[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[S. 1926 Introduced in Senate (IS)]







104th CONGRESS
  2d Session
                                S. 1926

To provide for the integrity of the Medicare program under title XVIII 
          of the Social Security Act, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             June 28, 1996

  Mr. Cochran (for himself and Mr. Specter) introduced the following 
  bill; which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To provide for the integrity of the Medicare program under title XVIII 
          of the Social Security Act, and for other purposes.

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

SEC. 11001. SHORT TITLE; AMENDMENTS TO SOCIAL SECURITY ACT; REFERENCES 
              TO OBRA; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Emergency Medicare 
Protection Act of 1996''.
    (b) Amendments to Social Security Act.--Except as otherwise 
specifically provided, whenever in this Act an amendment is expressed 
in terms of an amendment to or repeal of a section or other provision, 
the reference shall be considered to be made to that section or other 
provision of the Social Security Act.
    (c) References to OBRA.--In this Act, the terms ``OBRA-1986'', 
``OBRA-1987'', ``OBRA-1989'', ``OBRA-1990'', and ``OBRA-1993'' refer to 
the Omnibus Budget Reconciliation Act of 1986 (Public Law 99-509), the 
Omnibus Budget Reconciliation Act of 1987 (Public Law 100-203), the 
Omnibus Budget Reconciliation Act of 1989 (Public Law 101-239), the 
Omnibus Budget Reconciliation Act of 1990 (Public Law 101-508), and the 
Omnibus Budget Reconciliation Act of 1993 (Public Law 103-66), 
respectively.
    (d) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 11001. Short title; amendments to Social Security Act; references 
                            to OBRA; table of contents.
                       TITLE I--MEDICARE SAVINGS

               Subtitle A--Provisions Relating to Part A

Sec. 11101. Updates for PPS hospitals.
Sec. 11102. Maintaining savings from temporary reduction in PPS capital 
                            rates.
Sec. 11103. Reduction in adjustment for indirect medical education.
Sec. 11104. Revisions in determination of amount of payment for medical 
                            education.
Sec. 11105. Elimination of IME and DSH payments attributable to outlier 
                            payments.
Sec. 11106. Treatment of transfer cases.
Sec. 11107. Moratorium on new long-term care hospital exclusions.
Sec. 11108. Payments to hospitals excluded from PPS.
Sec. 11109. Reductions to capital payments for PPS-exempt hospitals.
Sec. 11110. Maintaining savings resulting from temporary freeze on 
                            payment increases for skilled nursing 
                            facilities.
Sec. 11111. Interim prospective payment for skilled nursing facilities.
Sec. 11112. Full prospective payment system for skilled nursing 
                            facilities.
Sec. 11113. Salary equivalency guidelines for therapy services.
Sec. 11114. Graduate medical education, indirect medical education, and 
                            disproportionate share hospital payments 
                            for managed care enrollees.
Sec. 11115. Sole community hospitals.
Sec. 11116. Rural primary care hospital program.
Sec. 11117. Rural referral centers.
Sec. 11118. Telemedicine.
Sec. 11119. Establishment of rural health outreach grant program.
Sec. 11120. Medicare-dependent, small, rural hospital payment 
                            extension.
               Subtitle B--Provisions Relating to Part B

Sec. 11121. Payments for physicians' services.
Sec. 11122. Practice expense relative value units.
Sec. 11123. Single fee for surgery.
Sec. 11124. Incentives to control high volume for in-hospital 
                            physicians' services.
Sec. 11125. Ambulatory surgical center service updates.
Sec. 11126. Oxygen and oxygen equipment, other durable medical 
                            equipment and orthotics and prosthetics.
Sec. 11127. Elimination of formula-driven overpayments for certain 
                            outpatient hospital services.
Sec. 11128. Extension of reductions in payments for costs of hospital 
                            outpatient services.
Sec. 11129. Prospective payment for hospital outpatient department 
                            services.
Sec. 11130. Waive cost-sharing for mammography.
Sec. 11131. Annual mammograms.
Sec. 11132. Coverage of colorectal screening.
Sec. 11133. Payments for vaccines and vaccine administration.
Sec. 11134. Diabetes screening benefits.
Sec. 11135. Respite benefit.
Sec. 11136. Payments to physician assistants, nurse practitioners, and 
                            clinical nurse specialists.
            Subtitle C--Provisions Relating to Parts A and B

Sec. 11141. Centers of excellence.
Sec. 11142. Maintaining savings resulting from temporary freeze on 
                            payment increases for home health services.
Sec. 11143. Interim payments for home health services.
Sec. 11144. Prospective payment for home health services.
Sec. 11145. Payment based on location where home health service is 
                            furnished.
Sec. 11146. Elimination of periodic interim payments for home health 
                            agencies. 
Sec. 11147. Permanent extension of certain secondary payer provisions. 
                  Subtitle D--Medicare Part B Premium

Sec. 11161. Part B premium. 
                   TITLE II--EXPANDED MEDICARE CHOICE

Sec. 11201. Expanded choice under Medicare.
Sec. 11202. Broader choice among managed care organizations.
Sec. 11203. Development of Federal standards.
Sec. 11204. Applicability of Medicare rates to enrollees who use an 
                            out-of-plan provider of services.
Sec. 11205. Substitution of quality measurement system for private 
                            enrollment requirement.
Sec. 11206. HMO competitive pricing and related demonstrations.
Sec. 11207. Elimination of health care prepayment plan option for 
                            entities eligible to participate under part 
                            C.
Sec. 11208. Medigap reforms.
Sec. 11209. Standardized benefits packages.
Sec. 11210. Antitrust rule of reason standard.
Sec. 11211. Reform of the clinical laboratory improvement amendments of 
                            1988.
Sec. 11212. Modifications to exceptions for certain arrangements.
           TITLE III--NATIONAL COMMISSION ON MEDICARE REFORM

Sec. 11301. Establishment of Commission.
Sec. 11302. Duties of the Commission.
Sec. 11303. Powers of the Commission.
Sec. 11304. Commission personnel matters.
Sec. 11305. Termination of the Commission.
Sec. 11306. Congressional consideration of Commission proposals.
Sec. 11307. Authorization of appropriations.

                       TITLE I--MEDICARE SAVINGS

               Subtitle A--Provisions Relating to Part A

SEC. 11101. UPDATES FOR PPS HOSPITALS.

    (a) Update Factors.--Section 1886(b)(3)(B)(i) (42 U.S.C. 
1395ww(b)(3)(B)(i)) is amended by striking subclauses (XII) and (XIII) 
and inserting the following:
            ``(XII) for each of the fiscal years 1997 through 2002, the 
        market basket percentage increase minus 1.5 percentage points 
        for hospitals in all areas, and
            ``(XIII) for fiscal year 2003 and each subsequent fiscal 
        year, the market basket percentage increase for hospitals in 
        all areas.''.
    (b) Adjustments for Case Mix When Recalibrating DRGS.--
            (1) In general.--Section 1886(d)(3) (42 U.S.C. 
        1395ww(d)(3)) is amended by adding at the end the following:
            ``(F) Adjusting for estimated change in case mix.--
                    ``(i) In general.--Effective for discharges 
                occurring in a fiscal year in which the Secretary 
                implements significant changes (as defined by the 
                Secretary) in the diagnosis-related group 
                classification system and thereafter, the Secretary may 
                (subject to clause (ii)) adjust the standardized 
                amounts to take into account estimated case mix 
                increase not attributable to real case mix increase 
                anticipated to occur during the fiscal year to which 
                the standardized amounts apply.
                    ``(ii) Refinement.--With regard to the adjustment 
                described in clause (i), if the Secretary determines, 
                based on data taken from the fiscal year to which the 
                adjustment applied, that the amount of the adjustment 
                varied from the actual amount of case mix increase not 
                attributable to real case mix increase by more than 
                0.25 percentage points, the Secretary shall make a 
                prospective adjustment to the standardized amounts to 
                correct for the variance.''.
            (2) PROPAC recommendations.--Section 1886(e)(2)(A) (42 
        U.S.C. 1395ww(e)(2)(A)) is amended by adding at the end the 
        following: ``With respect to subsection (d) hospitals, the 
        Commission's recommendation regarding the appropriate 
        percentage change shall take into account the anticipated 
        difference during the fiscal year between the change in the 
        average weighting factor and the change in real case mix.''.

SEC. 11102. MAINTAINING SAVINGS FROM TEMPORARY REDUCTION IN PPS CAPITAL 
              RATES.

    Section 1886(g)(1)(A) (42 U.S.C. 1395ww(g)(1)(A)) is amended by 
adding at the end the following: ``In addition to the reduction 
described in the preceding sentence, for discharges occurring after 
October 1, 1996, the Secretary shall reduce by 15.7 percent the 
unadjusted standard Federal capital payment rate (as described in 
section 412.308(c) of volume 42 of the Code of Federal Regulations, as 
in effect on September 30, 1996) and shall reduce by 15.7 percent the 
unadjusted hospital-specific rate (as described in section 
412.328(e)(1) of volume 42 of the Code of Federal Regulations, as in 
effect on September 30, 1996).''.

SEC. 11103. REDUCTION IN ADJUSTMENT FOR INDIRECT MEDICAL EDUCATION.

    (a) In General.--Section 1886(d)(5)(B)(ii) (42 U.S.C. 
1395ww(d)(5)(B)(ii)) is amended to read as follows:
            ``(ii) For purposes of clause (i)(II), the indirect 
        teaching adjustment factor for discharges occurring--
                    ``(I) on or after October 1, 1988 and before 
                October 1, 1996, is equal to 1.89  x  (((1+r) to the 
                nth power) -1),
                    ``(II) during fiscal year 1997, is equal to 1.60 
                x  (((1+r) to the nth power) -1),
                    ``(III) during fiscal year 1998, is equal to 1.55 
                x  (((1+r) to the nth power) -1), and
                    ``(IV) during or after fiscal year 1999, is equal 
                to 1.47  x  (((1+r) to the nth power) -1),
        where `r' is the ratio of the hospital's full-time equivalent 
        interns and residents to beds and `n' equals .405.''.
    (b) Conforming Amendment Relating to Determination of Standardized 
Amounts.--Section 1886(d)(2)(C)(i) (42 U.S.C. 1395ww(d)(2)(C)(i)) is 
amended by adding at the end the following: ``except that the Secretary 
shall not take into account any reductions in the amount of additional 
payments under subsection (d)(5)(B)(ii) resulting from the amendments 
made by section 11103(a) of the Emergency Medicare Protection Act of 
1996,''.
    (c) Alternative to Restandardization of Costs.--Section 
1886(d)(3)(A) (42 U.S.C. 1395ww(d)(3)(A)) is amended by adding at the 
end the following:
            ``(vi) Alternative to restandardization of costs.--
        Notwithstanding clauses (i) through (v), if changes in the 
        amount of payment under subsections (d)(3)(E), (d)(5)(B), or 
        (d)(5)(F) would otherwise require the Secretary to 
        restandardize hospital costs under subsection (d)(2)(C), the 
        Secretary may compute payment amounts under this subparagraph 
        in a manner that assures that aggregate payments under this 
        subsection in a fiscal year are not greater or less than those 
        that would have been made in the year if the Secretary had 
        restandardized hospital costs under subsection (d)(2)(C).''.

SEC. 11104. REVISIONS IN DETERMINATION OF AMOUNT OF PAYMENT FOR MEDICAL 
              EDUCATION.

    (a) Indirect Medical Education.--
            (1) In general.--Section 1886(d)(5)(B) (42 U.S.C. 
        1395ww(d)(5)(B)), as amended by section 11103(a), is amended--
                    (A) in clause (ii), by inserting ``, subject to 
                clause (vi)'' after ``clause (i)(II)'', and
                    (B) by adding at the end the following:
            ``(v) In determining such adjustment with respect to a 
        hospital for discharges occurring on or after October 1, 1996--
                    ``(I) the total number of interns and residents in 
                either a hospital or nonhospital setting may not exceed 
                the number of interns and residents in the hospital 
                with respect to the hospital's cost reporting period 
                ending on or before December 31, 1995, and
                    ``(II) the number of interns and residents who are 
                not primary care residents as defined in subsection 
                (h)(5)(H) or residents in obstetrics and gynecology, 
                may not exceed the number of such residents as of such 
                cost reporting period.
            ``(vi) For purposes of clause (ii), `r' may not exceed the 
        ratio of the number of interns and residents as determined 
        under clause (v) with respect to the hospital for its most 
        recent cost reporting period ending on or before December 31, 
        1995, to the hospital's available beds (as defined by the 
        Secretary) during such cost reporting period.''.
            (2) Payment for interns and residents providing off-site 
        services.--Section 1886(d)(5)(B)(iv) (U.S.C. 42 
        1395ww(d)(5)(B)(iv)) is amended to read as follows:
            ``(iv) Effective for discharges occurring on or after 
        October 1, 1996, all the time spent by an intern or resident in 
        patient care activities under an approved medical residency 
        training program at an entity in a nonhospital setting shall be 
        counted toward the determination of full-time equivalency if 
        the hospital incurs all, or substantially all, of the costs for 
        the training program in that setting.''.
    (b) Direct Graduate Medical Education.--
            (1) Limitation on number of residents.--section 1886(h)(4) 
        (42 U.S.C. 1395ww(h)(4)) is amended by adding at the end the 
        following:
                    ``(F) Limitation on number of residents for certain 
                fiscal years.--Such rules shall provide that for 
                purposes of a cost reporting period beginning on or 
                after October 1, 1996--
                            ``(i) the total number of full-time 
                        equivalent residents (as determined under this 
                        paragraph) with respect to a hospital's 
                        approved medical residency training program may 
                        not exceed the number of full-time equivalent 
                        residents with respect to the hospital's cost 
                        reporting period ending on or before December 
                        31, 1995, and
                            ``(ii) the number of a hospital's full-
                        time-equivalent residents as determined under 
                        this paragraph who are not primary care 
                        residents (as defined in paragraph (5)(H)) or 
                        residents in obstetrics and gynecology may not 
                        exceed the number of such residents as of such 
                        cost reporting period.
                    ``(G) Adjustments to limitations.--The Secretary 
                may adjust the limitations specified in subparagraph 
                (F) if a hospital has a significant increase in the 
                number of primary care or obstetrics and gynecology 
                interns or residents after June 30, 1995.''.
            (2) Permitting payment to nonhospital providers.--Section 
        1886 (42 U.S.C. 1395(ww)) is amended by adding at the end the 
        following:
    ``(j) Payment to Nonhospital Providers.--
            ``(1) In general.--Beginning with cost reporting periods 
        beginning on or after October 1, 1996, the Secretary may 
        establish rules to make payments (in such amounts and in such 
        form, and from each of the trust funds under this title, as the 
        Secretary considers appropriate) to federally qualified health 
        centers (as defined in section 1861(aa)(4)) and rural health 
        clinics (as defined in section 1861(aa)(2)) for the direct 
        costs of medical education, if such costs are incurred in the 
        operation of an approved medical residency training program 
        described in subsection (h). The Secretary may designate 
        additional entities as eligible organizations for such payments 
        as the Secretary determines to be appropriate.
            ``(2) Coordination with payments under part c.--No payments 
        shall be made under paragraph (1) for costs with respect to 
        which payment is made under section 1851F(m).''.
            (3) Prohibition on double payments.--Section 1886(h)(3)(B) 
        (42 U.S.C. 1395ww(h)(3)(B)) is amended by adding at the end the 
        following new flush sentence: ``The Secretary shall reduce the 
        aggregate approved amount to the extent payment is made under 
        subsection (j) for residents included in the hospital's full-
        time equivalent residents.''.
    (c) Commission on Medical Education and Workforce Priorities.--
            (1) In general.--There is established within the Department 
        of Health and Human Services a Commission to be known as the 
        National Commission on Medical Education and Workforce 
        Priorities (in this subsection referred to as the 
        ``Commission'').
            (2) Duties.--The Commission shall have the following 
        responsibilities:
                    (A) To develop and recommend to the Secretary (in 
                this subsection referred to as the ``Secretary'') 
                specific policies to address the preservation of the 
                research and educational capacity of the Nation's 
                academic health centers and the supply, composition, 
                and support of the future health care workforce 
                including--
                            (i) the financing of graduate medical 
                        education,
                            (ii) issues relating to children's and 
                        specialty hospitals,
                            (iii) policies regarding international 
                        medical school graduates, and
                            (iv) the relationship of graduate medical 
                        education and service generated income.
                    (B) To make recommendations concerning the most 
                effective allocation of training resources to ensure 
                that the numbers and competencies of health care 
                professionals are responsive to the Nation's needs.
            (3) Composition.--
                    (A) Qualifications.--The Commission shall consist 
                of 15 members appointed by the Secretary, and shall to 
                the extent feasible include--
                            (i) individuals nationally recognized for 
                        expertise in health economics, medical 
                        education financing, medial practice, issues 
                        relating to the composition of the health care 
                        workforce, research on and development of 
                        technological and scientific advances in health 
                        care, and other related fields; and
                            (ii) health care professionals including 
                        physicians (both faculty and nonfaculty), 
                        consumers, a dean and a chief executive officer 
                        of an academic health center or a teaching 
                        hospital, and representatives from health 
                        insurance, managed care, and medical workforce 
                        accrediting organizations.
                    (B) National representation.--To the extent 
                feasible, the membership of the Commission--
                            (i) shall represent the various geographic 
                        regions of the United States,
                            (ii) shall reflect the racial, ethnic, and 
                        gender composition of the United States; and
                            (iii) shall be broadly representative of 
                        medical schools, academic health centers, 
                        teaching hospitals, and schools involved in the 
                        training of nonphysician providers of health 
                        services.
            (4) Terms of office.--Members of the Commission shall first 
        be appointed no later than January 1, 1997, for a term of two 
        and one-half years.
            (5) Ex officio members.--In addition to the members 
        appointed pursuant to paragraph (3), the Commission shall 
        include--
                    (A) the Secretary of Veterans Affairs, and the 
                Secretary of Defense (or a designee of each such 
                official); and
                    (B) such additional individuals as may be 
                designated by the Secretary from among Federal officers 
                or employees.
            (6) Chair.--The Secretary shall designate an individual 
        from among the members appointed pursuant to paragraph (3) to 
        serve as the chair of the Commission.
            (7) Quorum.--Nine members of the Commission shall 
        constitute a quorum, but a lesser number may hold hearings.
            (8) Vacancies.--Any vacancy in the Commission shall not 
        affect its power to function.
            (9) Compensation.--Each member of the Commission who is not 
        otherwise employed by the United States Government shall 
        receive compensation at a rate equal to the daily rate 
        prescribed for GS-18 under the General Schedule under section 
        5332 of title 5, United States Code, for each day, including 
        travel time, such member is engaged in the actual performance 
        of duties as a member of the Commission. A member of the 
        Commission who is an officer or employee of the United States 
        Government shall serve without additional compensation. All 
        members of the Commission shall be reimbursed for travel, 
        subsistence, and other necessary expenses incurred by them in 
        the performance of their duties.
            (10) Certain authorities and duties.--In order to carry out 
        the provisions of this subsection, the Commission is authorized 
        to--
                    (A) collect such information, hold such hearings, 
                and sit and act at such times and places, either as a 
                whole or by subcommittee, and request the attendance 
                and testimony of such witnesses and the production of 
                such documents as the Commission may consider 
                advisable; and
                    (B) request the cooperation and assistance of 
                Federal departments, agencies, and instrumentalities, 
                and such departments, agencies, and instrumentalities 
                are authorized to provide such cooperation and 
                assistance.
            (11) Reports.--The Commission shall submit to the Secretary 
        a preliminary report not later than January 1, 1998, and a 
        final report not later than January 1, 1999, making 
        recommendations on the matters specified in paragraph (2).
            (12) Termination.--The Commission shall terminate on July 
        1, 2000.
            (13) Authorization of appropriations.--There is authorized 
        to be appropriated to the Secretary for use in carrying out 
        this subsection such sums as may be necessary for each of 
        fiscal years 1997, 1998, 1999, and 2000. Funds appropriated for 
        fiscal year 2000 shall remain available until expended, or 
        until the Commission is terminated, whichever occurs first.

SEC. 11105. ELIMINATION OF IME AND DSH PAYMENTS ATTRIBUTABLE TO OUTLIER 
              PAYMENTS.

    (a) Indirect Medical Education.--Section 1886(d)(5)(B)(i)(I) (42 
U.S.C. 1395ww(d)(5)(B)(i)(I)) is amended by inserting ``, for cases 
qualifying for additional payment under subparagraph (A)(i),'' before 
``the amount paid to the hospital under subparagraph (A)''.
    (b) Disproportionate Share Adjustments.--Section 
1886(d)(5)(F)(ii)(I) (42 U.S.C. 1395ww(d)(5)(F)(ii)(I)) is amended by 
inserting ``, for cases qualifying for additional payment under 
subparagraph (A)(i),'' before ``the amount paid to the hospital under 
subparagraph (A)''.
    (c) Cost Outlier Payments.--Section 1886(d)(5)(A)(ii) (42 U.S.C. 
1395ww(d)(5)(A)(ii)) is amended by striking ``exceed the applicable DRG 
prospective payment rate'' and inserting ``exceed the sum of the 
applicable DRG prospective payment rate plus any amounts payable under 
paragraphs (d)(5)(B) and (d)(5)(F)''.
    (d) Effective Date.--The amendments in this section apply to 
discharges occurring on or after October 1, 1996.

SEC. 11106. TREATMENT OF TRANSFER CASES.

    Section 1886(d)(5)(I) (42 U.S.C. 1395ww(d)(5)(I)) of the Act is 
amended by adding at the end the following:
    ``(iii) Certain transfers.--Effective for discharges occurring on 
or after October 1, 1996, transfer cases (as otherwise defined by the 
Secretary) shall also include cases in which a patient is transferred 
from a subsection (d) hospital to a hospital or hospital unit that is 
not a subsection (d) hospital (under section 1886(d)(1)(B) and 
implementing regulations) or to a skilled nursing facility for the 
purpose of receiving extended care services.''.

SEC. 11107. MORATORIUM ON NEW LONG-TERM CARE HOSPITAL EXCLUSIONS.

    Section 1886(d)(1)(B)(iv) (42 U.S.C. 1395ww(d)(1)(B)(iv)) is 
amended by inserting ``(and had such an average on the date of 
enactment of the Emergency Medicare Protection Act of 1996)'' before 
the comma.

SEC. 11108. PAYMENTS TO HOSPITALS EXCLUDED FROM PPS.

    (a) Reductions in Updates.--Section 1886(b)(3)(B)(ii) (42 U.S.C. 
1395ww(b)(3)(B)(ii)) is amended--
            (1) in subclause (V)--
                    (A) by striking ``through 1997'' and inserting 
                ``through October 1, 1996'', and
                    (B) by striking ``and'',
            (2) by renumbering subclause (VI) as subclause (VII), and
            (3) by inserting after subclause (V) the following 
        subclause:
                    ``(VI) fiscal years 1997 through 2002, the market 
                basket percentage increase minus 1.5 percentage points, 
                and''.
    (b) Rebasing for PPS-Exempt Hospitals.--Section 1886(b)(3)(A)) (42 
U.S.C. 1395ww(b)(3)(A)) is amended to read as follows:
    ``(3)(A)(i) Subject to clauses (ii) and (iii), and except as 
provided in subparagraphs (C), (D), and (E), for purposes of this 
subsection, the term `target amount' means--
            ``(I) with respect to the first 12-month cost reporting 
        period in which this subparagraph is applied to the hospital, 
        the average allowable operating costs of inpatient hospital 
        services (as defined in subsection (a)(4)) recognized under 
        this title for such hospital for the hospital's two most recent 
        12-month cost reporting periods beginning on or after October 
        1, 1991, subject to the floor and ceiling for target amounts as 
        specified in clause (ii), and increased by the applicable 
        percentage increases under subparagraph (B)(ii) for the 
        hospital's succeeding cost reporting periods beginning before 
        fiscal year 1997, or
            ``(II) with respect to a later cost reporting period, the 
        target amount for the preceding cost reporting period, 
        increased by the applicable percentage increase under 
        subparagraph (B)(ii).
    ``(ii) Subject to clause (iii), the target amount determined under 
this subparagraph for a hospital or unit shall not be less than 70 
percent nor more than 150 percent of the national mean (adjusted by an 
appropriate wage index) of the operating costs of inpatient hospital 
services determined under this paragraph for hospitals (and units 
thereof as applicable) of each type of hospital described in subsection 
(d)(1)(B) for the cost reporting periods noted in clause (i)(I) and 
updated by the applicable percentage increase under subparagraph 
(B)(ii).
    ``(iii) In the case of a hospital that does not have a cost 
reporting period beginning before October 1, 1991--
            ``(I) with respect to cost reporting periods beginning 
        during the hospital's first two fiscal years of operation, the 
        amount of payment made under this title with respect to 
        operating costs of inpatient hospital services (as defined in 
        subsection (a)(4)) shall be the reasonable costs for providing 
        such services, except that such amount may not exceed 150 
        percent of the national mean as determined and updated in 
        clause (ii), and
            ``(II) with respect to a later cost reporting period, 
        clauses (i) and (ii) shall apply to such hospital except that 
        the target amount for the hospital shall be the average 
        allowable operating costs of inpatient hospital services (as 
        defined in subsection (a)(4)) recognized under this title for 
        the hospital's first two 12-month cost reporting periods 
        beginning at least one year after the hospital accepts its 
        first patient.''.
    (c) Exceptions and Adjustments.--Section 1886(b)(4)(A)(i) (42 
U.S.C. 1395ww(b)(4)(A)(i)) is amended by inserting the following after 
the first sentence: ``The exemption from, or an exception and 
adjustment to, the method under this subsection for determining the 
amount of payment to a hospital is limited to situations where a 
hospital's allowable operating costs of inpatient services recognized 
under this title for the 12-month cost reporting period exceeds 150 
percent of the hospital's target amount (adjusted by the appropriate 
wage index) for such cost reporting period.''.
    (d) Elimination of Incentive Payments.--Section 1886(b)(1) (42 
U.S.C. 1395ww(b)(1)) is amended to read as follows:
    ``(b)(1) Notwithstanding section 1814(b), but subject to the 
provisions of section 1813 and paragraph (2) of this subsection, if the 
operating costs of inpatient hospital services (as defined in 
subsection (a)(4)) of a hospital (other than a subsection (d) hospital, 
as described in subsection (d)(1)(B)) for a cost reporting period 
subject to this paragraph--
            ``(A) are less than or equal to 110 percent of the target 
        amount (as defined in paragraph (3)) for that hospital for that 
        period, the amount of the payment with respect to such 
        operating costs payable under part A on a per discharge basis 
        shall be equal to such operating costs or the target amount, 
        whichever is less; or
            ``(B) are greater than the target amount by at least 10 
        percent, the amount of the payment with respect to such 
        operating costs payable under part A on a per discharge or per 
        admission basis (as applicable) shall be equal to the sum of--
                    ``(i) the target amount, plus
                    ``(ii) an additional amount equal to 50 percent of 
                the amount by which the operating costs exceed 110 
                percent of the target amount after any exceptions or 
                adjustments are made to such target amount for the cost 
                reporting period (except that such additional amount 
                may not exceed 20 percent of the target amount).''.
    (e) Effective Date.--Except as otherwise specified, the amendments 
made by this section apply to cost reporting periods beginning on or 
after October 1, 1996.
    (f) Discharges.--Effective with discharges occurring on or after 
April 1, 1997, a rehabilitation hospital (or distinct part 
rehabilitation unit) or long-term hospital that is excluded from the 
prospective payment system under section 1886(d)(1)(B) shall submit 
patient assessment data based on a uniform minimum data set defined by 
the Secretary that can be used to develop a patient's plan of care and 
could be used to classify patients under a prospective payment system. 
To the extent the Secretary determines appropriate, the Secretary may 
require other excluded hospitals to submit patient assessment data.

SEC. 11109. REDUCTIONS TO CAPITAL PAYMENTS FOR PPS-EXEMPT HOSPITALS.

    Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)) is amended by adding at 
the end the following new subparagraph:
    ``(T) Reductions for PPS-Exempt Hospitals.--Such regulations shall 
provide that, in determining the amount of the payments that may be 
made under this title with respect to the capital-related costs of 
inpatient hospital services furnished by a hospital that is not a 
subsection (d) hospital (as defined in section 1886(d)(1)(B)) or a 
subsection (d) Puerto Rico hospital (as defined in section 
1886(d)(9)(A)), the Secretary shall reduce the amounts of such payments 
otherwise established under this title by 15 percent for payment 
attributable to portions of cost reporting periods occurring on or 
after October 1, 1996, through fiscal year 2002.''.

SEC. 11110. MAINTAINING SAVINGS RESULTING FROM TEMPORARY FREEZE ON 
              PAYMENT INCREASES FOR SKILLED NURSING FACILITIES.

    (a) Basing Updates to Per Diem Cost Limits Effective for Fiscal 
Year 1996 on Limits for Fiscal Year 1993.--
            (1) In general.--The last sentence of section 1888(a) (42 
        U.S.C. 1395yy(a)) is amended by adding at the end the 
        following: ``, except that the limits effective October 1, 
        1996, shall be based on the limits effective on October 1, 
        1992, and shall not take into account any changes in the 
        routine service costs of skilled nursing facilities occurring 
        during cost reporting periods which began during fiscal year 
        1994 or fiscal year 1995.''.
            (2) No exceptions permitted based on amendment.--The 
        Secretary of Health and Human Services shall not consider the 
        amendment made by paragraph (1) in making any adjustments 
        pursuant to section 1888(c) of the Social Security Act.
    (b) Payments Determined on Prospective Basis.--Prospective payments 
made to skilled nursing facilities under section 1888(d) of the Social 
Security Act for cost reporting periods beginning on or after October 
1, 1996, shall be based on the rates effective for cost reporting 
periods beginning October 1, 1992, and before October 1, 1993, and 
shall not take into account any changes in the costs of services 
occurring during cost reporting periods which began during fiscal year 
1994 or fiscal year 1995.

SEC. 11111. INTERIM PROSPECTIVE PAYMENT FOR SKILLED NURSING FACILITIES.

