.--
            ``(1) Number and appointment.--The Commission shall be 
        composed of 15 members appointed by Comptroller General.
            ``(2) Qualifications.--The membership of the Commission 
        shall include individuals with national recognition for their 
        expertise in health finance and economics, health facility 
        management, health plans and integrated delivery systems, 
        reimbursement of health facilities, physicians, and other 
        providers of services, and other related fields, who provide a 
        mix of different professionals, broad geographic 
        representation, and a balance between urban and rural 
        representatives, including physicians and other health 
        professionals, employers, third party payors, individuals 
        skilled in the conduct and interpretation of biomedical, health 
        services, and health economics research and expertise in 
        outcomes and effectiveness research and technology assessment. 
        Such membership shall also include representatives of consumers 
        and the elderly.
            ``(3) Considerations in initial appointment.--To the extent 
        possible, in first appointing members to the Commission shall 
        consider appointing individuals who (as of the date of the 
        enactment of this section) were serving on the Prospective 
        Payment Assessment Commission or the Physician Payment Review 
        Commission.
            ``(4) Terms.--
                    ``(A) In general.--The terms of members of the 
                Commission shall be for 3 years except that the 
                Comptroller General shall designate staggered terms for 
                the members first appointed.
                    ``(B) Vacancies.--Any member appointed to fill a 
                vacancy occurring before the expiration of the term for 
                which the member's predecessor was appointed shall be 
                appointed only for the remainder of that term. A member 
                may serve after the expiration of that member's term 
                until a successor has taken office. A vacancy in the 
                Commission shall be filled in the manner in which the 
                original appointment was made.
            ``(5) Compensation.--While serving on the business of the 
        Commission (including traveltime), a member of the Commission 
        shall be entitled to compensation at the per diem equivalent of 
        the rate provided for level IV of the Executive Schedule under 
        section 5315 of title 5, United States Code; and while so 
        serving away from home and member's regular place of business, 
        a member may be allowed travel expenses, as authorized by the 
        Chairman of the Commission. Physicians serving as personnel of 
        the Commission may be provided a physician comparability 
        allowance by the Commission in the same manner as Government 
        physicians may be provided such an allowance by an agency under 
        section 5948 of title 5, United States Code, and for such 
        purpose subsection (i) of such section shall apply to the 
        Commission in the same manner as it applies to the Tennessee 
        Valley Authority. For purposes of pay (other than pay of 
        members of the Commission) and employment benefits, rights, and 
        privileges, all personnel of the Commission shall be treated as 
        if they were employees of the United States Senate.
            ``(6) Chairman; vice chairman.--The Comptroller General 
        shall designate a member of the Commission, at the time of 
        appointment of the member, as Chairman and a member as Vice 
        Chairman for that term of appointment.
            ``(7) Meetings.--The Commission shall meet at the call of 
        the Chairman. Section 10(a)(1) of the Federal Advisory 
        Committee Act shall not apply to any portion of a Commission 
        meeting if the Commission, by majority vote, determines that 
        such portion of such meeting should be closed.
    ``(d) Director and Staff; Experts and Consultants.--Subject to such 
review as the Comptroller General deems necessary to assure the 
efficient administration of the Commission, the Commission may--
            ``(1) employ and fix the compensation of an Executive 
        Director (subject to the approval of the Comptroller General) 
        and such other personnel as may be necessary to carry out its 
        duties (without regard to the provisions of title 5, United 
        States Code, governing appointments in the competitive 
        service);
            ``(2) seek such assistance and support as may be required 
        in the performance of its duties from appropriate Federal 
        departments and agencies;
            ``(3) enter into contracts or make other arrangements, as 
        may be necessary for the conduct of the work of the Commission 
        (without regard to section 3709 of the Revised Statutes (41 
        U.S.C. 5));
            ``(4) make advance, progress, and other payments which 
        relate to the work of the Commission;
            ``(5) provide transportation and subsistence for persons 
        serving without compensation; and
            ``(6) prescribe such rules and regulations as it deems 
        necessary with respect to the internal organization and 
        operation of the Commission.
    ``(e) Powers.--
            ``(1) Obtaining official data.--The Commission may secure 
        directly from any department or agency of the United States 
        information necessary to enable it to carry out this section. 
        Upon request of the Chairman, the head of that department or 
        agency shall furnish that information to the Commission on an 
        agreed upon schedule.
            ``(2) Data collection.--In order to carry out its 
        functions, the Commission shall collect and assess information 
        to--
                    ``(A) utilize existing information, both published 
                and unpublished, where possible, collected and assessed 
                either by its own staff or under other arrangements 
                made in accordance with this section,
                    ``(B) carry out, or award grants or contracts for, 
                original research and experimentation, where existing 
                information is inadequate, and
                    ``(C) adopt procedures allowing any interested 
                party to submit information for the Commission's use in 
                making reports and recommendations.
            ``(3) Access of gao to information.--The Comptroller 
        General shall have unrestricted access to all deliberations, 
        records, and data of the Commission, immediately upon request.
            ``(4) Periodic audit.--The Commission shall be subject to 
        periodic audit by the General Accounting Office.
    ``(f) Authorization of Appropriations.--
            ``(1) Request for appropriations.--The Commission shall 
        submit requests for appropriations in the same manner as the 
        Comptroller General submits requests for appropriations, but 
        amounts appropriated for the Commission shall be separate from 
        amounts appropriated for the Comptroller General.
            ``(2) Authorization.--There are authorized to be 
        appropriated such sums as may be necessary to carry out the 
        provisions of this section. 60 percent of such appropriation 
        shall be payable from the Federal Hospital Insurance Trust 
        Fund, and 40 percent of such appropriation shall be payable 
        from the Federal Supplementary Medical Insurance Trust Fund.''.
    (b) Abolition of ProPAC and PPRC.--
            (1) Propac.--
                    (A) In general.--Section 1886(e) (42 U.S.C. 
                1395ww(e)) is amended--
                            (i) by striking paragraphs (2) and (6); and
                            (ii) in paragraph (3), by striking ``(A) 
                        The Commission'' and all that follows through 
                        ``(B)''.
                    (B) Conforming amendment.--Section 1862 (42 U.S.C. 
                1395y) is amended by striking ``Prospective Payment 
                Assessment Commission'' each place it appears in 
                subsection (a)(1)(D) and subsection (i) and inserting 
                ``Medicare Payment Review Commission''.
            (2) PPRC.--
                    (A) In general.--Title XVIII is amended by striking 
                section 1845 (42 U.S.C. 1395w-1).
                    (B) Conforming amendments.--
                            (i) Section 1834(b)(2) (42 U.S.C. 
                        1395m(b)(2)) is amended by striking ``Physician 
                        Payment Review Commission'' and inserting 
                        ``Medicare Payment Review Commission''.
                            (ii) Section 1842(b) (42 U.S.C. 1395u(b)) 
                        is amended by striking ``Physician Payment 
                        Review Commission'' each place it appears in 
                        paragraphs (2)(C), (9)(D), and (14)(C)(i) and 
                        inserting ``Medicare Payment Review 
                        Commission''.
                            (iii) Section 1848 (42 U.S.C. 1395w-4) is 
                        amended by striking ``Physician Payment Review 
                        Commission'' and inserting ``Medicare Payment 
                        Review Commission'' each place it appears in 
                        paragraph (2)(A)(ii), (2)(B)(iii), and (5) of 
                        subsection (c), subsection (d)(2)(F), 
                        paragraphs (1)(B), (3), and (4)(A)of subsection 
                        (f), and paragraphs (6)(C) and (7)(C) of 
                        subsection (g).
    (c) Effective Date; Transition.--
            (1) In general.--The Comptroller General shall first 
        provide for appointment of members to the Medicare Payment 
        Review Commission (in this subsection referred to as ``MPRC'') 
        by not later than March 31, 1996.
            (2) Transition.--Effective on a date (not later than 30 
        days after the date a majority of members of the MPRC have 
        first been appointed, the Prospective Payment Assessment 
        Commission (in this subsection referred to as ``ProPAC'') and 
        the Physician Payment Review Commission (in this subsection 
        referred to as ``PPRC''), and amendments made by subsection 
        (b), are terminated. The Comptroller General, to the maximum 
        extent feasible, shall provide for the transfer to the MPRC of 
        assets and staff of ProPAC and PPRC, without any loss of 
        benefits or seniority by virtue of such transfers. Fund 
        balances available to the ProPAC or PPRC for any period shall 
        be available to the MPRC for such period for like purposes.
            (3) Continuing responsibility for reports.--The MPRC shall 
        be responsible for the preparation and submission of reports 
required by law to be submitted (and which have not been submitted by 
the date of establishment of the MPRC) by the ProPAC and PPRC, and, for 
this purpose, any reference in law to either such Commission is deemed, 
after the appointment of the MPRC to refer to the MPRC.

SEC. 15032. COMMISSION ON THE EFFECT OF THE BABY BOOM GENERATION ON THE 
              MEDICARE PROGRAM.

    (a) Establishment.--There is established a commission to be known 
as the Commission on the Effect of the Baby Boom Generation on the 
Medicare Program (in this section referred to as the ``Commission'').
    (b) Duties.--
            (1) In general.--The Commission shall--
                    (A) examine the financial impact on the medicare 
                program of the significant increase in the number of 
                medicare eligible individuals which will occur 
                beginning approximately during 2010 and lasting for 
                approximately 25 years, and
                    (B) make specific recommendations to the Congress 
                respecting a comprehensive approach to preserve the 
                medicare program for the period during which such 
                individuals are eligible for medicare.
            (2) Considerations in making recommendations.--In making 
        its recommendations, the Commission shall consider the 
        following:
                    (A) The amount and sources of Federal funds to 
                finance the medicare program, including the potential 
                use of innovative financing methods.
                    (B) The most efficient and effective manner of 
                administering the program, including the 
                appropriateness of continuing the application of the 
                failsafe budget mechanism under section 1895 of the 
                Social Security Act for fiscal years after fiscal year 
                2002 and the appropriate long-term growth rates for 
                contributions electing coverage under MedicarePlus 
                under part C of title XVIII of such Act.
                    (C) Methods used by other nations to respond to 
                comparable demographic patterns in eligibility for 
                health care benefits for elderly and disabled 
                individuals.
                    (D) Modifying age-based eligibility to correspond 
                to changes in age-based eligibility under the OASDI 
                program.
                    (E) Trends in employment-related health care for 
                retirees, including the use of medical savings accounts 
                and similar financing devices.
    (c) Membership.--
            (1) Appointment.--The Commission shall be composed of 15 
        members appointed as follows:
                    (A) The President shall appoint 3 members.
                    (B) The Majority Leader of the Senate shall 
                appoint, after consultation with the minority leader of 
                the Senate, 6 members, of whom not more than 4 may be 
                of the same political party.
                    (C) The Speaker of the House of Representatives 
                shall appoint, after consultation with the minority 
                leader of the House of Representatives, 6 members, of 
                whom not more than 4 may be of the same political 
                party.
            (2) Chairman and vice chairman.--The Commission shall elect 
        a Chairman and Vice Chairman from among its members.
            (3) Vacancies.--Any vacancy in the membership of the 
        Commission shall be filled in the manner in which the original 
        appointment was made and shall not affect the power of the 
        remaining members to execute the duties of the Commission.
            (4) Quorum.--A quorum shall consist of 8 members of the 
        Commission, except that 4 members may conduct a hearing under 
        subsection (e).
            (5) Meetings.--The Commission shall meet at the call of its 
        Chairman or a majority of its members.
            (6) Compensation and reimbursement of expenses.--Members of 
        the Commission are not entitled to receive compensation for 
        service on the Commission. Members may be reimbursed for 
        travel, subsistence, and other necessary expenses incurred in 
        carrying out the duties of the Commission.
    (d) Staff and Consultants.--
            (1) Staff.--The Commission may appoint and determine the 
        compensation of such staff as may be necessary to carry out the 
        duties of the Commission. Such appointments and compensation 
        may be made without regard to the provisions of title 5, United 
        States Code, that govern appointments in the competitive 
        services, and the provisions of chapter 51 and subchapter III 
        of chapter 53 of such title that relate to classifications and 
        the General Schedule pay rates.
            (2) Consultants.--The Commission may procure such temporary 
        and intermittent services of consultants under section 3109(b) 
        of title 5, United States Code, as the Commission determines to 
        be necessary to carry out the duties of the Commission.
    (e) Powers.--
            (1) Hearings and other activities.--For the purpose of 
        carrying out its duties, the Commission may hold such hearings 
        and undertake such other activities as the Commission 
        determines to be necessary to carry out its duties.
            (2) Studies by gao.--Upon the request of the Commission, 
        the Comptroller General shall conduct such studies or 
        investigations as the Commission determines to be necessary to 
        carry out its duties.
            (3) Cost estimates by congressional budget office.--
                    (A) Upon the request of the Commission, the 
                Director of the Congressional Budget Office shall 
                provide to the Commission such cost estimates as the 
                Commission determines to be necessary to carry out its 
                duties.
                    (B) The Commission shall reimburse the Director of 
                the Congressional Budget Office for expenses relating 
                to the employment in the office of the Director of such 
                additional staff as may be necessary for the Director 
                to comply with requests by the Commission under 
                subparagraph (A).
            (4) Detail of federal employees.--Upon the request of the 
        Commission, the head of any Federal agency is authorized to 
        detail, without reimbursement, any of the personnel of such 
        agency to the Commission to assist the Commission in carrying 
        out its duties. Any such detail shall not interrupt or 
        otherwise affect the civil service status or privileges of the 
        Federal employee.
            (5) Technical assistance.--Upon the request of the 
        Commission, the head of a Federal agency shall provide such 
        technical assistance to the Commission as the Commission 
        determines to be necessary to carry out its duties.
            (6) Use of mails.--The Commission may use the United States 
        mails in the same manner and under the same conditions as 
        Federal agencies and shall, for purposes of the frank, be 
        considered a commission of Congress as described in section 
        3215 of title 39, United States Code.
            (7) Obtaining information.--The Commission may secure 
        directly from any Federal agency information necessary to 
        enable it to carry out its duties, if the information may be 
        disclosed under section 552 of title 5, United States Code. 
        Upon request of the Chairman of the Commission, the head of 
        such agency shall furnish such information to the Commission.
            (8) Administrative support services.--Upon the request of 
        the Commission, the Administrator of General Services shall 
        provide to the Commission on a reimbursable basis such 
        administrative support services as the Commission may request.
            (9) Acceptance of donations.--The Commission may accept, 
        use, and dispose of gifts or donations of services or property.
            (10) Printing.--For purposes of costs relating to printing 
        and binding, including the cost of personnel detailed from the 
        Government Printing Office, the Commission shall be deemed to 
        be a committee of the Congress.
    (f) Report.--Not later than May 1, 1997, the Commission shall 
submit to Congress a report containing its findings and recommendations 
regarding how to protect and preserve the medicare program in a 
financially solvent manner until 2030 (or, if later, throughout the 
period of projected solvency of the Federal Old-Age and Survivors 
Insurance Trust Fund). The report shall include detailed 
recommendations for appropriate legislative initiatives respecting how 
to accomplish this objective.
    (g) Termination.--The Commission shall terminate 60 days after the 
date of submission of the report required in subsection (f).
    (h) Authorization of Appropriations.--There are authorized to be 
appropriated $1,500,000 to carry out this section. Amounts appropriated 
to carry out this section shall remain available until expended.

SEC. 15033. CHANGE IN APPOINTMENT OF ADMINISTRATOR OF HCFA.

    (a) In General.--Section 1117 (42 U.S.C. 1317) is amended by 
striking ``President by and with the advice and consent of the Senate'' 
and inserting ``Secretary of Health and Human Services''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the date of the enactment of this Act and shall apply to 
Administrators appointed on or after the date of the enactment of this 
Act.

                 Subtitle B--Preventing Fraud and Abuse

                                                             Subtitle B

SEC. 15101. INCREASING AWARENESS OF FRAUD AND ABUSE.

    (a) Beneficiary Outreach Efforts.--The Secretary of Health and 
Human Services (acting through the Administrator of the Health Care 
Financing Administration and the Inspector General of the Department of 
Health and Human Services) shall make ongoing efforts (through public 
service announcements, publications, and other appropriate methods) to 
alert individuals entitled to benefits under the medicare program of 
the existence of fraud and abuse committed against the program and the 
costs to the program of such fraud and abuse, and of the existence of 
the toll-free telephone line operated by the Secretary to receive 
information on fraud and abuse committed against the program.
    (b) Clarification of Requirement to Provide Explanation of Medicare 
Benefits.--The Secretary shall provide an explanation of benefits under 
the medicare program with respect to each item or service for which 
payment may be made under the program which is furnished to an 
individual, without regard to whether or not a deductible or 
coinsurance may be imposed against the individual with respect to the 
item or service.
    (c) Provider Outreach Efforts; Publication of Fraud Alerts.--
            (1) Special fraud alerts.--
                    (A) In general.--
                            (i) Request for special fraud alerts.--Any 
                        person may present, at any time, a request to 
                        the Secretary to issue and publish a special 
                        fraud alert.
                            (ii) Special fraud alert defined.--In this 
                        section, a ``special fraud alert'' is a notice 
                        which informs the public of practices which the 
                        Secretary considers to be suspect or of 
                        particular concern under the medicare program 
                        or a State health care program (as defined in 
                        section 1128(h) of the Social Security Act).
                    (B) Issuance and publication of special fraud 
                alerts.--
                            (i) Investigation.--Upon receipt of a 
                        request for a special fraud alert under 
                        subparagraph (A), the Secretary shall 
                        investigate the subject matter of the request 
                        to determine whether a special fraud alert 
                        should be issued. If appropriate, the Secretary 
                        (in consultation with the Attorney General) 
                        shall 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.
                            (ii) Criteria for issuance.--In determining 
                        whether to issue a special fraud alert upon a 
                        request under subparagraph (A), the Secretary 
                        may consider--
                                    (I) 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 
                                15214(b); and
                                    (II) the extent and frequency of 
                                the conduct that would be identified in 
                                the special fraud alert.
            (2) Publication of all hcfa fraud alerts in federal 
        register.--Each notice issued by the Health Care Financing 
        Administration which informs the public of practices which the 
        Secretary considers to be suspect or of particular concern 
        under the medicare program or a State health care program (as 
        defined in section 1128(h) of the Social Security Act) shall be 
        published in the Federal Register, without regard to whether or 
        not the notice is issued by a regional office of the Health 
        Care Financing Administration.

SEC. 15102. BENEFICIARY INCENTIVE PROGRAMS.

    (a) Program to Collect Information on Fraud and Abuse.--
            (1) Establishment of program.--Not later than 3 months 
        after the date of the enactment of this Act, the Secretary 
        shall establish a program under which the Secretary shall 
        encourage individuals to report to the Secretary information on 
        individuals and entities who are engaging or who have engaged 
        in acts or omissions which constitute grounds for the 
        imposition of a sanction under section 1128, section 1128A, or 
        section 1128B of the Social Security Act, or who have otherwise 
        engaged in fraud and abuse against the medicare program.
            (2) Payment of portion of amounts collected.--If an 
        individual reports information to the Secretary under the 
        program established under paragraph (1) which serves as the 
        basis for the collection by the Secretary or the Attorney 
        General of any amount of at least $100 (other than any amount 
        paid as a penalty under section 1128B of the Social Security 
        Act), the Secretary may pay a portion of the amount collected 
        to the individual (under procedures similar to those applicable 
        under section 7623 of the Internal Revenue Code of 1986 to 
        payments to individuals providing information on violations of 
        such Code).
    (b) Program to Collect Information on Program Efficiency.--
            (1) Establishment of program.--Not later than 3 months 
        after the date of the enactment of this Act, the Secretary 
        shall establish a program under which the Secretary shall 
        encourage individuals to submit to the Secretary suggestions on 
        methods to improve the efficiency of the medicare program.
            (2) Payment of portion of program savings.--If an 
        individual submits a suggestion to the Secretary under the 
        program established under paragraph (1) which is adopted by the 
        Secretary and which results in savings to the program, the 
        Secretary may make a payment to the individual of such amount 
        as the Secretary considers appropriate.

SEC. 15103. INTERMEDIATE SANCTIONS FOR MEDICARE HEALTH MAINTENANCE 
              ORGANIZATIONS.

    (a) Application of Intermediate Sanctions for any Program 
Violations.--
            (1) In general.--Section 1876(i)(1) (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) (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; and
            ``(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) (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) the Secretary shall impose more severe sanctions on 
        organizations that have a history of deficiencies or that have 
        not taken steps 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) Section 1876(i)(6)(B) (42 
        U.S.C. 1395mm(i)(6)(B)) is amended by striking the second 
        sentence.
            (B) Section 1876(i)(6) (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) Effective Date.--The amendments made by this section shall 
apply with respect to contract years beginning on or after January 1, 
1996.

SEC. 15104. VOLUNTARY DISCLOSURE PROGRAM.

    Title XI (42 U.S.C. 1301 et seq.) is amended by inserting after 
section 1128B the following new section:

              ``voluntary disclosure of acts or omissions

    ``Sec. 1129. (a) Establishment of Voluntary Disclosure Program.--
Not later than 3 months after the date of the enactment of this 
section, the Secretary shall establish a program to encourage 
individuals and entities to voluntarily disclose to the Secretary 
information on acts or omissions of the individual or entity which 
constitute grounds for the imposition of a sanction described in 
section 1128, 1128A, or 1128B.
    ``(b) Effect of Voluntary Disclosure.--If an individual or entity 
voluntarily discloses information with respect to an act or omission to 
the Secretary under subsection (a), the following rules shall apply:
            ``(1) The Secretary may waive, reduce, or otherwise 
        mitigate any sanction which would otherwise be applicable to 
        the individual or entity under section 1128, 1128A, or 1128B as 
        a result of the act or omission involved.
            ``(2) No qui tam action may be brought pursuant to chapter 
        37 of title 31, United States Code, against the individual or 
        entity with respect to the act or omission involved.''.

SEC. 15105. REVISIONS TO CURRENT SANCTIONS.

    (a) Doubling the Amount of Civil Monetary Penalties.--The maximum 
amount of civil monetary penalties specified in section 1128A of the 
Social Security Act or under title XVIII of such Act (as in effect on 
the day before the date of the enactment of this Act) shall, effective 
for violations occurring after the date of the enactment of this Act, 
be double the amount otherwise provided as of such date.
    (b) Establishment of Minimum Period of Exclusion for Certain 
Individuals and Entities Subject to Permissive Exclusion.--Section 
1128(c)(3) (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.''.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to acts or omissions occurring on or after January 
1, 1996.

SEC. 15106. CONSOLIDATED FUNDING FOR ANTI-FRAUD AND ABUSE ACTIVITIES 
              UNDER MEDICARE INTEGRITY PROGRAM.

    (a) Establishment of Medicare Integrity Program.--Title XVIII is 
amended by adding at the end the following new section:

                      ``medicare integrity program

    ``Sec. 1893. (a) Establishment of Program.--There is hereby 
established the Medicare Integrity Program (hereafter in this section 
referred to as the `Program') under which the Secretary shall promote 
the integrity of the medicare program by entering into contracts in 
accordance with this section with eligible private entities to carry 
out the activities described in subsection (b).
    ``(b) Activities Described.--The activities described in this 
subsection are as follows:
            ``(1) Review of activities of providers of services or 
        other individuals and entities furnishing items and services 
        for which payment may be made under this title (including 
        skilled nursing facilities and home health agencies), including 
        medical and utilization review and fraud review (employing 
        similar standards, processes, and technologies used by private 
        health plans, including equipment and software technologies 
        which surpass the capability of the equipment and technologies 
        used in the review of claims under this title as of the date of 
        the enactment of this section).
            ``(2) Audit of cost reports.
            ``(3) Determinations as to whether payment should not be, 
        or should not have been, made under this title by reason of 
        section 1862(b), and recovery of payments that should not have 
        been made.
            ``(4) Education of providers of services, beneficiaries, 
        and other persons with respect to payment integrity and benefit 
        quality assurance issues.
    ``(c) Eligibility of Entities.--An entity is eligible to enter into 
a contract under the Program to carry out any of the activities 
described in subsection (b) if--
            ``(1) the entity has demonstrated capability to carry out 
        such activities;
            ``(2) in carrying out such activities, the entity agrees to 
        cooperate with the Inspector General of the Department of 
        Health and Human Services, the Attorney General of the United 
        States, and other law enforcement agencies, as appropriate, in 
        the investigation and deterrence of fraud and abuse in relation 
        to this title and in other cases arising out of such 
        activities;
            ``(3) the entity's financial holdings, interests, or 
        relationships will not interfere with its ability to perform 
        the functions to be required by the contract in an effective 
        and impartial manner; and
            ``(4) the entity meets such other requirements as the 
        Secretary may impose.
    ``(d) Process for Entering Into Contracts.--The Secretary shall 
enter into contracts under the Program in accordance with such 
procedures as the Secretary may by regulation establish, except that 
such procedures shall include the following:
            ``(1) The Secretary shall determine the appropriate number 
        of separate contracts which are necessary to carry out the 
        Program and the appropriate times at which the Secretary shall 
        enter into such contracts.
            ``(2) The provisions of section 1153(e)(1) shall apply to 
        contracts and contracting authority under this section, except 
        that competitive procedures must be used when entering into new 
        contracts under this section, or at any other time considered 
        appropriate by the Secretary.
            ``(3) A contract under this section may be renewed without 
        regard to any provision of law requiring competition if the 
        contractor has met or exceeded the performance requirements 
        established in the current contract.
    ``(e) Limitation on Contractor Liability.--The Secretary shall by 
regulation provide for the limitation of a contractor's liability for 
actions taken to carry out a contract under the Program, and such 
regulation shall, to the extent the Secretary finds appropriate, employ 
the same or comparable standards and other substantive and procedural 
provisions as are contained in section 1157.
    ``(f) Transfer of Amounts to Medicare Anti-Fraud and Abuse Trust 
Fund.--For each fiscal year, the Secretary shall transfer from the 
Federal Hospital Insurance Trust Fund and the Federal Supplementary 
Medical Insurance Trust Fund to the Medicare Anti-Fraud and Abuse Trust 
Fund under subsection (g) such amounts as are necessary to carry out 
the activities described in subsection (b). Such transfer shall be in 
an allocation as reasonably reflects the proportion of such 
expenditures associated with part A and part B.
    ``(g) Medicare Anti-Fraud and Abuse Trust Fund.--
            ``(1) Establishment.--
                    ``(A) In general.--There is hereby established in 
                the Treasury of the United States the Anti-Fraud and 
                Abuse Trust Fund (hereafter in this subsection 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 the Trust Fund as provided in subsection 
                (f), paragraph (3), and title XI.
                    ``(B) Authorization to accept gifts and bequests.--
                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) Investment.--
                    ``(A) In general.--The Secretary of the Treasury 
                shall invest such amounts of the Fund as such Secretary 
                determines are not required to meet current withdrawals 
                from the Fund in government account serial securities.
                    ``(B) Use of income.--Any interest derived from 
                investments under subparagraph (A) shall be credited to 
                the Fund.
            ``(3) Amounts deposited into trust fund.--In addition to 
        amounts transferred under subsection (f), there shall be 
        deposited in the Trust Fund--
                    ``(A) that portion of amounts recovered in relation 
                to section 1128A arising out of a claim under title 
                XVIII as remains after application of subsection (f)(2) 
                (relating to repayment of the Federal Hospital 
                Insurance Trust Fund or the Federal Supplementary 
                Medical Insurance Trust Fund) of that section, as may 
                be applicable,
                    ``(B) fines imposed under section 1128B arising out 
                of a claim under this title, and
                    ``(C) penalties and damages imposed (other than 
                funds awarded to a relator or for restitution) under 
                sections 3729 through 3732 of title 31, United States 
                Code (pertaining to false claims) in cases involving 
                claims relating to programs under title XVIII or XIX.
            ``(4) Direct appropriation of funds to carry out program.--
                    ``(A) In general.--There are appropriated from the 
                Trust Fund for each fiscal year such amounts as are 
                necessary to carry out the Medicare Integrity Program 
                under this section, subject to subparagraph (B).
                    ``(B) Amounts specified.--The amount appropriated 
                under subparagraph (A) for a fiscal year is as follows:
                            ``(i) For fiscal year 1996, such amount 
                        shall be not less than $430,000,000 and not 
                        more than $440,000,000.
                            ``(ii) For fiscal year 1997, such amount 
                        shall be not less than $490,000,000 and not 
                        more than $500,000,000.
                            ``(iii) For fiscal year 1998, such amount 
                        shall be not less than $550,000,000 and not 
                        more than $560,000,000.
                            ``(iv) For fiscal year 1999, such amount 
                        shall be not less than $620,000,000 and not 
                        more than $630,000,000.
                            ``(v) For fiscal year 2000, such amount 
                        shall be not less than $670,000,000 and not 
                        more than $680,000,000.
                            ``(vi) For fiscal year 2001, such amount 
                        shall be not less than $690,000,000 and not 
more than $700,000,000.
                            ``(vii) For fiscal year 2002, such amount 
                        shall be not less than $710,000,000 and not 
                        more than $720,000,000.
            ``(5) Annual report.--The Secretary shall submit an annual 
        report to Congress on the amount of revenue which is generated 
        and disbursed by the Trust Fund in each fiscal year.''.
    (b) Elimination of FI and Carrier Responsibility for Carrying Out 
Activities Subject to Program.--
            (1) Responsibilities of fiscal intermediaries under part 
        a.--Section 1816 (42 U.S.C. 1395h) is amended by adding at the 
        end the following new subsection:
    ``(l) No agency or organization may carry out (or receive payment 
for carrying out) any activity pursuant to an agreement under this 
section to the extent that the activity is carried out pursuant to a 
contract under the Medicare Integrity Program under section 1893.''.
            (2) Responsibilities of carriers under part b.--Section 
        1842(c) (42 U.S.C. 1395u(c)) is amended by adding at the end 
        the following new paragraph:
    ``(6) No carrier may carry out (or receive payment for carrying 
out) any activity pursuant to a contract under this subsection to the 
extent that the activity is carried out pursuant to a contract under 
the Medicare Integrity Program under section 1893.''.
    (c) Conforming Amendment.--Section 1128A(f)(3) (42 U.S.C. 1320a-
7a(f)(3)) is amended by striking ``as miscellaneous receipts of the 
Treasury of the United States'' and inserting ``in the Anti-Fraud and 
Abuse Trust Fund established under section 1145''.

SEC. 15107. PERMITTING CARRIERS TO CARRY OUT PRIOR AUTHORIZATION FOR 
              CERTAIN ITEMS OF DURABLE MEDICAL EQUIPMENT.

    (a) In General.--Section 1834(a)(15) (42 U.S.C. 1395m(a)(15)), as 
amended by section 135(b) of the Social Security Act Amendments of 
1994, is amended by adding at the end the following new subparagraphs:
                    ``(D) Application by carriers.--A carrier may 
                develop (and periodically update) a list of items under 
                subparagraph (A) and a list of suppliers under 
                subparagraph (B) in the same manner as the Secretary 
                may develop (and periodically update) such lists.
                    ``(E) Waiver of publication requirement.--A carrier 
                may make an advance determination under subparagraph 
                (C) with respect to an item or supplier on a list 
                developed by the Secretary or the carrier without 
                regard to whether or not the Secretary has promulgated 
                a regulation with respect to the list, except that the 
                carrier may not make such an advance determination with 
                respect to an item or supplier on a list until the 
                expiration of the 30-day period beginning on the date 
                the Secretary or the carrier places the item or 
                supplier on the list.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect as if included in the enactment of the Social Security Act 
Amendments of 1994.

SEC. 15108. ESTABLISHMENT OF HEALTH CARE ANTI-FRAUD TASK FORCE.

    (a) In General.--Not later than 120 days after the date of the 
enactment of this Act, the Attorney General shall establish (in 
consultation with the Advisory Group described in subsection (c)) 
within the Department of Justice a task force (similar to the Organized 
Crime Drug Enforcement Task Force) to be known as the ``Health Care 
Anti-Fraud Task Force'' (hereafter in this section referred to as the 
``Task Force'') to prosecute health care fraud offenses. Nothing in 
this section may be construed as affecting the powers of the Attorney 
General or any other individual.
    (b) Operations of Task Force.--The Attorney General shall establish 
and operate the Task Force in a manner such that--
            (1) at least one fully staffed operational segment of the 
        Task Force (including at least one Federal representative 
        engaged in Task Force activities on a full-time basis) shall 
        operate in each judicial district of the United States; and
            (2) the Task Force maintains separate accounting of its 
        finances, personnel, case load, and resolution of claims and 
        actions.
    (c) Advisory Group Described.--The Advisory Group described in this 
subsection is a group consisting of the following individuals (or their 
designees):
            (1) The Secretary of Health and Human Services.
            (2) The Secretary of the Treasury.
            (3) The Secretary of Veterans' Affairs.
            (4) The Chair of the Board of Governors of the United 
        States Postal Service.

