[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[S. 1177 Introduced in Senate (IS)]







104th CONGRESS
  1st Session
                                S. 1177

To amend the Social Security Act and the Internal Revenue Code of 1986 
   to provide improved access to quality long-term care services, to 
    obtain cost savings through provider incentives and removal of 
   regulatory and legislative barriers, to encourage greater private 
  sector participation and personal responsibility in financing such 
                   services, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

               August 10 (legislative day, July 10), 1995

   Mr. Hatch introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To amend the Social Security Act and the Internal Revenue Code of 1986 
   to provide improved access to quality long-term care services, to 
    obtain cost savings through provider incentives and removal of 
   regulatory and legislative barriers, to encourage greater private 
  sector participation and personal responsibility in financing such 
                   services, and for other purposes.
    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled, 

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Quality Care For 
Life Act of 1995''.
    (b) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Findings; purposes.
               TITLE I--LONG-TERM CARE TAX CLARIFICATION

Sec. 101. Short title.
Sec. 102. Treatment of long-term care insurance or plans.
Sec. 103. Qualified long-term services treated as medical care.
Sec. 104. Qualified long-term care insurance contracts permitted to be 
                            offered in cafeteria plans.
Sec. 105. Inclusion in income of excessive long-term care benefits.
Sec. 106. Tax reserves for qualified long-term care insurance 
                            contracts.
Sec. 107. Effective date.
              TITLE II--LONG-TERM CARE INSURANCE STANDARDS

Sec. 200. Short title.
Sec. 201. National Long-Term Care Insurance Advisory Council.
Sec. 202. Policy requirements.
Sec. 203. Additional requirements for issuers of long-term care 
                            insurance policies.
Sec. 204. Relation to State law.
Sec. 205. Uniform language and definitions.
Sec. 206. Effective dates.
               TITLE III--FINANCIAL ELIGIBILITY STANDARDS

Sec. 301. Revisions to financial eligibility provisions.
Sec. 302. Effective date.
                       TITLE IV--ASSET TRANSFERS

Sec. 401. Transfers of assets.
Sec. 402. Treatment of certain trusts.
Sec. 403. Effective date.
                         TITLE V--MISCELLANEOUS

         Subtitle A--Subacute Care Continuum Amendments of 1995

Sec. 500. Short title. 
Sec. 501. Creation of a ``level playing field'' to encourage the 
                            development of subacute care providers.
Sec. 502. Exception process from medicare routine cost limits.
Sec. 503. Physician visits and consultations for medicare patients in 
                            skilled nursing facilities.
Sec. 504. Coverage of respiratory therapy services in skilled nursing 
                            facilities under the medicare program.
Sec. 505. DRGS appropriate for subacute care in skilled nursing 
                            facilities.
Sec. 506. Subacute care services under title XIX.
Sec. 507. Effective date.
   Subtitle B--Establishment of Program for Home and Community-Based 
           Services for Certain Individuals With Disabilities

Sec. 511. Short title.
Sec. 512. Establishment of program.
Sec. 513. Increased resource disregards for nursing facility residents.
     Subtitle C--Prospective Payment System for Nursing Facilities

Sec. 521. Short title.
Sec. 522. Definitions.
Sec. 523. Payment objectives.
Sec. 524. Powers and duties of the Secretary.
Sec. 525. Relationship to title XVIII of the Social Security Act.
Sec. 526. Establishment of resident classification system.
Sec. 527. Cost centers for nursing facility payment.
Sec. 528. Resident assessment.
Sec. 529. The per diem rate for nursing service costs.
Sec. 530. The per diem rate for administrative and general costs.
Sec. 531. Payment for fee-for-service ancillary services.
Sec. 532. Reimbursement of selected ancillary services and other costs.
Sec. 533. The per diem rate for property costs.
Sec. 534. Mid-year rate adjustments.
Sec. 535. Exception to payment methods for new and low-volume nursing 
                            facilities.
Sec. 536. Appeal procedures.
Sec. 537. Effective date.
SEC. 2. FINDINGS; PURPOSES.

    (a) Findings.--The Congress finds the following:
            (1) The Federal Government currently bears excessive costs 
        in providing subacute care to patients for whom inpatient 
        hospital services are not medically necessary, in part because 
        of difficulties in placing such patients in nursing facilities.
            (2) Nursing facilities are currently disadvantaged in 
        providing subacute care services because of the significant 
        cash flow burdens resulting from delays by the Health Care 
        Financing Administration in approving exceptions from the 
        medicare routine cost limits.
            (3) Physicians are discouraged from facilitating the 
        placement of subacute care patients into skilled nursing 
        facilities because of the absence of equal reimbursement for 
        equivalent medically necessary physician visits, regardless of 
        setting.
            (4) Current restrictions on payment for respiratory therapy 
        provided in skilled nursing facilities discourage the admission 
        of subacute care patients who will require such therapy 
        services.
            (5) The provision of subacute care by skilled nursing 
        facilities and nursing facilities can result in increased 
        efficiency and substantial cost savings to the medicare and 
        medicaid programs.
    (b) Purposes.--The purposes of this Act are to--
            (1) amend the Internal Revenue Code of 1986 to clarify the 
        Federal tax treatment of long-term care insurance policies to 
        promote the purchase of such policies;
            (2) amend the Internal Revenue Code of 1986 to develop 
        reasonable Federal standards for long-term care insurance that 
        promote consumer protection;
            (3) modify financial eligibility standards under the 
        medicaid program to ensure an inclusive accounting of 
        individual assets and promote personal responsibility for long-
        term care expenses;
            (4) revise the transfer of asset prohibitions under the 
        Medicaid Program to make the 60-month
         look-back period in the case of trusts applicable to all 
transfers of assets, to require ``income cap trusts'' and ``nonprofit 
association trusts'' to be irrevocable, to include the conversion of 
personal or real property into annuities as an unlawful transfer, and 
to direct the Secretary, by regulation, to close such other loopholes 
not covered by the Omnibus Budget Reconciliation Act of 1993 (Public 
Law 103-66);
            (5) encourage the use of cost-effective subacute care in 
        nursing facilities by providing equitable reimbursement under 
        all appropriate Federal health care programs and by eliminating 
        regulatory and legislative barriers to providing such care;
            (6) remove existing and potential statutory and regulatory 
        barriers to the provision of quality, cost-effective subacute 
        care by skilled nursing facilities and nursing facilities under 
        titles XVIII and XIX of the Social Security Act, and to 
        alleviate the present cash flow burdens for skilled nursing 
        facilities that provide such care;
            (7) establish a program for home and community-based 
        services for individuals with disabilities under the medicaid 
        program to provide beneficiaries, whose needs would be 
        determined by functional eligibility standards, with expanded 
        choice of services within a continuum of care, and contain 
        costs by encouraging the use of appropriate levels of care; and
            (8) enact a prospective payment system for nursing facility 
        services under all Federal health care programs that promotes 
        quality care, assures equal access for all residents regardless 
        of level of service needed, maintains adequate capital 
        formation, provides for efficiency incentives for providers, 
        and contains costs.
               TITLE I--LONG-TERM CARE TAX CLARIFICATION

SEC. 101. SHORT TITLE.

    This title may be cited as the ``Private Long-Term Care Insurance 
Incentive Amendments of 1995''.

SEC. 102. TREATMENT OF LONG-TERM CARE INSURANCE OR PLANS.

    (a) In General.--Chapter 79 of the Internal Revenue Code of 1986 
(relating to definitions) is amended by inserting after section 7702A 
the following new section:

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

    ``(a) General Rule.--For purposes of this title--
            ``(1) a qualified long-term care insurance contract shall 
        be treated as an accident or health insurance contract,
            ``(2) any plan of an employer providing coverage of 
        qualified long-term care services shall be treated as an 
        accident or health plan with respect to such services,
            ``(3) amounts received under such a contract or plan with 
        respect to qualified long-term care services, including 
        payments described in subsection (b)(2)(A), shall be treated--
                    ``(A) as amounts received for personal injuries or 
                sickness, and
                    ``(B) for purposes of section 105(c), as amounts 
                received for the permanent loss of a function of the 
                body, and as amounts computed with reference to the 
                nature of the injury, and
            ``(4) payments described in subsection (b)(2)(A) shall be 
        treated as payments made with respect to qualified long-term 
        care services.
Paragraph (3)(B) shall not apply in the case of amounts attributable to 
(and not in excess of) deductions allowed under section 213 (relating 
to medical etc., expenses) for any prior taxable year and also shall 
not apply for purposes of section 105(f).
    ``(b) Qualified Long-Term Care Insurance Contract.--
            ``(1) In general.--For purposes of this title, the term 
        `qualified long-term care insurance contract' means any 
        insurance contract if--
                    ``(A) the only insurance protection provided under 
                such contract is coverage of qualified long-term care 
                services and benefits incidental to such coverage,
                    ``(B) such contract or coverage is guaranteed 
                renewable, or in the case of a group certificate, 
                provides the insured individual with a basis for 
                continuation or conversion of coverage,
                    ``(C) such contract does not have any cash 
                surrender value, and
                    ``(D) all refunds of premiums, and all policyholder 
                dividends or similar amounts, under such contract are 
                to be applied as a reduction in future premiums or to 
                increase future benefits.
            ``(2) Special rules.--
                    ``(A) Per diem, etc. payments permitted.--A 
                contract shall not fail to be treated as described in 
                paragraph (1)(A) by reason of payments being made on a 
                per diem or other periodic basis without regard to the 
                expenses incurred during the period to which the 
                payments relate.
                    ``(B) Refunds of premiums.--Paragraph (1)(D) shall 
                not apply to any refund of premiums on surrender, 
                cancellation of the contract, or death of the 
                policyholder.
            ``(3) Treatment of coverage provided as part of a life 
        insurance contract.--Except as provided in regulations, in the 
        case of coverage of qualified long-term care services provided 
        as part of a life insurance contract--
                    ``(A) Application of general requirements.--The 
                requirements of this section shall apply as if the 
                portion of the contract providing such coverage was a 
                separate contract.
                    ``(B) Premiums and charges for qualified long-term 
                care coverage.--Premiums for coverage of qualified 
                long-term care services and charges against the life 
                insurance contract's cash surrender value (within the 
                meaning of section 7702(f)(2)(A)) for such coverage 
                shall be treated as premiums for the qualified long-
                term care insurance contract.
                    ``(C) Application of section 7702.--Subsection 
                (c)(2) of section 7702 (relating to the guideline 
                premium limitation) shall be applied by increasing the 
                guideline premium limitation with respect to the life 
                insurance contract, as of any date--
                            ``(i) by the sum of any charges (but not 
                        premiums) described in subparagraph (B) made to 
                        that date under the contract, less
                            ``(ii) any such charges the imposition of 
                        which reduces the premiums paid for the 
                        contract (within the meaning of section 
                        7702(f)(1)).
                    ``(D) Application of section 72(e)(4)(B).--
                Subsection (e)(4)(B) of section 72 (relating to certain 
                amounts retained by the insurer) shall be applied as 
                including charges described in subparagraph (B).
                    ``(E) Applicant.--No deduction shall be allowed 
                under subsection (a) of section 213 for premiums and 
                charges described in subparagraph (B).
For purposes of this paragraph, the term `portion' means only the terms 
and benefits under a life insurance contract (whether provided by a 
rider or addendum on, or other provision of, such contract) that are in 
addition to the terms and benefits under the contract without regard to 
the coverage of qualified long-term care services and benefits 
incidental to such coverage.
    ``(c) Qualified Long-Term Care Services.--For purposes of this 
section--
            ``(1) In general.--The term `qualified long-term care 
        services' means necessary diagnostic, preventive, therapeutic, 
        and rehabilitative services, and maintenance or personal care 
        services, which--
                    ``(A)(i) are required by a chronically ill 
                individual in a qualified facility, and
                    ``(ii) are provided pursuant to a plan of care 
                prescribed by a licensed health care practitioner, or
                    ``(B) are required by law or regulation.
            ``(2) Chronically ill individual.--
                    ``(A) In general.--The term `chronically ill 
                individual' means any individual who has been certified 
                by a licensed health care practitioner as--
                            ``(i)(I) being unable to perform (without 
                        substantial assistance from another individual) 
                        at least two activities of daily living (as 
                        defined in subparagraph (B)), due to a loss of 
                        functional capacity, or
                            ``(II) having a level of disability similar 
                        (as determined by the Secretary) to the level 
                        of disability described in subclause (I), or
                            ``(ii) having a similar level of disability 
                        due to cognitive impairment.
                    ``(B) Activities of daily living.--For purposes of 
                subparagraph (A), each of the following is an activity 
                of daily living:
                            ``(i) Bathing.--The overall complex 
                        behavior of getting water and cleansing the 
                        whole body, including turning on the water for 
                        a bath, shower, or sponge bath, getting to, in, 
                        and out of a tub or shower, and washing and 
                        drying oneself.
                            ``(ii) Dressing.--The overall complex 
                        behavior of getting clothes from closets and 
                        drawers and then getting dressed.
                            ``(iii) Toileting.--The act of going to the 
                        toilet room for bowel and bladder function, 
                        transferring on and off the toilet, cleaning 
                        after elimination, and arranging clothes.
                            ``(iv) Transfer.--The process of getting in 
                        and out of bed or in and out of a chair or 
                        wheelchair.
                            ``(v) Eating.--The process of getting food 
                        from a plate or its equivalent into the mouth.
                            ``(vi) Continence.--The ability to 
                        voluntarily control bowel and   bladder 
                        function and to maintain a reasonable level of 
                        personal hygiene.
                            ``(vii) Determined by the secretary.--Any 
                        other activity determined by the Secretary to 
                        be an activity of daily living under 
                        subparagraph (D).
                            ``(viii) State required.--Any other 
                        activity required to be taken into account by 
                        State law or regulation which is not otherwise 
                        preempted by Federal law or regulation.
                    ``(C) Number of activities of daily living.--A 
                qualified long-term care insurance contract may, at its 
                option, deem an individual to be a chronically ill 
                individual under subparagraph (A) if the individual is 
                unable to perform (without substantial assistance from 
                another individual) 1 activity of daily living (as 
                defined in subparagraph (B)), due to a loss of 
                functional capacity.
                    ``(D) Determination of additional activities of 
                daily living.--For purposes of subparagraph (A), the 
                Secretary, in consultation with the Secretary of Health 
                and Human Services, may determine by regulation that 
                additional activities constitute activities of daily 
                living.
            ``(3) Qualified facility.--The term `qualified facility' 
        means--
                    ``(A) a nursing, rehabilitative, hospice service, 
                or adult day care facility (including a hospital, 
                retirement home, nursing home, skilled nursing 
                facility, intermediate care facility, or similar 
                institution)--
                            ``(i) which is licensed under State law, or
                            ``(ii) which is a certified facility for 
                        purposes of title XVIII or XIX of the Social 
                        Security Act, or
                    ``(B) an individual's home or other facility under 
                a plan of treatment developed by a licensed health care 
                practitioner.
            ``(4) Maintenance of personal care services.--The term 
        `maintenance or personal care services' means any care the 
        primary purpose of which is to provide needed assistance with 
        any of the activities of daily living described in paragraph 
        (2)(B). Such term may include such services as adult day care, 
        homemaker and chore services, hospice services, respite care, 
        and services required by law or regulation.
            ``(5) Licensed health care practitioner.--The term 
        `licensed health care practitioner' means any physician (as 
        defined in section 1861(r) of the Social Security Act) and any 
        registered professional nurse, licensed social worker, or other 
        individual who meets such requirements as may be prescribed by 
        the Secretary.
    ``(d) Special Rules.--
            ``(1) Continuation rules not to apply.--The health care 
        continuation rules contained in section 4980B (and contained in 
        part 6 of subtitle B of title I of the Employee Retirement 
        Income Security Act of 1974 and in title II of the Public 
        Health Service Act) shall not apply to--
                    ``(A) qualified long-term care insurance contracts, 
                or
                    ``(B) plans described in subsection (a)(2).
            ``(2) Employer plans not treated as deferred compensation 
        plans.--For purposes of this title, a plan of an employer 
        providing coverage of qualified long-term care services shall 
        not be treated as a plan which provides for deferred 
        compensation by reason of providing such coverage.
            ``(3) Contracts covering parents and grandparents.--For 
        purposes of this title, if a qualified long-term care insurance 
        contract purchased by or provided to a taxpayer provides 
        coverage with respect to one or more of the taxpayer's parents 
        or grandparents (or, in the case of a joint return, of either 
        spouse), such coverage and all payments made pursuant to such 
        coverage shall be treated in the same manner as if the parents 
        or grandparents were dependents (as defined in section 152) of 
        the taxpayer. For purposes of this paragraph, the term `parent' 
        includes any stepmother or stepfather, the term `grandparent' 
        includes any stepgrandfather or stepgrandmother, and any 
        relationship that exists by virtue of a legal adoption shall be 
        recognized to the same extent as relationships by blood.
            ``(4) Welfare benefit rules not to apply.--For purposes of 
        subpart D of part I of subchapter D of chapter 1 (relating to 
        treatment of welfare benefit funds), qualified long-term care 
        services shall not be treated as a welfare benefit or a medical 
        benefit.
            ``(5) Deductibility.--For purposes of this title, no 
        payment of a premium for a long-term care insurance contract 
        shall fail to be deductible in whole or in part merely because 
        the contract provides for level annual payments.
    ``(e) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the requirements of this section, 
including regulations to prevent the avoidance of this section by 
providing qualified long-term care services under a life insurance 
contract.''.
    (b) Clerical Amendment.--The table of sections for chapter 79 of 
such Code is amended by inserting after the item relating to section 
7702A the following new item:

``Sec. 7702B. Treatment of long-term care insurance or plans.''.
SEC. 103. QUALIFIED LONG-TERM SERVICES TREATED AS MEDICAL CARE.

    (a) In General.--Paragraph (1) of section 213(d) of the Internal 
Revenue Code of 1986 (defining medical care) is amended by striking 
``or'' at the end of subparagraph (B), by redesignating subparagraph 
(C) as subparagraph (D), and by inserting after subparagraph (B) the 
following new subparagraph:
                    ``(C) for qualified long-term care services (as 
                defined in section 7702B(c)), or''.
    (b) Conforming Amendments.--
            (1) Subparagraph (D) of section 213(d)(1) of such Code (as 
        redesignated by subsection (a)) is amended by striking 
        ``subparagraphs (A) and (B)'' and inserting ``subparagraphs 
        (A), (B), and (C)''.
            (2) Paragraph (6) of section 213(d) of such Code is 
        amended--
                    (A) by striking ``subparagraphs (A) and (B)'' and 
                inserting ``subparagraphs (A), (B), and (C)'', and
                    (B) in subparagraph (A), by striking ``paragraph 
                (1)(C)'' and inserting ``paragraph (1)(D)''.
            (3) Paragraph (7) of section 213(d) of such Code is amended 
        by striking ``subparagraphs (A) and (B)'' and inserting 
        ``subparagraphs (A), (B), and (C)''.

SEC. 104. QUALIFIED LONG-TERM CARE INSURANCE CONTRACTS PERMITTED TO BE 
              OFFERED IN CAFETERIA PLANS.

    Paragraph (2) of section 125(d) of the Internal Revenue Code of 
1986 (relating to the exclusion of deferred compensation) is amended by 
adding at the end the following new subparagraph:
                    ``(D) Exception for long-term care insurance 
                contracts.--For purposes of subparagraph (A), a plan 
                shall not be treated as providing deferred compensation 
                by reason of providing any long-term care insurance 
                contract (as defined in section 7702B(b)) if--
                            ``(i) the employee may elect to continue 
                        the insurance upon cessation of participation 
                        in the plan, and
                            ``(ii) the amount paid or incurred during 
                        any taxable year for such insurance does not 
                        exceed the premium which would have been 
                        payable for such year under a level premium 
                        structure.''.

SEC. 105. INCLUSION IN INCOME OF EXCESSIVE LONG-TERM CARE BENEFITS.

    (a) In General.--Part II of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to
 items specifically included in gross income) is amended by adding at 
the end the following new section:

``SEC. 91. EXCESSIVE LONG-TERM CARE BENEFITS.

    ``(a) General Rule.--Gross income for the taxable year of any 
individual includes excessive long-term care benefits received by or 
for the benefit of such individual during the taxable year.
    ``(b) Excessive Long-Term Care Benefits.--
            ``(1) In general.--For purposes of this section, the term 
        `excessive long-term care benefits' means the excess (if any) 
        of--
                    ``(A) the aggregate amount from all policies which 
                is not includible in the gross income of the individual 
                for the taxable year by reason of the amendments made 
                by the Private Long-Term Care Insurance Incentive 
                Amendments of 1995 (determined without regard to this 
                section), over
                    ``(B) the aggregate of $250 for each day during the 
                taxable year that such individual--
                            ``(i) was a chronically ill individual (as 
                        defined in section 7702B(c)(2)), and
                            ``(ii) was confined in a qualified facility 
                        (as defined in section 7702B(c)(3)).
            ``(2) Inflation adjustment.--In the case of any taxable 
        year beginning after 1996, the $250 in paragraph (1)(B) shall 
        be equal to the sum of--
                    ``(A) the amount in effect under paragraph (1)(B) 
                for the preceding calendar year (after application of 
                this subparagraph), plus
                    ``(B) the product of the amount referred to in 
                subparagraph (A) multiplied by the cost-of-living 
                adjustment for the calendar year of the amount under 
                subparagraph (A).
            ``(3) Cost-of-living adjustment.--For purposes of paragraph 
        (2), the cost-of-living adjustment for any calendar year is the 
        percentage (if any) by which the cost index under paragraph (4) 
        for the preceding calendar year exceeds such index for the 
        second preceding calendar year.
            ``(4) Cost index.--The Secretary, in consultation with the 
        Secretary of Health and Human Services, shall before January 1, 
        1997, establish a cost index to measure increases in the cost 
        of nursing home and similar facilities. The Secretary may from 
        time to time revise such index to the extent necessary to 
        accurately measure increase or decreases in such costs.
            ``(5) Rounding.--If any dollar amount determined under this 
        paragraph is not a multiple of $10, such dollar amount shall be 
        rounded to the nearest multiple of $10 (or, if such dollar 
        amount is a multiple of $5, such dollar amount shall be 
        increased to the next higher multiple of $10).
            ``(6) Computation of daily amount.--For purposes of this 
        section, the aggregate for each day may be determined by using 
        an average daily amount for the month, computed by dividing the 
        amount of benefits for the month by the number of days in the 
        month.''.
    (b) Clerical Amendment.--The table of sections for part II of 
subchapter B of chapter 1 of such Code is amended by adding at the end 
the following new item:

``Sec. 91. Excessive long-term care benefits.''.
SEC. 106. TAX RESERVES FOR QUALIFIED LONG-TERM CARE INSURANCE 
              CONTRACTS.

    (a) In General.--Subparagraph (A) of section 807(d)(3) of the 
Internal Revenue Code of 1986 (relating to tax reserve methods) is 
amended by redesignating clause (iv) as clause (v) and by inserting 
after clause (iii) the following new clause:
                            ``(iv) Qualified long-term care insurance 
                        contracts.--In the case of any qualified long-
                        term care insurance contract (as defined in 
                        section 7702B(c))--
                                    ``(I) the reserve method prescribed 
                                by the National Association of 
                                Insurance Commissioners which covers 
                                such contract (as of the date of 
                                issuance), or
                                    ``(II) if no reserve method has 
                                been prescribed by the National 
                                Association of Insurance Commissioners 
                                which covers such contract, a 1-year 
                                full preliminary term method.''.
    (b) Conforming Amendments.--
            (1) Clause (iii) of section 807(d)(3)(A) of such Code is 
        amended by striking ``noncancellable accident and health 
        insurance contract,'' and inserting ``noncancellable accident 
        and health insurance contract (other than qualified long-term 
        care insurance contracts (as defined in section 7702B(c)),''.
            (2) Clause (v) of section 807(d)(3)(A) of such Code (as 
        redesignated by subsection (a)) is amended by striking ``or 
        (iii)'' and inserting ``(iii), or (iv)''.

SEC. 107. EFFECTIVE DATE.

    (a) In General.--Except as provided in subsection (b), the 
amendments made by this title shall apply to policies issued in taxable 
years beginning after the date of the enactment of this Act.
    (b) Exception.--If a policy--
            (1) was issued in a taxable year beginning on or before the 
        date of the enactment of this Act; and
            (2) met the requirements of the National Association of 
        Insurance Commissioners' Model Long-Term Care Act and 
        Regulations when the policy was issued,
such policy shall be considered qualified long-term care insurance and 
the services provided under such policy shall be considered qualified 
long-term care services.

              TITLE II--LONG-TERM CARE INSURANCE STANDARDS

SEC. 200. SHORT TITLE.

    This title may be cited as the ``Long-Term Care Insurance Standards 
Amendments of 1995''.
SEC. 201. NATIONAL LONG-TERM CARE INSURANCE ADVISORY COUNCIL.