    (a) In General.--Section 1888 (42 U.S.C. 1395yy) is amended by 
adding at the end the following:
    ``(e) The Secretary shall, for cost reporting periods beginning on 
or after October 1, 1996, provide for payment for routine service costs 
(excluding capital-related costs) of extended care services in 
accordance with a prospective payment system established by the 
Secretary in the amounts provided in subsection (f), subject to the 
exceptions and limitations in subsections (g) and (h).
    ``(f)(1) The amount of payment under subsection (e) shall be 
determined on a per diem basis.
    ``(2) The Secretary shall compute the routine service costs per 
diem in a base year (determined by the Secretary) for each skilled 
nursing facility, and shall update the per diem rate on the basis of a 
market basket and other factors as the Secretary determines 
appropriate. In determining the per diem rate, the Secretary shall 
exclude increases in routine service costs associated with fiscal year 
1994 and fiscal year 1995.
    ``(3) The base year routine service costs used to determine the per 
diem rate applicable to a skilled nursing facility may not exceed the 
following limits:
            ``(A) With respect to skilled nursing facilities located in 
        rural areas, the limit shall be equal to 112 percent of the 
        mean per diem routine service costs in a base year (determined 
        by the Secretary) for freestanding skilled nursing facilities 
        located in rural areas within the same region.
            ``(B) With respect to skilled nursing facilities located in 
        urban areas, the limit shall be equal to 112 percent of the 
        mean per diem routine service costs in a base year (determined 
        by the Secretary) for freestanding skilled nursing facilities 
        located in urban areas within the same region.
            ``(C) For purposes of this subsection, urban and rural 
        areas shall be determined in the same manner as for purposes of 
        subsection (a), and the term `region' shall have the same 
        meaning as under section 1886(d)(2)(D).
            ``(D) In establishing limits under this subsection, the 
        Secretary may make appropriate adjustments to the labor-related 
        portion of the costs based upon on a wage index and other 
        factors as the Secretary determines appropriate.
            ``(E) In establishing the routine cost limits under this 
        subsection, the Secretary shall exclude increases in routine 
        service costs associated with fiscal year 1994 and fiscal year 
        1995.
    ``(4) Skilled nursing facilities entering the Medicare program 
subsequent to the base period, determined in subsection (f)(1), shall 
receive a routine payment rate equal to the mean per diem routine costs 
of freestanding skilled nursing facilities in the urban or rural area 
in which they are located by region. The Secretary shall compute these 
payment rates using per diem costs in a base year (determined by the 
Secretary) and shall update the rates on the basis of a market basket 
and other factors as the Secretary determines appropriate. In 
determining the payment rates under this paragraph, the Secretary shall 
exclude increases in routine service costs associated with fiscal year 
1994 and fiscal year 1995.
    ``(5) Effective for cost reporting periods beginning on or after 
October 1, 1996, low Medicare volume skilled nursing facilities, as 
described in subsection (d), shall receive payment for routine service 
costs as otherwise set forth in subsections (e) through (j), except 
that they may elect to receive payment on the basis of the rates 
described in subsection (f)(4).
    ``(6) The Secretary may make prospective adjustments to the routine 
payment rates to account for changes in facility patient mix (case mix) 
as the Secretary determines appropriate. A skilled nursing facility 
must provide the Secretary with the resident assessment data necessary 
to develop and implement such a system adjustment. Resident assessment 
data required under section 1819(b)(3), using the standard instrument 
designated by the State under section 1819(e)(5), shall be deemed to 
fulfill this requirement. Such adjustment shall be made in a manner 
which does not increase expenditures for the routine costs of skilled 
nursing facility services beyond what would otherwise occur.
    ``(g)(1) Subject to paragraphs (2) and (3), a facility's per diem 
payment rate based on the application of subsections (e) and (f) is the 
greater of--
            ``(A) its per diem payment amount in the base year, and
            ``(B) its base year cost per diem up to the regional limit 
        plus any exception amounts that may have been granted in the 
        base year (adjusted by the market basket).
    ``(2) The payment rate determined under paragraph (1) shall not 
exceed the facility's cost per diem incurred in the base year adjusted 
by the market basket.
    ``(3) Paragraph (1)(A) does not apply if the per diem payment 
amount in the base year was determined on the basis of an exemption 
under subsection (f)(4).
    ``(h) The Secretary, in making determinations on the reasonable 
costs (both capital and operating) of ancillary services provided by 
skilled nursing facilities under part A, shall utilize as an upper 
limit, the carrier fee schedules applicable to such services as 
specified in sections 1834 and 1848. This subsection shall not have the 
effect of mitigating other limits on the reasonable costs of ancillary 
services currently in effect under part A such as those specified in 
section 1861(v)(5)(A).
    ``(i) Exceptions, as described in subsection (c), and exemptions, 
as described in the applicable regulations, are eliminated for cost 
reporting periods beginning on or after October 1, 1996.''.
    (b) Consolidated Billing and Uniform Coding.--
            (1) In general.--Section 1862(a) (42 U.S.C. 1395y(a)) is 
        amended--
                    (A) by striking ``or'' at the end of paragraph 
                (14),
                    (B) by striking the period at the end of paragraph 
                (15) and adding a semicolon, and
                    (C) by inserting after paragraph (15) the 
                following:
            ``(16) which are other than physicians' services, services 
        described by sections 1861(s)(2)(K)(i) through (iii), certified 
        nurse-midwife services, qualified psychologist services, 
        hospice services, and services of a certified registered nurse 
        anesthetist, and which are furnished to an individual who is a 
        resident of a skilled nursing facility by an entity other than 
        the skilled nursing facility, unless the services are furnished 
        under arrangements (as defined in section 1861(w)(1)) with the 
        entity made by the skilled nursing facility; or
            ``(17) which are on a claim submitted by a skilled nursing 
        facility under this title, unless the claim uses the HCFA 
        common procedure coding system.''.
            (2) Conforming amendment.--Section 1866(a)(1)(H) (42 U.S.C. 
        1395cc(a)(1)(H)) is amended--
                    (A) by striking ``(i)'' and inserting ``(I)'' and 
                striking ``(ii)'' and inserting ``(II)'',
                    (B) by striking ``(H)'' and inserting ``(H)(i)'', 
                and
                    (C) by adding at the end the following:
            ``(ii) in the case of skilled nursing facilities which 
        provide services for which payment may be made under this 
        title, to have all items and services (other than physicians' 
        services, and other than services described by section 
        1861(s)(2)(K) (i) through (iii), certified nurse-midwife 
        services, qualified psychologist services, hospice services, 
        and services of a certified registered nurse anesthetist)--
                    ``(I) that are furnished to an individual who is a 
                resident of the skilled nursing facility, and
                    ``(II) for which the individual is entitled to have 
                payment made under this title, furnished by the skilled 
                nursing facility or otherwise under arrangements (as 
                defined in section 1861(w)(1)) made by the skilled 
                nursing facility,''.
            (3) Effective date.--The amendments made by this subsection 
        are effective for cost reporting periods beginning on or after 
        October 1, 1996.

SEC. 11112. FULL PROSPECTIVE PAYMENT SYSTEM FOR SKILLED NURSING 
              FACILITIES.

    (a) In General.--Section 1888 (42 U.S.C. 1395yy), as added by 
section 11111(a), is amended by striking subsections (e) through (i) 
and inserting the following:
    ``(e)(1) The Secretary shall provide for payment for all costs of 
extended care services (including routine service costs, ancillary 
costs, and capital related costs) in accordance with a prospective 
payment system established by the Secretary. Such system shall 
incorporate an adjustment for patient mix (case mix) based on resident 
assessment data and other data as appropriate. A skilled nursing 
facility must provide the Secretary with the resident assessment data 
necessary to develop and implement such a system adjustment. Resident 
assessment data required under section 1819(b)(3) using the standard 
instrument designated by the State under section 1819(e)(5) fulfills 
this requirement.
    ``(2) Prior to implementing the prospective payment system 
described in paragraph (1) in a budget neutral fashion, the Secretary 
shall reduce, by 7 percent, the per diem rates for routine costs, and 
the reasonable costs for ancillary services and capital for skilled 
nursing facilities as such rates and costs are in effect on September 
30, 1997.''.
    (b) Effective Date.--The amendments made by the preceding 
subsection apply to cost reporting periods beginning on or after 
October 1, 1997.

SEC. 11113. SALARY EQUIVALENCY GUIDELINES FOR THERAPY SERVICES.

    Section 1861(v)(5) (42 U.S.C. 1395x(v)(5)) is amended--
            (1) by redesignating subparagraph (B) as subparagraph (D),
            (2) in subparagraph (D), as so redesignated, by adding 
        ``(B), or (C),'' after ``subparagraph (A),'',
            (3) by inserting after subparagraph (A) the following:
    ``(B)(i) Effective for services furnished on or after October 1, 
1996, the Secretary shall apply guidelines based on the methodology 
described in clause (ii) relating to occupational therapy services and 
speech-language pathology services, and replace guidelines previously 
established under the subparagraph (A) relating to respiratory therapy 
services and physical therapy services provided under an arrangement 
with a provider of services or other organization.
    ``(ii) The guidelines for each therapy shall be equal to the sum 
of--
            ``(I) the sum of an hourly salary rate, plus fringe 
        benefits, plus a rental expense factor (in the same base year), 
        and
            ``(II) an overhead factor (excluding rental expenses) equal 
        to 28 percent of the amount determined in subclause (I),
adjusted by geographical area using the methodology contained in the 
final regulation of the Secretary published on page 44928 of volume 48 
of the Federal Register on September 30, 1983, updated annually from 
the base year to the current year by an inflation factor.
    ``(iii) The data used in establishing the guidelines under clause 
(ii) shall be--
            ``(I) in the case of hourly salary rates, for each therapy, 
        the 75th percentile of salaries paid to therapists working full 
        time in an employment relationship in the area, from the most 
        recent available Bureau of Labor Statistics (BLS) hospital 
        salary data for each, increased by 10 percent,
            ``(II) in the case of fringe benefits, for each therapy, an 
        aggregate factor derived from hospital cost reports ending in 
        fiscal year 1991 for BLS survey areas used in subclause (I),
            ``(III) in the case of the rental expense factor, for each 
        therapy, an amount derived from local area rental income data 
        compiled by the Building Owners and Managers Association 
        International for 1991, for BLS survey areas used in subclause 
        (I), and
            ``(IV) in the case of the inflation factor, for each 
        therapy, an amount equal to the average of employment cost 
        indices for wages and benefits of civilian hospital, 
        professional technical and clerical workers, and private 
        executives, administrators and managers, and the Consumer Price 
        Indices (Urban) for Housing and all items less food and energy, 
        weighted by the relative proportion that each component 
        represents of the guidelines amounts.
    ``(C) Nothing in subparagraph (B) shall preclude the Secretary from 
updating the guidelines using such data sources and methodology as the 
Secretary determines to be appropriate, except that any changes to the 
data sources will be made through rulemaking in a manner that does not 
increase aggregate spending for such services beyond what would 
otherwise occur.'', and
            (4) by adding at the end the following:
    ``(E) In applying limitations under section 1861(v)(5), the 
Secretary shall not recognize an exception for a provider that entered 
into a written binding contract or contingency contract with a 
therapist, provider or other organization prior to the date the initial 
guidelines are published.''.

SEC. 11114. GRADUATE MEDICAL EDUCATION, INDIRECT MEDICAL EDUCATION, AND 
              DISPROPORTIONATE SHARE HOSPITAL PAYMENTS FOR MANAGED CARE 
              ENROLLEES.

    (a) Payments for Graduate Medical Education Programs.--Section 
1851F, as added by title II, is amended by adding at the end the 
following:
    ``(m) Payments for Graduate Medical Education Programs.--
            ``(1) Additional payment to be made.--Starting in calendar 
        year 1997, each contract with an eligible organization under 
        this section shall provide for an additional payment for 
        Medicare's share of allowable direct graduate medical education 
        costs incurred by such organization for an approved medical 
        residency program.
            ``(2) Allowable costs.--If the eligible organization has an 
        approved medical residency program that incurs all or 
        substantially all of the costs of the program, the allowable 
        costs for such program shall equal the national average per 
        resident amount times the number of full-time-equivalent 
        residents in the program in nonhospital settings.
            ``(3) Costs under contracts with hospitals.--If an eligible 
        organization and a hospital that has an approved medical 
        residency training program both voluntarily enter into a 
        written agreement under which the eligible organization agrees 
        to pay the hospital for direct graduate medical education 
        resident time spent in patient care related activities, then 
        those payments are included within the allowable costs payable 
        under paragraph (1).
            ``(4) Definitions.--As used in this subsection--
                    ``(A) the terms `approved medical residency 
                program', `direct graduate medical education costs', 
and `full-time-equivalent residents' have the same meanings as under 
section 1886(h),
                    ``(B) the term `Medicare's share' means the amount 
                determined by multiplying the eligible organization's 
                allowable costs for an approved medical residency 
                program by the ratio of the number of individuals 
                enrolled with the organization under this section to 
                the total number of individuals enrolled with the 
                organization, and
                    ``(C) the term `national average per resident 
                amount' means an amount estimated by the Secretary to 
                equal the weighted average amount that would be paid 
                per full-time-equivalent resident under section 1886(h) 
                for the calendar year (determined separately for 
                primary care residency programs as defined under 
                section 1886(h) (including obstetrics and gynecology 
                residency programs) and for other residency 
                programs).''.
    (b) Additional Payments to Hospitals for Managed Care Enrollees.--
            (1) Hospital payment amount per resident.--Section 
        1886(h)(3) (42 U.S.C. 1395ww(h)(3)) is amended by adding at the 
        end the following:
                    ``(D) Payment for managed care enrollees.--For 
                portions of cost reporting periods occurring on or 
                after January 1, 1997, the Secretary shall provide for 
                an additional payment amount under this subsection for 
                services furnished to individuals who are enrolled 
                under a contract with an eligible organization under 
                part C and who are entitled to part A. Subject to 
                subsection (d)(11)(E), the amount of such payment shall 
                be equal to the product of--
                            ``(i) the aggregate approved amount (as 
                        defined in subparagraph (B)) for that period, 
                        and
                            ``(ii) the fraction of the total number of 
                        inpatient-bed-days (as established by the 
                        Secretary) during the period which are 
                        attributable to individuals who are enrolled in 
                        eligible organizations which have contracts 
                        under part C and who are entitled to part A.''.
            (2) Additional payments to hospitals for subsection (d) 
        hospitals.--Section 1886(d) (42 U.S.C. 1395ww(d)) is amended by 
        adding at the end the following:
    ``(11)(A) For portions of cost reporting periods occurring on or 
after January 1, 1997, the Secretary shall provide for an additional 
payment amount for subsection (d) hospitals for services furnished to 
individuals who are enrolled under a contract with an eligible 
organization under part C and who are entitled to part A.
    ``(B) Subject to subparagraph (E), the amount of such payment shall 
be determined by multiplying--
            ``(i) the sum of the amounts determined under subparagraphs 
        (C) and (D), by
            ``(ii) the product of--
                    ``(I) the number of discharges attributable to 
                individuals who are enrolled in an organization having 
                a contract under Part C and who are entitled to Part A, 
                and
                    ``(II) the estimated average per discharge amount 
                that would otherwise have been paid under section 
                1886(d)(1)(A) if the individuals had not been enrolled 
                in an organization having a contract under part C.
    ``(C) The Secretary shall determine an indirect teaching adjustment 
factor equal to the indirect teaching adjustment factor applicable to 
the hospital under paragraph (5)(B).
    ``(D) The Secretary shall determine a disproportionate share 
adjustment factor equal to the disproportionate share adjustment 
percentage applicable to the hospital under paragraph (5)(F).
    ``(E)(i) Payments under this paragraph, subsection (h)(3)(D), and 
section 1851F(1) for services or discharges occurring in a calendar 
year shall not exceed the annual limit described in clause (iii).
    ``(ii) At the beginning of each calendar year, if the Secretary 
determines that the payments described in clause (i) are likely to 
exceed the limit described in clause (iii), the Secretary shall make an 
adjustment in the amounts otherwise payable so that total payments will 
not exceed such limit.
    ``(iii) The payment limit described in this subclause is the sum, 
over all counties, of the product of the annual per capita payment 
adjustment amount, described in clause (iv), and the Secretary's 
projection of average enrollment in eligible organizations with 
contracts under part C.
    ``(iv) The payment adjustment amount described in this clause for a 
particular county--
            ``(I) for 1997, is 40 percent of the amount included in the 
        per capita rate of payment for 1996 determined under section 
        1876(a)(1)(C) for the payment adjustments described in section 
        1851F(e)(4)(C)(ii)(III) increased by the update factor 
        described in clause (v);
            ``(II) for 1998 is the per capita payment adjustment amount 
        for 1997 as if ``40 percent'' in subclause (I) was ``100 
        percent'', increased by the update factor described in clause 
        (v); and
            ``(III) for 1999 and subsequent years, is the per capita 
        payment adjustment amount for the previous year increased by 
        the update factor described in clause (v).
    ``(v) The update factor described in clause (iv) is the Secretary's 
projection for the following calendar year of average per capita growth 
in the payment adjustments described in section 
1851F(e)(4)(C)(ii)(III).
    ``(vi) Beginning in 1997, during the month of January, the 
Secretary shall promulgate the payment limit described in clause (iii) 
for the following calendar year and the payment adjustment described in 
clause (ii).''.
    (c) Use of Interim Final Regulations.--The Secretary of Health and 
Human Services may issue regulations on an interim final basis to 
implement this section and the amendments made by this Act.

SEC. 11115. SOLE COMMUNITY HOSPITALS.

    (a) Expanding the Choice of Base Years.--Section 1886(b)(3)(C) (42 
U.S.C. 1395ww(b)(3)(C)) is amended--
            (1) by striking ``or'' at the end of clause (iii),
            (2) by striking the period at the end of clause (iv) and 
        inserting ``, or'', and
            (3) by striking the second sentence and inserting in its 
        place the following:
            ``(v) If such a substitution results in an increase in the 
        target amount for the hospital, there shall be substituted for 
        the base cost reporting period described in clause (i)--
                    ``(I) a hospital's cost reporting period (if any) 
                beginning during fiscal year 1987, or
                    ``(II) beginning with discharges occurring in 
                fiscal year 1997, the average of--
                            ``(aa) the allowable operating costs of 
                        inpatient hospital services (as defined in 
                        subsection (a)(4)) recognized under this title 
                        for the hospital's cost reporting period (if 
                        any) beginning during fiscal year 1992 
                        increased (in a compounded manner) by the 
                        applicable percentage increases applied to such 
                        hospital under this paragraph for cost 
                        reporting periods beginning in fiscal year 1993 
                        and for discharges occurring in fiscal years 
                        1994, 1995, and 1996, and
                            ``(bb) the allowable operating costs of 
                        inpatient hospital services (as defined in 
                        subsection (a)(4)) recognized under this title 
                        for the hospital's cost reporting period (if 
                        any) beginning during fiscal year 1993 
                        increased (in a compounded manner) by the 
                        applicable percentage increase applied to such 
                        hospital under this paragraph for discharges 
                        occurring in fiscal years 1994, 1995, and 
                        1996.''.
    (b) Eliminating the Volume Adjustment.--Section 1886(d)(5)(D)(ii) 
(42 U.S.C. 1395ww(d)(5)(D)(ii)) is amended by striking ``In'' at the 
beginning and inserting ``For cost reporting periods beginning before 
October 1, 1996, in''.

SEC. 11116. RURAL PRIMARY CARE HOSPITAL PROGRAM.

    (a) In General.--The heading to section 1820 (42 U.S.C. 1395i-4)) 
is amended to read as follows:

                ``rural primary care hospital program''.

    (b) Expansion of Program to All States.--Section 1820(a)(1) (42 
U.S.C. 1395i-4(a)(1)) is amended by striking ``not more than 7''.
    (c) Moratorium on New Essential Access Community Hospital 
Designations.--Section 1820 (42 U.S.C. 1395i-4)) is amended--
            (1) in subsections (a)(3) and (b)(1)(C), by striking 
        ``essential access community hospitals or'' after ``as'',
            (2) in subsection (c)(1)(B), by striking ``an essential 
        access community hospital or'' after ``is designated as'',
            (3) in subsection (d)(1), by striking ``essential access 
        community hospitals or'' after ``facilities in the State as'',
            (4) in subsection (d)(2), by striking ``or an essential 
        access community hospital'' after ``rural primary care 
        hospital'',
            (5) by repealing subsection (e),
            (6) in subsection (g)(1), by amending subparagraph (A) to 
        read as follows:
                    ``(A) at least one hospital that is not a rural 
                primary care hospital, and'',
            (7) in subsection (i)--
                    (A) in the heading, by striking ``Hospitals or'' 
                and ``by Secretary'',
                    (B) by striking paragraphs (1) and (2)(C),
                    (C) in paragraph (2)(A)(ii), by striking 
                ``subparagraph (B)'' and inserting ``paragraph (2)'',
                    (D) by redesignating paragraph (2) as paragraph 
                (1),
                    (E) by striking the subparagraph designation 
                ``(B)'' and inserting ``(2) Facilities designated by 
                the secretary.--'',
                    (F) by striking the heading to paragraph (1) (as 
                redesignated by subparagraph (D) of this paragraph) and 
                the subparagraph designation ``(A)'' and inserting 
                ``Facilities designated by the state.--'', and
                    (G) by redesignating clauses (i) through (iii) of 
                paragraph (1) (as redesignated by subparagraph (D) of 
                this paragraph) as subparagraphs (A) through (C), and
            (8) in paragraphs (1) and (2) of subsection (k), by 
        striking ``an essential access community hospital or'' each 
        time it appears.
    (d) Continuing Participation of Rural Primary Care Hospitals.--
Section 1820(i)(1)(A) (42 U.S.C. 1395i-4(i)(1)(A)) (as redesignated by 
subsection (c)(7) of this section) is amended by inserting before the 
semicolon the following: ``(or in a State which the Secretary finds 
would receive a grant under such subsection during a fiscal year if 
funds were appropriated for grants under such subsection for the fiscal 
year)''.
    (e) Designation of Nonprofit or Public Hospitals.--Section 
1820(f)(1)(A) (42 U.S.C. 1395i-4(f)(1)(A)) is amended by inserting ``is 
a nonprofit or public hospital, and'' after ``(A)''.
    (f) Establishing a Minimum Separation Distance Between 
Facilities.--Section 1820(f)(1) (42 U.S.C. 1395i-4(f)(1)) is amended--
            (1) by striking ``and'' at the end of subparagraph (G),
            (2) by striking the period at the end of subparagraph (H) 
        and inserting ``; and'', and
            (3) by adding at the end the following:
                    ``(I) is located at least a 35-mile drive from any 
                rural primary care hospital or hospital, or is 
                certified by the State as being a necessary provider of 
                health care services to residents in the area, because 
                of local geography or service patterns.''.
    (g) Removal of Requirement for Prior Compliance With Hospital 
Standards.--Section 1820(f)(1)(B) (42 U.S.C. 1395i-4(f)(1)(B)) is 
amended by striking ``and had not been found, on the basis of a survey 
under section 1864, to be in violation of any requirement to 
participate as a hospital under this title''.
    (h) Limitation on Number of Inpatient Beds.--The matter in section 
1820(f)(1)(F) (42 U.S.C. 1395i-4(f)(1)(F)) preceding clause (i) is 
amended by striking ``6'' and inserting ``15''.
    (i) Limitation on Length of Inpatient Stays.--Section 1820(f) (42 
U.S.C. 1395i-4(f)) is amended--
            (1) in the matter in paragraph (1)(F) preceding clause (i), 
        by striking ``subject to paragraph (4),'',
            (2) in paragraph (1)(F)(i), by striking ``72 hours'' and 
        inserting ``96 hours'', and
            (3) by striking paragraph (4).
    (j) Conforming Change.--Section 1814(a)(8) (42 U.S.C. 1395f(a)(8)) 
is amended by striking ``within 72 hours'' and inserting ``within 96 
hours''.
    (k) Permitting Rural Primary Care Hospitals to Maintain Swing 
Beds.--Section 1820(f)(3) (42 U.S.C. 1395i-4(f)(3)) is amended--
            (1) in the first sentence, by striking ``are used for the 
        furnishing of extended care services'' through ``paragraph 
        (1)(F))'', and
            (2) by amending the second sentence to read as follows: 
        ``Nothing in this subsection shall be construed to prohibit a 
        rural primary care hospital from entering into an agreement 
        under section 1883 under which its facilities are used for the 
        furnishing of extended care services.''.
    (l) Conforming Change.--Section 1883 (42 U.S.C. 1395tt) is amended 
by striking ``hospital'' each place it appears and inserting ``hospital 
or rural primary care hospital''.
    (m) Change in Payment Methodology.--Section 1814(l)(1) (42 U.S.C. 
1395f(l)(1)) is amended by striking ``services--'' and all that follows 
through the period and inserting ``services is the reasonable cost of 
the rural primary care hospital in providing such services, as 
determined under section 1861(v).''.
    (n) Elimination of Deadline for Development of Prospective Payment 
System.--Section 1814(l) (42 U.S.C. 1395(l)(1)) is amended--
            (1) by striking paragraph (2), and
            (2) by striking ``(l)(1)'' and inserting ``(l)''.
    (o) No Change in Payment to Existing Essential Access Community 
Hospitals.--
            (1) In general.--Section 1886(d)(5)(D)(iii)(III) (42 U.S.C. 
        1395ww(d)(5)(D)(iii)(III)) is amended--
                    (A) by inserting ``was'' after ``is located in a 
                rural area and'', and
                    (B) by striking ``under section 1820(i)(1).'' and 
                inserting ``under section 1820(i)(1) as in effect on 
                the day before effective date of the Emergency Medicare 
                Protection Act of 1996. The application of a facility 
                that was submitted to the State for designation as an 
                essential access community hospital prior to January 1, 
                1996, and on which the State had not acted on by that 
                date shall be deemed to have been approved by the 
                Secretary prior to the enactment of the Emergency 
                Medicare Protection Act of 1996 if, within 2 months of 
                enactment--
                    ``(aa) the State in which the facility is located 
                determines that such facility meets the criteria for 
                essential access community hospital designation 
                described in section 1820(e) as in effect prior to the 
                enactment of such Act (or solely fails to meet the 
                criteria in section 1820(e)(2)), and
                    ``(bb) the Secretary determines the facility meets 
                the criteria described in section 1820(i)(1)(A) (i) and 
                (iii) as in effect prior to the enactment of such 
                Act.''.
            (2) Conforming amendment.--Section 1886(d)(5)(D)(v) (42 
        U.S.C. 1395ww(d)(5)(D)(v)) is amended--
                    (A) by inserting ``was'' after ``is located in a 
                rural area and'', and
                    (B) by inserting ``as in effect on the day before 
                effective date of the Emergency Medicare Protection Act 
                of 1996'' after ``section 1820(I)(1)''.
    (p) Conforming Amendment.--Section 1820(c)(3) (42 U.S.C. 1395i-
4(c)(3)) is amended by striking ``(i)(2)(C)'' and inserting ``(i)(2)''.
    (q) Technical Amendment.--Section 1820(f)(1)(A) (42 U.S.C. 1395i-
4(f)(1)(A)) is amended by striking ``section 1866(d)(2)(D)'' and 
inserting ``section 1886(d)(2)(D)''.
    (r) Medical Assistance Facilities.--Limited service rural hospitals 
participating in a demonstration described in section 4008(i)(1) of the 
Omnibus Budget Reconciliation Act of 1990 (and any facilities that have 
applied for inclusion in the demonstration as of the date of the 
enactment of this Act and that would have been included by the 
Secretary under provisions applicable as of the date of enactment) 
shall be deemed to be rural primary care hospitals as long as they 
continue to meet the requirements of the demonstration protocol 
relating to staffing, services, quality assurance, and related factors.

SEC. 11117. RURAL REFERRAL CENTERS.

    (a) Permanent Grandfathering of Rural Referral Center Status.--
            (1) In general.--Section 1886(d)(5)(C) (42 U.S.C. 
        1395ww(d)(5)(C)) is amended by adding at the end the following:
    ``(iii) Notwithstanding any other provisions of law, any hospital 
that was classified as a rural referral center under this subparagraph 
on September 30, 1994, shall continue to be classified as a rural 
referral center for fiscal year 1995 and each subsequent fiscal year 
with respect to payments under this title, unless the area in which the 
hospital is located is designated as an MSA for such fiscal year.''.
            (2) Permitting hospitals to decline reclassification.--If 
        any hospital fails to comply as a rural referral center under 
        section 1886(d)(5)(C) as a result of a decision by the Medicare 
        Geographic Classification Review Board under section 
        1886(d)(10) to reclassify the hospital as being located in an 
        urban area for fiscal year 1995 or fiscal year 1996, the 
        Secretary of Health and Human Services shall--
                    (A) notify the hospital of the failure to qualify,
                    (B) provide an opportunity for the hospital to 
                decline the reclassification, and
                    (C) if the hospital--
                            (i) declines the reclassification, 
                        administer the Social Security Act (other than 
                        section 1886(d)(8)(D)) for such fiscal year as 
                        if the decision by the Review Board had not 
                        occurred, or
                            (ii) fails to decline the reclassification, 
                        administer the Social Security Act without 
                        regard to paragraph (1).
    (b) Geographic Reclassification and Graduated Area Wage Index for 
Rural Referral Centers.--
            (1) In general.--Section 1886(d)(10)(D) (42 U.S.C. 
        1395ww(d)(10)(D)) is amended by adding at the end the following 
        new clauses:
    ``(iv) Notwithstanding clause (i) and section 412.230(e)(1)(iii) of 
title 42, Code of Federal Regulations (relating to criteria for use of 
an area's wage index), with respect to applications requesting a change 
in a hospital's geographic classification pursuant to subparagraph 
(C)(i)(II) for fiscal year 1998 and subsequent fiscal years, the 
Secretary shall treat an eligible hospital (as defined in clause (v)) 
as if it were located in another area.
    ``(v) For purposes of clause (iv), an ``eligible hospital'' means a 
hospital that--
            ``(I) is classified as a rural referral center under 
        paragraph (5)(C);
            ``(II) submits an application in accordance with this 
        paragraph requesting a change in the hospital's geographic 
        classification pursuant to subparagraph (C)(i)(II); and
            ``(III) meets all other applicable requirements and 
        standards except that the hospital's average hourly wage (as 
        determined by the Secretary) is less than 108 percent of the 
        average hourly wage of the hospitals in the area in which the 
        hospital is located.''.
            (2) Wage index.--Section 1886(d)(8)(C) (42 U.S.C. 
        1395ww(d)(8)(C)) is amended by adding at the end the following 
        new clause:
            ``(v) Notwithstanding any other provision of law--
                    ``(I) in the case of an eligible hospital (as 
                defined in paragraph (10)(D)(iv) whose average hourly 
                wage (as determined by the Secretary) is equal to or 
                greater than 104 percent and less than 108 percent of 
                the average hourly wage of the hospitals in the area in 
                which the hospital is located, the wage index for such 
                hospital shall be equal to the sum of--
                            ``(aa) the wage index for the area in which 
                        the hospital is located; and
                            ``(bb) 66 percent of the difference between 
                        the wage index for the area to which the 
                        hospital is reclassified (for a hospital 
                        treated as if it were located in such area, and 
                        the amount determined under item (aa);
                    ``(II) in the case of an eligible hospital whose 
                average hourly wage (as determined by the Secretary) is 
                greater than 100 percent and less than 104 percent of 
                the average hourly wage of the hospitals in the areas 
                in which the hospital is located, the wage index of 
                such hospital shall be determined as if the reference 
                in subclause (I) to `66 percent' were a reference to 
                `33 percent'.''.
    (c) Effective Date.--The amendments made by subsection (b) apply to 
applications submitted to the Medicare Geographic Classification Review 
Board under section 1886(d)(10)(C) for reclassification in fiscal year 
1998, and for each subsequent application period.

SEC. 11118. TELEMEDICINE.

    Title XVII of the Public Health Service Act (42 U.S.C. 300u et 
seq.) is amended--
            (1) in the title heading by striking out ``AND HEALTH 
        PROMOTION'' and inserting ``, HEALTH PROMOTION AND TELEMEDICINE 
        DEVELOPMENT'';
            (2) by inserting after the title heading the following:

          ``Part A--Health Information and Health Promotion'';

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

                   ``Part B--Telemedicine Development

  ``grant program for promoting the development of rural telemedicine 
                               networks.