SEC. 15109. STUDY OF ADEQUACY OF PRIVATE QUALITY ASSURANCE PROGRAMS.

    (a) In General.--The Administrator of the Health Care Financing 
Administration (acting through the Director of the Office of Research 
and Development) shall enter into an agreement with a private entity to 
conduct a study during the 5-year period beginning on the date of the 
enactment of this Act of the adequacy of the quality assurance programs 
and consumer protections used by plans enrolling medicare beneficiaries 
under part C of title XVIII of the Social Security Act (as inserted by 
section 15002(a)), and shall include in the study an analysis of the 
effectiveness of such programs in protecting plan enrollees against the 
risk of insufficient provision of benefits which may result from 
utilization controls.
    (b) Report.--Not later than 6 months after the conclusion of the 5-
year period described in subsection (a), the Administrator shall submit 
a report to Congress on the study conducted under subsection (a).

                     Subtitle C--Regulatory Relief

              PART 1--PHYSICIAN OWNERSHIP REFERRAL REFORM

                                                     Subtitle C, Part 1

SEC. 15201. REPEAL OF PROHIBITIONS BASED ON COMPENSATION ARRANGEMENTS.

    (a) In General.--Section 1877(a)(2) (42 U.S.C. 1395nn(a)(2)) is 
amended by striking ``is--'' and all that follows through ``equity,'' 
and inserting the following: ``is (except as provided in subsection 
(c)) an ownership or investment interest in the entity through 
equity,''.
    (b) Conforming Amendments.--Section 1877 (42 U.S.C. 1395nn) is 
amended as follows:
            (1) In subsection (b)--
                    (A) in the heading, by striking ``to Both Ownership 
                and Compensation Arrangement Provisions'' and inserting 
                ``Where Financial Relationship Exists''; and
                    (B) by redesignating paragraph (4) as paragraph 
                (7).
            (2) In subsection (c)--
                    (A) by amending the heading to read as follows: 
                ``Exception for Ownership or Investment Interest in 
                Publicly Traded Securities and Mutual Funds''; and
                    (B) in the matter preceding paragraph (1), by 
                striking ``subsection (a)(2)(A)'' and inserting 
                ``subsection (a)(2)''.
            (3) In subsection (d)--
                    (A) by striking the matter preceding paragraph (1);
                    (B) in paragraph (3), by striking ``paragraph (1)'' 
                and inserting ``paragraph (4)''; and
                    (C) by redesignating paragraphs (1), (2), and (3) 
                as paragraphs (4), (5), and (6), and by transferring 
                and inserting such paragraphs after paragraph (3) of 
                subsection (b).
            (4) By striking subsection (e).
            (5) In subsection (f)(2), as amended by section 152(a) of 
        the Social Security Act Amendments of 1994--
                    (A) in the matter preceding paragraph (1), by 
                striking ``ownership, investment, and compensation'' 
                and inserting ``ownership and investment'';
                    (B) in paragraph (2), by striking ``subsection 
                (a)(2)(A)'' and all that follows through ``subsection 
                (a)(2)(B)),'' and inserting ``subsection (a)(2),''; and
                    (C) in paragraph (2), by striking ``or who have 
                such a compensation relationship with the entity''.
            (6) In subsection (h)--
                    (A) by striking paragraphs (1), (2), and (3);
                    (B) in paragraph (4)(A), by striking clauses (iv) 
                and (vi);
                    (C) in paragraph (4)(B), by striking ``rules.--'' 
                and all that follows through ``(ii) Faculty'' and 
                inserting ``rules for faculty; and
                    (D) by adding at the end of paragraph (4) the 
                following new subparagraph:
                    ``(C) Member of a group.--A physician is a `member' 
                of a group if the physician is an owner or a bona fide 
                employee, or both, of the group.''.

SEC. 15202. REVISION OF DESIGNATED HEALTH SERVICES SUBJECT TO 
              PROHIBITION.

    (a) In General.--Section 1877(h)(6) (42 U.S.C. 1395nn(h)(6)) is 
amended by striking subparagraphs (B) through (K) and inserting the 
following:
                    ``(B) Items and services furnished by a community 
                pharmacy (as defined in paragraph (1)).
                    ``(C) Magnetic resonance imaging and computerized 
                tomography services.
                    ``(D) Outpatient physical therapy services.''.
    (b) Community Pharmacy Defined.--Section 1877(h) (42 U.S.C. 
1395nn(h)), as amended by section 15201(b)(6), is amended by inserting 
before paragraph (4) the following new paragraph:
            ``(1) Community pharmacy.--The term `community pharmacy' 
        means any entity licensed or certified to dispense prescription 
        drugs by the State in which the entity is located (including an 
        entity which dispenses such drugs by mail order).''.
    (c) Conforming Amendments.--
            (1) Section 1877(b)(2) (42 U.S.C. 1395nn(b)(2)) is amended 
        in the matter preceding subparagraph (A) by striking 
        ``services'' and all that follows through ``supplies)--'' and 
        inserting ``services--''.
            (2) Section 1877(h)(5)(C) (42 U.S.C. 1395nn(h)(5)(C)) is 
        amended--
                    (A) by striking ``, a request by a radiologist for 
                diagnostic radiology services, and a request by a 
                radiation oncologist for radiation therapy,'' and 
                inserting ``and a request by a radiologist for magnetic 
                resonance imaging or for computerized tomography'', and
                    (B) by striking ``radiologist, or radiation 
                oncologist'' and inserting ``or radiologist''.

SEC. 15203. DELAY IN IMPLEMENTATION UNTIL PROMULGATION OF REGULATIONS.

    (a) In General.--Section 13562(b) of OBRA-1993 (42 U.S.C. 1395nn 
note) is amended--
            (1) in paragraph (1), by striking ``paragraph (2)'' and 
        inserting ``paragraphs (2) and (3)''; and
            (2) by adding at the end the following new paragraph:
            ``(3) Promulgation of regulations.--Notwithstanding 
        paragraphs (1) and (2), the amendments made by this section 
        shall not apply to any referrals made before the effective date 
        of final regulations promulgated by the Secretary of Health and 
        Human Services to carry out such amendments.''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
take effect as if included in the enactment of OBRA-1993.

SEC. 15204. EXCEPTIONS TO PROHIBITION.

    (a) Revisions to Exception for In-office Ancillary Services.--
            (1) Repeal of site-of-service requirement.--Section 1877 
        (42 U.S.C. 1395nn) is amended--
                    (A) by amending subparagraph (A) of subsection 
                (b)(2) to read as follows:
                    ``(A) that are furnished personally by the 
                referring physician, personally by a physician who is a 
                member of the same group practice as the referring 
                physician, or personally by individuals who are under 
                the general supervision of the physician or of another 
                physician in the group practice, and'', and
                    (B) by adding at the end of subsection (h) the 
                following new paragraph:
            ``(7) General supervision.--An individual is considered to 
        be under the `general supervision' of a physician if the 
        physician (or group practice of which the physician is a 
        member) is legally responsible for the services performed by 
        the individual and for ensuring that the individual meets 
        licensure and certification requirements, if any, applicable 
        under other provisions of law, regardless of whether or not the 
        physician is physically present when the individual furnishes 
        an item or service.''.
            (2) Clarification of treatment of physician owners of group 
        practice.--Section 1877(b)(2)(B) (42 U.S.C. 1395nn(b)(2)(B)) is 
        amended by striking ``physician or such group practice'' and 
        inserting ``physician, such group practice, or the physician 
        owners of such group practice''.
            (3) Conforming amendment.--Section 1877(b)(2) (42 U.S.C. 
        1395nn(b)(2)) is amended by amending the heading to read as 
        follows: ``Ancillary services furnished personally or through 
        group practice.--''.
    (b) Clarification of Exception for Services Furnished in a Rural 
Area.--Paragraph (5) of section 1877(b) (42 U.S.C. 1395nn(b)), as 
transferred by section 15201(b)(3)(C), is amended by striking 
``substantially all'' and inserting ``not less than 75 percent''.
    (c) Revision of Exception for Certain Managed Care Arrangements.--
Section 1877(b)(3) (42 U.S.C. 1395nn(b)(3)) is amended--
            (1) in the heading by inserting ``managed care 
        arrangements'' after ``Prepaid plans'';
            (2) in the matter preceding subparagraph (A), by striking 
        ``organization--'' and inserting ``organization, directly or 
        through contractual arrangements with other entities, to 
        individuals enrolled with the organization--'';
            (3) in subparagraph (A), by inserting ``or part C'' after 
        ``section 1876'';
            (4) by striking ``or'' at the end of subparagraph (C);
            (5) by striking the period at the end of subparagraph (D) 
        and inserting a comma; and
            (6) by adding at the end the following new subparagraphs:
                    ``(E) with a contract with a State to provide 
                services under the State plan under title XIX (in 
                accordance with section 1903(m)) or a State MediGrant 
                plan under title XXI; or
                    ``(F) which--
                            ``(i) provides health care items or 
                        services directly or through one or more 
                        subsidiary entities or arranges for the 
                        provision of health care items or services 
                        substantially through the services of health 
                        care providers under contract with the 
                        organization, and
                            ``(ii)(I) assumes financial risk for the 
                        provision of health services through mechanisms 
                        (such as capitation, risk pools, withholds, and 
                        per diem payments) or offers its network of 
                        contract health providers to an entity 
                        (including self-insured employers and indemnity 
                        plans) which assumes financial risk for the 
                        provision of such health services, or
                            ``(II) has in effect a written agreement 
                        with the provider of services under which the 
                        provider is at significant financial risk 
                        (whether through a withhold, capitation, 
                        incentive pool, per diem payments, or similar 
                        risk sharing arrangement) for the cost or 
                        utilization of services that the provider is 
                        obligated to provide.''.
    (d) New Exception for Shared Facility Services.--
            (1) In general.--Section 1877(b) (42 U.S.C. 1395nn(b)), as 
        amended by section 15201(b)(3)(C), is amended--
                    (A) by redesignating paragraphs (4) through (7) as 
                paragraphs (5) through (8); and
                    (B) by inserting after paragraph (3) the following 
                new paragraph:
            ``(4) Shared facility services.--In the case of a 
        designated health service consisting of a shared facility 
        service of a shared facility--
                    ``(A) that is furnished--
                            ``(i) personally by the referring physician 
                        who is a shared facility physician or 
                        personally by an individual directly employed 
                        or under the general supervision of such a 
                        physician,
                            ``(ii) by a shared facility in a building 
                        in which the referring physician furnishes 
                        substantially all of the services of the 
                        physician that are unrelated to the furnishing 
                        of shared facility services, and
                            ``(iii) to a patient of a shared facility 
                        physician; and
                    ``(B) that is billed by the referring physician or 
                a group practice of which the physician is a member.''.
            (2) Definitions.--Section 1877(h) (42 U.S.C. 1395nn(h)), as 
        amended by section 15201(b)(6) and section 15202(b), is amended 
        by inserting after paragraph (1) the following new paragraph:
            ``(2) Shared facility related definitions.--
                    ``(A) Shared facility service.--The term `shared 
                facility service' means, with respect to a shared 
                facility, a designated health service furnished by the 
                facility to patients of shared facility physicians.
                    ``(B) Shared facility.--The term `shared facility' 
                means an entity that furnishes shared facility services 
                under a shared facility arrangement.
                    ``(C) Shared facility physician.--The term `shared 
                facility physician' means, with respect to a shared 
                facility, a physician (or a group practice of which the 
                physician is a member) who has a financial relationship 
                under a shared facility arrangement with the facility.
                    ``(D) Shared facility arrangement.--The term 
                `shared facility arrangement' means, with respect to 
                the provision of shared facility services in a 
                building, a financial arrangement--
                            ``(i) which is only between physicians who 
                        are providing services (unrelated to shared 
                        facility services) in the same building,
                            ``(ii) in which the overhead expenses of 
                        the facility are shared, in accordance with 
                        methods previously determined by the physicians 
                        in the arrangement, among the physicians in the 
                        arrangement, and
                            ``(iii) which, in the case of a 
                        corporation, is wholly owned and controlled by 
                        shared facility physicians.''.
    (e) New Exception for Services Furnished in Communities With No 
Alternative Providers.--Section 1877(b) (42 U.S.C. 1395nn(b)), as 
amended by section 15201(b)(3)(C) and subsection (d)(1), is amended--
            (1) by redesignating paragraphs (5) through (8) as 
        paragraphs (6) through (9); and
            (2) by inserting after paragraph (4) the following new 
        paragraph:
            ``(5) No alternative providers in area.--In the case of a 
        designated health service furnished in any area with respect to 
        which the Secretary determines that individuals residing in the 
        area do not have reasonable access to such a designated health 
        service for which subsection (a)(1) does not apply.''.
    (f) New Exception for Services Furnished in Ambulatory Surgical 
Centers.--Section 1877(b) (42 U.S.C. 1395nn(b)), as amended by section 
15201(b)(3)(C), subsection (d)(1), and subsection (e)(1), is amended--
            (1) by redesignating paragraphs (6) through (9) as 
        paragraphs (7) through (10); and
            (2) by inserting after paragraph (5) the following new 
        paragraph:
            ``(6) Services furnished in ambulatory surgical centers.--
        In the case of a designated health service furnished in an 
        ambulatory surgical center described in section 
        1832(a)(2)(F)(i).''.
    (g) New Exception for Services Furnished in Renal Dialysis 
Facilities.--Section 1877(b) (42 U.S.C. 1395nn(b)), as amended by 
section 15201(b)(3)(C), subsection (d)(1), subsection (e)(1), and 
subsection (f), is amended--
            (1) by redesignating paragraphs (7) through (10) as 
        paragraphs (8) through (11); and
            (2) by inserting after paragraph (6) the following new 
        paragraph:
            ``(7) Services furnished in renal dialysis facilities.--In 
        the case of a designated health service furnished in a renal 
        dialysis facility under section 1881.''.
    (h) New Exception for Services Furnished in a Hospice.--Section 
1877(b) (42 U.S.C. 1395nn(b)), as amended by section 15201(b)(3)(C), 
subsection (d)(1), subsection (e)(1), subsection (f), and subsection 
(g), is amended--
            (1) by redesignating paragraphs (8) through (11) as 
        paragraphs (9) through (12); and
            (2) by inserting after paragraph (7) the following new 
        paragraph:
            ``(8) Services furnished by a hospice program.--In the case 
        of a designated health service furnished by a hospice program 
        under section 1861(dd)(2).''.
    (i) New Exception for Services Furnished in a Comprehensive 
Outpatient Rehabilitation Facility.--Section 1877(b) (42 U.S.C. 
1395nn(b)), as amended by section 15201(b)(3)(C), subsection (d)(1), 
subsection (e)(1), subsection (f), subsection (g), and subsection (h), 
is amended--
            (1) by redesignating paragraphs (9) through (12) as 
        paragraphs (10) through (13); and
            (2) by inserting after paragraph (8) the following new 
        paragraph:
            ``(9) Services furnished in a comprehensive outpatient 
        rehabilitation facility.--In the case of a designated health 
        service furnished in a comprehensive outpatient rehabilitation 
        facility (as defined in section 1861(cc)(2)).''.
    (i) Definition of Referral.--Section 1877(h)(5)(A) (42 U.S.C. 
1395nn(h)(5)(A)) is amended--
            (1) by striking ``an item or service'' and inserting ``a 
        designated health service'', and
            (2) by striking ``the item or service'' and inserting ``the 
        designated health service''.

SEC. 15205. REPEAL OF REPORTING REQUIREMENTS.

    Section 1877 (42 U.S.C. 1395nn) is amended--
            (1) by striking subsection (f); and
            (2) by striking subsection (g)(5).

SEC. 15206. PREEMPTION OF STATE LAW.

    Section 1877 (42 U.S.C. 1395nn) is amended by adding at the end the 
following new subsection:
    ``(i) Preemption of State Law.--This section preempts State law to 
the extent State law is inconsistent with this section.''.

SEC. 15207. EFFECTIVE DATE.

    Except as provided in section 15203(b), the amendments made by this 
part shall apply to referrals made on or after August 14, 1995, 
regardless of whether or not regulations are promulgated to carry out 
such amendments.

                PART 2--OTHER MEDICARE REGULATORY RELIEF

                                                     Subtitle C, Part 2

SEC. 15211. REPEAL OF MEDICARE AND MEDICAID COVERAGE DATA BANK.

    (a) In General.--Section 1144 (42 U.S.C. 1320b-14), as added by 
section 13581(a) of OBRA-93, is repealed.
    (b) Conforming Amendments.--
            (1) Medicare.--Section 1862(b)(5) of such Act (42 U.S.C. 
        1395y(b)(5)), as amended by section 13581(b)(1) of OBRA-93, is 
        amended--
                    (A) in subparagraph (B), by striking the dash and 
                all that follows through the end and inserting 
                ``subparagraph (A) for purposes of carrying out this 
                subsection.'', and
                    (B) in subparagraph (C)(i), by striking 
                ``subparagraph (B)(i)'' and inserting ``subparagraph 
                (B)''.
            (2) Medicaid.--Section 1902(a)(25)(A)(i) of such Act (42 
        U.S.C. 1396a(a)(25)(A)(i)), as amended by section 13581(b)(2) 
        of OBRA-93, is amended by striking ``including the use of'' and 
        all that follows through ``any additional measures''.
            (3) ERISA.--Section 101(f) of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1021(f)) is repealed.
            (4) Internal revenue code provision.--Section 6103(l) of 
        the Internal Revenue Code of 1986 is amended by striking 
        paragraph (12).
            (5) Data matches.--Section 552a(a)(8)(B) of title 5, United 
        States Code, as amended by section 13581(c) of OBRA-93, is 
        amended--
                    (A) by adding ``or'' at the end of clause (v),
                    (B) by striking ``or'' at the end of clause (vi), 
                and
                    (C) by striking clause (vii).

SEC. 15212. CLARIFICATION OF LEVEL OF INTENT REQUIRED FOR IMPOSITION OF 
              SANCTIONS.

    (a) Clarification of Level of Knowledge Required for Imposition of 
Civil Monetary Penalties.--
            (1) In general.--Section 1128A(a) (42 U.S.C. 1320a-7a(a)) 
        is amended--
                    (A) in paragraphs (1) and (2), by inserting 
                ``knowingly'' before ``presents'' each place it 
                appears; and
                    (B) in paragraph (3), by striking ``gives'' and 
                inserting ``knowingly gives or causes to be given''.
            (2) Definition of standard.--Section 1128A(i) (42 U.S.C. 
        1320a-7a(i)) is amended by adding at the end the following new 
        paragraph:
            ``(6) The term `should know' means that a person, with 
        respect to information--
                    ``(A) acts in deliberate ignorance of the truth or 
                falsity of the information; or
                    ``(B) acts in reckless disregard of the truth or 
                falsity of the information,
        and no proof of specific intent to defraud is required.''.
    (b) Clarification of Effect and Application of Safe Harbor 
Exceptions.--For purposes of section 1128B(b)(3) of the Social Security 
Act, the specification of any payment practice in regulations 
promulgated pursuant to section 14(a) of the Medicare and Medicaid 
Program Patient Protection Act of 1987 is--
            (1) solely for the purpose of adding additional exceptions 
        to the types of conduct which are not subject to an anti-
        kickback penalty under such section and not for the purpose of 
        limiting the scope of such exceptions; and
            (2) for the purpose of prescribing criteria for qualifying 
        for such an exception notwithstanding the intent of the party 
        involved.
    (c) Limiting Imposition of Anti-kickback Penalties to Actions With 
Significant Purpose to Induce Referrals.--Section 1128B(b)(2) (42 
U.S.C. 1320a-7b(b)(2)) is amended in the matter preceding subparagraph 
(A) by striking ``to induce'' and inserting ``for the significant 
purpose of inducing''.
    (d) Effective Date.--The amendments made by this section shall 
apply to acts or omissions occurring on or after January 1, 1996.

SEC. 15213. CLARIFICATION OF AND ADDITIONS TO EXCEPTIONS TO ANTI-
              KICKBACK PENALTIES.

    (a) Discounts, Risk-Sharing and Other Managed Care Arrangements.--
Section 1128B(b)(3) (42 U.S.C. 1320a-7b(b)(3)) is amended--
            (1) by amending subparagraph (A) to read as follows:
            ``(A) any discount or other reduction in price (including a 
        reduction in price applied to a combination of items and 
        services and a reduction made available as part of capitation, 
        risk sharing, disease management, or a similar program) 
        obtained by a provider of service or other entity under title 
        XVIII or a State health care program if--
                    ``(i) the reduction in price is properly disclosed 
                and appropriately reflected in the costs claimed or 
                charges made by the provider or entity under such title 
                or program, or
                    ``(ii) in the case of an entity which does not 
                report its costs on a cost report, the entity 
                separately claims an item or service for payment, 
                payment under such title or program is not based on 
                actual acquisition costs, and the price reduction on 
                the item or service is properly disclosed and 
                appropriately reflected by providing full and accurate 
                information concerning the price reduction at the time 
                the value of the reduction is known, at the request of 
                the Secretary or a State agency;'';
            (2) by striking ``and'' at the end of subparagraph (D);
            (3) by striking the period at the end of subparagraph (E) 
        and inserting ``; and''; and
            (4) by adding at the end the following new subparagraph:
            ``(F) any reduction in cost sharing or increased benefits 
        given to an individual, any amounts paid by or on behalf of an 
        organization described in clause (i) or (ii) to a provider in 
        connection with an item or service furnished to an individual, 
        any discount or reduction in price given by the provider for 
        such an item or service, or any other remuneration if the item 
        or service is provided through an organization which--
                    ``(i) provides health care items or services 
                directly or through one or more subsidiary entities or 
                arranges for the provision of health care items or 
                services substantially through the services of health 
                care providers under contract with the organization, 
                and
                    ``(ii)(I) assumes financial risk for the provision 
                of health services through mechanisms (such as 
                capitation, risk pools, withholds, and per diem 
                payments) or offers its network of contract health 
                providers to an entity (including self-insured 
                employers and indemnity plans) which assumes financial 
                risk for the provision of such health services, or
                    ``(II) has in effect a written agreement with the 
                provider of services under which the provider is at 
                significant financial risk (whether through a withhold, 
                capitation, incentive pool, per diem payments, or 
                similar risk sharing arrangement) for the cost or 
                utilization of services that the provider is obligated 
                to provide.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to acts or omissions occurring on or after January 1, 1996.

SEC. 15214. SOLICITATION AND PUBLICATION OF MODIFICATIONS TO EXISTING 
              SAFE HARBORS AND NEW SAFE HARBORS.

    (a) In General.--
            (1) Solicitations.--Not later than January 1, 1996, and not 
        less than annually thereafter, the Secretary of Health and 
        Human Services shall publish a notice in the Federal Register 
        soliciting proposals, which will be accepted during a 60-day 
        period, for--
                    (A) modifications to existing safe harbors issued 
                pursuant to section 14(a) of the Medicare and Medicaid 
                Patient and Program Protection Act of 1987;
                    (B) additional safe harbors specifying payment 
                practices that shall not be treated as a criminal 
                offense under section 1128B(b) of the Social Security 
                Act and shall not serve as the basis for an exclusion 
                under section 1128(b)(7) of such Act; and
                    (C) special fraud alerts to be issued pursuant to 
                section 15101(c).
            (2) Publication of proposed modifications and proposed 
        additional safe harbors.--Not later than 120 days after 
        receiving the proposals described in subparagraphs (A) and (B) 
        of paragraph (1), the Secretary, after considering such 
        proposals 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.
            (3) Report.--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, 
        describe the proposals received under subparagraphs (A) and (B) 
        of paragraph (1) and explain which proposals were included in 
        the publication described in paragraph (2), which proposals 
        were not included in that publication, and the reasons for the 
        rejection of the proposals that were not included.
    (b) Criteria for Modifying and Establishing Safe Harbors.--In 
modifying and establishing safe harbors under subsection (a)(2), the 
Secretary may consider the extent to which providing a safe harbor for 
the specified payment practice may result in any of the following:
            (1) An increase or decrease in access to health care 
        services.
            (2) An increase or decrease in the quality of health care 
        services.
            (3) An increase or decrease in patient freedom of choice 
        among health care providers.
            (4) An increase or decrease in competition among health 
        care providers.
            (5) An increase or decrease in the cost to health care 
        programs of the Federal Government.
            (6) An increase or decrease in the potential 
        overutilization of health care services.
            (7) Any other factors the Secretary deems appropriate in 
        the interest of preventing fraud and abuse in health care 
        programs of the Federal Government.

SEC. 15215. ISSUANCE OF ADVISORY OPINIONS UNDER TITLE XI.

    (a) In General.--Title XI (42 U.S.C. 1301 et seq.), as amended by 
section 15104(a), is amended by inserting after section 1129 the 
following new section:

                          ``advisory opinions

    ``Sec. 1130. (a) Issuance of Advisory Opinions.--The Secretary 
shall issue written advisory opinions as provided in this section.
    ``(b) Matters Subject to Advisory Opinions.--The Secretary shall 
issue advisory opinions as to the following matters:
            ``(1) What constitutes prohibited remuneration within the 
        meaning of section 1128B(b).
            ``(2) Whether an arrangement or proposed arrangement 
        satisfies the criteria set forth in section 1128B(b)(3) for 
        activities which do not result in prohibited remuneration.
            ``(3) Whether an arrangement or proposed arrangement 
        satisfies the criteria which the Secretary has established, or 
        shall establish by regulation for activities which do not 
        result in prohibited remuneration.
            ``(4) What constitutes an inducement to reduce or limit 
        services to individuals entitled to benefits under title XVIII 
        or title XIX within the meaning of section 1128B(b).
            ``(5) Whether any activity or proposed activity constitutes 
        grounds for the imposition of a sanction under section 1128, 
        1128A, or 1128B.
    ``(c) Matters Not Subject to Advisory Opinions.--Such advisory 
opinions shall not address the following matters:
            ``(1) Whether the fair market value shall be, or was paid 
        or received for any goods, services or property.
            ``(2) Whether an individual is a bona fide employee within 
        the requirements of section 3121(d)(2) of the Internal Revenue 
        Code of 1986.
    ``(d) Effect of Advisory Opinions.--
            ``(1) Binding as to secretary and parties involved.--Each 
        advisory opinion issued by the Secretary shall be binding as to 
        the Secretary and the party or parties requesting the opinion.
            ``(2) Failure to seek opinion.--The failure of a party to 
        seek an advisory opinion may not be introduced into evidence to 
        prove that the party intended to violate the provisions of 
        sections 1128, 1128A, or 1128B.
    ``(e) Regulations.--
            ``(1) In general.--Not later than 180 days after the date 
        of the enactment of this section, the Secretary shall issue 
        regulations to carry out this section. Such regulations shall 
        provide for--
                    ``(A) the procedure to be followed by a party 
                applying for an advisory opinion;
                    ``(B) the procedure to be followed by the Secretary 
                in responding to a request for an advisory opinion;
                    ``(C) the interval in which the Secretary shall 
                respond;
                    ``(D) the reasonable fee to be charged to the party 
                requesting an advisory opinion; and
                    ``(E) the manner in which advisory opinions will be 
                made available to the public.
            ``(2) Specific contents.--Under the regulations promulgated 
        pursuant to paragraph (1)--
                    ``(A) the Secretary shall be required to respond to 
                a party requesting an advisory opinion by not later 
                than 30 days after the request is made; and
                    ``(B) the fee charged to the party requesting an 
                advisory opinion shall be equal to the costs incurred 
                by the Secretary in responding to the request.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to requests for advisory opinions made on or after January 1, 
1996.

SEC. 15216. PRIOR NOTICE OF CHANGES IN BILLING AND CLAIMS PROCESSING 
              REQUIREMENTS FOR PHYSICIANS' SERVICES.

    Except as may be specifically provided by Congress, the Secretary 
of Health and Human Services may not implement any change in the 
requirements imposed on the billing and processing of claims for 
payment for physicians' services under part B of the medicare program 
unless the Secretary notifies the individuals furnishing such services 
of the change not later than 120 days before the effective date of the 
change.

               PART 3--PROMOTING PHYSICIAN SELF-POLICING

                                                     Subtitle C, Part 3

SEC. 15221. EXEMPTION FROM ANTITRUST LAWS FOR CERTAIN ACTIVITIES OF 
              MEDICAL SELF-REGULATORY ENTITIES.

    (a) Exemption Described.--An activity relating to the provision of 
health care services shall be exempt from the antitrust laws, and any 
State law similar to the antitrust laws, if the activity is within the 
safe harbor described in subsection (b).
    (b) Safe Harbor for Activities of Medical Self-Regulatory 
Entities.--
            (1) In General.--Subject to paragraph (2), any activity of 
        a medical self-regulatory entity relating to standard setting 
        or standard enforcement activities that are designed to promote 
        the quality of health care services provided to patients.
            (2) Exception.--No activity of a medical self-regulatory 
        entity may be deemed to fall under the safe harbor established 
        under paragraph (1) if the activity--
                    (A) is conducted for purposes of financial gain, or
                    (B) interferes with the provision of health care 
                services by any health care provider who is not a 
                member of the specific profession which is subject to 
                the authority of the medical self-regulatory entity.
    (c) Definitions.--For purposes of this section:
            (1) Antitrust laws.--The term ``antitrust laws'' 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.
            (2) Health benefit plan.--The term ``health benefit plan'' 
        means--
                    (A) a hospital or medical expense incurred policy 
                or certificate,
                    (B) a hospital or medical service plan contract,
                    (C) a health maintenance subscriber contract,
                    (D) a multiple employer welfare arrangement or 
                employee benefit plan (as defined under the Employee 
                Retirement Income Security Act of 1974), or
                    (E) a MedicarePlus product (offered under part C of 
                title XVIII of the Social Security Act),
        that provides benefits with respect to health care services.
            (3) Health care service.--the term ``health care service'' 
        means any service for which payment may be made under a health 
        benefit plan including services related to the delivery or 
        administration of such service.
            (4) Medical self-regulatory entity.--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.
            (5) Health care provider.--The term ``health care 
        provider'' 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.
            (6) Standard setting or standard enforcement activities.--
        The term ``standard setting or standard 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.

                  Subtitle D--Medical Liability Reform

                                                     Subtitle D, Part 1

                       PART 1--GENERAL PROVISIONS

SEC. 15301. FEDERAL REFORM OF HEALTH CARE LIABILITY ACTIONS.

    (a) Applicability.--This subtitle shall apply with respect to any 
health care liability action brought in any State or Federal court, 
except that this subtitle 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.
    (b) Preemption.--This subtitle shall preempt any State law to the 
extent such law is inconsistent with the limitations contained in this 
subtitle. This subtitle shall not preempt any State law that provides 
for defenses or places limitations on a person's liability in addition 
to those contained in this subtitle or otherwise imposes greater 
restrictions than those provided in this subtitle.
    (c) Effect on Sovereign Immunity and Choice of Law or Venue.--
Nothing in subsection (b) shall be construed to--
            (1) waive or affect any defense of sovereign immunity 
        asserted by any State under any provision of law;
            (2) waive or affect any defense of sovereign immunity 
        asserted by the United States;
            (3) affect the applicability of any provision of the 
        Foreign Sovereign Immunities Act of 1976;
            (4) preempt State choice-of-law rules with respect to 
        claims brought by a foreign nation or a citizen of a foreign 
        nation; or
            (5) affect the right of any court to transfer venue or to 
        apply the law of a foreign nation or to dismiss a claim of a 
        foreign nation or of a citizen of a foreign nation on the 
        ground of inconvenient forum.
    (d) Amount in Controversy.--In an action to which this subtitle 
applies and which is brought under section 1332 of title 28, United 
States Code, the amount of noneconomic damages or punitive damages, and 
attorneys' fees or costs, shall not be included in determining whether 
the matter in controversy exceeds the sum or value of $50,000.
    (e) Federal Court Jurisdiction Not Established on Federal Question 
Grounds.--Nothing in this subtitle shall be construed to establish any 
jurisdiction in the district courts of the United States over health 
care liability actions on the basis of section 1331 or 1337 of title 
28, United States Code.

SEC. 15302. DEFINITIONS.