    (a) Appointment of Board.--Congress shall appoint an advisory board 
to be known as the National Long-Term Care Insurance Advisory Council 
(hereafter in this section referred to as the ``Advisory Council'').
    (b) Membership.--The Advisory Council shall consist of 5 members, 
each of whom has substantial expertise
 in matters relating to the provision and regulation of long-term care 
insurance or long-term care financing and delivery systems.
    (c) Duties.--The Advisory Council shall--
            (1) provide advice, recommendations, and assistance to 
        Congress on matters relating to long-term care insurance as 
        specified in this section and as otherwise required by the 
        Secretary;
            (2) collect, analyze, and disseminate information relating 
        to long-term care insurance in order to increase the 
        understanding of insurers, providers, consumers, and regulatory 
        bodies of the issues relating to, and to facilitate 
        improvements in, such insurance;
            (3) develop for congressional consideration proposed 
        models, standards, requirements, and procedures relating to 
        long-term care insurance, as appropriate; and
            (4) monitor the development of the long-term care insurance 
        market and advise Congress concerning the need for statutory 
        changes.
    (d) Powers.--In order to carry out its responsibilities under this 
section, the Advisory Council is authorized to--
            (1) consult individuals and public and private entities 
        with experience and expertise in matters relating to long-term 
        care insurance;
            (2) conduct meetings and hold hearings;
            (3) conduct research (either directly or under grant or 
        contract);
            (4) collect, analyze, publish, and disseminate data and 
        information (either directly or under grant or contract); and
            (5) develop model formats and procedures for insurance 
        products, and develop proposed standards, rules, and procedures 
        for regulatory programs, as appropriate.
    (e) Authorization of Appropriation.--There are authorized to be 
appropriated for each fiscal year beginning after September 30, 1995, 
$1,500,000 to carry out the activities of the Advisory Council.

SEC. 202. POLICY REQUIREMENTS.

    Section 7702B of the Internal Revenue Code of 1986 (as added by 
section 102) is amended by inserting after subsection (e) the following 
new subsection:
    ``(f) Consumer Protection Provisions.--
            ``(1) In general.--The requirements of this subsection are 
        met with respect to any contract if any long-term care 
        insurance policy issued under the contract meets--
                    ``(A) the requirements of the model regulation and 
                model Act described in paragraph (2),
                    ``(B) the disclosure requirement of paragraph (3),
                    ``(C) the requirements relating to 
                nonforfeitability under paragraph (4), and
                    ``(D) the requirements relating to rate 
                stabilization under the paragraph (5).
            ``(2) Requirements of model regulation and act.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to any policy if such 
                policy meets--
                            ``(i) Model regulation.--The following 
                        requirements of the model regulation:
                                    ``(I) Section 7A (relating to 
                                guaranteed renewal or 
                                noncancellability), and the 
                                requirements of section 6B of the model 
                                Act relating to such section 7A.
                                    ``(II) Section 7B (relating to 
                                prohibitions on limitations and 
                                exclusions).
                                    ``(III) Section 7C (relating to 
                                extension of benefits).
                                    ``(IV) Section 7D (relating to 
                                continuation or conversion of 
                                coverage).
                                    ``(V) Section 7E (relating to 
                                discontinuance and replacement of 
                                policies).
                                    ``(VI) Section 8 (relating to 
                                unintentional lapse).
                                    ``(VII) Section 9 (relating to 
                                disclosure), other than section 9F 
                                thereof.
                                    ``(VIII) Section 10 (relating to 
                                prohibitions against post-claims 
                                underwriting).
                                    ``(IX) Section 11 (relating to 
                                minimum standards).
                                    ``(X) Section 12 (relating to 
                                requirement to offer inflation 
                                protection), except that any 
                                requirement for a signature on a 
                                rejection of inflation protection shall 
                                permit the signature to be on an 
                                application or on a separate form.
                                    ``(XI) Section 23 (relating to 
                                prohibition against preexisting 
                                conditions and probationary periods in 
                                replacement policies or certificates).
                            ``(ii) Model act.--The following 
                        requirements of the model Act:
                                    ``(I) Section 6C (relating to 
                                preexisting conditions).
                                    ``(II) Section 6D (relating to 
                                prior hospitalization).
                    ``(B) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Model provisions.--The terms `model 
                        regulation' and `model Act' mean the long-term 
                        care insurance model regulation, and the long-
                        term care insurance model Act, respectively, 
                        promulgated by the National Association of 
                        Insurance Commissioners (as adopted in January 
                        of 1993).
                            ``(ii) Coordination.--Any provision of the 
                        model regulation or model Act listed
                         under clause (i) or (ii) of subparagraph (A) 
shall be treated as including any other provision of such regulation or 
Act necessary to implement the provision.
            ``(3) Tax disclosure requirement.--The requirement of this 
        paragraph is met with respect to any policy if such policy 
        meets the requirements of section 4980D(d)(1).
            ``(4) Nonforfeiture requirements.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to any level premium 
                long-term care insurance policy if the issuer of such 
                policy offers to the policyholder, including any group 
                policyholder, a nonforfeiture provision.
                    ``(B) Requirements of provision.--The nonforfeiture 
                provision required under subparagraph (A) shall meet 
                the following requirements:
                            ``(i) The nonforfeiture provision shall be 
                        appropriately captioned.
                            ``(ii) The nonforfeiture provision shall 
                        provide for a benefit available in the event of 
                        a default in the payment of any premiums and 
                        the amount of the benefit may be adjusted 
                        subsequent to being initially granted only as 
                        necessary to reflect changes in claims, 
                        persistency, and interest as reflected in 
                        changes in rates for premium paying policies 
                        approved by the Secretary for the same policy 
                        form.
                            ``(iii) The nonforfeiture provision shall 
                        provide for a benefit based on an equitable 
                        schedule where benefits returned are equal to 
                        the asset share remaining in the policy and 
                        which assures that persisting policyholders are 
                        not required to subsidize the cost of insurance 
                        premiums for policyholders who terminate 
                        coverage. The criteria for determining the 
                        actuarial value of this benefit shall be 
                        developed by the National Long-Term Care 
                        Insurance Advisory Council in consultation with 
                        the American Society of Actuaries and the 
                        National Association of Insurance Commissioners 
                        and shall be approved by Congress.
            ``(5) Rate stabilization.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to any long-term care 
                insurance policy, including any group master policy, 
                if--
                            ``(i) such policy contains the minimum rate 
                        guarantees specified in subparagraph (B), and
                            ``(ii) the issuer of such policy meets the 
                        requirements specified in subparagraph (C).
                    ``(B) Minimum rate guarantees.--The minimum rate 
                guarantees specified in this subparagraph are as 
                follows:
                            ``(i) Rates under the policy shall be 
                        guaranteed for a period of at least 3 years 
                        from the date of issue of the policy.
                            ``(ii) After the expiration of the 3-year 
                        period required under clause (i), any rate 
                        increase shall be guaranteed for a period of at 
                        least 2 years from the effective date of such 
                        rate increase.
                            ``(iii) In the case of any individual age 
                        75 or older who has maintained coverage under a 
                        long-term care insurance policy for 10 years, 
                        any rate increase under such policy shall not 
                        exceed 10 percent in any 12-month period.
                    ``(C) Increases in premiums.--The requirements 
                specified in this subparagraph are as follows:
                            ``(i) In general.--If an issuer of any 
                        long-term care insurance policy, including any 
                        group master policy, plans to increase the 
                        premium rates for a policy, such issuer shall, 
                        at least 90 days before the effective date of 
                        the rate increase, offer to each individual 
                        policyholder under such policy the option to 
                        remain insured under the policy at a reduced 
                        level of benefits which maintains the premium 
                        rate at the rate in effect on the day before 
                        the effective date of the rate increase.
                            ``(ii) Increase of more than 50 percent.--
                                    ``(I) In general.--If an issuer of 
                                any long-term care insurance policy, 
                                including any group master policy, 
                                increases premium rates for a policy by 
                                more than 50 percent in any 3-year 
                                period--
                                            ``(aa) in the case of a 
                                        group master long-term care 
                                        insurance policy, the issuer 
                                        shall discontinue issuing all 
                                        group master long-term care 
                                        insurance policies in any State 
                                        in which the issuer issues such 
                                        policy for a period of 2 years 
                                        from the effective date of such 
                                        premium increase; and
                                            ``(bb) in the case of an 
                                        individual long-term care 
                                        insurance policy, the issuer 
                                        shall discontinue issuing all 
                                        individual long-term care 
                                        policies in any State in which 
                                        the issuer issues such policy 
                                        for a period of 2 years from 
                                        the effective date of such 
                                        premium increase.
                                    ``(II) Applicability.--Subclause 
                                (I) shall apply to any issuer of long-
                                term care insurance policies or any 
                                other person that purchases or 
                                otherwise acquires any long-term care 
                                insurance policies from another issuer 
                                or person.
                    ``(D) Modifications or waivers of requirements.--
                The Secretary may modify or
                 waive any of the requirements under this paragraph 
if--
                            ``(i) such requirements will adversely 
                        affect an issuer's solvency;
                            ``(ii) such modification or waiver is 
                        required for the issuer to meet other State or 
                        Federal requirements;
                            ``(iii) medical developments, new disabling 
                        diseases, changes in long-term care delivery, 
                        or a new method of financing long-term care 
                        will result in changes to mortality and 
                        morbidity patterns or assumptions;
                            ``(iv) judicial interpretations of a 
                        policy's benefit features results in unintended 
                        claim liabilities; or
                            ``(v) in the case of a purchase or other 
                        acquisition of long-term care insurance 
                        policies of an issuer or other person, the 
                        continued sale of other long-term care 
                        insurance policies by the purchasing issuer or 
                        person is in the best interest of individual 
                        consumers.
            ``(6) Long-term care insurance policy defined.--For 
        purposes of this subsection, the term `long-term care insurance 
        policy' has the meaning given such term by section 4980C(e).''.

SEC. 203. ADDITIONAL REQUIREMENTS FOR ISSUERS OF LONG-TERM CARE 
              INSURANCE POLICIES.

    (a) In General.--Chapter 43 of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new section:

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

    ``(a) General Rule.--There is hereby imposed on any person failing 
to meet the requirements of subsection (c) or (d) a tax in the amount 
determined under subsection (b).
    ``(b) Amount of Tax.--
            ``(1) In general.--For purposes of subsection (a), the 
        amount of the tax shall not exceed the greater of--
                    ``(A) 3 times the amount of any commissions paid 
                for each policy involved in the violation, or
                    ``(B) $10,000.
            ``(2) Waiver.--In the case of a failure which is due to 
        reasonable cause and not to willful neglect, the Secretary may 
        waive part or all of the tax imposed by subsection (a) to the 
        extent that payment of the tax would be excessive relative to 
        the failure involved.
    ``(c) Additional Responsibilities.--The requirements of this 
subsection are as follows:
            ``(1) Requirements of model provisions.--
                    ``(A) Model regulation.--The following requirements 
                of the model regulation must be met:
                            ``(i) Section 13 (relating to application 
                        forms and replacement coverage).
                            ``(ii) Section 14 (relating to reporting 
                        requirements), except that the issuer shall 
                        also report at least annually the number of 
                        claims denied during the reporting period for 
                        each class of business (expended as a 
                        percentage of claims denied), other than claims 
                        denied for failure to meet the waiving period 
                        or because of any applicable pre-existing 
                        condition.
                            ``(iii) Section 20 (relating to filing 
                        requirements for marketing).
                            ``(iv) Section 21 (relating to standards 
                        for marketing), including inaccurate completion 
                        of medical histories, other than section 
                        21C(1), 21(C)(3) and 21C(6) thereof, except 
                        that--
                                    ``(I) in addition to such 
                                requirements, no person shall in 
                                selling or offering to sell a long-term 
                                care insurance policy, misrepresent a 
                                material fact;
                                    ``(II) no such requirements shall 
                                include a requirement to inquire or 
                                identify whether a prospective 
                                applicant or enrollee for long-term 
                                care insurance has accident and 
                                sickness insurance; and
                                    ``(III) the association shall 
                                disclose in any long-term care 
                                insurance solicitation the amount of 
                                compensation that the association 
                                receives from endorsement or sale of 
                                the policy or certificate to its 
                                members, expressed as a percentage of 
                                annual premium generated by such 
                                policies.
                            ``(v) Section 22 (relating to 
                        appropriateness of recommended purchase).
                            ``(vi) Section 24 (relating to standard 
                        format outline of coverage).
                            ``(vii) Section 25 (relating to requirement 
                        to deliver shopper's guide).
                    ``(B) Model act.--The following requirements of the 
                model Act must be met:
                            ``(i) Section 6F (relating to right to 
                        return), except that such section shall also 
                        apply to denials of applications and any refund 
                        shall be made within 30 days of the return or 
                        denial.
                            ``(ii) Section 6G (relating to outline of 
                        coverage).
                            ``(iii) Section 6H (relating to 
                        requirements for certificates under group 
                        plans).
                            ``(iv) Section 6I (relating to policy 
                        summary).
                            ``(v) Section 6J (relating to monthly 
                        reports on accelerated death benefits).
                            ``(vi) Section 7 (relating to 
                        incontestability period).
                    ``(C) Definitions.--For purposes of this paragraph, 
                the terms `model regulation' and `model Act' have the 
                meanings given such terms by section 7702B(f)(2)(B).
            ``(2) Delivery of policy.--If an application for a long-
        term care insurance policy (or for a certificate under a group 
        long-term care insurance policy) is approved, the issuer shall 
        deliver to the applicant (or policyholder or certificate-
        holder) the policy (or certificate) of insurance not later than 
        30 days after the date of the approval.
            ``(3) Information on denials of claims.--If a claim under a 
        long-term care insurance policy is denied, the issuer shall, 
        within 60 days of the date of a written request by the 
        policyholder or certificate-holder (or representative)--
                    ``(A) provide a written explanation of the reasons 
                for the denial, and
                    ``(B) make available all information directly 
                relating to such denial except in cases where such 
                issuer would be prohibited from providing information 
                regarding claims denial under confidentiality statues 
                or other state or Federal laws.
    ``(d) Disclosure.--The requirements of this subsection are met if 
either of the following statements, whichever is applicable, is 
prominently displayed on the front page of any long-term care insurance 
policy and in the outline of coverage required under subsection 
(c)(1)(B)(ii):
            ``(1) A statement that: `This policy is intended to be a 
        qualified long-term care insurance contract under section 
        7702B(b) of the Internal Revenue Code of 1986.'.
            ``(2) A statement that: `This policy is not intended to be 
        a qualified long-term care insurance contract under section 
        7702B(b) of the Internal Revenue Code of 1986.'.
    ``(e) Long-Term Care Insurance Policy Defined.--For purposes of 
this section:
            ``(1) In general.--The term `long-term care insurance 
        policy' means any insurance policy or rider advertised, 
        marketed, offered, or designed to provide coverage for not less 
        than 12 consecutive months for each covered person--
                    ``(A) on an expense incurred, indemnity, prepaid or 
                other basis, and
                    ``(B) for one or more necessary diagnostic, 
                preventive, therapeutic, rehabilitative, maintenance or 
                personal care services, provided in a setting other 
                than an acute care unit of a hospital.
            ``(2) Certain policies included.--Such term includes--
                    ``(A) group and individual annuities and life 
                insurance policies or riders which provide coverage 
                directly or which supplement long-term care insurance, 
                and
                    ``(B) a policy or rider which provides for payment 
                of benefits based upon cognitive impairment or the loss 
                of functional capacity.
            ``(3) Insurance.--A long-term care insurance may be issued 
        by insurers, fraternal benefit societies, nonprofit health, 
        hospital and medical service corporations, prepaid health 
        plans, health maintenance organizations, or any similar 
        organization to the extent such organizations are otherwise 
        authorized to issue life or health insurance.
            ``(4) Exclusions.--
                    ``(A) In general.--A long-term care insurance 
                policy shall not include any insurance policy which is 
                offered primarily to provide basic medicare supplement 
                coverage, basic hospital expense coverage, basic 
                medical-surgical expense coverage, hospital confinement 
                indemnity coverage, major medical expense coverage, 
                disability income or related asset-protection coverage, 
                accident only coverage, specified disease or specified 
                accident coverage, or limited benefit health coverage.
                    ``(B) Life insurance.--A long-term care insurance 
                policy shall not include coverage provided under a life 
                insurance policy which accelerates the death benefit 
                specifically for one or more of the qualifying events 
                of terminal illness, medical conditions requiring 
                extraordinary medical intervention, or permanent 
                institutional confinement, and which provides the 
                option of a lump-sum payment for those benefits and in 
                which neither the benefits nor the eligibility for the 
                benefits is conditioned upon the receipt of long-term 
                care.''.
    (b) Clerical Amendment.--The table of sections for chapter 43 of 
such Code is amended by adding at the end the following new item:

``Sec. 4980C. Failure to meet requirements for long-term care insurance 
                            policies.''.
SEC. 204. RELATION TO STATE LAW.

    Insurance policies which have been deemed in compliance with the 
requirements of this title and the Internal Revenue Code of 1986 (as 
amended by this title) by the State Insurance Commissioner in the State 
of domicile shall be deemed approved for sale in any other State. No 
State may prohibit an insurance carrier from selling outside the State 
of domicile long-term care insurance policies which have been approved 
in the State of domicile. A determination by a State Insurance 
Commissioner under this section shall not be binding on the Secretary 
of the Treasury.

SEC. 205. UNIFORM LANGUAGE AND DEFINITIONS.

    (a) Recommendations.--The National Long-Term Care Insurance 
Advisory Council shall develop recommendations for the use of uniform 
language and definitions in long-term care insurance policies (as 
defined in section 4980C(e) of the Internal Revenue Code of 1986) for 
approval by Congress.
    (b) Use of Nonuniform Language.--The recommendations developed 
under subsection (a) may permit the use of nonuniform language to the 
extent required to take into account differences among States in the 
licensing of nursing facilities and other providers of long-term care.

SEC. 206. EFFECTIVE DATES.

    (a) In General.--Except as provided in subsection (b), this title 
and the amendments made by this title shall take effect on the date of 
the enactment of this Act.
    (b) Section 202.--The amendments made by section 202 shall apply--
            (1) to contracts issued in taxable years beginning after 
        the date of the enactment of this Act; and
            (2) to actions taken in taxable years beginning after the 
        date of the enactment of this Act.
               TITLE III--FINANCIAL ELIGIBILITY STANDARDS

SEC. 301. REVISIONS TO FINANCIAL ELIGIBILITY PROVISIONS.

    Section 1902(a) of the Social Security Act (42 U.S.C. 1396a(a)) is 
amended--
            (1) in paragraph (17)(C), by inserting ``subject to 
        subsection (z),'' before ``provide''; and
            (2) by adding at the end the following new subsection:
    ``(z)(1) For purposes of subsection (a)(17)(C), notwithstanding any 
other provision of this title, the resources of an individual, and the 
spouse of such individual, which shall be used to determine financial 
eligibility for nursing facility services under this title shall 
include--
            ``(A) all of the real property owned by the individual, 
        including but not limited to, the individual's primary 
        residence;
            ``(B) all personal property of the individual, including 
        but not limited to, any automobiles owned by the individual; 
        and
            ``(C) all liquid assets held by the individual, including 
        but not limited to, the asset value of any trust established by 
        such individual.
    ``(2)(A) An individual shall not be eligible for nursing facility 
services under this title if the total value of the resources owned by 
the individual (individually or jointly with his or her spouse, if any) 
exceeds the value of the median price of a home in the geographic 
region in which such individual resides.
    ``(B) For purposes of subparagraph (A), the Secretary shall 
establish a valuation system for single family homes in appropriate 
geographic regions, taking appropriate account of the variation in 
values between urban and rural areas. The valuation system established 
by the Secretary shall be updated annually.
    ``(C) Subparagraph (A) shall apply for a couple in the same manner 
as such subparagraph applies for an individual where one member of the 
couple applies for nursing facility services under this title.
    ``(D) For purposes of determining the total value of resources in 
paragraph (A), the value of resources held jointly with the 
individual's spouse shall be considered available to the individual 
applying for medical assistance as determined under section 1924(d)(2).
    ``(3) No provision under this subsection shall affect the community 
spouse protections contained in section 1924.
    ``(4) The Secretary shall provide grants to States for 
demonstration projects to investigate the coordination of private long-
term care insurance benefits and financial eligibility requirements 
under this title. Such demonstration projects shall include, but not be 
limited to, investigations of--
            ``(A) a State policy which subtracts the amounts paid by an 
        individual for private long-term care insurance from the 
        individual's resources which are counted to determine financial 
        eligibility; and
            ``(B) a State policy which provides purchasers of private 
        long-term care insurance with impoverishment protections by 
        using medicaid as reinsurance.
    ``(5) Eligibility requirements under paragraphs (1) through (4) of 
this subsection shall not apply to services provided under this title 
other than nursing facility services.''.

SEC. 302. EFFECTIVE DATE.

    The amendments made by this title shall be effective January 1, 
1996.

                       TITLE IV--ASSET TRANSFERS

SEC. 401. TRANSFERS OF ASSETS.

    Section 1917(c)(1)(B)(i) of the Social Security Act (42 U.S.C. 
1396p(c)(1)(B)(i)) is amended to read as follows:
            ``(B)(i) The look-back date specified in this subparagraph 
        is a date that is 60 months before the date specified in clause 
        (ii).''.

SEC. 402. TREATMENT OF CERTAIN TRUSTS.

    Section 1917(c)(2) of the Social Security Act (42 U.S.C. 
1396p(c)(2)) is amended by adding at the end the following new flush 
sentences:
``In order for the income or assets of an income cap trust, nonprofit 
asset trust or other such trust arrangement to be exempt under this 
paragraph, the trust must be irrevocable and all amounts remaining in 
the beneficiary's account must be paid to the State upon the death of 
the beneficiary. For purposes of this section, the term `trust' shall 
not include a personal service contract annuity for a family member 
within the 60-month period even if such transfer is for fair market 
value. The Secretary shall prohibit, by regulation, the use of family 
limited partnerships to convert available assets into an exempt status; 
purchases of interests in third-party assets for the purpose of 
rendering otherwise includable assets unavailable, and not subject to 
liens; and purchase of care services agreements for past services by 
family members to reduce countable assets.''.

SEC. 403. EFFECTIVE DATE.

    The amendments made by this title shall be effective January 1, 
1996.

                         TITLE V--MISCELLANEOUS

         Subtitle A--Subacute Care Continuum Amendments of 1995

SEC. 500. SHORT TITLE.

    This subtitle may be cited as the ``Subacute Care Continuum 
Amendments of 1995''.

SEC. 501. CREATION OF A ``LEVEL PLAYING FIELD'' TO ENCOURAGE THE 
              DEVELOPMENT OF SUBACUTE CARE PROVIDERS.

    (a) Skilled Nursing Facilities Under the Medicare Program.--
            (1) In general.--Section 1819(a) of the Social Security Act 
        (42 U.S.C. 1395i-3(a)) is amended by adding at the end the 
        following new flush sentences:
``Nothing in this title shall be construed to prohibit, or otherwise 
limit, a skilled nursing facility from offering or providing subacute 
care services. Any requirements relating to the provision of such 
services as may be prescribed by the Secretary or the States shall not 
include any term or condition forbidding, or otherwise limiting, such 
facility from so qualifying based on its status as a skilled nursing 
facility. As used in this subsection, a patient needing `subacute care 
services' has had an acute event as a result of an illness, injury, or 
exacerbation of a disease process; has a determined course of 
treatment; does not require intensive diagnostic or invasive 
procedures; and has a severe condition requiring an outcome-focused, 
interdisciplinary approach utilizing a professional team to deliver 
complex clinical interventions (medical or rehabilitative or both) and 
a higher frequency of physical visits than traditional extended or 
skilled nursing care.''.
            (2) Conforming amendments.--
                    (A) Section 1861(v)(1)(E) of the Social Security 
                Act (42 U.S.C. 1395x(v)(1)(E)) is amended by inserting 
                ``, including subacute care services furnished by such 
                facilities'' in the first sentence after ``services'' 
                the second place it appears.
                    (B) Section 1888(c) of the Social Security Act (42 
                U.S.C. 1395yy(c)) is amended by inserting ``(including 
                the provision of subacute care services by such 
                facility)'' after ``case mix''.
            (3) Effective date.--The amendments made by this subsection 
        shall be effective on the date of the enactment of this Act.
    (b) Nursing Facilities Under the Medicaid Program.--
            (1) In general.--Section 1919(a) of the Social Security Act 
        (42 U.S.C. 1396r(a)) is amended by inserting after the last 
        sentence the following new sentences: ``Nothing in this title 
        shall be construed to prohibit, or otherwise limit, a skilled 
        nursing facility from offering or providing subacute care 
        services. Any requirements relating to the provision of such 
        services as may be prescribed by the Secretary or the States 
        shall not include any term or condition forbidding, or 
        otherwise limiting, such facility from so qualifying based on 
        its status as a skilled nursing facility. As used in this 
        subsection, a patient needing `subacute care services' has had 
        an acute event as a result of an illness, injury, or 
        exacerbation of a disease process; has a determined course of 
        treatment; does not require intensive diagnostic or invasive 
        procedures; and has a severe condition requiring an outcome-
        focused, interdisciplinary approach utilizing a professional 
        team to deliver complex clinical interventions (medical or 
        rehabilitative or both) and a higher frequency of physical 
        visits than traditional nursing facility care.''.
            (2) Conforming amendments.--Section 1902(a)(13)(A) of the 
        Social Security Act (42 U.S.C. 1396a(a)(13(A)) is amended--
                    (A) by inserting ``, subacute care services 
                furnished by a nursing facility'' after ``nursing 
                facility services'' ; and
                    (B) by inserting ``nursing facility furnishing 
                subacute care services,'' after ``the filing of uniform 
                cost reports by each hospital, nursing facility,''.
            (3) Effective date.--The amendments made by this subsection 
        shall be effective on the date of the enactment of this Act.

SEC. 502. EXCEPTION PROCESS FROM MEDICARE ROUTINE COST LIMITS.