    Sec. 1711. (a) Establishment.--The Secretary shall establish a 
program to award grants to eligible entities in accordance with this 
subsection to promote the development of rural telemedicine networks.
    ``(b) Grants for Development of Rural Telemedicine.--The Secretary, 
acting through the Office of Rural Health Policy, shall award grants to 
eligible entities that have applications approved under subsection (d) 
for the purpose of expanding access to health care services for 
individuals in rural areas through the use of telemedicine. Grants 
shall be awarded under this section to--
            ``(1) encourage the initial development of rural 
        telemedicine networks;
            ``(2) expand existing networks;
            ``(3) link existing networks together; or
            ``(4) link such networks to existing fiber optic 
        telecommunications systems.
    ``(c) Eligible Entity Defined.--For the purposes of this section 
the term `eligibility entity' means hospitals and other health care 
providers operating in a health care network of community-based 
providers that includes at least three of the following--
            ``(1) community or migrant health centers;
            ``(2) local health departments;
            ``(3) community mental health centers;
            ``(4) nonprofit hospitals;
            ``(5) private practice health professionals, including 
        rural health clinics; or
            ``(6) other publicly funded health or social services 
        agencies.
    ``(d) Application.--To be eligible to receive a grant under this 
section an eligible entity shall prepare and submit to the Secretary an 
application at such time, in such manner and containing such 
information as the Secretary may require, including a description of--
            ``(1) the need of the entity for the grant;
            ``(2) the use to which the entity would apply any amounts 
        received under such grant;
            ``(3) the source and amount of non-Federal funds that the 
        entity will pledge for the project funded under the grant; and
            ``(4) the long-term viability of the project and evidence 
        of the providers commitment to the network.
    ``(e) Preference in Awarding Grants.--In awarding grants under this 
section, the Secretary shall give preference to applicants that--
            ``(1) are health care providers operating in rural health 
        care networks or that propose to form such networks with the 
        majority of the providers in such networks being located in a 
        medically underserved area or health professional shortage 
        area;
            ``(2) can demonstrate broad geographic coverage in the 
        rural areas of the State, or States in which the applicant is 
        located;
            ``(3) propose to use funds received under the grant to 
        develop plans for, or to establish, telemedicine systems that 
        will link rural hospitals and rural health care providers to 
        other hospitals and health care providers;
            ``(4) will use the amounts provided under the grant for a 
        range of health care applications and to promote greater 
        efficiency in the use of health care resources;
            ``(5) demonstrate the long-term viability of projects 
        through use of local matching funds (in cash or in-kind); and
            ``(6) demonstrate financial, institutional, and community 
        support and the long-range viability of the network.
    ``(f) Use of Amounts.--Amounts received under a grant awarded under 
this section shall be utilized for the development of telemedicine 
networks. Such amounts may be used to cover the costs associated with 
the development of telemedicine networks and the acquisition of 
telemedicine equipment and modifications or improvements of 
telecommunications facilities, including--
            ``(1) the development and acquisition through lease or 
        purchase of computer hardware and software, audio and visual 
        equipment, computer network equipment, modification or 
        improvements to telecommunications transmission facilities, 
        telecommunications terminal equipment, interactive video 
        equipment, data terminal equipment, and other facilities and 
        equipment that would further the purposes of this section;
            ``(2) the provision of technical assistance and instruction 
        for the development and use of such programming equipment or 
        facilities;
            ``(3) the development and acquisition of instructional 
        programming;
            ``(4) the development of projects for teaching or training 
        medical students, residents, and other health professions 
        students in rural training sites about the application of 
        telemedicine;
            ``(5) transmission costs, maintenance of equipment, and 
        compensation of specialists and referring practitioners;
            ``(6) the development of projects to use telemedicine to 
        facilitate collaboration between health care providers; and
            ``(7) such other uses that are consistent with achieving 
        the purposes of this section as approved by the Secretary.
    ``(g) Prohibited Use of Amounts.--Amounts received under a grant 
awarded under this section shall not be used for--
            ``(1) expenditures to purchase or lease equipment to the 
        extent the expenditures would exceed more than 60 percent of 
        the total grant funds; or
            ``(2) expenditures for indirect costs (as determined by the 
        Secretary) to the extent the expenditures would exceed more 
        than 10 percent of the total grant funds.
    ``(h) Authorization of Appropriations.--There are authorized to be 
appropriated such sums as may be necessary to carry out this section.
    ``(i) Definition.--For the purposes of this section, the term 
`rural health care network' means a group of rural hospitals or other 
rural health care providers (including clinics, physicians, and 
nonphysicians primary care providers) that have entered into a 
relationship with each other or with nonrural hospitals and health care 
providers for the purpose of strengthening the delivery of health care 
services in rural areas or specifically to improve their patients' 
access to telemedicine services. At least 75 percent of hospitals and 
other health care providers participating in the network shall be 
located in rural areas.''.

SEC. 11119. ESTABLISHMENT OF RURAL HEALTH OUTREACH GRANT PROGRAM.

    Title III of the Public Health Service Act (42 U.S.C. 241 et seq.) 
is amended by adding at the end the following:

                 ``Part O--Rural Health Outreach Grants

                 ``rural health outreach grant program.

    ``Sec. 3990 (a) In General.--The Secretary may make grants to 
demonstrate the effectiveness of outreach to populations in rural areas 
that do not normally seek or do not have access to health or mental 
health services. Grants shall be awarded to enhance linkages, 
integration, and cooperation in order to provide health or mental 
health services, to enhance services, or increase access to or 
utilization of health or mental health services.
    ``(b) Mission of the Outreach Projects.--Projects funded under 
subsection (a) should be designed to facilitate the integration and 
coordination of services in or among rural communities in order to 
address the needs of populations living in rural or frontier 
communities.
    ``(c) Composition of Program.--
            ``(1) Consortium arrangement.--To be eligible to 
        participate in the grant program established under subsection 
        (a), an applicant entity shall be a consortium of three or more 
        separate and distinct entities formed to carry out an outreach 
        project under subsection (b).
            ``(2) Certain requirements.--A consortium under paragraph 
        (1) shall be composed of three or more public or private 
        nonprofit health care or social service providers. Consortium 
        members may include local health departments, community or 
        migrant health centers, community mental health centers, 
        hospitals or private practices, or other publicly funded health 
        or social service agencies.
    ``(d) Authorization of Appropriations.--For the purpose of carrying 
out this section, there are authorized to be appropriated $30,000,000 
for fiscal year 1997, and such sums as may be necessary for each of the 
fiscal years 1998 through 2001.''.

SEC. 11120. MEDICARE-DEPENDENT, SMALL, RURAL HOSPITAL PAYMENT 
              EXTENSION.

    (a) Special Treatment Extended.--
            (1) Payment methodology.--Section 1886(d)(5)(G) (42 U.S.C. 
        1395ww(d)(5)(g)) is amended--
                    (A) in clause (i), by striking ``October 1, 1994,'' 
                and inserting ``October 1, 1994, or beginning on or 
                after October 1, 1996, and before October 1, 2000,'';
                    (B) by striking ``and'' at the end of clause 
                (ii)(I);
                    (C) by striking the period at the end of clause 
                (ii)(II) and inserting a semicolon;
                    (D) by adding at the end of clause (ii) the 
                following:
            ``(III) for discharges occurring during any cost reporting 
        period beginning on or before October 1, 1996, and before 
        October 1, 2000, 50 percent of the amount by which the 
        hospital's target amount (as defined in subclause (IV)) for the 
        cost reporting period exceeds the amount determined under 
        paragraph (1)(A)(iii); and
            ``(IV) for purposes of subclause (III), a facility's target 
        amount for the cost reporting period is as defined in 
        subsection (b)(3)(D) except that the base cost reporting period 
        shall be determined in accordance with subsection 
        (b)(3)(C)(v)(II), as amended in the Emergency Medicare 
        Protection Act of 1996.''; and
                    (E) In clause (iv)--
                            (i) in subclause (III), by striking 
                        ``and'',
                            (ii) in subclause (IV), by striking the 
                        period and inserting a comma, and
                            (iii) by adding at the end the following:
                    ``(V) for cost reporting periods beginning on or 
                after October 1, 1996, for which not less than 60 
                percent of its inpatient days or discharges during the 
                cost reporting periods beginning in fiscal year 1992 
                and fiscal year 1993 were attributable to inpatients 
                for which payments are made under this subsection.''.
            (2) Extension of target amount.--Section 1886(b)(3)(D) (42 
        U.S.C. 1395ww(b)(3)(D)) is amended--
                    (A) in the matter preceding clause (i), by striking 
                ``September 30, 1994,'' and inserting ``September 30, 
                1994, and for cost reporting periods beginning on or 
                after October 1, 1996, and before October 1, 2000,'';
                    (B) in clause (ii), by striking ``and'' at the end;
                    (C) in clause (iii) by striking the period at the 
                end and inserting a comma; and
                    (D) by adding at the end the following new clauses:
            ``(iv) with respect to discharges occurring during fiscal 
        year 1997, the target amount shall be defined as the average 
        of--
                    ``(I) the allowable operating costs of inpatient 
                hospital services (as defined in subsection (a)(4)) 
                recognized under this title for the hospital's cost 
                reporting period (if any) beginning during fiscal year 
                1992 increased (in a compounded manner) by the 
                applicable percentage increases applied to such 
                hospital under this paragraph for cost reporting 
                periods beginning in fiscal year 1993 and for 
                discharges occurring in fiscal years 1994, 1995, and 
                1996, and
                    ``(II) the allowable operating costs of inpatient 
                hospital services (as defined in subsection (a)(4)) 
                recognized under this title for the hospital's cost 
                reporting period (if any) beginning during fiscal year 
                1993 increased (in a compounded manner) by the 
                applicable percentage increase applied to such hospital 
                for discharges occurring in fiscal years 1994, 1995, 
                and 1996, and
            ``(v) with respect to discharges occurring during fiscal 
        years 1998 through 2000, the target amount for the preceding 
        year increased by the applicable percentage increase under 
        subparagraph (B)(iv).''.
            (3) Permitting hospitals to decline reclassification.--
        Section 13501(e)(2) of OBRA-93 (42 U.S.C. 1395ww note) is 
        amended by striking ``or fiscal year 1994'' and inserting ``, 
        fiscal year 1994, fiscal year 1995, fiscal year 1996, fiscal 
        year 1997, fiscal year 1998, or fiscal year 1999''.
    (b) Effective Date.--The amendments made by subsection (a) apply 
with respect to discharges occurring during portions of cost reporting 
periods beginning on or after October 1, 1996.

               Subtitle B--Provisions Relating to Part B

SEC. 11121. PAYMENTS FOR PHYSICIANS' SERVICES.

    (a) Establishing Update to Conversion Factor To Match Spending 
Under Sustainable Growth Rate.--
            (1) Update--
                    (A) In general.--Section 1848(d)(3) (42 U.S.C. 
                1395W-4(d)(3)) is amended to read as follows:
            ``(3) Update.--
                    ``(A) In general.--Unless Congress otherwise 
                provides, subject to subparagraph (D) and the budget-
                neutrality factor determined by the Secretary under 
                subsection (c)(2)(B)(ii), the update to the single 
                conversion factor established in paragraph (1)(C) for a 
                year beginning with 1997 shall be determined as 
                follows:
                            ``(i) 1997.--The update for 1997 shall be 
                        the Secretary's estimate of the weighted 
                        average of the three separate updates that 
                        would otherwise occur were it not for the 
                        enactment of section 11121 of the Emergency 
                        Medicare Protection Act of 1996.
                            ``(ii) Subsequent years.--The update for 
                        years beginning with 1998 shall be equal to the 
                        product of--
                                    ``(I) 1 plus the Secretary's 
                                estimate of the percentage increase in 
                                the MEI (described in section 
                                1842(i)(3)) for the year (divided by 
                                100, and
                                    ``(II) 1 plus the Secretary's 
                                estimate of the update adjustment 
                                factor for the year (divided by 100),
                        minus 1 and multiplied by 100.
                    ``(B) Update adjustment factor.--The `update 
                adjustment factor' for a year is equal to the quotient 
                (as estimated by the Secretary) of--
                            ``(i) the difference between (I) the sum of 
                        the allowed expenditures for physicians' 
                        services furnished during each of the fiscal 
                        years 1995 through the year involved, and (II) 
                        the sum of the amount of actual expenditures 
                        for physicians' services furnished during each 
                        of the fiscal years 1995 through the previous 
                        year, divided by
                            ``(ii) the allowed expenditures for 
                        physicians' services furnished during the 
                        fiscal year.
                    ``(C) Determination of allowed expenditures.--For 
                purposes of subparagraph (B), allowed expenditures for 
                physicians' services shall be determined as follows (as 
                estimated by the Secretary):
                            ``(i) 1995.--In the case of allowed 
                        expenditures for 1995, such expenditures shall 
                        be equal to actual expenditures for services 
                        furnished during fiscal year 1995.
                            ``(ii) Subsequent years.--In the case of 
                        allowed expenditures for 1996 and each 
                        subsequent year, such expenditures shall be 
                        equal to allowed expenditures for the previous 
                        fiscal year increased by the sustainable growth 
                        rate under subsection (f) for the fiscal year.
                    ``(D) Restriction on variation from Medicare 
                economic index.--Notwithstanding the amount of the 
                update adjustment factor determined under subparagraph 
                (B), the update in the conversion factor under this 
                paragraph for a year may not be--
                            ``(i) greater than 1.03 plus the 
                        Secretary's estimate of the percentage increase 
                        in the MEI (described in section 1842(i)(3)) 
                        for the year (divided by 100), minus 1 and 
                        multiplied by 100, or
                            ``(ii) less than 0.9175 plus the 
                        Secretary's estimate of the percentage increase 
                        in the MEI (described in section 1842(i)(3)) 
                        for the year (divided by 100), minus 1 and 
                        multiplied by 100.''.
                    (B) Effective date.--The amendments made by 
                subparagraph (A) apply to physicians' services 
                furnished on or after January 1, 1997.
            (2) Conforming amendments.--
                    (A) Section 1848(d)(2).--Section 1848(d)(2)(A) (42 
                U.S.C. 1395w-4(d)(2)(A)) is amended--
                            (i) in the matter preceding clause (i)--
                                    (I) by striking ``(or factors) in 
                                the conversion factor (or factors)'' 
                                and inserting ``in the conversion 
                                factor'',
                                    (II) by striking ``(beginning with 
                                1991)'' and inserting ``(beginning with 
                                1996)'', and
                                    (III) by striking the second 
                                sentence,
                            (ii) by amending clause (ii) to read as 
                        follows:
                            ``(ii) such factors as enter into the 
                        calculation of the update adjustment factor as 
                        described in paragraph (3)(B); and'',
                            (iii) by amending clause (iii) to read as 
                        follows:
                            ``(iii) access to services.'',
                            (iv) by striking clauses (iv), (v), and 
                        (vi), and
                            (v) by striking the last sentence.
                    (B) Section 1848(d)(2)(b).--Section 1848(d)(2)(B) 
                (42 U.S.C. 1395w-4(d)(2)(B)) is amended--
                            (i) by striking ``and'' at the end of 
                        clause (iii),
                            (ii) by striking the period at the end of 
                        clause (iv) and inserting ``; and'', and
                            (iii) by adding at the end the following 
                        new clause:
                            ``(v) changes in volume or intensity of 
                        services.''.
                    (C) Redesignation of subparagraph.--Section 
                1848(d)(2) (42 U.S.C. 1395w-4(d)(2)) is further 
                amended--
                            (i) by striking subparagraphs (C), (D), and 
                        (E),
                            (ii) by redesignating subparagraph (F) as 
                        subparagraph (C), and
                            (iii) in subparagraph (C), as redesignated, 
                        by striking ``(or updates) in the conversion 
                        factor (or factors)'' and inserting ``in the 
                        conversion factor''.
    (b) Replacement of Volume Performance Standard With Sustainable 
Growth Rate.--
            (1) In general.--Section 1848(f) (42 U.S.C. 1395w-4(f)) is 
        amended by striking paragraphs (2) through (5) and inserting 
        the following:
            ``(2) Specification of growth rate.--
                    ``(A) Fiscal year 1996.--The sustainable growth 
                rate for all physicians' services for fiscal year 1996 
                shall be equal to the product of--
                            ``(i) 1 plus the Secretary's estimate of 
                        the percentage increase in the MEI (described 
                        in section 1842(i)(3)) for 1996 (divided by 
                        100),
                            ``(ii) 1 plus the Secretary's estimate of 
                        the percentage change (divided by 100) in the 
                        average number of individuals enrolled under 
                        this part (other than private plan enrollees) 
                        from fiscal year 1995 to fiscal year 1996,
                            ``(iii) 1 plus the Secretary's estimate of 
                        the projected percentage growth in real gross 
                        domestic product per capita (divided by 100) 
                        from fiscal year 1995 to fiscal year 1996, plus 
                        1 percentage point, and
                            ``(iv) 1 plus the Secretary's estimate of 
                        the percentage change (divided by 100) in 
                        expenditures for all physicians' services in 
                        fiscal year 1996 (compared with fiscal year 
                        1995) which will result from changes in law 
                        (including the Emergency Medicare Protection 
                        Act of 1996), determined without taking into 
                        account estimated changes in expenditures due 
                        to changes in the volume and intensity of 
                        physicians' services resulting from changes in 
                        the update to the conversion factor under 
                        subsection (d),
                minus 1 and multiplied by 100.
                    ``(B) Subsequent years.--The sustainable growth 
                rate for all physicians' services for fiscal year 1997 
                and each subsequent year shall be equal to the product 
                of--
                            ``(i) 1 plus the Secretary's estimate of 
                        the percentage increase in the MEI for the 
                        fiscal year involved (described in section 
                        1842(i)(3)) (divided by 100),
                            ``(ii) 1 plus the Secretary's estimate of 
                        the percentage change (divided by 100) in the 
                        average number of individuals enrolled under 
                        this part (other than private plan enrollees) 
                        from the previous fiscal year to the fiscal 
                        year involved,
                            ``(iii) 1 plus the Secretary's estimate of 
                        the projected percentage growth in real gross 
                        domestic product per capita (divided by 100) 
                        from the previous fiscal year to the fiscal 
                        year involved, plus 1 percentage point, and
                            ``(iv) 1 plus the Secretary's estimate of 
                        the percentage change (divided by 100) in 
                        expenditures for all physicians' services in 
                        the fiscal year (compared with the previous 
                        fiscal year) which will result from changes in 
                        law, determined without taking into account 
                        estimated changes in expenditures due to 
                        changes in the volume and intensity of 
                        physicians' services resulting from changes in 
                        the update to the conversion factor under 
                        subsection (d),
                minus 1 and multiplied by 100.
            ``(3) Definitions.--In this subsection:
                    ``(A) Services included in physicians' services.--
                The term `physicians' services' includes other items 
                and services (such as clinical diagnostic laboratory 
                test and radiology services), specified by the 
                Secretary, that are commonly performed or furnished by 
                a physician or in a physician's office, but does not 
                include services furnished to an eligible organization 
                enrollee.
                    ``(B) Eligible organization enrollee.--The term 
                `eligible organization enrollee' means, with respect to 
                a fiscal year, an individual enrolled under this part 
                who has elected to receive benefits under this title 
                through an eligible organization with a contract under 
                part C (and, through 2000, enrollment with an 
                organization with a contract under section 1876(h).''.
            (2) Conforming amendments.--Section 1848(f) (42 U.S.C. 
        1395w-4(f)) is amended--
                    (A) in the heading, by striking ``Volume 
                Performance Standard Rates of Increase'' and inserting 
                ``Sustainable Growth Rate'',
                    (B) in paragraph (1)--
                            (i) in the heading, by striking ``Volume 
                        performance standard rates of increase'' and 
                        inserting ``Sustainable growth rate'',
                            (ii) in subparagraph (a), in the matter 
                        preceding clause (i), by striking ``performance 
                        standard rates of increase'' and inserting 
                        ``sustainable growth rate'', and
                            (iii) in subparagraph (A), by striking 
                        ``HMO enrollees'' each place it appears and 
                        inserting ``eligible organization enrollees'',
                    (C) in subparagraph (B), by striking ``performance 
                standard rates of increase'' and inserting 
                ``sustainable growth rate'', and
                    (D) in subparagraph (C)--
                            (i) in the heading, by striking 
                        ``performance standard rates of increase'' and 
                        inserting ``sustainable growth rate'',
                            (ii) in the first sentence, by striking 
                        ``with 1991), the performance standard rates of 
                        increase'' and all that follows through the 
                        first period and inserting ``with 1997), the 
                        sustainable growth rate for the fiscal year 
                        beginning in that year.'', and
                            (iii) in the second sentence, by striking 
                        ``January 1, 1990, the performance standard 
                        rate of increase under subparagraph (D) for 
                        fiscal year 1990'' and inserting ``January 1, 
                        1997, the sustainable growth rate for fiscal 
                        year 1997''.
    (c) Establishment of Single Conversion Factor for 1996.--
            (1) In general.--Section 1848(d)(1) (42 U.S.C. 1395w-
        4(d)(1)) is amended--
                    (A) by redesignating subparagraph (C) as 
                subparagraph (E), and
                    (B) by inserting after subparagraph (B) the 
                following:
                    ``(C) Special rules for 1996.--The single 
                conversion factor for 1996 under this subsection shall 
                be $35.42 for all physicians' services (other than 
                services covered in subparagraph (D)), except that 
                during 1996, conversion factors shall be used for 
                surgical services and nonsurgical services (as defined 
                in subsection (j)(1)) at the levels otherwise 
                established by the Secretary for such services.
                    ``(D) Special rules for anesthesia services.--If 
                the Secretary establishes a separate relative value 
                scale and conversion factor for anesthesia services for 
                a year, the separate conversion factor for anesthesia 
                services shall be updated from the conversion factor 
                that applied for such services in the previous year--
                            ``(i) for 1997, by the same percentage 
                        change as for the category of surgical services 
                        as defined in subsection (j)(1), and
                            ``(ii) for 1998 and thereafter, by the same 
                        percentage change as would apply for all 
                        physicians' services as determined under 
                        paragraph (3).''.
            (2) Conforming amendments.--Section 1848 (42 U.S.C. 1395w-
        4) is amended--
                    (A) by striking ``(or factors)'' each place it 
                appears in subsection (d)(1) (A) and (E)(ii) (as 
                redesignated by paragraph (1)(A),
                    (B) in subsection (d)(1)(A), by striking ``or 
                updates'',
                    (C) in subsection (d)(1)(E)(ii) (as redesignated by 
                paragraph (1)(A)), by striking ``(or updates)'', and
                    (D) in subsection (i)(1)(C), by striking 
                ``conversion factors'' and inserting ``the conversion 
                factor''.

SEC. 11122. PRACTICE EXPENSE RELATIVE VALUE UNITS.

    (a) Extension to 1997.--Section 1848(c)(2)(E)(i) (42 U.S.C. 1395w-
4(c)(2)(E)(i)) is amended--
            (1) by striking ``and'' at the end of subclause (II),
            (2) by striking the period at the end of subclause (III) 
        and inserting ``, and'', and
            (3) by inserting at the end the following:
                    ``(IV) 1997, by an additional 25 percent of such 
                excess.''.
    (b) Change in Floor on Reductions and Services Covered.--Clauses 
(ii) and (iii)(II) of section 1848(c)(2)(E) (42 U.S.C. 1395w-
4(c)(2)(E)) are each amended by inserting ``(or 115 percent in the case 
of 1997)'' after ``128 percent''.

SEC. 11123. SINGLE FEE FOR SURGERY.

    (a) In General.--Section 1848(a) (42 U.S.C. 1395w-4(a)) is amended 
by adding at the end the following:
            ``(5) Single fee for surgery.--
                    ``(A) General rule.--Payment under this part for 
                surgical services (as defined by the Secretary under 
                subsection (j)(1)), when a separate payment is also 
                made for the services of a physician or other 
                practitioners acting as an assistant at surgery, may 
                not (except as provided in subparagraph (B)), when 
                added to the separate payment made for the services of 
                that other practitioner, exceed the amount that would 
                be paid for the surgical services if a separate payment 
                were not made for the services of that practitioner.
                    ``(B) Exceptions.--The Secretary may specify 
                surgery procedures or situations to which subparagraph 
                (A) does not apply.''.
    (b) Conforming Amendment.--Section 1848(g)(2)(D) (42 U.S.C. 1395w-
4(g)(2)(D)) is amended by inserting ``(or the lower amount under 
subsection (a)(5))'' after ``subsection (a)''.
    (c) Effective Date.--The amendments made by this section apply to 
services furnished on or after January 1, 1997.

SEC. 11124. INCENTIVES TO CONTROL HIGH VOLUME FOR IN-HOSPITAL 
              PHYSICIANS' SERVICES.

    (a) In General.--
            (1) Limitations described.--Part B of title XVIII is 
        amended by adding at the end the following:

``SEC. 1849. INCENTIVES TO CONTROL HIGH VOLUME FOR IN-HOSPITAL 
              PHYSICIANS' SERVICES.

    ``(a) Services Subject to Reduction.--
            ``(1) Determination of hospital-specific per admission 
        relative value.--Not later than October 1 of each year 
        (beginning with 1998), the Secretary shall determine for each 
        hospital--
                    ``(A) the hospital-specific per admission relative 
                value under subsection (b)(2) for the following year, 
                and
                    ``(B) whether such hospital-specific relative value 
                is projected to exceed the allowable average per 
                admission relative value applicable to the hospital for 
                the following year under subsection (b)(1).
            ``(2) Reduction for services at hospitals exceeding 
        allowable average per admission relative value.--If the 
        Secretary determines (under paragraph (1)) that a medical 
        staff's hospital-specific per admission relative value 
        applicable to the medical staff for the year, the Secretary 
        shall reduce (in accordance with subsection (c)) the amount of 
payment otherwise determined under this part for each physician's 
service furnished during the year to an inpatient of the hospital by an 
individual who is a member of the hospital's medical staff.
            ``(3) Timing of determination; notice to medical staffs and 
        carriers.--Not later than October 1 of each year (beginning 
        with 1998), the Secretary shall notify the medical executive 
        committee of each hospital (as set forth in the Standards of 
        the Joint Commission on the Accreditation of Health 
        Organizations) of the determinations made with respect to the 
        medical staff under paragraph (1).
    ``(b) Determination of Allowable Average Per Admission Relative 
Value and Hospital-Specific Per Admission Relative Values.--
            ``(1) Allowable average per admission relative values.--
                    ``(A) Urban hospitals.--In the case of a hospital 
                located in an urban area, the allowable average per 
                admission relative value established under this 
                subsection for 1999 and 2000 is equal to 125 percent 
                and for years after 2000 is 120 percent of the median 
                of 1997 hospital-specific per admission relative values 
                determined under paragraph (2) for all hospital medical 
                staffs.
                    ``(B) Rural hospitals.--In the case of a hospital 
                located in a rural area, the allowable average per 
                admission relative value established under this 
                subsection for 1999 and each succeeding year, is equal 
                to 140 percent of the median of the 1997 hospital-
                specific per admission relative values determined under 
                paragraph (2) for all hospital medical staffs.
            ``(2) Hospital-specific per admission relative value.--
                    ``(A) In general.--The hospital-specific per 
                admission relative value projected for a hospital 
                (other than a teaching hospital) for a calendar year, 
                shall be equal to the average per admission relative 
                value (as determined under section 1848(c)(2)) for 
                physicians' services furnished to inpatients of the 
                hospital by the hospital's medical staff (excluding 
                interns and residents) during the second year preceding 
                such calendar year, adjusted for variations in case-mix 
                and disproportionate share status among hospitals (as 
                determined by the Secretary under subparagraph (C)).
                    ``(B) Special rule for teaching hospitals.--The 
                hospital-specific relative value projected for a 
                teaching hospital in a calendar year shall be equal to 
                the sum of--
                            ``(i) the average per admission relative 
                        value (as determined under section 1848(c)(2)) 
                        for physicians' services furnished to 
                        inpatients of the hospital by the hospital's 
                        medical staff (excluding interns and residents) 
                        during the second year preceding such calendar 
                        year, and
                            ``(ii) the equivalent per admission 
                        relative value (as determined under section 
                        1848(c)(2)) for physicians' services furnished 
                        to inpatients of the hospital by interns and 
                        residents of the hospital during the second 
                        year preceding such calendar year, adjusted for 
                        variations in case-mix, disproportionate share 
                        status, and teaching status among hospitals (as 
                        determined by the Secretary under subparagraph 
                        (C)). The Secretary shall determine such 
                        equivalent relative value unit per admission 
                        for interns and residents based on the best 
                        available data and may make such adjustment in 
                        the aggregate.
                    ``(C) Adjustment for teaching and disproportionate 
                share hospitals.--The Secretary shall adjust the 
                allowable per admission relative values otherwise 
                determined under this paragraph to take into account 
                the needs of teaching hospitals and hospitals receiving 
                additional payments under subparagraphs (F) and (G) of 
                section 1886(d)(5). The adjustment for teaching status 
                or disproportionate share shall not be less than zero.
    ``(c) Amount of Reduction.--The amount of payment otherwise made 
under this part for a physician's service that is subject to a 
reduction under subsection (a) during a year shall be reduced 15 
percent, in the case of a service furnished by a member of the medical 
staff of the hospital for which the Secretary determines under 
subsection (a)(1) that the hospital medical staff's projected relative 
value per admission exceeds the allowable average per admission 
relative value.
    ``(d) Reconciliation of Reductions Based on Hospital-Specific 
Relative Value Per Admission With Actual Relative Values.--
            ``(1) Determination of actual average per admission 
        relative value.--Not later than October 1 of each year 
        (beginning with 2000), the Secretary shall determine the actual 
        average per admission relative value (as determined pursuant to 
        section 1848(c)(2)) for the physicians' services furnished by 
        members of a hospital's medical staff to inpatients of the 
        hospital during the previous year, on the basis of claims for 
        payment for such services that are submitted to the Secretary 
        not later than 90 days after the last day of such previous 
        year. The actual average per admission relative value shall be 
        adjusted by the appropriate case-mix, disproportionate share 
        factor, and teaching factor for the hospital medical staff (as 
        determined by the Secretary under subsection (b)(2)(C)). 
        Notwithstanding any other provision of this title, no payment 
        may be made under this part for any physician's service 
        furnished by a member of a hospital's medical staff to an 
        inpatient of the hospital during a year unless such claim is 
        submitted to the Secretary for payment for such service not 
        later than 90 days after the last day of the year.
            ``(2) Reconciliation with reductions taken.--In the case of 
        a hospital for which the payment amounts for physicians' 
        services furnished by members of the hospital's medical staff 
        to inpatients of the hospital were reduced under this section 
        for a year--
                    ``(A) if the actual average per admission relative 
                value for such hospital's medical staff during the year 
                (as determined by the Secretary under paragraph (1)) 
                did not exceed the allowable average per admission 
                relative value applicable to the hospital's medical 
                staff under subsection (b)(1) for the year, the 
                Secretary shall reimburse the fiduciary agent for the 
                medical staff by the amount by which payments for such 
                services were reduced for the year under subsection 
                (c), including interest at an appropriate rate 
                determined by the Secretary; and
                    ``(B) if the actual average per admission relative 
                value for such hospital's medical staff during the year 
                exceeded the allowable average per admission relative 
                value applicable to the hospital's medical staff under 
                subsection (a)(1) for the year, the Secretary shall 
                reimburse the fiduciary agent for the medical staff the 
                amount withheld under subsection (c) multiplied by the 
                `final ratio', including interest at an appropriate 
                rate determined by the Secretary. The final ratio 
                described in the previous sentence shall be determined 
                by dividing the difference between the initial ratio 
                and 0.85, by 0.15, where the initial ratio is 
                determined by dividing the medical staff's allowable 
                average per admission relative value for a year (as 
                determined under subsection (a)(1)) by the medical 
                staff's actual hospital-specific per admission relative 
                value for such year, but in no case shall the initial 
                ratio be less than 0.85.
            ``(3) Medical executive committee of a hospital.--Each 
        medical executive committee of a hospital whose medical staff 
        is projected to exceed the allowable relative value per 
        admission for a year, shall have one year from the date of 
        notification that such medical staff is projected to exceed the 
        allowable relative value per admission to designate a fiduciary 
        agent for the medical staff to receive and disburse any 
        appropriate withhold amount made by the carrier.
            ``(4) Alternative reimbursement to members of staff.--At 
        the request of a fiduciary agent for the medical staff, if the 
        fiduciary agent for the medical staff is owed the reimbursement 
        described in paragraph (2)(B) for excess reductions in payments 
        during a year, the Secretary shall make such reimbursement to 
        the members of the hospital's medical staff, on a pro rata 
        basis according to the proportion of expenditures for 
        physicians' services furnished to inpatients of the hospital 
        during the year that were furnished by each member of the 
        medical staff.
    ``(e) Definitions.--In this section, the following definitions 
apply:
            ``(1) Medical staff.--An individual furnishing a 
        physician's service is considered to be on the medical staff of 
        a hospital--
                    ``(A) if (in accordance with requirements for 
                hospitals established by the Joint Commission on 
                Accreditation of Health Organizations)--
                            ``(i) the individual is subject to bylaws, 
                        rules, and regulations established by the 
                        hospital to provide a framework for the self-
                        governance of medical staff activities,
                            ``(ii) subject to such bylaws, rules, and 
                        regulations, the individual has clinical 
                        privileges granted by the hospital's governing 
                        body, and
                            ``(iii) under such clinical privileges, the 
                        individual may provide physicians' services 
                        independently within the scope of the 
                        individual's clinical privileges, or
                    ``(B) if such physician provides at least one 
                service to a Medicare beneficiary in such hospital.
            ``(2) Rural area; urban area.--The terms `rural area' and 
        `urban area' have the meaning given such terms under section 
        1886(d)(2)(D).
            ``(3) Teaching hospital.--The term `teaching hospital' 
        means a hospital which has a teaching program approved as 
        specified in section 1861(b)(6).
            ``(4) Hospital.--The term `hospital' means a subsection (d) 
        hospital as defined in section 1886(d).
            ``(5) Physicians' services.--The term `physicians' 
        services' means those services described in section 
        1848(j)(3).''.
            (2) Conforming amendments.--
                    (A) Section 1833(a).--Section 1833(a)(1)(N) (42 
                U.S.C. 1395l(a)(1)(N)) is amended by inserting 
                ``subject to reduction under section 1849)'' after 
                ``1848(a)(1)''.
                    (B) Section 1848(a).--Section 1848(a)(1)(B) (42 
                U.S.C. 1395w-4(a)(1)(B)) is amended by striking ``this 
                subsection,'' and inserting ``this subsection and 
                section 1849,''.
    (b) Requiring Physicians To Identify Hospital at Which Service 
Furnished.--Section 1848(g)(4)(A)(i) (42 U.S.C. 1395w-4(g)(A)(i)) is 
amended by striking ``beneficiary,'' and inserting ``beneficiary (and, 
in the case of a service furnished to an inpatient of a hospital, 
report the hospital identification number on such claim form),''.
    (c) Effective Dates.--
            (1) Subsection (a).--The amendments made by subsection (a) 
        apply to services furnished on or after January 1, 1999.
            (2) Subsection (b).--The amendments made by subsection (b) 
        apply to services furnished on or after January 1, 1998.