    As used in this subtitle:
            (1) Actual damages.--The term ``actual damages'' means 
        damages awarded to pay for economic loss.
            (2) Alternative dispute resolution system; adr.--The term 
        ``alternative dispute resolution system'' or ``ADR'' means a 
        system established under Federal or State law that provides for 
        the resolution of health care liability claims in a manner 
        other than through health care liability actions.
            (3) Claimant.--The term ``claimant'' means any person who 
        brings a health care liability action and any person on whose 
        behalf such an action is brought. If such action is brought 
        through or on behalf of an estate, the term includes the 
        claimant's decedent. If such action is brought through or on 
        behalf of a minor or incompetent, the term includes the 
        claimant's legal guardian.
            (4) 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.
            (5) Collateral source payments.--The term ``collateral 
        source payments'' means any amount paid or reasonably likely to 
        be paid in the future to or on behalf of a claimant, or any 
        service, product, or other benefit provided or reasonably 
        likely to be provided in the future to or on behalf of a 
        claimant, as a result of an injury or wrongful death, pursuant 
        to--
                    (A) any State or Federal health, sickness, income-
                disability, accident or workers' compensation Act;
                    (B) any health, sickness, income-disability, or 
                accident insurance that provides health benefits or 
                income-disability coverage;
                    (C) any contract or agreement of any group, 
                organization, partnership, or corporation to provide, 
                pay for, or reimburse the cost of medical, hospital, 
                dental, or income disability benefits; and
                    (D) any other publicly or privately funded program.
            (6) Economic loss.--The term ``economic loss'' means any 
        pecuniary loss resulting from harm (including the loss of 
        earnings, medical expense loss, replacement services loss, loss 
        due to death, and burial costs), to the extent recovery for 
        such loss is allowed under applicable State law.
            (7) Harm.--The term ``harm'' means any legally cognizable 
        wrong or injury for which punitive damages may be imposed.
            (8) Health care liability action.--The term ``health care 
        liability action'' means a civil action brought in a State or 
        Federal court against a health care provider, an entity which 
        is obligated to provide or pay for health benefits under any 
        health plan (including any person or entity acting under a 
        contract or arrangement to provide or administer any health 
        benefit), or the manufacturer, distributor, supplier, marketer, 
        promoter, or seller of a medical product, in which the claimant 
        alleges a claim (including third party claims, cross claims, 
        counter claims, or distribution claims) based upon the 
        provision of (or the failure to provide or pay for) health care 
        services or the use of a medical product, regardless of the 
        theory of liability on which the claim is based or the number 
        of plaintiffs, or defendants or causes of action.
            (9) Health care liability claim.--The term ``health care 
        liability claim'' means a claim in which the claimant alleges 
        that injury was caused by the provision of (or the failure to 
        provide) health care services.
            (10) Health care provider.--The term ``health care 
        provider'' means any individual, organization, or institution 
        that is engaged in the delivery of health care services in a 
        State and that is required by the laws or regulations of the 
        State to be licensed or certified by the State to engage in the 
        delivery of such services in the State.
            (11) Noneconomic damages.--The term ``noneconomic damages'' 
        means damages paid to an individual for pain and suffering, 
        inconvenience, emotional distress, mental anguish, loss of 
        consortium, injury to reputation, humiliation, and other 
        nonpecuniary losses.
            (12) Person.--The term ``person'' means any individual, 
        corporation, company, association, firm, partnership, society, 
        joint stock company, or any other entity, including any 
        governmental entity.
            (13) Punitive damages.--The term ``punitive damages'' means 
        damages awarded against any person not to compensate for actual 
        injury suffered, but to punish or deter such person or others 
        from engaging in similar behavior in the future.
            (14) State.--The term ``State'' means each of the several 
        States, the District of Columbia, the Commonwealth of Puerto 
        Rico, the Virgin Islands, Guam, American Samoa, the Northern 
        Mariana Islands, the Trust Territories of the Pacific Islands, 
        and any other territory or possession of the United States.

SEC. 15303. EFFECTIVE DATE.

    This subtitle will apply to any health care liability action 
brought in a Federal or State court and to any health care liability 
claim subject to an alternative dispute resolution system, that is 
initiated on or after the date of enactment of this subtitle, except 
that any health care liability claim or action arising from an injury 
occurring prior to the date of enactment of this subtitle shall be 
governed by the applicable statute of limitations provisions in effect 
at the time the injury occurred.

      PART 2--UNIFORM STANDARDS FOR HEALTH CARE LIABILITY ACTIONS

                                                     Subtitle D, Part 2

SEC. 15311. STATUTE OF LIMITATIONS.

    A health care liability action may not be brought after the 
expiration of the 2-year period that begins on the date on which the 
alleged injury that is the subject of the action was discovered or 
should reasonably have been discovered, but in no case after the 
expiration of the 5-year period that begins on the date the alleged 
injury occurred.

SEC. 15312. CALCULATION AND PAYMENT OF DAMAGES.

    (a) Treatment of Noneconomic Damages.--
            (1) Limitation on noneconomic damages.--The total amount of 
        noneconomic damages that may be awarded to a claimant for 
        losses resulting from the injury which is the subject of a 
        health care liability action may not exceed $250,000, 
        regardless of the number of parties against whom the action is 
        brought or the number of actions brought with respect to the 
        injury.
            (2) Joint and several liability.--In any health care 
        liability action brought in State or Federal court, a defendant 
        shall be liable only for the amount of noneconomic damages 
        attributable to such defendant in direct proportion to such 
        defendant's share of fault or responsibility for the claimant's 
        actual damages, as determined by the trier of fact. In all such 
        cases, the liability of a defendant for noneconomic damages 
        shall be several and not joint.
    (b) Treatment of Punitive Damages.--
            (1) General rule.--Punitive damages may, to the extent 
        permitted by applicable State law, be awarded in any health 
        care liability action for harm in any Federal or State court 
        against a defendant if the claimant establishes by clear and 
        convincing evidence that the harm suffered was result of 
        conduct--
                    (A) specifically intended to cause harm, or
                    (B) conduct manifesting a conscious, flagrant 
                indifference to the rights or safety of others.
            (2) Proportional awards.--The amount of punitive damages 
        that may be awarded in any health care liability action subject 
        to this subtitle shall not exceed 3 times the amount of damages 
        awarded to the claimant for economic loss, or $250,000, 
        whichever is greater. This section shall be applied by the 
        court and shall not be disclosed to the jury.
    (c) Applicability.--This section shall apply to any health care 
liability action brought in any Federal or State court on any theory 
where punitive damages are sought. This section does not create a cause 
of action for punitive damages. This section does not preempt or 
supersede any State or Federal law to the extent that such law would 
further limit the award of punitive damages.
    (d) Bifurcation.--At the request of any party, the trier of fact 
shall consider in a separate proceeding whether punitive damages are to 
be awarded and the amount of such award. If a separate proceeding is 
requested, evidence relevant only to the claim of punitive damages, as 
determined by applicable State law, shall be inadmissible in any 
proceeding to determine whether actual damages are to be awarded.
    (e) Drugs and Devices.--
            (1)(A) Punitive damages shall not be awarded against a 
        manufacturer or product seller of a drug (as defined in section 
        201(g)(1) of the Federal Food, Drug, and Cosmetic Act (21 
        U.S.C. 321(g)(1)) or medical device (as defined in section 
        201(h) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 
        321(h)) which caused the claimant's harm where--
                    (i) such drug or device was subject to premarket 
                approval by the Food and Drug Administration with 
                respect to the safety of the formulation or performance 
                of the aspect of such drug or device which caused the 
                claimant's harm or the adequacy of the packaging or 
                labeling of such drug or device, and such drug was 
                approved by the Food and Drug Administration; or
                    (ii) the drug is generally recognized as safe and 
                effective pursuant to conditions established by the 
                Food and Drug Administration and applicable 
                regulations, including packaging and labeling 
                regulations.
            (B) Subparagraph (A) shall not apply in any case in which 
        the defendant, before or after premarket approval of a drug or 
        device--
                    (i) intentionally and wrongfully withheld from or 
                misrepresented to the Food and Drug Administration 
                information concerning such drug or device required to 
                be submitted under the Federal Food, Drug, and Cosmetic 
                Act (21 U.S.C. 301 et seq.) or section 351 of the 
                Public Health Service Act (42 U.S.C. 262) that is 
                material and relevant to the harm suffered by the 
                claimant, or
                    (ii) made an illegal payment to an official or 
                employee of the Food and Drug Administration for the 
                purpose of securing or maintaining approval of such 
                drug or device.
            (2) Packaging.--In a health care liability action for harm 
        which is alleged to relate to the adequacy of the packaging (or 
        labeling relating to such packaging) of a drug which is 
        required to have tamper-resistant packaging under regulations 
        of the Secretary of Health and Human Services (including 
        labeling regulations related to such packaging), the 
        manufacturer of the drug shall not be held liable for punitive 
        damages unless the drug is found by the court by clear and 
        convincing evidence to be substantially out of compliance with 
        such regulations.
    (f) Periodic Payments for Future Losses.--
            (1) General rule.--In any health care liability action in 
        which the damages awarded for future economic and noneconomic 
        loss exceeds $50,000, a person shall not be required to pay 
        such damages in a single, lump-sum payment, but shall be 
        permitted to make such payments periodically based on when the 
        damages are found likely to occur, as such payments are 
        determined by the court.
            (2) Finality of judgment.--The judgment of the court 
        awarding periodic payments under this subsection may not, in 
        the absence of fraud, be reopened at any time to contest, 
        amend, or modify the schedule or amount of the payments.
            (3) Lump-sum settlements.--This subsection shall not be 
        construed to preclude a settlement providing for a single, 
        lump-sum payment.
    (g) Treatment of Collateral Source Payments.--
            (1) Introduction into evidence.--In any health care 
        liability action, any defendant may introduce evidence of 
        collateral source payments. If any defendant elects to 
        introduce such evidence, the claimant may introduce evidence of 
        any amount paid or contributed or reasonably likely to be paid 
        or contributed in the future by or on behalf of the claimant to 
        secure the right to such collateral source payments.
            (2) No subrogation.--No provider of collateral source 
        payments shall recover any amount against the claimant or 
        receive any lien or credit against the claimant's recovery or 
        be equitably or legally subrogated the right of the claimant in 
        a health care liability action. This subsection shall apply to 
        an action that is settled as well as an action that is resolved 
        by a fact finder.

SEC. 15313. ALTERNATIVE DISPUTE RESOLUTION.

    Any ADR used to resolve a health care liability action or claim 
shall contain provisions relating to statute of limitations, non-
economic damages, joint and several liability, punitive damages, 
collateral source rule, and periodic payments which are identical to 
the provisions relating to such matters in this subtitle.

     Subtitle E--Teaching Hospitals and Graduate Medical Education

  PART 1--TEACHING HOSPITAL AND GRADUATE MEDICAL EDUCATION TRUST FUND

                                                     Subtitle E, Part 1

SEC. 15401. ESTABLISHMENT OF FUND; PAYMENTS TO TEACHING HOSPITALS.

    The Social Security Act (42 U.S.C. 300 et seq.) is amended by 
adding after title XXI the following title:

 ``TITLE XXII--TEACHING HOSPITAL AND GRADUATE MEDICAL EDUCATION TRUST 
                                  FUND

                    ``Part A--Establishment of Fund

``SEC. 2201. ESTABLISHMENT OF FUND.

    ``(a) In General.--There is established in the Treasury of the 
United States a fund to be known as the Teaching Hospital and Graduate 
Medical Education Trust Fund (in this title referred to as the `Fund'), 
consisting of amounts appropriated to the Fund in subsection (d) and 
subsection (e)(3), amounts transferred to the Fund under section 
1886(j), and such gifts and bequests as may be deposited in the Fund 
pursuant to subsection (f). Amounts in the Fund are available until 
expended.
    ``(b) Expenditures From Fund.--Amounts in the Fund are available to 
the Secretary for making payments under section 2211.
    ``(c) Accounts in Fund.--There is established within the Fund the 
following accounts:
            ``(1) The Indirect-Costs Medical Education Account.
            ``(2) The Medicare Direct-Costs Medical Education Account.
            ``(3) The General Direct-Costs Medical Education Account.
    ``(d) General Transfers to Fund.--
            ``(1) In general.--For fiscal year 1997 and each subsequent 
        fiscal year, there are appropriated to the Fund (effective on 
        the applicable date under paragraph (2)), out of any money in 
        the Treasury not otherwise appropriated, the following amounts 
        (as applicable to the fiscal year involved):
                    ``(A) For fiscal year 1997, $400,000,000.
                    ``(B) For fiscal year 1998, $600,000,000.
                    ``(C) For fiscal year 1999, $2,000,000,000.
                    ``(D) For fiscal year 2000, $3,000,000,000.
                    ``(E) For fiscal year 2001, $4,000,000,000.
                    ``(F) For fiscal year 2002, $5,800,000,000.
                    ``(G) For fiscal year 2003 and each subsequent 
                fiscal year, the greater of the amount appropriated for 
                the preceding fiscal year or an amount equal to the 
                product of--
                            ``(i) the amount appropriated for the 
                        preceding fiscal year; and
                            ``(ii) 1 plus the percentage increase in 
                        the nominal gross domestic product for the one-
                        year period ending upon July 1 of such 
                        preceding fiscal year.
            ``(2) Effective date for annual appropriation.--For 
        purposes of paragraph (1) (and for purposes of section 
        2221(a)(1), and subsections (b)(1)(A) and (c)(1)(A) of section 
        2231)), the applicable date for a fiscal year is the first day 
        of the fiscal year, exclusive of Saturdays, Sundays, and 
        Federal holidays.
            ``(3) Allocation among certain accounts.--Of the amount 
        appropriated in paragraph (1) for a fiscal year--
                    ``(A) there shall be allocated to the Indirect-
                Costs Medical Education Account the percentage 
                determined under paragraph (4)(B); and
                    ``(B) there shall be allocated to the General 
                Direct-Costs Medical Education Account the percentage 
                determined under paragraph (4)(C).
            ``(4) Determination of percentages.--The Secretary of 
        Health and Human Services, acting through the Administrator of 
        the Health Care Financing Administration, shall determine the 
        following:
                    ``(A) The total amount of payments that were made 
                under subsections (d)(5)(B) and (h) of section 1886 for 
                fiscal year 1994.
                    ``(B) The percentage of such total that was 
                constituted by payments under subsection (d)(5)(B) of 
                such section.
                    ``(C) The percentage of such total that was 
                constituted by payments under subsection (h) of such 
                section.
    ``(e) Investment.--
            ``(1) In general.--The Secretary of the Treasury shall 
        invest such amounts of the Fund as such Secretary determines 
        are not required to meet current withdrawals from the Fund. 
        Such investments may be made only in interest-bearing 
        obligations of the United States. For such purpose, such 
        obligations may be acquired on original issue at the issue 
        price, or by purchase of outstanding obligations at the market 
        price.
            ``(2) Sale of obligations.--Any obligation acquired by the 
        Fund may be sold by the Secretary of the Treasury at the market 
        price.
            ``(3) Availability of income.--Any interest derived from 
        obligations acquired by the Fund, and proceeds from any sale or 
        redemption of such obligations, are hereby appropriated to the 
        Fund.
    ``(f) Acceptance of Gifts and Bequests.--The Fund may accept on 
behalf of the United States money gifts and bequests made 
unconditionally to the Fund for the benefit of the Fund or any activity 
financed through the Fund.

                ``Part B--Payments to Teaching Hospitals

                  ``Subpart 1--Requirement of Payments

``SEC. 2211. FORMULA PAYMENTS TO TEACHING HOSPITALS.

    ``(a) In General.--Subject to subsection (d), in the case of each 
teaching hospital that in accordance with subsection (b) submits to the 
Secretary a payment document for fiscal year 1997 or any subsequent 
fiscal year, the Secretary shall make payments for the year to the 
teaching hospital for the costs of operating approved medical residency 
training programs. Such payments shall be made from the Fund, and the 
total of the payments to the hospital for the fiscal year shall equal 
the sum of the following:
            ``(1) An amount determined under section 2221 (relating to 
        the indirect costs of graduate medical education).
            ``(2) An amount determined under section 2231 (relating to 
        the direct costs of graduate medical education).
    ``(b) Payment Document.--For purposes of subsection (a), a payment 
document is a document containing such information as may be necessary 
for the Secretary to make payments under such subsection to a teaching 
hospital for a fiscal year. The document is submitted in accordance 
with this subsection if the document is submitted not later than the 
date specified by the Secretary, and the document is in such form and 
is made in such manner as the Secretary may require. The Secretary may 
require that information under this subsection be submitted to the 
Secretary in periodic reports.
    ``(c) Administrator of Programs.--This part, and the subsequent 
parts of this title, shall be carried out by the Secretary acting 
through the Administrator of the Health Care Financing Administration.
    ``(d) Special Rules.--
            ``(1) Authority regarding payments to consortia of 
        providers.--In the case of payments under subsection (a) that 
        are determined under section 2231:
                    ``(A) The requirement under such subsection to make 
                the payments to teaching hospitals is subject to the 
                authority of the Secretary under section 2233(a) to 
                make payments to qualifying consortia.
                    ``(B) If the Secretary authorizes such a consortium 
                for purposes of section 2233(a), subsections (a) and 
                (b) of this section apply to the consortium to the same 
                extent and in the same manner as the subsections apply 
                to teaching hospitals.
            ``(2) Certain hospitals.--Paragraph (1) of subsection (a) 
        is subject to sections 2222 and 2223 of subpart 2. Paragraph 
        (2) of subsection (a) is subject to sections 2232 through 2234 
        of subpart 3.
    ``(e) Approved Medical Residency Training Program.--For purposes of 
this title, the term `approved medical residency training program' has 
the meaning given such term in section 1886(h)(5)(A).

  ``Subpart 2--Amount Relating to Indirect Costs of Graduate Medical 
                               Education

``SEC. 2221. DETERMINATION OF AMOUNT RELATING TO INDIRECT COSTS.

    ``(a) In General.--For purposes of section 2211(a)(1), the amount 
determined under this section for a teaching hospital for a fiscal year 
is the product of--
            ``(1) the amount in the Indirect-Costs Medical Education 
        Account on the applicable date under section 2201(d) (once the 
        appropriation under such section is made); and
            ``(2) the percentage determined for the hospital under 
        subsection (b).
    ``(b) Hospital-Specific Percentage.--
            ``(1) In general.--For purposes of subsection (a)(2), the 
        percentage determined under this subsection for a teaching 
        hospital is the mean average of the respective percentages 
        determined under paragraph (3) for each fiscal year of the 
        applicable period (as defined in paragraph (2)), adjusted by 
        the Secretary (upward or downward, as the case may be) on a pro 
        rata basis to the extent necessary to ensure that the sum of 
        the percentages determined under this paragraph for all 
        teaching hospitals is equal to 100 percent. The preceding 
        sentence is subject to sections 2222 and 2223.
            ``(2) Applicable period regarding relevant data; fiscal 
        years 1992 through 1994.--For purposes of this part, the term 
        `applicable period' means the period beginning on the first day 
        of fiscal year 1992 and continuing through the end of fiscal 
        year 1994.
            ``(3) Respective determinations for fiscal years of 
        applicable period.--For purposes of paragraph (1), the 
        percentage determined under this paragraph for a teaching 
        hospital for a fiscal year of the applicable period is the 
        percentage constituted by the ratio of--
                    ``(A) the total amount of payments received by the 
                hospital under section 1886(d)(5)(B) for discharges 
                occurring during the fiscal year involved; to
                    ``(B) the sum of the respective amounts determined 
                under subparagraph (A) for the fiscal year for all 
                teaching hospitals.
    ``(c) Availability of Data.--If a teaching hospital received the 
payments specified in subsection (b)(3)(A) during the applicable period 
but a complete set of the relevant data is not available to the 
Secretary for purposes of determining an amount under such subsection 
for the fiscal year involved, the Secretary shall for purposes of such 
subsection make an estimate on the basis of such data as is available 
to the Secretary for the applicable period.

``SEC. 2222. INDIRECT COSTS; SPECIAL RULES REGARDING DETERMINATION OF 
              HOSPITAL-SPECIFIC PERCENTAGE.

    ``(a) Special Rule Regarding Fiscal Years 1995 and 1996.--
            ``(1) In general.--In the case of a teaching hospital whose 
        first payments under 1886(d)(5)(B) were for discharges 
        occurring in fiscal year 1995 or in fiscal year 1996 (referred 
        to in this subsection individually as a `first payment year'), 
        the percentage determined under paragraph (2) for the hospital 
        is deemed to be the percentage applicable under section 2221(b) 
        to the hospital, except that the percentage under paragraph (2) 
        shall be adjusted in accordance with section 2221(b)(1) to the 
        extent determined by the Secretary to be necessary with respect 
        to a sum that equals 100 percent.
            ``(2) Determination of percentage.--For purposes of 
        paragraph (1), the percentage determined under this paragraph 
        for a teaching hospital is the percentage constituted by the 
        ratio of the amount determined under subparagraph (A) to the 
        amount determined under subparagraph (B), as follows:
                    ``(A)(i) If the first payment year for the hospital 
                is fiscal year 1995, the amount determined under this 
                subparagraph is the total amount of payments received 
                by the hospital under section 1886(d)(5)(B) for 
                discharges occurring during fiscal year 1995.
                    ``(ii) If the first payment year for the hospital 
                is fiscal year 1996, the amount determined under this 
                subparagraph is an amount equal to an estimate by the 
                Secretary of the total amount of payments that would 
                have been paid to the hospital under section 
                1886(d)(5)(B) for discharges occurring during fiscal 
                year 1995 if such section, as in effect for fiscal year 
                1996, had applied to the hospital for discharges 
                occurring during fiscal year 1995.
                    ``(B)(i) If the first payment year for the hospital 
                is fiscal year 1995, the amount determined under this 
                subparagraph is the aggregate total of the payments 
                received by teaching hospitals under section 
                1886(d)(5)(B) for discharges occurring during fiscal 
                year 1995.
                    ``(ii) If the first payment year for the hospital 
                is fiscal year 1996--
                            ``(I) the Secretary shall make an estimate 
                        in accordance with subparagraph (A)(ii) for all 
                        teaching hospitals; and
                            ``(II) the amount determined under this 
                        subparagraph is the sum of the estimates made 
                        by the Secretary under subclause (I).
    ``(b) New Teaching Hospitals.--
            ``(1) In general.--In the case of a teaching hospital that 
        did not receive payments under section 1886(d)(5)(B) for any of 
        the fiscal years 1992 through 1996, the percentage determined 
        under paragraph (3) for the hospital is deemed to be the 
        percentage applicable under section 2221(b) to the hospital, 
        except that the percentage under paragraph (3) shall be 
        adjusted in accordance with section 2221(b)(1) to the extent 
        determined by the Secretary to be necessary with respect to a 
        sum that equals 100 percent.
            ``(2) Designated fiscal year regarding data.--The 
        determination under paragraph (3) of a percentage for a 
        teaching hospital described in paragraph (1) shall be made for 
        the most recent fiscal year for which the Secretary has 
        sufficient data to make the determination (referred to in this 
        subsection as the `designated fiscal year').
            ``(3) Determination of percentage.--For purposes of 
        paragraph (1), the percentage determined under this paragraph 
        for the teaching hospital involved is the percentage 
        constituted by the ratio of the amount determined under 
        subparagraph (A) to the amount determined under subparagraph 
        (B), as follows:
                    ``(A) The amount determined under this subparagraph 
                is an amount equal to an estimate by the Secretary of 
                the total amount of payments that would have been paid 
                to the hospital under section 1886(d)(5)(B) for the 
                designated fiscal year if such section, as in effect 
                for the first fiscal year for which payments pursuant 
                to this subsection are to be made to the hospital, had 
                applied to the hospital for the designated fiscal year.
                    ``(B) The Secretary shall make an estimate in 
                accordance with subparagraph (A) for all teaching 
                hospitals. The amount determined under this 
                subparagraph is the sum of the estimates made by the 
                Secretary under the preceding sentence.
    ``(c) Consolidations and Mergers.--In the case of two or more 
teaching hospitals that have each received payments pursuant to section 
2221 for one or more fiscal years and that undergo a consolidation or 
merger, the percentage applicable to the resulting teaching hospital 
for purposes of section 2221(b) is the sum of the respective 
percentages that would have applied pursuant to such section if the 
hospitals had not undergone the consolidation or merger.

``SEC. 2223. INDIRECT COSTS; ALTERNATIVE PAYMENTS REGARDING TEACHING 
              HOSPITALS IN CERTAIN STATES.

    ``(a) In General.--In the case of a teaching hospital in a State 
for which a demonstration project under section 1814(b)(3) is in 
effect, this section applies in lieu of section 2221. For purposes of 
section 2211(a)(1), the amount determined for a teaching hospital for a 
fiscal year is the product of--
            ``(1) the amount in the Indirect-Costs Medical Education 
        Account for the fiscal year pursuant to the allocation under 
        section 2201(d)(3)(A) for the year; and
            ``(2) the percentage determined under subsection (b) for 
        the hospital.
    ``(b) Determination of Percentage.--For purposes of subsection 
(a)(2):
            ``(1) The Secretary shall make an estimate of the total 
        amount of payments that would have been received under section 
        1886(d)(5)(B) by the hospital involved with respect to each of 
        the fiscal years of the applicable period if such section (as 
        in effect for such fiscal years) had applied to the hospital 
        for such years.
            ``(2) The percentage determined under this subsection for 
        the hospital for a fiscal year is a mean average percentage 
        determined for the hospital in accordance with the methodology 
        of section 2221(b)(1), except that the estimate made by the 
        Secretary under paragraph (1) of this subsection for a fiscal 
        year of the applicable period is deemed to be the amount that 
applies for purposes of section 2221(b)(3)(A) for such year.
    ``(c) Rule Regarding Payments From Certain Amounts.--In the case of 
a teaching hospital in a State for which a demonstration project under 
section 1814(b)(3) is in effect, this section does not provide any 
payment to the hospital from amounts transferred to the Fund under 
section 1886(j).
    ``(d) Adjustment Regarding Payments to Other Hospitals.--In the 
case of a fiscal year for which payments pursuant to subsection (a) are 
made to one or more teaching hospitals, the following applies:
            ``(1) The Secretary shall determine a percentage equal to 
        the sum of the respective percentages determined for the 
        hospitals under subsection (b).
            ``(2) The Secretary shall determine an amount equal to the 
        product of--
                    ``(A) the percentage determined under paragraph 
                (1); and
                    ``(B) the amount in the Indirect-Costs Medical 
                Education Account for the fiscal year pursuant to the 
                transfer under section 1886(j)(1).
            ``(3) The Secretary shall, for each hospital (other than 
        hospitals described in subsection (a)), make payments to the 
        hospital whose sum is equal to the product of--
                    ``(A) the amount determined under paragraph (2); 
                and
                    ``(B) the percentage that applies to the hospital 
                for purposes of section 2221(b).

   ``Subpart 3--Amount Relating to Direct Costs of Graduate Medical 
                               Education

``SEC. 2231. DETERMINATION OF AMOUNT RELATING TO DIRECT COSTS.

    ``(a) In General.--For purposes of section 2211(a)(2), the amount 
determined under this section for a teaching hospital for a fiscal year 
is the sum of--
            ``(1) the amount determined under subsection (b) (relating 
        to the General Direct-Costs Medical Education Account); and
            ``(2) the amount determined under subsection (c) (relating 
        to the Medicare Direct-Costs Medical Education Account).
    ``(b) Payment From General Account.--
            ``(1) In general.--For purposes of subsection (a)(1), the 
        amount determined under this subsection for a teaching hospital 
        for a fiscal year is the product of--
                    ``(A) the amount in the General Direct-Costs 
                Medical Education Account on the applicable date under 
                section 2201(d) (once the appropriation under such 
                section is made); and
                    ``(B) the percentage determined for the hospital 
                under paragraph (2).
            ``(2) Hospital-specific percentage.--
                    ``(A) In general.--For purposes of paragraph 
                (1)(B), the percentage determined under this paragraph 
                for a teaching hospital is the mean average of the 
                respective percentages determined under subparagraph 
                (B) for each fiscal year of the applicable period (as 
                defined in section 2221(b)(2)), adjusted by the 
                Secretary (upward or downward, as the case may be) on a 
                pro rata basis to the extent necessary to ensure that 
                the sum of the percentages determined under this 
                subparagraph for all teaching hospitals is equal to 100 
                percent. The preceding sentence is subject to sections 
                2232 through 2234.
                    ``(B) Respective determinations for fiscal years of 
                applicable period.--For purposes of subparagraph (A), 
                the percentage determined under this subparagraph for a 
                teaching hospital for a fiscal year of the applicable 
                period is the percentage constituted by the ratio of--
                            ``(i) the total amount of payments received 
                        by the hospital under section 1886(h) for cost 
                        reporting periods beginning during the fiscal 
                        year involved; to
                            ``(ii) the sum of the respective amounts 
                        determined under clause (i) for the fiscal year 
                        for all teaching hospitals.
            ``(3) Availability of data.--If a teaching hospital 
        received the payments specified in paragraph (2)(B)(i) during 
        the applicable period but a complete set of the relevant data 
        is not available to the Secretary for purposes of determining 
        an amount under such paragraph for the fiscal year involved, 
        the Secretary shall for purposes of such paragraph make an 
        estimate on the basis of such data as is available to the 
        Secretary for the applicable period.
    ``(c) Payment From Medicare Account.--
            ``(1) In general.--For purposes of subsection (a)(2), the 
        amount determined under this subsection for a teaching hospital 
        for a fiscal year is the product of--
                    ``(A) the amount in the Medicare Direct-Costs 
                Medical Education Account on the applicable date under 
                section 2201(d) (once the appropriation under such 
                section is made); and
                    ``(B) the percentage determined for the hospital 
                under paragraph (2).
            ``(2) Hospital-specific percentage.--For purposes of 
        paragraph (1)(B), the percentage determined under this 
        subsection for a teaching hospital for a fiscal year is the 
        percentage constituted by the ratio of--
                    ``(A) the estimate made by the Secretary for the 
                hospital for the fiscal year under section 
                1886(j)(2)(B); to
                    ``(B) the sum of the respective estimates referred 
                to in subparagraph (A) for all teaching hospitals.

``SEC. 2232. DIRECT COSTS; SPECIAL RULES REGARDING DETERMINATION OF 
              HOSPITAL-SPECIFIC PERCENTAGE.

    ``(a) Special Rule Regarding Fiscal Years 1995 and 1996.--
            ``(1) In general.--In the case of a teaching hospital whose 
        first payments under 1886(h) were for cost reporting period 
        beginning in fiscal year 1995 or in fiscal year 1996 (referred 
        to in this subsection individually as a `first payment year'), 
        the percentage determined under paragraph (2) for the hospital 
        is deemed to be the percentage applicable under section 
        2231(b)(2) to the hospital, except that the percentage under 
        paragraph (2) shall be adjusted in accordance with section 
        2231(b)(2)(A) to the extent determined by the Secretary to be 
        necessary with respect to a sum that equals 100 percent.
            ``(2) Determination of percentage.--For purposes of 
        paragraph (1), the percentage determined under this paragraph 
        for a teaching hospital is the percentage constituted by the 
        ratio of the amount determined under subparagraph (A) to the 
        amount determined under subparagraph (B), as follows:
                    ``(A)(i) If the first payment year for the hospital 
                is fiscal year 1995, the amount determined under this 
                subparagraph is the total amount of payments received 
                by the hospital under section 1886(h) for cost 
                reporting periods beginning in fiscal year 1995.
                    ``(ii) If the first payment year for the hospital 
                is fiscal year 1996, the amount determined under this 
                subparagraph is an amount equal to an estimate by the 
                Secretary of the total amount of payments that would 
                have been paid to the hospital under section 1886(h) 
                for cost reporting periods beginning in fiscal year 
                1995 if such section, as in effect for fiscal year 
                1996, had applied to the hospital for fiscal year 1995.
                    ``(B)(i) If the first payment year for the hospital 
                is fiscal year 1995, the amount determined under this 
                subparagraph is the aggregate total of the payments 
                received by teaching hospitals under section 1886(h) 
                for cost reporting periods beginning in fiscal year 
                1995.
                    ``(ii) If the first payment year for the hospital 
                is fiscal year 1996--
                            ``(I) the Secretary shall make an estimate 
                        in accordance with subparagraph (A)(ii) for all 
                        teaching hospitals; and
                            ``(II) the amount determined under this 
                        subparagraph is the sum of the estimates made 
                        by the Secretary under subclause (I).
    ``(b) New Teaching Hospitals.--
            ``(1) In general.--In the case of a teaching hospital that 
        did not receive payments under section 1886(h) for any of the 
        fiscal years 1992 through 1996, the percentage determined under 
        paragraph (3) for the hospital is deemed to be the percentage 
        applicable under section 2231(b)(2) to the hospital, except 
        that the percentage under paragraph (3) shall be adjusted in 
        accordance with section 2231(b)(2)(A) to the extent determined 
        by the Secretary to be necessary with respect to a sum that 
        equals 100 percent.
            ``(2) Designated fiscal year regarding data.--The 
        determination under paragraph (3) of a percentage for a 
        teaching hospital described in paragraph (1) shall be made for 
        the most recent fiscal year for which the Secretary has 
        sufficient data to make the determination (referred to in this 
        subsection as the `designated fiscal year').
            ``(3) Determination of percentage.--For purposes of 
        paragraph (1), the percentage determined under this paragraph 
        for the teaching hospital involved is the percentage 
        constituted by the ratio of the amount determined under 
        subparagraph (A) to the amount determined under subparagraph 
        (B), as follows:
                    ``(A) The amount determined under this subparagraph 
                is an amount equal to an estimate by the Secretary of 
                the total amount of payments that would have been paid 
                to the hospital under section 1886(h) for the 
                designated fiscal year if such section, as in effect 
                for the first fiscal year for which payments pursuant 
                to this subsection are to be made to the hospital, had 
                applied to the hospital for cost reporting periods 
                beginning in the designated fiscal year.
                    ``(B) The Secretary shall make an estimate in 
                accordance with subparagraph (A) for all teaching 
                hospitals. The amount determined under this 
                subparagraph is the sum of the estimates made by the 
                Secretary under the preceding sentence.
    ``(c) Consolidations and Mergers.--In the case of two or more 
teaching hospitals that have each received payments pursuant to section 
2231 for one or more fiscal years and that undergo a consolidation or 
merger, the percentage applicable to the resulting teaching hospital 
for purposes of section 2231(b) is the sum of the respective 
percentages that would have applied pursuant to such section if the 
hospitals had not undergone the consolidation or merger.