    (a) Interim Exception.-- Section 1888 of the Social Security Act 
(42 U.S.C. 1395yy) is amended by adding at the end the following new 
subsection:
    ``(e) Effective January 1, 1997, regardless of the issuance of 
final regulations, with respect to any limits on the reasonable costs 
of providing subacute care services, the Secretary shall grant any 
skilled nursing facility providing subacute care services an interim 
exception within 90 days of submission of a request for such exception, 
subject to such procedures and accompanied by such data and such 
documentation as the Secretary shall determine by regulation. The 
Secretary shall finalize such interim exception based upon settled data 
at the end of the applicable cost reporting period. Upon finalization 
of the exception request, the Secretary shall be responsible for 
reimbursement of any underpayment, and the skilled nursing facility 
shall be responsible for reimbursement of any overpayment within 30 
days of such finalization, subject to such guarantees as the Secretary 
shall determine by regulation.''.
    (b) Payment Option.--Notwithstanding any other provision of, or 
amendment made by this title, a nursing facility that has obtained an 
exception from the routine cost limits for providing subacute care 
under section 1888(e) of the Social Security Act (as added by 
subsection (a)), before the effective date specified by section 507(b), 
shall have the option of continuing to receive payments in accordance 
with such exception for not more than 12 months after such date.

SEC. 503. PHYSICIAN VISITS AND CONSULTATIONS FOR MEDICARE PATIENTS IN 
              SKILLED NURSING FACILITIES.

    Section 1848(b) of the Social Security Act (42 U.S.C. 1395w-4(b)) 
is amended by--
            (1) redesignating paragraphs (2) and (3) as paragraphs (3) 
        and (4), respectively; and
            (2) inserting after paragraph (1) the following new 
        paragraph:
            ``(2) Treatment of physician visits to subacute care 
        patient in a skilled nursing facility.--Not later than January 
        1 of each year (beginning in 1997 and regardless of the 
        issuance of final regulations), the Secretary shall establish 
        by regulation, fee schedules that establish amounts for 
        physician visits to a subacute care patient in a skilled 
        nursing facility that shall be the same as if the physician 
        visited such subacute care patient in a hospital.''.

SEC. 504. COVERAGE OF RESPIRATORY THERAPY SERVICES IN SKILLED NURSING 
              FACILITIES UNDER THE MEDICARE PROGRAM.

    (a) Extended Care Services.--Section 1861(h)(3) of the Social 
Security Act (42 U.S.C. 1395x(h)) is amended by striking ``or 
occupational'' and inserting ``occupational, or respiratory''.
    (b) Reasonable Cost.--Section 1861(v)(5)(A) of the Social Security 
Act (42 U.S.C. 1395x(v)(5)(A)) is amended by inserting ``(other than 
respiratory therapy services)'' after ``other therapy services''.
SEC. 505. DRGS APPROPRIATE FOR SUBACUTE CARE IN SKILLED NURSING 
              FACILITIES.

    (a) Review.--Not later than October 1, 1996, the Secretary shall 
review the provision of subacute care by skilled nursing facilities and 
determine which hospital diagnosis-related groups (hereafter in this 
section referred to as ``DRGs'') are appropriate for skilled nursing 
facilities that provide such care, and the appropriate hospitalizations 
and co-payments for such DRGs.
    (b) Publication.--Not later than October 1, 1997, the Secretary 
shall publish a list of applicable DRGs with appropriate 
hospitalizations and co-payments, and rebase medicare payments for such 
groups to reflect the lower cost of such care provided in skilled 
nursing facilities.

SEC. 506. SUBACUTE CARE SERVICES UNDER TITLE XIX.

    It is the sense of the Congress that--
            (1) States are encouraged to develop payment methodologies 
        under section 1902(a)(13) of the Social Security Act (42 U.S.C. 
        1396a(a)(13)), for nursing facilities which provide subacute 
        care to medicaid patients; and
            (2) Federal funding should be available for nursing 
        facilities which provide subacute care to medicaid patients.

SEC. 507. EFFECTIVE DATE.

    (a) In General.--Except as otherwise provided in this title and 
subsection (b), the provisions of, and the amendments made by, this 
title shall be effective January 1, 1997.
    (b) Exception.--Subacute classifications established under the 
provisions of, and amendments made by, this title shall be effective 
not later than October 1, 1997.

   Subtitle B--Establishment of Program for Home and Community-based 
           Services for Certain Individuals With Disabilities

SEC. 511. SHORT TITLE.

    This subtitle may be cited as the ``Home and Community-Based 
Services for Individuals with Disabilities Program Amendments of 
1995''.

SEC. 512. ESTABLISHMENT OF PROGRAM.

    Title XIX of the Social Security Act (42 U.S.C. 1396 et seq.) is 
amended by redesignating section 1931 as section 1932 and by inserting 
after section 1931 the following new section:

 ``home and community-based services for individuals with disabilities

    ``Sec. 1932. (a) In General.--There is hereby established a program 
under which States will be required to provide home and community-based 
services as described in this section on behalf of individuals with 
disabilities who meet the requirements described in this section. This 
program is established notwithstanding any other provisions of this 
title, and such services must be provided to all such individuals by a 
State that has an approved State plan under this title. The State shall 
not have responsibility to cover such services under this title to the 
extent that such services are provided to an individual under any other 
public programs. All provisions of this title shall be applicable to 
the program established under this section except to the extent such 
provisions are inconsistent with this section.
    ``(b) Eligibility.--
            ``(1) Individuals with disabilities defined.--In this 
        section, the term `individual with disabilities' means any 
        individual who falls within one or both of the following 2 
        categories of individuals:
                    ``(A) Individuals requiring help with activities of 
                daily living.--An individual of any age who--
                            ``(i) requires hands-on or standby 
                        assistance, supervision, or cueing (as defined 
                        in regulations) to perform 3 or more activities 
                        of daily living (as defined in paragraph (2)), 
                        and
                            ``(ii) is expected to require such 
                        assistance, supervision, or cueing over a 
                        period of at least 100 days.
                    ``(B) Individuals with moderate cognitive or mental 
                impairment.--An individual of any age--
                            ``(i) whose score, on a standard mental 
                        status protocol (or protocols) appropriate for 
                        measuring the individual's particular condition 
                        specified by the Secretary, indicates either 
                        moderate cognitive impairment or moderate 
                        mental impairment, or both;
                            ``(ii) who displays symptoms of one or more 
                        serious behavioral problems (that is on a list 
                        of such problems specified by the Secretary) 
                        which create a need for supervision to prevent 
                        harm to self or others; and
                            ``(iii) who is expected to meet the 
                        conditions of clauses (i) or (ii) over a period 
                        of at least 100 days.
                    ``(2) Activity of daily living defined.--In this 
                section, the term `activity of daily living' means any 
                of the following: eating, toileting (dressing and 
                bathing), transferring, and mobility.
    ``(c) Screening.--
            ``(1) Initial screening.--The State shall provide for an 
        initial screening of all individuals who appear to have some 
        reasonable likelihood of being an individual with disabilities. 
        Such a screening may be conducted by a qualified case manager, 
        or by any other person or entity designated by the State under 
        criteria specified by the Secretary. Such assessment shall be 
        conducted using a uniform protocol specified by the Secretary. 
        A State may specify the collection of addition information, or 
        an alternative protocol, if approved in advance by the 
        Secretary. Such assessment shall include, at a minimum an 
        assessment of the individual's--
                    ``(A) ability or inability to perform any 
                activities of daily living;
                    ``(B) health status;
                    ``(C) mental status;
                    ``(D) current living arrangement; and
                    ``(E) use of formal and informal long-term care 
                support systems.
            ``(2) Periodic reassessment.--For any individual who 
        receives services under this program, the State shall arrange 
        for a reassessment of the individual's need for services under 
        this section after a significant change in an individual's 
        condition that may affect the individual's need for such 
        services, within 6 months of the most recent assessment, or for 
        a longer period in cases where the occurrence of a significant 
        change in an individual's condition that may affect such 
        determination is unlikely.
    ``(d) Care Plan Development.--
            ``(1) In general.--The State shall assign a qualified case 
        manager to any individual who qualifies for coverage under this 
        section. The qualified case manager shall arrange for the 
        development of, or develop, an individualized written plan of 
        care based upon the comprehensive assessment. The care plan 
        shall be developed under any criteria that may
         be specified by the State based upon any criteria that the 
Secretary may specify. At a minimum, such plan shall identify--
                    ``(A) the long-term problems and needs of the 
                individual;
                    ``(B) the mix of formal and informal services and 
                support systems that are available to meet the long-
                term care and service needs of the individual;
                    ``(C) goals for the individual which shall be 
                measurable to the extent practicable;
                    ``(D) the appropriate services necessary to meet 
                such needs; and
                    ``(E) the manner in which covered services will be 
                provided.
            ``(2) Provision of services.--
                    ``(A) Covered services.--The qualified case 
                manager, in consultation with the individual, the 
                individual's family and the individual's primary 
                medical care provider, shall arrange for, or provide, 
                the appropriate covered services in a cost-effective 
                manner, consistent with obtaining quality care. The 
                qualified case manager also shall assist in making the 
                necessary arrangements for the delivery of such 
                services and the implementation of the care plan.
                    ``(B) Non-covered services.--The State may require 
                the qualified case manager to assist the individual in 
                obtaining non-covered services, at the individual's own 
                expense, or through other programs that may be 
                available. Nothing in this section shall be construed 
                to make the State responsible for payment under this 
                section for any services that are not covered services, 
                as defined in subsection (f)(1), or from prohibiting 
                the individual, or other individuals, from paying for 
                non-covered services or services in excess of the 
                amount or type approved by the case manager.
                    ``(C) Individual choice.--The acceptance of 
                benefits under this provision is a voluntary choice of 
                the individual or his or her representative. Nothing in 
                this section shall be construed to require an 
                individual to accept the services available under this 
                section, or to accept benefits under this section 
                instead of entering a nursing facility, skilled nursing 
                facility, or intermediate care facility for the 
                mentally retarded. An individual shall not be denied 
                other covered services under this section solely 
                because he or she refuses to accept one such covered 
                service, unless the failure to accept that one covered 
                service would vitiate the effectiveness of the other 
                covered services, and no cost-effective alternative 
                acceptable to the individual is reasonably available. 
                To the extent possible, the case manager shall follow 
                the choice of an individual with disabilities regarding 
                which covered services to receive and the providers who 
                will provide such services.
            ``(3) Coordination.--The plan shall specify how the plan 
        will integrate services provided under this section with 
        services provided under titles V and XX of this Act and the 
        Housing and Urban Development Act, programs under the Older 
        Americans Act of 1965, and any other Federal or State programs 
        that provide services or assistance targeted to the aged and 
        individuals with disabilities.
            ``(4) Involvement of individuals.--The qualified case 
        manager shall be responsible for arranging for the involvement 
        of appropriate persons in the comprehensive assessment and 
        development of the plan of care. In addition, the plan of care 
        shall be developed and implemented in close consultation with 
        the individual and individual's family.
            ``(5) Care plan monitoring.--The qualified case manager 
        shall monitor the delivery of services to the individual, the 
        quality of care provided, and the status of individual. 
        Periodic reassessments of the status and needs of the 
        individual, and revisions of the care plan, shall be made by 
        the qualified case manager as appropriate. Such reassessments 
        shall be conducted not less than every 6 months. If the 
        individual is no longer eligible for benefits as a result of 
        improved health conditions or death, the qualified case 
        manager, in consultation with the individual's primary medical 
        care provider, shall discharge the case.
            ``(6) Qualified case manager.--In this section, the term 
        `qualified case manager' means a person or entity which--
                    ``(A) provides case management services to an 
                individual who is eligible for home and community-based 
                services;
                    ``(B) is not a relative of the individual receiving 
                such case management services;
                    ``(C) has experience in assessing individuals' 
                functional and cognitive impairment;
                    ``(D) has experience or has been trained in 
                establishing, and in periodically reviewing and 
                revising, individual community care plans, and in the 
                provision of case management services to individuals 
                who are eligible for home and community-based services 
                under this section;
                    ``(E) completes the individual care plan in a 
                timely manner and reviews and discusses new and revised 
                individual care plans with the individual or such 
                individual's representative or both; and
                    ``(F) meets such other standards established by the 
                Secretary or the State which may include standards 
                which assure--
                            ``(i) the quality of the case management 
                        services; and
                            ``(ii) that individuals whose home and 
                        community-based services such person or entity 
                        manages are not at risk of financial 
                        exploitation due to such a manager.
            ``(7) Relative defined.--In this section, the term 
        `relative' means an individual bearing a relationship to 
        another individual which is described in paragraphs (1) through 
        (8) of section 152(a) of the Internal Revenue Code of 1986.
    ``(e) Types of Providers and Requirements for Participation.--
            ``(1) In general.--The State plan shall specify--
                    ``(A) the types of services eligible to participate 
                in the program under the plan; and
                    ``(B) any requirements for participation applicable 
                to each type of service provider.
            ``(2) Service provider defined.--In this section, the term 
        `service provider' means a provider who is licensed under State 
        law or who meets other criteria as the Secretary or State may 
        specify.
    ``(f) Covered Services.--
            ``(1) In general.--In this section, the term `covered 
        services' includes--
                    ``(A) case management;
                    ``(B) adult day services;
                    ``(C) habilitation and rehabilitation services;
                    ``(D) home health care;
                    ``(E) respite services; and
                    ``(F) hospice services.
            ``(2) Delivery of services.--Subject to the limits in 
        subsection (g), covered services may be delivered in an 
        individual's home, a range of community residential 
        arrangements, or outside the home.
            ``(3) Amount, scope, and duration.--In establishing the 
        amount, scope, and duration of services required to be 
        provided, covered services shall be treated as required 
        services under this title.
    ``(g) Exclusions and Limitations.--
            ``(1) In general.--The following are specifically excluded 
        from coverage under this section:
                    ``(A) Room and board.
                    ``(B) Items or services otherwise covered to the 
                extent that such items or services are covered under an 
                insurance plan or program other than a State health 
                program.
                    ``(C) Services provided to an individual who 
                otherwise would be institutionalized in a nursing 
                facility or intermediate care facility for the mentally 
                retarded, unless the State, or if delegated, the 
                qualified case manager reasonably estimates (under 
                methods specified by the Secretary) that the cost of 
                covered services under this section would be lower than 
                if the individual were so institutionalized.
                    ``(D) Services specified in the plan of care which 
                are not specified as covered services under subsection 
                (f)(1).
            ``(2) Taking into account informal care.--A State plan may 
        take into account, in determining the amount and array of 
        services made available to covered individuals with 
        disabilities, the availability of informal care.
    ``(h) Maintenance of Effort.--The State plan shall provide 
assurances that, in the case of an individual receiving medical 
assistance for home and community-based services under this title as of 
the date of the enactment of this section, the State will continue to 
make available (either under this title or otherwise) to such 
individual an appropriate level of assistance for home and community-
based services, taking into account the level of assistance provided as 
of such date and the individual's need for home and community-based 
services.
    ``(i) Quality Assurance and Safeguards.--
            ``(1) Quality assurance.--The State shall ensure and 
        monitor the quality of services, including--
                    ``(A) safeguarding the health and safety of 
                individuals with disabilities;
                    ``(B) establishing minimum standards for care 
                managers and providers and enforcing those standards;
                    ``(C) establishing the minimum competency 
                requirements for provider employees who provide direct 
                services under this section and how the competency of 
                such employees will be enforced;
                    ``(D) obtaining meaningful consumer input, 
                including consumer surveys that measure the extent to 
                which participants receive the services described in 
                the plan of care and participant satisfaction with such 
                services;
                    ``(E) participation in quality assurance 
                activities; and
                    ``(F) specifying the role of the long-term care 
                ombudsman (under the Older Americans Act of 1965) and 
                the Protection and Advocacy Agency (under the 
                Developmental Disabilities Assistance and Bill of 
                Rights Act) in assuring quality of services and 
                protecting the rights of individuals with disabilities.
            ``(2) Safeguards.--
                    ``(A) Confidentiality.--The State shall provide 
                safeguards which restrict the use or disclosure of 
                information concerning applicants and beneficiaries to 
                purposes directly connected with the administration of 
                the program.
                    ``(B) Safeguards against abuse.--The State shall 
                provide safeguards against physical, emotional, or 
                financial abuse or exploitation in the provision of 
                care management and covered services.
    ``(j) Provider Reimbursement.--
            ``(1) Payment methods.--The State shall specify the payment 
        methods to be used to reimburse providers and case managers for 
        services furnished under the plan. Such methods may include 
        reimbursement on a fee-for-service basis, prepayment on a 
        capitation basis, or a combination of these methods. The State, 
        if it chooses, may provide the case manager with authority to 
        negotiate rates with individual providers.
            ``(2) Payment rates.--The State shall specify the methods 
        and criteria to be used to set payment rates for services 
        furnished under the plan. In addition to any other 
        requirements, such payments must be sufficient to ensure that 
        the requirements of 1902(a)(30)(A) are satisfied.
            ``(3) Payment in full.--Except as specified in subsection 
        (d)(2)(B), the State shall restrict payment for covered 
        services to those providers that agree to accept the payment 
        under the plan (at rates established pursuant to subparagraph 
        (2)) as payment in full for services furnished under this 
        section.
    ``(k) Approval of State Plan Amendments.--Each State shall take 
whatever action is necessary to have an amendment to its State plan 
under this title approved by October 1, 1997, that implements this 
section for that State not later than October 1, 1998, except that 
where an Act of the State legislature is necessary to effectuate such 
State plan amendment and said legislature is not in session as of the 
date of the enactment of this section, the State shall have said 
amendment approved not later than 6 months after the commencement of 
the session of its legislature that begins immediately subsequent to 
such date of enactment, if such date is later than October 1, 1997.''.