11125. AMBULATORY SURGICAL CENTER SERVICE UPDATES.

    Section 1833(i)(2)(C) (42 U.S.C. 1395l(i)(2)(C)) is amended--
            (1) by striking ``a fiscal year (beginning with fiscal year 
        1996)'' and inserting ``fiscal year 1996, and for other fiscal 
        years beginning with 2003'', and
            (2) by inserting after the subparagraph designation ``(C)'' 
        the following: ``Notwithstanding the second sentence of 
        subparagraph (A) or the second sentence of subparagraph (B), 
        with respect to fiscal years 1997 through 2002, the Secretary 
        shall increase amounts for facility services by the percentage 
        increase in the Consumer Price Index for all urban consumers 
        (United States city average) as estimated by the Secretary for 
        the 12-month period ending with the midpoint of the year 
        involved, reduced by two percentage points for fiscal years 
        1997 through 2002.''.

SEC. 11126. OXYGEN AND OXYGEN EQUIPMENT, OTHER DURABLE MEDICAL 
              EQUIPMENT AND ORTHOTICS AND PROSTHETICS.

    (a) In General.--
            (1) Freeze in update for covered items.--Section 
        1834(a)(14) (42 U.S.C. 1395m(a)(14)) is amended--
                    (A) by striking ``and'' at the end of subparagraph 
                (A),
                    (B) in subparagraph (B)--
                            (i) by striking ``a subsequent year'' and 
                        inserting ``1993, 1994, 1995, and 1996'', and
                            (ii) by striking the period at the end and 
                        adding ``; and'', and
                    (C) by adding at the end the following:
                    ``(C) for each of the years 1997 through 2002, 0 
                percent; and
                    ``(D) for a subsequent year, the percentage 
                increase in the Consumer Price Index for all urban 
                consumers (United States urban average) for the 12-
                month period ending with June of the previous year.''.
            (2) Update for orthotics and prosthetics.--Section 
        1834(h)(4)(A) (42 U.S.C. 1395m(h)(4)(A)) is amended--
                    (A) in clause (i), by striking the comma at the end 
                and inserting a semicolon,
                    (B) by striking ``and'' at the end of clause (iii) 
                and inserting a semicolon, and
                    (C) by redesignating clause (iv) as clause (v), and 
                by adding after clause (iii), the following clause:
                            ``(iv) for 1996, 3.0 percent, and for 1997 
                        through 2002, 0 percent, and''
    (b) Oxygen and Oxygen Equipment.--Section 1834(a)(9)(C) (42 U.S.C. 
1395m(a)(9)(C)) is amended--
            (1) by striking ``and'' at the end of clause (iii);
            (2) in clause (iv)--
                    (A) by striking ``a subsequent year'' and inserting 
                ``1993, 1994, 1995, and 1996''; and
                    (B) by striking the period at the end and inserting 
                ``; and''; and
            (3) by adding at the end the following new clause:
                    ``(v) in each subsequent year, is 90 percent of the 
                national limited monthly payment rate computed under 
                subparagraph (B) for the item for the year.''.

SEC. 11127. ELIMINATION OF FORMULA-DRIVEN OVERPAYMENTS FOR CERTAIN 
              OUTPATIENT HOSPITAL SERVICES.

    (a) In General.--Subparagraph (B)(i)(II) of section 1833(i)(3) (42 
U.S.C. 1395l(i)(3)) and subparagraph (B)(i)(II) of section 1833(n)(1) 
(42 U.S.C. 1395l(n)(1)) are each amended--
            (1) by striking ``of 80 percent''; and
            (2) by striking the period at the end and inserting the 
        following: ``, less the amount a provider may charge as 
        described in clause (ii) of section 1866(a)(2)(A).''.
    (b) Effective Date.--The amendments made by this section are 
effective for services furnished during portions of cost reporting 
periods occurring on or after October 1, 1996.

SEC. 11128. EXTENSION OF REDUCTIONS IN PAYMENTS FOR COSTS OF HOSPITAL 
              OUTPATIENT SERVICES.

    (a) Reduction in Payments for Capital-Related Costs.--Section 
1861(v)(1)(S)(ii)(I) (42 U.S.C. 1395x(v)(1)(S)(ii)(I)) is amended by 
striking ``1992 through 1998'' and inserting ``beginning with 1992''.
    (b) Reduction in Payments for Other Costs.--Section 
1861(v)(1)(S)(ii)(II) (42 U.S.C. 1395x(v)(1)(S)(ii)(II)) is amended by 
striking ``1991 through 1998'' and inserting ``beginning with 1991''.

SEC. 11129. PROSPECTIVE PAYMENT FOR HOSPITAL OUTPATIENT DEPARTMENT 
              SERVICES.

    (a) In General.--Section 1833 (42 U.S.C. 1395l) is amended by 
adding at the end the following:
    ``(t) Prospective Payment System for Hospital Outpatient Department 
Services.--
            ``(1) In general.--Notwithstanding any other provision of 
        this title, with respect to hospital outpatient services 
        designated by the Secretary and furnished during years 
        beginning with January 1, 2002, the amount of payment made for 
        the services determined under this part shall be determined 
        under a prospective payment system established by the Secretary 
        in accordance with this subsection.
            ``(2) System requirements.--Under the system established by 
        the Secretary under this subsection--
                    ``(A) the Secretary shall develop a classification 
                system to reflect the hospital outpatient services 
                furnished under this part;
                    ``(B) groups of procedures and visits shall be 
                established so that procedures and visits within each 
                group are comparable clinically and with respect to the 
                use of resources;
                    ``(C) the Secretary shall, using data from the most 
                recent year available, established relative payment 
                weights for groups based on median hospital costs and 
                shall determine the frequency of each group;
                    ``(D) the Secretary shall determine a wage 
                adjustment factor to adjust for relative differences in 
                labor and labor-related costs across geographic 
                regions;
                    ``(E) the Secretary shall establish other 
                adjustments as determined to be necessary to ensure 
                equitable payments, such as outlier adjustments or 
                adjustments for certain classes of hospitals; and
                    ``(F) the Secretary shall examine potential 
                methodologies to control for unnecessary increases in 
                the volume of the services subject to payment under 
                this section.
            ``(3) Group prices.--On the basis of the weights and 
        frequencies described in paragraph (2)(C), the Secretary shall 
        establish prices for each group such that 20 percent of the sum 
        of the group prices (taking into account appropriate 
        adjustments described in paragraph (2)(D) and paragraph 
        (2)(E)), multiplied by the frequencies, shall equal the 
        coinsurance target determined in paragraph (4).
            ``(4) Coinsurance target.--For purposes of determining the 
        group prices in paragraph (3), the coinsurance target shall 
        equal the Secretary's estimate of the projected total amount of 
        coinsurance payments that would be made under this part with 
        respect to outpatient hospital services furnished during 2002 
        (without regard to the provisions of this section) as 
        determined under section 1866(a)(2)(A)(ii).
            ``(5) Coinsurance amounts.--Beginning in 2002, the amount 
        of coinsurance on hospital outpatient services shall be 
        calculated as 20 percent of the group price determined under 
        paragraph (3), adjusted for relative differences in the cost of 
        labor and adjusted for other factors determined by the 
        Secretary.
            ``(6) Medicare's payment amount.--
                    ``(A) In general.--The Secretary shall--
                            ``(i) establish an expenditure target based 
                        on an estimate of total projected Medicare 
                        payments made to hospitals for outpatient 
                        department services in 2002 without regard to 
                        the provisions of this section; and
                            ``(ii) determine a Medicare payment factor 
                        which when applied to the sum of the group 
                        prices (taking into account appropriate 
                        adjustments described in paragraph (2)(D) and 
                        paragraph (2)(E)) multiplied by projected 
                        frequencies in 2002 shall equal the expenditure 
                        target.
                    ``(B) 2002 and thereafter.--Beginning on January 1, 
                2002, the amount of payment made for outpatient 
                department services shall be equal to the applicable 
                group price, adjusted for differences in the cost of 
                labor and adjusted for other factors determined by the 
Secretary, multiplied by the Medicare payment factor.
            ``(7) Updates.--
                    ``(A) In general.--Beginning on January 1, 2003, 
                and until such time as the Medicare payment factor is 
                0.80, the Medicare payment factor shall be increased 
                each year by the percentage increase applicable under 
                section 1886(b)(3)(B)(iii) for the fiscal year in which 
                the year begins.
                    ``(B) Rule for updates after Medicare payment 
                factor becomes 0.80.--During and after the first 
                calendar year following the date on which the Medicare 
                payment factor is 0.80--
                            ``(i) the Medicare payment factor shall be 
                        frozen; and
                            ``(ii) the group price shall be increased 
                        each year by the percentage increase applicable 
                        under section 1886(b)(3)(B)(iii) for the fiscal 
                        year in which the year begins.
            ``(8) Periodic review and adjustments to group prices.--
                    ``(A) Periodic review.--The Secretary may 
                periodically review and revise the groups, the relative 
                payment weights, and the wage and other adjustments 
                described in paragraph (2) and the group prices 
                described in paragraph (3) to take into account changes 
                in medical practice, changes in technology, the 
                addition of new procedures, new cost data and other 
                relevant information and factors.
                    ``(B) Budget neutrality for adjustment.--If the 
                Secretary makes adjustments under subparagraph (A), 
                then such adjustments for a year may not cause the 
                estimated amount of expenditures under this part for 
                the year to increase or decrease from the estimated 
                amount of expenditures under this part that would have 
                been made if such adjustments has not been made.''.
    (b) Conforming Amendments.--
            (1) Approved asc procedures performed in hospital 
        outpatient departments.--
                    (A) Section 1833(i)(3)(A) (42 U.S.C. 
                1395l(i)(3)(A)) is amended by inserting ``before 
                January 1, 2002'' after ``furnished'' and by striking 
                ``in a cost reporting period''.
                    (B) Section 1833(a)(4) (42 U.S.C. 1395l(a)(4)) is 
                amended by deleting the semicolon following 
                ``subsection (i)'' and inserting ``or subsection 
                (t);''.
            (2) Radiology and other diagnostic procedures.--
                    (A) Section 1833(n)(1)(A) (42 U.S.C. 
                1395l(n)(1)(A)) is amended by inserting ``and before 
                January 1, 2002'' after ``October 1, 1988,'' and after 
                ``October 1, 1989,''.
                    (B) Section 1833(a)(2)(E) (42 U.S.C. 
                1395l(a)(2)(E)) is amended by deleting the semicolon 
                following ``subsection (n)'' and inserting ``or (t);''.
            (3) Other hospital outpatient services.--Section 
        1833(a)(2)(B) (42 U.S.C. 1395l(a)(2)(B)) is amended--
                    (A) in clause (i), by inserting ``before January 1, 
                2002,'' after ``(i)'';
                    (B) in clause (ii), by inserting ``before January 
                1, 2002,'' after ``(ii)'';
                    (C) by redesignating clause (iii) as clause (iv); 
                and
                    (D) by striking ``or'' at the end of clause (ii) 
                and inserting the following new clause:
                            ``(iii) on or after January 1, 2002, the 
                        amount determined under subsection (t), or''.
            (4) Coinsurance.--Section 1866(a)(2)(A)(ii) (42 U.S.C. 
        1395cc(a)(2)(A)(ii)) is amended by adding at the end the 
        following new sentence: ``In the case of items and services for 
        which payment is made under part B under the prospective 
        payment system established under section 1833(t), clause (ii) 
        of the first sentence shall be applied by substituting for 20 
        percent of the reasonable charge, the applicable coinsurance 
        amount established under such system.''.

SEC. 11130. WAIVE COST-SHARING FOR MAMMOGRAPHY.

    (a) Diagnostic Mammography.--Section 1861(s) (42 U.S.C. 1395x(s)) 
is amended--
            (1) in paragraph (3), by striking ``including diagnostic 
        mammography if conducted by a facility that has a certificate 
        (or provisional certificate) issued under section 354 of the 
        Public Health Service Act'',
            (2) by striking ``and'' at the end of paragraph (15),
            (3) by striking the period at the end of paragraph (16) and 
        inserting ``; and'', and
            (4) by adding at the end the following:
            ``(17) diagnostic mammography, if conducted by a facility 
        that has a certificate (or provisional certificate) issued 
        under section 354 of the Public Health Service Act.''.
    (b) Payment for Screening Mammography.--Section 1834(c)(1)(C) (42 
U.S.C. 1395m(c)(1)(C)) is amended by striking ``, subject to the 
deductible established under section 1833(b),'' and ``80 percent of''.
    (c) Waiver of Deductible.--The first sentence of section 1833(b) 
(42 U.S.C. 1395l(b)) is amended--
            (1) by striking ``and'' before ``(4)'', and
            (2) by inserting the following before the period at the 
        end: ``, and (5) such deductible shall not apply with respect 
        to screening and diagnostic mammography described in section 
        1861(s)(13) and section 1861(s)(17)''.
    (d) Waiver of Coinsurance.--Section 1833(a)(1) (42 U.S.C. 
1395l(a)(1)) is amended--
            (1) by striking ``and'' at the end of subparagraph (O), and
            (2) by inserting before the semicolon at the end of 
        subparagraph (P) the following ``, and (Q) with respect to 
        diagnostic mammography described in section 1861(s)(17), the 
        amount paid shall be 100 percent of the fee schedule amount 
        provided under section 1848''.
    (e) Waiver of Coinsurance in Hospital Outpatient Departments.--The 
third sentence of section 1866(a)(2)(A) (42 U.S.C. 1395cc(a)(2)(A)) is 
amended by inserting after ``1861(s)(10)(A)'' the following: ``, with 
respect to items and services described in section 1861(s)(13), with 
respect to items and services described in section 1861(s)(17),''.
    (f) Effective Date.--The amendments made by the preceding 
subsections apply to services furnished on or after January 1, 1997 
through December 31, 2000.

SEC. 11131. ANNUAL MAMMOGRAMS.

    (a) Providing Annual Screening Mammography for Women Over Age 49.--
Section 1834(c)(2)(A) (42 U.S.C. 1395m(c)(2)(A)) is amended--
            (1) in clause (iv), by striking ``but under 65 years of 
        age,'' and
            (2) by striking clause (v).
    (b) Effective Date.--The amendment made by subsection (a) applies 
to services furnished on or after January 1, 1997 through December 31, 
2000.

SEC. 11132. COVERAGE OF COLORECTAL SCREENING.

    (a) In General.--Section 1834 (42 U.S.C. 1395m) is amended by 
inserting after subsection (c) the following:
    ``(d) Coverage and Definition of Colorectal Screening Procedures.--
            ``(1) In general.--Notwithstanding any other provision of 
        this part, payment may be made only for periodic colonoscopy 
        screening procedures conducted consistent with the frequency 
        permitted under this subsection.
            ``(2) Frequency limits for screening fecal-occult blood 
        tests.--Subject to revision by the Secretary under paragraph 
        (5), no payment may be made under this part for a screening 
        fecal-occult blood test provided to an individual for the 
        purpose of early detection of colon cancer if the test is 
        performed--
                    ``(A) in the case of an individual under 65 years 
                of age, more frequently than is provided in a 
                periodicity schedule established by the Secretary for 
                purposes of this subparagraph, or
                    ``(B) in the case of any other individual, within 
                the 11 months following the month in which a previous 
                screening fecal-occult blood test was performed.
            ``(3) Periodic colorectal screening procedures for 
        individuals not at high risk for colorectal cancer.--
                    ``(A) Frequency limits.--Subject to revision by the 
                Secretary under paragraph (5), no payment may be made 
                under this part for a periodic colorectal screening 
                procedure provided to an individual for the purpose of 
                early detection of colon cancer if the procedure is 
                performed--
                            ``(i) on an individual under 50 years of 
                        age; or
                            ``(ii) within the 59 months after a 
                        previous periodic colorectal screening 
                        procedure.
                    ``(B) Periodic colorectal screening procedure 
                defined.--The term `periodic colorectal screening 
                procedure' means a flexible sigmoidoscopy, barium enema 
                screening procedure, or other screening procedure for 
                colorectal cancer as determined by the Secretary.
            ``(4) Screening procedures for individuals at high risk for 
        colorectal cancer.--
                    ``(A) Frequency limits.--Subject to revision by the 
                Secretary under paragraph (5), no payment may be made 
                under this part for eligible procedures defined in 
                subparagraph (B) for individuals at high risk for 
                colorectal cancer for the purpose of early detection of 
                colon cancer if the procedure is performed within the 
                47 months following the month in which a previous 
                eligible procedure was performed.
                    ``(B) Eligible procedures.--Procedures eligible for 
                payment under this part for screening for individuals 
                at high risk for colorectal cancer for the purpose of 
                early detection of colorectal cancer shall include a 
                screening colonscopy, barium enema screening 
                procedures, or other screening procedures for 
                colorectal cancer as the Secretary determines 
                appropriate.
                    ``(C) Factors considered in establishing criteria 
                for determining individuals at high risk.--In 
                establishing criteria for determining whether an 
                individual is at high risk for colorectal cancer for 
                purposes of this paragraph, the Secretary shall take 
                into consideration family history, prior experience of 
                cancer, a history of chronic digestive disease 
                condition, and the presence of any appropriate 
                recognized gene markers for colorectal cancer.
            ``(5) Revision of frequency.--
                    ``(A) Review.--The Secretary shall review 
                periodically the appropriate frequency for performing 
                screening fecal-occult blood tests, screening flexible 
                sigmoidoscopies, barium enema screening procedures, 
                screening colonoscopies, and other colorectal screening 
                procedures determined appropriate by the Secretary, 
                based on age and such other factors as the Secretary 
                believes to be pertinent.
                    ``(B) Revision of frequency.--The Secretary, taking 
                into consideration the review made under subparagraph 
                (a), may revise from time to time the frequency with 
                which such tests and procedures may be paid for under 
                this subsection.''.
    (b) Conforming Amendments.--
            (1) Section 1833(a).--Paragraphs (1)(D) and (2)(D) of 
        section 1833(a) (42 U.S.C. 1395l(a)) are each amended by 
        striking ``subsection (h)(1),'' and inserting ``subsection 
        (h)(1) or section 1834(d)(1),''.
            (2) Section 1862(a).--Section 1862(a) (42 U.S.C. 1395y(a)) 
        is amended)--
                    (A) in paragraph (1)--
                            (i) by striking ``and'' at the end of 
                        subparagraph (E),
                            (ii) by striking the semicolon at the end 
                        of subparagraph (F) and inserting ``, and'', 
                        and
                            (iii) by adding at the end the following:
                    ``(G) in the case of screening fecal-occult blood 
                tests, screening flexible sigmoidoscopies, barium enema 
                screening procedures, screening colonoscopies, and 
                other colorectal screening procedures determined 
                appropriate by the Secretary, provided for the purpose 
                of early detection of colon cancer, which are performed 
                more frequently than is covered under section 
                1834(d);'', and
                    (B) in paragraph (7), by striking ``paragraph 
                (1)(B) or under paragraph (1)(F)'' and inserting 
                ``subparagraphs (B), (F), or (G) of paragraph (1)''.
    (c) Effective Date.--The amendments made by the preceding 
subsections apply to services furnished on or after January 1, 1997 
through December 31, 2000.

SEC. 11133. PAYMENTS FOR VACCINES AND VACCINE ADMINISTRATION.

    (a) Payment Amounts for the Administration of Certain Vaccines.--
            (1) In general.--Section 1833(k) (42 U.S.C. 1395l(k)) is 
        amended to read as follows:
    ``(k)(1) The payment amount under this part for the administration 
of a vaccine described in section 1861(s)(10) shall be equal to--
            ``(A)(i) for a vaccine administered in 1997 not in 
        connection with the furnishing of another service, $9, and
            ``(ii) for a vaccine administered in 1997 in connection 
        with the furnishing of another service, $4, and
            ``(B) for a vaccine administered in any subsequent year, 
        the amount determined under subparagraph (A), or under this 
        subparagraph, for the previous year, increased by the update 
        under section 1848(d)(3) for that subsequent year for 
        physicians' services (described in section 
        1848(d)(3)(A)(ii)(I)).
    ``(2) For a limitation on actual charges for items and services 
described in section 1861(s)(10), see paragraphs (1) and (2) of section 
1848(g).''.
            (2) Conforming amendment to section 1832(a)(1).--Section 
        1832(a)(1) (42 U.S.C. 1395k(a)(1)) is amended by striking ``and 
        (D)'' and inserting ``, (D), and (K)''.
            (3) Conforming amendments to section 1832(a)(2).--Section 
        1832(a)(2) (42 U.S.C. 1395k(a)(2)) is amended--
                    (A) in subparagraph (B), by striking ``described in 
                subparagraph (G) or subparagraph (I)'' and inserting 
                ``or services described in subparagraph (G), (I), or 
                (K)'',
                    (B) in subparagraph (D), by inserting before the 
                semicolon the following: ``, other than, in either 
                case, services described in subparagraph (K)'',
                    (C) in subparagraph (H), by inserting before the 
                semicolon the following: ``, other than services 
                described in subparagraph (K)'',
                    (D) in subparagraph (I), by striking the final 
                ``and'',
                    (E) in subparagraph (J), by striking the period and 
                inserting ``; and'', and
                    (F) by adding at the end the following:
                    ``(K) administration of vaccines by providers of 
                services, or as rural health clinic or federally 
                qualified health center services.''.
          (4) Conforming amendments to section 1833(a)(1).--Section 
        1833(a)(1)(B) (42 U.S.C. 1395l(a)(1)(B)) is amended--
                    (A) by striking ``items and services described'' 
                and inserting ``vaccines listed'', and
                    (B) by inserting at the end the following: ``and, 
                with respect to the administration of those vaccines, 
                the amounts described in subsection (k)(1),''.
            (5) Conforming amendments to section 1833(a)(42).--Section 
        1833(a)(2) (42 U.S.C. 1395l(a)(2)) is amended--
                    (A) in the matter preceding subparagraph (A), by 
                striking ``and (I)'' and inserting ``, (I), and (K)'', 
                and
                    (B) in the matter in subparagraph (A) preceding 
                clause (i), by striking ``items and services 
                described'' and inserting ``vaccines listed''.
            (6) Conforming amendment to section 1833(a)(3).--Section 
        1833(a)(3) (42 U.S.C. 1395l(a)(3)) is amended by striking 
        ``items and services described'' and inserting ``vaccines 
        listed''.
            (7) Conforming amendments to section 1833(a)(6).--Section 
        1833(a)(6) (42 U.S.C. 1395l(a)(6)) is amended--
                    (A) by inserting ``other than services described in 
                section 1832(a)(2)(K)'' after ``services'', and
                    (B) by striking ``and''.
            (8) Conforming amendment to section 1833(a)(7).--Section 
        1833(a)(7) (42 U.S.C. 1395l(a)(7)) is amended by striking the 
        period and inserting ``; and''.
          (9) Cross reference.--Section 1833(a) (42 U.S.C. 1395l(a)) is 
        amended by adding at the end the following:
            ``(8) in the case of services described in section 
        1832(a)(2)(k), the amount described in subsection (k)(1).''.
            (10) Conforming amendment to section 1834(g).--Section 
        1834(g)(2) (42 U.S.C. 1395m(g)(2)) is amended by inserting 
        ``(other than services described in section 1832(a)(2)(K))'' 
        after ``hospital services''.
            (11) Conforming amendments to section 1842(b).--
                    (A) Initial matter in paragraph (3)(b).--The matter 
                in section 1842(b)(3)(B) (42 U.S.C. 1395u(b)(3)(B)) 
                preceding clause (i) is amended by inserting ``, where 
                payment under this part for a service is on a basis 
                other than a cost basis,'' after ``carrier, and''.
                    (B) Paragraph (3)(b)(ii).--Section 
                1842(b)(3)(B)(ii)(I) (42 U.S.C. 1395u(b)(3)(B)(ii)(I)) 
                is amended by inserting ``(or other payment basis)'' 
                after ``reasonable charge''.
            (12) Conforming amendments to section 1848(g).--
                    (A) Paragraph (1).--The first sentence of section 
                1848(g)(1) (42 U.S.C. 1395w-4(g)(1)) is amended by 
                inserting ``, or items and services described in 
                section 1861(s)(10),'' after ``service''.
                    (B) Paragraph (2).--Section 1848(g)(2)(C) (42 
                U.S.C. 1395w-4(g)(2)(C)) is amended by adding at the 
                end the following: ``For items and services described 
                in section 1861(s)(10) furnished in a year after 1994, 
                the ``limiting charge'' shall be 115 percent of the 
                applicable amount described in section 1833(k)(1).''.
    (b) Elimination of Coinsurance and Deductible for Hepatitis B 
Vaccine.--Section 1833(a)(1)(B) (42 U.S.C. 1395l(a)(1)(B)), the matter 
in subparagraph (A) of section 1833(a)(2) (42 U.S.C. 1395l(a)(2)) 
preceding clause (i), section 1833(a)(3) (42 U.S.C. 1395l(a)(3)), 
paragraph (1) of the first sentence of section 1833(b) (42 U.S.C. 
1395l(b)), and the third sentence of section 1866(a)(2)(A) (42 U.S.C. 
1395cc(a)(2)(A)) are each amended by striking ``1861(s)(10)(A)'' and 
inserting ``1861(s)(10)''.
    (c) Repeal of Obsolete Provisions.--
            (1) Social security act.--Section 1861(s)(10)(A) (42 U.S.C. 
        1395x(s)(10)(A)) is amended by striking ``, subject to section 
        4071(b) of the Omnibus Reconciliation Act of 1987,''.
            (2) OBRA-1987.--Section 4071(b) of OBRA-1987 is repealed.
    (d) Effective Date.--The amendments made by subsections (a) and (b) 
shall apply to services furnished on or after January 1, 1997 through 
December 31, 2000.

SEC. 11134. DIABETES SCREENING BENEFITS.

    (a) Diabetes Outpatient Self-Management Training Services.--
            (1) In general.--Section 1861(s)(2) (42 U.S.C. 
        1395x(s)(2)), is amended--
                    (A) by striking ``and'' at the end of subparagraph 
                (N);
                    (B) by striking ``and'' at the end of subparagraph 
                (O); and
                    (C) by inserting after subparagraph (O) the 
                following new subparagraph:
                    ``(P) diabetes outpatient self-management training 
                services (as defined in subsection (pp)); and''.
            (2) Definition.--Section 1861 (42 U.S.C. 1395x) is amended 
        by adding at the end the following new subsection:

        ``diabetes outpatient self-management training services

    ``(pp)(1) The term `diabetes outpatient self-management training 
services' means educational and training services furnished to an 
individual with diabetes by or under arrangements with a certified 
provider (as described in paragraph (2)(A)) in an outpatient setting by 
an individual or entity who meets the quality standards described in 
paragraph (2)(B), but only if the physician who is managing the 
individual's diabetic condition certifies that such services are needed 
under a comprehensive plan of care related to the individual's diabetic 
condition to provide the individual with necessary skills and knowledge 
(including skills related to the self-administrations of injectable 
drugs) to participate in the management of the individual's condition.
    ``(2) In paragraph (1)--
            ``(A) a `certified provider' is an individual or entity 
        that, in addition to providing diabetes outpatient self-
        management training services, provides other items or services 
        for which payment may be made under this title; and
            ``(B) an individual or entity meets the quality standards 
        described in this paragraph if the individual or entity meets 
        quality standards established by the Secretary, except that the 
        individual or entity shall be deemed to have met such standards 
        if the individual or entity meets applicable standards 
        originally established by the National Diabetes Advisory Board 
        and subsequently revised by organizations who participated in 
        the establishment of standards by such Board, or is recognized 
        by the American Diabetes Association as meeting standards for 
        furnishing the services.''.
            (3) Consultation with organizations in establishing payment 
        amounts for services provided by physicians.--In establishing 
        payment amounts under section 1848(a) of the Social Security 
        Act for physicians' services consisting of diabetes outpatient 
        self-management training services, the Secretary of Health and 
        Human Services shall consult with appropriate organizations, 
        including the American Diabetes Association, in determining the 
        relative value for such services under section 1848(c)(2) of 
        such Act.
    (b) Blood Glucose Monitors for Individuals With Diabetes.--
            (1) Including strips as durable medical equipment.--Section 
        1861(n) (42 U.S.C. 1395x(n)) is amended by striking the 
        semicolon in the first sentence and inserting the following: 
        ``and includes blood glucose monitors for individuals with 
        diabetes without regard to whether the individual has Type I or 
        Type II diabetes or to the individual's use of insulin (as 
        determined under standards established by the Secretary in 
        consultation with the American Diabetes Association);''.
            (2) Payment for monitors based on methodology for 
        inexpensive and routinely purchased equipment.--Section 
        1834(a)(2)(A) of such Act (42 U.S.C. 1395m(a)(2)(A)) is 
        amended--
                    (A) by striking ``or'' at the end of clause (ii);
                    (B) by adding ``or'' at the end of clause (iii); 
                and
                    (C) by inserting after clause (iii) the following 
                new clause:
                            ``(iv) which is a blood-testing monitor for 
                        an individual with diabetes,''.
    (c) Effective Date.--The amendments made by this section apply to 
items and services furnished on or after January 1, 1997 through 
December 31, 2000.

SEC. 11135. RESPITE BENEFIT.