``SEC. 2233. DIRECT COSTS; AUTHORITY FOR PAYMENTS TO CONSORTIA OF 
              PROVIDERS.

    ``(a) In General.--In lieu of making payments to teaching hospitals 
pursuant to section 2231, the Secretary may make payments under this 
section to consortia that meet the requirements of subsection (b).
    ``(b) Qualifying Consortium.--For purposes of subsection (a), a 
consortium meets the requirements of this subsection if the consortium 
is in compliance with the following:
            ``(1) The consortium consists of an approved medical 
        residency training program of a teaching hospital and one or 
        more of the following entities:
                    ``(A) Schools of medicine or osteopathic medicine.
                    ``(B) Other teaching hospitals (or the approved 
                medical residency training programs of the hospitals).
                    ``(C) Community health centers (under section 330 
                of the Public Health Service Act).
                    ``(D) Medical group practices.
                    ``(E) Managed care entities.
                    ``(F) Entities furnishing outpatient services.
                    ``(G) Such other entities as the Secretary 
                determines to be appropriate.
            ``(2) The members of the consortium have agreed to 
        participate in the programs of graduate medical education that 
        are operated by the teaching hospitals of the consortium.
            ``(3) With respect to the receipt by the consortium of 
        payments made pursuant to this section, the members of the 
        consortium have agreed on a method for allocating the payments 
        among the members.
            ``(4) The consortium meets such additional requirements as 
        the Secretary may establish.
    ``(c) Payments From Accounts.--
            ``(1) In general.--Subject to subsection (d), the total of 
        payments to a qualifying consortium for a fiscal year pursuant 
        to subsection (a) shall be the sum of--
            ``(1) the aggregate amount determined for the teaching 
        hospitals of the consortium pursuant to paragraph (1) of 
        section 2231(a); and
            ``(2) an amount determined in accordance with the 
        methodology that applies pursuant to paragraph (2) of such 
        section, except that the estimate used for purposes of 
        subsection (c)(2)(A) of such section shall be the estimate made 
        for the consortium under section 1886(j)(2)(C)(ii).
    ``(d) Limitation on Aggregate Total of Payments to Consortia.--The 
aggregate total of the amounts paid under subsection (c)(2) to 
qualifying consortia for a fiscal year may not exceed the sum of--
            ``(1) the aggregate total of the amounts that would have 
        been paid under section 2231(c) for the fiscal year to the 
        teaching hospitals of the consortia if the hospitals had not 
        been participants in the consortia; and
            ``(2) an amount equal to 1 percent of the amount that 
        applies under paragraph (1)(A) of such section for the fiscal 
        year (relating to the Medicare Direct-Costs Medical Education 
        Account).
    ``(e) Definition.--For purposes of this title, the term `qualifying 
consortium' means a consortium that meets the requirements of 
subsection (b).

``SEC. 2234. DIRECT COSTS; ALTERNATIVE PAYMENTS REGARDING TEACHING 
              HOSPITALS IN CERTAIN STATES.

    ``(a) In General.--In the case of a teaching hospital in a State 
for which a demonstration project under section 1814(b)(3) is in 
effect, this section applies in lieu of section 2231. For purposes of 
section 2211(a)(2), the amount determined for a teaching hospital for a 
fiscal year is the product of--
            ``(1) the amount in the General Direct-Costs Medical 
        Education Account on the applicable date under section 2201(d) 
        (once the appropriation under such section is made); and
            ``(2) the percentage determined under subsection (b) for 
        the hospital.
    ``(b) Determination of Percentage.--For purposes of subsection 
(a)(2):
            ``(1) The Secretary shall make an estimate of the total 
        amount of payments that would have been received under section 
        1886(h) by the hospital involved with respect to each of the 
        fiscal years of the applicable period if such section (as in 
        effect for such fiscal years) had applied to the hospital for 
        such years.
            ``(2) The percentage determined under this subsection for 
        the hospital for a fiscal year is a mean average percentage 
        determined for the hospital in accordance with the methodology 
        of section 2231(b)(2)(A), except that the estimate made by the 
        Secretary under paragraph (1) of this subsection for a fiscal 
        year of the applicable period is deemed to be the amount that 
        applies for purposes of section 2231(b)(2)(B)(i) for such year.
    ``(c) Rule Regarding Payments From Certain Amounts.--In the case of 
a teaching hospital in a State for which a demonstration project under 
section 1814(b)(3) is in effect, this section does not provide any 
payment to the hospital from amounts transferred to the Fund under 
section 1886(j).

                    ``Subpart 4--General Provisions

``SEC. 2241. ADJUSTMENTS IN PAYMENT AMOUNTS.

    ``(a) Collection of Data on Accuracy of Estimates.--The Secretary 
shall collect data on whether the estimates made by the Secretary under 
section 1886(j) for a fiscal year were substantially accurate.
    ``(b) Adjustments.--If the Secretary determines under subsection 
(a) that an estimate for a fiscal year was not substantially accurate, 
the Secretary shall, for the first fiscal year beginning after the 
Secretary makes the determination--
            ``(1) make adjustments accordingly in transfers to the Fund 
        under section 1886(j); and
            ``(2) make adjustments accordingly in the amount of 
        payments to teaching hospitals pursuant to 2231(c) (or, as 
        applicable, to qualifying consortia pursuant to section 
        2232(c)(2)).''.

                 PART 2--AMENDMENTS TO MEDICARE PROGRAM

                                                     Subtitle E, Part 2

SEC. 15411. TRANSFERS TO TEACHING HOSPITAL AND GRADUATE MEDICAL 
              EDUCATION TRUST FUND.

    Section 1886 (42 U.S.C. 1395ww) is amended--
            (1) in subsection (d)(5)(B), in the matter preceding clause 
        (i), by striking ``The Secretary shall provide'' and inserting 
        the following: ``For discharges occurring on or before 
        September 30, 1996, the Secretary shall provide'';
            (2) in subsection (h)--
                    (A) in paragraph (1), in the first sentence, by 
                striking ``the Secretary shall provide'' and inserting 
                ``the Secretary shall, subject to paragraph (6), 
                provide''; and
                    (B) by adding at the end the following paragraph:
            ``(6) Limitation.--
                    ``(A) In general.--The authority to make payments 
                under this subsection applies only with respect to cost 
                reporting periods ending on or before September 30, 
                1996, except as provided in subparagraph (B).
                    ``(B) Rule regarding portion of last cost reporting 
                period.--In the case of a cost reporting period that 
                extends beyond September 30, 1996, payments under this 
                subsection shall be made with respect to such portion 
                of the period as has lapsed as of such date.
                    ``(C) Rule of construction.--This paragraph may not 
                be construed as authorizing any payment under section 
                1861(v) with respect to graduate medical education.''; 
                and
            (3) by adding at the end the following subsection:
    ``(j) Transfers to Teaching Hospital and Graduate Medical Education 
Trust Fund.--
            ``(1) Indirect costs of medical education.--
                    ``(A) In general.--From the Federal Hospital 
                Insurance Trust Fund, the Secretary shall, for fiscal 
                year 1997 and each subsequent fiscal year, transfer to 
                the Indirect-Costs Medical Education Account (under 
                section 2201) an amount determined by the Secretary in 
                accordance with subparagraph (B).
                    ``(B) Determination of amounts.--The Secretary 
                shall make an estimate for the fiscal year involved of 
                the nationwide total of the amounts that would have 
                been paid under subsection (d)(5)(B) to hospitals 
                during the fiscal year if such payments had not been 
                terminated for discharges occurring after September 30, 
                1996. For purposes of subparagraph (A), the amount 
                determined under this subparagraph for the fiscal year 
                is the estimate made by the Secretary under the 
                preceding sentence.
            ``(2) Direct costs of medical education.--
                    ``(A) In general.--From the Federal Hospital 
                Insurance Trust Fund and the Federal Supplementary 
                Medical Insurance Trust Fund, the Secretary shall, for 
                fiscal year 1997 and each subsequent fiscal year, 
                transfer to the Medicare Direct-Costs Medical Education 
                Account (under section 2201) the sum of--
                            ``(i) an amount determined by the Secretary 
                        in accordance with subparagraph (B); and
                            ``(ii) as applicable, an amount determined 
                        by the Secretary in accordance with 
                        subparagraph (C)(ii).
                    ``(B) Determination of amounts.--For each hospital 
                (other than a hospital that is a member of a qualifying 
                consortium referred to in subparagraph (C)), the 
                Secretary shall make an estimate for the fiscal year 
                involved of the amount that would have been paid under 
                subsection (h) to the hospital during the fiscal year 
                if such payments had not been terminated for cost 
                reporting periods ending on or before September 30, 
                1996. For purposes of subparagraph (A)(i), the amount 
                determined under this subparagraph for the fiscal year 
                is the sum of all estimates made by the Secretary under 
                the preceding sentence.
                    ``(C) Estimates regarding qualifying consortia.--If 
                the Secretary elects to authorize one or more 
                qualifying consortia for purposes of section 2233(a), 
                the Secretary shall carry out the following:
                            ``(i) The Secretary shall establish a 
                        methodology for making payments to qualifying 
                        consortia with respect to the reasonable direct 
                        costs of such consortia in carrying out 
                        programs of graduate medical education. The 
                        methodology shall be the methodology 
                        established in subsection (h), modified to the 
                        extent necessary to take into account the 
                        participation in such programs of entities 
                        other than hospitals.
                            ``(ii) For each qualifying consortium, the 
                        Secretary shall make an estimate for the fiscal 
                        year involved of the amount that would have 
                        been paid to the consortium during the fiscal 
                        year if, using the methodology under clause 
                        (i), payments had been made to the consortium 
                        for the fiscal year as reimbursements with 
                        respect to cost reporting periods. For purposes 
                        of subparagraph (A)(ii), the amount determined 
                        under this clause for the fiscal year is the 
                        sum of all estimates made by the Secretary 
                        under the preceding sentence.
                    ``(D) Allocation between funds.--In providing for a 
                transfer under subparagraph (A) for a fiscal year, the 
                Secretary shall provide for an allocation of the 
                amounts involved between part A and part B (and the 
                trust funds established under the respective parts) as 
                reasonably reflects the proportion of direct graduate 
                medical education costs of hospitals associated with 
                the provision of services under each respective part.
            ``(3) Applicability of certain amendments.--Amendments made 
        to subsection (d)(5)(B) and subsection (h) that are effective 
        on or after October 1, 1996, apply only for purposes of 
        estimates under paragraphs (1) and (2) and for purposes of 
        determining the amount of payments under 2211. Such amendments 
        do not require any adjustment to amounts paid under subsection 
        (d)(5)(B) or (h) with respect to fiscal year 1996 or any prior 
        fiscal year.
            ``(4) Relationship to certain demonstration projects.--In 
        the case of a State for which a demonstration project under 
        section 1814(b)(3) is in effect, the Secretary, in making 
        determinations of the rates of increase under such section, 
        shall include all amounts transferred under this subsection. 
        Such amounts shall be so included to the same extent and in the 
        same manner as amounts determined under subsections (d)(5)(B) 
        and (h) were included in such determination under the 
        provisions of this title in effect on September 30, 1996.''.

SEC. 15412. MODIFICATION IN PAYMENT POLICIES REGARDING GRADUATE MEDICAL 
              EDUCATION.

    (a) Indirect Costs of Medical Education; Applicable Percentage.--
            (1) Modification regarding 5.6 percent.--Section 
        1886(d)(5)(B)(ii) (42 U.S.C. 1395ww(d)(5)(B)(ii)) is amended--
                    (A) by striking ``on or after October 1, 1988,'' 
                and inserting ``on or after October 1, 1999,''; and
                    (B) by striking ``1.89'' and inserting ``1.38''.
            (2) Special rule regarding fiscal years 1996 through 1998; 
        modification regarding 6 percent.--Section 1886(d)(5)(B)(ii), 
        as amended by paragraph (1), is amended by adding at the end 
        the following: ``In the case of discharges occurring on or 
        after October 1, 1995, and before October 1, 1999, the 
        preceding sentence applies to the same extent and in the same 
        manner as the sentence applies to discharges occurring on or 
        after October 1, 1999, except that the term `1.38' is deemed to 
        be `1.48'.''.
    (b) Direct Costs of Medical Education.--
            (1) Limitation on number of full-time-equivalent 
        residents.--Section 1886(h)(4) (42 U.S.C. 1395ww(h)(4)) is 
        amended by adding at the end the following new subparagraph:
                    ``(F) Limitation on number of residents for certain 
                fiscal years.--Such rules shall provide that for 
                purposes of a cost reporting period beginning on or 
                after October 1, 1995, and on or before September 30, 
                2002, the number of full-time-equivalent residents 
                determined under this paragraph with respect to an 
                approved medical residency training program may not 
                exceed the number of full-time-equivalent residents 
                with respect to the program as of August 1, 1995 
                (except that this subparagraph does not apply to any 
                nonphysician postgraduate training program that, under 
                paragraph (5)(A), is an approved medical residency 
                training program).''.
            (2) Exclusion of residents after initial residency 
        period.--Section 1886(h)(4)(C) (42 U.S.C. 1395ww(h)(4)(C)) is 
        amended to read as follows:
                    ``(C) Weighting factors for residents.--Effective 
                for cost reporting periods beginning on or after 
                October 1, 1997, such rules shall provide that, in the 
                calculation of the number of full-time-equivalent 
                residents in an approved residency program, the 
                weighting factor for a resident who is in the initial 
                residency period (as defined in paragraph (5)(F)) is 
                1.0 and the weighting factor for a resident who has 
                completed such period is 0.0. (In the case of cost 
                reporting periods beginning before October 1, 1997, the 
weighting factors that apply in such calculation are the weighting 
factors that were applicable under this subparagraph on the day before 
the date of the enactment of the Medicare Preservation Act of 1995.)''.
            (3) Reductions in payments for alien residents.--Section 
        1886(h)(4) (42 U.S.C. 1395ww(h)(4)), as amended by paragraph 
        (1), is amended by adding at the end the following new 
        subparagraph:
                    ``(G) Special rules for alien residents.--In the 
                case of individuals who are not citizens or nationals 
                of the United States, in the calculation of the number 
                of full-time-equivalent residents in an approved 
                medical residency program, the following rules shall 
                apply with respect to such individuals who are 
                residents in the program:
                            ``(i) For a cost reporting period beginning 
                        during fiscal year 1996, for each such 
                        individual the Secretary shall apply a 
                        weighting factor of .75.
                            ``(ii) For a cost reporting period 
                        beginning during fiscal year 1997, for each 
                        such individual the Secretary shall apply a 
                        weighting factor of .50.
                            ``(iii) For a cost reporting period 
                        beginning during fiscal year 1998, for each 
                        such individual the Secretary shall apply a 
                        weighting factor of .25.
                            ``(iv) For a cost reporting period 
                        beginning during fiscal year 1999 or any 
                        subsequent fiscal year, such individuals shall 
                        be excluded from the calculation of the number 
                        of full-time-equivalent residents in an 
                        approved medical residency program under this 
                        paragraph.''.
    (c) Effective Date.--Except as provided otherwise in this section 
(or in the amendments made by this section), the amendments made by 
this section apply to hospital cost reporting periods beginning on or 
after October 1, 1995.

  PART 3--REFORM OF FEDERAL POLICIES REGARDING TEACHING HOSPITALS AND 
                       GRADUATE MEDICAL EDUCATION

                                                     Subtitle E, Part 3

SEC. 15421. ESTABLISHMENT OF ADVISORY PANEL FOR RECOMMENDING POLICIES.

    Title XXII of the Social Security Act, as added by section 15401, 
is amended by adding at the end the following part:

                        ``Part C--Other Matters

``SEC. 2251. ADVISORY PANEL ON REFORM IN FINANCING OF TEACHING 
              HOSPITALS AND GRADUATE MEDICAL EDUCATION.

    ``(a) Establishment.--The Chair of the Medicare Payment Review 
Commission under section 1806 shall establish a temporary advisory 
panel to be known as the Advisory Panel on Financing for Teaching 
Hospitals and Graduate Medical Education (in this section referred to 
as the `Panel').
    ``(b) Duties.--The Panel shall develop recommendations on whether 
and to what extent Federal policies regarding teaching hospitals and 
graduate medical education should be reformed, including 
recommendations regarding the following:
            ``(1) The financing of graduate medical education, 
        including consideration of alternative broad-based sources of 
        funding for such education.
            ``(2) The financing of teaching hospitals, including 
        consideration of the difficulties encountered by such hospitals 
        as competition among health care entities increases. Matters 
        considered under this paragraph shall include consideration of 
        the effects on teaching hospitals of the method of financing 
        used for the program under part C of title XVIII (relating to 
        MedicarePlus).
            ``(3) The methodology for making payments for graduate 
        medical education, and the selection of entities to receive the 
        payments. Matters considered under this paragraph shall include 
        the following:
                    ``(A) The methodology under part B for making 
                payments from the Fund, including the use of data from 
                the fiscal years 1992 through 1994, and including the 
                methodology that applies with respect to consolidations 
                and mergers of participants in the program under such 
                part and with respect to the inclusion of additional 
                participants in the program.
                    ``(B) Issues regarding children's hospitals, and 
                approved medical residency training programs in 
                pediatrics.
                    ``(C) Whether and to what extent payments are being 
                made (or should be made) for graduate training in the 
                various nonphysician health professions.
            ``(4) Federal policies regarding international medical 
        graduates.
            ``(5) The dependence of schools of medicine on service-
        generated income.
            ``(6) The effects of the amendments made by section 15412 
        of the Medicare Preservation Act of 1995, including adverse 
        effects on teaching hospitals that result from modifications in 
        policies regarding international medical graduates.
            ``(7) The feasibility and desirability of reducing payments 
        for graduate medical education for high-cost residency programs 
        under section 1886(h)(2)(D)(iii).
    ``(c) Composition.--Not later than three months after being 
designated as the initial chairman of the Medicare Payment Review 
Commission, the chairman of the Commission shall appoint to the Panel 
19 individuals who are not members of the Commission, who are not 
officers or employees of the United States, and who possess expertise 
on matters on which the Panel is to make recommendations under 
subsection (b). Such individuals shall include the following:
            ``(1) Deans from allopathic and osteopathic schools of 
        medicine.
            ``(2) Chief executive officers (or equivalent 
        administrative heads) from academic health centers, integrated 
        health care systems, and approved medical residency training 
        programs.
            ``(3) Chairs of departments or divisions from allopathic 
        and osteopathic schools of medicine, schools of dentistry, and 
        approved medical residency training programs in oral surgery.
            ``(4) Individuals with leadership experience from each of 
        the fields of advanced practice nursing, physician assistants, 
        and podiatric medicine.
            ``(5) Individuals with substantial experience in the study 
        of issues regarding the composition of the health care 
        workforce of the United States.
            ``(6) Individuals with expertise on the financing of health 
        care.
            ``(7) Representatives from health insurance organizations 
        and health plan organizations.
    ``(d) Relationship of Panel to Medicare Payment Review 
Commission.--From amounts appropriated under subsection (n), the 
Medicare Review Payment Commission shall provide for the Panel such 
staff and administrative support (including quarters for the Panel) as 
may be necessary for the Panel to carry out the duties under subsection 
(b).
    ``(e) Chair.--The Panel shall designate a member of the Panel to 
serve as the Chair of the Panel.
    ``(f) Meetings.--The Panel shall meet at the call of the Chair or a 
majority of the members, except that the first meeting of the Panel 
shall be held not later than three months after the date on which 
appointments under subsection (c) are completed.
    ``(g) Terms.--The term of a member of the Panel is the duration of 
the Panel.
    ``(h) Vacancies.--
            ``(1) In general.--A vacancy in the membership of the Panel 
        does not affect the power of the remaining members to carry out 
        the duties under subsection (b). A vacancy in the membership of 
        the Panel shall be filled in the manner in which the original 
        appointment was made.
            ``(2) Incomplete term.--If a member of the Panel does not 
        serve the full term applicable to the member, the individual 
        appointed to fill the resulting vacancy shall be appointed for 
        the remainder of the term of the predecessor of the individual.
    ``(i) Compensation; Reimbursement of Expenses.--
            ``(1) Compensation.--Members of the Panel shall receive 
        compensation for each day (including traveltime) engaged in 
        carrying out the duties of the Committee. Such compensation may 
        not be in an amount in excess of the daily equivalent of the 
        annual maximum rate of basic pay payable under the General 
        Schedule (under title 5, United States Code) for positions 
        above GS-15.
            ``(2) Reimbursement.--Members of the Panel may, in 
        accordance with chapter 57 of title 5, United States Code, be 
        reimbursed for travel, subsistence, and other necessary 
        expenses incurred in carrying out the duties of the Panel.
    ``(j) Consultants.--The Panel may procure such temporary and 
intermittent services of consultants under section 3109(b) of title 5, 
United States Code, as the Panel may determine to be useful in carrying 
out the duties under section 3. The Panel may not procure services 
under this subsection at any rate in excess of the daily equivalent of 
the maximum annual rate of basic pay payable under the General Schedule 
for positions above GS-15. Consultants under this subsection may, in 
accordance with chapter 57 of title 5, United States Code, be 
reimbursed for travel, subsistence, and other necessary expenses 
incurred for activities carried out on behalf of the Panel pursuant to 
section 3.
    ``(k) Powers.--
            ``(1) In general.--For the purpose of carrying out the 
        duties of the Panel under subsection (b), the Panel may hold 
        such hearings, sit and act at such times and places, take such 
        testimony, and receive such evidence as the Panel considers 
        appropriate.
            ``(2) Obtaining official information.--Upon the request of 
        the Panel, the heads of Federal agencies shall furnish directly 
        to the Panel information necessary for the Panel to carry out 
        the duties under subsection (b).<plus-minus>
            ``(3) Use of mails.--The Panel may use the United States 
        mails in the same manner and under the same conditions as 
        Federal agencies.
    ``(l) Reports.--
            ``(1) First interim report.--Not later than one year after 
        the date of the enactment of the Medicare Preservation Act of 
        1995, the Panel shall submit to the Congress a report providing 
        the recommendations of the Panel regarding the matters 
        specified in paragraphs (1) through (4) of subsection (b).
            ``(2) Second interim report.--Not later than 2 years after 
        the date of enactment specified in paragraph (1), the Panel 
        shall submit to the Congress a report providing the 
        recommendations of the Panel regarding the matters specified in 
        paragraphs (5) and (6) of subsection (b).
            ``(3) Final report.--Not later than 3 years after the date 
        of enactment specified in paragraph (1), the Panel shall submit 
        to the Congress a final report providing the recommendations of 
        the Panel under subsection (b).
    ``(m) Duration.--The Panel terminates upon the expiration of the 
180-day period beginning on the date on which the final report under 
subsection (l)(3) is submitted to the Congress.
    ``(n) Authorization of Appropriations.--
            ``(1) In general.--Subject to paragraph (2), for the 
        purpose of carrying out this section, there are authorized to 
        be appropriated such sums as may be necessary for each of the 
        fiscal years 1996 through 2000.
            ``(2) Limitation.--The authorization of appropriations 
        established in paragraph (1) is effective only with respect to 
        appropriations made from allocations under section 302(b) of 
        the Congressional Budget Act of 1974--
                    ``(A) for the Subcommittee on Labor, Health and 
                Human Services, and Education, Committee on 
                Appropriations of the House of Representatives, in the 
                case of any bill, resolution, or amendment considered 
                in the House; and
                    ``(B) for the Subcommittee on Labor, Health and 
                Human Services, and Education, Committee on 
                Appropriations of the Senate, in the case of any bill, 
                resolution, or amendment considered in the Senate.''.

           Subtitle F--Provisions Relating to Medicare Part A

                           PART 1--HOSPITALS

          Subpart A--General Provisions Relating to Hospitals

                                                     Subtitle F, Part 1

SEC. 15501. REDUCTIONS IN INFLATION UPDATES FOR PPS HOSPITALS.

    Section 1886(b)(3)(B)(i) (42 U.S.C. 1395ww(b)(3)(B)(i)) is amended 
by striking subclauses (XI), (XII), and (XIII) and inserting the 
following:
            ``(XI) for fiscal year 1996, the market basket percentage 
        increase minus 2.5 percentage points for hospitals in all 
        areas,
            ``(XII) for each of the fiscal years 1997 through 2002, the 
        market basket percentage increase minus 2.0 percentage points 
        for hospitals in all areas, and
            ``(XIII) for fiscal year 2003 and each subsequent fiscal 
        year, the market basket percentage increase for hospitals in 
        all areas.''.

SEC. 15502. REDUCTIONS IN DISPROPORTIONATE SHARE PAYMENT ADJUSTMENTS.

    Section 1886(d)(5)(F) (42 U.S.C. 1395ww(d)(5)(F)) is amended--
            (1) in clause (ii), by striking ``The amount'' and 
        inserting ``Subject to clause (ix), the amount''; and
            (2) by adding at the end the following new clause:
    ``(ix) In the case of discharges occurring on or after October 1, 
1995, the additional payment amount otherwise determined under clause 
(ii) shall be reduced as follows:
            ``(I) For discharges occurring on or after October 1, 1995, 
        and on or before September 30, 1996, by 17 percent.
            ``(II) For discharges occurring on or after October 1, 
        1996, and on or before September 30, 1997, by 15 percent.
            ``(III) For discharges occurring on or after October 1, 
        1997, and on or before September 30, 1998, by 20 percent.
            ``(IV) For discharges occurring on or after October 1, 
        1998, and on or before September 30, 1999, by 20 percent.
            ``(V) For discharges occurring on or after October 1, 1999, 
        and on or before September 30, 2000, by 25 percent.
            ``(VI) For discharges occurring on or after October 1, 
        2000, and on or before September 30, 2001, by 30 percent.
            ``(VII) For discharges occurring on or after October 1, 
        2001, by 30 percent.''.

SEC. 15503. PAYMENTS FOR CAPITAL-RELATED COSTS FOR INPATIENT HOSPITAL 
              SERVICES.

    (a) Reduction in Payments for PPS Hospitals.--
            (1) Continuation of current reductions.--Section 
        1886(g)(1)(A) (42 U.S.C. 1395ww(g)(1)(A)) is amended in the 
        second sentence--
                    (A) by striking ``through 1995'' and inserting 
                ``through 2002''; and
                    (B) by inserting after ``reduction'' the following: 
                ``(or a 15 percent reduction in the case of payments 
                during fiscal years 1996 through 2002)''.
            (2) Reduction in base payment rates.--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 7.47 
        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 Medicare Preservation Act of 1995) and 
        shall reduce by 8.27 percent the unadjusted hospital-specific 
        rate (as described in 42 CFR 412.328(e)(1), as in effect on 
        such date of enactment).''.
    (b) Reduction in Payments for PPS-Exempt Hospitals.--Section 
1886(g) (42 U.S.C. 1395ww(g)) is amended by adding at the end the 
following new paragraph:
    ``(4)(A) Except as provided in subparagraph (B), in determining the 
amount of the payments that may be made under this title with respect 
to all the capital-related costs of inpatient hospital services 
furnished during fiscal years 1996 through 2002 of a hospital which is 
not a subsection (d) hospital or a subsection (d) Puerto Rico hospital, 
the Secretary shall reduce the amounts of such payments otherwise 
determined under this title by 15 percent.
    ``(B) Subparagraph (A) shall not apply to payments with respect to 
the capital-related costs of any hospital that is a sole community 
hospital (as defined in subsection (d)(5)(D)(iii)) or a rural primary 
care hospital (as defined in section 1861(mm)(1)).''.
    (c) Hospital-Specific Adjustment for Capital-Related Tax Costs.--
Section 1886(g)(1) (42 U.S.C. 1395ww(g)(1)) is amended--
            (1) by redesignating subparagraph (C) as subparagraph (D), 
        and
            (2) by inserting after subparagraph (B) the following:
                    ``(C)(i) For discharges occurring after September 
                30, 1995, such system shall provide for an adjustment 
                in an amount equal to the amount determined under 
                clause (iv) for capital-related tax costs for each 
                hospital that is eligible for such adjustment.
                    ``(ii) Subject to clause (iii), a hospital is 
                eligible for an adjustment under this subparagraph, 
                with respect to discharges occurring in a fiscal year, 
                if the hospital--
                            ``(I) is a hospital that may otherwise 
                        receive payments under this subsection,
                            ``(II) is not a public hospital, and
                            ``(III) incurs capital-related tax costs 
                        for the fiscal year.
                    ``(iii)(I) In the case of a hospital that first 
                incurs capital-related tax costs in a fiscal year after 
                fiscal year 1992 because of a change from 
                nonproprietary to proprietary status or because the 
                hospital commenced operation after such fiscal year, 
                the first fiscal year for which the hospital shall be 
                eligible for such adjustment is the second full fiscal 
                year following the fiscal year in which the hospital 
                first incurs such costs.
                    ``(II) In the case of a hospital that first incurs 
                capital-related tax costs in a fiscal year after fiscal 
                year 1992 because of a change in State or local tax 
                laws, the first fiscal year for which the hospital 
                shall be eligible for such adjustment is the fourth 
                full fiscal year following the fiscal year in which the 
                hospital first incurs such costs.
                    ``(iv) The per discharge adjustment under this 
                clause shall be equal to the hospital-specific capital-
                related tax costs per discharge of a hospital for 
                fiscal year 1992 (or, in the case of a hospital that 
                first incurs capital-related tax costs for a fiscal 
                year after fiscal year 1992, for the first full fiscal 
                year for which such costs are incurred), updated to the 
                fiscal year to which the adjustment applies. Such per 
                discharge adjustment shall be added to the Federal 
                capital rate, after such rate has been adjusted as 
                described in 42 CFR 412.312 (as in effect on the date 
                of the enactment of the Medicare Preservation Act of 
                1995), and before such rate is multiplied by the 
                applicable Federal rate percentage.
                    ``(v) For purposes of this subparagraph, capital-
                related tax costs include--
                            ``(I) the costs of taxes on land and 
                        depreciable assets owned by a hospital (or 
                        related organization) and used for patient 
                        care,
                            ``(II) payments in lieu of such taxes (made 
                        by hospitals that are exempt from taxation), 
                        and
                            ``(III) the costs of taxes paid by a 
                        hospital (or related organization) as lessee of 
                        land, buildings, or fixed equipment from a 
                        lessor that is unrelated to the hospital (or 
                        related organization) under the terms of a 
                        lease that requires the lessee to pay all 
                        expenses (including mortgage, interest, and 
                        amortization) and leaves the lessor with an 
                        amount free of all claims (sometimes referred 
                        to as a `net net net' or `triple net' lease).
                In determining the adjustment required under clause 
                (i), the Secretary shall not take into account any 
                capital-related tax costs of a hospital to the extent 
                that such costs are based on tax rates and assessments 
                that exceed those for similar commercial properties.
                    ``(vi) The system shall provide that the Federal 
                capital rate for any fiscal year after September 30, 
                1995, shall be reduced by a percentage sufficient to 
                ensure that the adjustments required to be paid under 
                clause (i) for a fiscal year neither increase nor 
                decrease the total amount that would have been paid 
                under this system but for the payment of such 
                adjustments for such fiscal year.''.
    (d) Revision of Exceptions Process Under Prospective Payment System 
for Certain Projects.--
            (1) In general.--Section 1886(g)(1) (42 U.S.C. 
        1395ww(g)(1)), as amended by subsection (c), is amended--
                    (A) by redesignating subparagraph (D) as 
                subparagraph (E), and
                    (B) by inserting after subparagraph (C) the 
                following:
    ``(D) The exceptions under the system provided by the Secretary 
under subparagraph (B)(iii) shall include the provision of exception 
payments under the special exceptions process provided under 42 CFR 
412.348(g) (as in effect on September 1, 1995), except that the 
Secretary shall revise such process as follows:
            ``(i) A hospital with at least 100 beds which is located in 
        an urban area shall be eligible under such process without 
        regard to its disproportionate patient percentage under 
        subsection (d)(5)(F) or whether it qualifies for additional 
        payment amounts under such subsection.
            ``(ii) The minimum payment level for qualifying hospitals 
        shall be 85 percent.
            ``(iii) A hospital shall be considered to meet the 
        requirement that it completes the project involved no later 
        than the end of the hospital's last cost reporting period 
        beginning after October 1, 2001, if--
                    ``(I) the hospital has obtained a certificate of 
                need for the project approved by the State or a local 
                planning authority, and
                    ``(II) by September 1, 1995, the hospital has 
                expended on the project at least $750,000 or 10 percent 
                of the estimated cost of the project.
            ``(iv) The amount of the exception payment made shall not 
        be reduced by any offsetting amounts.''.
            (2) Conforming amendment.--Section 1886(g)(1)(B) (42 U.S.C. 
        1395ww(g)(1)(B)) is amended by striking ``may provide'' and 
        inserting ``shall provide (in accordance with subparagraph 
        (D)''.