SEC. 513. INCREASED RESOURCE DISREGARDS FOR NURSING FACILITY RESIDENTS.

    Section 1902(a)(10) of the Social Security Act (42 U.S.C. 
1396a(a)(10)) is amended--
            (1) by striking ``and'' at the end of subparagraph (E);
            (2) by inserting ``and'' at the end of subparagraph (F); 
        and
            (3) by inserting after subparagraph (F) the following new 
        subparagraph:
                    ``(G) that, in determining the eligibility of any 
                individual who is an inpatient in a nursing facility or 
                intermediate care facility for the mentally retarded, 
                in the case of an unmarried individual, the first 
                $12,000 of resources shall be disregarded.''.

     Subtitle C--Prospective Payment System for Nursing Facilities

SEC. 521. SHORT TITLE.

    This subtitle may be cited as the ``Prospective Payment System for 
Nursing Facilities Amendments of 1995''.

SEC. 522. DEFINITIONS.

    For purposes of this subtitle, the following definitions shall 
apply:
            (1) Acuity payment.--The term ``acuity payment'' means a 
        fixed amount that will be added to the facility-specific prices 
        for certain resident classes designated by the Secretary as 
        requiring heavy care.
            (2) Aggregated resident invoice.--The term ``aggregated 
        resident invoice'' means a compilation of the per resident 
        invoices of a nursing facility which contain the number of 
        resident days for each resident and the resident class of each 
        resident at the nursing facility during a particular month.
            (3) Allowable costs.--The term ``allowable costs'' means 
        costs which HCFA has determined to be necessary for a nursing 
        facility to incur according to the Provider Reimbursement 
        Manual (hereafter in this subtitle referred to as ``HCFA-Pub. 
        15'').
            (4) Base year.--The term ``base year'' means the most 
        recent cost reporting period (consisting of a period which is 
        12 months in length, except for facilities with new owners, in 
        which case the period is not less than 4 months nor more than 
        13 months) for which cost data of nursing facilities is 
        available to be used for the determination of a prospective 
        rate.
            (5) Case mix weight.--The term ``case mix weight'' means 
        the total case mix score of a facility calculated by 
        multiplying the resident days in each resident class by the 
        relative weight assigned to each resident class, and summing 
        the resulting products across all resident classes.
            (6) Complex medical equipment.--The term ``complex medical 
        equipment'' means items such as ventilators, intermittent 
        positive pressure breathing (IPPB) machines, nebulizers, 
        suction pumps, continuous positive airway pressure (CPAP) 
        devices, and bead beds such as air fluidized beds.
            (7) Distinct part nursing facility.--The term ``distinct 
        part nursing facility'' means an institution which has a 
        distinct part that is certified under title XVIII of the Social 
        Security Act and meets the requirements of section 201.1 of the 
        Skilled Nursing Facility Manual published by HCFA (hereafter in 
        this subtitle referred to as ``HCFA-Pub. 12'').
            (8) Efficiency incentive.--The term ``efficiency 
        incentive'' means a payment made to a nursing facility in 
        recognition of incurring costs below a prespecified level.
            (9) Fixed equipment.--The term ``fixed equipment'' means 
        equipment which meets the definition of building equipment in 
        section 104.3 of HCFA-Pub. 15, and includes attachments to 
        buildings such as wiring, electrical fixtures, plumbing, 
        elevators, heating systems, and air conditioning systems.
            (10) Geographic ceiling.--The term ``geographic ceiling'' 
        means a limitation on payments in any given cost center for 
        nursing facilities in 1 of not less than 8 geographic regions, 
        further subdivided into rural and urban areas, as designated by 
        the Secretary.
            (11) Heavy care.--The term ``heavy care'' means an 
        exceptionally high level of care which the Secretary has 
        determined is required for residents in certain resident 
        classes.
            (12) HCFA.--The term ``HCFA'' means the Health Care 
        Financing Administration of the Department of Health and Human 
        Services.
            (13) Indexed forward.--The term ``indexed forward'' means 
        an adjustment made to a per diem rate to account for cost 
        increases due to inflation or other factors during an 
        intervening period following the base year and projecting such 
        cost increases for a future period in which the rate applies. 
        Indexing forward under this subtitle shall be determined from 
        the midpoint of the base year to the midpoint of the rate year.
            (14) Marshall swift segmented cost method.--The term 
        ``Marshall Swift segmented cost method'' means an appraisal 
        method published by the Marshall Swift Valuation Service.
            (15) Minimum data set.--The term ``minimum data set'' 
        (hereafter in this subtitle referred to as `MDS') means a 
        resident assessment instrument, currently recognized by HCFA, 
        in addition to any extensions to MDS, such as MDSs, as well as 
        any extensions to accommodate subacute care which contain an 
        appropriate core of assessment items with definitions and 
        coding categories needed to comprehensively assess a nursing 
        facility resident.
            (16) Major movable equipment.--The term ``major movable 
        equipment'' means equipment which meets the definition of major 
        movable equipment in section 104.4 of HCFA-Pub. 15, and 
        includes accounting machines, beds, wheelchairs, desks, 
        vehicles, and x-ray machines.
            (17) Nursing facility.--The term ``nursing facility'' means 
        an institution which meets the requirements of a ``skilled 
        nursing facility'' under section 1819(a) of the Social Security 
        Act (42 U.S.C. 1395i-3(a)) and a ``nursing facility'' under 
        section 1919(a) of the Social Security Act (42 U.S.C. 
        1396r(a)).
            (18) Per bed limit.--The term ``per bed limit'' means a per 
        bed ceiling on the fair asset value of a nursing facility for 
        one of the geographic regions designated by the Secretary.
            (19) Per diem rate.--The term ``per diem rate'' means a 
        rate of payment for the costs of covered services for a 
        resident day.
            (20) Relative weight.--The term ``relative weight'' means 
        the index of the value of the resources required for a given 
        resident class relative to the value of resources of either a 
        base resident class or the average of all the resident classes.
            (21) R. S. means index.--The term ``R. S. Means Index'' 
        means the index of the R. S. Means Company, Inc., specific to 
        commercial/industrial institutionalized nursing facilities, 
        which is based upon a survey of prices of common building 
        materials and wage rates for nursing facility construction.
            (22) Rebase.--The term ``rebase'' means the process of 
        updating nursing facility cost data for a subsequent rate year 
        using a more recent base year.
            (23) Rental rate.--The term ``rental rate'' means a 
        percentage that will be multiplied by the fair asset value of 
        property to determine the total annual rental payment in lieu 
        of property costs.
            (24) Resident classification system.--The term ``resident 
        classification system'' means a system which categorizes 
        residents into different resident classes according to 
        similarity of the assessed condition and required services of 
        such residents.
            (25) Resident day.--The term ``resident day'' means the 
        period of services for one resident, regardless of payment 
        source, for one continuous 24 hours of services. The day of 
        admission of the resident constitutes a resident day but the 
        day of discharge does not constitute a resident day. Bed hold 
        days are not to be considered resident days, and bed hold day 
        revenues are not to be offset.
            (26) Resource utilization groups, version iii.--The term 
        ``Resource Utilization Groups, Version III (hereafter in this 
        subtitle referred to as `RUG-III')'' means a category-based 
        resident classification system used to classify nursing 
        facility residents into mutually exclusive RUG-III groups. 
        Residents in each RUG-III group utilize similar quantities and 
        patterns of resources.
            (27) Secretary.--The term ``Secretary'' means the Secretary 
        of Health and Human Services.
SEC. 523. PAYMENT OBJECTIVES.

    Payment rates under the Prospective Payment System for Nursing 
Facilities shall reflect the following objectives:
            (1) To maintain an equitable and fair balance between cost 
        containment and quality of care in nursing facilities.
            (2) To encourage nursing facilities to admit residents 
        without regard to such residents' source of payment.
            (3) To provide an incentive to nursing facilities to admit 
        and provide care to persons in need of comparatively greater 
        care.
            (4) To maintain administrative simplicity for both nursing 
        facilities and the Secretary.
            (5) To encourage investment in buildings and improvements 
        to nursing facilities (capital formation) as necessary to 
        maintain quality and access.