    (A) Entitlement.--Section 1832(a)(2) (42 U.S.C. 1395k(a)(2)), as 
amended by section 11133(a), is amended by--
            (1) striking ``and'' at the end of subparagraph (J),
            (2) striking the period at the end of subparagraph (K) and 
        inserting ``; and'', and
            (3) inserting at the end the following new subparagraph:
                    ``(L) respite services for no more than 32 hours 
                each year.''.
    (b) Conditions and Limitations on Payment.--
            (1) Payment rate.--Section 1833(a)(2) (42 U.S.C. 
        1395l(a)(2)) is amended by--
                    (A) adding a new subparagraph (G) to read as 
                follows:
                    ``(G)(i) with respect to respite services, payment 
                shall be made at a rate equal to $7.50 per hour for 
                1996 and at a rate to be determined by the Secretary in 
                subsequent years; and
                    ``(ii) notwithstanding any provisions of section 
                1861(v), in the case of respite services furnished by a 
                home health agency (or other organization designated by 
                the Secretary pursuant to regulations), payment to the 
                agency or other organization for respite services may 
                not exceed 100 percent of the hourly respite allowance 
                times the number of hours of respite for which the 
                agency authorizes payment.''.
            (2) Conditions of payment.--Section 1835(a)(2) (42 U.S.C. 
        1395n(a)(2)) is amended by--
                    (A) striking ``and'' at the end of subparagraph 
                (E),
                    (B) striking the period at the end of subparagraph 
                (F) and inserting ``; and'', and
                    (C) inserting at the end the following new 
                subparagraph:
                    ``(G) In the case of respite services, the 
                individual for whom payment is claimed is severely 
                impaired due to irreversible dementia (the individual 
                has scored three or more errors on the Short Portable 
                Mental Status Questionnaire) and either needs 
                assistance in at least one out of five activities of 
                daily living (bathing, dressing, transferring, 
                toileting, and eating) or in at least one out of four 
                instrumental activities of daily living (meal 
                preparation, medication management, money management, 
                and telephoning), or needs constant supervision because 
                of one or more behavioral problems, as defined by the 
                Secretary.''.
            (3) Family designation of respite services provider and 
        care giver.--Section 1835(a)(2) (42 U.S.C. 1395n(a)(2)) is 
        amended by adding at the end the following new sentences: ``In 
        the case of respite services that are the subject of the 
        certification described in subparagraph (G), the entity or 
        individual providing the care for which respite is sought shall 
        designate a respite services caregiver either through a home 
        health agency or (if the Secretary designates other 
        organizations to provide or arrange for such services) other 
        organization. The agency or organization shall determine the 
        amount of respite entitlement remaining in the calendar year 
        and inform the entity or individual of the extent to which 
        respite services may be authorized. When services have been 
        provided, the entity or individual shall inform the agency or 
        organization, which shall then make payment to the caregiver. 
        Where additional payment is made on behalf of the beneficiary, 
        the agency or organization shall assure that the entity or 
        individual is informed of the limits applicable to payments for 
        such services. No payment may be made under this title for 
        respite services if the per-hour charge to the patient for care 
        by respite aides exceeds by more than $2 the hourly rates 
        established under this title.''.
    (c) Definitions.--Section 1861 (42 U.S.C. 1395x) is amended--
            (1) in subsection (m)--
                    (A) by striking ``and'' at the end of paragraph 
                (6);
                    (B) by adding ``and'' at the end of paragraph (7); 
                and
                    (C) by inserting after paragraph (7) the following:
            ``(8) respite services as described in subsection (oo);'',
            (2) in subsection (o)--
                    (A) by striking ``and'' at the end of paragraph 
                (6);
                    (B) by adding ``and'' at the end of paragraph (7); 
                and
                    (C) by inserting after paragraph (7) the following:
            ``(8) agrees to provide or arrange for respite services as 
        described in subsection (oo);'', and
            (3) by adding after subsection (nn) the following:

          ``respite services; respite aides; respite providers

    ``(oo)(1) The term `respite services' means temporary care provided 
to individuals who meet the requirements of section 1835(a)(2) for the 
purposes of ensuring periodic time-off for co-resident primary informal 
caregivers. Although respite providers may provide assistance with 
personal care or household maintenance activities, their primary 
function is to provide protective supervision for persons with 
Alzheimer's and related dementias whose memory, orientation, judgment, 
and reasoning abilities have become so impaired that, for safety's 
sake, they require the constant attention or close physical proximity 
of another person at all or almost all hours of the day or night.
    ``(2) The term `respite aides' means individuals who have been 
designated by the Secretary as qualified to act as caregivers for 
purposes of providing the services described in paragraph (1). Respite 
aides may be nurse aides who meet the requirements of section 
1819(b)(5), home health aides who meet the requirements of section 
1891(a)(3), or other individuals licensed by the State or recognized by 
the Secretary as having the skills necessary to provide such services.
    ``(3) The term `respite providers' means organizations identified 
by the Secretary in regulations as qualified to provide or arrange for 
respite services under this title. The Secretary may establish by 
regulation such requirements for respite providers as the Secretary 
determines appropriate.''.
    (d) Payment From Supplementary Medical Insurance Trust Fund for 
Respite Services Furnished to Individuals With Only Hospital Insurance 
Coverage.--Section 1812(a) (42 U.S.C. 1395d(a)) is amended--
            (1) by striking ``and'' at the end of paragraph (3),
            (2) by striking the period at the end of paragraph (4) and 
        inserting ``; and''; and
            (3) by inserting at the end the following new paragraph:
            ``(5) respite services, described in section 1832(a)(2)(L), 
        except that such services shall be furnished under the 
        Supplementary Medical Insurance Program.''.
    (e) Effective Date.--The amendments made by this section shall be 
effective for services beginning in fiscal year 2002.

SEC. 11136. PAYMENTS TO PHYSICIAN ASSISTANTS, NURSE PRACTITIONERS, AND 
              CLINICAL NURSE SPECIALISTS.

    (a) Coverage in Home and Ambulatory Settings in Which a Facility or 
Provider Fee Is Not Billed for Physician Assistants, Nurse 
Practitioners, and Clinical Nurse Specialists.--Section 1861(s)(2)(K) 
(42 U.S.C. 1395x(s)(2)(K)) is amended--
            (1) in clause (i)--
                    (A) by striking ``or'' at the end of subclause 
                (II); and
                    (B) by inserting ``or (IV) in a home or ambulatory 
                setting in which a facility or provider fee is not 
                billed (as defined by the Secretary),'' following 
                ``shortage area,''; and
            (2) in clause (iii)--
                    (A) by striking ``in a rural'' and inserting ``in 
                (I) a rural''; and
                    (B) by inserting ``, or (II) in a home or 
                ambulatory setting in which a facility or provider fee 
                is not billed (as defined by the Secretary),'' after 
                ``(as defined in 1886(d)(2)(D))''.
    (b) Payments to Physician Assistants, Nurse Practitioners, and 
Clinical Nurse Specialists in Home and Ambulatory Settings in Which a 
Facility or Provider Fee Is Not Billed.--
            (1) In general.--Section 1833(r)(1) (42 U.S.C. 1395l(r)(1)) 
        is amended by striking ``clinical nurse specialist services 
        provided in a rural area)'' and inserting ``clinical nurse 
        specialist services)''.
            (2) Conforming amendments.--
                    (A) Section 1842(b)(6)(C) (42 U.S.C. 
                1395u(b)(6)(C)) is amended by striking ``clauses (i), 
                (ii), or (iv)'' and inserting ``clauses (i) or (ii)''.
                    (B) Section 1861(s)(2)(K) (42 U.S.C. 
                1395x(s)(2)(k)) is amended--
                            (i) in clause (i), by inserting ``and such 
                        services and supplies furnished as an incident 
                        to such services as would be covered under 
                        subparagraph (A) if furnished as an incident to 
                        a physician's professional service,'' after 
                        ``are performed,'';
                            (ii) in clause (ii), by inserting ``and 
                        such services and supplies furnished as 
an incident to such service as would be covered under subparagraph (A) 
if furnished as an incident to a physician's professional service, 
and'' after ``are performed,'';
                            (iii) in clause (iii), by striking ``, 
                        and'' at the end and inserting a period; and
                            (iv) by striking clause (iv).
    (c) Payment Under the Fee Schedule to Physician Assistants, Nurse 
Practitioners, and Clinical Nurse Specialists in Home and Ambulatory 
Settings in Which a Facility or Provider Fee Is Not Billed.--
            (1) Payment.--Section 1842(b)(12)(A) (42 U.S.C. 
        1395u(b)(12)(A)) is amended in the matter preceding clause (i) 
        by striking ``(i), (ii), or (iv)'' and inserting ``(i) and 
        (ii)''.
            (2) Technical amendment.--Section 1842(b)(12)(A) (42 U.S.C. 
        1395u(b)(12)(A)) is amended in the matter preceding clause (i) 
        by striking ``a physician assistants'' and inserting 
        ``physician assistants''.
    (d) Effective Date.--The amendments made by this section apply to 
services furnished on or after January 1, 1997.

            Subtitle C--Provisions Relating to Parts A and B

SEC. 11141. CENTERS OF EXCELLENCE.

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

                        ``centers of excellence

    ``Sec. 1889. (a) In General.--The Secretary shall use a competitive 
process to contract with centers of excellence for coronary artery 
bypass surgery or other heart procedures, knee surgery, hip surgery, 
and such other services as the Secretary determines to be appropriate. 
Payment under this title shall be made for services subject to such 
contracts on the basis of negotiated or all-inclusive rates as follows:
            ``(1) Coverage of urban area.--The center shall cover 
        services provided in an urban area (as defined in section 
        1886(d)(2)(D)) for years beginning with fiscal year 1997.
            ``(2) Savings required.--The amount of payment made by the 
        Secretary to the center under this title for services covered 
        under the project shall be less than the aggregate amount of 
        the payments that the Secretary would have made to the center 
        for such services had the project not been in effect.
            ``(3) Types of services.--The Secretary shall make payments 
        to the center on such a basis for the following services 
        furnished to individuals entitled to benefits under this title:
                    ``(A) Facility, professional, and services relating 
                to the procedure.
                    ``(B) Such other services as the Secretary and the 
                center may agree to cover under the agreement.''.
    (b) Effective Date.--The amendments made by subsection (a) apply to 
services furnished on or after October 1, 1996.''.

SEC. 11142. MAINTAINING SAVINGS RESULTING FROM TEMPORARY FREEZE ON 
              PAYMENT INCREASES FOR HOME HEALTH SERVICES.

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

SEC. 11143. INTERIM PAYMENTS FOR HOME HEALTH SERVICES.

    (a) Reductions in Cost Limits.--Section 1861(v)(1)(L)(i) (42 U.S.C. 
1395x(v)(1)(L)(i)) is amended--
            (1) by inserting ``and before October 1, 1996,'' after 
        ``July 1, 1987'' in subclause (III),
            (2) by striking the period at the end of the matter 
        following subclause (III), and inserting ``, and'', and
            (3) by adding at the end the following new subclause:
                    ``(IV) October 1, 1996, 105 percent of the median 
                of the labor-related and nonlabor per visit costs for 
                freestanding home health agencies.''.
    (b) Delay in Updates.--Section 1861(v)(1)(L)(iii) (42 U.S.C. 
1395x(v)(1)(L)(iii)) is amended by striking ``July 1, 1996'' and 
inserting ``October 1, 1996''.
    (c) Additions to Cost Limits.--Section 1861(v)(1)(L) (42 U.S.C. 
1395x(v)(1)(L)) is amended by adding at the end the following:
    ``(iv) For services furnished by home health agencies for cost 
reporting periods beginning on or after October 1, 1996, but before 
October 1, 1999, the Secretary shall provide for an interim system of 
limits. Payment shall be the lower of--
            ``(I) costs determined under the preceding provisions of 
        this subparagraph, or
            ``(II) an agency-specific per beneficiary annual limitation 
        calculated from the agency's 12-month cost reporting period 
        ending on or after January 1, 1994, and on or before December 
        31, 1994, based on reasonable costs (including nonroutine 
        medical supplies), updated by the home health market basket 
        index. The per beneficiary limitation shall be multiplied by 
        the agency's unduplicated census count of patients (entitled to 
        benefits under this title) for the year subject to the 
        limitation to determine the aggregate agency-specific per 
        beneficiary limitation.
    ``(v) For services furnished by home health agencies for cost 
reporting periods beginning on or after October 1, 1996, the following 
rules shall apply:
            ``(I) For new providers and those providers without a 12-
        month cost reporting period ending in calendar year 1994, the 
        per beneficiary limitation shall be equal to the mean of these 
        limits (or the Secretary's best estimates thereof) applied to 
        home health agencies as determined by the Secretary. Home 
        health agencies that have altered their corporate structure or 
        name shall not be considered new providers for payment 
        purposes.
            ``(II) For beneficiaries who use services furnished by more 
        than one home health agency, the per beneficiary limitations 
        shall be prorated among the agencies.
    ``(vi) Home health agencies whose cost or utilization experience is 
below 125 percent of the mean national or census region aggregate per 
beneficiary cost or utilization experience for 1994, or best estimates 
thereof, and whose year-end reasonable costs are below the agency-
specific per beneficiary limitation, shall receive payments equal to 50 
percent of the difference between the agency's reasonable costs and its 
limit for fiscal years 1997, 1998, and 1999. Such payments may not 
exceed 5 percent of such agency's aggregate Medicare reasonable cost in 
a year.
    ``(vii) Effective January 1, 1997, or as soon as feasible, the 
Secretary shall modify the agency-specific per beneficiary annual 
limitation described in clause (iv) to provide for regional or national 
variations in utilization. For purposes of determining payment under 
clause (iv), the limit shall be calculated through a blend of 75 
percent of the agency-specific cost or utilization experience in 1994 
with 25 percent of the national or census region cost or utilization 
experience in 1994, or the Secretary's best estimates thereof.''.
    (d) Use of Interim Final Regulations.--The Secretary of Health and 
Human Services (in this section referred to as the ``Secretary'') shall 
implement the payment limits described in section 1861(v)(1)(L)(iv) of 
the Social Security Act by publishing in the Federal Register a notice 
of interim final payment limits by August 1, 1996, and allowing for a 
period of public comment thereon. Payments subject to these limits will 
be effective for cost reporting periods beginning on or after October 
1, 1996, without the necessity for consideration of comments received, 
but the Secretary shall, by Federal Register notice, affirm or modify 
the limits after considering those comments.
    (e) Development of Case Mix System.--The Secretary shall expand 
research on a prospective payment system for home health agencies that 
shall tie prospective payments to an episode of care, including an 
intensive effort to develop a reliable case mix adjuster that explains 
a significant amount of the variances in costs.
    (f) Submission of Data for Case Mix System.--Effective for cost 
reporting periods beginning on or after October 1, 1997, the Secretary 
may require all home health agencies to submit such additional 
information as the Secretary considers necessary for the development of 
a reliable case mix system.

SEC. 11144. PROSPECTIVE PAYMENT FOR HOME HEALTH SERVICES.

    Title XVIII is amended by adding at the end the following:

             ``prospective payment for home health services

    ``Sec.1893. (a) In General.--Notwithstanding section 1861(v), the 
Secretary shall, for cost reporting periods beginning on or after 
October 1, 1999, provide for payments for home health services in 
accordance with a prospective payment system, which pays home health 
agencies on a per episode basis, established by the Secretary.
    ``(b) Elements of System.--Such a system shall include the 
following:
            ``(1) Based on a per episode amount.--All services covered 
        and paid on a reasonable cost basis under the Medicare home 
        health benefit as of the date of the enactment of the Emergency 
        Medicare Protection Act of 1996, including medical supplies, 
shall be subject to the per episode amount. In defining an episode of 
care, the Secretary shall consider an appropriate length of time for an 
episode, the use of services, and the number of visits provided within 
an episode, potential changes in the mix of services provided within an 
episode and their cost, and a general system design that will provide 
for continued access to quality services. The per episode amount shall 
be based on the most current audited cost report data available to the 
Secretary.
            ``(2) Use of case mix.--The Secretary shall employ an 
        appropriate case mix adjustment that explains a significant 
        amount of the variation in cost.
            ``(3) Annual adjustments.--The episode payment amount shall 
        be adjusted annually by the home health market basket index. 
        The labor portion of the episode amount shall be adjusted for 
        geographic differences in labor-related costs based on the most 
        current hospital index.
            ``(4) Outliers.--The Secretary may designate a payment 
        provision for outliers, recognizing the need to adjust payments 
        due to unusual variations in the type or amount of medically 
        necessary care.
            ``(5) Proration of episode payments.--A home health agency 
        shall be responsible for coordinating all home health care for 
        a beneficiary. If a beneficiary elects to transfer to, or 
        receive services from, another home health agency within an 
        episode period, the episode payment shall be prorated between 
        home health agencies.
    ``(c) Savings.--Prior to implementing the prospective system 
described in subsections (a) and (b) in a budget-neutral fashion, the 
Secretary shall first reduce, by 15 percent, the payments based on the 
cost limits, per beneficiary limits, and actual costs, described in 
section 1861(v)(1)(L)(iv), as such limits are in effect on September 
30, 1999.''.

SEC. 11145. PAYMENT BASED ON LOCATION WHERE HOME HEALTH SERVICE IS 
              FURNISHED.

    (a) Conditions of Participation.--Section 1891 (42 U.S.C. 1395bbb) 
is amended by adding at the end the following:
    ``(g) A home health agency shall submit claims for payment of home 
health services under this title only on the basis of the geographic 
location at which the service is furnished, as determined by the 
Secretary.''.
    (b) Wage Adjustment.--Section 1861(v)(1)(L)(iii) (42 U.S.C. 
1395x(v)(1)(L)(iii)) is amended by striking ``agency is located'' and 
inserting ``service is furnished''.
    (c) Effective Date.--The amendments made by this section apply to 
services furnished on or after January 1, 1997.

SEC. 11146. ELIMINATION OF PERIODIC INTERIM PAYMENTS FOR HOME HEALTH 
              AGENCIES.

    (a) In General.--Section 1815(e)(2) (42 U.S.C. 1395g(e)(2)) is 
amended--
            (1) by inserting ``and'' at the end of subparagraph (C),
            (2) by striking subparagraph (D), and
            (3) by redesignating subparagraph (E) as (D).
    (b) Effective Date.--The amendments made by subsection (a) apply to 
payments made on or after the implementation of prospective payments as 
described in section 1893 of the Social Security Act, as added by 
section 11144 of this Act.

SEC. 11147. PERMANENT EXTENSION OF CERTAIN SECONDARY PAYER PROVISIONS.

    (a) Working Disabled.--Section 1862(b)(1)(B) (42 U.S.C. 
1395y(b)(1)(B)) is amended by striking clause (iii).
    (b) Individual With End-Stage Renal Disease.--Section 1862(b)(1)(C) 
(42 U.S.C. 1395y(b)(1)(C)) is amended--
            (1) in the first sentence, by striking ``12-month'' each 
        place it occurs and inserting ``18-month'', and
            (2) by striking the second sentence.
    (c) IRS-SSA-HCFA Data Match.--
            (1) Social security act.--Section 1862(b)(5)(C) (42 U.S.C. 
        1395y(b)(5)(C)) is amended by striking clause (iii).
            (2) Internal revenue code.--Section 6103(l)(12) of the 
        Internal Revenue Code of 1986 is amended by striking 
        subparagraph (F).

                  Subtitle D--Medicare Part B Premium

SEC. 11161. PART B PREMIUM.

    (a) In General.--The first, second, and third sentences of section 
1839(a)(3) (42 U.S.C. 1395r(a)(3)) are amended to read as follows: 
``The Secretary shall, during September of each year, determine and 
promulgate a monthly premium rate for the succeeding calendar year. 
That monthly premium rate shall be equal to 50 percent of the monthly 
actuarial rate for enrollees age 65 and over, determined according to 
paragraph (1), for that succeeding calendar year.''.
    (b) Conforming and Technical Amendments.--Section 1839 (42 U.S.C. 
1395r) is amended--
            (1) in subsection (a)(2), by striking ``(b) and (e)'' and 
        inserting ``(b), (c), and (f)'',
            (2) in the third sentence of subsection (a)(3), as amended 
        by subsection (a) or this section--
                    (A) by inserting ``rate'' after ``premium'', and
                    (B) by striking ``and the derivation of the dollar 
                amounts specified in this paragraph'',
            (3) by striking subsection (e), and
            (4) by redesignating subsection (g) as (e) and inserting 
        that subsection after subsection (d).
    (c) Effective Date.--The amendments made by this section apply to 
premiums for months after December 1995.

                   TITLE II--EXPANDED MEDICARE CHOICE

SEC. 11201. EXPANDED CHOICE UNDER MEDICARE.

    (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.) is amended by 
inserting after section 1804 the following:

                ``option to enroll in managed care plans

    ``Sec. 1805. Every individual entitled to benefits under part A and 
enrolled under part B or enrolled under part B only shall be eligible 
to enroll under part C with any eligible organization with which the 
Secretary has entered into a contract under part C and which serves the 
geographic area in which the individual resides.''.
    (b) Effective Date.--The amendment made by subsection (a) applies 
to enrollments whose periods begin after 1996.

SEC. 11202. BROADER CHOICE AMONG MANAGED CARE ORGANIZATIONS.

    (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.) is amended--
            (1) by redesignating part C (42 U.S.C. 1395x et seq.) as 
        part D, and
            (2) by inserting after part B the following new part:

                  ``PART C--MANAGED CARE ORGANIZATIONS

``SEC. 1851A. TYPES OF MANAGED CARE ORGANIZATIONS.

    ``(a) Eligible Organizations.--For purposes of this part, the term 
`eligible organization' means a public or private entity, organized 
under the laws of any State, that is--
            ``(1) a qualified health maintenance organization (QHMO),
            ``(2) a competitive medical plan (CMP),
            ``(3) a preferred provider organization (PPO),
            ``(4) a provider sponsored organization (PSO), or
            ``(5) any other managed care organization that meets the 
        requirements of subparagraphs (C), (D), and (E) of subsection 
        (c)(1) and any additional requirements developed by the 
        Secretary.
    ``(b) Qualified Health Maintenance Organization (QHMO).--For 
purposes of this part, the term `qualified health maintenance 
organization' means such an organization (as defined in section 1310(d) 
of the Public Health Service Act) that meets the requirements of 
subparagraphs (B) and (E) of subsection (c)(1).
    ``(c) Competitive Medical Plan (CMP).--
            ``(1) In general.--For purposes of this part, the term 
        `competitive medical plan' means an entity that meets the 
        following requirements:
                    ``(A) Minimum services to all members.--The entity 
                provides to enrolled members at least the following 
                health care services:
                            ``(i) Physicians' services performed by 
                        physicians (as defined in section 1861(r)(1)).
                            ``(ii) Inpatient hospital services.
                            ``(iii) Laboratory, X-ray, emergency, and 
                        preventive services.
                            ``(iv) Out-of-area coverage.
                    ``(B) Provision of physicians' services.--The 
                entity provides physicians' services primarily--
                            ``(i) directly through physicians who are 
                        either employees or partners of such 
                        organization, or
                            ``(ii) through contracts with individual 
                        physicians or one or more groups of physicians 
                        (organized on a group practice or individual 
                        practice basis).
                    ``(C) Compensation on prepaid risk basis.--The 
                entity is compensated (except for deductibles, 
                coinsurance, and copayments) for the provision of 
                health care services to enrolled members by a payment 
                which is paid on a periodic basis without regard to the 
                date the health care services are provided and which is 
                fixed without regard to the frequency, extent, or kind 
                of health care service actually provided to a member.
                    ``(D) Assumption of risk.--The entity assumes full 
                financial risk on a prospective basis for the provision 
                of the health care services listed in subparagraph (A), 
                except that such entity may--
                            ``(i) obtain insurance or make other 
                        arrangements for the cost of providing to any 
                        enrolled member health care services listed in 
                        subparagraph (A) the aggregate value of which 
                        exceeds $5,000 in any year,
                            ``(ii) obtain insurance or make other 
                        arrangements for the cost of health care 
                        services listed in subparagraph (A) provided to 
                        its enrolled members other than through the 
                        entity because medical necessity required their 
                        provision before they could be secured through 
                        the entity,
                            ``(iii) obtain insurance or make other 
                        arrangements for not more than 90 percent of 
                        the amount by which its costs for any of its 
                        fiscal years exceed 115 percent of its income 
                        for such fiscal year, and
                            ``(iv) make arrangements with physicians or 
                        other health professionals, health care 
                        institutions, or any combination of such 
                        individuals or institutions to assume all or 
                        part of the financial risk on a prospective 
                        basis for the provision of basic health 
                        services by the physicians or other health 
                        professionals or through the institutions.
                    ``(E) Fiscal soundness; provision against 
                insolvency.--The entity meets standards for fiscal 
                soundness (including standards for provision against 
                the risk of insolvency) applicable to federally 
                qualified health maintenance organizations under title 
                XIII of the Public Health Service Act.
            ``(2) Exception for certain grandfathered contracts.--
        Paragraph (1)(A)(ii) shall not apply to an entity which had 
        contracted with a single State agency administering a State 
        plan approved under title XIX for the provision of services 
        (other than inpatient hospital services) to individuals 
        eligible for such services under such State plan on a prepaid 
        risk basis prior to 1970.
    ``(d) Preferred Provider Organization (PPO).--
            ``(1) In general.--For purposes of this part, the term 
        `preferred provider organization' means an entity that meets 
        the following requirements:
                    ``(A) Minimum services to all members.--The entity 
                provides at least physicians' services performed by 
                physicians (as defined in section 1861(r)(1)).
                    ``(B) Provision of physician services; fiscal 
                soundness.--The entity meets the requirements of 
                subparagraphs (B) and (E) of subsection (c)(1).
                    ``(C) Assumption of risk.--The entity meets the 
                requirements of subsection (c)(1)(D) with respect to 
                members enrolled with the organization under this part.
            ``(2) Determination of private membership.--In applying the 
        provisions of sections 1851E(g) and 1851F (e)(1)(B)(i) and 
        (f)(1)(B)(i) (concerning minimum private enrollment) to an 
        organization that meets the requirements of paragraph (1), 
        individuals for whom the organization has assumed substantial 
        financial risk shall be considered to be members of the 
        organization.
    ``(e) Provider Sponsored Organization (PSO).--
            ``(1) In general.--For purposes of this part, the term 
        `provider sponsored organization' means an entity that meets 
        the following requirements:
                    ``(A) Type of entity.--The entity is a hospital, a 
                group of affiliated hospitals, or an affiliated group 
                consisting of a hospital or hospitals and physicians or 
                other entities that furnish health services.
                    ``(B) Minimum services to all members.--The entity 
                provides at least physicians' services performed by 
                physicians (as defined in section 1861(r)(1)) and 
                inpatient hospital services.
                    ``(C) Direct provision of services.--The entity 
                provides directly a substantial portion of the services 
                covered under this title (as determined by the 
                Secretary, which may vary for rural or underserved 
                areas).
                    ``(D) Assumption of risk.--The entity meets the 
                requirements of subsection (c)(1)(D) with respect to 
                members enrolled with the organization under this part.
                    ``(E) Fiscal soundness; provision against 
                insolvency.--The entity meets requirements for fiscal 
                soundness and provision against insolvency developed by 
                the Secretary.
            ``(2) Determination of private membership.--In applying the 
        provisions of sections 1851E(g) and 1851F (e)(1)(B)(i) and 
        (f)(1)(B)(i) (concerning minimum private enrollment) to an 
        organization that meets the requirements of paragraph (1), 
        individuals for whom the organization has assumed substantial 
        financial risk shall be considered to be members of the 
        organization.
            ``(3) Preemption of state licensure requirements.--Except 
        as otherwise provided in the next sentence, an organization 
        that meets the requirements of paragraph (1) may provide health 
        benefits to individuals enrolled with the organization under 
        this part without regard to any State law that imposes 
        requirements for licensure different from the requirements for 
        a contract under this part. If the Secretary determines that a 
        State has met the criteria for participation in the alternative 
        certification and monitoring program described in section 
        1851H(b), the Secretary shall require the organization to 
        obtain a license from the State.

``SEC. 1851B. ENROLLMENT AND DISENROLLMENT.

    ``(a) In General.--
            ``(1) Secretary's responsibility.--The Secretary shall 
        carry out enrollment and termination of enrollment of 
        individuals with eligible organizations.
            ``(2) Individual options.--An individual may, as prescribed 
        by regulations--
                    ``(A) enroll under this part with an eligible 
                organization; and
                    ``(B) terminate enrollment with such organization--
                            ``(i) as of the beginning of the first 
                        calendar month following the date on which the 
                        request is made for such termination;
                            ``(ii) as of the date determined in 
                        accordance with regulations, in the case of 
                        financial insolvency of the organization; and
                            ``(iii) retroactively to the date of 
                        enrollment, in such special circumstances as 
                        the Secretary may designate.
    ``(b) Information Concerning Enrollment.--
            ``(1) Standardized comparative materials.--The Secretary 
        shall develop and distribute standardized comparative materials 
        about eligible organizations and Medicare supplemental policies 
        (as defined in section 1882(g)(1)) to enable individuals to 
        compare benefits, costs, and quality indicators.
            ``(2) Cost-sharing by participating organizations.--Each 
        eligible organization with a contract under this part shall pay 
        the Secretary for its pro rata share (as determined by the 
        Secretary) of the estimated costs to be incurred by the 
        Secretary in carrying out the requirements of paragraph (1), 
        subsection (a)(1), and section 4360 of OBRA-1990. Those 
        payments are appropriated to defray the costs described in the 
        preceding sentence, to remain available until expended.
            ``(3) Review of marketing materials.--The Secretary may 
        prescribe the procedures and conditions under which an eligible 
        organization that has entered into a contract with the 
        Secretary under this subsection may furnish information about 
        the organization to enrollees and individuals eligible to 
        enroll under this part. No brochures, application forms, or 
        other promotional or informational material may be distributed 
        by an organization to (or for the use of) such individuals 
        unless at least 45 days before its distribution, the 
        organization has submitted the material to the Secretary for 
        review, and the Secretary has not disapproved the distribution 
        of the material. The Secretary shall review all such material 
submitted and shall disapprove such material if the Secretary 
determines, in the Secretary's discretion, that the material is 
materially inaccurate or misleading or otherwise makes a material 
misrepresentation.
    ``(c) Periods of Enrollment.--
            ``(1) Standard enrollment opportunities.--Subject to the 
        provisions of this section, an organization with a contract 
        under this part shall permit enrollment under this part by any 
        individual--
                    ``(A) during the month of each year specified by 
                the Secretary for all eligible organizations;
                    ``(B) during the individual's initial enrollment 
                period in the program under part B (as described in 
                section 1837(d));
                    ``(C) during a special enrollment period in the 
                program under part B (for individuals formerly electing 
                employment-based coverage) described in section 
                1837(i)(3); and
                    ``(D) during the 90-day period beginning 30 days 
                before the date the individual takes up residence in 
                the service area of the organization.
            ``(2) Special enrollment period for individuals losing 
        coverage by another organization.--
                    ``(A) In general.--Subject to other provisions of 
                this section, if a contract with an organization under 
                this part is not renewed or otherwise terminated, or is 
                renewed in a manner that discontinues coverage for 
                individuals residing in part of the service area, each 
                other organization with a contract under this part 
                shall permit enrollment under this part by affected 
                individuals enrolled with such other organization on 
                the effective date of such termination or 
                discontinuation of coverage.
                    ``(B) Enrollment period.--The enrollment period 
                required by subparagraph (A) shall be for 30 days and 
                shall begin 30 days after the date that the Secretary 
                provides notice of such requirement.
            ``(3) Acceptance or denial of application.--An eligible 
        organization shall enroll individuals under this part in the 
        order of application, and may deny enrollment of such an 
        individual only if the enrollment--
                    ``(A) would exceed the limits of the organization's 
                capacity (as determined by the Secretary);
                    ``(B) would result in an enrolled population 
                substantially nonrepresentative, as determined in 
                accordance with regulations of the Secretary, of the 
                population in the geographic area served by the 
                organization; or
                    ``(C) would result in the organization's failing to 
                meet the requirements of sections 1851E(g) and 1851F 
                (e)(1)(B)(i) and (f)(1)(B)(i) (concerning minimum 
                private enrollment).
            ``(4) Effective date of enrollment.--An individual's 
        enrollment with an eligible organization under this part shall 
        be effective--
                    ``(A) in the case of an enrollment under paragraph 
                (1)(A), on the first day of the third month beginning 
                after the end of the enrollment period;
                    ``(B) in the case of an enrollment under paragraph 
                (1)(B), as specified by section 1838(a);
                    ``(C) in the case of an enrollment under paragraph 
                (1)(C), as specified by section 1838(e);
                    ``(D) in the case of an enrollment under paragraph 
                (1)(D), on the first day of the first month following 
                the month in which the individual enrolled; and
                    ``(E) in the case of an enrollment under paragraph 
                (2), 30 days after the end of the open enrollment 
                period, or, if the Secretary determines that such date 
                is not feasible, such other date as the Secretary 
                specifies.
    ``(d) Enrollment or Termination for Health Reasons Prohibited.--An 
eligible organization--
            ``(1) shall not refuse to enroll, and shall not expel or 
        refuse to reenroll, any individual eligible to enroll or 
        enrolled with the organization under this part because of the 
        individual's health status or requirements for health care 
        services;
            ``(2) shall include in any marketing materials a statement 
        of the requirements of paragraph (1); and
            ``(3) shall notify each such individual of the requirements 
        of paragraph (1) at the time of the individual's enrollment.

``SEC. 1851C. BENEFITS.