SEC. 15504. REDUCTION IN ADJUSTMENT FOR INDIRECT MEDICAL EDUCATION.

    For provisions modifying medicare payment policies regarding 
graduate medical education, see part 2 of subtitle E.

SEC. 15505. TREATMENT OF PPS-EXEMPT HOSPITALS.

    (a) Updates.--Section 1886(b)(3)(B)(ii)(V) (42 U.S.C. 
1395ww(b)(3)(B)(ii)(V)) is amended by striking ``thorugh 1997'' and 
inserting ``through 2002''.
    (b) Rebasing for Certain Long-Term Care Hospitals.--
            (1) In general.--Section 1886(b)(3) (42 U.S.C. 
        1395ww(b)(3)) is amended--
                    (A) in subparagraph (A), by striking ``and (E)'' 
                and inserting ``(E), and (F)'';
                    (B) in subparagraph (B)(ii), by striking ``(A) and 
                (E)'' and inserting ``(A), (E), and (F)''; and
                    (C) by adding at the end the following new 
                subparagraph:
    ``(F)(i) In the case of a qualified long-term care hospital (as 
defined in clause (ii)), the term `target amount' means--
            ``(I) with respect to the first 12-month cost reporting 
        period in which this subparagraph is applied to the hospital, 
        the allowable operating costs of inpatient hospital services 
        (as defined in subsection (a)(4)) recognized under this title 
        for the hospital for the 12-month cost reporting period 
        beginning during fiscal year 1991; or
            ``(II) with respect to a later cost reporting period, the 
        target amount for the preceding cost reporting period, increase 
        by the applicable percentage increase under subparagraph 
        (B)(ii) for that later cost reporting period.
    ``(ii) In clause (i), a `qualified long-term care hospital' means, 
with respect to a cost reporting period, a hospital described in clause 
(iv) of subsection (d)(1)(B) during fiscal year 1995 for which the 
hospital's allowable operating costs of inpatient hospital services 
recognized under this title for each of the two most recent previous 
12-month cost reporting periods exceeded the hospital's target amount 
determined under this paragraph for such cost reporting periods, if the 
hospital--
            ``(I) has a disproportionate patient percentage during such 
        cost reporting period (as determined by the Secretary under 
        subsection (d)(5)(F)(vi) as if the hospital were a subsection 
        (d) hospital) of at least 25 percent, or
            ``(II) is located in a State for which no payment is made 
        under the State plan under title XIX for days of inpatient 
        hospital services furnished to any individual in excess of the 
        limit on the number of days of such services furnished to the 
        individual for which payment may be made under this title.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to discharges occurring during cost reporting 
        periods beginning on or after October 1, 1995.
    (c) Treatment of Certain Units Located Within Other Hospitals.--
            (1) In general.--Section 1886(d)(1)(B) (42 U.S.C. 
        1395ww(d)(1)(B)) is amended in the matter following clause (v) 
        by striking the period and inserting the following: ``, or a 
        long-term care unit of the hospital if such unit was not 
        treated as a subsection (d) hospital with respect to discharges 
        occurring on or before September 30, 1995.''.
            (2) Study by review commission.--Not later than 12 months 
        after the date a majority of the members of the Medicare 
        Payment Review Commission are first appointed, the Commission 
        shall submit a report to Congress containing recommendations 
        for appropriate revisions in the treatment of distinct units of 
        hospitals for purposes of section 1886 of the Social Security 
        Act.

SEC. 15506. REDUCTION IN PAYMENTS TO HOSPITALS FOR ENROLLEES' BAD 
              DEBTS.

    (a) In General.--Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)) is 
amended by adding at the end the following new subparagraph:
    ``(T) In determining such reasonable costs for hospitals, the 
amount of bad debts otherwise treated as allowable costs which are 
attributable to the deductibles and coinsurance amounts under this 
title shall be reduced by--
            ``(i) 75 percent for cost reporting periods beginning 
        during fiscal year 1996,
            ``(ii) 60 percent for cost reporting periods beginning 
        during fiscal year 1997, and
            ``(iii) 50 percent for subsequent cost reporting 
        periods.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to hospital cost reporting periods beginning on or after October 
1, 1995.

SEC. 15507. PERMANENT EXTENSION OF HEMOPHILIA PASS-THROUGH.

    Effective as if included in the enactment of OBRA-1989, section 
6011(d) of such Act (as amended by section 13505 of OBRA-1993) is 
amended by striking ``and shall expire September 30, 1994''.

SEC. 15508. CONFORMING AMENDMENT TO CERTIFICATION OF CHRISTIAN SCIENCE 
              PROVIDERS.

    (a) Hospitals.--Section 1861(e) (42 U.S.C. 1395x(e)) is amended in 
the sixth sentence by inserting after ``Massachusetts,'' the following: 
``or by the Commission for Accreditation of Christian Science Nursing 
Organizations/Facilities, Inc.,''.
    (b) Skilled Nursing Facilities.--Section 1861(y)(1) is amended by 
inserting after ``Massachusetts,'' the following: ``or by the 
Commission for Accreditation of Christian Science Nursing 
Organizations/Facilities, Inc.,''.

           Subpart B--Provisions Relating to Rural Hospitals

SEC. 15511. SOLE COMMUNITY HOSPITALS.

    (a) Update.--Section 1886(b)(3)(B)(iv) (42 U.S.C. 
1395ww(b)(3)(B)(iv)) is amended--
                    (A) in subclause (III), by striking ``and'' at the 
                end; and
                    (B) by striking subclause (IV) and inserting the 
                following:
            ``(IV) for each of the fiscal years 1996 through 2000, the 
        market basket percentage increase minus 1 percentage points, 
        and
            ``(V) for fiscal year 2001 and each subsequent fiscal year, 
        the applicable percentage increase under clause (i).''.
    (b) Study of Impact of Sole Community Hospital Designations.--
            (1) Study.--The Medicare Payment Review Commission shall 
        conduct a study of the impact of the designation of hospitals 
        as sole community hospitals under the medicare program on the 
        delivery of health care services to individuals in rural areas, 
        and shall include in the study an analysis of the 
        characteristics of the hospitals designated as such sole 
        community hospitals under the program.
            (2) Report.--Not later than 12 months after the date a 
        majority of the members of the Commission are first appointed, 
        the Commission shall submit to Congress a report on the study 
        conducted under paragraph (1).

SEC. 15512. CLARIFICATION OF TREATMENT OF EAC AND RPC HOSPITALS.

    Paragraphs (1)(A) and (2)(A) of section 1820(i) (42 U.S.C. 1395i-
4(i)) are each amended by striking the semicolon at the end and 
inserting the following: ``, or in a State which the Secretary finds 
would receive a grant under such subsection during a fiscal year if 
funds were appropriated for grants under such subsection for the fiscal 
year;''.

SEC. 15513. RURAL EMERGENCY ACCESS CARE HOSPITALS.

    (a) Establishment of Program.--
            (1) In general.--Section 1861 (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

    ``(oo)(1) 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 is a member of a community rural health 
        network under section 104 of the Rural Health Development Act.
            ``(H) 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.
            ``(I) 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).
    ``(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)).
    ``(3) The term `inpatient rural emergency access care hospital 
services' means services described in paragraph (2), furnished to an 
individual over a continuous period not to exceed 24 hours (except that 
such services may be furnished over a longer period in the case of an 
individual who is unable to leave the hospital because of inclement 
weather) that would be inpatient hospital services if furnished to an 
inpatient of a hospital by a hospital.''.
            (2) Requiring rural emergency access care hospitals to meet 
        hospital anti-dumping requirements.--Section 1867(e)(5) (42 
        U.S.C. 1395dd(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(oo)(1))''.
    (b) Coverage of and Payment for Services Under Part A.--
            (1) Coverage.--Section 1812(a)(1) (42 U.S.C. 1395d(a)(1)) 
        is amended by striking ``or inpatient rural primary care 
        hospital services'' and inserting ``inpatient rural primary 
        care hospital services, or inpatient rural emergency access 
        care hospital services''.
            (2) Application of deductible and coinsurance.--(A) 
        Sections 1813(a) and 1813(b)(3)(A) (42 U.S.C. 1395e(a), 
        1395e(b)(3)(A)) are each amended by striking ``services or 
        inpatient rural primary care hospital services'' each place it 
        appears and inserting ``services, inpatient rural primary care 
        hospital services, or inpatient rural emergency access care 
        hospital services''.
            (B) Section 1813(b)(3)(B) (42 U.S.C. 1395e(b)(3)(B)) is 
        amended by inserting ``, inpatient rural emergency access care 
        hospital services,'' after ``inpatient rural primary care 
        hospital services''.
            (3) Payment based on reasonable costs.--Section 1814 (42 
        U.S.C. 1395f) is amended by adding at the end the following new 
        subsection:

 ``Payment for Inpatient Rural Emergency Access Care Hospital Services

    ``(m) The amount of payment under this part for inpatient rural 
primary care hospital services shall be equal to the reasonable cost of 
such services (as determined under section 1861(v)), less the amount 
the hospital may charge as described in clause (ii) of section 
1866(a)(2)(A), but in no case may the payment for such services exceed 
80 percent of such reasonable cost.''.
            (4) Application of spell of illness.--Section 1861(a) (42 
        U.S.C. 1395x(a)) is amended--
                    (A) in paragraph (1), by inserting ``, inpatient 
                rural emergency access care hospital services,'' after 
                ``inpatient rural primary care hospital services''; and
                    (B) in paragraph (2), by striking ``hospital or 
                rural primary care hospital'' and inserting ``hospital, 
                rural primary care hospital, or rural emergency access 
                care hospital''.
    (c) Reference to Payment Provisions Under Part B.--For provisions 
relating to payment for inpatient rural emergency access care hospital 
services under part B, see section 15607.
    (d) Effective Date.--The amendments made by this section shall 
apply to fiscal years beginning on or after October 1, 1995.

SEC. 15514. CLASSIFICATION OF RURAL REFERRAL CENTERS.

    (a) Prohibiting Denial of Request for Reclassification on Basis of 
Comparability of Wages.--
            (1) In general.--Section 1886(d)(10)(D) (42 U.S.C. 
        1395ww(d)(10)(D)) is amended--
                    (A) by redesignating clause (iii) as clause (iv); 
                and
                    (B) by inserting after clause (ii) the following 
                new clause:
    ``(iii) Under the guidelines published by the Secretary under 
clause (i), in the case of a hospital which is classified by the 
Secretary as a rural referral center under paragraph (5)(C), the Board 
may not reject the application of the hospital under this paragraph on 
the basis of any comparison between the average hourly wage of the 
hospital and the average hourly wage of hospitals in the area in which 
it is located.''.
            (2) Effective date.--Notwithstanding section 
        1886(d)(10)(C)(ii) of the Social Security Act, a hospital may 
        submit an application to the Medicare Geographic Classification 
        Review Board during the 30-day period beginning on the date of 
        the enactment of this Act requesting a change in its 
        classification for purposes of determining the area wage index 
        applicable to the hospital under section 1886(d)(3)(D) of such 
        Act for fiscal year 1997, if the hospital would be eligible for 
        such a change in its classification under the standards 
        described in section 1886(d)(10)(D) (as amended by 
paragraph (1)) but for its failure to meet the deadline for 
applications under section 1886(d)(10)(C)(ii).
    (b) Continuing Treatment of Previously Designated Centers.--Any 
hospital classified as a rural referral center by the Secretary of 
Health and Human Services under section 1886(d)(5)(C) of the Social 
Security Act for fiscal year 1994 shall be classified as such a rural 
referral center for fiscal year 1996 and each subsequent fiscal year.

SEC. 15515. FLOOR ON AREA WAGE INDEX.

    (a) In General.--For purposes of section 1886(d)(3)(E) of the 
Social Security Act for discharges occurring on or after October 1, 
1995, the area wage index applicable under such section to any hospital 
which is not located in a rural area (as defined in section 
1886(d)(2)(D) of such Act) may not be less than the average of the area 
wage indices applicable under such section to hospitals located in 
rural areas in the State in which the hospital is located.
    (b) Budget-Neutrality in Implementation.--The Secretary of Health 
and Human Services shall make any adjustments required under subsection 
(a) in a manner which assures that the aggregate payments made under 
section 1886(d) of the Social Security Act in a fiscal year for the 
operating costs of inpatient hospital services are not greater or less 
than those which would have been made in the year without such 
adjustments.

             PART 2--PAYMENTS TO SKILLED NURSING FACILITIES

                                                     Subtitle F, Part 2

SEC. 15521. PAYMENTS FOR ROUTINE SERVICE COSTS.

    (a) Clarification of Definition of Routine Service Costs.--Section 
1888 (42 U.S.C. 1395yy) is amended by adding at the end the following 
new subsection:
    ``(e) For purposes of this section, the `routine service costs' of 
a skilled nursing facility are all costs which are attributable to 
nursing services, room and board, administrative costs, other overhead 
costs, and all other ancillary services (including supplies and 
equipment), excluding costs attributable to covered non-routine 
services subject to payment limits under section 1888A.''.
    (b) Conforming Amendment.--Section 1888 (42 U.S.C. 1395yy) is 
amended in the heading by inserting ``and certain ancillary'' after 
``service''.

SEC. 15522. INCENTIVES FOR COST EFFECTIVE MANAGEMENT OF COVERED NON-
              ROUTINE SERVICES.

    (a) In General.--Title XVIII is amended by inserting after section 
1888 the following new section:

   ``incentives for cost-effective management of covered non-routine 
                 services of skilled nursing facilities

    ``Sec. 1888A. (a) Definitions.--For purposes of this section:
            ``(1) Covered non-routine services.--The term `covered non-
        routine services' means post-hospital extended care services 
        consisting of any of the following:
                    ``(A) Physical or occupational therapy or speech-
                language pathology services, or respiratory therapy.
                    ``(B) Prescription drugs.
                    ``(C) Complex medical equipment.
                    ``(D) Intravenous therapy and solutions (including 
                enteral and parenteral nutrients, supplies, and 
                equipment).
                    ``(E) Radiation therapy.
                    ``(F) Diagnostic services, including laboratory, 
                radiology (including computerized tomography services 
                and imaging services), and pulmonary services.
            ``(2) SNF market basket percentage increase.--The term `SNF 
        market basket percentage increase' for a fiscal year means a 
        percentage equal to the percentage increase in routine service 
        cost limits for the year under section 1888(a).
            ``(3) Stay.--The term `stay' means, with respect to an 
        individual who is a resident of a skilled nursing facility, a 
        period of continuous days during which the facility provides 
        extended care services for which payment may be made under this 
        title to the individual during the individual's spell of 
        illness.
    ``(b) New Payment Method for Covered Non-Routine Services.--
            ``(1) In general.--Subject to subsection (c), a skilled 
        nursing facility shall receive interim payments under this 
        title for covered non-routine services furnished to an 
        individual during a cost reporting period beginning during a 
        fiscal year (after fiscal year 1996) in an amount equal to the 
        reasonable cost of providing such services in accordance with 
        section 1861(v). The Secretary may adjust such payments if the 
        Secretary determines (on the basis of such estimated 
        information as the Secretary considers appropriate) that 
        payments to the facility under this paragraph for a cost 
        reporting period would substantially exceed the cost reporting 
        period limit determined under subsection (c)(1)(B).
            ``(2) Responsibility of skilled nursing facility to manage 
        billings.--
                    ``(A) Clarification relating to part a billing.--In 
                the case of a covered non-routine service furnished to 
                an individual who (at the time the service is 
                furnished) is a resident of a skilled nursing facility 
                who is entitled to coverage under section 1812(a)(2) 
                for such service, the skilled nursing facility shall 
                submit a claim for payment under this title for such 
                service under part A (without regard to whether or not 
                the item or service was furnished by the facility, by 
                others under arrangement with them made by the 
                facility, under any other contracting or consulting 
                arrangement, or otherwise).
                    ``(B) Part b billing.--In the case of a covered 
                non-routine service furnished to an individual who (at 
                the time the service is furnished) is a resident of a 
                skilled nursing facility who is not entitled to 
                coverage under section 1812(a)(2) for such service but 
                is entitled to coverage under part B for such service, 
                the skilled nursing facility shall submit a claim for 
                payment under this title for such service under part B 
                (without regard to whether or not the item or service 
                was furnished by the facility, by others under 
                arrangement with them made by the facility, under any 
                other contracting or consulting arrangement, or 
                otherwise).
                    ``(C) Maintaining records on services furnished to 
                residents.--Each skilled nursing facility receiving 
                payments for extended care services under this title 
                shall document on the facility's cost report all 
                covered non-routine services furnished to all residents 
                of the facility to whom the facility provided extended 
                care services for which payment was made under part A 
                during a fiscal year (beginning with fiscal year 1996) 
                (without regard to whether or not the services were 
                furnished by the facility, by others under arrangement 
                with them made by the facility, under any other 
                contracting or consulting arrangement, or otherwise).
    ``(c) Reconciliation of Amounts.--
            ``(1) Limit based on per stay limit and number of stays.--
                    ``(A) In general.--If a skilled nursing facility 
                has received aggregate payments under subsection (b) 
                for covered non-routine services during a cost 
                reporting period beginning during a fiscal year in 
                excess of an amount equal to the cost reporting period 
                limit determined under subparagraph (B), the Secretary 
                shall reduce the payments made to the facility with 
                respect to such services for cost reporting periods 
                beginning during the following fiscal year in an amount 
                equal to such excess. The Secretary shall reduce 
                payments under this subparagraph at such times and in 
                such manner during a fiscal year as the Secretary finds 
                necessary to meet the requirement of this subparagraph.
                    ``(B) Cost reporting period limit.--The cost 
                reporting period limit determined under this 
                subparagraph is an amount equal to the product of--
                            ``(i) the per stay limit applicable to the 
                        facility under subsection (d) for the period; 
                        and
                            ``(ii) the number of stays beginning during 
                        the period for which payment was made to the 
                        facility for such services.
                    ``(C) Prospective reduction in payments.--In 
                addition to the process for reducing payments described 
                in subparagraph (A), the Secretary may reduce payments 
                made to a facility under this section during a cost 
                reporting period if the Secretary determines (on the 
                basis of such estimated information as the Secretary 
                considers appropriate) that payments to the facility 
                under this section for the period will substantially 
                exceed the cost reporting period limit for the period 
                determined under this paragraph.
            ``(2) Incentive payments.--
                    ``(A) In general.--If a skilled nursing facility 
                has received aggregate payments under subsection (b) 
                for covered non-routine services during a cost 
                reporting period beginning during a fiscal year in an 
                amount that is less than the amount determined under 
                paragraph (1)(B), the Secretary shall pay the skilled 
                nursing facility in the following fiscal year an 
                incentive payment equal to 50 percent of the difference 
                between such amounts, except that the incentive payment 
                may not exceed 5 percent of the aggregate payments made 
                to the facility under subsection (b) for the previous 
                fiscal year (without regard to subparagraph (B)).
                    ``(B) Installment incentive payments.--The 
                Secretary may make installment payments during a fiscal 
year to a skilled nursing facility based on the estimated incentive 
payment that the facility would be eligible to receive with respect to 
such fiscal year.
    ``(d) Determination of Facility Per Stay Limit.--
            ``(1) Limit for fiscal year 1997.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the Secretary shall establish 
                separate per stay limits for hospital-based and 
                freestanding skilled nursing facilities for the 12-
                month cost reporting period beginning during fiscal 
                year 1997 that are equal to the sum of--
                            ``(i) 50 percent of the facility-specific 
                        stay amount for the facility (as determined 
                        under subsection (e)) for the last 12-month 
                        cost reporting period ending on or before 
                        September 30, 1994, increased (in a compounded 
                        manner) by the SNF market basket percentage 
                        increase for fiscal years 1995 through 1997; 
                        and
                            ``(ii) 50 percent of the average of all 
                        facility-specific stay amounts for all 
                        hospital-based facilities or all freestanding 
                        facilities (whichever is applicable) during the 
                        cost reporting period described in clause (i), 
                        increased (in a compounded manner) by the SNF 
                        market basket percentage increase for fiscal 
                        years 1995 through 1997.
                    ``(B) Facilities not having 1994 cost reporting 
                period.--In the case of a skilled nursing facility for 
                which payments were not made under this title for 
                covered non-routine services for the last 12-month cost 
                reporting period ending on or before September 30, 
                1994, the per stay limit for the 12-month cost 
                reporting period beginning during fiscal year 1997 
                shall be twice the amount determined under subparagraph 
                (A)(ii).
            ``(2) Limit for subsequent fiscal years.--The per stay 
        limit for a skilled nursing facility for a 12-month cost 
        reporting period beginning during a fiscal year after fiscal 
        year 1997 is equal to the per stay limit established under this 
        subsection for the 12-month cost reporting period beginning 
        during the previous fiscal year, increased by the SNF market 
        basket percentage increase for such subsequent fiscal year 
        minus 2 percentage points.
            ``(3) Rebasing of amounts.--
                    ``(A) In general.--The Secretary shall provide for 
                an update to the facility-specific amounts used to 
                determine the per stay limits under this subsection for 
                cost reporting periods beginning on or after October 1, 
                1999, and every 2 years thereafter.
                    ``(B) Treatment of facilities not having rebased 
                cost reporting periods.--Paragraph (1)(B) shall apply 
                with respect to a skilled nursing facility for which 
                payments were not made under this title for covered 
                non-routine services for the 12-month cost reporting 
                period used by the Secretary to update facility-
                specific amounts under subparagraph (A) in the same 
                manner as such paragraph applies with respect to a 
                facility for which payments were not made under this 
                title for covered non-routine services for the last 12-
                month cost reporting period ending on or before 
                September 30, 1994.
    ``(e) Determination of Facility-Specific Stay Amounts.--The 
`facility-specific stay amount' for a skilled nursing facility for a 
cost reporting period is the sum of--
            ``(1) the average amount of payments made to the facility 
        under part A during the period which are attributable to 
        covered non-routine services furnished during a stay (as 
        determined on a per diem basis); and
            ``(2) the Secretary's best estimate of the average amount 
        of payments made under part B during the period for covered 
        non-routine services furnished to all residents of the facility 
        to whom the facility provided extended care services for which 
        payment was made under part A during the period (without regard 
        to whether or not the services were furnished by the facility, 
        by others under arrangement with them made by the facility, 
        under any other contracting or consulting arrangement, or 
        otherwise), as estimated by the Secretary.
    ``(f) Intensive Nursing or Therapy Needs.--
            ``(1) In general.--In applying subsection (b) to covered 
        non-routine services furnished during a stay beginning during a 
        cost reporting period beginning during a fiscal year (beginning 
        with fiscal years after fiscal year 1997) to a resident of a 
        skilled nursing facility who requires intensive nursing or 
        therapy services, the per stay limit for such resident shall be 
        the per stay limit developed under paragraph (2) instead of the 
        per stay limit determined under subsection (d)(1)(A).
            ``(2) Per stay limit for intensive need residents.--Not 
        later than June 30, 1997, the Secretary, after consultation 
        with the Medicare Payment Review Commission and skilled nursing 
        facility experts, shall develop and publish a per stay limit 
        for residents of a skilled nursing facility who require 
        intensive nursing or therapy services.
            ``(3) Budget neutrality.--The Secretary shall adjust 
        payments under subsection (b) in a manner that ensures that 
        total payments for covered non-routine services under this 
        section are not greater or less than total payments for such 
        services would have been but for the application of paragraph 
        (1).
    ``(g) Special Treatment for Small Skilled Nursing Facilities.--This 
section shall not apply with respect to a skilled nursing facility for 
which payment is made for routine service costs during a cost reporting 
period on the basis of prospective payments under section 1888(d).
    ``(h) Exceptions and Adjustments to Limits.--
            ``(1) In general.--The Secretary may make exceptions and 
        adjustments to the cost reporting limits applicable to a 
skilled nursing facility under subsection (c)(1)(B) for a cost 
reporting period, except that the total amount of any additional 
payments made under this section for covered non-routine services 
during the cost reporting period as a result of such exceptions and 
adjustments may not exceed 5 percent of the aggregate payments made to 
all skilled nursing facilities for covered non-routine services during 
the cost reporting period (determined without regard to this 
paragraph).
            ``(2) Budget neutrality.--The Secretary shall adjust 
        payments under subsection (b) in a manner that ensures that 
        total payments for covered non-routine services under this 
        section are not greater or less than total payments for such 
        services would have been but for the application of paragraph 
        (1).
    ``(i) Special Rule for X-Ray Services.--Before furnishing a covered 
non-routine service consisting of an X-ray service for which payment 
may be made under part A or part B to a resident, a skilled nursing 
facility shall consider whether furnishing the service through a 
provider of portable X-ray service services would be appropriate, 
taking into account the cost effectiveness of the service and the 
convenience to the resident.''.
    (b) Conforming Amendment.--Section 1814(b) (42 U.S.C. 1395f(b)) is 
amended in the matter preceding paragraph (1) by striking ``1813 and 
1886'' and inserting ``1813, 1886, 1888, and 1888A''.

SEC. 15523. PAYMENTS FOR ROUTINE SERVICE COSTS.

    (a) Maintaining Savings Resulting From Temporary Freeze on Payment 
Increases.--
            (1) Basing updates to per diem cost limits on limits for 
        fiscal year 1993.--
                    (A) In general.--The last sentence of section 
                1888(a) (42 U.S.C. 1395yy(a)) is amended by adding at 
                the end the following: ``(except that such updates may 
                not take into account any changes in the routine 
                service costs of skilled nursing facilities occurring 
                during cost reporting periods which began during fiscal 
                year 1994 or fiscal year 1995).''.
                    (B) No exceptions permitted based on amendment.--
                The Secretary of Health and Human Services shall not 
                consider the amendment made by subparagraph (A) in 
                making any adjustments pursuant to section 1888(c) of 
                the Social Security Act.
            (2) Payments determined on prospective basis.--Any change 
        made by the Secretary of Health and Human Services in the 
        amount of any prospective payment paid to a skilled nursing 
        facility under section 1888(d) of the Social Security Act for 
        cost reporting periods beginning on or after October 1, 1995, 
        may not take into account any changes in the costs of services 
        occurring during cost reporting periods which began during 
        fiscal year 1994 or fiscal year 1995.
    (b) Establishment of Schedule for Making Adjustments to Limits.--
Section 1888(c) (42 U.S.C. 1395yy(c)) is amended by striking the period 
at the end of the second sentence and inserting ``, and may only make 
adjustments under this subsection with respect to a facility which 
applies for an adjustment during an annual application period 
established by the Secretary.''.
    (c) Limitation on Aggregate Increase in Payments Resulting From 
Adjustments to Limits.--Section 1888(c) (42 U.S.C. 1395yy(c)) is 
amended--
            (1) by striking ``(c) The Secretary'' and inserting 
        ``(c)(1) Subject to paragraph (2), the Secretary''; and
            (2) by adding at the end the following new paragraph:
    ``(2) The Secretary may not make any adjustments under this 
subsection in the limits set forth in subsection (a) for a cost 
reporting period beginning during a fiscal year to the extent that the 
total amount of the additional payments made under this title as a 
result of such adjustments is greater than an amount equal to--
            ``(A) for cost reporting periods beginning during fiscal 
        year 1997, the total amount of the additional payments made 
        under this title as a result of adjustments under this 
        subsection for cost reporting periods beginning during fiscal 
        year 1996 increased by the SNF market basket percentage 
        increase (as defined in section 1888A(e)(3)) for fiscal year 
        1997; and
            ``(B) for cost reporting periods beginning during a 
        subsequent fiscal year, the amount determined under this 
        paragraph for the previous fiscal year increased by the SNF 
        market basket percentage increase for such subsequent fiscal 
        year.''.
    (d) Imposition of Limits for All Cost Reporting Periods.--Section 
1888(a) (42 U.S.C. 1395yy(a)) is amended in the matter preceding 
paragraph (1) by inserting after ``extended care services'' the 
following: ``(for any cost reporting period for which payment is made 
under this title to the skilled nursing facility for such services)''.

SEC. 15524. REDUCTIONS IN PAYMENT FOR CAPITAL-RELATED COSTS.

    Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)), as amended by section 
15506, is amended by adding at the end the following new subparagraph:
    ``(U) Such regulations shall provide that, in determining the 
amount of the payments that may be made under this title with respect 
to all the capital-related costs of skilled nursing facilities, 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 fiscal years 1996 
through 2002.''.

SEC. 15525. TREATMENT OF ITEMS AND SERVICES PAID FOR UNDER PART B.

    (a) Requiring Payment for All Items and Services to Be Made To 
Facility.--
            (1) In general.--The first sentence of section 1842(b)(6) 
        (42 U.S.C. 1395u(b)(6)) is amended--
                    (A) by striking ``and (D)'' and inserting ``(D)''; 
                and
                    (B) by striking the period at the end and inserting 
                the following: ``, and (E) in the case of an item or 
                service furnished to an individual who (at the time the 
                item or service is furnished) is a resident of a 
                skilled nursing facility, payment shall be made to the 
                facility (without regard to whether or not the item or 
                service was furnished by the facility, by others under 
                arrangement with them made by the facility, or 
                otherwise).''.
            (2) Exclusion for items and services not billed by 
        facility.--Section 1862(a) (42 U.S.C. 1395y(a)) is amended--
                    (A) by striking ``or'' at the end of paragraph 
                (14);
                    (B) by striking the period at the end of paragraph 
                (15) and inserting ``; or''; and
                    (C) by inserting after paragraph (15) the following 
                new paragraph:
            ``(16) where such expenses are for covered non-routine 
        services (as defined in section 1888A(a)(1)) furnished to an 
        individual who is a resident of a skilled nursing facility and 
        for which the claim for payment under this title is not 
        submitted by the facility.''.
            (3) Conforming amendment.--Section 1832(a)(1) (42 U.S.C. 
        1395k(a)(1)) is amended by striking ``(2);'' and inserting 
        ``(2) and section 1842(b)(6)(E);''.
    (b) Reduction in Payments for Items and Services Furnished by or 
Under Arrangements With Facilities.--Section 1861(v)(1) (42 U.S.C. 
1395x(v)(1)), as amended by sections 15506 and 15524, is amended by 
adding at the end the following new subparagraph:
    ``(V) In the case of an item or service furnished by a skilled 
nursing facility (or by others under arrangement with them made by a 
skilled nursing facility) for which payment is made under part B in an 
amount determined in accordance with section 1833(a)(2)(B), the 
Secretary shall reduce the reasonable cost for such item or service 
otherwise determined under clause (i)(I) of such section by 5.8 percent 
for payments attributable to portions of cost reporting periods 
occurring during fiscal years 1996 through 2002.''.

SEC. 15526. CERTIFICATION OF FACILITIES MEETING REVISED NURSING HOME 
              REFORM STANDARDS.