SEC. 524. POWERS AND DUTIES OF THE SECRETARY.

    (a) Regulations.--The Secretary shall establish by regulation all 
rules and regulations necessary for the implementation of this 
subtitle. The rates determined under this subtitle shall reflect the 
objectives set forth in section 523.
    (b) Information.--The Secretary may require that each nursing 
facility file such data, statistics, schedules, or information as 
required to enable the Secretary to implement this subtitle.

SEC. 525. RELATIONSHIP TO TITLE XVIII OF THE SOCIAL SECURITY ACT.

    (a) No Effect on Medicare SNF's.--No provision in this subtitle 
shall replace, or otherwise affect, the skilled nursing facility 
benefit under title XVIII of the Social Security Act.
    (b) HCFA-Pub. 15.--The provisions of HCFA-Pub. 15 shall apply to 
the determination of allowable costs under this subtitle except to the 
extent that such provisions conflict with any other provision in this 
subtitle.

SEC. 526. ESTABLISHMENT OF RESIDENT CLASSIFICATION SYSTEM.

    (a) Establishment.--The Secretary shall establish a resident 
classification system which shall--
            (1) group residents into classes according to similarity of 
        the assessed condition and required services of such residents;
            (2) be modeled after the RUG-III system and all updated 
        versions of that system; and
            (3) be reflective of the necessary professional and 
        paraprofessional nursing staff time and costs required to 
        address the care needs of nursing facility residents.
    (b) Relative Weights.--
            (1) In general.--The Secretary shall assign a relative 
        weight for each resident class based on the relative value of 
        the resources required for each resident class. The assignment 
        of relative weights for resident classes shall be performed for 
        each geographic region as determined in accordance with 
        subsection (c).
            (2) Consideration of information.--In assigning the 
        relative weights of the resident classes in a geographic 
        region, the Secretary shall utilize information derived from 
        the most recent MDSs of all of the nursing facilities in a 
        geographic region.
            (3) Recalibration.--The relative weights of the resident 
        classes in each geographic region shall be recalibrated every 3 
        years based on any changes in the cost or amount of resources 
        required for the care of a resident in the resident class.
    (c) Designation of Geographic Regions.--
            (1) In general.--The Secretary shall designate not less 
        than 8 geographic regions for the total United States. Within 
        each geographic region, the Secretary shall take appropriate 
        account of variations in cost between urban and rural areas.
            (2) No peer grouping.--There shall be no peer grouping of 
        nursing facilities (based on whether the nursing facilities are 
        hospital-based or not) other than peer-grouping by geographic 
        region.

SEC. 527. COST CENTERS FOR NURSING FACILITY PAYMENT.

    (a) Determination of Payment Rates.--Consistent with the objectives 
set forth in section 523, the Secretary shall determine payment rates 
for nursing facilities using the following cost-service groupings:
            (1) The nursing service cost center shall include salaries 
        and wages for the Director of Nursing, Quality Assurance 
        Nurses, registered nurses, licensed practical nurses, nurse 
        aides (including wages related to initial and on-going nurse 
        aide training and other on-going or periodic training costs 
        incurred by nursing personnel), contract nursing, fringe 
        benefits and payroll taxes associated therewith, medical 
        records, and nursing supplies.
            (2) The administrative and general cost center shall 
        include all expenses (including salaries, benefits, and other 
        costs) related to administration, plant operation, maintenance 
        and repair, housekeeping, dietary (excluding raw food), central 
        services and supply (excluding medical supplies), laundry, and 
        social services.
            (3) Ancillary services to be paid on a fee-for-service 
        basis shall include physical therapy, occupational therapy, 
        speech therapy, respiratory therapy, hyperalimentation, and 
        complex medical equipment (CME). These fee-for-service 
        ancillary service payments under part A of title XVIII of the 
        Social Security Act shall not affect the reimbursement of 
        ancillary services under part B of title XVIII of the Social 
        Security Act.
            (4) The cost center for selected ancillary services and 
        other costs shall include drugs, raw food, medical supplies, IV 
        therapy, x-ray services, laboratory services, property tax, 
        property insurance, minor equipment, and all other costs not 
        included in the other 4 cost/service groupings.
            (5) The property cost center shall include depreciation on 
        the buildings and fixed equipment, major movable equipment, 
        motor vehicles, land improvements, amortization of leasehold 
        improvements, lease acquisition costs, and capital leases, 
        interest on capital indebtedness, mortgage interest, lease 
        costs, and equipment rental expense.
    (b) Prospective Payment.--Nursing facilities shall be paid a 
prospective, facility-specific, per diem rate based on the sum of the 
per diem rates established for the nursing service, administrative and 
general, and property cost centers as determined in accordance with 
sections 529, 530, and 533.
    (c) Unit Rates.--Nursing facilities shall be paid a facility-
specific prospective rate for each unit of the fee-for-service 
ancillary services as determined in accordance with section 531.
    (d) Reimbursement.--Nursing facilities shall be reimbursed for 
selected ancillary services and other costs on a retrospective basis in 
accordance with section 532.

SEC. 528. RESIDENT ASSESSMENT.

    (a) In General.--The nursing facility shall perform a resident 
assessment in accordance with section 1819(b)(3) of the Social Security 
Act (42 U.S.C. 1395i-3(a)) not later than 14 days after the date the 
resident is admitted, and at such other times as required by such 
section.
    (b) Use of Assessment.--The resident assessment shall be used to 
determine the resident class of each resident in the nursing facility 
for purposes of determining the per diem rate for the nursing service 
cost center in accordance with section 529.

SEC. 529. THE PER DIEM RATE FOR NURSING SERVICE COSTS.

    (a) Calculation of Rate.--
            (1) In general.--The nursing service cost center rate shall 
        be calculated using a prospective, facility-specific per diem 
        rate based on the nursing facility's case-mix weight and 
        nursing service costs during the base year.
            (2) Case-mix weight.--The case-mix weight of a nursing 
        facility shall be obtained by multiplying the number of 
        resident days in each resident class at a nursing facility 
        during the base year by the relative weight assigned to each 
        resident class in the appropriate geographic region. Once this 
        calculation is performed for each resident class in the nursing 
        facility, the sum of these products shall constitute the case-
        mix weight for the nursing facility.
            (3) Facility nursing unit value.--A facility nursing unit 
        value for the nursing facility for the base year shall be 
        obtained by dividing the nursing service costs for the base 
        year, which shall be indexed forward from the midpoint of the 
        base period to the midpoint of the rate period using the DRI 
        McGraw-Hill HCFA Nursing Home Without Capital Market Basket, by 
        the case-mix weight of the nursing facility for the base year.
            (4) Facility-specific nursing services price.--A facility-
        specific nursing services price for each resident class shall 
        be obtained by multiplying the lower of the indexed facility 
        unit value of the nursing facility during the base year or the 
        geographic ceiling, as determined in accordance with subsection 
        (b), by the relative weight of the resident class.
            (5) Designation of heavy care classes.--The Secretary shall 
        designate certain resident classes as requiring heavy care. An 
        acuity payment of 3 percent of the facility-specific nursing 
        services price shall be added on to the facility-specific price 
        for each resident class which the Secretary has designated as 
        requiring heavy care. The acuity payment is intended to provide 
        an incentive to nursing facilities to admit residents requiring 
        heavy care.
            (6) Per diem rate for nursing service cost.--The per diem 
        rate for the nursing service cost center for each resident in a 
        resident class shall constitute the facility-specific price, 
        plus the acuity payment where appropriate.
            (7) Annual rebasement.--The per diem rate for the nursing 
        service cost center, including the facility-specific price and 
        the acuity payment, shall be rebased annually.
            (8) Determination of payment amount.--To determine the 
        payment amount to a nursing facility for the nursing service 
        cost center, the Secretary shall multiply the per diem rate 
        (including the acuity payment) for a resident class by the 
        number of resident days for each resident class based on 
        aggregated resident invoices which each nursing facility shall 
        submit on a monthly basis.
    (b) Geographic Ceilings.--
            (1) In general.--The facility nursing unit value identified 
        in subsection (a)(3) shall be subjected to geographic ceilings 
        established for the geographic regions designated by the 
        Secretary in section 526(c).
            (2) Determination of ceiling.--
                    (A) For fiscal year 1997.--The geographic ceiling 
                shall be determined by first creating an array of 
                indexed facility unit values in a geographic region 
                from lowest to highest. Based on this array, the 
                Secretary shall identify a fixed proportion between the 
                indexed facility unit value of the nursing facility 
                which contained the medianth resident day in the array 
                (except as provided in subsection (b)(4)) and the 
                indexed facility unit value of the nursing facility 
                which contained the 95th percentile resident day in 
                that array during the first year of operation of the 
                Prospective Payment System For Nursing Facilities. The 
                fixed proportion (e.g., 1.1 times the median or 110 
                percent of the median) shall remain the same in 
                subsequent years.
                    (B) For subsequent fiscal years.--To obtain the 
                geographic ceiling on the indexed facility unit value 
                for nursing facilities in a geographic region in each 
                fiscal year after fiscal year 1997, the fixed 
                proportion identified pursuant to subsection (b)(2) 
                shall be multiplied by the indexed facility unit value 
                of the nursing facility which contained the medianth 
                resident day in the array of facility unit values for 
                the geographic region during the base year.
            (3) Exclusion of low-volume and new facilities.--The 
        Secretary shall exclude low-volume and new nursing facilities, 
        as defined in subsections (a) and (b) of section 534, 
        respectively, for purposes of determining the geographic 
        ceiling for the nursing service cost center.
    (c) Exceptions.--The Secretary shall establish by regulation, 
procedures for allowing exceptions to the geographic ceiling imposed on 
the nursing service cost center. The procedure shall permit exceptions 
based on the following factors:
            (1) Local supply and labor shortages which substantially 
        increase costs to specific nursing facilities.
            (2) Higher per resident day usage of contract nursing 
        personnel, if utilization of contract nursing personnel is 
        warranted by local circumstances, and the provider has taken 
        all reasonable measures to minimize contract personnel expense.
            (3) Extraordinarily low proportion of distinct part nursing 
        facilities in a geographic region resulting in a geographic 
        ceiling which unfairly restricts the reimbursement of distinct 
        part facilities.
            (4) Regulatory changes that increase costs to only a subset 
        of the nursing facility industry.
            (5) The offering of a new institutional health service or 
        treatment program by a nursing facility (in order to account 
        for initial startup costs).
            (6) Disproportionate usage of part-time employees, where 
        adequate numbers of full-time employees cannot reasonably be 
        obtained.
            (7) Other cost producing factors, to be specified by the 
        Secretary in regulations that are specific to a subset of 
        facilities in a geographic region (except case-mix variation).

SEC. 530. THE PER DIEM RATE FOR ADMINISTRATIVE AND GENERAL COSTS.

    (a) Determination of Rate.--
            (1) In general.--Payment relative to the administrative and 
        general cost center shall be a facility-specific, prospective, 
        per diem rate.
            (2) Assignment of rate.--The Secretary shall assign a per 
        diem rate to a nursing facility by applying 2 standards which 
        shall be calculated as follows:
                    (A) Standard A shall be derived for each geographic 
                region by first creating an array of indexed nursing 
                facility administrative and general per diem costs from 
                lowest to highest. The Secretary shall then identify a 
                fixed proportion by dividing the indexed administrative 
                and general per diem costs of the nursing facility 
                which contained the medianth resident day of the array 
                (except as provided in subsection (a)(4)) into the 
                indexed administrative and general per diem costs of 
                the nursing facility which contained the 75th 
                percentile resident day in that array. Standard A for 
                each base year shall constitute the product of this 
                fixed proportion (e.g., 1.1 times the median or 110 
                percent of the median) and the administrative and 
                general indexed per diem costs of the nursing facility 
                which contained the medianth resident day in the array 
                of such costs during the base year.
                    (B) Standard B shall be derived using the same 
                calculation as in subparagraph (A) except that the 
                fixed proportion shall use the indexed administrative 
                and general costs of the nursing facility containing 
                the 85th percentile, rather than the 75th percentile, 
                resident day in the array of such costs.
            (3) Geographic regions.--The Secretary shall use the 
        geographic regions identified in section 526(c) for purposes of 
        determining Standard A and Standard B.
            (4) Exclusion of low-volume and new facilities.--The 
        Secretary shall exclude low-volume and new nursing facilities, 
        as defined in subsections (a) and (b) of section 535, 
        respectively, for purposes of determining Standard A and 
        Standard B.
            (5) Determination of administrative and general costs.--To 
        determine a nursing facility's per diem rate for the 
        administrative and general cost center, Standard A and Standard 
        B shall be applied to a nursing facility's administrative and 
        general per diem costs, indexed forward using the DRI McGraw-
        Hill HCFA Nursing Home Without Capital Market Basket, as 
        follows:
                    (A) Each nursing facility having indexed costs 
                which fall below the median shall be assigned a rate 
                equal to such facility's individual indexed costs plus 
                an ``efficiency incentive'' equal to one half of the 
                difference between the median and Standard A.
                    (B) Each nursing facility having indexed costs 
                which fall below Standard A but at or above the median 
                shall be assigned a per diem rate equal to such 
                facility's individual indexed costs plus an 
                ``efficiency incentive'' equal to one-half of the 
                difference between such facility's indexed costs and 
                Standard A.
                    (C) Each nursing facility having indexed costs 
                which fall between Standard A and Standard B shall be 
                assigned a rate equal to Standard A plus one-half of 
                the difference between such facility's indexed costs 
                and Standard A.
                    (D) Each nursing facility having indexed costs 
                which exceed Standard B shall be assigned a rate as if 
                such facility's costs equaled Standard B. These nursing 
                facilities shall be assigned a per diem rate equal to 
                Standard A plus one-half of the difference between 
                Standard A and Standard B.
                    (E) For purposes of subparagraphs (A) through (D), 
                the median represents the indexed administrative and 
                general per diem costs of the nursing facility which 
                contained the medianth resident day in the array of 
                such costs during the base year in the geographic 
                region.
    (b) Rebasement.--Rebasing of the payment rates for administrative 
and general costs shall occur not less than once a year.