    ``(a) Basic Benefits.--
            ``(1) In general.--An eligible organization must provide to 
        members enrolled under this part, either directly or through 
        providers and other persons that meet the applicable 
        requirements of this title and part A of title XI--
                    ``(A) those services (other than hospice care) 
                covered under parts A and B of this title, for those 
                members entitled to benefits under part A and enrolled 
                under part B, or
                    ``(B) those services covered under part B, for 
                those members enrolled only under such part,
        which are available to individuals residing in the geographic 
        area served by the organization.
            ``(2) PPO required to afford `point of service' option.--An 
        eligible organization that contracts as a preferred provider 
        organization under this part, in addition to providing services 
        in accordance with paragraph (1), shall also pay for any 
        service (other than hospice care) furnished to a member 
        enrolled under this part (in the amounts, if any, that 
        otherwise would be paid under this title) by any entity that 
        may furnish that service under this title (other than an entity 
        through which the organization provides services, or other than 
        a service with respect to which the organization is required to 
        provide for reimbursement under subsection (e)(2) (concerning 
        urgently needed services provided outside the organization).
            ``(3) PSO prohibited from affording `point of service' 
        option.--An eligible organization that contracts as a provider 
        sponsored organization under this part may not pay for any 
        service described in paragraph (2) that is furnished to a 
        member enrolled under this part.
    ``(b) Additional Benefits or Other Adjustment Under Risk Plans.--
            ``(1) Requirement where adjusted community rates below 
        payment rates.--Each contract under section 1851F(e) shall 
        provide for adjustment in accordance with this subsection, if--
                    ``(A) the adjusted community rate for services 
                under parts A and B (as reduced for the actuarial value 
                of the coinsurance and deductibles under those parts) 
                for members enrolled under this part with the 
                organization and entitled to benefits under part A and 
                enrolled in part B, or
                    ``(B) the adjusted community rate for services 
                under part B (as reduced for the actuarial value of the 
                coinsurance and deductibles under that part) for 
                members enrolled under this part with the organization 
                and entitled to benefits under part B only,
        is less than the average of the per capita rates of payment to 
        be made under section 1851F(e)(2) at the beginning of an annual 
        contract period for members enrolled under this part with the 
        organization and entitled to benefits under part A and enrolled 
        in part B, or enrolled in part B only, respectively.
            ``(2) Selection by organization of additional benefits.--An 
        eligible organization to which paragraph (1) applies shall 
        either--
                    ``(A) provide to members described in paragraph (1) 
                (A) or (B), as applicable, the additional benefits 
                described in paragraph (3) which are selected by the 
                eligible organization and which the Secretary finds are 
                at least equal in value to the difference between that 
                average per capita payment and the adjusted community 
                rate (as so reduced); or
                    ``(B) elect an alternative, in accordance with 
                paragraph (4).
            ``(3) Additional benefits.--The additional benefits 
        referred to in paragraph (2) are--
                    ``(A) the reduction of the premium rate or other 
                charges made with respect to services furnished by the 
                organization to members enrolled under this part; or
                    ``(B) the provision of additional health benefits; 
                or both.
            ``(4) Alternatives to additional benefits.--An eligible 
        organization to which paragraph (1) applies--
                    ``(A) may elect to receive a lesser payment such 
                that there is no longer a difference between the 
                average of the per capita rates of payment to be made 
                under section 1851F(e)(2) and the adjusted community 
                rate (as so reduced); and
                    ``(B) may (with the approval of the Secretary) 
                provide that a part of the value of such additional 
                benefits be withheld and reserved by the Secretary as 
                provided in paragraph (5).
            ``(5) Benefit stabilization fund.--An organization having a 
        contract under section 1851(e) may (with the approval of the 
        Secretary) provide that a part of the value of additional 
        benefits otherwise required to be provided by reason of 
        paragraph (1) be withheld and reserved in the Federal Hospital 
        Insurance Trust Fund and in the Federal Supplementary Medical 
        Insurance Trust Fund (in such proportions as the Secretary 
        determines to be appropriate) by the Secretary for subsequent 
        annual contract periods, to the extent required to stabilize 
        and prevent undue fluctuations in the additional benefits 
        offered in those subsequent periods by the organization in 
        accordance with paragraph (3). Any of such value of additional 
        benefits which is not provided to members of the organization 
        in accordance with paragraph (3) prior to the end of such 
        period, shall revert for the use of such trust funds.
            ``(6) Determination of per capita rates.--If the Secretary 
        finds that there is insufficient enrollment experience to 
        determine an average of the per capita rates of payment to be 
        made under section 1851F(e)(2) at the beginning of a contract 
        period, the Secretary may determine such an average based on 
        the enrollment experience of other contracts entered into under 
        this part.
    ``(c) Supplemental Benefits.--
            ``(1) Subject to secretary's approval.--An eligible 
        organization may provide to individuals enrolled under this 
        part (without affording such individuals an option to decline 
        such coverage), such additional health care services as the 
        Secretary may approve. The Secretary shall approve any such 
        additional services unless the Secretary determines that 
        including such additional services will substantially 
        discourage enrollment by covered individuals with the 
        organization.
            ``(2) At enrollees' option.--Such an organization may 
        provide to such individuals such additional health care 
        services as such individuals may elect, at their option, to 
        have covered.
            ``(3) Disclosure of premium.--Such an organization shall 
        furnish to such individuals information on the portion of its 
        premium rate or other charges applicable to such supplemental 
        benefits.
    ``(d) Standardized Packages of Additional Benefits.--Any health 
care service described in subsection (b) or (c) that is included in a 
standardized package of benefits specified by the Secretary may be 
offered only as part of that standardized package.
    ``(e) Availability and Accessibility of Services.--
            ``(1) Services provided through the organization.--An 
        eligible organization with a contract under this part must make 
        the services it has contracted to provide to individuals 
        enrolled with the organization under this part--
                    ``(A) available and accessible to each such 
                individual, within the area served by the organization, 
                with reasonable promptness and in a manner which 
                assures continuity, and
                    ``(B) when medically necessary, available and 
                accessible 24 hours a day and 7 days a week.
            ``(2) Services provided outside the organization.--An 
        eligible organization with a contract under this part must 
        provide for reimbursement with respect to services described in 
        paragraph (1) provided to such an individual other than through 
        the organization, if--
                    ``(A) the services were medically necessary and 
                immediately required because of an unforeseen illness, 
                injury, or condition; and
                    ``(B) it was not reasonable given the circumstances 
                to obtain the services through the organization.

``SEC. 1851D. LIABILITY OF BENEFICIARY AND THIRD PARTIES.

    ``(a) Limits on Liability for Required Benefits.--
            ``(1) Limitation to actuarial value of fee-for-service 
        coverage.--Total charges by an eligible organization to 
        individuals enrolled with the organization under this part, 
        with respect to services described in section 1851C(a)--
                    ``(A) shall include no amounts other than the 
                individual's share of premiums, deductibles, 
                coinsurance, and copayments; and
                    ``(B) shall not exceed the actuarial value of the 
                deductibles and coinsurance that would be applicable 
                under this title on the average to such individuals if 
                they were not members of an eligible organization.
            ``(2) Alternative data.--If the Secretary finds that 
        adequate data are not available for the determination required 
        under paragraph (1) with respect to an eligible organization, 
        the Secretary may substitute the actuarial value of the 
        deductibles and coinsurance applicable on the average to 
        individuals in the area, in the State, or in the United States, 
        eligible to enroll under this part with the organization, or 
        other appropriate data.
    ``(b) Limits on Premium for Supplemental Benefits.--If an eligible 
organization provides to its members enrolled under this part 
supplemental benefits in accordance with section 1851C, the sum of--
            ``(1) the portion of such organization's premium rate 
        charged, with respect to such supplemental benefits, to members 
        enrolled under this part, and
            ``(2) the deductibles, coinsurance, and copayments charged, 
        with respect to such services to such members,
shall not exceed the adjusted community rate for such services.
    ``(c) Limitation on Amounts an Out-of-Plan Physician or Other 
Entity May Collect.--
            ``(1) In general.--A physician or other entity (other than 
        a provider of services) that does not have a contract 
        establishing payment amounts for services furnished to an 
        individual enrolled under this part with an eligible 
        organization shall accept as payment in full for services that 
        are furnished to such an individual the amounts that the 
        physician or other entity could collect if the individual were 
        not so enrolled. Any penalty or other provision of law that 
        applies to such payments with respect to an individual entitled 
        to benefits under this title (but not enrolled with an eligible 
        organization under this part) shall also apply with respect to 
        an individual so enrolled.
            ``(2) Similar requirements.--For similar requirements 
        applicable to providers of services, see section 1866(a)(1)(O).
    ``(d) Plan as a Secondary Payer.--Notwithstanding any other 
provision of law, an eligible organization may (in the case of the 
provision of services for which the Medicare program is a secondary 
payer under section 1862(b)(2)) charge or authorize the provider of 
such services to charge, in accordance with the charges allowed under 
such law, plan, or policy--
            ``(1) the insurance carrier, employer, or other entity 
        which under such law, plan, or policy is to pay for the 
        provision of such services, or
            ``(2) such member to the extent that the member has been 
        paid under such law, plan, or policy for such services.

``SEC. 1851E. BENEFICIARY PROTECTIONS.

    ``(a) Explanation of Rights and Restrictions.--Each eligible 
organization shall provide each enrollee, at the time of enrollment and 
not less frequently than annually thereafter, an explanation of the 
enrollee's rights under this part and other important information, 
including the following:
            ``(1) Coverage.--The enrollee's rights to benefits from the 
        organization, and benefit limitations, including--
                    ``(A) out-of-area coverage provided by the 
                organization,
                    ``(B) the organization's coverage of emergency 
                services and urgently needed care, and
                    ``(C) the restrictions on payments under this title 
                for services furnished other than by or through the 
                organization.
            ``(2) Termination of coverage.--An explanation that--
                    ``(A) the organization may terminate or refuse to 
                renew the contract under this part; and
                    ``(B) termination of such contract could result in 
                termination of enrollment of individuals with the 
                organization.
            ``(3) Patient rights.--Safeguards on enrollees' rights, 
        including--
                    ``(A) appeal rights of enrollees,
                    ``(B) the right to be informed about various 
                treatment options, and
                    ``(C) the right to decline treatment.
            ``(4) Emergencies.--The appropriate use of the 911 
        emergency telephone system in the case of medical emergencies.
            ``(5) Fraud and abuse reporting.--The processes for 
        reporting potential fraud or abuse.
    ``(b) Notification of Termination Option in Marketing Materials.--
Each eligible organization with a contract under this part shall 
include the information required by subsection (a)(2) in any marketing 
materials described in section 1851B(b)(3) that are distributed by an 
eligible organization to individuals eligible to enroll under this part 
with the organization.
    ``(c) Grievance Mechanism.--An eligible organization with a 
contract under this part must provide meaningful procedures for hearing 
and resolving grievances between the organization (including any entity 
or individual through which the organization provides health care 
services) and members enrolled with the organization under this part.
    ``(d) Coverage Determinations and Appeals.--
            ``(1) Determination by organization.--An eligible 
        organization with a contract under this part shall have a 
        procedure for determining whether an individual enrolled with 
        the organization under this part is entitled to receive a 
        health service described in section 1851C(a) and the amount (if 
        any) that the individual is required to pay for that service, 
        which includes the following elements:
                    ``(A) Timely review.--The organization shall 
                provide for review of a coverage issue within 30 days 
                of a request by such individual, and for 
                reconsideration, where requested, within 60 days after 
                the initial review.
                    ``(B) Expedited review in urgent cases.--The 
                organization shall have an expedited process for review 
                and reconsideration of a coverage issue in cases in 
                which delayed treatment may place the health of such 
                individual in jeopardy, risk serious impairment of 
                bodily functions, or limit medically appropriate 
                treatment options.
            ``(2) Review by external contractor.--An individual 
        dissatisfied with a determination under paragraph (1) 
        concerning such individual's coverage under a contract under 
        this part is entitled to a hearing before an independent 
        reviewer designated by the Secretary.
            ``(3) Appeal to secretary.--An individual dissatisfied with 
        a determination under paragraph (2) concerning such 
        individual's coverage under a contract under this part is 
        entitled, if the amount in controversy is $100 or more, to a 
        hearing before the Secretary to the same extent as is provided 
        in section 205(b), and in any such hearing the Secretary shall 
        make the eligible organization a party. If the amount in 
        controversy is $1,000 or more, the individual or eligible 
        organization shall, upon notifying the other party, be entitled 
        to judicial review of the Secretary's final decision as 
        provided in section 205(g), and both the individual and the 
        eligible organization shall be entitled to be parties to that 
        judicial review. In applying sections 205(b) and 105(g) as 
        provided in this subparagraph, and in applying section 205(l) 
        thereto, any reference therein to the Commissioner of Social 
        Security or the Social Security Administration shall be 
        considered a reference to the Secretary or the Department of 
        Health and Human Services, respectively.
    ``(e) Quality Assurance.--
            ``(1) Internal quality assurance (iqa) program.--
                    ``(A) In general.--Subject to subparagraph (B), an 
                eligible organization must have arrangements, 
                established in accordance with regulations of the 
                Secretary, for an ongoing quality assurance program for 
                health care services provided to individuals enrolled 
                with the organization under this part that--
                            ``(i) focuses on health outcomes; and
                            ``(ii) provides for review by physicians 
                        and other health care professionals of the 
                        process followed in the provision of such 
                        health care services.
                    ``(B) Acceptance of accreditation in satisfaction 
                of iqa standards.--If (or to the extent that) an 
                eligible organization has been accredited by an 
                accrediting body whose standards with respect to one or 
                more of the elements of an internal quality assurance 
                program are at least as stringent as such standards 
                pursuant to subparagraph (A), the organization shall be 
                deemed to meet the requirements of such subparagraph 
                (A) with respect to such program elements.
            ``(2) External quality review.--
                    ``(A) Requirements.--Each contract with an eligible 
                organization under this part shall provide that the 
                organization will maintain an agreement with--
                            ``(i) a utilization and quality control 
                        peer review organization (which has a contract 
                        with the Secretary under part B of title XI for 
                        the area in which the eligible organization is 
                        located);
                            ``(ii) an entity selected by the Secretary 
                        under section 1154(a)(4)(C); or
                            ``(iii) an independent quality review and 
                        improvement organization selected by the 
                        organization and approved by the Secretary,
                under which the review organization will perform 
                functions under section 1154(a) (4)(B) and (14) (other 
                than those performed under contracts described in 
                section 1866(a)(1)(F)) with respect to services, 
                furnished by the eligible organization, for which 
                payment may be made under this title.
                    ``(B) Quality review as covered service.--For 
                purposes of payment under this title, the cost of such 
                agreement to the eligible organization shall be 
                considered a cost incurred by a provider of services in 
                providing covered services under this title and shall 
                be paid directly by the Secretary to the review 
                organization on behalf of such eligible organization in 
                accordance with a schedule established by the 
                Secretary.
                    ``(C) Payment from trust funds.--Such payments--
                            ``(i) shall be transferred in appropriate 
                        proportions from the Federal Hospital Insurance 
                        Trust Fund and from the Supplementary Medical 
                        Insurance Trust Fund, without regard to amounts 
                        appropriated in advance in appropriation Acts, 
                        in the same manner as transfers are made for 
                        payment for services provided directly to 
                        beneficiaries, and
                            ``(ii) shall not be less in the aggregate 
                        for such organizations for a fiscal year than 
                        the amounts the Secretary determines to be 
                        sufficient to cover the costs of such 
                        organizations' conducting activities described 
                        in subparagraph (A) with respect to such 
                        eligible organizations under part B of title 
                        XI.
    ``(f) Beneficiary Advance Directives Concerning Medical 
Treatment.--A contract under this part shall provide that an eligible 
organization shall meet the requirements of section 1866(f) (relating 
to maintaining written policies and procedures respecting advance 
directives).
    ``(g) Private Enrollment Requirements.--
            ``(1) 50 percent requirement.--Subject to section 11205 of 
        the Emergency Medicare Protection Act of 1996, each eligible 
        organization with which the Secretary enters into a contract 
        under this part shall have, for the duration of such contract, 
        an enrolled membership (without consideration of members 
        enrolled in the program under title XIX) at least one-half of 
        which consists of individuals who are entitled to benefits 
        under this title.
            ``(2) Exceptions.--The Secretary may modify or waive the 
        requirement imposed by paragraph (1) only in the following 
        circumstances:
                    ``(A) Area with large Medicare population.--If more 
                than 50 percent of the population of the area served by 
                the organization consists of individuals who are 
                entitled to benefits under this title.
                    ``(B) Initial period for governmental contractor.--
                In the case of an eligible organization that is owned 
                and operated by a governmental entity, only with 
                respect to a period of three years beginning on the 
                date the organization first enters into a contract 
                under this part, and only if the organization has taken 
                and is making reasonable efforts to enroll individuals 
                who are not entitled to benefits under this title.
                    ``(C) Underserved rural area.--If the organization 
                serves an underserved rural area.
                    ``(D) Contractor with good past record.--If the 
                organization has had contracts under this part for a 
                total of at least three years, has complied with all 
                applicable requirements during that period, maintains a 
                level of enrollment of individuals not entitled to 
                benefits under this title determined by the Secretary, 
                and complies with any additional monitoring 
                requirements established by the Secretary.
                    ``(E) Contractor with good record in another 
                geographic area.--If--
                            ``(i) the Secretary has not previously 
                        entered into a contract with the organization 
                        under this part in the same geographic area (or 
                        has entered into contracts for a total of three 
                        years or less),
                            ``(ii) the organization (or a parent 
                        company that controls the organization) has 
                        entered into (or subsidiaries of the 
                        organization or parent company have entered 
                        into) contracts under this part for at least 
                        three different geographic areas--
                                    ``(I) for which no waiver has been 
                                granted under this paragraph and during 
                                the course of which there has been 
                                compliance with all applicable 
                                requirements; or
                                    ``(II) for which a waiver has been 
                                granted under subparagraph (D);
                            ``(iii) the organization (or parent 
                        company) demonstrates to the Secretary a long-
                        term business and financial commitment to the 
                        geographic area served by the organization, and 
                        the Secretary determines that a waiver is 
                        necessary to promote competition in that area; 
                        and
                            ``(iv) the organization complies with all 
                        applicable requirements and any additional 
                        monitoring requirements established by the 
                        Secretary.
                    ``(F) Other situations.--In such situations and 
                under such conditions as the Secretary determines will 
                be in the best interest of individuals entitled to 
                benefits under this title.
    ``(h) Access to Specialty Care and Case Management.--Each eligible 
organization shall ensure that enrollees with chronic illnesses or 
disabilities and other enrollees as appropriate, shall have access to 
medically appropriate specialty care and medically appropriate case 
management.
    ``(i) Restrictions on Physician Incentive Plans.--
            ``(1) Criteria.--Each contract with an eligible 
        organization under this part shall provide that the 
        organization may not operate any physician incentive plan (as 
        defined in paragraph (2)) unless the following requirements are 
        met:
                    ``(A) No inducement to limit care.--No specific 
                payment is made directly or indirectly under the plan 
                to a physician or physician group as an inducement to 
                reduce or limit medically necessary services provided 
                with respect to a specific individual enrolled with the 
                organization.
                    ``(B) Requirements where physician at financial 
                risk.--If the plan places a physician or physician 
                group at substantial financial risk (as determined by 
                the Secretary) for services not provided by the 
                physician or physician group, the organization--
                            ``(i) provides stop-loss protection for the 
                        physician or group that is adequate and 
                        appropriate, based on standards developed by 
                        the Secretary that take into account the number 
                        of physicians placed at such substantial 
                        financial risk in the group or under the plan 
                        and the number of individuals enrolled with the 
                        organization who receive services from the 
                        physician or the physician group, and
                            ``(ii) conducts periodic surveys of both 
                        individuals enrolled and individuals previously 
                        enrolled with the organization to determine the 
                        degree of access of such individuals to 
                        services provided by the organization and 
                        satisfaction with the quality of such services.
                    ``(C) Disclosure to secretary.--The organization 
                provides the Secretary with descriptive information 
regarding the plan, sufficient to permit the Secretary to determine 
whether the plan is in compliance with the requirements of this 
paragraph.
            ``(2) Definition of `physician incentive plan'.--In this 
        subsection, the term `physician incentive plan' means any 
        compensation arrangement between an eligible organization and a 
        physician or physician group that may directly or indirectly 
        have the effect of reducing or limiting services provided with 
        respect to individuals enrolled with the organization.
    ``(j) Additional Standards for Other Managed Care Organizations.--
The Secretary shall establish such additional standards for entities 
treated as eligible organizations under section 1851A(a)(5) as the 
Secretary determines appropriate.

``SEC. 1851F. CONTRACTS WITH, AND PAYMENTS TO, PLANS.