    (a) In General.--Section 1819(a)(3) (42 U.S.C. 1395i-3(a)(3)) is 
amended to read as follows:
            ``(3)(A) is certified by the Secretary as meeting the 
        standards established under subsection (b), or (B) is a State-
        certified facility (as defined in subsection (c)).''.
    (b) Requirements Described.--Section 1819 (42 U.S.C. 1395i-3) is 
amended by striking subsections (b) through (i) and inserting the 
following:
    ``(b) Standards for and Certification of Facilities.--
            ``(1) Standards for facilities.--
                    ``(A) In general.--The Secretary shall provide for 
                the establishment and maintenance of standards 
                consistent with the contents described in subparagraph 
                (B) for skilled nursing facilities which furnish 
                services for which payment may be made under this 
                title.
                    ``(B) Contents of standards.--The standards 
                established for facilities under this paragraph shall 
                contain provisions relating to the following items:
                            ``(i) The treatment of resident medical 
                        records.
                            ``(ii) Policies, procedures, and bylaws for 
                        operation.
                            ``(iii) Quality assurance systems.
                            ``(iv) Resident assessment procedures, 
                        including care planning and outcome evaluation.
                            ``(vi) The assurance of a safe and adequate 
                        physical plant for the facility.
                            ``(vii) Qualifications for staff sufficient 
                        to provide adequate care.
                            ``(viii) Utilization review.
                            ``(ix) The protection and enforcement of 
                        resident rights described in subparagraph (C).
                    ``(C) Resident rights described.--The resident 
                rights described in this subparagraph are the rights of 
                residents to the following:
                            ``(i) To exercise the individual's rights 
                        as a resident of the facility and as a citizen 
                        or resident of the United States.
                            ``(ii) To receive notice of rights and 
                        services.
                            ``(iii) To be protected against the misuse 
                        of resident funds.
                            ``(iv) To be provided privacy and 
                        confidentiality.
                            ``(v) To voice grievances.
                            ``(vi) To examine the results of 
                        inspections under the certification program.
                            ``(vii) To refuse to perform services for 
                        the facility.
                            ``(viii) To be provided privacy in 
                        communications and to receive mail.
                            ``(ix) To have the facility provide 
                        immediate access to any resident by any 
                        representative of the certification program, 
                        the resident's individual physician, the State 
                        long term care ombudsman, and any person the 
                        resident has designated as a visitor.
                            ``(x) To retain and use personal property.
                            ``(xi) To be free from abuse, including 
                        verbal, sexual, physical and mental abuse, 
                        corporal punishment, and involuntary seclusion.
                            ``(xii) To be provided with prior written 
                        notice of a pending transfer or discharge.
                    ``(D) Requiring notice and comment.--The standards 
                established for facilities under this paragraph may 
                only take effect after the Secretary has provided the 
                public with notice and an opportunity for comment.
            ``(2) Certification program.--
                    ``(A) In general.--The Secretary shall provide for 
                the establishment and operation of a program consistent 
                with the requirements of subparagraph (B) for the 
                certification of skilled nursing facilities which meet 
                the standards established under paragraph (1) and the 
                decertification of facilities which fail to meet such 
                standards.
                    ``(B) Requirements for program.--In addition to any 
                other requirements the Secretary may impose, in 
                establishing and operating the certification program 
                under subparagraph (A), the Secretary shall ensure the 
                following:
                            ``(i) The Secretary shall ensure public 
                        access (as defined by the Secretary) to the 
                        certification program's evaluations of 
                        participating facilities, including compliance 
                        records and enforcement actions and other 
                        reports by the Secretary regarding the 
                        ownership, compliance histories, and services 
                        provided by certified facilities.
                            ``(ii) Not less often than every 4 years, 
                        the Secretary shall audit its expenditures 
                        under the program, through an entity designated 
                        by the Secretary which is not affiliated with 
                        the program, as designated by the Secretary.
    ``(c) Intermediate Sanction Authority.--
            ``(1) Authority.--In addition to any other authority, where 
        the Secretary determines that a nursing facility which is 
        certified for participation under this title plan no longer 
        substantially meets the requirements for such a facility under 
        this title and further determines that the facility's 
        deficiencies--
                    ``(A) immediately jeopardize the health and safety 
                of its residents, the Secretary shall at least provide 
                for the termination of the facility's certification for 
                participation under this title, or
                    ``(B) do not immediately jeopardize the health and 
                safety of its residents, the Secretary may, in lieu of 
                providing for terminating the facility's certification 
                for participation under the plan, provide lesser 
                sanctions including one that provides that no payment 
                will be made under this title with respect to any 
                individual admitted to such facility after a date 
                specified by the Secretary.
            ``(2) Notice.--The Secretary shall not make such a decision 
        with respect to a facility until the facility has had a 
        reasonable opportunity, following the initial determination 
        that it no longer substantially meets the requirements for such 
        a facility under the plan, to correct its deficiencies, and, 
        following this period, has been given reasonable notice and 
        opportunity for a hearing.
            ``(3) Effectiveness.--The Secretary's decision to deny 
        payment may be made effective only after such notice to the 
        public and to the facility as may be provided for by the 
        Secretary, and its effectiveness shall terminate (A) when the 
        Secretary finds that the facility is in substantial compliance 
        (or is making good faith efforts to achieve substantial 
        compliance) with the requirements for such a facility under 
        this title, or (B) in the case described in paragraph (1)(B), 
        with the end of the eleventh month following the month such 
        decision is made effective, whichever occurs first. If a 
        facility to which clause (B) of the previous sentence applies 
        still fails to substantially meet the provisions of the 
        respective section on the date specified in such clause, the 
        Secretary shall terminate such facility's certification for 
        participation under this title effective with the first day of 
        the first month following the month specified in such clause.
    ``(c) State-Certified Facility Defined.--In subsection (a), a 
`State-certified facility' means a facility licensed or certified as a 
skilled nursing facility by the State in which it is located, or a 
facility which otherwise meets the requirements applicable to providers 
of nursing facility services under the State plan under title XIX or 
the MediGrant program under title XXI.''.
    (c) Conforming Amendments.--(1) Section 1861(v)(1)(E) (42 U.S.C. 
1395x(v)(1)(E)) is amended by striking the second sentence.
    (2) Section 1864 (42 U.S.C. 1395aa) is amended by striking 
subsection (d).
    (3) Section 1866(f)(1) (42 U.S.C. 1395cc(f)(1)) is amended by 
striking ``1819(c)(2)(E),''.
    (4) Section 1883(f) (42 U.S.C. 1395tt(f)) is amended--
            (A) in the second sentence, by striking ``such a hospital'' 
        and inserting ``a hospital which enters into an agreement with 
        the Secretary under this section''; and
            (B) by striking the first sentence.
    (d) Effective Date.--The amendments made by this section shall 
apply with respect to cost reporting periods beginning on or after 
October 1, 1995.

SEC. 15527. MEDICAL REVIEW PROCESS.

    In order to ensure that medicare beneficiaries are furnished 
appropriate extended care services, the Secretary of Health and Human 
Services shall establish and implement a thorough medical review 
process to examine the effects of the amendments made by this part on 
the quality of extended care services furnished to medicare 
beneficiaries. In developing such a medical review process, the 
Secretary shall place a particular emphasis on the quality of non-
routine covered services for which payment is made under section 1888A 
of the Social Security Act.

SEC. 15528. REPORT BY MEDICARE PAYMENT REVIEW COMMISSION.

    Not later than October 1, 1997, the Medicare Payment Review 
Commission shall submit to Congress a report on the system under which 
payment is made under the medicare program for extended care services 
furnished by skilled nursing facilities, and shall include in the 
report the following:
            (1) An analysis of the effect of the methodology 
        established under section 1888A of the Social Security Act (as 
        added by section 15522) on the payments for, and the quality 
        of, extended care services under the medicare program.
            (2) An analysis of the advisability of determining the 
        amount of payment for covered non-routine services of 
        facilities (as described in such section) on the basis of the 
        amounts paid for such services when furnished by suppliers 
        under part B of the medicare program.
            (3) An analysis of the desirability of maintaining separate 
        limits for hospital-based and freestanding facilities in the 
        costs of extended care services recognized as reasonable under 
        the medicare program.
            (4) An analysis of the quality of services furnished by 
        skilled nursing facilities.
            (5) An analysis of the adequacy of the process and 
        standards used to provide exceptions to the limits described in 
        paragraph (3).

SEC. 15529. EFFECTIVE DATE.

    Except as otherwise provided in this subchapter, the amendments 
made by this subchapter shall apply to services furnished during cost 
reporting periods (or portions of cost reporting periods) beginning on 
or after October 1, 1996.

           Subtitle G--Provisions Relating to Medicare Part B

                        PART 1--PAYMENT REFORMS

                                                     Subtitle G, Part 1

SEC. 15601. PAYMENTS FOR PHYSICIANS' SERVICES.

    (a) Replacement of Volume Performance Standard With Sustainable 
Growth Rate.--Section 1848(f)(2) (42 U.S.C. 1395w-4(f)(2)) is amended 
to read as follows:
    ``(f) Sustainable Growth Rate.--
            ``(1) Specification of growth rate.--
                    ``(A) Fiscal year 1996.--The sustainable growth 
                rate for all physicians' services for fiscal year 1996 
                shall be equal to the product of--
                            ``(i) 1 plus the Secretary's estimate of 
                        the percentage change in the medicare economic 
                        index for 1996 (described in the fourth 
                        sentence of section 1842(b)(3)) (divided by 
                        100),
                            ``(ii) 1 plus the Secretary's estimate of 
                        the percentage change (divided by 100) in the 
                        average number of individuals enrolled under 
                        this part (other than private plan enrollees) 
                        from fiscal year 1995 to fiscal year 1996,
                            ``(iii) 1 plus the Secretary's estimate of 
                        the projected percentage growth in real gross 
                        domestic product per capita (divided by 100) 
                        from fiscal year 1995 to fiscal year 1996, plus 
                        2 percentage points, and
                            ``(iv) 1 plus the Secretary's estimate of 
                        the percentage change (divided by 100) in 
                        expenditures for all physicians' services in 
                        fiscal year 1996 (compared with fiscal year 
                        1995) which will result from changes in law, 
                        determined without taking into account 
                        estimated changes in expenditures due to 
                        changes in the volume and intensity of 
                        physicians' services or changes in expenditures 
                        resulting from changes in the update to the 
                        conversion factor under subsection (d),
                minus 1 and multiplied by 100.
                    ``(B) Subsequent fiscal years.--The sustainable 
                growth rate for all physicians' services for fiscal 
                year 1997 and each subsequent fiscal year shall be 
                equal to the sustainable growth rate determined under 
                this paragraph for the previous fiscal year, increased 
                by the product of--
                            ``(i) 1 plus the Secretary's estimate of 
                        the percentage change in the medicare economic 
                        index for the fiscal year involved (described 
                        in the fourth sentence of section 1842(b)(3)) 
                        (divided by 100),
                            ``(ii) 1 plus the Secretary's estimate of 
                        the percentage change (divided by 100) in the 
                        average number of individuals enrolled under 
                        this part (other than private plan enrollees) 
                        from the previous fiscal year to the fiscal 
                        year involved,
                            ``(iii) 1 plus the Secretary's estimate of 
                        the projected percentage growth in real gross 
                        domestic product per capita (divided by 100) 
                        from the previous fiscal year to the fiscal 
                        year involved, plus 2 percentage points, and
                            ``(iv) 1 plus the Secretary's estimate of 
                        the percentage change (divided by 100) in 
                        expenditures for all physicians' services in 
                        the fiscal year (compared with the previous 
                        fiscal year) which will result from changes in 
                        law, determined without taking into account 
                        estimated changes in expenditures due to 
                        changes in the volume and intensity of 
                        physicians' services or changes in expenditures 
                        resulting from changes in the update to the 
                        conversion factor under subsection (d)(3),
                minus 1 and multiplied by 100.''.
            ``(2) Exclusion of services furnished to private plan 
        enrollees.--In this subsection, the term `physicians' services' 
        with respect to a fiscal year does not include services 
        furnished to an individual enrolled under this part who has 
        elected to receive benefits under this title for the fiscal 
        year through a MedicarePlus product offered under part C or 
        through enrollment with an eligible organization with a risk-
        sharing contract under section 1876.''.
    (b) Establishing Update to Conversion Factor to Match Spending 
Under Sustainable Growth Rate.--
            (1) In general.--Section 1848(d) (42 U.S.C. 1395w-4(d)(3)) 
        is amended--
                    (A) by striking paragraph (2);
                    (B) by amending paragraph (3) to read as follows:
            ``(3) Update.--
                    ``(A) In general.--Subject to subparagraph (E), for 
                purposes of this section the update for a year 
                (beginning with 1997) is equal to the product of--
                            ``(i) 1 plus the Secretary's estimate of 
                        the percentage increase in the medicare 
                        economic index (described in the fourth 
                        sentence of section 1842(b)(3)) for the year 
                        (divided by 100), and
                            ``(ii) 1 plus the Secretary's estimate of 
                        the update adjustment factor for the year 
                        (divided by 100),
                minus 1 and multiplied by 100.
                    ``(B) Update adjustment factor.--The `update 
                adjustment factor' for a year is equal to the quotient 
                of--
                            ``(i) the difference between (I) the sum of 
                        the allowed expenditures for physicians' 
                        services furnished during each of the years 
                        1995 through the year involved and (II) the sum 
                        of the amount of actual expenditures for 
                        physicians' services furnished during each of 
                        the years 1995 through the previous year; 
                        divided by
                            ``(ii) the Secretary's estimate of allowed 
                        expenditures for physicians' services furnished 
                        during the year.
                    ``(C) Determination of allowed expenditures.--For 
                purposes of subparagraph (B), allowed expenditures for 
                physicians' services shall be determined as follows (as 
                estimated by the Secretary):
                            ``(i) In the case of allowed expenditures 
                        for 1995, such expenditures shall be equal to 
                        actual expenditures for services furnished 
                        during the 12-month period ending with June of 
                        1995.
                            ``(ii) In the case of allowed expenditures 
                        for 1996 and each subsequent year, such 
                        expenditures shall be equal to allowed 
                        expenditures for the previous year, increased 
                        by the sustainable growth rate under subsection 
                        (f) for the fiscal year which begins during the 
                        year.
                    ``(D) Determination of actual expenditures.--For 
                purposes of subparagraph (B), the amount of actual 
                expenditures for physicians' services furnished during 
                a year shall be equal to the amount of expenditures for 
                such services during the 12-month period ending with 
June of the previous year.
                    ``(E) Restriction on variation from medicare 
                economic index.--Notwithstanding the amount of the 
                update adjustment factor determined under subparagraph 
                (B) for a year, the update in the conversion factor 
                under this paragraph for the year may not be--
                            ``(i) greater than 103 percent of the 
                        Secretary's estimate of the percentage increase 
                        in the medicare economic index (described in 
                        the fourth sentence of section 1842(b)(3)) for 
                        the year; or
                            ``(ii) less than 93 percent of the 
                        Secretary's estimate of the percentage increase 
                        in the medicare economic index (described in 
                        the fourth sentence of section 1842(b)(3)) for 
                        the year.''; and
                    (C) by adding at the end the following new 
                paragraph:
            ``(4) Reporting requirements.--
                    ``(A) In general.--Not later than November 1 of 
                each year (beginning with 1996), the Secretary shall 
                transmit to the Congress a report that describes the 
                update in the conversion factor for physicians' 
                services (as defined in subsection (f)(3)(A)) in the 
                following year.
                    ``(B) Commission review.--The Medicare Payment 
                Review Commission shall review the report submitted 
                under subparagraph (A) for a year and shall submit to 
                the Congress, by not later than December 1 of the year, 
                a report containing its analysis of the conversion 
                factor for the following year.''.
            (2) Effective date.--The amendments made by this subsection 
        shall apply to physicians' services furnished on or after 
        January 1, 1997.
    (c) Establishment of Single Conversion Factor for 1996.--
            (1) In general.--Section 1848(d)(1) (42 U.S.C. 1395w-
        4(d)(1)) is amended--
                    (A) by redesignating subparagraph (C) as 
                subparagraph (D); and
                    (B) by inserting after subparagraph (B) the 
                following new subparagraph:
                    ``(C) Special rule for 1996.--For 1996, the 
                conversion factor under this subsection shall be $34.60 
                for all physicians' services.''.
            (2) Conforming amendments.--Section 1848 (42 U.S.C. 1395w-
        4) is amended--
                    (A) by striking ``(or factors)'' each place it 
                appears in subsection (d)(1)(A) and (d)(1)(C)(ii);
                    (B) in subsection (d)(1)(A), by striking ``or 
                updates'';
                    (C) in subsection (d)(1)(C)(ii), by striking ``(or 
                updates)''; and
                    (D) in subsection (i)(1)(C), by striking 
                ``conversion factors'' and inserting ``the conversion 
                factor''.

SEC. 15602. ELIMINATION OF FORMULA-DRIVEN OVERPAYMENTS FOR CERTAIN 
              OUTPATIENT HOSPITAL SERVICES.

    (a) Ambulatory Surgical Center Procedures.--Section 
1833(i)(3)(B)(i)(II) (42 U.S.C. 1395l(i)(3)(B)(i)(II)) is amended--
            (1) by striking ``of 80 percent''; and
            (2) by striking the period at the end and inserting the 
        following: ``, less the amount a provider may charge as 
        described in clause (ii) of section 1866(a)(2)(A).''.
    (b) Radiology Services and Diagnostic Procedures.--Section 
1833(n)(1)(B)(i)(II) (42 U.S.C. 1395l(n)(1)(B)(i)(II)) is amended--
            (1) by striking ``of 80 percent''; and
            (2) by striking the period at the end and inserting the 
        following: ``, less the amount a provider may charge as 
        described in clause (ii) of section 1866(a)(2)(A).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to services furnished during portions of cost reporting periods 
occurring on or after October 1, 1995.

SEC. 15603. REDUCTION IN UPDATES TO PAYMENT AMOUNTS FOR DURABLE MEDICAL 
              EQUIPMENT.

    (a) In General.--
            (1) Freeze in update for covered items.--Section 
        1834(a)(14) (42 U.S.C. 1395m(a)(14)) is amended--
                    (A) by striking ``and'' at the end of subparagraph 
                (A);
                    (B) in subparagraph (B)--
                            (i) by striking ``a subsequent year'' and 
                        inserting ``1993, 1994, and 1995'', and
                            (ii) by striking the period at the end and 
                        inserting ``; and''; and
                    (C) by adding at the end the following:
                    ``(C) for each of the years 1996 through 2002, 0 
                percentage points; and
                    ``(D) for a subsequent year, the percentage 
                increase in the consumer price index for all urban 
                consumers (U.S. urban average) for the 12-month period 
                ending with June of the previous year.''.
            (2) Update for orthotics and prosthetics.--Section 
        1834(h)(4)(A) (42 U.S.C. 1395m(h)(4)(A)) is amended--
                    (A) by striking ``and'' at the end of clause (iii);
                    (B) by redesignating clause (iv) as clause (v); and
                    (C) by inserting after clause (iii) the following 
                new clause:
                            ``(iv) for each of the years 1996 through 
                        2002, 1 percent, and''.
    (b) Oxygen and Oxygen Equipment.--Section 1834(a)(9)(C) (42 U.S.C. 
1395m(a)(9)(C)) is amended--
            (1) by striking ``and'' at the end of clause (iii);
            (2) in clause (iv)--
                    (A) by striking ``a subsequent year'' and inserting 
                ``1993, 1994, and 1995'', and
                    (B) by striking the period at the end and inserting 
                a semicolon; and
            (3) by adding at the end the following new clauses:
                            ``(v) in 1996, is 80 percent of the 
                        national limited monthly payment rate computed 
                        under subparagraph (B) for the item for the 
                        year; and
                            ``(vi) in a subsequent year, is the 
                        national limited monthly payment rate computed 
                        under subparagraph (B) for the item for the 
                        year.''.

SEC. 15604. REDUCTION IN UPDATES TO PAYMENT AMOUNTS FOR CLINICAL 
              DIAGNOSTIC LABORATORY TESTS.

    (a) Change in Update.--Section 1833(h)(2)(A)(ii)(IV) (42 U.S.C. 
1395l(h)(2)(A)(ii)(IV)) is amended striking ``1994 and 1995'' and 
inserting ``1994 through 2002''.
    (b) Lowering Cap on Payment Amounts.--Section 1833(h)(4)(B) (42 
U.S.C. 1395l(h)(4)(B)) is amended--
            (1) in clause (vi), by striking ``and'' at the end;
            (2) in clause (vii)--
                    (A) by inserting ``and before January 1, 1997,'' 
                after ``1995,'', and
                    (B) by striking the period at the end and inserting 
                ``, and''; and
            (3) by adding at the end the following new clause:
            ``(viii) after December 31, 1996, is equal to 65 percent of 
        such median.''.

SEC. 15605. EXTENSION OF REDUCTIONS IN PAYMENTS FOR COSTS OF HOSPITAL 
              OUTPATIENT SERVICES.

    (a) Reduction in Payments for Capital-Related Costs.--Section 
1861(v)(1)(S)(ii)(I) (42 U.S.C. 1395x(v)(1)(S)(ii)(I)) is amended by 
striking ``through 1998'' and inserting ``through 2002''.
    (b) Reduction in Payments for Other Costs.--Section 
1861(v)(1)(S)(ii)(II) (42 U.S.C. 1395x(v)(1)(S)(ii)(II)) is amended by 
striking ``through 1998'' and inserting ``through 2002''.

SEC. 15606. FREEZE IN PAYMENTS FOR AMBULATORY SURGICAL CENTER SERVICES.

    The Secretary of Health and Human Services shall not provide for 
any inflation update in the payment amounts under subparagraphs (A) and 
(B) of section 1833(i)(2) of the Social Security Act for any of the 
fiscal years 1996 through 2002.

SEC. 15607. RURAL EMERGENCY ACCESS CARE HOSPITALS.

    (a) Coverage Under Part B.--Section 1832(a)(2) (42 U.S.C. 
1395k(a)(2)) is amended--
            (1) by striking ``and'' at the end of subparagraph (I);
            (2) by striking the period at the end of subparagraph (J) 
        and inserting ``; and''; and
            (3) by adding at the end the following new subparagraph:
                    ``(K) rural emergency access care hospital services 
                (as defined in section 1861(oo)(2)).''.
    (b) Payment Based on Reasonable Costs.--Section 1833(a)(2) (42 
U.S.C. 1395l(a)(2)), as amended by section 15607(c), is amended--
            (1) by striking ``and'' at the end of subparagraph (F);
            (2) by adding ``and'' at the end of subparagraph (G); and
            (3) by adding at the end the following new subparagraph:
                    ``(H) with respect to rural emergency access care 
                hospital services, the reasonable cost of such services 
                (as determined under section 1861(v)), less the amount 
the hospital may charge as described in clause (ii) of section 
1866(a)(2)(A), but in no case may the payment for such services exceed 
80 percent of such reasonable cost;''.
    (c) Effective Date.--The amendments made by this section shall 
apply to services furnished on or after October 1, 1995.

                         PART 2--PART B PREMIUM

                                                     Subtitle G, Part 2

SEC. 15611. EXTENSION OF PART B PREMIUM.

    (a) In General.--Section 1839(e)(1) (42 U.S.C. 1395r(e)(1)) is 
amended--
            (1) in subparagraph (A)--
                    (A) by striking ``and prior to January 1999'', and
                    (B) by inserting ``(or, if higher, the percent 
                described in subparagraph (C))'' after ``50 percent''; 
                and
            (2) by adding at the end the following new subparagraph:
    ``(C) For purposes of subparagraph (A), the percent described in 
this subparagraph is the ratio (expressed as a percentage) of the 
monthly premium established under this section for months in 1995 to 
the monthly actuarial rate for enrollees age 65 and over applicable to 
such months (as specified in the most recent report of the Board of 
Trustees of the Federal Supplementary Medical Insurance Trust Fund 
published prior to the date of the enactment of the Medicare 
Preservation Act of 1995).''.
    (b) Effective Date.--The amendments made by subsection (a) apply to 
premiums for months beginning with January 1996.

SEC. 15612. INCOME-RELATED REDUCTION IN MEDICARE SUBSIDY.

    (a) In General.--Section 1839 (42 U.S.C. 1395r) is amended by 
adding at the end the following:
    ``(h)(1) Notwithstanding the previous subsections of this section, 
in the case of an individual whose modified adjusted gross income for a 
taxable year ending with or within a calendar year (as initially 
determined by the Secretary in accordance with paragraph (3)) exceeds 
the threshold amount described in paragraph (4), the Secretary shall 
increase the amount of the monthly premium for months in the calendar 
year by an amount equal to the difference between--
            ``(A) 200 percent of the monthly actuarial rate for 
        enrollees age 65 and over as determined under subsection (a)(1) 
        for that calendar year; and
            ``(B) the total of the monthly premiums paid by the 
        individual under this section (determined without regard to 
        subsection (b)) during such calendar year.
    ``(2) In the case of an individual described in paragraph (1) whose 
modified adjusted gross exceeds the threshold amount by less than 
$25,000, the amount of the increase in the monthly premium applicable 
under paragraph (1) shall be an amount which bears the same ratio to 
the amount of the increase described in paragraph (1) (determined 
without regard to this paragraph) as such excess bears to $25,000. In 
the case of a joint return filed under section 6013 of the Internal 
Revenue Code of 1986 by spouses both of whom are enrolled under this 
part, the previous sentence shall be applied by substituting `$50,000' 
for `$25,000'. The preceding provisions of this paragraph shall not 
apply to any individual whose threshold amount is zero.
    ``(3) The Secretary shall make an initial determination of the 
amount of an individual's adjusted gross income for a taxable year 
ending with or within a calendar year for purposes of this subsection 
as follows:
            ``(A) Not later than October 1 of the year preceding the 
        year, the Secretary shall provide notice to each individual 
        whom the Secretary finds (on the basis of the individual's 
        actual adjusted gross income for the most recent taxable year 
        for which such information is available or other information 
        provided to the Secretary by the Secretary of the Treasury) 
        will be subject to an increase under this subsection that the 
        individual will be subject to such an increase, and shall 
        include in such notice the Secretary's estimate of the 
        individual's adjusted gross income for the year.
            ``(B) If, during the 30-day period beginning on the date 
        notice is provided to an individual under subparagraph (A), the 
        individual provides the Secretary with information on the 
        individual's anticipated adjusted gross income for the year, 
        the amount initially determined by the Secretary under this 
        paragraph with respect to the individual shall be based on the 
        information provided by the individual.
            ``(C) If an individual does not provide the Secretary with 
        information under subparagraph (B), the amount initially 
        determined by the Secretary under this paragraph with respect 
        to the individual shall be the amount included in the notice 
        provided to the individual under subparagraph (A).
    ``(4)(A) If the Secretary determines (on the basis of final 
information provided by the Secretary of the Treasury) that the amount 
of an individual's actual adjusted gross income for a taxable year 
ending with or within a calendar year is less than or greater than the 
amount initially determined by the Secretary under paragraph (3), the 
Secretary shall increase or decrease the amount of the individual's 
monthly premium under this section (as the case may be) for months 
during the following calendar year by an amount equal to \1/12\ of the 
difference between--
            ``(i) the total amount of all monthly premiums paid by the 
        individual under this section during the previous calendar 
        year; and
            ``(ii) the total amount of all such premiums which would 
        have been paid by the individual during the previous calendar 
        year if the amount of the individual's adjusted gross income 
        initially determined under paragraph (3) were equal to the 
        actual amount of the individual's adjusted gross income 
        determined under this paragraph.
    ``(B) In the case of an individual who is not enrolled under this 
part for any calendar year for which the individual's monthly premium 
under this section for months during the year would be increased 
pursuant to subparagraph (A) if the individual were enrolled under this 
part for the year, the Secretary may take such steps as the Secretary 
considers appropriate to recover from the individual the total amount 
by which the individual's monthly premium for months during the year 
would have been increased under subparagraph (A) if the individual were 
enrolled under this part for the year.
    ``(5) In this subsection, the following definitions apply:
            ``(A) The term `modified adjusted gross income' means, with 
        respect to an individual for a taxable year, the individual's 
        adjusted gross income under the Internal Revenue Code of 1986--
                    ``(i) determined without regard to sections 135, 
                911, 931, and 933 of such Code, and
                    ``(ii) increased by the amount of interest received 
                or accrued by the individual during the taxable year 
                which is exempt from tax under such Code.
            ``(B) The term `threshold amount' means--
                    ``(i) except as otherwise provided in this 
                paragraph, $75,000,
                    ``(ii) $125,000, in the case of a joint return, and
                    ``(iii) zero in the case of a taxpayer who--
                            ``(I) is married at the close of the 
                        taxable year but does not file a joint return 
                        for such year, and
                            ``(II) does not live apart from his spouse 
                        at all times during the taxable year.''.
    (b) Conforming Amendment.--Section 1839(f) (42 U.S.C. 1395r(f)) is 
amended by striking ``if an individual'' and inserting the following: 
``if an individual (other than an individual subject to an increase in 
the monthly premium under this section pursuant to subsection (h))''.
    (c) Reporting Requirements for Secretary of the Treasury.--
Notwithstanding section 6103 of the Internal Revenue Code of 1986, the 
Secretary of the Treasury shall provide, at the request of the 
Secretary of Health and Human Services, such information (at such times 
and in such form as the Secretary of Health and Human Services may 
require) as is necessary for the Secretary of Health and Human Services 
to carry out section 1839(h) of the Social Security Act (as added by 
subsection (a)).
    (d) Effective Date.--The amendments made by subsections (a) and (b) 
shall apply to the monthly premium under section 1839 of the Social 
Security Act for months beginning with January 1997.

       Subtitle H--Provisions Relating to Medicare Parts A and B

               PART 1--PAYMENTS FOR HOME HEALTH SERVICES

                                                     Subtitle H, Part 1

SEC. 15701. PAYMENT FOR HOME HEALTH SERVICES.