SEC. 531. PAYMENT FOR FEE-FOR-SERVICE ANCILLARY SERVICES.

    (a) Prospective Payment.--Payment for each ancillary service 
enumerated in section 106(a)(3), such as physical therapy, shall be 
calculated and paid on a prospective fee-for-service basis.
    (b) Determination of Fee.--The Secretary shall identify the fee for 
each of the fee-for-service ancillary services for a particular nursing 
facility by dividing the nursing facility's actual costs, including 
overhead allocated through the cost finding process, of providing each 
particular service, indexed forward using the DRI McGraw-Hill HCFA 
Nursing Home Without Capital Market Basket, by the units of the 
particular service provided by the nursing facility during the cost 
year.
    (c) Annual Calculation.--The fee for each of the fee-for-service 
ancillary services shall be calculated not less than once a year for 
each facility and ancillary service.

SEC. 532. REIMBURSEMENT OF SELECTED ANCILLARY SERVICES AND OTHER COSTS.

    (a) Retrospective Reimbursement.--Reimbursement of selected 
ancillary services and other costs identified in section 527(a)(4), 
such as drugs and medical supplies, shall be reimbursed on a 
retrospective basis as pass-through costs, including overhead allocated 
through the cost-finding process.
    (b) Interim Rates.--The Secretary shall set charge-based interim 
rates for selected ancillary services and other costs for each nursing 
facility providing such services. Any overpayments or underpayments 
resulting from the difference between the interim and final settlement 
rates shall be either refunded by the nursing facility or paid to the 
nursing facility following submission of a timely filed medicare cost 
report.

SEC. 533. THE PER DIEM RATE FOR PROPERTY COSTS.

    (a) Establishment of Rate.--
            (1) In general.--The basis for payment within the property 
        cost center for nursing facilities shall be calculated and paid 
        on a prospective (except as provided for newly constructed 
        facilities in subsection (d)(2)), facility-specific, per 
        resident day rate based on the fair asset value of the 
        property.
            (2) Fair asset value.--
                    (A) In general.--The fair asset value of the 
                property shall constitute the sum of the market value 
                of the land (including site preparation costs), a 
                reconstruction cost appraised value for the buildings 
                and fixed equipment, and the product of the number of 
                beds in the nursing facility and a per bed allowance 
                for major movable equipment.
                    (B) Limitation.--The land, buildings, and fixed 
                equipment which are included in determining the fair 
                asset value must be used in connection with the care of 
                residents.
                    (C) Appraisals.--Appraisals for the buildings and 
                fixed equipment shall be performed using the Marshall-
                Swift segmented cost method. A nursing facility shall 
                be appraised every 4 years.
                    (D) Annual allowance.--The Secretary shall utilize 
                an annual allowance of $3,500 per bed for major movable 
                equipment for a nursing facility. The Secretary shall 
                review the annual allowance for major movable equipment 
                every 5 years to determine its accuracy.
                    (E) Renovations.--If a nursing facility has 
                commenced a renovation to a building and fixed 
                equipment between appraisals the cost of which 
                constitutes at least 5 percent of the total value of 
                the existing building and the fixed equipment, such 
                facility may submit documentation as to the cost of the 
                renovation during the previous year. The Secretary 
                shall add the reasonable costs of the major renovation 
                for the previous year to the fair asset value of the 
                facility. This new asset value is to be the base for 
                indexing until the next full appraisal.
                    (F) Sales, refinancing, and recapture of 
                depreciation.--The value of the assets is determined 
                through appraisals, indexing, and the application of 
                allowances, and is, therefore, unaffected by sales 
                transactions, refinancing, or other changes in 
                financing. Accordingly, the concept of recapture of 
                depreciation is inapplicable to facilities whose 
                payment is established under this title.
            (3) Annual index for land, buildings, and fixed 
        equipment.--The value of the land, buildings, and fixed 
        equipment shall be indexed annually between reappraisals as 
        follows:
                    (A) The land shall be indexed using Consumer Price 
                Index Urban.
                    (B) The buildings and fixed equipment shall be 
                indexed annually using the R. S. Means Index.
            (4) Annual index for major movable equipment.--The annual 
        allowance for major movable equipment shall be indexed annually 
        using the hospital equipment index of the Marshall Swift 
        Valuation Service.
            (5) Adjustment of indexes.--The Secretary shall adjust the 
        indexes used for the land, buildings and fixed equipment, and 
        major movable equipment for the different geographic regions.
    (b) Establishment of Per Bed Limit.--
            (1) In general.--The Secretary shall establish a per bed 
        limit on the fair asset value of a nursing facility for each 
        geographic region, as designated in section 105(c). The per bed 
        limit shall be equal to the average indexed costs incurred by 
        all recently constructed nursing facilities in the geographic 
        region which have been designed and constructed in an efficient 
        manner.
            (2) Annual index.--The per bed limit on the fair asset 
        value shall be indexed annually using the R. S. Means Index.
            (3) Recalculation.--The per bed limit shall be recalculated 
        every 5 years.
    (c) Determination of Total Annual Rental.--The total annual rental 
shall constitute the product of the lower of the indexed fair asset 
value or the indexed per bed limit and a rental rate which shall be 
based on the average yield for 20 year United States Treasury Bonds 
during the prior year plus a risk premium of 3 percentage points.
    (d) Determination of Per Resident Day Rental.--
            (1) In general.--The per resident day rental shall be 
        obtained by dividing the total annual rental by 90 percent of 
        the annual licensed bed days. The per resident day rental shall 
        constitute the per diem rate attributable to the property cost 
        center.
            (2) For newly constructed facilities.--The per resident day 
        rental rate for a newly constructed facility during such 
        facility's first year of operation shall be based on the total 
        annual rental divided by the greater of 50 percent of available 
        resident days or actual annualized resident days up to 90 
        percent of annual licensed bed days during such facility's 
        first year of operation.
    (e) Existing Facilities.--Facilities in operation prior to the 
effective date of this title shall receive the per resident day rental 
or actual costs, as determined in accordance with HCFA-Pub. 15, 
whichever is greater, except that a nursing facility shall be 
reimbursed the per resident day rental on and after the earlier of--
            (1) the date upon which the nursing facility changes 
        ownership;
            (2) the date the nursing facility accepts the per resident 
        day rental; or
            (3) the date of the renegotiation of the lease for the land 
        and buildings, not including the exercise of optional 
        extensions specifically included in the original lease 
        agreement or valid extensions thereof.

SEC. 534. MID-YEAR RATE ADJUSTMENTS.

    (a) Mid-Year Rate Adjustments.--The Secretary shall establish by 
regulation, a procedure for granting mid-year rate adjustments for the 
nursing service, administrative and general, and fee-for-service 
ancillary services cost centers.
    (b) Requirements for Granting Adjustments.--The mid-year rate 
adjustment procedure shall require the Secretary to grant adjustments 
on an industry-wide basis, without the need for nursing facilities to 
apply for such adjustments, based on the following circumstances:
            (1) Statutory or regulatory changes affecting nursing 
        facilities (e.g., new staffing standards or expanded services).
            (2) Changes to the Federal minimum wage.
            (3) General labor shortages with high regional wage 
        impacts.
    (c) Requirements for Allowing Applications by Specific Facilities 
or Groups.--The mid-year rate adjustment procedure shall permit 
specific facilities or groups of facilities to apply for an adjustment 
based on the following factors:
            (1) Local labor shortages.
            (2) Regulatory changes that apply to only a subset of the 
        nursing facility industry.
            (3) Economic conditions created by natural disasters or 
        other events outside of the control of the provider.
            (4) Other cost producing factors, except case-mix 
        variation, to be specified by the Secretary by regulation.
    (d) Required Supporting Data.--
            (1) Necessary deviation in rate.--A nursing facility which 
        applies for a mid-year rate adjustment pursuant to subsection 
        (c) shall be required to show that the adjustment will result 
        in a greater than 2 percent deviation in the per diem rate for 
        any individual cost service center or a deviation of greater 
        than $5,000 in the total projected and indexed costs for the 
        rate year, whichever is less.
            (2) Cost data or budget projections.--A nursing facility 
        application for a mid-year rate adjustment must be accompanied 
        by recent cost experience data or budget projections.

SEC. 535. EXCEPTION TO PAYMENT METHODS FOR NEW AND LOW-VOLUME NURSING 
              FACILITIES.

    (a) Definition of Low-Volume Nursing Facility.--A low-volume 
nursing facility shall constitute a nursing facility having fewer than 
2,500 medicare part A resident days per year.
    (b) Definition of New Nursing Facility.--A new nursing facility 
shall constitute a newly constructed, licensed, and certified nursing 
facility, or a nursing facility that is in its first 3 years of 
operation as a medicare part A provider. A nursing facility that has 
operated for more than 3 years but has a change of ownership shall not 
constitute a new facility.
    (c) Options for Low-Volume Facilities.--Low-volume nursing 
facilities shall have the option of submitting a cost report to receive 
retrospective payment for all of the cost centers, other than the 
property cost center, or accepting a per diem rate which shall be based 
on the sum of--
            (1) the median indexed resident day facility unit value for 
        the appropriate geographic region for the nursing service cost 
        center during the base year as identified in section 529(b)(2);
            (2) the median indexed resident day administrative and 
        general per diem costs of all nursing facilities in the 
        appropriate geographic region as identified in section 
        530(a)(5)(E);
            (3) the median indexed resident day costs per unit of 
        service for fee-for-service ancillary services which shall be 
        obtained using the cost information from the nursing facilities 
        in the appropriate geographic region during the base year, 
        excluding low-volume and new nursing facilities, and which 
        shall be based on an array of such costs from lowest to 
        highest; and
            (4) the median indexed resident day per diem costs for 
        selected ancillary services and other costs which shall be 
        obtained using information from the nursing facilities in the 
        appropriate geographic region during the base year, excluding 
        low-volume and new nursing facilities, and which shall be based 
        on an array of such costs from lowest to highest.
    (d) Option for New Facilities.--New nursing facilities shall have 
the option of being paid on a retrospective cost pass-through basis for 
all cost centers, or in accordance with paragraphs (1) through (4) of 
subsection (c).

SEC. 536. APPEAL PROCEDURES.

    (a) Right of Appeal.--
            (1) In general.--Any person or legal entity aggrieved by a 
        decision of the Secretary under this title, and which results 
        in an amount in controversy of $10,000 or more, shall have the 
        right to appeal such decision directly to the Provider 
        Reimbursement Review Board (hereinafter referred to as the 
        ``Board'') authorized under section 1878 of title XVIII of the 
        Social Security Act.
            (2) Computation of amount in controversy.--The $10,000 
        amount in controversy shall be computed in accordance with 42 
        CFR 405.1839.
    (b) Procedure for Hearings.--Hearings before the Board under this 
title, and any appeals thereto, shall follow the procedures under 
section 1878 of title XVIII of the Social Security Act and the 
regulations contained in 42 CFR 405.1841-1889, except to the extent 
that such procedures conflict with, or are inapplicable on account of, 
any other provision of this title.

SEC. 537. EFFECTIVE DATE.

    (a) In General.--The provisions of this subtitle shall be effective 
October 1, 1996.
    (b) Inconsistent Provisions.--The provisions contained in this 
subtitle shall supersede any other provisions of title XVIII or title 
XIX of the Social Security Act which are inconsistent with such 
provisions.
                                 <all>
S 1177 IS----2
S 1177 IS----3
S 1177 IS----4
S 1177 IS----5
S 1177 IS----6
S 1177 IS----7