    ``(a) General Rules on Payments to Contracting Organization.--
            ``(1) Payment to organization only under contract.--
        Payments to an eligible organization under a risk or partial 
        risk contract under this part shall be in lieu of the amounts 
        which (in the absence of the contract) would be otherwise 
        payable, pursuant to sections 1814(b) and 1833(a), for services 
        furnished by or through the organization to individuals 
        enrolled with the organization under this part, except as 
        otherwise provided in this subsection.
            ``(2) Payment for enrolled individual only to organization 
        with contract.--If an individual is enrolled under this part 
        with an eligible organization, only the eligible organization 
        shall be entitled to receive payments from the Secretary under 
        this title for services (other than hospice care) furnished to 
        the individual, except as otherwise provided in this 
        subsection.
            ``(3) Exceptions.--
                    ``(A) Failure of organization to make prompt 
                payment.--For the exception to paragraph (1) that 
                applies if an eligible organization fails to make 
                prompt payments under the contract, see subsection (d).
                    ``(B) Mid-year national coverage determination.--
                For the exception to paragraph (1) that applies if the 
                Secretary makes a mid-contract year determination that 
                expands benefits under this title, see subsection (i).
                    ``(C) Patient hospitalized on date of enrollment.--
                For the exception to paragraphs (1) and (2) that 
                applies in the case of a patient hospitalized on the 
                effective date of enrollment with an organization under 
                this part, see subsection (h).
                    ``(D) Medical education and disproportionate share 
                hospital payments.--The Secretary may make payments (as 
                otherwise provided under this title) to hospitals for 
                payment adjustments for hospitals serving a 
                disproportionate share of low-income patients, for the 
                indirect costs of medical education, or for direct 
                graduate medical education.
                    ``(E) Enrolled individual who elects hospice 
                care.--For the exception to paragraphs (1) and (2) that 
                applies in the case of an individual who is enrolled 
                under this part with an eligible organization and 
                elects under section 1812(d)(1) to receive hospice care 
                provided by a particular hospice program, see 
                subsection (l).
            ``(4) Payment from trust funds.--The payment to an eligible 
        organization under this part of individuals enrolled under this 
        part with the organization and entitled to benefits under part 
        A and enrolled under part B shall be made from the Federal 
        Hospital Insurance Trust Fund and the Federal Supplementary 
        Medical Insurance Trust Fund. The portion of that payment to 
        the organization for a month to be paid by each trust fund 
        shall be determined each year by the Secretary based on the 
        relative weight that benefits from each fund contribute to the 
        per capita payments made under section 1851F(e)(2).
    ``(b) Contract Term; Renewal; Termination.--
            ``(1) In general.--Each contract under this part shall be 
        for a term of at least one year, as determined by the 
        Secretary, beginning on a date specified in the contract, and 
        may be made automatically renewable from term to term in the 
        absence of notice by either party of intention to terminate at 
        the end of the current term, except as provided in paragraph 
        (2).
            ``(2) Termination by secretary for cause.--The Secretary 
        may terminate any contract described in paragraph (1) at any 
        time (after such reasonable notice and opportunity for hearing 
        to the eligible organization involved as may be provided in 
        regulations), if the Secretary finds that the organization--
                    ``(A) has failed substantially to carry out the 
                contract,
                    ``(B) is carrying out the contract in a manner 
                inconsistent with the efficient and effective 
                administration of this part, or
                    ``(C) no longer substantially meets the applicable 
                conditions of this part.
    ``(c) Contract Terms and Conditions.--Each contract under this part 
shall provide for the following:
            ``(1) Audit, inspections, evaluations.--The contract shall 
        provide that the Secretary, or any person or organization 
        designated by the Secretary--
                    ``(A) shall have the right to inspect or otherwise 
                evaluate--
                            ``(i) the quality, appropriateness, and 
                        timeliness of services performed under the 
                        contract; and
                            ``(ii) the facilities of the organization 
                        when there is reasonable evidence of some need 
                        for such inspection; and
                    ``(B) shall have the right to audit and inspect any 
                books and records of the eligible organization that 
                pertain--
                            ``(i) to the ability of the organization to 
                        bear the risk of potential financial losses; or
                            ``(ii) to services performed or 
                        determinations of amounts payable under the 
                        contract.
            ``(2) Notice to enrollees in event of termination of 
        contract.--The contract shall require the organization to 
        provide (and pay for) written notice in advance of the 
        contract's termination, as well as a description of 
        alternatives for obtaining benefits under this title, to each 
        individual enrolled under this part with the organization.
            ``(3) Disclosures.--
                    ``(A) Financial and liability information.--The 
                contract shall require the organization to comply with 
                subsections (a) and (c) of section 1318 of the Public 
                Health Service Act (relating to disclosure of certain 
                financial information) and with the requirement of 
                section 1301(c)(7) of such Act (relating to liability 
                arrangements to protect members).
                    ``(B) Ownership and control interests.--The 
                contract shall require the organization to report the 
                information required to be reported by disclosing 
                entities under section 1124 (concerning ownership and 
                control interests).
                    ``(C) Loans and other financial arrangements.--The 
                contract shall require the organization to notify the 
                Secretary of loans and other special financial 
                arrangements which are made between the organization 
                and subcontractors, affiliates, and related parties.
            ``(4) Other terms and conditions.--The contract shall 
        contain such other terms and conditions not inconsistent with 
        this part (including requirements that the organization furnish 
        to the Secretary such information) as the Secretary may find 
        necessary and appropriate.
    ``(d) Prompt Payment by Eligible Organization.--
            ``(1) Requirement.--A contract under this part shall 
        require an eligible organization to provide prompt payment 
        (consistent with the provisions of sections 1816(c)(2) and 
        1842(c)(2)) of claims submitted for services and supplies 
        furnished to individuals pursuant to such contract, if the 
        services or supplies are not furnished under a contract between 
        the organization and the provider or supplier.
            ``(2) Secretary's option to bypass noncomplying 
        organization.--In the case of an eligible organization which 
        the Secretary determines, after notice and opportunity for a 
        hearing, has failed to make payments of amounts in compliance 
        with paragraph (1), the Secretary may provide for direct 
        payment of the amounts owed to providers and suppliers for such 
        covered services furnished to individuals enrolled under this 
        part under the contract. If the Secretary provides for such 
        direct payments, the Secretary shall provide for an appropriate 
        reduction in the amount of payments otherwise made to the 
        organization under this part to reflect the amount of the 
        Secretary's payments (and costs incurred by the Secretary in 
        making such payments).
    ``(e) Risk Contracts.--
            ``(1) In general.--
                    ``(A) Secretary's authority to contract.--The 
                Secretary may enter into a risk contract under this 
                subsection (under which payment by the Secretary for 
                covered services to individuals eligible for benefits 
                under this title is based on the per capita rate 
                determined annually under paragraph (2)) with any 
                eligible organization meeting the requirements of 
                subparagraph (B).
                    ``(B) Requirements applicable to contracting 
                organizations.--An eligible organization qualified to 
                enter a contract under this subsection must meet the 
                following requirements:
                            ``(i) Minimum private enrollment.--The 
                        organization must have at least 5,000 members 
                        not eligible for benefits under this title or 
                        title XIX, except that the Secretary may enter 
                        into such a contract with an eligible 
                        organization that has fewer such members--
                                    ``(I) if the organization primarily 
                                serves members residing outside of 
                                urbanized areas, or
                                    ``(II) in such situations and under 
                                such conditions as the Secretary 
                                determines will be in the best 
                                interests of individuals entitled to 
                                benefits under this title.
                            ``(ii) Ability to bear risk.--The 
                        organization must satisfy the Secretary that it 
                        has the ability to bear the risk of potential 
                        losses under a risk contract under this 
                        subsection.
            ``(2) Payments.--
                    ``(A) Monthly payments.--Under a contract under 
                paragraph (1), the Secretary shall make monthly 
                payments in advance to each eligible organization, with 
                respect to each individual enrolled under this part 
                with the organization in a payment area for a month, in 
                an amount equal to one-twelfth of the annual capitation 
                rate (as calculated under paragraph (4)) with respect 
                to that individual for that area, adjusted for such 
                risk factors as age, disability status, gender, 
                institutional status, ESRD status, and such other 
                factors as the Secretary determines to be appropriate, 
                so as to ensure actuarial equivalence. The Secretary 
                may add to, or modify, or substitute for such factors, 
                if such changes will improve the determination of 
                actuarial equivalence.
                    ``(B) Adjustment to reflect number of enrollees.--
                            ``(i) In general.--The amount of payment 
                        under this paragraph may be retroactively 
                        adjusted to take into account any difference 
                        between the actual number of individuals 
                        enrolled with the organization under this part 
                        and the number of such individuals estimated to 
                        be so enrolled in determining the amount of the 
                        advance payment.
                            ``(ii) Special rule for certain 
                        enrollees.--
                                    ``(I) In general.--Subject to 
                                subclause (II), the Secretary may make 
                                retroactive adjustments under clause 
                                (i) to take into account individuals 
                                enrolled during the period (not to 
                                exceed 90 days) beginning on the date 
                                on which the individual enrolls with an 
                                eligible organization under a plan 
                                operated, sponsored, or contributed to 
                                by the individual's employer or former 
                                employer (or the employer or former 
                                employer of the individual's spouse) 
                                and ending on the date on which the 
                                individual is enrolled in the 
                                organization under this part.
                                    ``(II) Exception.--No adjustment 
                                may be made under subclause (I) with 
                                respect to any individual who does not 
                                certify that the organization provided 
                                the individual with the disclosure 
                                statement described in section 1851E(a) 
                                at the time the individual enrolled 
                                with the organization.
            ``(3) Annual announcement of payment rates.--
                    ``(A) Annual announcement.--The Secretary shall 
                annually determine, and shall announce (in a manner 
                intended to provide notice to interested parties) not 
                later than August 1 before the calendar year 
                concerned--
                            ``(i) the annual capitation rate for each 
                        payment area for the year;
                            ``(ii) the risk and other factors to be 
                        used in adjusting the rates under paragraph 
                        (2)(A) for payments for months in that year;
                            ``(iii) any adjustments to be made to 
                        offset favorable selection under paragraph 
                        (4)(F);
                            ``(iv) any adjustments for national 
                        coverage determinations under paragraph (4)(G); 
                        and
                            ``(v) any adjustment made to the blended 
                        payment rate under paragraph (4)(E).
                    ``(B) Advance notice of methodological changes.--At 
                least 45 days before making the announcement under 
                subparagraph (A) for a year, the Secretary shall 
                provide for notice to eligible organizations of 
                proposed changes to be made in the methodology from the 
                methodology and assumptions used in the previous 
                announcement and shall provide eligible organizations 
                an opportunity to comment on the proposed changes.
                    ``(C) Explanation of assumptions.--In each 
                announcement made under subparagraph (A) for a year, 
                the Secretary shall include an explanation of the 
                assumptions and changes in methodology used in the 
                announcement in sufficient detail so that eligible 
                organizations can compute monthly adjusted capitation 
                rates for individuals in each payment area.
            ``(4) Calculation of annual capitation rates.--
                    ``(A) In general.--The annual capitation rate for a 
                payment area for a calendar year is equal to the 
                greatest of the following (adjusted as provided by 
                subparagraphs (F) through (H)):
                            ``(i) Blended capitation rate.--The sum 
                        of--
                                    ``(I) the area-specific percentage 
                                (as specified under subparagraph (B) 
                                for the year) of the area-specific 
                                capitation rate for the year for the 
                                payment area, as determined under 
                                subparagraph (C), and
                                    ``(II) the national percentage (as 
                                specified under subparagraph (B) for 
                                the year) of the input-price-adjusted 
                                national capitation rate for the year, 
                                as determined under subparagraph (D),
                        multiplied by a budget neutrality factor 
                        adjustment factor determined under subparagraph 
                        (E).
                            ``(ii) Minimum amount.--
                                    ``(I) for 1997, $325; and
                                    ``(II) for a subsequent year, the 
                                amount determined under this clause for 
                                the preceding year increased by the 
                                national average per capital growth 
                                percentage, as specified under 
                                subparagraph (I) for that succeeding 
                                year.
                            ``(iii) Minimum increase over previous 
                        year's rate.--
                                    ``(I) for 1997, 102 percent of the 
                                annual per capita rate of payment for 
                                1996 determined under section 
                                1876(a)(1)(C) for the payment area; and
                                    ``(II) for a subsequent year, 102 
                                percent of the annual capitation rate 
                                under this paragraph for the preceding 
                                year for the payment area.
                    ``(B) Area-specific and national percentages.--For 
                purposes of subparagraph (A)(i)--
                            ``(i) for 1997, the `area-specific 
                        percentage' is 90 percent and the `national 
                        percentage' is 10 percent,
                            ``(ii) for 1998, the `area-specific 
                        percentage' is 85 percent and the `national 
                        percentage' is 15 percent,
                            ``(iii) for 1999, the `area-specific 
                        percentage' is 80 percent and the `national 
                        percentage' is 20 percent,
                            ``(iv) for 2000, the `area-specific 
                        percentage' is 75 percent and the `national 
                        percentage' is 25 percent, and
                            ``(v) for a year after 2000, the `area-
                        specific percentage' is 70 percent and the 
                        `national percentage' is 30 percent.
                    ``(C) Area-specific capitation rate.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A)(i)(I), subject to clause (ii) 
                        of this subparagraph, the area-specific 
                        capitation rate for a payment area--
                                    ``(I) for 1997 is the annual per 
                                capita rate of payment for 1996 
                                determined under section 1876(a)(1)(C) 
                                for the payment area, increased by the 
                                national average per capita growth 
                                percentage for 1997 (as specified in 
                                subparagraph (I)), and
                                    ``(II) for a subsequent year is the 
                                area-specific capitation rate for the 
                                previous year for the payment area, 
                                increased by that percentage for that 
                                subsequent year.
                            ``(ii) Removal of medical education and 
                        disproportionate share hospital payments from 
                        calculation of adjusted average per capita 
                        cost.--In determining the area-specific 
                        capitation rate under clause (i)(II) for 1998 
                        and for subsequent years, the area-specific 
                        capitation rate for 1997 determined under 
                        clause (i)(I) shall be adjusted to exclude from 
                        that rate any amount which the Secretary 
                        estimates was payable under this title during 
                        1996 for payment adjustments under section 
                        1886(d)(5)(F) for hospitals serving a 
                        disproportionate share of low-income patients, 
                        for the indirect costs of medical education 
                        under section 1886(d)(5)(B), or for direct 
                        graduate medical education costs under section 
                        1886(h).
                    ``(D) Input-price-adjusted national capitation 
                rate.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A)(i)(II), the `input-price-
                        adjusted national capitation rate' for a year 
                        for a payment area is equal to the sum, for all 
                        the types of services under this title (as 
                        classified by the Secretary), of the product 
                        (for each such type) of--
                                    ``(I) the national standardized 
                                capitation rate (determined under 
                                clause (ii)) for the year,
                                    ``(II) the proportion of that rate 
                                for the year that is attributable to 
                                that type of services, and
                                    ``(III) an index that reflects (for 
                                that year and that type of services) 
                                the relative input price of the 
                                services in the area compared with the 
                                national input price of the services.
                        In applying subclause (III), the Secretary 
                        shall, subject to clause (iii), apply those 
                        indices under this title that are used in 
                        applying (or updating) national payment rates 
                        for specific areas and localities.
                            ``(ii) National standardized capitation 
                        rate.--In clause (i)(I), the `national 
                        standardized capitation rate' for a year is 
                        equal to--
                                    ``(I) the sum (for all payment 
                                areas) of the product of the area-
                                specific capitation rate for the year 
                                for the area under subparagraph (C) and 
                                the average number of individuals 
                                entitled to benefits under this title 
                                who reside in that area in the year, 
                                divided by
                                    ``(II) the total average number of 
                                individuals entitled to benefits under 
                                this title who reside in all payment 
                                areas in the year.
                            ``(iii) Special rules for 1997 and 1998.--
                        In applying this subparagraph for 1997--
                                    ``(I) services under this title 
                                shall be divided into services under 
                                part A and services under part B,
                                    ``(II) the proportions described in 
                                clause (i)(II) for such types of 
                                services shall be, for services under 
                                part A, the ratio (expressed as a 
                                percentage) of the average annual per 
                                capita rate of payment for the area for 
                                part A for 1995 to the total average 
                                annual per capita rate of payment for 
                                the area for parts A and B, and, for 
                                services under part B, 100 percent 
                                minus the percentage described for 
                                services under part A,
                                    ``(III) for services under part A, 
                                70 percent of payments attributable to 
                                those services shall be adjusted by the 
                                index used under section 1886(d)(3)(E) 
                                to adjust payment rates for relative 
                                hospital wage levels for hospitals 
                                located in the payment area involved,
                                    ``(IV) for services under part B, 
                                66 percent of payment attributable to 
                                those services shall be adjusted by the 
                                index of the geographic area factors 
                                used under section 1848(e) to adjust 
                                payment rates for physicians' services 
                                furnished in the payment area, and 70 
                                percent of the remaining 34 percent 
                                shall be adjusted by the index 
                                described in subclause (III), and
                                    ``(V) the index values shall be 
                                computed based only on the population 
                                of individuals entitled to benefits 
                                under this title who are 65 years of 
                                age or older and who have not been 
                                determined to have end-stage renal 
                                disease.
                        The Secretary may continue to apply the rules 
                        described in the preceding subclauses (or 
                        similar rules) in 1998.
                    ``(E) Budget neutrality adjustment factor.--For 
                each year, the Secretary shall determine a budget 
                neutrality adjustment factor so that the aggregate of 
                the payments under this part shall not exceed the 
                aggregate payments that would have been made under this 
                part if the area-specific percentage for the year had 
                been 100 percent and the national percentage had been 0 
                percent.
                    ``(F) Adjustment to offset cost of favorable 
                selection.--For each year, the Secretary shall 
                determine the adjustment, if any, needed to offset any 
                estimated increases in total projected expenditures 
                under this title resulting from increases in enrollment 
                in eligible organizations attributable to enactment of 
                this part.
                    ``(G) Adjustment for national coverage 
                determinations.--If the Secretary makes a determination 
                with respect to coverage under this title that the 
                Secretary projects will result in a significant 
                increase in the costs to eligible organizations of 
                providing benefits under contracts under this part (for 
                periods after any period described in subsection (i)), 
                the Secretary shall make an appropriate adjustment in 
                the payments to eligible organizations under this part.
                    ``(H) Adjustment to remove medical education and 
                disproportionate share hospital payments from 1997 
                rates.--Annual capitation rates for 1997 shall be 
                adjusted to exclude from that rate any amount which the 
                Secretary estimates were payable under this title 
                during 1996 for payment adjustments under section 
                1886(d)(5)(F) for hospitals serving a disproportionate 
                share of low-income patients, for the indirect costs of 
                medical education under section 1886(d)(5)(B), or for 
                direct graduate medical education costs under section 
                1886(h).
                    ``(I) National average per capita growth 
                percentage.--For purposes of subparagraphs (A)(ii)(II) 
                and (C)(i)(I), the `national average per capita growth 
                percentage' shall be the percentage determined by the 
                Secretary on an annual basis (not later than August 1 
                before the year concerned) to reflect the Secretary's 
                estimate of the projected per capita rate of growth in 
                expenditures under this title.
            ``(5) Payment area defined.--
                    ``(A) In general.--For purposes of this part, 
                except as provided by subparagraph (B), the term 
                `payment area' means a county, or equivalent area 
                specified by the Secretary.
                    ``(B) Rule for esrd beneficiaries.--In the case of 
                individuals who are determined to have end-stage renal 
                disease, the payment area shall be a State or other 
                area specified by the Secretary.
    ``(f) Partial Risk Contracts.--
            ``(1) In general.--
                    ``(A) Secretary's authority to contract.--The 
                Secretary may enter into a partial risk contract under 
                this subsection (under which payment by the Secretary 
                for covered services to individuals eligible for 
                benefits under this title shall be made as provided in 
                paragraph (2)) with any eligible organization meeting 
                the requirements of subparagraph (B).
                    ``(B) Requirements applicable to contracting 
                organizations.--An eligible organization qualified to 
                enter a contract under this subsection must meet the 
                following requirements:
                            ``(i) Minimum private enrollment.--The 
                        organization must have at least 1,500 members 
                        not entitled to benefits under this title or 
                        title XIX, except in such situations and under 
                        such conditions as the Secretary determines 
                        will be in the best interests of individuals 
                        entitled to benefits under this title.
                            ``(ii) Ability to bear risk.--The 
                        organization must satisfy the Secretary that it 
                        has the ability to bear the risk of potential 
                        losses under a partial risk contract under this 
                        subsection.
            ``(2) Payments.--The Secretary shall make payments to an 
        organization with a partial risk contract under this 
        subsection, for services provided under such contract, as 
        follows:
                    ``(A) Interim monthly payments.--The Secretary 
                shall make payments over a 12-month period in amounts 
                equal to 95 percent of modified fee for service amounts 
                (as defined in paragraph (4)).
                    ``(B) Final retrospective adjustment.--After the 
                end of such 12-month period, the Secretary shall make a 
                final payment adjustment, as follows:
                            ``(i) If plan costs are below total annual 
                        capitation payments.--If 100 percent of the 
                        modified fee for service amounts paid under 
                        subparagraph (A) for that period were less than 
                        total annual capitation payments (as defined in 
                        paragraph (4)), the Secretary shall pay the 
                        organization (in addition to the amounts paid 
                        under subparagraph (A)) 5 percent of modified 
                        fee for service amounts, plus one-half of the 
                        difference between the total annual capitation 
                        payments and 100 percent of the modified fee 
                        for service amounts paid under subparagraph 
                        (A).
                            ``(ii) If plan costs are between the total 
                        annual capitation payments and 110 percent of 
                        such payments.--If 100 percent of the modified 
                        fee for service amounts paid made under 
                        subparagraph (A) equal to or greater than total 
                        annual capitation payments, but not more than 
                        110 percent of such amount, the Secretary shall 
                        pay the organization an additional amount (in 
                        addition to the amounts paid under subparagraph 
                        (A)) such that the total amounts paid the 
                        organization equal the sum of the total annual 
                        capitation payments plus one-half of the 
                        difference between 100 percent of the modified 
                        fee for service amounts and total annual 
                        capitation payments.
                            ``(iii) If plan costs are greater than 110 
                        percent of total annual capitation payments.--
                        If 100 percent of the modified fee for service 
                        amounts paid under subparagraph (A) exceeded 
                        110 percent of total annual capitation 
                        payments, the Secretary shall pay the 
                        organization, or the organization shall refund 
                        to the Secretary, an amount such that the total 
                        amounts paid the organization equal 105 percent 
                        of total annual capitation payments.
            ``(3) Nonrenewal for excessive costs.--If paragraph 
        (2)(B)(iii) applies two years in succession, the contract shall 
        not be renewed.
            ``(4) Definitions.--
                    ``(A) Modified fee for service amounts.--For 
                purposes of this subsection, `modified fee for service 
                amounts' are the amounts that the Secretary would have 
                paid under this title (other than under this part) 
                excluding payment adjustments under section 
                1886(d)(5)(F) for hospitals serving a disproportionate 
                share of low-income patients, for the indirect costs of 
                medical education under section 1886(d)(5)(B), or for 
                direct graduate medical education costs under section 
                1886(h).
                    ``(B) Total annual capitation payments.--For 
                purposes of this subsection, `total annual capitation 
                payments' are equal to the total payments that the 
                eligible organization would have received for the year 
                if it had a contract under subsection (e) instead of 
                under this subsection.
    ``(g) Minimum Period of Nonparticipation After Contract 
Termination.--
            ``(1) In general.--The Secretary may not enter into a 
        contract with an eligible organization under this part, except 
        in circumstances (as determined by the Secretary) which warrant 
        special consideration, if a previous contract with that 
        organization was terminated within the preceding five-year 
        period--
                    ``(A) at the request of the organization; or
                    ``(B) pursuant to subsection (f)(3), for excessive 
                costs under a partial risk contract.
            ``(2) Inapplicability to contract conversions.--For 
        purposes of the requirement of paragraph (1), a conversion from 
        a risk to a partial risk contract shall not be considered a 
        contract termination.
    ``(h) Special Rule for Hospitalized Patients.--A contract under 
this part shall provide that in the case of an individual who is 
receiving inpatient hospital services from a subsection (d) hospital 
(as defined in section 1886(d)(1)(B)) as of the effective date of the 
individual's--
            ``(1) enrollment with an eligible organization under this 
        part--
                    ``(A) payment for such services until the date of 
                the individual's discharge shall be made under this 
                title as if the individual were not enrolled with the 
                organization,
                    ``(B) the organization shall not be financially 
                responsible for payment for such services until the 
                date after the date of the individual's discharge, and
                    ``(C) the organization shall nonetheless be paid 
                the full amount otherwise payable to the organization 
                under this part, or
            ``(2) termination of enrollment with an eligible 
        organization under this part--
                    ``(A) the organization shall be financially 
                responsible for payment for such services after such 
                date and until the date of the individual's discharge,
                    ``(B) payment for such services during the stay 
                shall not be made under section 1886(d), and
                    ``(C) the organization shall not receive any 
                payment with respect to the individual under this part 
                during the period the individual is not enrolled.
    ``(i) Special Rule for National Coverage Determination.--
            ``(1) If the Secretary makes a determination with respect 
        to coverage under this title that the Secretary projects will 
        result in a significant increase in the costs to eligible 
        organizations of providing benefits under contracts under this 
        part--
                    ``(A) during an annual contract period under a risk 
                contract; or
                    ``(B) during a 12-month payment period under a 
                partial risk contract,
        the provisions of this subsection apply to benefits and 
        payments during the remainder of the term of such contract.
            ``(2) Coverage of expanded benefits.--The organization 
        shall be required to provide (or arrange for provision of) the 
        expanded benefit to individuals enrolled under this part as of 
        the date such benefit would have been available to them had 
        they not been so enrolled.
            ``(3) Payment for expanded benefits.--If (or to the extent) 
        the increased costs attributable to the expanded benefits were 
        not taken into account in establishing per capita payment rates 
        under a risk contract, or in determining the total annual 
        capitation payments applicable to a partial risk contract--
                    ``(A) in the case of an organization with a risk 
                contract, the Secretary shall make an additional 
                payment for the provision of such expanded benefits 
                during such remaining portion of the contract term, 
                notwithstanding any other provision of this part, equal 
                to the amount that the Secretary would have paid under 
                this title (other than under this part); and
                    ``(B) in the case of an organization with a partial 
                risk contract, the applicable total annual capitation 
                payments shall be recalculated to take the increased 
                costs of such expanded benefits into account for such 
                remaining portion of the contract term.
    ``(j) General Provisions.--
            ``(1) General authority of secretary.--The authority vested 
        in the Secretary by this part may be performed without regard 
        to such provisions of law or regulations relating to the 
        making, performance, amendment, or modification of contracts of 
        the United States as the Secretary may determine to be 
        inconsistent with the furtherance of the purpose of this title.
            ``(2) Service area.--The Secretary may prescribe criteria 
        for the geographic area to be served by an eligible 
        organization. The criteria may vary for different kinds of 
        eligible organizations.
    ``(k) User Fees.--
            ``(1) Fee for certification.--Each entity requesting to be 
        certified as an eligible organization shall pay the Secretary 
        for the estimated costs to be incurred by the Secretary for 
        certification activities.
            ``(2) Fee for monitoring activities.--Eligible 
        organizations with a contract under this part shall pay the 
        Secretary for the estimated costs to be incurred by the 
        Secretary for monitoring activities.
            ``(3) Authorization.--The payments described in paragraphs 
        (1) and (2) are appropriated to defray the cost described in 
        such paragraphs, to remain available until expended.
    ``(l) Special Rule for Hospice Care.--
            ``(1) Information.--A contract under this part shall 
        require the organization to inform each individual enrolled 
        under this part with the organization about the availability of 
        hospice care if--
                    ``(A) a hospice participating under this title is 
                located within the organization's geographic area; or
                    ``(B) it is common practice to refer patients to 
                hospices outside the geographic area.
            ``(2) Payment.--If an individual who is enrolled with an 
        eligible organization under this part makes an election under 
        section 1812(d)(1) to receive hospice care from a particular 
        hospice--
                    ``(A) payment for the hospice care services 
                furnished to the individual shall be made by the 
                Secretary for the hospices elected by the individual; 
                and
                    ``(B) payment for other services for which the 
                individual is eligible notwithstanding the individual's 
                election of hospice care under section 1812(d)(1), 
                including services not related to the individual's 
                terminal illness, shall be made by the Secretary to the 
                eligible organization or the provider or supplier of 
                the service in lieu of payments calculated under 
                subsections (e) and (f).

``SEC. 1851G. SANCTIONS.

    ``(a) Violations Subject to Civil Money Penalties.--In addition to 
any other remedies authorized by law, the Secretary may impose a civil 
money penalty in accordance with subsection (c) on an eligible 
organization with a contract under this part that has committed any of 
the following violations.
            ``(1) Failure to provide medically necessary care.--The 
        organization has failed substantially to provide medically 
        necessary items and services that are required (under law or 
        under the contract) to be provided to an individual covered 
        under the contract, if the failure has adversely affected (or 
        has substantial likelihood of adversely affecting) the 
        individual.
            ``(2) Excessive premiums.--The organization has imposed 
        premiums on individuals enrolled under this part in excess of 
        the premiums permitted.
            ``(3) Discontinuation of coverage.--The organization has 
        expelled or refused to reenroll an individual in violation of 
        the provisions of this part.
            ``(4) Discouraging enrollment.--The organization has 
        engaged in any practice that would reasonably be expected to 
        have the effect of denying or discouraging enrollment (except 
        as permitted by this part) by eligible individuals with the 
        organization whose medical condition or history indicates a 
        need for substantial future medical services.
            ``(5) False information.--The organization has 
        misrepresented or falsified information furnished--
                    ``(A) to the Secretary under this part, or
                    ``(B) to an individual or to any other entity under 
                this part.
            ``(6) Failure to cooperate with external quality review.--
        The organization fails to cooperate in the performance of the 
        review required under section 1851E(e)(2).
            ``(7) Physician incentive plan violations.--The 
        organization fails to comply with the requirements of section 
        1851E(i).
            ``(8) Relationship with excluded individual or entity.--The 
        organization--
                    ``(A) employs or contracts with any individual or 
                entity that is excluded from participation under this 
                title under section 1128 or 1128A for the provision of 
                health care, utilization review, medical social work, 
                or administrative services; or
                    ``(B) employs or contracts with any entity for the 
                provision (directly or indirectly) through such an 
                excluded individual or entity of such services.
    ``(b) Violations Subject to Intermediate Sanctions.--In addition to 
any other remedies authorized by law, the Secretary may impose an 
intermediate sanction in accordance with subsection (d) on an eligible 
organization with a contract under this part that has committed any of 
the following violations:
            ``(1) Violation subject to civil money penalty.--Any 
        violation specified in subsection (a).
            ``(2) Grounds for termination of contract.--Any violation 
        that would be grounds for termination of the contract with the 
        organization pursuant to section 1851F(b)(2).
            ``(3) Failure to make prompt payment.--Failure to make 
        prompt payment as required by section 1851F(d).
            ``(4) Delayed coverage determinations.--Failure to meet 
        timeliness standards for coverage determinations under section 
        1851E(d)(1).
            ``(5) Insufficient private enrollment.--Failure to meet the 
        minimum requirements of section 1851E(g).
    ``(c) Civil Money Penalties.--
            ``(1) Amount of penalty.--The Secretary may impose, on an 
        eligible organization determined to have committed a violation 
        specified in subsection (a), civil money penalties not to 
        exceed the sum of the following amounts, as applicable:
                    ``(A) For each such determination, not more than--
                            ``(i) $100,000, in the case of a 
                        determination under subsection (a) (4) or 
                        (5)(A); or
                            ``(ii) $25,000, in the case of any other 
                        such determination.
                    ``(B) With respect to a determination under 
                subsection (a)(2), double the excess amount charged 
                (and the excess amount charged shall be deducted from 
                the penalty and returned to the individual concerned).
                    ``(C) With respect to a determination under 
                subsection (a)(4), $15,000 for each individual not 
                enrolled as a result of the practice involved.
            ``(2) Administrative procedure.--The provisions of section 
        1128A (other than subsections (a) and (b) shall apply to a 
        civil money penalty under this section in the same manner as 
        they apply to a civil money penalty or proceeding under section 
        1128A(a).
    ``(d) Intermediate Sanctions.--The Secretary may impose, on an 
eligible organization determined to have committed a violation 
specified in subsection (a) or (b), either or both of the following 
sanctions.
            ``(1) Suspension of enrollment.--Suspension of enrollment 
        of individuals with the organization under this part after the 
        date the Secretary notifies the organization of a determination 
        under subsection (a) or (b) and until the Secretary is 
        satisfied that the basis for such determination has been 
        corrected and is not likely to recur.
            ``(2) Suspension of payment.--Suspension of payment to the 
        organization under this part for individuals enrolled after the 
        date the Secretary notifies the organization of a determination 
        under subsection (a) or (b) and until the Secretary is 
        satisfied that the basis for such determination has been 
        corrected and is not likely to recur.

``SEC. 1851H. ALTERNATIVE CERTIFICATION AND MONITORING PROGRAM.

    ``(a) In General.--The Secretary shall develop a program under 
which States using Federal standards could certify entities as eligible 
organizations and assist in monitoring eligible organizations with 
contracts under section 1851F.
    ``(b) Criteria for State Participation.--States can participate in 
the program described in subsection (a) if upon the request of a State 
the Secretary determines that--
            ``(1) the State's standards are substantially equivalent to 
        Federal standards for certification as an eligible 
        organization;
            ``(2) the State has the ability and sufficient resources to 
        carry out the certification function to the Secretary's 
        satisfaction; and
            ``(3) the State has the ability and sufficient resources to 
        carry out the monitoring function to the Secretary's 
        satisfaction.
    ``(c) Federal Role After Approval of State Program.--
            ``(1) `Look-behind' function.--The Secretary will 
        periodically review the performance of State programs under 
        this section to ensure continued compliance with the 
        requirements under subsection (b). Such review program shall 
        include review of a sample of plans certified in each State.
            ``(2) Federal administrative and oversight activities.--In 
        developing the program under this section, the Secretary would 
        retain, at a minimum, responsibility for enrollment and 
        disenrollment of Medicare beneficiaries, payment to plans, 
        approval of adjusted community rate (ACR) proposals and 
        supplemental benefits, approval of Medicare marketing material, 
        development of comparative materials, monitoring resolution of 
        complaints, administering the Medicare reconsideration and 
        appeals process, reviewing and approving requests for waivers 
        of the 50/50 and minimum enrollment requirements, and managing 
        the external quality review program.
            ``(3) Enforcement activities.--The Secretary will determine 
        the appropriate sanctions or contract actions against plans 
        that are out of compliance with standards.
            ``(4) Contracting authority.--In general, once a State has 
        certified an entity as an eligible organization, the entity is 
        eligible for a contract under section 1851F. However, the 
        Secretary can deny a contract to an otherwise eligible 
        organization if the Secretary determines either that the 
        organization cannot bear the level of risk required under the 
        contract, or that the organization is not otherwise able to 
        administer a contract effectively.
    ``(d) Use of More Stringent Standards.--Beginning in 1999, States 
participating in the program described in this section could impose 
more stringent requirements in certifying eligible organizations and in 
monitoring eligible organizations with contracts under section 1851F, 
if such requirements--
            ``(1) have been approved by the Secretary, and
            ``(2) are imposed on health plans in a nondiscriminatory 
        manner.

``SEC. 1851I. DEFINITIONS.

    ``(a) Adjusted Community Rate.--
            ``(1) In general.--For purposes of this part, the term 
        `adjusted community rate' for a service or services means, at 
        the election of an eligible organization, either--
                    ``(A) the rate of payment for that service or 
                services which the Secretary annually determines would 
                apply to a member enrolled under this part with an 
                eligible organization if the rate of payment were 
                determined under a `community rating system' (as 
                defined in section 1302(8) of the Public Health Service 
                Act, other than subparagraph (C)), or
                    ``(B) such portion of the weighted aggregate 
                premium, which the Secretary annually estimates would 
                apply to a member enrolled under this part with the 
                eligible organization, as the Secretary annually 
                estimates is attributable to that service or services,
        adjusted in accordance with paragraph (2).
            ``(2) Adjustment of differences in utilization.--The rate 
        determined in accordance with subparagraphs (A) and (B) of 
        paragraph (1) shall be adjusted for--
                    ``(A) the differences between the utilization 
                characteristics of the members enrolled with the 
                eligible organization under this part and the 
                utilization characteristics of the other members of the 
                organization; or
                    ``(B) (if the Secretary finds that adequate data 
                are not available to calculate the adjustment pursuant 
                to subparagraph (A)) the differences between--
                            ``(i) the utilization characteristics of 
                        members in other eligible organizations, or 
                        individuals in the area, in the State, or in 
                        the United States, eligible to enroll under 
                        this part with an eligible organization, and
                            ``(ii) the utilization characteristics of 
                        the rest of the population in the area, in the 
                        State, or in the United States, respectively.
    ``(b) Adjusted Average Per Capita Cost (AAPCC).--For purposes of 
this part, the term `AAPCC' (adjusted average per capita cost) means 
the average per capita amount that the Secretary estimates in advance 
(on the basis of actual experience, or retrospective actuarial 
equivalent based upon an adequate sample and other information and 
data, in a geographic area served by an eligible organization or in a 
similar area, with appropriate adjustments to assure actuarial 
equivalence) would be payable in any contract year for services covered 
under parts A and B, or part B only, and types of expenses otherwise 
reimbursable under parts A and B, or part B only (including 
administrative costs incurred by organizations described in sections 
1816 and 1842), if the services were to be furnished by other than an 
eligible organization or, in the case of services covered only under 
section 1861(s)(2)(H), if the services were to be furnished by a 
physician or as an incident to a physician's service.''.
    (b) Repeal of Superseded Provision.--Section 1876 (42 U.S.C. 
1395mm) is repealed, except to the extent provided in subsection (e).
    (c) Conforming Amendments.--
            (1) Section 1154(a)(4)(B) (42 U.S.C. 1320c-3(a)(4)(B)) is 
        amended--
                    (A) in the first sentence, by striking ``risk-
                sharing contract under section 1876'' and inserting 
                ``contract under part C of title XVIII'', and
                    (B) in the second sentence, by striking ``a health 
                maintenance organization or competitive medical plan 
                under section 1876'' and inserting ``an eligible 
                organization under part C of title XVIII''.
            (2) The second sentence of section 1154(a)(4)(C) (42 U.S.C. 
        1320c-3(a)(4)(C)) is amended by striking ``section 1876'' and 
        inserting ``part C of title XVIII''.
            (3) Section 1866(a)(1)(O) (42 U.S.C. 1395cc(a)(1)(O)) is 
        amended by striking ``risk-sharing contract under section 
        1876'' and inserting ``contract under part C''.
            (4) The matter in the first sentence of section 1866(f)(1) 
        (42 U.S.C. 1395cc(f)(1)) preceding subparagraph (A) is amended 
        by striking ``1876(c)(8)'' and inserting ``1851E(f)''.
            (5) Section 1866(f)(2)(E) (42 U.S.C. 1395cc(f)(2)(E)) is 
        amended by striking ``1876(b)'' and inserting ``1851A(a)''.
            (6) Section 1882(g)(1) (42 U.S.C. 1399ss(g)(1)) is 
        amended--
                    (A) by striking ``1876(b)'' and inserting 
                ``1851A''; and
                    (B) by striking ``section 1876'' and inserting 
                ``part C''.
    (d) Effective Date.--Except to the extent otherwise provided, the 
amendments made by the preceding subsections apply to items and 
services furnished after 1996.
    (e) Transition Provisions for Cost Contracts.--
            (1) Repeal of authority for cost contracts delayed to 
        2001.--The amendments made by the preceding subsections (other 
        than the amendments specified in paragraph (2)) do not apply to 
        items and services furnished before 2001 under a contract under 
        section 1876(h) of the Social Security Act (42 U.S.C. 
        1395mm(h)).
            (2) Provisions whose effect is not delayed.--The effective 
        dates of the following provisions of part C of the Social 
        Security Act (as added by subsection (a)(2) of this section) 
        shall not be delayed by reason of paragraph (1):
                    (A) Definition of qualified hmo.--Section 1851A(b).
                    (B) Enrollment and disenroll- ment.--Section 1851B.
                    (C) Beneficiary protections.--Subsections (a) 
                (explanation of patients' rights and restrictions), (c) 
                (grievance mechanism), (d) (coverage determinations and 
                appeals), and (g) (private enrollment requirements) of 
                section 1851E.
            (3) Option restricted to grandfathered organizations.--With 
        respect to services provided after 1996 but before 2001, the 
        Secretary of Health and Human Services (in this section 
        referred to as the ``Secretary'') may enter into contracts 
        under subsection (h) of section 1876 of the Social Security Act 
        (42 U.S.C. 1395mm) only with entities with which the Secretary 
        has entered into contracts under that subsection for all or 
        part of 1996, or to which payments have been made during 1996 
        under section 1833(a)(1)(A) of such Act (42 U.S.C. 
        1395l(a)(1)(A)).
    (f) Regulations.--
            (1) Continuity of current regulations.--Regulations in 
        effect (or available in proposed form) on December 31, 1996, 
        that apply to section 1876 of the Social Security Act (42 
        U.S.C. 1395mm) shall apply to part C of title XVIII of that Act 
        (as added by subsection (a)(2)), except to the extent that the 
        regulations are inconsistent with the provisions of that part.
            (2) Interim final regulations.--The Secretary may issue 
        regulations before 1998 for part C of title XVIII of the Social 
        Security Act (as added by subsection (a)(2)) on an interim 
        final basis.
    (g) Consideration of Experience Under Section 1876 in Satisfaction 
of Requirements of Part C.--Any requirement in part C of title XVIII of 
the Social Security Act (as added by subsection (a)(2)) that (in a 
particular context) relates to matters that occurred before 1997 shall 
be satisfied if the corresponding requirement was satisfied under 
section 1876 (42 U.S.C. 1395mm) of such Act.
    (h) Enrollment Transition Rule.--An individual who is enrolled on 
December 31, 1996, with an eligible organization under section 1876 of 
the Social Security Act (42 U.S.C. 1395mm) shall be considered to be 
enrolled with that organization on January 1, 1997, under part C of 
title XVIII of that Act (as added by subsection (a)(2)) if that 
organization has a contract under such part for providing services on 
January 1, 1997 (unless the individual has disenrolled effective on 
that date).
    (i) Immediate Effective Date for Certain Requirements for 
Demonstrations.--Section 1851B(b)(2) of the Social Security Act (as 
added by subsection (a)(2)) (requiring contribution to certain costs 
related to the enrollment process comparative materials) applies to 
demonstrations occurring after the date of enactment of this Act.

SEC. 11203. DEVELOPMENT OF FEDERAL STANDARDS.

    (a) Publishing Regulations.--By January 1, 1997, the Secretary of 
Health and Human Services shall develop and promulgate interim final 
regulations for--
            (1) certification standards for eligible organizations 
        under section 1851A(a) (as added by section 11202);
            (2) standards for fiscal soundness and requirements 
        concerning adequate protection against the risk of insolvency 
        for provider sponsored organizations seeking certification as 
        an eligible organization;
            (3) standards for monitoring eligible organizations with 
        contracts under section 1851F (as added by such section); and
            (4) any other standards or procedures required to implement 
        provisions of part C (as added by such section).
    (b) Consultation.--In developing the regulations described in 
subsection (a), the Secretary of Health and Human Services shall 
consult, among others, with the National Association of Insurance 
Commissioners, organizations that provide or pay for health care 
services, and consumer organizations.

SEC. 11204. APPLICABILITY OF MEDICARE RATES TO ENROLLEES WHO USE AN 
              OUT-OF-PLAN PROVIDER OF SERVICES.