    (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.), as amended 
by section 15106, is amended by adding at the end the following new 
section:

                   ``payment for home health services

    ``Sec. 1894. (a) In General.--
            ``(1) Per visit payments.--Subject to subsection (c), the 
        Secretary shall make per visit payments beginning with fiscal 
        year 1997 to a home health agency in accordance with this 
        section for each type of home health service described in 
        paragraph (2) furnished to an individual who at the time the 
        service is furnished is under a plan of care by the home health 
        agency under this title (without regard to whether or not the 
        item or service was furnished by the agency or by others under 
        arrangement with them made by the agency, or otherwise).
            ``(2) Types of services.--The types of home health services 
        described in this paragraph are the following:
                    ``(A) Part-time or intermittent nursing care 
                provided by or under the supervision of a registered 
                professional nurse.
                    ``(B) Physical therapy.
                    ``(C) Occupational therapy.
                    ``(D) Speech-language pathology services.
                    ``(E) Medical social services under the direction 
                of a physician.
                    ``(F) To the extent permitted in regulations, part-
                time or intermittent services of a home health aide who 
                has successfully completed a training program approved 
                by the Secretary.
    ``(b) Establishment of Per Visit Rate for Each Type of Services.--
            ``(1) In general.--The Secretary shall, subject to 
        paragraph (3), establish a per visit payment rate for a home 
        health agency in an area for each type of home health service 
        described in subsection (a)(2). Such rate shall be equal to the 
        national per visit payment rate determined under paragraph (2) 
        for each such type, except that the labor-related portion of 
        such rate shall be adjusted by the area wage index applicable 
        under section 1886(d)(3)(E) for the area in which the agency is 
        located (as determined without regard to any reclassification 
        of the area under section 1886(d)(8)(B) or a decision of the 
        Medicare Geographic Classification Review Board or the 
        Secretary under section 1886(d)(10) for cost reporting periods 
        beginning after October 1, 1995).
            ``(2) National per visit payment rate.--The national per 
        visit payment rate for each type of service described in 
        subsection (a)(2)--
                    ``(A) for fiscal year 1997, is an amount equal to 
                the national average amount paid per visit under this 
                title to home health agencies for such type of service 
                during the most recent 12-month cost reporting period 
                ending on or before June 30, 1994, increased (in a 
                compounded manner) by the home health market basket 
                percentage increase for fiscal years 1995, 1996, and 
                1997; and
                    ``(B) for each subsequent fiscal year, is an amount 
                equal to the national per visit payment rate in effect 
                for the preceding fiscal year, increased by the home 
                health market basket percentage increase for such 
                subsequent fiscal year minus 2 percentage points.
            ``(3) Rebasing of rates.--The Secretary shall provide for 
        an update to the national per visit payment rates under this 
        subsection for cost reporting periods beginning not later than 
        the first day of the fifth fiscal year which begins after 
        fiscal year 1997, and not later than every 5 years thereafter, 
        to reflect the most recent available data.
            ``(4) Home health market basket percentage increase.--For 
        purposes of this subsection, the term `home health market 
        basket percentage increase' means, with respect to a fiscal 
        year, a percentage (estimated by the Secretary before the 
        beginning of the fiscal year) determined and applied with 
        respect to the types of home health services described in 
        subsection (a)(2) in the same manner as the market basket 
        percentage increase under section 1886(b)(3)(B)(iii) is 
        determined and applied to inpatient hospital services for the 
        fiscal year.
    ``(c) Per Episode Limit.--
            ``(1) Aggregate limit.--
                    ``(A) In general.--Except as provided in paragraph 
                (2), a home health agency may not receive aggregate per 
                visit payments under subsection (a) for a fiscal year 
                in excess of an amount equal to the sum of the 
                following products determined for each case-mix 
                category for which the agency receives payments:
                            ``(i) The number of episodes of each case-
                        mix category during the fiscal year; multiplied 
                        by
                            ``(ii) the per episode limit determined for 
                        such case-mix category for such fiscal year.
                    ``(B) Establishment of per episode limits.--
                            ``(i) In general.--The per episode limit 
                        for a fiscal year for any case-mix category for 
                        the area in which a home health agency is 
                        located is equal to--
                                    ``(I) the mean number of visits for 
                                each type of home health service 
                                described in subsection (a)(2) 
                                furnished during an episode of such 
                                case-mix category in such area during 
                                fiscal year 1994, adjusted by the case-
                                mix adjustment factor determined in 
                                clause (ii) for the fiscal year 
                                involved; multiplied by
                                    ``(II) the per visit payment rate 
                                established under subsection (b) for 
                                such type of home health service for 
                                the fiscal year for which the 
                                determination is being made.
                            ``(ii) Case mix adjustment factor.--For 
                        purposes of clause (i), the case-mix adjustment 
                        factor for a year is the factor determined by 
                        the Secretary to assure that aggregate payments 
                        for home health services under this section 
                        during the year will not exceed the payment for 
                        such services during the previous year as a 
                        result of changes in the number and type of 
                        home health visits within case-mix categories 
                        over the previous year.
                            ``(iii) Rebasing of per episode amounts.--
                        Beginning with fiscal year 1999 and every 2 
                        years thereafter, the Secretary shall revise 
                        the mean number of home health visits 
                        determined under clause (i)(I) for each type of 
                        home health service visit described in 
                        subsection (a)(2) furnished during an episode 
                        in a case-mix category to reflect the most 
                        recently available data on the number of 
                        visits.
                            ``(iv) Determination of applicable area.--
                        For purposes of determining per episode limits 
                        under this subparagraph, the area in which a 
                        home health agency is considered to be located 
                        shall be such area as the Secretary finds 
                        appropriate for purposes of this subparagraph.
                    ``(C) Case-mix category.--For purposes of this 
                paragraph, the term `case-mix category' means each of 
                the 18 case-mix categories established under the Phase 
                II Home Health Agency Prospective Payment Demonstration 
                Project conducted by the Health Care Financing 
                Administration. The Secretary may develop an alternate 
                methodology for determining case-mix categories.
                    ``(D) Episode.--
                            ``(i) In general.--For purposes of this 
                        paragraph, the term `episode' means the 
                        continuous 120-day period that--
                                    ``(I) begins on the date of an 
                                individual's first visit for a type of 
                                home health service described in 
                                subsection (a)(2) for a case-mix 
                                category, and
                                    ``(II) is immediately preceded by a 
                                60-day period in which the individual 
                                did not receive visits for a type of 
                                home health service described in 
                                subsection (a)(2).
                            ``(ii) Treatment of episodes spanning cost 
                        reporting periods.--The Secretary shall provide 
                        for such rules as the Secretary considers 
                        appropriate regarding the treatment of episodes 
                        under this paragraph which begin during a cost 
                        reporting period and end in a subsequent cost 
                        reporting period.
                    ``(E) Exemptions and exceptions.--The Secretary may 
                provide for exemptions and exceptions to the limits 
                established under this paragraph for a fiscal year as 
                the Secretary deems appropriate, to the extent such 
                exemptions and exceptions do not result in greater 
                payments under this section than the exemptions and 
                exceptions provided under section 1861(v)(1)(L)(ii) in 
                fiscal year 1994, increased by the home health market 
                basket percentage increase for the fiscal year involved 
                (as defined in subsection (b)(4)).
            ``(2) Reconciliation of amounts.--
                    ``(A) Overpayments to home health agencies.--
                Subject to subparagraph (B), if a home health agency 
                has received aggregate per visit payments under 
                subsection (a) for a fiscal year in excess of the 
                amount determined under paragraph (1) with respect to 
                such home health agency for such fiscal year, the 
                Secretary shall reduce payments under this section to 
                the home health agency in the following fiscal year in 
                such manner as the Secretary considers appropriate 
                (including on an installment basis) to recapture the 
                amount of such excess.
                    ``(B) Exception for home health services furnished 
                over a period greater than 165 days.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A), the amount of aggregate per 
                        visit payments determined under subsection (a) 
                        shall not include payments for home health 
                        visits furnished to an individual on or after a 
                        continuous period of more than 165 days after 
                        an individual begins an episode described in 
                        subsection (c)(1)(D) (if such period is not 
                        interrupted by the beginning of a new episode).
                            ``(ii) Requirement of certification.--
                        Clause (i) shall not apply if the agency has 
                        not obtained a physician's certification with 
                        respect to the individual requiring such visits 
                        that includes a statement that the individual 
                        requires such continued visits, the reason for 
                        the need for such visits, and a description of 
                        such services furnished during such visits.
                    ``(C) Share of savings.--
                            ``(i) Bonus payments.--If a home health 
                        agency has received aggregate per visit 
                        payments under subsection (a) for a fiscal year 
                        in an amount less than the amount determined 
                        under paragraph (1) with respect to such home 
                        health agency for such fiscal year, the 
                        Secretary shall pay such home health agency a 
                        bonus payment equal to 50 percent of the 
                        difference between such amounts in the 
                        following fiscal year, except that the bonus 
                        payment may not exceed 5 percent of the 
                        aggregate per visit payments made to the agency 
                        for the year.
                            ``(ii) Installment bonus payments.--The 
                        Secretary may make installment payments during 
                        a fiscal year to a home health agency based on 
                        the estimated bonus payment that the agency 
                        would be eligible to receive with respect to 
                        such fiscal year.
    ``(d) Medical Review Process.--The Secretary shall implement a 
medical review process (with a particular emphasis on fiscal years 1997 
and 1998) for the system of payments described in this section that 
shall provide an assessment of the pattern of care furnished to 
individuals receiving home health services for which payments are made 
under this section to ensure that such individuals receive appropriate 
home health services. Such review process shall focus on low-cost cases 
described in subsection (e)(3) and cases described in subsection 
(c)(2)(B) and shall require recertification by intermediaries at 30, 
60, 90, 120, and 165 days into an episode described in subsection 
(c)(1)(D).
    ``(e) Adjustment of Payments to Avoid Circumvention of Limits.--
            ``(1) In general.--The Secretary shall provide for 
        appropriate adjustments to payments to home health agencies 
        under this section to ensure that agencies do not circumvent 
        the purpose of this section by--
                    ``(A) discharging patients to another home health 
                agency or similar provider;
                    ``(B) altering corporate structure or name to avoid 
                being subject to this section or for the purpose of 
                increasing payments under this title; or
                    ``(C) undertaking other actions considered 
                unnecessary for effective patient care and intended to 
                achieve maximum payments under this title.
            ``(2) Tracking of patients that switch home health agencies 
        during episode.--
                    ``(A) Development of system.--The Secretary shall 
                develop a system that tracks home health patients that 
                receive home health services described in subsection 
                (a)(2) from more than 1 home health agency during an 
                episode described in subsection (c)(1)(D).
                    ``(B) Adjustment of payments.--The Secretary shall 
                adjust payments under this section to each home health 
                agency that furnishes an individual with a type of home 
                health service described in subsection (a)(2) to ensure 
                that aggregate payments on behalf of such individual 
                during such episode do not exceed the amount that would 
                be paid under this section if the individual received 
                such services from a single home health agency.
            ``(3) Low-cost cases.--The Secretary shall develop a system 
        designed to adjust payments to a home health agency for a 
        fiscal year to eliminate any increase in growth of the 
        percentage of low-cost episodes for which home health services 
        are furnished by the agency over such percentage determined for 
        the agency for the 12-month cost reporting period ending on 
        June 30, 1994. The Secretary shall define a low-cost episode in 
        a manner that provides that a home health agency has an 
        incentive to be cost efficient in delivering home health 
        services and that the volume of such services does not increase 
        as a result of factors other than patient needs.
    ``(f) Report by Medicare Payment Review Commission.--During the 
first 3 years in which payments are made under this section, the 
Medicare Payment Review Commission shall annually submit a report to 
Congress on the effectiveness of the payment methodology established 
under this section that shall include recommendations regarding the 
following:
            ``(1) Case-mix and volume increases.
            ``(2) Quality monitoring of home health agency practices.
            ``(3) Whether a capitated payment for home care patients 
        receiving care during a continuous period exceeding 165 days is 
        warranted.
            ``(4) Whether public providers of service are adequately 
        reimbursed.
            ``(5) The adequacy of the exemptions and exceptions to the 
        limits provided under subsection (c)(1)(E).
            ``(6) The appropriateness of the methods provided under 
        this section to adjust the per episode limits and annual 
        payment updates to reflect changes in the mix of services, 
        number of visits, and assignment to case categories to reflect 
        changing patterns of home health care.
            ``(7) The geographic areas used to determine the per 
        episode limits.''.
    (b) Payment for Prosthetics and Orthotics Under Part A.--Section 
1814(k) (42 U.S.C. 1395f(k)) is amended--
            (1) by inserting ``and prosthetics and orthotics'' after 
        ``durable medical equipment''; and
            (2) by inserting ``and 1834(h), respectively'' after 
        ``1834(a)(1)''.
    (c) Conforming Amendments.--
            (1) Payments under part a.--Section 1814(b) (42 U.S.C. 
        1395f(b)), as amended by section 15522(b), is amended in the 
        matter preceding paragraph (1) by striking ``1888 and 1888A'' 
        and inserting ``1888, 1888A, and 1894''.
            (2) Treatment of items and services paid under part b.--
                    (A) Payments under part b.--Section 1833(a)(2) (42 
                U.S.C. 1395l(a)(2)) is amended--
                            (i) by amending subparagraph (A) to read as 
                        follows:
                    ``(A) with respect to home health services--
                            ``(i) that are a type of home health 
                        service described in section 1894(a)(2), and 
                        which are furnished to an individual who (at 
                        the time the item or service is furnished) is 
                        under a plan of care of a home health agency, 
                        the amount determined under section 1894;
                            ``(ii) that are not described in clause (i) 
                        (other than a covered osteoporosis drug) (as 
                        defined in section 1861(kk)), the lesser of--
                                    ``(I) the reasonable cost of such 
                                services, as determined under section 
                                1861(v), or
                                    ``(II) the customary charges with 
                                respect to such services;''.
                            (ii) by striking ``and'' at the end of 
                        subparagraph (E);
                            (iii) by adding ``and'' at the end of 
                        subparagraph (F); and
                            (iv) by adding at the end the following new 
                        subparagraph:
                    ``(G) with respect to items and services described 
                in section 1861(s)(10)(A), the lesser of--
                            ``(i) the reasonable cost of such services, 
                        as determined under section 1861(v), or
                            ``(ii) the customary charges with respect 
                        to such services,
                or, if such services are furnished by a public provider 
                of services, or by another provider which demonstrates 
                to the satisfaction of the Secretary that a significant 
                portion of its patients are low-income (and requests 
                that payment be made under this provision), free of 
                charge or at nominal charges to the public, the amount 
                determined in accordance with section 1814(b)(2);''.
                    (B) Requiring payment for all items and services to 
                be made to agency.--
                            (i) In general.--The first sentence of 
                        section 1842(b)(6) (42 U.S.C. 1395u(b)(6)) is 
                        amended--
                                    (I) by striking ``and (D)'' and 
                                inserting ``(D)''; and
                                    (II) by striking the period at the 
                                end and inserting the following: ``, 
                                and (E) in the case of types of home 
                                health services described in section 
                                1894(a)(2) furnished to an individual 
                                who (at the time the item or service is 
                                furnished) is under a plan of care of a 
                                home health agency, payment shall be 
                                made to the agency (without regard to 
                                whether or not the item or service was 
                                furnished by the agency, by others 
                                under arrangement with them made by the 
                                agency, or otherwise).''.
                            (ii) Conforming amendment.--Section 
                        1832(a)(1) (42 U.S.C. 1395k(a)(1)) is amended 
                        by striking ``(2);'' and inserting ``(2) and 
                        section 1842(b)(6)(E);''.
                    (C) Exclusions from coverage.--Section 1862(a) (42 
                U.S.C. 1395y(a)), as amended by section 15525(a)(2), is 
                amended--
                            (i) by striking ``or'' at the end of 
                        paragraph (15);
                            (ii) by striking the period at the end of 
                        paragraph (16) and inserting ``or''; and
                            (iii) by adding at the end the following 
                        new paragraph:
            ``(17) where such expenses are for home health services 
        furnished to an individual who is under a plan of care of the 
        home health agency if the claim for payment for such services 
        is not submitted by the agency.''.
            (3) Sunset of reasonable cost limitations.--Section 
        1861(v)(1)(L) (42 U.S.C. 1395x(v)(1)(L)) is amended by adding 
        at the end the following new clause:
    ``(iv) This subparagraph shall apply only to services furnished by 
home health agencies during cost reporting periods ending on or before 
September 30, 1996.''.
    (c) Effective Date.--The amendments made by subsections (a) and (b) 
shall apply to cost reporting periods beginning on or after October 1, 
1996.

SEC. 15702. MAINTAINING SAVINGS RESULTING FROM TEMPORARY FREEZE ON 
              PAYMENT INCREASES FOR HOME HEALTH SERVICES.

    (a) Basing Updates to Per Visit Cost Limits on Limits for Fiscal 
Year 1993.--Section 1861(v)(1)(L)(iii) (42 U.S.C. 1395x(v)(1)(L)(iii)) 
is amended by adding at the end the following sentence: ``In 
establishing limits under this subparagraph, the Secretary may not take 
into account any changes in the costs of the provision of services 
furnished by home health agencies with respect to cost reporting 
periods which began on or after July 1, 1994, and before July 1, 
1996.''.
    (b) No Exceptions Permitted Based on Amendment.--The Secretary of 
Health and Human Services shall not consider the amendment made by 
subsection (a) in making any exemptions and exceptions pursuant to 
section 1861(v)(1)(L)(ii) of the Social Security Act.

SEC. 15703. EXTENSION OF WAIVER OF PRESUMPTION OF LACK OF KNOWLEDGE OF 
              EXCLUSION FROM COVERAGE FOR HOME HEALTH AGENCIES.

    Section 9305(g)(3) of OBRA-1986, as amended by section 426(d) of 
the Medicare Catastrophic Coverage Act of 1988 and section 4207(b)(3) 
of OBRA-1990 (as renumbered by section 160(d)(4) of the Social Security 
Act Amendments of 1994), is amended by striking ``December 31, 1995'' 
and inserting ``September 30, 1996''.

             PART 2--MEDICARE SECONDARY PAYER IMPROVEMENTS

                                                     Subtitle H, Part 2

SEC. 15711. EXTENSION AND EXPANSION OF EXISTING REQUIREMENTS.

    (a) 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) Application to Disabled Individuals in Large Group Health 
Plans.--
            (1) In general.--Section 1862(b)(1)(B) (42 U.S.C. 
        1395y(b)(1)(B)) is amended--
                    (A) in clause (i), by striking ``clause (iv)'' and 
                inserting ``clause (iii)'',
                    (B) by striking clause (iii), and
                    (C) by redesignating clause (iv) as clause (iii).
            (2) Conforming amendments.--Paragraphs (1) through (3) of 
        section 1837(i) (42 U.S.C. 1395p(i)) and the second sentence of 
        section 1839(b) (42 U.S.C. 1395r(b)) are each amended by 
        striking ``1862(b)(1)(B)(iv)'' each place it appears and 
        inserting ``1862(b)(1)(B)(iii)''.
    (c) Expansion of Period of Application to Individuals With End 
Stage Renal Disease.--Section 1862(b)(1)(C) (42 U.S.C. 1395y(b)(1)(C)) 
is amended--
            (1) in the first sentence, by striking ``12-month'' each 
        place it appears and inserting ``24-month'', and
            (2) by striking the second sentence.

SEC. 15712. IMPROVEMENTS IN RECOVERY OF PAYMENTS.

    (a) Permitting Recovery Against Third Party Administrators of 
Primary Plans.--Section 1862(b)(2)(B)(ii) (42 U.S.C. 
1395y(b)(2)(B)(ii)) is amended--
            (1) by striking ``under this subsection to pay'' and 
        inserting ``(directly, as a third-party administrator, or 
        otherwise) to make payment'', and
            (2) by adding at the end the following: ``The United States 
        may not recover from a third-party administrator under this 
        clause in cases where the third-party administrator would not 
        be able to recover the amount at issue from the employer or 
        group health plan for whom it provides administrative services 
        due to the insolvency or bankruptcy of the employer or plan.''.
    (b) Extension of Claims Filing Period.--Section 1862(b)(2)(B) (42 
U.S.C. 1395y(b)(2)(B)) is amended by adding at the end the following 
new clause:
                            ``(vi) Claims-filing period.--
                        Notwithstanding any other time limits that may 
                        exist for filing a claim under an employer 
                        group health plan, the United States may seek 
                        to recover conditional payments in accordance 
                        with this subparagraph where the request for 
                        payment is submitted to the entity required or 
                        responsible under this subsection to pay with 
                        respect to the item or service (or any portion 
                        thereof) under a primary plan within the 3-year 
                        period beginning on the date on which the item 
                        or service was furnished.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to items and services furnished on or after the date of the 
enactment of this Act.

SEC. 15713. PROHIBITING RETROACTIVE APPLICATION OF POLICY REGARDING 
              ESRD BENEFICIARIES ENROLLED IN PRIMARY PLANS.

    For purposes of carrying out section 1862(b)(1)(C) of the Social 
Security Act, the Secretary of Health and Human Services shall apply 
the policy directive issued by the Administrator of the Health Care 
Financing Administration on April 24, 1995, only with respect to items 
and services furnished on or after such date.

                            PART 3--FAILSAFE

                                                     Subtitle H, Part 3

SEC. 15721. FAILSAFE BUDGET MECHANISM.

    (a) In General.--Title XVIII, as amended by sections 15106(a) and 
15701(a), is amended by adding at the end the following new section:

                      ``failsafe budget mechanism

    ``Sec. 1895. (a) Requirement of Payment Adjustments to Achieve 
Medicare Budget Targets.--
            ``(1) In general.--If the Secretary determines under 
        subsection (e)(3)(C) before a fiscal year (beginning with 
        fiscal year 1998) that--
                    ``(A) the fee-for-service expenditures (as defined 
                in subsection (f)) for a sector of medicare services 
                (as defined in subsection (b)) for the fiscal year, 
                will exceed
                    ``(B) the allotment specified under subsection 
                (c)(2) for such fiscal year (taking into account any 
                adjustment in the allotment under subsection (h) for 
                that fiscal year),
        then, notwithstanding any other provision of this title, there 
        shall be an adjustment (consistent with subsection (d)) in 
        applicable payment rates or payments for items and services 
        included in the sector in the fiscal year so that such 
        expenditures for the sector for the year will be reduced by 
        133\1/3\ percent of the amount of such excess.
    ``(b) Sectors of Medicare Services Described.--
            ``(1) In general.--For purposes of this section, items and 
        services included under each of the following subparagraphs 
        shall be considered to be a separate `sector' of medicare 
        services:
                    ``(A) Inpatient hospital services.
                    ``(B) Home health services.
                    ``(C) Extended care services (for inpatients of 
                skilled nursing facilities).
                    ``(D) Hospice care.
                    ``(E) Physicians' services (including services and 
                supplies described in section 1861(s)(2)(A)) and 
                services of other health care professionals (including 
                certified registered nurse anesthetists, nurse 
                practitioners, physician assistants, and clinical 
                psychologists) for which separate payment is made under 
                this title.
                    ``(F) Outpatient hospital services and ambulatory 
                facility services.
                    ``(G) Durable medical equipment and supplies, 
                including prosthetic devices and orthotics.
                    ``(H) Diagnostic tests (including clinical 
                laboratory services and x-ray services).
                    ``(I) Other items and services.
            ``(2) Classification of items and services.--The Secretary 
        shall classify each type of items and services covered and paid 
        for separately under this title into one of the sectors 
        specified in paragraph (1). After publication of such 
        classification under subsection (e)(1), the Secretary is not 
        authorized to make substantive changes in such classification.
    ``(c) Allotment.--
            ``(1) Allotments for each sector.--For purposes of this 
        section, subject to subsection (h)(1), the allotment for a 
        sector of medicare services for a fiscal year is equal to the 
        product of--
                    ``(A) the total allotment for the fiscal year 
                established under paragraph (2), and
                    ``(B) the allotment proportion (specified under 
                paragraph (3)) for the sector and fiscal year involved.
            ``(2) Total allotment.--
                    ``(A) In general.--For purposes of this section, 
                the total allotment for a fiscal year is equal to--
                            ``(i) the medicare benefit budget for the 
                        fiscal year (as specified under subparagraph 
                        (B)), reduced by
                            ``(ii) the amount of payments the Secretary 
                        estimates will be made in the fiscal year under 
                        the MedicarePlus program under part C.
                In making the estimate under clause (ii), the Secretary 
                shall take into account estimated enrollment and 
                demographic profile of individuals electing 
                MedicarePlus products.
                    ``(B) Medicare benefit budget.--For purposes of 
                this subsection, subject to subparagraph (C), the 
                `medicare benefit budget'--
                            ``(i) for fiscal year 1997 is $203.1 
                        billion;
                            ``(ii) for fiscal year 1998 is $214.3 
                        billion;
                            ``(iii) for fiscal year 1999 is $227.2 
                        billion;
                            ``(iv) for fiscal year 2000 is $241.0 
                        billion;
                            ``(v) for fiscal year 2001 is $259.1 
                        billion;
                            ``(vi) for fiscal year 2002 is $280.0 
                        billion; and
                            ``(vi) for a subsequent fiscal year is 
                        equal to the medicare benefit budget under this 
                        subparagraph for the preceding fiscal year 
                        increased by the sum of (I) 5 percentage 
                        points, and (II) the annual percentage increase 
                        in the average number of medicare beneficiaries 
                        from the previous fiscal year to the fiscal 
                        year involved.
            ``(3) Medicare allotment proportion defined.--
                    ``(A) In general.--For purposes of this section and 
                with respect to a sector of medicare services for a 
                fiscal year, the term `medicare allotment proportion' 
                means the ratio of--
                            ``(i) the baseline-projected medicare 
                        expenditures (as determined under subparagraph 
                        (B)) for the sector for the fiscal year, to
                            ``(ii) the sum of such baseline 
                        expenditures for all such sectors for the 
                        fiscal year.
                    ``(B) Baseline-projected medicare expenditures.--In 
                this paragraph, the `baseline, projected medicare 
                expenditures' for a sector of medicare services--
                            ``(i) for fiscal year 1996 is equal to fee-
                        for-service expenditures for such sector during 
                        fiscal year 1995, increased by the baseline 
                        annual growth rate for such sector of medicare 
                        services for fiscal year 1996 (as specified in 
                        table in subparagraph (C)); and
                            ``(ii) for a subsequent fiscal year is 
                        equal to the baseline-projected medicare 
                        expenditures under this subparagraph for the 
                        sector for the previous fiscal year increased 
                        by the baseline annual growth rate for such 
                        sector for the fiscal year involved (as 
                        specified in such table).
                    ``(C) Baseline annual growth rates.--The following 
                table specifies the baseline annual growth rates for 
                each of the sectors for different fiscal years:
      

----------------------------------------------------------------------------------------------------------------
                                                         Baseline annual growth rates for fiscal year--         
                                               -----------------------------------------------------------------
         ``For the following sector--                                                                  2002 and 
                                                  1996     1997     1998     1999     2000     2001   thereafter
----------------------------------------------------------------------------------------------------------------
(A) Inpatient hospital services...............     5.7%     5.6%     6.0%     6.1%     5.7%     5.5%       5.2% 
(B) Home health services......................    17.2%    15.1%    11.7%     9.1%     8.4%     8.1%       7.9% 
(C) Extended care services....................    19.7%    12.3%     9.3%     8.7%     8.6%     8.4%       8.0% 
(D) Hospice care..............................    32.0%    24.0%    18.0%    15.0%    12.0%    10.0%       9.0% 
(E) Physicians' services......................    12.4%     9.7%     8.7%     9.0%     9.3%     9.6%      10.1% 
(F) Outpatient hospital services..............    14.7%    13.9%    14.5%    15.0%    14.1%    13.9%      14.0% 
(G) Durable medical equipment and supplies....    16.1%    15.5%    13.7%    12.4%    13.2%    13.9%      14.5% 
(H) Diagnostic tests..........................    13.1%    11.3%    11.0%    11.4%    11.4%    11.5%      11.9% 
(I) Other items and services..................    11.2%    10.2%    10.9%    12.0%    11.6%    11.6%      11.8% 
----------------------------------------------------------------------------------------------------------------