    (a) In General.--Section 1866(a)(1)(O) (42 U.S.C. 1395cc(a)(1)(O)) 
is amended--
            (1) by striking ``in the case of hospitals and skilled 
        nursing facilities,'';
            (2) by striking ``inpatient hospital and extended care 
        services that are covered under this title and'' and inserting 
        ``services that''; and
            (3) by striking ``(in the case of hospitals) or limits (in 
        the case of skilled nursing facilities)''.
    (b) Effective Date.--The amendment made by subsection (a) applies 
to services furnished after 1996.

SEC. 11205. SUBSTITUTION OF QUALITY MEASUREMENT SYSTEM FOR PRIVATE 
              ENROLLMENT REQUIREMENT.

    (a) Promulgation of Regulations.--The Secretary of Health and Human 
Services, after consulting with representatives from managed health 
care plans (including representatives of provider service 
organizations), consumer organizations, and other major purchasers of 
managed care services shall publish--
            (1) proposed regulations by July 1, 1997, requiring the 
        collection, analysis, and reporting of data that will permit 
        measurement of outcomes and other indices of the quality of 
        managed care plans; and
            (2) final regulations after completing review of comments 
        on the proposed regulations published pursuant to paragraph 
        (1).
    (b) Revision of Beneficiary Protection Requirement.--As of the 
effective date of final regulations published pursuant to subsection 
(a), section 1851E(g) (as added by section 11202(a)(2) of this Act) is 
amended to read as follows:
    ``(g) Quality Measurement System.--Each eligible organization with 
which the Secretary enters into a contract under this part shall meet 
the requirements of the quality measurement system established by the 
Secretary in regulations.''.

SEC. 11206. HMO COMPETITIVE PRICING AND RELATED DEMONSTRATIONS.

    (a) Amendment Effective on Date of Enactment.--Section 402(b) of 
the Social Security Amendments of 1967 (42 U.S.C. 1395-1(b)) is amended 
by inserting after the first sentence the following: ``The Secretary 
may also waive, in the case of such an experiment or demonstration 
project, compliance with the requirements of sections 1876 and 1882 of 
that Act.''.
    (b) Amendment Effective for 1997-2000.--
            (1) The second sentence of section 402(b) of the Social 
        Security Amendments of 1967 (42 U.S.C. 1395b-1(b)) (as added by 
        subsection (a) of this section) is amended by inserting ``and 
        part C of title XVIII'' after ``1882''.
            (2) The amendment made by paragraph (1) applies to 
        activities occurring after 1996.
    (c) Amendment Effective After 2000.--
            (1) The second sentence of section 402(b) of the Social 
        Security Amendments of 1967 (42 U.S.C. 1395b-1(b)) (as added by 
        subsection (a) and amended by subsection (b) of this section) 
        is further amended by striking ``sections 1876 and 1882'' and 
        inserting ``section 1882''.
            (2) The amendment made by paragraph (1) applies to 
        activities occurring after 2000.
    (d) Recommendations on New Payment Methodology.--Not later than 
January 1, 2002, the Secretary of Health and Human Services shall make 
recommendations to Congress concerning a new payment methodology for 
contracts under part C of title XVIII of the Social Security Act, based 
on the results of competitive pricing or related demonstrations.

SEC. 11207. ELIMINATION OF HEALTH CARE PREPAYMENT PLAN OPTION FOR 
              ENTITIES ELIGIBLE TO PARTICIPATE UNDER PART C.

    (a) Elimination of Option.--
            (1) In general.--Section 1833(a)(1)(A) (42 U.S.C. 
        1395l(a)(1)(A)) is amended by inserting after ``prepayment 
        basis'' the following: ``(and either is sponsored by a union or 
        employer, or does not provide, or arrange for the provision of, 
        any inpatient hospital services)''.
            (2) Effective date.--The amendment made by paragraph (1) 
        applies to services furnished after 1996.
    (b) Medigap Amendment.--Section 1882(g) (42 U.S.C. 1395ss(g)) is 
amended by striking ``, during the period beginning on the date 
specified in subsection (p)(1)(C) and ending on December 31, 1995,''.

SEC. 11208. MEDIGAP REFORMS.

    (a) Uniform Enrollment Periods.--
            (1) In general.--Section 1882(s)(2)(A) (42 U.S.C. 
        1395ss(s)(2)(A)) is amended by striking ``an application is 
        submitted'' and all that follows and inserting the following: 
        ``an application is submitted--
            ``(i) prior to or during the 6-month period beginning with 
        the first month as of the first day on which the individual is 
        65 years of age or older and is enrolled for benefits under 
        part B;
            ``(ii) during an annual 30-day period specified by the 
        Secretary; or
            ``(iii) during a period specified by the Secretary in the 
        circumstances described in section 1851B(c)(2) (with respect to 
        an individual losing coverage through an organization's 
        termination of contract or discontinuation of coverage).''.
            (2) Effective date.--The amendment made by paragraph (1) is 
        effective after 1996.
    (b) Standardized Information.--
            (1) Payments.--
                    (A) Pro rata share.--
                            (i) In general.--Section 1882 (42 U.S.C. 
                        1395ss) is amended by adding at the end the 
                        following:
    ``(u) Each entity that offers a Medicare supplemental policy shall 
pay the Secretary for its pro rata share (as determined by the 
Secretary) of the estimated costs to be incurred by the Secretary in 
carrying out the requirements of the first sentence of section 
1851B(b)(1) and section 4360 of the Omnibus Reconciliation Act of 1990. 
Those payments are appropriated to defray the costs described in the 
preceding sentence, to remain available until expended.''.
                            (ii) Conforming amendment.--Section 
                        1882(c)(5) (42 U.S.C. 1395ss(c)(5)) is amended 
                        by striking ``(t)'' and inserting ``(u)''.
                    (B) Funding.--Section 4360(g) of the Omnibus 
                Reconciliation Act of 1990 (42 U.S.C. 1395b-4(g)) is 
                amended to read as follows:
    ``(g) Funding.--For funding provisions, see section 1851B(b)(2), 
and section 1882(u), of the Social Security Act.''.
            (2) Effective date.--The amendments made by paragraph (1) 
        apply to demonstrations occurring after the date of enactment 
        of this Act, and to other activities occurring after 1996.
    (c) Community Rating.--
            (1) In general.--Section 1882(c) (42 U.S.C. 1395ss(c)) is 
        amended--
                    (A) by striking ``and'' at the end of paragraph 
                (4),
                    (B) by striking the period at the end of paragraph 
                (5) and inserting ``; and'', and
                    (C) by adding after paragraph (5) the following:
            ``(6) provides for the same premium for each enrollee.''.
            (2) Conforming amendment.--Section 1882(b)(1)(B) (42 U.S.C. 
        1395ss(b)(1)(B)) is amended by striking ``(5)'' and inserting 
        ``(6)''.
            (3) Effective date and transitional provisions.--The 
        amendments made by this subsection apply to policies and plans 
        as of the beginning of 1997 (whether issued before or after 
        that time), subject to such transitional rules as the Secretary 
        of Health and Human Services may develop after consulting with 
        the National Association of Insurance Commissioners.
    (d) Long-Term Care Insurance Safe Harbor.--
            (1) In general.--Section 1882(d)(3)(C) (42 U.S.C. 
        1395ss(d)(3)(C)) is amended--
                    (A) by striking ``or (iii)'' and inserting 
                ``(iii)''; and
                    (B) by inserting before the period the following: 
                ``, or (iv) the sale or issuance of a health insurance 
                policy (or rider to an insurance contract which is not 
                a health insurance policy) providing benefits only for 
                long-term care, nursing home care, home health care, or 
                community-based care, or any combination thereof, that 
                coordinates against or excludes items and services 
                available under this title, if such coordination or 
                exclusion is disclosed in the policy's outline of 
                coverage.''.
            (2) Effective date and other rules.--
                    (A) In general.--The amendments made by this 
                subsection shall take effect as if included in the 
                enactment of section 4354 of OBRA-1990.
                    (B) Penalty.--No penalty shall be imposed under 
                section 1882(d)(3)(A)(i) (42 U.S.C. 1395ss(d)(3)(A)(i)) 
                of the Social Security Act for any Act or omission 
                occurring after the effective date of the amendments 
                made by section 4354 of OBRA-1990 and before the date 
                of the enactment of this Act relating to the sale of a 
                health insurance policy described in section 
                1882(d)(3)(C)(iv) of the Social Security Act.

SEC. 11209. STANDARDIZED BENEFITS PACKAGES.

    (a) Managed Care.--The Secretary of Health and Human Services (in 
this section referred to as the ``Secretary''), not later than July 1, 
1996, after consulting with the National Association of Insurance 
Commissioners, consumer groups, managed care plans, providers of health 
care, and insurers, shall develop standard packages of benefits (in 
addition to the benefits covered under title XVIII of the Social 
Security Act (42 U.S.C. 1395 et seq.)) that may be offered by eligible 
organizations under part C of that title (as added by section 
11202(a)(2) of this Act).
    (b) Medigap.--
            (1) Examination and recommendation.--
                    (A) In general.--The Secretary shall request the 
                National Association of Insurance Commissioners, in 
                consultation with consumer groups, managed care plans, 
                providers of health care, and insurers, to examine (and 
                recommend by March 1, 1997, any restructuring needed 
                for) the standard benefit packages developed under 
                section 1882(p)(2) of the Social Security Act (42 
                U.S.C. 1395ss(p)(2)) in order to facilitate to the 
                maximum extent feasible comparison across Medicare 
                supplemental policies and benefits offered by eligible 
                organizations under section 1876 of such Act.
                    (B) Restructure.--The Secretary, not later than May 
                1, 1997, after taking into account any recommendations 
                made under subparagraph (A) by the National Association 
                of Insurance Commissioners, shall restructure, as 
                needed, those standard benefit packages.
            (2) Amendments.--
                    (A) Benefits.--Section 1882(p) (42 U.S.C. 
                1395ss(p)) is amended by adding at the end the 
                following:
            ``(11) The groups or packages of benefits (including the 
        core group of basic benefits) under paragraph (2) shall be 
        modified by any changes made by the Secretary under section 
        11209(b)(1)(B) of the Emergency Medicare Protection Act of 
        1996.''.
                    (B) Effective date.--The amendment made by 
                subparagraph (A) applies to services provided after 
                1997.

SEC. 11210. ANTITRUST RULE OF REASON STANDARD.

    In any action under the antitrust laws (or under any State law 
similar to the antitrust laws)--
            (1) the conduct of an organization that provides health 
        care services in negotiating, making, or performing a contract 
        (including the establishment and modification of a fee schedule 
        and the development of a panel of physicians) under part C of 
        title XVIII of the Social Security Act (as added by section 
        11202(a)(2)), and
            (2) the conduct of any member of such an organization in 
        carrying out such a contract,
shall not be deemed illegal per se if each member of the organization 
shares, directly or indirectly, substantial financial risk in 
connection with the organization's operations.

SEC. 11211.  REFORM OF THE CLINICAL LABORATORY IMPROVEMENT AMENDMENTS 
              OF 1988.

    (a) Reduced Requirements for Certificates.--Section 353(d)(1) of 
the Public Health Service Act (42 U.S.C. 263a(d)(1)) is amended--
            (1) by striking ``or have its certificate renewed'' in the 
        matter preceding subparagraph (A);
            (2) by amending clause (ii) of subparagraph (A) to read as 
        follows:
                            ``(ii) that describes the characteristics 
                        of the laboratory examinations and other 
                        procedures performed by the laboratory, 
                        including the number and type of laboratory 
                        examinations and procedures, and''; and
            (3) by adding after subparagraph (E) the following:
        ``A certificate may be renewed by the Secretary after the 
        Secretary verifies certain essential information in a renewal 
        process established by the Secretary not later than July 1, 
        1996.''.
    (b) Announcement of Inspections.--Section 353(g)(1) of the Public 
Health Service Act (42 U.S.C. 263a(g)(1)) is amended--
            (1) in the first sentence, by striking ``, on an announced 
        or unannounced basis,''; and
            (2) by adding at the end the following: ``All inspections 
        under this paragraph which are routine shall be announced and 
        inspections under this paragraph which are based on a complaint 
        or other reason to believe a laboratory may not be in 
        compliance with the requirements of subsection (d) or the 
        standards issued under subsection (f) may be unannounced.''.
    (c) Flexible Inspections of Unaccredited Laboratories.--The next to 
last sentence of section 353(g)(2) of the Public Health Service Act (42 
U.S.C. 263a(g)(2)) is amended to read as follows: ``Inspections of 
laboratories not accredited under subsection (e) shall be conducted 
with such frequency as the Secretary determines to be necessary to 
assure compliance with performance-based criteria established by the 
Secretary not later than January 1, 1997, except that such inspections 
may not be conducted more frequently than biennially unless the 
Secretary has received a complaint or has other reason to believe that 
the laboratory may not be in compliance with the requirements of 
subsection (d) or the standards issued under subsection (f).''.

SEC. 11212.  MODIFICATIONS TO EXCEPTIONS FOR CERTAIN ARRANGEMENTS.

    (a) Exceptions for Both Ownership and Compensation Arrangements.--
            (1) Repeal of exception for physicians' services.--Section 
        1877(b) (42 U.S.C. 1395nn(b)) is amended by striking 
        ``Subsection (a)(1) shall not apply in the following cases:'' 
        and all that follows through the end of paragraph (1).
            (2) New exception for shared facility services.--Section 
        1877(b) (42 U.S.C. 1395nn(b)), as amended by paragraph (1), is 
        amended by inserting before paragraph (2) the following:
            ``(1) Shared facility services.--
                    ``(A) In general.--Subsection (a)(1) shall not 
                apply in the case of a designated health service 
                consisting of a shared facility service of a shared 
                facility--
                            ``(i) that is furnished--
                                    ``(I) personally by the referring 
                                physician who is a shared facility 
                                physician or personally by an 
                                individual directly employed by such a 
                                physician,
                                    ``(II) by a shared facility in a 
                                building in which the referring 
                                physician furnishes substantially all 
                                of the services of the physician that 
                                are unrelated to the furnishing of 
                                shared facility services, and
                                    ``(III) to a patient of a shared 
                                facility physician; and
                            ``(ii) that is billed by the referring 
                        physician.
                    ``(B) Shared facility related definitions.--
                            ``(i) Shared facility service.--The term 
                        `shared facility service' means, with respect 
                        to a shared facility, a designated health 
                        service furnished by the facility to patients 
                        of shared facility physicians.
                            ``(ii) Shared facility.--The term `shared 
                        facility' means an entity that furnishes shared 
                        facility services under a shared facility 
                        arrangement.
                            ``(iii) Shared facility physician.--The 
                        term `shared facility physician' means, with 
                        respect to a shared facility, a physician who 
                        has a financial relationship under a shared 
                        facility arrangement with the facility.
                            ``(iv) Shared facility arrangement.--The 
                        term `shared facility arrangement' means, with 
                        respect to the provision of shared facility 
                        services in a building, a financial 
                        arrangement--
                                    ``(I) which is only between 
                                physicians who are providing services 
                                (unrelated to shared facility services) 
                                in the same building,
                                    ``(II) in which the overhead 
                                expenses of the facility are shared, in 
                                accordance with methods previously 
                                determined by the physicians in the 
                                arrangement, among the physicians in 
                                the arrangement, and
                                    ``(III) which, in the case of a 
                                corporation, is wholly owned and 
                                controlled by shared facility 
                                physicians.''.
            (3) Inclusion of durable medical equipment and parenteral 
        and enteral nutrients, equipment, and supplies in exception for 
        in-office ancillary services.--Section 1877(b)(2) (42 U.S.C. 
        1395nn(b)(2)) is amended by striking ``In the case of'' and all 
        that follows through ``supplies)'' and inserting ``Subsection 
        (a)(1) shall not apply in the case of designated health 
        services''.
            (4) New exception for services furnished in communities 
        with no alternative providers.--Section 1877(b) (42 U.S.C. 
        1395nn(b)) is amended--
                    (A) by redesignating paragraph (4) as paragraph 
                (5); and
                    (B) by inserting after paragraph (3) the following 
                new paragraph:
            ``(4) No alternative providers in area.--Subsection (a)(1) 
        shall not apply in the case of a designated health service 
        furnished in any area with respect to which the Secretary 
        determines that individuals residing in the area do not have 
        reasonable access to such a designated health service.''.
            (5) New exception for services furnished in ambulatory 
        surgical centers.--Section 1877(b) (42 U.S.C. 1395nn(b)), as 
        amended by paragraph (4), is amended--
                    (A) by redesignating paragraph (5) as paragraph 
                (6); and
                    (B) by inserting after paragraph (4) the following 
                new paragraph:
            ``(5) Services furnished in ambulatory surgical centers.--
        Subsection (a)(1) shall not apply in the case of a designated 
        health service furnished in an ambulatory surgical center 
        described in section 1832(a)(F)(i).''.
            (6) New exception for services furnished in a hospice.--
        Section 1877(b) (42 U.S.C. 1395nn(b)), as amended by the 
        preceding paragraphs, is amended--
                    (A) by redesignating paragraph (6) as paragraph 
                (7); and
                    (B) by inserting after paragraph (5) the following 
                new paragraph:
            ``(6) Services furnished by a hospice program.--Subsection 
        (a)(1) shall not apply in the case of a designated health 
        service furnished by a hospice program under section 
        1861(dd)(2).''.
            (7) Conforming amendments.--Paragraphs (3) and (7) of 
        section 1877(b) (42 U.S.C. 1395nn(b)), as redesignated by 
        paragraph (6), are each amended by striking ``In the case of'' 
        and inserting ``Subsection (a)(1) shall not apply in the case 
        of''.
    (b) Revision of Exceptions for Certain Compensation Arrangements.--
            (1) Exception for all arrangements meeting requirements.--
        Section 1877(a)(2)(B) (42 U.S.C. 1395nn(a)(2)(B)) is amended--
                    (A) by striking ``except as provided in subsection 
                (e),''; and
                    (B) by striking ``entity.'' and inserting ``entity 
                which does not meet the requirements of subsection 
                (e).''.
            (2) Requirements described.--Section 1877(e) (42 U.S.C. 
        1395nn(e)) is amended to read as follows:
    ``(e) Requirements for Permissible Compensation Arrangements.--The 
requirements under this subsection with respect to a compensation 
arrangement are as follows:
            ``(1) The arrangement is in writing and is signed by all 
        parties to the arrangement.
            ``(2) The arrangement is consistent with fair market value.
            ``(3) The amount of compensation under the arrangement is 
        not determined in a manner that takes into account the volume 
        or value of any referrals or other business generated between 
        the parties. Notwithstanding the preceding sentence, nothing in 
        this paragraph shall prohibit the payment of remuneration in 
        the form of a productivity bonus based on services, other than 
        designated health services, performed personally by the 
        physician (or an immediate family member of such physician).
            ``(4) The arrangement would be commercially reasonable even 
        if no referrals were made between the parties.
            ``(5) The items and services compensated or contracted for 
        do not exceed those that are reasonable and necessary for the 
        legitimate business purposes of the arrangement.
            ``(6) The arrangement meets such other requirements as the 
        Secretary may impose as needed to protect against program or 
        patient abuse.''.
    (c) Removal of Hospital Services From List of Designated Health 
Services.--Section 1877(h)(6) (42 U.S.C. 1395nn(h)(6)) is amended by 
striking subparagraph (K).
    (d) Expansion of Rural Exception to Certain Urban Providers.--
Section 1877(d)(2) (42 U.S.C. 1395nn(d)(2)) is amended--
            (1) by striking ``in a rural area (as defined in section 
        1886(d)(2)(D))'';
            (2) by striking ``substantially all'' and inserting ``not 
        less than 75 percent''; and
            (3) by striking ``such a rural area'' and inserting ``a 
        rural area (as defined in section 1886(d)(2)(D))''.
    (e) Profits and Productivity Bonuses.--Section 1877(h)(4)(B)(i) (42 
U.S.C. 1395nn(h)(4)(B)(i)) is amended to read as follows:
                            ``(i) Profits and productivity bonuses.--A 
                        physician in a group practice may be paid--
                                    ``(I) a share of overall profits of 
                                the group so long as the share is not 
                                determined in any manner which is 
                                directly related to the volume or value 
                                of referrals by such physician; or
                                    ``(II) a productivity bonus based 
                                on services, other than designated 
                                health services, personally performed 
                                or incident to such personally 
                                performed services.''.
    (f) Exception for Medicaid Managed Care Entities Under the Medicaid 
Prohibition.--Section 1903(s) (42 U.S.C. 1395nn(s)) is amended by 
inserting after ``title XVIII'' the following: ``(unless such service 
was provided by an organization with a contract with a State to provide 
services under the State plan under this title (in accordance with 
subsection (m))''.
    (g) Exclusion of Intraocular Lens, Eyeglasses, and Contact Lenses 
From Designated Health Services Subject to Prohibitions.--Section 
1877(h)(6)(H) (42 U.S.C. 1395nn(h)(6)(H)) is amended by striking the 
period at the end and inserting the following: ``, other than an 
intraocular lens inserted during or subsequent to cataract surgery, 
eyeglasses, or contact lenses.''.
    (h) Effective Date.--The amendments made by this section shall 
apply to referrals made on or after April 1, 1996.

           TITLE III--NATIONAL COMMISSION ON MEDICARE REFORM

SEC. 11301. ESTABLISHMENT OF COMMISSION.

    (a) Establishment.--There is established a Commission to be known 
as the National Commission on Medicare Reform (in this title referred 
to as the ``Commission'').
    (b) Membership.--
            (1) Composition.--The Commission shall be composed of 15 
        members of whom--
                    (A) five shall be appointed by the President from 
                among officers or employees of the executive branch, 
                private citizens of the United States, or both, of whom 
                not more than 3 shall be of the same political party;
                    (B) five shall be appointed by the majority leader 
                of the Senate from among Members of the Senate, private 
                citizens of the United States, or both, of whom not 
                more than 3 shall be of the same political party; and
                    (C) five shall be appointed by the Speaker of the 
                House of Representatives from among Members of the 
                House of Representatives, private citizens of the 
                United States, or both, of whom not more than 3 shall 
                be of the same political party;
            (2) Chair.--The President shall designate a Chair from 
        among the members of the Commission.
            (3) Date.--The appointments of the members of the 
        Commission shall be made not later than 60 days after the date 
        of the enactment of this title.
    (c) Period of Appointment; Vacancies.--Members shall be appointed 
for the life of the Commission. Any vacancy in the Commission shall not 
affect its powers, but shall be filled in the same manner as the 
original appointment.
    (d) Initial Meeting.--Not later than 30 days after the date on 
which all members of the Commission have been appointed, the Commission 
shall hold its first meeting.
    (e) Meetings.--The Commission shall meet at the call of the Chair.
    (f) Quorum.--A majority of the members of the Commission shall 
constitute a quorum, but a lesser number of members may hold hearings.

SEC. 11302. DUTIES OF THE COMMISSION.

    (a) In General.--The Commission shall--
            (1) review relevant analyses of the current and long-term 
        financial condition of the Federal Hospital Insurance Trust 
        Fund and the Federal Supplementary Medical Insurance Trust Fund 
        established under title XVIII of the Social Security Act;
            (2) identify problems that may threaten the long-term 
        solvency of such trust funds;
            (3) analyze potential solutions to such problems that will 
        both assure the financial integrity of the Medicare program 
        under such title and the provision of appropriate benefits 
        under such program; and
            (4) provide appropriate recommendations to the Secretary of 
        Health and Human Services, the President, and the Congress.
    (b) Legislative Proposal.--Not later than 1 year after all of the 
members of the Commission have been appointed, the Commission shall 
develop a legislative proposal that carries out the recommendations 
provided under subsection (a)(4). Such legislative proposal shall be 
submitted to Congress in the form of an implementing bill which 
contains the statutory provisions necessary or appropriate to implement 
the proposal. An implementing bill submitted in accordance with this 
subsection shall be considered by Congress under the procedures 
described in section 11306(b).

SEC. 11303. POWERS OF THE COMMISSION.

    (a) Hearings.--The Commission may hold such hearings, sit and act 
at such times and places, take such testimony, and receive such 
evidence as the Commission considers advisable to carry out the 
purposes of this title.
    (b) Information From Federal Agencies.--The Commission may secure 
directly from any Federal department or agency such information as the 
Commission considers necessary to carry out the provisions of this 
title. Upon request of the Chair of the Commission, the head of such 
department or agency shall furnish such information to the Commission.
    (c) Postal Services.--The Commission may use the United States 
mails in the same manner and under the same conditions as other 
departments and agencies of the Federal Government.
    (d) Gifts.--The Commission may accept, use, and dispose of gifts or 
donations of services or property.

SEC. 11304. COMMISSION PERSONNEL MATTERS.

    (a) Compensation of Members.--All members of the Commission shall 
serve without any additional compensation for their work on the 
Commission.
    (b) Travel Expenses.--The members of the Commission appointed from 
among private citizens of the United States shall be allowed travel 
expenses, including per diem in lieu of subsistence, at rates 
authorized for employees of agencies under subchapter I of chapter 57 
of title 5, United States Code, while away from their homes or regular 
places of business in the performance of services for the Commission.
    (c) Staff.--
            (1) In general.--The Chair of the Commission may, without 
        regard to the civil service laws and regulations, appoint and 
        terminate an executive director and such other additional 
        personnel as may be necessary to enable the Commission to 
        perform its duties.
            (2) Compensation.--The Chair of the Commission may fix the 
        compensation of the executive director and other personnel 
        without regard to the provisions of chapter 51 and subchapter 
        III of chapter 53 of title 5, United States Code, relating to 
        classification of positions and General Schedule pay rates, 
        except that the rate of pay for the executive director and 
        other personnel may not exceed the rate payable for level V of 
        the Executive Schedule under section 5316 of such title.
    (d) Detail of Government Employees.--Any Federal Government 
employee may be detailed to the Commission without reimbursement, and 
such detail shall be without interruption or loss of civil service 
status or privilege.
    (e) Procurement of Temporary and Intermittent Services.--The Chair 
of the Commission may procure temporary and intermittent services under 
section 3109(b) of title 5, United States Code, at rates for 
individuals which do not exceed the daily equivalent of the annual rate 
of basic pay prescribed for level V of the Executive Schedule under 
section 5316 of such title.

SEC. 11305. TERMINATION OF THE COMMISSION.

    The Commission shall terminate 30 days after the date on which the 
Commission submits its legislative proposal to Congress under section 
11302(b).

SEC. 11306. CONGRESSIONAL CONSIDERATION OF COMMISSION PROPOSALS.

    (a) In General.--The implementing bill described in section 
11302(b) shall be considered by Congress under the procedures for 
consideration described in subsection (b).
    (b) Introduction and Referral.--
            (1) In general.--On the day on which the implementing bill 
        described in subsection (a) is transmitted to the House of 
        Representatives and the Senate, such bill shall be introduced 
        (by request) in the House of Representatives by the majority 
        leader of the House, for himself or herself and the minority 
        leader of the House, or by Members of the House designated by 
        the majority leader and minority leader of the House and shall 
        be introduced (by request) in the Senate by the majority leader 
        of the Senate, for himself or herself and the minority leader 
        of the Senate, or by Members of the Senate designated by the 
        majority leader and minority leader of the Senate. If either 
        House is not in session on the day on which the implementing 
        bill is transmitted, the bill shall be introduced in the House, 
        as provided in the preceding sentence, on the first day 
        thereafter on which the House is in session. The implementing 
        bill introduced in the House of Representatives and the Senate 
        shall be referred to the appropriate committees of each House.
            (2) Amendments prohibited.--No amendment to an implementing 
        bill shall be in order in either the House of Representatives 
        or the Senate and no motion to suspend the application of this 
        subsection shall be in order in either House, nor shall it be 
        in order in either House for the Presiding Officer to entertain 
        a request to suspend the application of this subsection by 
        unanimous consent.
    (c) Discharge.--If the committee to which an implementing bill 
described in subsection (a) is referred has not reported such 
implementing bill (or an identical implementing bill) by the close of 
the 30th day after its introduction, such committee shall be, at the 
end of such period, discharged from further consideration of such 
implementing bill, and such implementing bill shall be placed on the 
appropriate calendar of the House involved.
    (d) Consideration.--
            (1) In general.--On or after the third day after the date 
        on which the committee to which such an implementing bill is 
        referred has reported, or has been discharged (under subsection 
        (c)) from further consideration of, such an implementing bill, 
        it is in order (even though a previous motion to the same 
        effect has been disagreed to) for any Member of the respective 
        House to move to proceed to the consideration of the 
        implementing bill. A Member may make the motion only on the day 
        after the calendar day on which the Member announces to the 
        House concerned the Member's intention to make the motion, 
        except that, in the case of the House of Representatives, the 
        motion may be made without such prior announcement if the 
        motion is made by direction of the committee to which the 
        implementing bill was referred. All points of order against the 
        implementing bill (and against consideration of the 
        implementing bill) are waived. The motion is highly privileged 
        in the House of Representatives and is privileged in the Senate 
        and is not debatable. The motion is not subject to amendment, 
        or to a motion to postpone, or to a motion to proceed to the 
        consideration of other business. A motion to reconsider the 
        vote by which the motion is agreed to or disagreed to shall not 
        be in order. If a motion to proceed to the consideration of the 
        implementing bill is agreed to, the respective House shall 
        immediately proceed to consideration of the implementing bill 
        without intervening motion, order, or other business, and the 
        implementing bill shall remain the unfinished business of the 
        respective House until disposed of.
            (2) Debate.--Debate on the implementing bill, and on all 
        debatable motions and appeals in connection therewith, shall be 
        limited to not more than 30 hours, which shall be divided 
        equally between those favoring and those opposing the 
        implementing bill. An amendment to the implementing bill is not 
        in order. A motion to further limit debate is in order and not 
        debatable. A motion to postpone, or a motion to proceed to the 
        consideration of other business, or a motion to recommit the 
        implementing bill is not in order. A motion to reconsider the 
        vote by which the implementing bill is agreed to or disagreed 
        to is not in order.
            (3) Vote on final passage.--Immediately following the 
        conclusion of the debate on an implementing bill described in 
        subsection (a), and a single quorum call at the conclusion of 
        the debate if requested in accordance with the rules of the 
        appropriate House, the vote on final passage of the 
        implementing bill shall occur.
            (4) Appeals.--Appeals from the decisions of the Chair 
        relating to the application of the rules of the Senate or the 
        House of Representatives, as the case may be, to the procedure 
        relating to an implementing bill described in subsection (a) 
        shall be decided without debate.
    (e) Consideration by Other House.--
            (1) In general.--If, before the passage by one House of an 
        implementing bill of that House described in subsection (a), 
        that House receives from the other House an implementing bill 
        described in subsection (a), then the following procedures 
        shall apply:
                    (A) The implementing bill of the other House shall 
                not be referred to a committee and may not be 
                considered in the House receiving it except in the case 
                of final passage as provided in subparagraph (B)(ii).
                    (B) With respect to an implementing bill described 
                in subsection (a) of the House receiving the 
                implementing bill--
                            (i) the procedure in that House shall be 
                        the same as if no implementing bill had been 
                        received from the other House; but
                            (ii) the vote on final passage shall be on 
                        the implementing bill of the other House.
            (2) Implementing bill in receiving house.--Upon disposition 
        of the implementing bill received from the other House, it 
        shall no longer be in order to consider the implementing bill 
        that originated in the receiving House.
    (f) Rules of the Senate and House of Representatives.--This section 
is enacted by Congress--
            (1) as an exercise of the rulemaking power of the Senate 
        and House of Representatives, respectively, and as such it is 
        deemed a part of the rules of each House, respectively, but 
        applicable only with respect to the procedure to be followed in 
        that House in the case of an implementing bill described in 
        subsection (a), and it supersedes other rules only to the 
        extent that it is inconsistent with such rules; and
            (2) with full recognition of the constitutional right of 
        either House to change the rules (so far as relating to the 
        procedure of that House) at any time, in the same manner, and 
        to the same extent as in the case of any other rule of that 
        House.

SEC. 11307. AUTHORIZATION OF APPROPRIATIONS.

    There are authorized to be appropriated such sums as are necessary 
to carry out the purposes of the Commission.
                                 <all>