    ``(d) Manner of Payment Adjustment.--
            ``(1) In general.--Subject to the succeeding provisions of 
        this subsection, the Secretary shall apply a payment reduction 
        for a sector for a fiscal year in such a manner as to--
                    ``(A) make a change in payment rates (to the 
                maximum extent practicable) at the time payment rates 
                are otherwise changed or subject to change for that 
                fiscal year; and
                    ``(B) provide for the full appropriate adjustment 
                so that the fee-for-service expenditures for the sector 
                for the fiscal year will approximate (and not exceed) 
                the allotment for the sector for the fiscal year.
            ``(2) Taking into account volume and cash flow.--In 
        providing for an adjustment in payments under this subsection 
        for a sector for a fiscal year, the Secretary shall take into 
        account (in a manner consistent with actuarial projections)--
                    ``(A) the impact of such an adjustment on the 
                volume or type of services provided in such sector (and 
                other sectors), and
                    ``(B) the fact that an adjustment may apply to 
                items and services furnished in a fiscal year (payment 
                for which may occur in a subsequent fiscal year),
        in a manner that is consistent with assuring that total fee-
        for-services expenditures for each sector for the fiscal year 
        will not exceed the allotment under subsection (c)(1) for such 
        sector for such year.
            ``(3) Proportionality of reductions within a sector.--In 
        making adjustments under this subsection in payment for items 
        and services included within a sector of medicare services for 
        a fiscal year, the Secretary shall provide for such an 
        adjustment that results (to the maximum extent feasible) in the 
        same percentage reductions in aggregate Federal payments under 
        parts A and B for the different classes of items and services 
        included within the sector for the fiscal year.
            ``(4) Application to payments made based on prospective 
        payment rates determined on a fiscal year basis.--
                    ``(A) In general.--In applying subsection (a) with 
                respect to items and services for which payment is made 
                under part A or B on the basis of rates that are 
                established on a prospective basis for (and in advance 
                of) a fiscal year, the Secretary shall provide for the 
                payment adjustment under such subsection through an 
                appropriate reduction in such rates established for 
                items and services furnished (or, in the case of 
                payment for operating costs of inpatient hospital 
                services of subsection (d) hospitals and subsection (d) 
                Puerto Rico hospitals (as defined in paragraphs (1)(B) 
                and (9)(A) of section 1886(d)), discharges occurring) 
                during such year.
                    ``(B) Description of application to specific 
                services.--The payment adjustment described in 
                subparagraph (A) applies for a fiscal year to at least 
                the following:
                            ``(i) Update factor for payment for 
                        operating costs of inpatient hospital services 
                        of pps hospitals.--To the computation of the 
                        applicable percentage increase specified in 
                        section 1886(d)(3)(B)(i) for discharges 
                        occurring in the fiscal year.
                            ``(ii) Home health services.--To the extent 
                        payment amounts for home health services are 
                        based on per visit payment rates under section 
                        1894, to the computation of the increase in the 
                        national per visit payment rates established 
                        for the year under section 1894(b)(2)(B).
                            ``(iii) Hospice care.--To the update of 
                        payment rates for hospice care under section 
                        1814(i) for services furnished during the 
                        fiscal year.
                            ``(iv) Update factor for payment of 
                        operating costs of inpatient hospital services 
                        of pps-exempt hospitals.--To the computation of 
                        the target amount under section 1886(b)(3) for 
                        discharges occurring during the fiscal year.
                            ``(v) Covered non-routine services of 
                        skilled nursing facilities.--To the computation 
                        of the facility per stay limits for the year 
                        under section 1888A(d) for covered non-routine 
                        services of a skilled nursing facility (as 
                        described in such section).
            ``(5) Application to payments made based on prospective 
        payment rates determined on a calendar year basis.--
                    ``(A) In general.--In applying subsection (a) for a 
                fiscal year with respect to items and services for 
                which payment is made under part A or B on the basis of 
                rates that are established on a prospective basis for 
                (and in advance of) a calendar year, the Secretary 
                shall provide for the payment adjustment under such 
                subsection through an appropriate reduction in such 
                rates established for items and services furnished at 
                any time during such calendar year as follows:
                            ``(i) For fiscal year 1997, the reduction 
                        shall be made for payment rates during calendar 
                        year 1997 in a manner so as to achieve the 
                        necessary payment reductions for such fiscal 
                        year for items and services furnished during 
                        the first 3 quarters of calendar year 1997.
                            ``(ii) For a subsequent fiscal year, the 
                        reduction shall be made for payment rates 
                        during the calendar year in which the fiscal 
                        year ends in a manner so as to achieve the 
                        necessary payment reductions for such fiscal 
                        year for items and services furnished during 
                        the first 3 quarters of the calendar year, but 
                        also taking into account the payment reductions 
                        made in the first quarter of the fiscal year 
                        resulting from payment reductions made under 
                        this paragraph for the previous calendar year.
                            ``(iii) Payment rate reductions effected 
                        under this subparagraph for a calendar year and 
                        applicable to the last 3 quarters of the fiscal 
                        year in which the calendar year ends shall 
                        continue to apply during the first quarter of 
                        the succeeding fiscal year.
                    ``(B) Application in specific cases.--The payment 
                adjustment described in subparagraph (A) applies for a 
                fiscal year to at least the following:
                            ``(i) Update in conversion factor for 
                        physicians' services.--To the computation of 
                        the conversion factor under subsection (d) of 
                        section 1848 used in the fee schedule 
                        established under subsection (b) of such 
                        section, for items and services furnished 
                        during the calendar year in which the fiscal 
                        year ends.
                            ``(ii) Payment rates for other health care 
                        professionals.--To the computation of payments 
                        for professional services of certified 
                        registered nurse anesthetists under section 
                        1833(l), nurse midwives, physician assistants, 
                        nurse practitioners and clinical nurse 
                        specialists under section 1833(r), clinical 
                        psychologists, clinical social workers, 
                        physical or occupational therapists, and any 
                        other health professionals for which payment 
                        rates are based (in whole or in part) on 
                        payments for physicians' services, for services 
                        furnished during the calendar year in which the 
                        fiscal year ends.
                            ``(iii) Update in lab fee schedule.--To the 
                        computation of the fee schedule amount under 
                        section 1833(h)(2) for clinical diagnostic 
                        laboratory services furnished during the 
                        calendar year in which the fiscal year ends.
                            ``(iv) Update in reasonable charges for 
                        vaccines.--To the computation of the reasonable 
                        charge for vaccines described in section 
                        1861(s)(10) for vaccines furnished during the 
                        calendar year in which the fiscal year ends.
                            ``(v) Durable medical equipment-related 
                        items.--To the computation of the payment basis 
                        under section 1834(a)(1)(B) for covered items 
                        described in section 1834(a)(13), for items 
                        furnished during the calendar year in which the 
                        fiscal year ends.
                            ``(vi) Radiologist services.--To the 
                        computation of conversion factors for 
                        radiologist services under section 1834(b), for 
                        services furnished during the calendar year in 
                        which the fiscal year ends.
                            ``(vii) Screening mammography.--To the 
                        computation of payment rates for screening 
                        mammography under section 1834(c)(1)(C)(ii), 
                        for screening mammography performed during the 
                        calendar year in which the fiscal year ends.
                            ``(viii) Prosthetics and orthotics.--To the 
                        computation of the amount to be recognized 
                        under section 1834(h) for payment for 
                        prosthetic devices and orthotics and 
                        prosthetics, for items furnished during the 
                        calendar year in which the fiscal year ends.
                            ``(ix) Surgical dressings.--To the 
                        computation of the payment amount referred to 
                        in section 1834(i)(1)(B) for surgical 
                        dressings, for items furnished during the 
                        calendar year in which the fiscal year ends.
                            ``(x) Parenteral and enteral nutrition.--To 
                        the computation of reasonable charge screens 
                        for payment for parenteral and enteral 
                        nutrition under section 1834(h), for nutrients 
                        furnished during the calendar year in which the 
                        fiscal year ends.
                            ``(xi) Ambulance services.--To the 
                        computation of limits on reasonable charges for 
                        ambulance services, for services furnished 
                        during the calendar year in which the fiscal 
                        year ends.
            ``(6) Application to payments made based on costs during a 
        cost reporting period.--
                    ``(A) In general.--In applying subsection (a) for a 
                fiscal year with respect to items and services for 
                which payment is made under part A or B on the basis of 
                costs incurred for items and services in a cost 
                reporting period, the Secretary shall provide for the 
                payment adjustment under such subsection for a fiscal 
                year through a appropriate proportional reduction in 
                the payment for costs for such items and services 
                incurred at any time during each cost reporting period 
                any part of which occurs during the fiscal year 
                involved, but only (for each such cost reporting 
                period) in the same proportion as the fraction of the 
                cost reporting period that occurs during the fiscal 
                year involved.
                    ``(B) Application in specific cases.--The payment 
                adjustment described in subparagraph (A) applies for a 
                fiscal year to at least the following:
                            ``(i) Capital-related costs of hospital 
                        services.--To the computation of payment 
                        amounts for inpatient and outpatient hospital 
                        services under sections 1886(g) and 1861(v) for 
                        portions of cost reporting periods occurring 
                        during the fiscal year.
                            ``(ii) Operating costs for pps-exempt 
                        hospitals.--To the computation of payment 
                        amounts under section 1886(b) for operating 
                        costs of inpatient hospital services of pps-
                        exempt hospitals for portions of cost reporting 
                        periods occurring during the fiscal year.
                            ``(iii) Direct graduate medical 
                        education.--To the computation of payment 
                        amounts under section 1886(h) for reasonable 
                        costs of direct graduate medical education 
                        costs for portions of cost reporting periods 
                        occurring during the fiscal year.
                            ``(iv) Inpatient rural primary care 
                        hospital services.--To the computation of 
                        payment amounts under section 1814(j) for 
                        inpatient rural primary care hospital services 
                        for portions of cost reporting periods 
                        occurring during the fiscal year.
                            ``(v) Extended care services of a skilled 
                        nursing facility.--To the computation of 
                        payment amounts under section 1861(v) for post-
                        hospital extended care services of a skilled 
                        nursing facility (other than covered non-
                        routine services subject to section 1888A) for 
                        portions of cost reporting periods occurring 
                        during the fiscal year.
                            ``(vi) Reasonable cost contracts.--To the 
                        computation of payment amounts under section 
                        1833(a)(1)(A) for organizations for portions of 
                        cost reporting periods occurring during the 
                        fiscal year.
                            ``(vii) Home health services.--Subject to 
                        paragraph (4)(B)(ii), for payment amounts for 
                        home health services, for portions of cost 
                        reporting periods occurring during such fiscal 
                        year.
            ``(7) Other.--In applying subsection (a) for a fiscal year 
        with respect to items and services for which payment is made 
        under part A or B on a basis not described in a previous 
        paragraph of this subsection, the Secretary shall provide for 
        the payment adjustment under such subsection through a 
        appropriate proportional reduction in the payments (or payment 
        bases for items and services furnished) during the fiscal year.
            ``(8) Adjustment of payment limits.--The Secretary shall 
        provide for such proportional adjustment in any limits on 
        payment established under part A or B for payment for items and 
        services within a sector as may be appropriate based on (and in 
        order to properly carry out) the adjustment on the amount of 
        payment under this subsection in the sector.
            ``(9) References to payment rates.--Except as the Secretary 
        may provide, any reference in this title (other than this 
        section) to a payment rate is deemed a reference to such a rate 
        as adjusted under this subsection.
    ``(e) Publication of Determinations; Judicial Review.--
            ``(1) One-time publication of sectors and general payment 
        adjustment methodology.--Not later than October 1, 1996, the 
        Secretary shall publish in the Federal Register the 
        classification of medicare items and services into the sectors 
        of medicare services under subsection (b) and the general 
        methodology to be used in applying payment adjustments to the 
        different classes of items and services within the sectors.
            ``(2) Inclusion of information in president's budget.--
                    ``(A) In general.--With respect to fiscal years 
                beginning with fiscal year 1999, the President shall 
                include in the budget submitted under section 1105 of 
                title 31, United States Code, information on--
                            ``(i) the fee-for-service expenditures, 
                        within each sector, for the second previous 
                        fiscal year, and how such expenditures compare 
                        to the adjusted sector allotment for that 
                        sector for that fiscal year; and
                            ``(ii) actual annual growth rates for fee-
                        for-service expenditures in the different 
                        sectors in the second previous fiscal year.
                    ``(B) Recommendations regarding growth factors.--
                The President may include in such budget for a fiscal 
                year (beginning with fiscal year 1998) recommendations 
                regarding percentages that should be applied (for one 
                or more fiscal years beginning with that fiscal year) 
                instead of the baseline annual growth rates under 
                subsection (c)(3)(C). Such recommendations shall take 
                into account medically appropriate practice patterns.
            ``(3) Determinations concerning payment adjustments.--
                    ``(A) Recommendations of commission.--By not later 
                than March 1 of each year (beginning with 1997), the 
                Medicare Payment Review Commission shall submit to the 
                Secretary and the Congress a report that analyzes the 
                previous operation (if any) of this section and that 
                includes recommendations concerning the manner in which 
                this section should be applied for the following fiscal 
                year.
                    ``(B) Preliminary notice by secretary.--Not later 
                than May 15 preceding the beginning of each fiscal year 
                (beginning with fiscal year 1998), the Secretary shall 
                publish in the Federal Register a notice containing the 
                Secretary's preliminary determination, for each sector 
                of medicare services, concerning the following:
                            ``(i) The projected allotment under 
                        subsection (c) for such sector for the fiscal 
                        year.
                            ``(ii) Whether there will be a payment 
                        adjustment for items and services included in 
                        such sector for the fiscal year under 
                        subsection (a).
                            ``(iii) If there will be such an 
                        adjustment, the size of such adjustment and the 
                        methodology to be used in making such a payment 
                        adjustment for classes of items and services 
                        included in such sector.
                            ``(iv) Beginning with fiscal year 1999, the 
                        fee-for-service expenditures for such sector 
                        for the second preceding fiscal year.
                Such notice shall include an explanation of the basis 
                for such determination. Determinations under this 
                subparagraph and subparagraph (C) shall be based on the 
                best data available at the time of such determinations.
                    ``(C) Final determination.--Not later than 
                September 1 preceding the beginning of each fiscal year 
                (beginning with fiscal year 1998), the Secretary shall 
                publish in the Federal Register a final determination, 
                for each sector of medicare services, concerning the 
                matters described in subparagraph (B) and an 
                explanation of the reasons for any differences between 
                such determination and the preliminary determination 
                for such fiscal year published under subparagraph (B).
            ``(4) Limitation on administrative or judicial review.--
        There shall be no administrative or judicial review under 
        section 1878 or otherwise of--
                    ``(A) the classification of items and services 
                among the sectors of medicare services under subsection 
                (b),
                    ``(B) the determination of the amounts of 
                allotments for the different sectors of medicare 
                services under subsection (c),
                    ``(C) the determination of the amount (or method of 
                application) of any payment adjustment under subsection 
                (d), or
                    ``(D) any adjustment in an allotment effected under 
                subsection (h).
    ``(f) Fee-for-Service Expenditures Defined.--In this section, the 
term `fee-for-service expenditures', for items and services within a 
sector of medicare services in a fiscal year, means amounts payable for 
such items and services which are furnished during the fiscal year, 
and--
            ``(1) includes types of expenses otherwise reimbursable 
        under parts A and B (including administrative costs incurred by 
        organizations described in sections 1816 and 1842) with respect 
        to such items and services, and
            ``(2) does not include amounts paid under part C.
    ``(g) Expedited Process for Adjustment of Sector Growth Rates.--
            ``(1) Optional inclusion of legislative proposal.--The 
        President may include in recommendations under subsection 
        (e)(2)(B) submitted with respect to a fiscal year a specific 
        legislative proposal that provides only for the substitution of 
        percentages specified in the proposal for one or more of the 
        baseline annual growth rates (specified in the table in 
        subsection (c)(3)(C) or in a previous legislative proposal 
        under this subsection) for that fiscal year or any subsequent 
        fiscal year.
            ``(2) Congressional consideration.--
                    ``(A) In general.--The percentages contained in a 
                legislative proposal submitted under paragraph (1) 
                shall apply under this section if a joint resolution 
                (described in subparagraph (B)) approving such proposal 
                is enacted, in accordance with the provisions of 
                subparagraph (C), before the end of the 60-day period 
                beginning on the date on which such proposal 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 approval.--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 President 
                submits a proposal under paragraph (1) and--
                            ``(i) which does not have a preamble;
                            ``(ii) the matter after the resolving 
                        clause of which is as follows: `That Congress 
                        approves the proposal of the President 
                        providing for substitution of percentages for 
                        certain baseline annual growth rates under 
                        section 1895 of the Social Security Act, as 
                        submitted by the President on ______________.', 
                        the blank space being filled in with the 
                        appropriate date; and
                            ``(iii) the title of which is as follows: 
                        `Joint resolution approving Presidential 
                        proposal to substitute certain specified 
                        percentages for baseline annual growth rates 
                        under section 1895 of the Social Security Act, 
                        as submitted by the President on 
                        ______________.', the blank space being filled 
                        in with the appropriate date.
                    ``(C) Procedures for consideration of resolution of 
                approval.--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 a 
                        legislative proposal under paragraph (1)) and 
                        any reference to the Committee on Armed 
                        Services of the Senate shall be deemed a 
                        reference to the Committee on Finance of the 
                        Senate; 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 
                        President submits the legislative proposal 
                        under paragraph (1).
    ``(h) Look-Back Adjustment in Allotments to Reflect Actual 
Expenditures.--
            ``(1) In general.--If the Secretary determines under 
        subsection (e)(3)(B) with respect to a particular fiscal year 
        (beginning with fiscal year 1999) that the fee-for-service 
        expenditures for a sector of medicare services for the second 
        preceding fiscal year--
                    ``(A) exceeded the adjusted allotment for such 
                sector for such year (as defined in paragraph (2)), 
                then the allotment for the sector for the particular 
                fiscal year shall be reduced by 133\1/3\ percent of the 
                amount of such excess, or
                    ``(B) was less than the adjusted allotment for such 
                sector for such year, then the allotment for the sector 
                for the particular fiscal year shall be increased by 
                the amount of such deficit.
            ``(2) Adjusted allotment.--The adjusted allotment under 
        this paragraph for a sector for a fiscal year is--
                    ``(A) the amount that would be computed as the 
                allotment under subsection (c) for the sector for the 
                fiscal year if the actual amount of payments made in 
                the fiscal year under the MedicarePlus program under 
                part C in the fiscal year were substituted for the 
                amount described in subsection (c)(2)(A)(ii) for that 
                fiscal year,
                    ``(B) adjusted to take into account the amount of 
                any adjustment under paragraph (1) for that fiscal year 
                (based on expenditures in the second previous fiscal 
                year).
    ``(i) Prospective Application of Certain National Coverage 
Determinations.--In the case of a national coverage determination that 
the Secretary projects will result in significant additional 
expenditures under this title (taking into account any substitution for 
existing procedures or technologies), such determination shall not 
become effective before the beginning of the fiscal year that begins 
after the date of such determination and shall apply to contracts under 
part C entered into (or renewed) after the date of such 
determination.''.
    (b) Report of Trustees on Growth Rate in Part A Expenditures.--
Section 1817 (42 U.S.C. 1395i) is amended by adding at the end the 
following new subsection:
    ``(k) Each annual report provided in subsection (b)(2) shall 
include information regarding the annual rate of growth in program 
expenditures that would be required to maintain the financial solvency 
of the Trust Fund and the extent to which the provisions of section 
1895 restrain the rate of growth of expenditures under this part in 
order to achieve such solvency.''.

                 PART 4--ADMINISTRATIVE SIMPLIFICATION

                                                     Subtitle H, Part 4

SEC. 15731. STANDARDS FOR MEDICARE INFORMATION TRANSACTIONS AND DATA 
              ELEMENTS.

    Title XVIII, as amended by section 15031, is amended by inserting 
after section 1806 the following new section:

  ``standards for medicare information transactions and data elements

    ``Sec. 1807. (a) Adoption of Standards for Data Elements.--
            ``(1) In general.--Pursuant to subsection (b), the 
        Secretary shall adopt standards for information transactions 
        and data elements of medicare information and modifications to 
        the standards under this section that are--
                    ``(A) consistent with the objective of reducing the 
                administrative costs of providing and paying for health 
                care; and
                    ``(B) developed or modified by a standard setting 
                organization (as defined in subsection (h)(8)).
            ``(2) Special rule relating to data elements.--The 
        Secretary may adopt or modify a standard relating to data 
        elements that is different from the standard developed by a 
        standard setting organization, if--
                    ``(A) the different standard or modification will 
                substantially reduce administrative costs to health 
                care providers and health plans compared to the 
                alternative; and
                    ``(B) the standard or modification is promulgated 
                in accordance with the rulemaking procedures of 
                subchapter III of chapter 5 of title 5, United States 
                Code.
            ``(3) Security standards for health information network.--
                    ``(A) In general.--Each person, who maintains or 
                transmits medicare information or data elements of 
                medicare information and is subject to this section, 
                shall maintain reasonable and appropriate 
                administrative, technical, and physical safeguards--
                            ``(i) to ensure the integrity and 
                        confidentiality of the information;
                            ``(ii) to protect against any reasonably 
                        anticipated--
                                    ``(I) threats or hazards to the 
                                security or integrity of the 
                                information; and
                                    ``(II) unauthorized uses or 
                                disclosures of the information; and
                            ``(iii) to otherwise ensure compliance with 
                        this section by the officers and employees of 
                        such person.
                    ``(B) Security standards.--The Secretary shall 
                establish security standards and modifications to such 
                standards with respect to medicare information network 
                services, health plans, and health care providers 
                that--
                            ``(i) take into account--
                                    ``(I) the technical capabilities of 
                                record systems used to maintain 
                                medicare information;
                                    ``(II) the costs of security 
                                measures;
                                    ``(III) the need for training 
                                persons who have access to medicare 
                                information; and
                                    ``(IV) the value of audit trails in 
                                computerized record systems; and
                            ``(ii) ensure that a medicare information 
                        network service, if it is part of a larger 
                        organization, has policies and security 
                        procedures which isolate the activities of such 
                        service with respect to processing information 
                        in a manner that prevents unauthorized access 
                        to such information by such larger 
                        organization.
                The security standards established by the Secretary 
                shall be based on the standards developed or modified 
                by standard setting organizations. If such standards do 
                not exist, the Secretary shall rely on the 
                recommendations of the Health Information Advisory 
                Committee (established under subsection (g)) and shall 
                consult with appropriate government agencies and 
                private organizations in accordance with paragraph (5).
            ``(4) implementation specifications.--The Secretary shall 
        establish specifications for implementing each of the standards 
        and the modifications to the standards adopted pursuant to 
        paragraph (1).
            ``(5) Assistance to the secretary.--In complying with the 
        requirements of this section, the Secretary shall rely on 
        recommendations of the Medicare Information Advisory Committee 
        established under subsection (g) and shall consult with 
        appropriate Federal and State agencies and private 
        organizations. The Secretary shall publish in the Federal 
        Register the recommendations of the Medicare Information 
        Advisory Committee regarding the adoption of a standard under 
        this section.
    ``(b) Standards for Information Transactions and Data Elements.--
            ``(1) In general.--The Secretary shall adopt standards for 
        transactions and data elements to make medicare information 
        uniformly available to be exchanged electronically, that is--
                    ``(A) appropriate for the following financial and 
                administrative transactions: claims (including 
                coordination of benefits) or equivalent encounter 
                information, enrollment and disenrollment, eligibility, 
                premium payments, and referral certification and 
                authorization; and
                    ``(B) related to other financial and administrative 
                transactions determined appropriate by the Secretary 
                consistent with the goals of improving the operation of 
                the health care system and reducing administrative 
                costs.
            ``(2) Unique health identifiers.--
                    ``(A) Adoption of standards.--The Secretary shall 
                adopt standards providing for a standard unique health 
                identifier for each individual, employer, health plan, 
                and health care provider for use in the medicare 
                information system. In developing unique health 
identifiers for each health plan and health care provider, the 
Secretary shall take into account multiple uses for identifiers and 
multiple locations and specialty classifications for health care 
providers.
                    ``(B) Penalty for improper disclosure.--A person 
                who knowingly uses or causes to be used a unique health 
                identifier under subparagraph (A) for a purpose that is 
                not authorized by the Secretary shall--
                            ``(i) be fined not more than $50,000, 
                        imprisoned not more than 1 year, or both; or
                            ``(ii) if the offense is committed under 
                        false pretenses, be fined not more than 
                        $100,000, imprisoned not more than 5 years, or 
                        both.
            ``(3) Code sets.--
                    ``(A) In general.--The Secretary, in consultation 
                with the Medicare Information Advisory Committee, 
                experts from the private sector, and Federal and State 
                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 
                (including electronic distribution) of code sets and 
                modifications made to such code sets under subsection 
                (c)(2).
            ``(4) Electronic signature.--
                    ``(A) In general.--The Secretary, after 
                consultation with the Medicare Information Advisory 
                Committee, shall promulgate regulations specifying 
                procedures for the electronic transmission and 
                authentication of signatures, compliance with which 
                will be deemed to satisfy Federal and State statutory 
                requirements for written signatures with respect to 
                information transactions required by this section and 
                written signatures on enrollment and disenrollment 
                forms.
                    ``(B) Payments for services and premiums.--Nothing 
                in this section shall be construed to prohibit the 
                payment of health care services or health plan premiums 
                by debit, credit, payment card or numbers, or other 
                electronic means.
            ``(5) Transfer of information between health plans.--The 
        Secretary shall develop rules and procedures--
                    ``(A) for determining the financial liability of 
                health plans when health care benefits are payable 
                under two or more health plans; and
                    ``(B) for transferring among health plans 
                appropriate standard data elements needed for the 
                coordination of benefits, the sequential processing of 
                claims, and other data elements for individuals who 
                have more than one health plan.
            ``(6) Coordination of benefits.--If, at the end of the 5-
        year period beginning on the date of the enactment of this 
        section, the Secretary determines that additional transaction 
        standards for coordinating benefits are necessary to reduce 
        administrative costs or duplicative (or inappropriate) payment 
        of claims, the Secretary shall establish further transaction 
        standards for the coordination of benefits between health 
        plans.
            ``(7) Protection of trade secrets.--Except as otherwise 
        required by law, the standards adopted under this section shall 
        not require disclosure of trade secrets or confidential 
        commercial information by an entity operating a medicare 
        information network.
    ``(c) Timetables for Adoption of Standards.--
            ``(1) Initial standards.--Not later than 18 months after 
        the date of the enactment of this section, the Secretary shall 
        adopt standards relating to the information transactions, data 
        elements of medicare information and security described in 
        subsections (a) and (b).
            ``(2) Additions and modifications to standards.--
                    ``(A) In general.--The Secretary shall review the 
                standards adopted under this section and shall adopt 
                additional or modified standards, that have been 
                developed or modified by a standard setting 
                organization, as determined appropriate, but not more 
                frequently than once every 12 months. Any addition or 
                modification to such standards shall be completed in a 
                manner which minimizes the disruption and cost of 
                compliance.
                    ``(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.
                            ``(ii) Additional rules.--If a code set is 
                        modified under this paragraph, the modified 
                        code set shall include instructions on how data 
                        elements of medicare information that were 
                        encoded prior to the modification may be 
                        converted or translated so as to preserve the 
                        informational value of the data elements that 
                        existed before the modification. Any 
                        modification to a code set under this paragraph 
                        shall be implemented in a manner that minimizes 
                        the disruption and cost of complying with such 
                        modification.
    ``(d) Requirements for Health Plans.--
            ``(1) In general.--If a person desires to conduct any of 
        the information transactions described in subsection (b)(1) 
        with a health plan as a standard transaction, the health plan 
        shall conduct such standard transaction in a timely manner and 
        the information transmitted or received in connection with such 
        transaction shall be in the form of standard data elements of 
        medicare information.
            ``(2) Satisfaction of requirements.--A health plan may 
        satisfy the requirement imposed on such plan under paragraph 
        (1) by directly transmitting standard data elements of medicare 
        information or submitting nonstandard data elements to a 
        medicare information network service for processing into 
        standard data elements and transmission.
            ``(3) Timetables for compliance with requirements.--Not 
        later than 24 months after the date on which standards are 
        adopted under subsections (a) and (b) with respect to any type 
        of information transaction or data element of medicare 
        information or with respect to security, a health plan shall 
        comply with the requirements of this section with respect to 
        such transaction or data element.
            ``(4) Compliance with modified standards.--If the Secretary 
        adopts a modified standard under subsection (a) or (b), a 
        health plan 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. However, the time determined 
        appropriate under the preceding sentence shall be not earlier 
        than the last day of the 180-day period beginning on the date 
        such modified standard is adopted. The Secretary may extend the 
        time for compliance for small health plans, if the Secretary 
        determines such extension is appropriate.
    ``(e) General Penalty for Failure to Comply With Requirements and 
Standards.--
            ``(1) General penalty.--
                    ``(A) In general.--Except as provided in paragraph 
                (2), the Secretary shall impose on any person that 
                violates a requirement or standard--
                            ``(i) with respect to medicare information 
                        transactions, data elements of medicare 
                        information, or security imposed under 
                        subsection (a) or (b); or
                            ``(ii) with respect to health plans imposed 
                        under subsection (d);
                a penalty of not more than $100 for each such violation 
                of a specific standard or requirement, but the total 
                amount imposed for all such violations of a specific 
                standard or requirement during the calendar year shall 
                not exceed $25,000.
                    ``(B) Procedures.--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 
                paragraph in the same manner as such provisions apply 
                to the imposition of a penalty under such section 
                1128A.
                    ``(C) Denial of payment.--Except as provided in 
                paragraph (2), the Secretary may deny payment under 
                this title for an item or service furnished by a person 
                if the person fails to comply with an applicable 
                requirement or standard for medicare information 
                relating to that item or service.
            ``(2) Limitations.--
                    ``(A) Noncompliance not discovered.--A penalty may 
                not be imposed under paragraph (1) 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 paragraph (1).
                    ``(B) Failures due to reasonable cause.--
                            ``(i) In general.--Except as provided in 
                        clause (ii), a penalty may not be imposed under 
                        paragraph (1) 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 first date the person 
                                liable for the penalty knew, or by 
                                exercising reasonable diligence would 
                                have known, that the failure to comply 
                                occurred.
                            ``(ii) Extension of period.--
                                    ``(I) No penalty.--The period 
                                referred to in clause (i)(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 
                                failed to comply because such plan was 
                                unable to comply, the Secretary may 
                                provide technical assistance to such 
                                plan during the period described in 
                                clause (i)(II). Such assistance shall 
                                be provided in any manner determined 
                                appropriate by the Secretary.
                    ``(C) Reduction.--In the case of a failure to 
                comply which is due to reasonable cause and not to 
                willful neglect, any penalty under paragraph (1) that 
                is not entirely waived under subparagraph (B) may be 
                waived to the extent that the payment of such penalty 
                would be excessive relative to the compliance failure 
                involved.
    ``(f) Effect on State Law.--
            ``(1) General effect.--
                    ``(A) General rule.--Except as provided in 
                subparagraph (B), a provision, requirement, or standard 
                under this section shall supersede any contrary 
                provision of State law, including 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.
                    ``(B) Exceptions.--A provision, requirement, or 
                standard under this section shall not supersede a 
                contrary provision of State law, if the provision of 
                State law--
                            ``(i) provides requirements or standards 
                        that are more stringent than the requirements 
                        or standards under this section with respect to 
                        the privacy of individually identifiable 
                        medicare information; or
                            ``(ii) is a provision the Secretary 
                        determines is necessary to prevent fraud and 
                        abuse with respect to controlled substances, or 
                        for other purposes.
            ``(2) Public health reporting.--Nothing in this section 
        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.
    ``(g) Medicare Information Advisory Committee.--
            ``(1) Establishment.--There is established a committee to 
        be known as the Medicare Information Advisory Committee (in 
        this subsection referred to as the `committee').
            ``(2) Duties.--The committee shall--
                    ``(A) advise the Secretary in the development of 
                standards under this section; and
                    ``(B) be generally responsible for advising the 
                Secretary and the Congress on the status and the future 
                of the medicare information network.
            ``(3) Membership.--
                    ``(A) In general.--The committee shall consist of 9 
                members of whom--
                            ``(i) 3 shall be appointed by the 
                        President;
                            ``(ii) 3 shall be appointed by the Speaker 
                        of the House of Representatives after 
                        consultation with the minority leader of the 
                        House of Representatives; and
                            ``(iii) 3 shall be appointed by the 
                        President pro tempore of the Senate after 
                        consultation with the minority leader of the 
                        Senate.
                The appointments of the members shall be made not later 
                than 60 days after the date of the enactment of this 
                section. The President shall designate 1 member as the 
                Chair.
                    ``(B) Expertise.--The membership of the committee 
                shall consist of individuals who are of recognized 
                standing and distinction in the areas of information 
                systems, information networking and integration, 
                consumer health, or health care financial management, 
                and who possess the demonstrated capacity to discharge 
                the duties imposed on the committee.
                    ``(C) 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 not more than 3 members expire 
                at one time.
                    ``(D) Initial meeting.--Not later than 30 days 
                after the date on which a majority of the members have 
                been appointed, the committee shall hold its first 
                meeting.
            ``(4) Reports.--Not later than 1 year after the date of the 
        enactment of this section, and annually thereafter, the 
        committee shall submit to Congress and the Secretary a report 
        regarding--
                    ``(A) the extent to which entities using the 
                medicare information network are meeting the standards 
                adopted under this section and working together to form 
                an integrated network that meets the needs of its 
                users;
                    ``(B) the extent to which such entities are meeting 
                the security standards established pursuant to this 
                section and the types of penalties assessed for 
                noncompliance with such standards;
                    ``(C) any problems that exist with respect to 
                implementation of the medicare information network; and
                    ``(D) the extent to which timetables under this 
                section are being met.
        Reports made under this subsection shall be made available to 
        health care providers, health plans, and other entities that 
        use the medicare information network to exchange medicare 
        information.
    ``(h) Definitions.--For purposes of this section:
            ``(1) Code set.--The term `code set' means any set of codes 
        used for encoding data elements, such as tables of terms, 
        enrollment information, and encounter data.
            ``(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 such a plan and under this title (including under 
        a MedicarePlus product).
            ``(3) Medicare information.--The term `medicare 
        information' means any information that relates to the 
        enrollment of individuals under this title (including 
        information relating to elections of MedicarePlus products 
        under section 1805) and the provision of health benefits 
        (including benefits provided under such products) under this 
        title.
            ``(4) Medicare information network.--The term `medicare 
        information network' means the medicare information system that 
        is formed through the application of the requirements and 
        standards established under this section.
            ``(5) Medicare information network service.--The term 
        `medicare information network service' means a public or 
        private entity that--
                    ``(A) processes or facilitates the processing of 
                nonstandard data elements of medicare information into 
                standard data elements;
                    ``(B) provides the means by which persons may meet 
                the requirements of this section; or
                    ``(C) provides specific information processing 
                services.
            ``(6) Health plan.--The term `health plan' means a plan 
        which provides, or pays the cost of, health benefits. Such term 
        includes the following, or any combination thereof:
                    ``(A) Part A or part B of this title, and includes 
                a MedicarePlus product.
                    ``(B) The medicaid program under title XIX and the 
                MediGrant program under title XXI.
                    ``(C) A medicare supplemental policy (as defined in 
                section 1882(g)(1)).
                    ``(D) Worker's compensation or similar insurance.
                    ``(E) Automobile or automobile medical-payment 
                insurance.
                    ``(F) A long-term care policy, other than a fixed 
                indemnity policy.
                    ``(G) The Federal Employees Health Benefit Plan 
                under chapter 89 of title 5, United States Code.
                    ``(H) An employee welfare benefit plan, as defined 
                in section 3(1) of the Employee Retirement Income 
                Security Act of 1974 (29 U.S.C. 1002(1)), but only to 
                the extent the plan is established or maintained for 
                the purpose of providing health benefits.
            ``(7) Individually identifiable medicare information.--The 
        term `individually identifiable medicare information' means 
        medicare enrollment information, including demographic 
        information collected from an individual, that--
                    ``(A) is created or received by a health care 
                provider, health plan, employer, or medicare 
                information network service, and
                    ``(B) identifies an individual.
            ``(8) Standard setting organization.--The term `standard 
        setting organization' means a standard setting organization 
        accredited by the American National Standards Institute.
            ``(9) Standard transaction.--The term `standard 
        transaction' means, when referring to an information 
        transaction or to data elements of medicare information, any 
        transaction that meets the requirements and implementation 
        specifications adopted by the Secretary under subsections (a) 
        and (b).''.

           PART 5--OTHER PROVISIONS RELATING TO PARTS A AND B

                                                     Subtitle H, Part 5

SEC. 15741. CLARIFICATION OF MEDICARE COVERAGE OF ITEMS AND SERVICES 
              ASSOCIATED WITH CERTAIN MEDICAL DEVICES APPROVED FOR 
              INVESTIGATIONAL USE.

    (a) Coverage.--Nothing in title XVIII of the Social Security Act 
may be construed to prohibit coverage under part A or part B of the 
medicare program of items and services associated with the use of a 
medical device in the furnishing of inpatient or outpatient hospital 
services (including outpatient diagnostic imaging services) for which 
payment may be made under the program solely on the grounds that the 
device is not an approved device, if--
            (1) the device is an investigational device; and
            (2) the device is used instead of either an approved device 
        or a covered procedure.
    (b) Clarification of Payment Amount.--Notwithstanding any other 
provision of title XVIII of the Social Security Act, the amount of 
payment made under the medicare program for any item or service 
associated with the use of an investigational device in the furnishing 
of inpatient or outpatient hospital services (including outpatient 
diagnostic imaging services) for which payment may be made under the 
program may not exceed the amount of the payment which would have been 
made under the program for the item or service if the item or service 
were associated with the use of an approved device or a covered 
procedure.
    (c) Definitions.--In this section--
            (1) the term ``approved device'' means a medical device (or 
        devices) which has been approved for marketing under pre-market 
        approval under the Federal Food, Drug, and Cosmetic Act or 
        cleared for marketing under a 510(k) notice under such Act; and
            (2) the term ``investigational device'' means--
                    (A) a medical device or devices (other than a 
                device described in paragraph (1)) approved for 
                investigational use under section 520(g) of the Federal 
                Food, Drug, and Cosmetic Act, or
                    (B) an investigational combination product under 
                section 503(g) of the Federal Food, Drug, and Cosmetic 
                Act which includes a device (or devices) authorized for 
                use under section 505(i) of such Act.

SEC. 15742. ADDITIONAL EXCLUSION FROM COVERAGE.

    (a) In General.--Section 1862(a) (42 U.S.C. 1395y(a)), as amended 
by section 15525(a)(2) and section 15701(c)(2)(C), is amended--
            (1) by striking ``or'' at the end of paragraph (16),
            (2) by striking the period at the end of paragraph (17) and 
        inserting ``; or'', and
            (3) by inserting after paragraph (17) the following new 
        paragraph:
            ``(18) where such expenses are for items or services, or to 
        assist in the purchase, in whole or in part, of health benefit 
        coverage that includes items or services, for the purpose of 
        causing, or assisting in causing, the death, suicide, 
        euthanasia, or mercy killing of a person.''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to payment for items and services furnished on or after the date 
of the enactment of this Act.

                   Subtitle I--Clinical Laboratories

                                                             Subtitle I

SEC. 15801. EXEMPTION OF PHYSICIAN OFFICE LABORATORIES.

    Section 353(d) of the Public Health Service Act (42 U.S.C. 263a(d)) 
is amended--
            (1) by redesignating paragraphs (2), (3), and (4) as 
        paragraphs (3), (4), and (5) and by adding after paragraph (1) 
        the following:
            ``(4) Exemption of physician office laboratories.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), a clinical laboratory in a 
                physician's office (including an office of a group of 
                physicians) which is directed by a physician and in 
                which examinations and procedures are either performed 
                by a physician or by individuals supervised by a 
                physician solely as an adjunct to other services 
                provided by the physician's office is exempt from this 
                section.
                    ``(B) Exception.--A clinical laboratory described 
                in subparagraph (A) is not exempt from this section 
                when it performs a pap smear (Papanicolaou Smear) 
                analysis.
                    ``(C) Definition.--For purposes of subparagraph 
                (A), the term `physician' has the same meaning as is 
                prescribed for such term by section 1861(r) of the 
                Social Security Act (42 U.S.C. 1395x(r)).'';
            (2) in paragraph (3) (as so redesignated) by striking 
        ``(3)'' and inserting ``(4)''; and
            (3) in paragraphs (4) and (5) (as so redesignated) by 
        striking ``(2)'' and inserting ``(3)''.
                                 <all>
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